IMPORTANT NOTICE: NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES EXCEPT TO QUALIFIED INSTITUTIONAL BUYERS (‘‘QIBs’’) AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’) THAT ARE ALSO QUALIFIED PURCHASERS (‘‘QPs’’) WITHIN THE MEANING OF SECTION 2(A)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE ‘‘INVESTMENT COMPANY ACT’’) OR OTHERWISE TO PERSONS TO WHOM IT CAN LAWFULLY BE DISTRIBUTED IMPORTANT: You must read the following before continuing. The following applies to the attached document (the ‘‘Prospectus’’), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. If you have gained access to this transmission contrary to any of the following restrictions, you are not authorised and will not be able to purchase any of the securities described herein (the ‘‘Securities’’). You acknowledge that this electronic transmission and the delivery of the attached Prospectus is intended for you only and you agree you will not forward this electronic transmission or the attached Prospectus to any other person. Any forwarding, distribution or reproduction of this document in whole or in part is unauthorised. Failure to comply with the following directives may result in a violation of the U.S. Securities Act of 1933 (the ‘‘Securities Act’’) or the applicable laws of other jurisdictions. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’) TO OR FOR THE ACCOUNT OR BENEFIT OF A PERSON NOT KNOWN TO THE TRANSFEROR TO BE A U.S. PERSON (AS DEFINED IN REGULATION S), BY PREARRANGEMENT OR OTHERWISE, OR WITHIN THE UNITED STATES ONLY TO QIBs THAT ARE ALSO QPs IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A, OR ANOTHER EXEMPTION THEREFROM, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. Confirmation of your representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the securities referred to herein, investors must be (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act) outside the United States who are not acting for the account or benefit of U.S. persons or (ii) QIBs that are also QPs that are acquiring the securities for their own account or the account of another QIB that is also a QP. By accepting this e-mail and accessing the Prospectus, you shall be deemed to have represented to us that: (1) (A) you and any customers you represent are not U.S. persons and/or are not acting for the account or benefit of any U.S. persons and the electronic mail address that you gave us and to which this e-mail has been delivered is not located in the U.S. or (B) you are a QIB that is also a QP acquiring the securities referred to herein for your own account and/or for another QIB that is also a QP and (2) you consent to delivery of such Prospectus by electronic transmission. The Prospectus may only be communicated or caused to be communicated to persons in the United Kingdom in circumstances where section 21(1) of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’) does not apply and may be distributed in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the ‘‘Order’’), or (ii) are persons falling within Article 49(2)(a) to (d) (‘‘high net worth companies, unincorporated associations etc.’’) of the Order (all such persons together being referred to as ‘‘Relevant Persons’’). In the United Kingdom, the Prospectus is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which the Prospectus relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, ‘‘MiFID II’’); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a ‘‘distributor’’) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Note (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels. The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (‘‘EEA’’). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the ‘‘IMD’’), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No. 1286/2014 (the ‘‘PRIIPs Regulation’’) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and, therefore, offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. The Securities are not eligible for placement and circulation in the Russian Federation, unless, and to the extent, otherwise permitted by Russian law. The information provided in the Prospectus is not an offer, or an invitation to make offers, to sell, exchange or otherwise transfer securities in the Russian Federation or to or for the benefit of any Russian person or entity. The Prospectus and information contained herein do not constitute an advertisement or an offer of any securities in the Russian Federation. It is not intended to be, and must not be, distributed or circulated in the Russian Federation unless and to the extent otherwise permitted under Russian law. The Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate on behalf of the issuer of the Securities in such jurisdiction. You are reminded that this Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this Prospectus to any other person. This Prospectus is being sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and, consequently, none of Novolipetsk Steel, Steel Funding D.A.C., ING Bank N.V., London Branch, J.P. Morgan Securities plc, Societ´ e´ Gen´ erale´ and UniCredit Bank AG nor any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference between the attached document distributed to you in electronic format and the hard copy version available to you on request. You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. 13MAY201912055767 US$500,000,000 4.70 per cent. Loan Participation Notes due 2026 (Issued by, with limited recourse to,) Steel Funding D.A.C. (incorporated under the laws of Ireland) for the sole purpose of financing a loan to Novolipetsk Steel (a public joint stock company incorporated under the laws of the Russian Federation) Issue Price: 100 per cent. Steel Funding D.A.C., a designated activity company incorporated as a limited liability company under the laws of Ireland (the ‘‘Issuer’’), is issuing an aggregate principal amount of US$500,000,000 4.70 per cent. Loan Participation Notes due 2026 (the ‘‘Notes’’) for the sole purpose of financing a loan (the ‘‘Loan’’) to Novolipetsk Steel, a public joint stock company organised under the laws of the Russian Federation (‘‘NLMK’’ or the ‘‘Borrower’’), pursuant to a loan agreement dated 28 May 2019 (the ‘‘Loan Agreement’’) between the Issuer and the Borrower. Pursuant to the trust deed (the ‘‘Trust Deed’’) relating to the Notes between the Issuer and Citicorp Trustee Company Limited, as trustee (the ‘‘Trustee’’), the Issuer will provide certain security for all payment obligations in respect of the Notes for the benefit of the holders of Notes (the ‘‘Noteholders’’), including a first fixed charge in favour of the Trustee of all amounts paid and payable to it under the Loan Agreement and an assignment to the Trustee of the Issuer’s rights and interests under the Loan Agreement, other than in respect of certain reserved rights (as more fully described in ‘‘Overview of the Transaction Structure and the Security’’). Interest on the Loan will be payable at a rate of 4.70 per annum semi-annually in arrear on the interest payment date falling on 30 May and 30 November in each year, commencing on 30 November 2019, and, provided that the Issuer receives such payment in full, the Notes will bear interest from, and including, 30 May 2019 and payable on such dates at the same rate. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest, premium (if any) and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest, premium (if any) and additional amounts (if any) are due, for an amount equivalent to the principal, interest, premium (if any) and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer from the Borrower pursuant to the Loan Agreement. The Issuer will have no other financial obligation under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the credit and financial standing of the Borrower in respect of the obligations of the Borrower under the Loan Agreement. The Loan, and correspondingly the Notes, may be redeemed early at the option of NLMK in certain circumstances, all as more fully described in ‘‘Loan Agreement’’ and ‘‘Terms and Conditions of the Notes’’. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE ‘‘RISK FACTORS’’ BEGINNING ON PAGE 12. The Notes and the Loan (together, the ‘‘Securities’’) have not been, and will not be, registered under the U.S. Securities Act of 1933 (the ‘‘Securities Act’’), and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (‘‘Regulation S’’)). The Notes may be offered and sold (i) within the United States only to qualified institutional buyers (‘‘QIBs’’), as defined in Rule 144A under the Securities Act (‘‘Rule 144A’’), that are also qualified purchasers (‘‘QPs’’), as defined in Section 2(a)(51) of the U.S. Investment Company Act of 1940 (the ‘‘Investment Company Act’’), in reliance on the exemption from registration under Section 5 of the Securities Act provided by Rule 144A or on another exemption therefrom, (the ‘‘Rule 144A Notes’’) and (ii) to non-U.S. persons in offshore transactions as defined in and in reliance on Regulation S (the ‘‘Regulation S Notes’’). The Issuer has not been and will not be registered under the Investment Company Act. Prospective purchasers are hereby notified that sellers of the Rule 144A Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers, sales and transfers of the Notes and this distribution of the Prospectus (as defined below), see ‘‘Subscription and Sale’’ and ‘‘Transfer Restrictions’’. This prospectus (the ‘‘Prospectus’’) has been approved by the Central Bank of Ireland (the ‘‘Central Bank’’), as competent authority under Directive 2003/71/EC, as amended (the ‘‘Prospectus Directive’’). The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and European Union (‘‘EU’’) law pursuant to the Prospectus Directive. Such approval relates only to the Notes which are to be admitted to trading on a regulated market for the purposes of MiFID II or which are to be offered to the public in any Member State of the European Economic Area. This Prospectus comprises a Prospectus for the purposes of the Prospectus Directive. Application has been made to The Irish Stock Exchange plc, trading as Euronext Dublin (‘‘Euronext Dublin’’) for the Notes to be admitted to the official list and trading on its regulated market. Euronext Dublin is a regulated market for the purposes of MiFID II. There is no assurance that a trading market in the Notes will develop or be maintained. It is expected that the Notes will be rated BBB by Fitch Ratings Ltd (‘‘Fitch’’) and Baa2 by Moody’s Investor Service, Ltd (‘‘Moody’s’’). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating agency. Fitch and Moody’s are established in the European Union and are registered under the Regulation (EC) No. 1060/2009, as amended (the ‘‘CRA Regulation’’). As such, Fitch and Moody’s are included in the list of credit rating agencies published by the European Securities and Markets Authority (‘‘ESMA’’) on its website in accordance with the CRA Regulation. The Notes will be offered and sold in the minimum denomination of US$200,000 and higher integral multiples of US$1,000. The Regulation S Notes will initially be represented by interests in a global note certificate in registered form (the ‘‘Regulation S Global Note Certificate’’), without interest coupons, which will be deposited with a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking, soci´et´e anonyme (‘‘Clearstream, Luxembourg’’), and registered in the name of a nominee, on or about 30 May 2019 (the ‘‘Issue Date’’). The Rule 144A Notes will initially be represented by interests in a global note certificate in registered form (the ‘‘Rule 144A Global Note Certificate’’ and, together with the Regulation S Global Note Certificate, the ‘‘Global Note Certificates’’), which will be registered in the name of Cede & Co., as nominee of, and deposited with a custodian for, The Depository Trust Company (‘‘DTC’’) on or about the Issue Date. Beneficial interests in the Global Note Certificates will be shown on, and transfers thereof will be effected only through records maintained by, DTC, Euroclear or Clearstream, Luxembourg (as the case may be) and their respective participants. See ‘‘Clearing and Settlement’’. Individual note certificates in registered form will only be available in certain limited circumstances as described herein. The Issuer will use the proceeds received from the issue and sale of the Notes for the sole purpose of making the Loan. NLMK intends to use the proceeds of the Loan for general corporate purposes. Joint Global Coordinators and Joint Bookrunners J.P. Morgan Soci´et´e G´en´erale Corporate & Investment Banking Joint Bookrunners ING UniCredit Bank Prospectus dated 28 May 2019 IMPORTANT INFORMATION ABOUT THIS PROSPECTUS This Prospectus comprises a prospectus for the purposes of the Prospectus Directive, as implemented in Ireland by the Prospectus (Directive 2003/71/EC) Regulations 2005 (the ‘‘Prospectus Regulations’’), for the purpose of giving information with regard to the Issuer, NLMK, NLMK and its subsidiaries taken as a whole (the ‘‘Group’’) which, according to the particular nature of the Issuer, NLMK, the Group, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, NLMK and the Group and of the rights attaching to the Notes. Each of the Issuer and NLMK (whose registered offices are set out on pages 156 and 225 of this Prospectus) accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of each of the Issuer and NLMK (each of whom has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, NLMK, the Managers (as defined in ‘‘Subscription and Sale’’) or the Trustee to subscribe for or purchase any Notes in any jurisdiction where it is unlawful to make such an offer or invitation. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus come are required by the Issuer, NLMK, the Managers and the Trustee to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Prospectus, see ‘‘Subscription and Sale’’ and ‘‘Transfer Restrictions’’. No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, NLMK, the Managers or the Trustee. The delivery of this Prospectus at any time does not imply that the information contained in them is correct as at any time subsequent to its date. Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or NLMK since the date of this Prospectus. None of the Issuer, NLMK, the Managers, the Trustee or any of its or their respective representatives or affiliates makes any representation to any offeree or purchaser of the Notes offered hereby regarding the legality of an investment by such offeree or purchaser under applicable legal, investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes. Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or sell any Notes or possess this Prospectus. Any consents or approvals that are needed in order to purchase any Notes must be obtained. The Issuer, NLMK, the Managers and the Trustee are not responsible for compliance with these legal requirements. The appropriate characterisation of the Notes under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase the Notes, is subject to significant interpretative uncertainties. No representation or warranty is made as to whether, or the extent to which, the Notes constitute a legal investment for investors whose investment authority is subject to legal restrictions, and investors should consult their legal advisers regarding such matters. In connection with the issue of the Notes, J.P. Morgan Securities plc (the ‘‘Stabilising Manager’’) (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if commenced, may be discontinued at any time and must be brought to an end no later than the earlier of 30 days after the Issue Date of the Notes and 60 days after the date of the allotment of the Notes. The contents of NLMK’s website do not form any part of this Prospectus. No representation or warranty, express or implied, is made by the Managers, the Trustee or any of their or its affiliates or any person acting on their behalf as to the accuracy or completeness of the information set

i forth in this Prospectus. Nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Each person receiving this Prospectus acknowledges that such person has not relied on the Managers, the Trustee or any of its or their affiliates or any person acting on their behalf in connection with its investigation of the accuracy or completeness of such information or its investment decision. Each person contemplating making an investment in the Notes from time to time must make its own investigation and analysis of the creditworthiness of NLMK and the Group and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors which may be relevant to it in connection with such investment. The Prospectus will be filed and approved by the Central Bank as required by the Prospectus Regulations. The Prospectus approved by the Central Bank will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(b) of the Prospectus Regulations. Any investment in Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank of Ireland. The Issuer is not and will not be regulated by the Central Bank of Ireland as a result of issuing the Notes. Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, ‘‘MiFID II’’); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a ‘‘distributor’’) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels. The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (‘‘EEA’’). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the ‘‘IMD’’), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No. 1286/2014 (the ‘‘PRIIPs Regulation’’) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation.

NOTICE TO UNITED KINGDOM RESIDENTS This document is only being distributed to and is only directed at (1) persons who are outside the United Kingdom, (2) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (3) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as ‘‘Relevant Persons’’). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its contents.

NOTICE TO PROSPECTIVE U.S. INVESTORS THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE ‘‘SEC’’), ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. THIS OFFERING IS BEING MADE IN THE UNITED STATES IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF THE NOTES WHICH DOES NOT INVOLVE A PUBLIC OFFERING. IN MAKING YOUR

ii PURCHASE, YOU WILL BE DEEMED TO HAVE MADE CERTAIN ACKNOWLEDGMENTS, REPRESENTATIONS AND AGREEMENTS. SEE ‘‘SUBSCRIPTION AND SALE’’ AND ‘‘TRANSFER RESTRICTIONS’’. THIS PROSPECTUS IS BEING PROVIDED (1) TO A LIMITED NUMBER OF INVESTORS IN THE UNITED STATES THAT THE ISSUER REASONABLY BELIEVES TO BE ‘‘QIBS’’ THAT ARE ALSO ‘‘QPS’’ FOR INFORMATIONAL USE SOLELY IN CONNECTION WITH THEIR CONSIDERATION OF THE PURCHASE OF THE NOTES AND (2) TO INVESTORS OUTSIDE THE UNITED STATES WHO ARE NOT U.S. PERSONS IN CONNECTION WITH OFFSHORE TRANSACTIONS COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S.

NOTICE TO RUSSIAN INVESTORS This Prospectus or information contained therein is not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in the Russian Federation to or for the benefit of any Russian person or entity, and does not constitute an advertisement or offering of any securities in the Russian Federation within the meaning of Russian securities laws. Information contained in this Prospectus is not intended for any persons in the Russian Federation who are not ‘‘qualified investors’’ within the meaning of Article 51.2 of Federal Law No. 39-FZ on the Securities Market dated 22 April 1996, as amended (‘‘Russian QIs’’) and must not be distributed or circulated into Russia or made available in Russia to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law.

AVAILABLE INFORMATION The Issuer and NLMK have agreed that, for so long as any Notes are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the Securities Act, they will, during any period in which they are neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner or to the Trustee for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner, prospective purchaser or the Trustee, the information required to be provided by Rule 144A(d)(4) under the Securities Act.

FORWARD-LOOKING STATEMENTS Certain statements in this Prospectus are not historical facts and are forward-looking statements. Forward- looking statements appear in various locations, including, without limitation, under the headings ‘‘Overview’’, ‘‘Risk Factors’’, ‘‘Operating and Financial Review’’ and ‘‘Business’’. The Group may also from time to time make written or oral forward-looking statements in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements concerning the Group’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, its competitive strengths and weaknesses, its business strategy and the trends the Group anticipates in the industries and the political and legal environment in which it operates and other information that is not historical information. Words such as ‘‘believes’’, ‘‘anticipates’’, ‘‘estimates’’, ‘‘expects’’, ‘‘intends’’, ‘‘predicts’’, ‘‘projects’’, ‘‘could’’, ‘‘may’’, ‘‘will’’, ‘‘plans’’ and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. These risks, uncertainties and other factors include, among other things, those listed under ‘‘Risk Factors’’, as well as those included elsewhere in this Prospectus. Each prospective investor should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include, among others: • the ongoing armed conflict in Eastern Ukraine, which adversely affects the economic environment in Russia and may lead to further sanctions;

iii • economic, social, legal and political developments in the Russian Federation and the international markets in which the Group operates; • the prices of the Group’s steel products and the raw materials which it requires; • tariffs and other restrictions on the import or export of steel or raw materials; • the costs of energy and transportation; • the Group’s ability to fund its future operations and capital needs through borrowing or otherwise; • the Group’s ability to successfully implement any of its business strategies; • the Group’s ability to integrate its businesses, including recently acquired businesses, and to realise anticipated cost savings and operational benefits from such integration; • an increase or decrease in demand for the Group’s products and services; • the Group’s ability to obtain the licences necessary for its businesses; • the effects of competition; • the effects of international political events; • inflation, interest rate and exchange rate fluctuations; and • the Group’s success in identifying other risks to its businesses and managing the risks of the aforementioned factors. This list of factors is not exhaustive. Some of these factors are discussed in greater detail in this Prospectus, in particular, but not limited to, discussion in ‘‘Risk Factors’’. When relying on forward-looking statements, each prospective investor should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which the Group operates. Such forward-looking statements speak only as of the date on which they are made. Accordingly, neither the Issuer nor NLMK undertakes any obligation to update or revise any of them, whether as a result of new information, future events or otherwise, unless required to do so by applicable law. NLMK does not make any representation, warranty or prediction that the results anticipated by such forward- looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION Presentation of Financial Information The consolidated financial information of the Group included in this Prospectus: • as at and for the three months ended 31 March 2019 and 2018 has, unless otherwise indicated, been derived from the unaudited interim condensed consolidated financial statements of the Group as at and for the three months ended 31 March 2019 (the ‘‘Interim Financial Statements’’); and • as at and for the years ended 31 December 2018, 2017 and 2016 has, unless otherwise indicated, been derived from the audited consolidated financial statements of the Group as at and for the year ended 31 December 2018 (the ‘‘Annual Financial Statements’’). In this Prospectus, the Annual Financial Statements and the Interim Financial Statements are together referred to as the ‘‘Financial Statements’’. The Interim Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (‘‘IAS 34’’) as issued by the International Accounting Standards Board (the ‘‘IASB’’), and the Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the IASB (‘‘IFRS’’). The Interim Financial Statements and the Annual Financial Statements are set out in the Appendix to this Prospectus.

Non-IFRS Financial Measures (unaudited) This Prospectus contains certain unaudited non-IFRS financial measures relating to the Group’s business and financial results, including Adjusted EBITDA, Adjusted EBITDA margin, net debt, net debt to

iv Adjusted EBITDA, free cash flow and cash costs. These non-IFRS financial measures are not prepared in accordance with IFRS and may be different from non-IFRS financial measures used by other companies. NLMK uses these non-IFRS financial measures since management believes such measures and ratios are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Group’s industries. These measures have limitations as an analytical tool, and they should not be considered in isolation, or as a substitute for analysis of the Group results as reported under IFRS. See ‘‘Selected Consolidated Financial Information’’.

Financial Statements of the Issuer The audited financial statements of the Issuer as at and for the years ended 31 December 2017 and 2016, together with the audit reports thereon, have been filed with the Central Bank of Ireland and Euronext Dublin and shall be deemed to be incorporated in, and to form part of, this Prospectus. The financial statements of the Issuer as at and for the years ended 31 December 2017 and 2016 may be obtained from the website of Euronext Dublin at: • the audited financial statements as at and for the year ended 31 December 2017: https://www.ise.ie/app/announcementDetails.aspx?ID=13599042 • the audited financial statements as at and for the year ended 31 December 2016: https://www.ise.ie/debt_documents/Steel%20Funding%20-%20FS%20YE%2031%20Dec%202016% 20final_95367619-e0d4-4cf0-9a78-ff5429d15d1a.pdf

General Information In this Prospectus, all references to ‘‘Russia’’ are to the Russian Federation. References to ‘‘U.S.’’ or the ‘‘United States’’ are to the United States of America. References to ‘‘U.K.’’ or the ‘‘United Kingdom’’ are to the United Kingdom of Great Britain and Northern Ireland. References to ‘‘Ireland’’ are to Ireland. References to the ‘‘EU’’ or the ‘‘European Union’’ are to the union formed following ratification of the Maastricht Treaty and currently comprising 28 states, and references to ‘‘Europe’’ are to the geographical region of Europe, including those states which are members of the European Union. Definitions of certain terminology associated with the Group’s business are set forth under ‘‘Glossary of Terms’’.

Currencies and Exchange Rates In this Prospectus, references to ‘‘US dollars’’, or ‘‘US$’’, or ‘‘$’’ are to the lawful currency of the United States, references to ‘‘roubles’’ or ‘‘RUB’’ are to the lawful currency of the Russian Federation and references to ‘‘euro’’ or ‘‘EUR’’ are to the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended. The functional currency of all of the Group’s Russian entities is considered to be the Russian rouble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group’s Financial Statements have been prepared using the US dollar as the Group’s reporting currency, utilising period-end exchange rates for assets and liabilities, corresponding period quarterly (and starting from January 2016— monthly) weighted average exchange rates for the consolidated statement of profit or loss accounts and historic rates for equity accounts.

v The following tables show, for the periods indicated, certain information regarding the exchange rate between the rouble and the US dollar, based on the official exchange rate quoted by the Central Bank of the Russian Federation (the ‘‘CBR’’).

Roubles per US dollar For the period High Low Average(1) Period end Year ended 31 December 2014 ...... 67.79 32.66 38.42 56.26 Year ended 31 December 2015 ...... 72.88 49.18 60.96 72.88 Year ended 31 December 2016 ...... 83.59 60.27 67.03 60.66 Year ended 31 December 2017 ...... 60.75 55.85 58.35 57.60 Year ended 31 December 2018 ...... 69.97 55.67 62.71 69.47

(1) The average of the exchange rate for the relevant period, based on the rates in such period for each Russian business day (quoted by the CBR for that day) and each Russian non-business day (which is equal to the rate quoted by the CBR for the preceding Russian business day).

Roubles per US dollar For each month from January 2019 to May 2019 High Low January 2019 ...... 69.47 65.92 February 2019 ...... 66.70 65.26 March 2019 ...... 66.08 63.74 April 2019 ...... 65.47 63.79 May 2019 (up to and including 28 May) ...... 65.47 64.41 The exchange rate between the rouble and the US dollar on 28 May 2019 was 64.46 roubles per US$1.00. The exchange rate between the rouble and the euro on 28 May 2019 was 72.18 roubles per EUR 1.00 (79.46 roubles per EUR 1.00 on 31 December 2018; 68.87 roubles per EUR 1.00 on 30 December 2017; and 63.81 roubles per EUR 1.00 on 31 December 2016). No representation is made that amounts presented in a particular currency in this Prospectus could have been converted into such currency at any particular rate or at all. A market exists for the conversion of roubles into other currencies, but the limited availability of other currencies may tend to inflate their values relative to the rouble. Fluctuations in the respective exchange rates between the rouble and the US dollar and the rouble and the euro in the past are not necessarily indicative of fluctuations that may occur in the future. These rates may also differ from the actual rates used in the preparation of certain information in this Prospectus. Solely for the convenience of the reader, certain amounts included in ‘‘Business’’ and elsewhere in this Prospectus have been translated from roubles into US dollars at the rate of RUB 69.47 per US$1.00, the official exchange rate as published by the CBR on 31 December 2018.

Rounding Certain amounts that appear in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Reproduction of Information NLMK obtained the market data used in this Prospectus under the headings ‘‘Overview’’, ‘‘Risk Factors’’, ‘‘Operating and Financial Review’’, ‘‘The Steel Industry’’ and ‘‘Business’’ from internal surveys, industry sources and currently available public information. The main sources for information on the steel industry were: (i) the World Steel Association (formerly the International Iron and Steel Institute), an international steel industry body and a provider of statistical information on the global steel industry; (ii) the Federal Customs Service of the Russian Federation; (iii) Metal Expert, a steel industry publication in Russia and the Commonwealth of Independent States (‘‘CIS’’); and (iv) the Federal State Statistics Service of the Russian Federation (‘‘Rosstat’’). NLMK also obtained Russian macroeconomic and foreign exchange data from the CBR. The Issuer and NLMK accept responsibility that the information obtained from industry publications or public sources has been accurately reproduced and, as far as the Issuer and NLMK are aware and have been able to ascertain from information published by those industry publications or public sources, no facts

vi have been omitted which would render the reproduced information inaccurate or misleading. However, investors should keep in mind that neither the Issuer nor NLMK have independently verified information which they have obtained from third-party sources, including from industry and Russian government bodies. Certain market share information and other statements in this Prospectus regarding the industry in which the Group operates and the position of the Group relative to its competitors are not based on published statistical data or information obtained from independent third parties. Rather, such information and statements reflect the reasonable estimates of NLMK based upon information obtained from trade and business organisations and associations and other contacts within the metallurgical industry. This information from the internal estimates and surveys of the Group has not been verified by any independent sources.

vii ENFORCEABILITY OF JUDGEMENTS The Issuer is a limited liability company incorporated under the laws of Ireland. NLMK is a public joint stock company incorporated under the laws of the Russian Federation. Most of the assets of the Issuer and most of the assets of NLMK are located outside the United Kingdom and the United States. In addition, all of the directors of the Issuer and substantially all of the directors and executive officers of NLMK named in this Prospectus reside outside the United Kingdom and the United States, and a substantial part of the assets of such persons are located outside the United Kingdom and the United States. As a result, it may not be possible for Noteholders or the Trustee to effect service of process within the United Kingdom or the United States upon any of the Issuer or NLMK or their respective officers and directors or to enforce against any of them court judgements obtained in English or U.S. courts. In addition, it may be difficult for the Noteholders or the Trustee to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom and the United States, liabilities predicated upon English laws or U.S. federal securities laws. Courts in the Russian Federation will generally recognise judgements rendered by a court in any jurisdiction outside the Russian Federation only if an international treaty providing for the recognition and enforcement of judgements in civil cases exists between the Russian Federation and the jurisdiction where the judgement is rendered or a federal law is adopted in the Russian Federation providing for the recognition and enforcement of foreign court judgements. No such treaty for the reciprocal recognition and enforcement of foreign court judgements in civil and commercial matters exists between the Russian Federation and certain other jurisdictions (including the United Kingdom and the United States), and no relevant federal law on enforcement of foreign court judgements has been adopted in the Russian Federation. As a result, new proceedings may have to be brought in the Russian Federation in respect of a judgement already obtained in any such jurisdiction against NLMK or its officers or directors. These limitations, as well as the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgements in the Russian Federation, may significantly delay the enforcement of such judgement or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes. In the absence of an applicable treaty, enforcement of a final judgement rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the jurisdiction where the foreign judgement is rendered have previously enforced judgements issued by Russian courts. In a number of recent instances, Russian courts have recognised and enforced a foreign court judgement (including English court judgements) on the basis of a combination of the principle of reciprocity and the existence of a number of bilateral and multilateral treaties to which the Russian Federation and certain other jurisdictions, including the United Kingdom, are parties. The courts determined that such treaties constituted grounds for the recognition and enforcement of the relevant foreign court judgement in the Russian Federation. In the absence of established court practice, however, no assurances can be given that a Russian court would be inclined in any particular instance to recognise and enforce a foreign court judgement on these or similar grounds. The existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgement is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgement issued by a foreign court, including an English court. Accordingly, it may be difficult or impossible for investors to: • effect service of process within the United Kingdom or other jurisdictions in which investors may be located, on certain directors or members of senior management of NLMK; • enforce judgements obtained in courts in the United Kingdom or other jurisdictions in which investors may be located, against NLMK’s assets and against certain directors or members of senior management of NLMK; or • enforce, in original actions brought in courts in the Russian Federation, liabilities predicated upon the civil liability provisions of the laws of the United Kingdom or the laws of other jurisdictions in which investors may be located. The Loan Agreement and any non-contractual obligations arising out of or in connection with the Loan Agreement will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto against NLMK be referred to arbitration in London, England, in accordance with the rules of the LCIA (formerly the London Court of International Arbitration) (the ‘‘LCIA Rules’’). The Russian Federation and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘‘New York

viii Convention’’). Consequently, Russian courts should generally recognise and enforce in the Russian Federation an arbitral award from an arbitral tribunal in the United Kingdom on the basis of the rules of the New York Convention, subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation. Recognition and enforceability of any arbitral award may also be limited by mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies. The Arbitrazh Procedure Code of the Russian Federation (the ‘‘Arbitrazh Procedure Code’’) sets out the procedure for the recognition and enforcement of foreign awards by Russian courts. The Arbitrazh Procedure Code also contains an exhaustive list of grounds for the refusal of recognition and enforcement of foreign arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention. The Arbitrazh Procedure Code and other Russian procedural legislation could change, and other grounds for Russian courts to refuse the recognition and enforcement of foreign courts’ judgements and foreign arbitral awards could arise in the future. Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the LCIA Rules and the application of English law to the Loan Agreement and any non-contractual obligations arising out of or in connection with the Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies in particular.

ix TABLE OF CONTENTS

OVERVIEW ...... 1 RISK FACTORS ...... 12 USE OF PROCEEDS ...... 40 CAPITALISATION ...... 41 SELECTED CONSOLIDATED FINANCIAL INFORMATION ...... 42 OPERATING AND FINANCIAL REVIEW ...... 45 THE STEEL INDUSTRY ...... 94 BUSINESS ...... 100 MANAGEMENT AND CORPORATE GOVERNANCE ...... 134 PRINCIPAL SHAREHOLDERS ...... 139 RELATED PARTY TRANSACTIONS ...... 140 REGULATORY MATTERS ...... 141 DESCRIPTION OF THE ISSUER ...... 156 OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY ...... 158 LOAN AGREEMENT ...... 159 TERMS AND CONDITIONS OF THE NOTES ...... 181 OVERVIEW OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM .... 194 TRANSFER RESTRICTIONS ...... 198 CERTAIN ERISA CONSIDERATIONS ...... 202 CLEARING AND SETTLEMENT ...... 204 TAXATION ...... 208 SUBSCRIPTION AND SALE ...... 221 INDEPENDENT AUDITORS ...... 224 GENERAL INFORMATION ...... 225 GLOSSARY OF TERMS ...... 227 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...... F-1

x OVERVIEW This overview may not contain all the information that may be important to prospective purchasers of the Notes and, therefore, should be read in conjunction with the entire Prospectus, including the more detailed information regarding the Group’s business and the financial statements and related notes included elsewhere in this Prospectus. Prospective purchasers of the Notes should also carefully consider the information set forth under the heading ‘‘Risk Factors’’. Certain statements in this Prospectus include forward-looking statements that also involve risks and uncertainties as described under ‘‘Forward-Looking Statements’’.

OVERVIEW OF THE GROUP The Group is a leading and one of the most efficient international steel producers in the world, with low cash costs per tonne compared to other steel producers (Source: World Steel Dynamics, February 2019), and with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of high value added (‘‘HVA’’) products to end users. With global operations across Europe, North America and Asia, the Group has a high level of self-sufficiency in key raw materials and energy resources (as described in ‘‘—Competitive Strengths-Self-sufficiency in key resources’’); low cost steelmaking operations concentrated in the Central District and the Ural region of Russia, manufacturing 14.6 and 1.9 million tonnes per year or 84% and 11% of the Group’s total steelmaking capacity, respectively; and mini-mills and rolling assets located in close proximity to its key customers in Russia, Europe and the United States. Total downstream capacity of the Group is approximately 14.8 million tonnes per year. The Group has a diversified portfolio of steel products, with a strong presence in many industry sectors in both its Russian and international markets. NLMK is the largest producer of steel in Russia with approximately 23% of total Russian steel production in 2018. The Group’s product range includes slabs, hot-rolled steel, long steel products such as rebar and wire rod and a variety of HVA products, which include a range of hot-rolled thick plates, cold-rolled steel, galvanised and pre-painted steel, electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel and metalware. High value added products represented approximately 29% of the total volume of sales of steel products of the Group in 2018. In 2018, the Group had sales revenue of US$12,046 million, Adjusted EBITDA of US$3,589 million and Adjusted EBITDA margin of 30%, and in the three months ended 31 March 2019 the Group had sales revenue of US$2,869 million, Adjusted EBITDA of US$695 million and Adjusted EBITDA margin of 24%. The Group’s products are sold to approximately 70 countries in Europe, North America, Central and South America, Asia, Africa and the Middle East. The diversity of the Group’s products and export strength gives it the flexibility to focus on the most attractive markets and helps to protect it from downturns in a particular customer segment or in a particular region. The Group identifies the most attractive markets using a range of criteria, including market growth potential, supply and demand balance, profitability, lead times and the complexity of the supply chain. In 2018, the Group produced approximately 13% of the overall Russian hot-rolled steel output, 41% of the overall Russian cold-rolled steel output, 26% of the overall Russian galvanised steel output, 24% of the overall Russian pre-painted steel output and 23% of the overall Russian rebar steel output, according to Metal Expert. The Group is a steel producer with a high degree of vertical integration and with control over a substantial part of its production chain, from its upstream operations, comprising the mining of raw materials and upstream diversified steelmaking (with a balance between basic oxygen furnace (‘‘BOF’’) and electric arc furnace (‘‘EAF’’) routes of crude steel production), to downstream steel processing (both flat and long finished steel products) close to the end users of its products and export seaports. The Group’s Russian assets represent 100% of the mining capacity of the Group, approximately 95% of its crude steelmaking capacity and approximately 60% of its downstream (production of rolled steel) processing capacity, including flat and long steel production. The Group’s mining division supplies raw materials, including iron ore concentrate, pellets, fluxing materials, coke and scrap to the Group’s Russia-based steelmaking operations. The Group’s core mining business is OJSC Stoilensky GOK (‘‘Stoilensky’’), an open pit mine with approximately 5 billion tonnes of primary iron ore reserves and one of the lowest cash costs of production (cost of mining and beneficiation per tonne of iron ore concentrate) in the global iron ore industry. Stoilensky supplies approximately 100% of the Group’s iron ore concentrate and sinter ore requirements, as well as approximately 97% of the Group’s pellets requirements. The Group’s other raw material producing subsidiaries include OJSC Dolomit (‘‘Dolomit’’) and OJSC Studenovskaya Joint Stock Mining Company (‘‘Stagdok’’), which supply

1 fluxing materials, and OJSC Altai-Koks (‘‘Altai-Koks’’), Russia’s largest non-integrated coke producer, which, together with the Lipetsk site’s coke production facilities, supplies all of the Group’s coke requirements. In addition, approximately 60% of all scrap consumed by the Group’s sites in Russia in 2018 was supplied by the Group’s captive scrap businesses which collect and process ferrous scrap, making NLMK one of the largest scrap collecting and processing companies in Russia. As part of the ongoing upstream development, the Group is currently seeking to expand the production of iron ore at Stoilensky by approximately 16% and to expand its pelletising plant capacities by approximately 19% from the current 6.7 million tonnes per year to 8 million tonnes per year of iron ore pellets to supply additional crude steel capacities. In addition, the Group has licences to two coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the Kemerovo Region, Western Siberia, and Usinsky-3 in the Komi Republic. The Group considers these deposits as a long-term option for further development. The Group seeks to control costs throughout the production cycle and believes that it enjoys one of the most competitive production cost structures in the global steel industry. Management believes that the Group’s main production site in Lipetsk, which accounts for approximately 75% of the overall crude steel capacity of the Group, has one of the lowest cash costs of steel production among global steel producers and one of the lowest among its Russian competitors. The Group achieves this by ensuring economies of scale in the production process and by upgrading its production facilities, which management believes include some of the most modern in the global steel industry. The Group also operates a long steel division in Russia comprising electric arc furnace-steel production and rolling mills producing rebar, wire-rod and metalware. The Group enjoys an advantageous geographical position, with production sites located close to its customer base in regions with extensive transportation infrastructure. The Group’s Russian operations benefit from a long-term agreement with Freight One, a transportation company, for the supply of transport and rail logistics services. Freight One is part of Universal Cargo Logistics Holding B.V. (‘‘UCL Holding’’), one of the largest railway wagon fleet owners in Russia. UCL Holding is currently an entity under common control. The Group’s main production site in Lipetsk (Novolipetsk) has convenient access to the Black Sea and Baltic Sea ports from where its products are shipped overseas. In addition, iron ore deposits are situated in close proximity to the Group’s main production site in Lipetsk. Most of the Group’s Russian customers are located within 500 kilometres of its main production site in Lipetsk, helping to streamline the Group’s logistics. In addition, the Group operates rolling mills in two of its key overseas markets through its subsidiaries and affiliates in the European Union (in Belgium, Denmark, France and Italy), which together form the NLMK Europe business unit, and through its subsidiaries in the United States, which together form the NLMK USA business unit. NLMK Europe and NLMK USA, together with their subsidiaries and affiliates, represent approximately 40% of the downstream processing capacity of the Group (or over 6.1 million tonnes per year). A substantial part of the feedstock (slabs) used by NLMK Europe and NLMK USA in the manufacturing of finished steel products, including HVA products, is supplied by the Group’s Russian operations. As a result of the 25% import duty implemented by the U.S. in 2018 under Section 232 of the Trade Expansion Act of 1962, as amended (‘‘Section 232’’), NLMK USA switched to third-party slabs supplies from suppliers in the United States and other countries in 2019. In February 2014, the Group announced its strategic goals for the years 2014-2018 (‘‘Strategy 2017’’). Strategy 2017 was focused on gaining leadership in operational efficiency, developing a world class resource base and achieving leading positions in strategic markets. Special emphasis was placed on industrial safety, sustainability and human capital development. In 2016, NLMK launched a key investment project included in Strategy 2017: the Stoilensky pelletising plant, with annual capacity of over 6 million tonnes of iron ore pellets with an additional expansion capacity of up to 20%. In 2014-2018, Strategy 2017 delivered an estimated US$1,348 million of net gains (including NBH results) exceeding the initial target of US$1 billion. Operational efficiency projects driven by NLMK Production System contributed an estimated US$0.7 billion of the total gains. In March 2019, the Group announced its strategic goals for the years 2019-2023 (‘‘Strategy 2022’’). Strategy 2022 will focus on enhancing NLMK’s competitive advantages, including low cost steel production, efficient vertical integration, product mix diversification (by product and by market) as well as a high level of product quality and sales localization, and pursuing environmental, safety and social responsibility programmes.

2 Competitive Strengths Sustainable growth capabilities The Group seeks to deliver above average long-term growth relative to its competitors, while minimising risks arising from operating in a highly cyclical industry. The Group’s Russian low-cost steelmaking platform remains its main growth engine, and until 2013 the Group focused on expanding its steelmaking capacity. In 2012–2013, the Group launched NLMK-Kaluga, an advanced EAF mini-mill located in the Central European part of Russia (‘‘NLMK-Kaluga’’), with annual capacity of 1.5 million tonnes of steel and 0.9 million tonnes of rolled products. The rolling capacity of the mill can potentially be expanded to 1.5 million tonnes. In 2019, the Group plans to start reconstruction of one of its blast furnaces at the Lipetsk production site. The upgrade will extend the service life of the blast furnace by at least 20 years and boost its productivity by 8% to 3.4 million tonnes of pig iron per year. Pursuing efficient vertical integration remains the Group’s principal means of reducing industry risks. The Group has a high degree of vertical integration comprising a wide range of upstream assets ranging from mining and energy generation to primary steelmaking, processing and distribution. The Group seeks to improve its profitability by enhancing its operational efficiency, increasing self-sufficiency in raw materials and consequentially reducing consumption of expensive resources. The Group has shifted its strategic focus from external expansion to improving efficiency and extending its presence in attractive product niches, industries and regions. Management believes that continuing development of its downstream capacity enables the Group to meet evolving customer requirements and to improve profitability by offering HVA products. By producing HVA products, the Group is able to safeguard the value generated at its upstream production facilities and to maximise their capacity utilisation rates. Following the acquisition of the rolling assets in Europe and the United States that now form its International Operations (NLMK Europe and NLMK USA), the Group is able to process up to 90% of its steel mainly produced in Russia into finished products, even after a significant crude steel capacity expansion in 2012–2013. The Group intends to expand its product offering by developing its downstream capabilities, capturing opportunities in both growing markets, like Russia, as well as in mature markets, in each case by offering HVA and premium quality products, including niche products, manufactured in close proximity to the end-users.

Self-sufficiency in key resources The Group has been pursuing self-sufficiency in key resources in order to secure supplies and to control the steel production costs. The Group’s upstream assets, such as mining, coke production and scrap processing facilities, supply it with the key input materials, such as iron ore, coke, scrap and fluxes required for crude steel production, and enable the Group to manage risks associated with price fluctuations for raw materials. In 2018, iron ore concentrate and sinter ore production at Stoilensky covered all of the Group’s requirements in primary ferrous materials, Stagdok and Dolomit supplied all of the fluxes required by the Group and Altai-Koks (together with the coke operations at the Lipetsk site) fully covered the Group’s coke requirements. The Group’s level of self-sufficiency in iron ore pellets has increased to approximately 97% following the launch of the pelletising plant at Stoilensky in November 2016. In addition, over 60% of all scrap consumed by the Group’s Russian assets was supplied by the captive scrap processing network. The Group has also built a portfolio of mining rights for coking coal deposits and considers them as a long-term investment.

Low-cost and efficient operations Efficiency remains the cornerstone of the Group’s strategy. The Group is a cost leader and it strives to secure and maintain cost leadership positions in all of the core markets where it competes. For instance, the cash cost of slabs produced at the Group’s Lipetsk site in 2018 was US$266 per tonne, considerably below the global average of US$393 per tonne (according to data published by research agencies). The Group produces most of its raw materials and liquid steel in low cost locations combining integrated (BOF) and scrap-based (EAF) production routes, while more than a third of the Group’s finished products are produced in developed markets in close proximity to its diverse customer base. The Group also controls its costs by operating in-house raw materials and energy production, as well as by maintaining lower conversion costs across the entire production chain. The level of in-house generated electric energy self-sufficiency at the Lipetsk site was 59% in 2018. In order to manage the risk related to coking coal prices, the Group is implementing alternative technologies (such as tar pitch, which is already rolled out at

3 Altai-Koks, as well as hot stamping and pulverised coal injection) that allow it to replace premium grades of coal with less expensive coal, while maintaining the same quality of coke. The Group also aims to partly replace the consumption of coke and natural gas with steam coals, also known as PCI coal, with the first of the Group’s blast furnaces transferred to PCI technology in 2013 and 2014. The Group continues to implement technology enhancements, and in June 2017 the PCI technology was expanded across the largest blast furnaces of the Group. As at the end of the first quarter of 2019, the PCI technology was implemented at 90% of the Group’s blast furnace capacities. Productivity in terms of output of crude steel per employee increased from 308 tonnes in 2016 to 328 tonnes in 2018, an increase of 6.5%, reflecting the Group’s commitment to maximising efficiency of its operations. The Group also runs management efficiency initiatives identifying cost reduction opportunities and converting them into cost savings.

Location of assets The Group’s business model is based, in part, on leveraging the geographical location of its assets. The Group’s mining and steel production assets (the most material- and resource-intensive part of the integrated process) are located in Russia, a low-cost region, while production of finished products is concentrated in the key sales markets in close proximity to its customers in Russia, the United States and Europe.

Flexibility The Group has a flexible business model, which enables it to address the increasing challenges in the industry. The diversity and the flexibility of the Group’s business are enhanced by its extensive product mix, which helps manage exposure to divergent industry cycles. The Group’s product portfolio is well balanced between both finished and semi-finished products as well as standard and high-end products, contributing to superior asset performance and profitability. Ongoing technological innovation and product development increases the share of new products in the Group’s product mix, making its business more adaptable to the needs of its clients. In most product categories, the Group seeks to maintain a healthy balance between exposure to emerging and mature markets, thereby balancing growth and stability. The Group’s robust production capabilities and flexible production policy allowed it to increase capacity utilisation rates and, as a result, to raise overall sales volumes in 2018 by 7% as compared to 2017. In the first three months of 2019, the Group’s sales of finished products increased by 13% as compared to the first three months of 2018, while total sales of the Group grew by 11% in the first three months of 2019 as compared to the first three months in 2018. This increase in total sales was primarily due to an increase in slab deliveries and strong demand for finished products, especially for HRC.

Solid financial standing as well as operational and financial performance The Group believes that its balanced business model, control over a significant portion of its raw material and energy supplies and its programme of modernising production facilities have enabled it to achieve a high level of operating and financial performance. As at the end of 2018, the Group’s net debt to Adjusted EBITDA ratio was 0.25x compared to 0.35x in 2017 and 0.39x in 2016. Due to the industry-wide developments, including higher commodity prices, the Group’s revenue for 2018 increased to a record high of US$12,046 million as compared to US$10,065 million in 2017 (up from US$7,636 million in 2016). On 13 February 2019, Moody’s upgraded the Group’s long-term credit rating from ‘Baa3’ to ‘Baa2’ with stable outlook. On 9 April 2019, Fitch upgraded the Group’s long-term credit rating from ‘BBB’ to ‘BBB’ with stable outlook. The Group’s credit ratings are as follows:

Long-term Rating agency rating Outlook Standard & Poor’s ...... BBB Stable Moody’s ...... Baa2 Stable Fitch ...... BBB Stable

Strategy In March 2019, the Group announced the launch of its new Strategy 2022. Strategy 2022 targets net gains of US$1.25 billion to EBITDA per year, with US$0.5 billion per year from operational efficiency programmes that require no additional capital expenditures. Strategy 2022 is based on enhancing the

4 Group’s competitive advantages. Through operational efficiency initiatives and investment projects, as well as debottlenecking the Group’s steelmaking operations, the Group seeks to increase steel output at the Lipetsk site by 1 million tonnes per annum, of which 100% of the steel output growth will be covered by captive iron ore from Stoilensky. To support the increase in production, the Group will work on infrastructure debottlenecking, including expansion of the throughput capacity of a number of stations at the Lipetsk site and carrying out auxiliary initiatives at the BOF, sintering and blast furnace shops. Strategy 2022 contemplates that the additional steel output will be sold in the form of premium and niche HVA products, with growth in sales of HVA products targeted at 1.7 million tonnes, driven by investment into the Group’s rolling operations in Russia, Europe and the U.S. Total sales volumes are targeted to increase by 0.6 million tonnes as compared to 2018. As part of its strategic goal on sustainable development, the Group intends to execute its target programmes aimed at reducing its environmental footprint, improving occupational health and safety and reducing its injury rate. The Group expects that capital expenditures devoted to Strategy 2022 will total approximately U.S.$2.1 billion, with investments peaking in 2019–2020. Strategy 2022 is based on four pillars:

Low cost—lowest steel production cost globally as well as operational and process excellence The Group intends to continue enhancing its operational efficiency with minimum capital outlays, through debottlenecking of its production processes and higher engagement of employees in continuous improvement processes. These projects are aimed at maximizing output at existing capacities through improved logistics and overhauling schedules and achieving better production yields, as well as minor technology adjustments based on internal and external benchmarking of the capabilities of the Group’s capacities. The Group will rely on its ‘‘NLMK Production System’’, which includes a wide range of practices aimed at enhancing the efficiency of key operational, technological and business processes. The Group seeks to achieve the best technologically possible level of operations using existing production process and current facility capabilities. The Group believes that this approach will allow it to moderately increase production of iron ore, pellets and pig iron, as well as to raise finished products output, in particular, hot-rolled steel, at no extra capital outlays. In addition, the Group seeks to further minimise cash costs to maintain global leadership among steel producers. Most of the impact on cash cost reduction is expected to come from improved consumption rates of key raw materials, such as coal, energy and ferroalloys, as well as processes optimization. For example, the Group’s slab cash costs relative to 2018 is expected to be reduced by U.S.$18 per tonne. Improved labour productivity will also support the overall efficiency improvements. Management estimates that the net EBITDA gains from these initiatives are expected to amount to US$0.5 billion as a result of Strategy 2022 execution. The Group expects to incur US$50 million of investments on cash cost reduction projects.

Growing—growth across the integrated production chain while maintaining full self-sufficiency in key raw materials and energy The Group plans to expand further its highly competitive integrated steel production using its existing asset base. Organic growth across the whole value chain is a priority. In order to reach this goal, the Group plans the following: • Increase of 1 million tonne of steel production. To achieve this objective, the Group plans to invest in the upgrade of its continuous casting machine at the Lipetsk site that will also improve the quality of slabs produced and widen the range of slab’s dimensions. The Group expects to achieve the additional growth of iron ore production through the brownfield expansion and utilization of additional capacity of the pelletising plant at Stoilensky, as the Group is planning to maintain its 100% self-sufficiency in iron ore. The Group estimates that this will result in an increase in concentrate and pellets output by 2.3 million tonnes and 1.2 million tonnes, respectively. In addition, to achieve this target, the Group will work on infrastructure debottlenecking, including expansion of the throughput capacity of a number of stations at the Lipetsk site and auxiliary initiatives at the BOF in 2019–2020, sintering and blast furnace shops to support the increase in production. • Increase in energy self-sufficiency. The Group plans to build a 300 MW captive power plant at the Lipetsk site that will be fed with by-product (secondary) fuel gases. The Group aims to achieve 100% by-product gas recovery and 94% energy self-sufficiency on this site, as compared to 59% in 2018. The project is an efficient alternative for replacing the existing outdated gas infrastructure. It should also help to reduce the Group’s environmental impact.

5 • Reduction of premium coal grades consumption. The Group expects that delivery of a coal charge stamping project in 2019 coupled with a number of operational efficiency projects will allow it to reduce the share of premium coal grades in the mix from 45% in 2018 to 40% by 2023. Combined with the PCI technology applied at all of the Group’s blast furnaces, it provides a strong alternative to developing captive coal capacities, which the Group does not possess. Management estimates that the delivery of these targets will result in net EBITDA gains of US$0.3 billion, a reduction of slab cost by U.S.$9 per tonne and requires US$1.0 billion of investments in executing Strategy 2022.

Premium quality—growing exposure to premium segments in our core markets The Group intends to enhance significantly its product mix by expanding it downstream capabilities. The Group plans to convert additional and existing steel production volumes into 1.7 million tonnes of HVA products to be sold in Russia, Europe and the U.S. The Group also plans to launch a new galvanising line at the Lipetsk site with the capacity of 0.4 million tonnes per year to meet rising demand for coated products in Russia. The material produced at the additional Hot-Dip Galvanised (HDG) capacity is to be partially used as a substrate (feedstock) for the existing pre-painted capacity. The Group also plans to increase production of electrical steel products to meet the expected boom in global production of EVs, energy-efficient equipment and transformers. The production of high grade grain-oriented steel is intended to increase by 0.1 million tonnes and the output of premium grade non-grain-oriented steel for electric vehicles and energy-efficient motors will also rise by 0.1 million tonnes. The Group also plans to improve product mix at the Russian Long division. In the Europe Strip division, the Group plans to pursue a market-led growth strategy in niche thin and high-strength steel with total targeted growth of 0.6 million tonnes. This will require upgrading of its hot strip mill and galvanising line. In the Europe Plate division, the Group targets higher production of premium plates at DanSteel to meet growing demand for alternative energy in the region, in particular, for windmills construction. In addition, Strategy 2022 contemplates improvement at Clabecq and Verona sites. Management estimates that the delivery on these targets will result in net EBITDA gains of US$0.45 billion, with 60% of the effect to be generated by the Group’s operations in Russia and 40% by the Group’s operations in Europe and U.S., and requires US$1.1 billion of investments. Most of the EBITDA effect (US$0.27 billion) is expected to be generated in Russia.

Sustainable—safe operations, low environmental footprint, socially responsible business The Group seeks to operate in a safe, socially and environmentally responsible manner. The Group plans to minimise its environmental footprint and seeks to ensure that its production processes comply with the applicable environmental legislation, best available technology (‘‘BAT’’) and occupational health and safety standards. In 2018, the Group’s lost time injury frequency rate (‘‘LTIFR’’) for employees and contractors reached 0.77, down from 1.12 in 2017 and 0.85 in 2016. The Group plans to reduce LTIFR further to 0.5 as part of Strategy 2022 implementation. In 2018, specific air emissions from NLMK’s Lipetsk operations fell to 20.7 kilogrammes per tonne of steel produced as compared to 20.9 kilogrammes in 2017 and 21.3 kilogrammes in 2016. Following Strategy 2022 completion, specific air emissions are expected to drop further to 19.0 kilogrammes. The Group aims to gain improvements in labour productivity supported by a motivated staff. It seeks to create conditions for high labour productivity by providing opportunities for professional training and fostering a strong corporate culture. Labour productivity in 2018 grew by 2% year on year across the Group, with total growth of 31% as compared to 2013, when Strategy 2017 was implemented.

Risk Factors Investment in the Notes involves a high degree of risk. For a detailed discussion of the risks and other factors to be considered when making an investment with respect to the Notes, see ‘‘Risk Factors’’ and ‘‘Forward-Looking Statements’’. Prospective investors in the Notes should carefully consider the risks and other information contained in this Prospectus prior to making any investment decision with respect to the Notes. Prospective investors should note that the risks described in this Prospectus are not the only risks the Group faces. NLMK and the Issuer have described only the risks they consider to be material. However, there may be additional risks that they currently consider immaterial or of which they are currently unaware.

6 OVERVIEW OF THE OFFERING The following overview of the Offering should be read in conjunction with, and is qualified in its entirety by, ‘‘Terms and Conditions of the Notes’’, ‘‘Clearing and Settlement’’ and ‘‘Loan Agreement’’.

The Notes Issuer ...... Steel Funding D.A.C. Joint Global Coordinators and Joint Bookrunners ...... J.P. Morgan Securities plc and Societ´ e´ Gen´ erale.´ Joint Bookrunners ...... ING Bank N.V., London Branch and UniCredit Bank AG. Notes Offered ...... US$500,000,000 4.70 per cent. Loan Participation Notes due 2026. Issue Price ...... 100 per cent. of the principal amount of the Notes. Issue Date ...... 30 May 2019 Maturity Date ...... 30 May2026 Trustee ...... Citicorp Trustee Company Limited. Principal Paying and Transfer Agent . Citibank, N.A., London Branch. Registrar ...... Citigroup Global Markets Europe AG. Interest ...... On each interest payment date (being 30 May and 30 November in each year and commencing on 30 November 2019), the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan accrues at a rate of 4.70 per cent. per annum from and including the Issue Date. Form and Denomination ...... The Notes will be issued in registered form, in denominations of US$200,000 and higher multiples of US$1,000. The Regulation S Notes and the Rule 144A Notes will be represented by a Regulation S Global Note Certificate and a Rule 144A Global Note Certificate, respectively. The Regulation S Global Note Certificate and the Rule 144A Global Note Certificate will be exchangeable for Definitive Certificates in the limited circumstances specified in the Regulation S Global Note Certificate and the Rule 144A Global Note Certificate. Initial Delivery of Notes ...... On or before the Issue Date, the Regulation S Global Note Certificate shall be registered in the name of a nominee of, and deposited with a common depositary for, Euroclear and Clearstream, Luxembourg and the Rule 144A Global Note Certificate shall be registered in the name of Cede & Co. as nominee of, and deposited with a custodian for, DTC. Status of the Notes ...... The Notes are limited recourse, secured obligations of the Issuer as more fully described in ‘‘Terms and Conditions of the Notes— Status’’. The sole purpose of the issue and the Notes is to provide the funds for the Issuer to finance the Loan. The Notes will constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and other amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of Reserved Rights, all as more fully described in ‘‘Terms and Conditions of the Notes—Status’’.

7 Security ...... The Notes will be secured by the Charge (as defined in ‘‘Overview of the Transaction Structure and the Security’’) on: • all principal, interest and other amounts now or hereafter payable to the Issuer by NLMK under the Loan; • the right to receive all sums which may be or become payable by NLMK under any claim, award or judgement relating to the Loan Agreement; and • all the rights, title and interest in and to all sums of money now or in the future deposited in the Account (as defined in ‘‘Overview of the Transaction Structure and the Security’’) and the debts represented thereby (including interest from time to time earned on the Account, if any), pursuant to the Trust Deed, provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. The Notes will also be secured by an assignment with full title guarantee by the Issuer to the Trustee of its rights under the Loan Agreement (save for the Reserved Rights, any amounts relating to the Reserved Rights and those rights subject to the Charge) pursuant to the Trust Deed. Withholding Taxes ...... All payments of principal and interest in respect of the Notes by or on behalf of the Issuer will be made without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of any authority having the power to tax, other than as required by law or regulations. Subject to certain exceptions, in the event that any such deduction or withholding by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax is required by law or regulations, the Issuer will be required to pay such additional amounts as shall result in the receipt by the noteholders of such amount as would have been received by them had not such withholding or deduction been required, to the extent the Issuer receives corresponding amounts from NLMK under the Loan Agreement. Optional Redemption by NLMK for Taxation Reasons ...... The Issuer will be required to redeem in whole, but not in part, the Notes at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption in the event that (1) NLMK elects to repay the Loan on the basis that it is required to pay increased amounts of principal, interest or any other amount due under the Loan Agreement on account of Russian or Irish withholding taxes or as a result of the enforcement of the security provided for in the Trust Deed, or (2) NLMK elects to repay the Loan on the basis that it is required to pay additional amounts on account of certain costs incurred by the Issuer pursuant to the Loan Agreement.

8 Optional Redemption by the Issuer for Illegality ...... In limited circumstances as more fully described in the Loan Agreement, the Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, upon giving notice to the Trustee and the Noteholders, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption, in the event that it becomes unlawful for the Issuer to fund the Loan or allow the Loan to remain outstanding under the Loan Agreement or allow the Notes to remain outstanding or for the Issuer to maintain or give effect to any of its obligations in connection with the Loan Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes and, in such case, the Issuer shall require the Loan to be repaid in full. Optional Redemption by the Issuer under Make Whole Call Option .... At any time, NLMK may prepay in whole or in part the Loan at the make whole prepayment amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the relevant prepayment date as more fully described in the Loan Agreement. Once NLMK so prepays the Loan, the Notes will thereupon become due and repayable and the Issuer shall, subject to receipt of the relevant amounts from NLMK under the Loan, redeem the Notes on the relevant prepayment date. In the case of a partial redemption, the Notes shall be selected for redemption either: (a) in accordance with the procedures of the relevant Clearing Systems; or (b) if the Notes are not held in a Clearing System or if the relevant Clearing Systems prescribe no method of selection, the Notes will be redeemed on a pro rata basis according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection so made. Optional Redemption by the Issuer under Par Call Option ...... At any time on or after the date three months prior to the Repayment Date, NLMK may prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the relevant repayment date. In the case of a partial redemption, the Notes shall be selected for redemption either: (a) in accordance with the procedures of the relevant Clearing Systems; or (b) if the Notes are not held in a Clearing System or if the relevant Clearing Systems prescribe no method of selection, the Notes will be redeemed on a pro rata basis according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection so made. Relevant Events ...... Upon the occurrence of a Relevant Event (as defined in the Trust Deed), the Trustee may, subject as provided in the Trust Deed and subject to being indemnified and/or secured and/or prefunded to its satisfaction, enforce the security created in its favour pursuant to the Trust Deed.

9 Ratings ...... It is expected that the Notes will be rated: • BBB by Fitch; and • Baa2 by Moody’s. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid or paid on a particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. Listing ...... Application has been made to Euronext Dublin for the Notes to be admitted to the official list and trading on its regulated market. Selling Restrictions ...... The Notes are subject to selling restrictions in the United States, the United Kingdom, Ireland, the Russian Federation and any other applicable jurisdictions. See ‘‘Subscription and Sale’’. Governing Law and Arbitration ..... The Notes, the Trust Deed, the Paying Agency Agreement (as defined below) and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law and the Issuer has submitted such documents to the jurisdiction of the courts of England. Use of Proceeds ...... The gross proceeds to the Issuer from the offering of the Notes are expected to be US$500,000,000, which the Issuer intends to use for the sole purpose of financing the Loan to NLMK pursuant to the terms of the Loan Agreement. Security Codes ...... Regulation S Notes: Common Code: 184343533 International Security Identification Numbers (‘‘ISIN’’): XS1843435337 Rule 144A Notes: Common Code: 11730636 ISIN: US85812RAB50 CUSIP: 85812RAB5 Clearing Systems ...... DTC (in the case of the Rule 144A Notes) and Euroclear and Clearstream, Luxembourg (in the case of the Regulation S Notes). Yield ...... The annual yield of the Notes when issued is 4.70 per cent. Risk Factors ...... An investment in the Notes involves a high degree of risk. See ‘‘Risk Factors’’. Certain Covenants ...... The Issuer has covenanted under the Trust Deed that, as long as any Notes remain outstanding, it will not, without the prior written consent of the Trustee, agree to any amendment or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement.

10 The Loan Lender ...... Steel Funding D.A.C., a company organised and existing as a designated activity company under the laws of Ireland. Borrower ...... Novolipetsk Steel, a public joint stock company incorporated under the laws of the Russian Federation. Status of the Loan ...... The Loan is a direct, unconditional, unsubordinated and unsecured obligation of NLMK and obligations under the Loan will rank at least pari passu with all other direct, unconditional, unsubordinated and unsecured indebtedness of NLMK. Principal Amount of the Loan ...... US$500,000,000 Interest on the Loan ...... 4.70 per cent. per annum, payable semi-annually in arrear on 30 May and 30 November in each year starting on 30 November 2019. Use of Proceeds ...... NLMK intends to use the proceeds of the Loan for general corporate purposes. See ‘‘Use of Proceeds’’. Early Prepayments by NLMK ...... See ‘‘Optional Redemption by NLMK for Taxation Reasons’’ and ‘‘Optional Redemption by the Issuer for Illegality’’, ‘‘Optional Redemption by the Issuer under Make Whole Call Option’’, ‘‘Optional Redemption by the Issuer under Par Call Option’’ above and Clause 5 (Repayment and Prepayment) described in ‘‘Loan Agreement’’. Withholding Taxes and Increased Costs ...... Payments under the Loan Agreement shall be made without deduction or withholding for or on account of Russian or Irish taxes, except as required by law. Subject to certain exceptions, in the event that any deduction or withholding for or on account of such taxes is required by law with respect to payments under the Loan Agreement or that any deduction or withholding for or on account of Irish taxes is required by law or regulations with respect to payments under the Notes, NLMK will be obliged to increase the amounts payable under the Loan Agreement to the extent necessary to ensure that the Issuer receives (or the Noteholders receive, as applicable) the amount which would have been received had such deduction or withholding not been required. Certain Covenants ...... The Loan Agreement contains a negative pledge, a restriction on certain reorganisations, a covenant to pay taxes and information delivery requirements, all as more fully described in ‘‘Loan Agreement’’. Events of Default ...... The Loan Agreement contains various events of default, including a cross-acceleration provision in respect of certain indebtedness of NLMK or any Material Subsidiary (as defined in the Loan Agreement) in excess of US$50 million (or its equivalent in another currency), all as more fully described in ‘‘Loan Agreement’’. Governing Law ...... The Loan Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law.

11 RISK FACTORS Investment in the Notes involves a high degree of risk. Prospective investors in the Notes should carefully consider the following information about the risks described below, together with other information contained in this Prospectus prior to making any investment decision with respect to the Notes. The risks highlighted below could have a material adverse effect on the Group’s business, results of operations, financial condition or prospects, which, in turn, could have a material adverse effect on the ability of NLMK to service its payment obligations under the Loan Agreement and, as a result, the debt service on the Notes. In addition, the trading price of the Notes could decline if any of these risks materialise, and Noteholders may lose some or all of their investment. Prospective investors should note that the risks described below are not the only risks the Group faces. NLMK and the Issuer have described only the risks they consider to be material. However, there may be additional risks that they currently consider immaterial or of which they are currently unaware, and any of these risks could have the effect set forth above.

RISKS ASSOCIATED WITH THE GROUP’S BUSINESS AND INDUSTRY The Group’s business is dependent on the global economic environment. The global economic downturn which began in 2008 has had an extensive adverse impact on the steel industry. The substantial contraction in industrial activity in 2009 had a significant impact on both pricing and demand for steel products and iron ore. While many economies have subsequently experienced some recovery from the economic crisis, growth in many markets remains slow, and many markets which previously had seen very high growth have exhibited slower growth in recent years. In particular, China has recently seen a decline in its rate of growth, which has contributed to a significant decline in commodity prices generally, and the prices of iron ore and steel in particular. Furthermore, the global financial and economic crisis resulted in extreme volatility in the debt and equity markets, which led to severe reductions in liquidity, as well as to a general increase in the cost of borrowing for private sector borrowers. The global economy continues to be subject to a number of uncertainties, including mounting government deficits, discontinuation of government stimulus programmes, deflation in certain markets, continuing high levels of unemployment in some countries and uncertainty caused by the possible departure of the U.K. from the European Union, as well as continued slow growth or contraction in some markets. According to World Economic Outlook, after growth in 2017 and early 2018, global economic activity slowed notably in the second half of 2018, reflecting a confluence of factors affecting major economies. If global economic conditions deteriorate or a similar economic contraction were to reoccur, the resulting contraction in demand for many of the Group’s products and the tightening of the credit markets could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

The Group operates in a cyclical industry, and any local or global downturn in the steel industry may have an adverse effect on its results of operations and financial condition. The steel industry is cyclical in nature because the industries in which steel customers operate are cyclical and sensitive to changes in general economic conditions. The demand for steel products thus generally correlates to macroeconomic fluctuations in the economies in which steel producers sell products, as well as in the global economy. The prices of steel products are influenced by various factors, including global and regional steel consumption, worldwide production capacity and capacity utilisation rates, raw material costs, exchange rates, trade barriers and improvements in steelmaking processes. The global economic downturn which began in 2008 resulted in a deceleration in steel demand and a decline in steel prices, and steel prices remain below 2008 levels. Further, the continuing adverse global economic conditions, overcapacity in the steel industry, significant decline in raw materials prices and substantially higher levels of Chinese exports, together with a substantial decline in China’s rate of steel demand growth, led to a decline in steel prices in 2015 and 2016. While steel prices have since increased, driven by growth in raw materials’ prices, gradual recovery in demand across regions, including China, growth in protectionist measures and reduced Chinese exports, which were down by approximately 30% from their peak level of 2016, no assurance can be given that economic conditions will not deteriorate again with resulting adverse effects on steel prices. The deceleration of steel demand growth has also resulted in global overcapacity of steel production, which has led to reduced capacity utilisation rates and, in some cases, closures of production capacity. See ‘‘—The Group’s business is dependent on the global economic environment’’. In

12 response to deteriorating conditions of local producers, governments in several countries, including the United States, India and the European Union, have also imposed anti-dumping duties on steel products imported from a number of countries, including China and Russia (including the Group’s products). These policies, if they continue or become more widespread, could impair the Group’s access to export markets. See ‘‘—An increase in existing trade barriers or the imposition of new trade barriers in the Group’s principal export market could cause a significant decrease in the demand for its products in those markets’’. In the first three months of 2019, the global economic situation demonstrated uneven recovery with some regions still showing negative growth trends, and this continues to remain a limiting factor for steel prices growth globally. See ‘‘Business—NLMK Europe’’. The demand for steel products and global steel production capacity have been strongly influenced by the developing world, particularly China, as well as India and other emerging markets. China is the largest global steel producer, and the balance between its domestic production and consumption has been one of the major drivers of global steel prices. The efforts to curb overcapacity in China taken by the local government resulted in reduced exports from the country in 2016-2018. To the extent the surplus of domestic steel production relative to domestic steel demand in China results in increased volumes of export sales by Chinese producers, the global steel markets may experience further downward pricing trends. In the future, demand for steel products and prices of steel may continue to experience significant fluctuations as a result of these and other factors, many of which are beyond the Group’s control. Prolonged declines in global steel demand or prices would have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The ongoing armed conflict in Ukraine, the international reaction to Russia’s actions in connection with Crimea resulting in the imposition of sanctions, and other disputes between Russia and other countries could further materially adversely affect the economic environment in Russia, including the business, financial condition, and results of operations of the Group, and create significant political and economic uncertainty. The continuing significant civil and political crisis in Ukraine, the armed conflict in Eastern Ukraine, the referendum on the status of Crimea held in March 2014 and the execution of the agreement on the accession of the Republic of Crimea to the Russian Federation have affected Russia’s relations with the EU, the United States and certain other countries (including Canada, Australia, Japan and Norway). As a result, a number of countries imposed various sanctions against Russia and refused to recognise the referendum in Crimea as legal. The United States and the EU have imposed sanctions on a number of Russian officials and individuals, former Ukrainian officials, and several Russian companies, banks and businessmen, with the consequences that entities and individuals in the United States and EU cannot do business with them or provide funds or economic resources to them, with assets in the relevant sanctioning jurisdictions subject to seizure and the individuals to visa bans. In addition, the U.S. and EU have applied ‘‘sectoral’’ sanctions, whose principal consequences are that several leading Russian banks have been restricted from accessing Western capital. Similar sanctions have been imposed on companies in the oil and gas sector and on defence companies. The U.S. executive order implementing sectoral sanctions also permits sanctions to be applied against companies in the metals and mining sectors, although such sanctions are not currently in effect against any Russian metals and mining companies. The current sanctions regime is a result of multiple extensions by the United States and EU in the term and scope of sanctions, the most recent of which were taken in March 2019 (in relation to both the EU and U.S. sanctions). The U.S. has also significantly tightened export controls on the provision of certain U.S.-origin goods. The economic sanctions described above have had an adverse impact on the Russian economy and Russia’s financial markets, increased the cost of capital and capital outflows and worsened the investment climate in Russia. Tensions between Russia and the U.S. and EU have increased as a result of the conflict in Syria, as well as Russia’s alleged attempts to influence the 2016 U.S. presidential election, increasing the risk of imposition of additional sanctions on Russia. It is currently unclear how long the sanctions imposed on Russia will remain in place and whether new sanctions may be imposed. If the conflict in Ukraine and instability in Syria were to increase, or if any conflicts or instabilities in other countries escalate and create additional tensions between Russia and the U.S. and EU, there could be calls from Western governments for further sanctions. The recently-released Report on the Investigation into Russian interference in the 2016 President Election from U.S. Special Counsel Robert S. Mueller could also be used as a basis for further sanctions against Russia and Russian interests. Any such sanctions could, in turn, result in a general lack of

13 confidence among international investors in the region’s economic stability and in Russian investments generally. Such a lack of confidence could result in reduced liquidity, trading volatility and significant declines in the price of listed securities of companies with significant operations in Russia, and in the Group’s inability to raise debt or equity capital in the international capital markets, which may materially adversely affect its business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes. On 2 August 2017, U.S. President Donald Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the ‘‘CAATS Act’’). The CAATS Act provides for the imposition of a number of additional sanctions, including ‘‘secondary sanctions’’, under which foreign persons who engage in certain activities could face adverse economic consequences in the form of denial of access to U.S. markets, denial of other U.S.-linked benefits and blocking of all property and interests in property that are in the U.S. or in the possession or control of a U.S. person. The activities potentially subject to secondary sanctions include transactions related to the construction, modernisation and repair of energy export pipelines; transactions with the Russian intelligence and defence sectors; sanctions evasion and significant transactions with sanctions targets; privatisations personally benefitting members of the Russian government or their associates; and activities that undermine the cybersecurity of any person or government. The CAATS Act also requires the U.S. administration to submit various reports to the U.S. Congress, including reports on oligarchs and parastatal entities which was submitted on 29 January 2018 under Section 241 of the CAATS Act (the ‘‘Section 241 Report’’), reports on the effects of expanding sanctions to include sovereign debt and derivative products, and reports on illicit finance, which could lead to further sanctions. The controlling shareholder of NLMK (see ‘‘—NLMK is beneficially controlled by a single person’’) was included into the unclassified version of the Section 241 Report together with 95 other Russian businessmen and other individuals. The Section 241 Report also contains a classified section that includes other items required by Section 241 of the CAATS Act. The Section 241 Report states that it is not a sanctions list, that the inclusion of individuals or entities in it does not and in no way should be interpreted to impose sanctions on those individuals or entities, and that the inclusion of individuals or entities in the Section 241 Report does not, in and of itself, imply, give rise to or recreate any other restrictions, prohibitions or limitations on dealings with such persons by either U.S. or foreign persons. In its press release announcing publication of the Section 241 Report, the U.S. Department of Treasury further stated that the names of individuals in the unclassified version of the report were selected based on objective criteria drawn from publically available sources. However, no assurance can be given that sanctions will not be imposed on any individual or entity included in the Section 241 Report or on any entities controlled by them. On 6 April 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (‘‘OFAC’’) added 38 Russian businessmen, officials and entities, including 6 businessmen listed in the Section 241 Report, to its List of Specially Designated Nationals and Blocked Persons (‘‘SDN’’). These sanctions may herald a new course of implementation and interpretation of U.S. sanctions targeting Russia due to the nature of the targets, the scope of prohibitions and the potentially unpredictable ramifications. In addition, in August 2018, under the Chemical and Biological Weapons Control and Warfare Elimination Act (the ‘‘CBW Act’’), the U.S. Department of State introduced additional sanctions with respect to Russia. The restrictions provided for a total ban on the supply of defence articles, defence services, military design and construction services to Russia and set forth a 3-months deadline for Russia to provide assurances to the U.S. that it was no longer using chemical or biological weapons, would not do so in the future and would be willing to allow onsite inspections by observers from international organisations, failing which a second round of sanctions could be triggered. In November 2018, the U.S. Department of State declared its intention to impose such additional sanctions following Russia’s alleged failure to provide the respective assurances. The second round of sanctions could include, among other things, the prohibition on U.S. banks to provide financing to Russia and extensive bans on exports and imports involving Russia. On 12 September 2018, the U.S. President issued Executive Order No. 13848 (‘‘EO 13848’’) aimed at sanctioning individuals and entities that engaged in interference in a U.S. election after the date of that order or provided assistance to or are owned or controlled by them. Additional sanctions may be imposed under EO 13848 on the largest business entities of the country whose government was engaged in the election interference. On 15 March 2019, as a result of a conflict in the Kerch Strait in November 2018, the EU, Canada and the U.S. imposed sanctions on several Russian individuals, including navy officials and eight entities in

14 response to the incident in the Kerch Strait and the ongoing perceived role of the Russian Federation in events in Ukraine and Crimea. U.S. Congress is considering new sanctions against Russia and Russian entities and individuals. On 13 February 2019, an updated and expanded version of the last year’s Defending American Security from Kremlin Aggression Act (the ‘‘DASKA Bill’’) was introduced to the U.S. Congress. On 3 April 2019, an updated version of last year’s ‘‘Defending Elections from Threats by Establishing Redlines Act’’ (the ‘‘DETER Bill’’) was introduced to the U.S. Congress. The DASKA Bill and the DETER Bill, if enacted as introduced, may result in additional sanctions imposed with respect to Russia, including among others sanctions against Russian financial institutions and prohibition of certain investments into Russian energy sector. Both DASKA Bill and DETER Bill would require submission of an updated Section 241 Report to the U.S. Congress. As the Group’s main production assets are located in the Russian Federation more expansive sanctions targeting a broader segment of the Russian economy or targeting metals and mining companies, or the Group or its controlling shareholder, could significantly interfere with the Group’s operations. For example, the Group might become unable to proceed with the implementation of investment projects, deal with persons or entities which comply with the relevant sanctions, including suppliers, manufacturers of equipment, financial institutions and rating agencies, transact in US dollars, raise funds from investors, access international capital markets generally, or use international settlement, clearing and/or information exchange systems, and/or the Group’s existing funds and property might be blocked. In these circumstances, NLMK may be unable to effect payments to discharge any of its obligations under the Loan Agreement, which would result in an event of default under the Notes. NLMK’s shareholders and independent directors who are citizens of foreign countries, including the U.S. and EU, may be unable to participate in some or all meetings of the shareholders and Board of Directors as a result of an expansion of sanctions in respect of the Group, which may have an adverse effect on NLMK’s corporate governance and limit its ability to enter into certain transactions. In addition, investors, clearing systems and other intermediaries in possession or control of the Notes, who are subject to the jurisdiction of, or voluntary comply with, any relevant sanctions regimes, may be required to block the Notes and may be restricted in their ability to sell, transfer or otherwise deal in or receive distributions with respect to the Notes or process such transactions, which could make such Notes partially or completely illiquid. Potential holders of the Notes may be deterred from buying the Notes for the same reason. The expansion of U.S. sanctions may have a material adverse effect on the Russian financial markets and investment climate and the Russian economy generally. This could have also a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under the Notes, and could reduce liquidity in the trading market for the Notes and have a material adverse effect on their market value. The Issuer and Group entities registered in the EU and U.S. are required to comply with applicable EU and U.S. sanctions with the consequence that such entities may not conduct business with any sanctioned persons in violation of EU and U.S. sanctions that apply to them. Noncompliance with applicable sanctions could result in civil and criminal liability, imposition of substantial fines, breaches of contractual undertakings, negative publicity and reputational damage. None of the proceeds of the issue of the Notes will be used in any manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of EU or U.S. sanctions or to fund or facilitate activities specified or referenced in the CAATS Act that could reasonably be expected to be a basis for the imposition of sanctions or penalties on such person.

The Group’s largest market in terms of revenues is Russia, and an economic downturn in Russia could have a material adverse effect on its business and financial condition. The Group derived 34% of its total revenues from sales to customers in Russia in 2018 (33% in the three months ended 31 March 2019) and is therefore vulnerable to economic conditions in Russia. The Russian economy has experienced significantly fluctuating growth rates over the last two decades. In March 2019, Rosstat recalculated its statistics with respect to Russia’s GDP starting from 2015. Under the new calculations, Russia’s GDP decreased by 2.3% in 2015 and increased by 0.3%, 1.6% and 2.3% in 2016, 2017 and 2018, respectively. Furthermore, a significant portion of the Group’s products in Russia are used in the construction and infrastructure, automotive and engineering industries, which are particularly vulnerable

15 to general economic downturns. A material downturn in the Russian economy could have a negative effect on the businesses of some of the Group’s customers and reduce demand for the Group’s products, which may have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

An increase in existing trade barriers or the imposition of new trade barriers in the Group’s principal export markets could cause a significant decrease in the demand for its products in those markets. Some of the products of the Group’s Russian operations are subject to various trade barriers, such as anti-dumping duties, tariffs and quotas, in its principal export markets, including the United States, Turkey, India and the EU. See ‘‘Regulatory Matters—Trade Barriers and Anti-Dumping Regulations’’. For example, in 2014, following the expiration of the agreement between Russia and the U.S. on hot-rolled steel supplies, which suspended the anti-dumping duty established in 1999, the U.S. introduced a 184.56% anti-dumping duty on NLMK’s hot-rolled steel supplies to the U.S. market. As a result of anti-dumping proceedings, the EU authorities introduced a 36.1% anti-dumping duty on cold-rolled steel in August 2016 and set a definitive duty rate in the amount of 53.3 euro per tonne. In May 2017, the United States introduced a final 22.19% and 51.78% anti-dumping duty in respect of thick plates products manufactured by NLMK Verona and NLMK Clabecq, respectively. In May 2018, the U.S. Department of Commerce started an administrative review of effective anti-dumping duties on thick plates. The final decision is expected at the end of 2019. In April 2017, India imposed anti-dumping duties on the imports of hot-rolled steel originated in or exported from six countries, including the Russian Federation, in the form of minimum import prices in the range of US$478 per tonne for hot-rolled coils and US$561 per tonne for hot-rolled sheets for five years. In March 2018, the U.S. introduced a 25% duty on all steel products imported to the U.S. in the interests of national security under Section 232. Following this decision, the EU and Turkey initiated safeguard investigations in March 2018 and April 2018, respectively. As a result of these investigations, tariff quotas were established with a 25% duty on imports over the quotas. In the EU, this decision, adopted in February 2019 and expiring in July 2021, is final. In May 2019, Turkey decided to lift the tariff quota. Currently, these trade barriers do not significantly affect Group’s operations as the quotas permit companies to continue duty-free supplies, though, following imposition of 25% duty on steel products by the U.S., NLMK USA ceased purchasing a substantial amount of its slab requirements from the Group’s Russian entities and now purchases such slabs from third parties. Any increase in existing trade barriers, or the imposition of new trade barriers, could cause a significant decrease in the demand for the Group’s products in its principal export markets, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Economic and political uncertainty in Europe may impact the Group’s business. The region comprising the member states of the European Union that have adopted the euro (the ‘‘Eurozone’’) has been affected by the general slow growth in the economies of its Member States following the global economic crisis, as well as the financial crisis in Greece and uncertainty caused by the impending exit of the U.K. from the European Union, known as Brexit. Financial markets and the supply of credit are likely to continue to be impacted by concerns surrounding the sovereign debts of Greece and potentially other EU countries, the possibility of further credit rating downgrades of, or defaults on, such sovereign debt, the impending exit of the U.K. from the European Union, concerns about a slowdown in growth in certain economies and uncertainties regarding the stability and overall standing of the European Monetary Union. Governments and regulators have implemented austerity programmes and other remedial measures to respond to the Eurozone debt crisis and stabilise the financial system but the actual impact of such programmes and measures is difficult to predict. To the extent that the economic conditions in the European Union worsen, the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes could be materially adversely affected.

The steel industry is highly competitive. The Russian and international markets for steel and steel products are highly competitive. The Group competes primarily on the basis of price, volume, quality, technical innovation and the ability to meet customers’ product specifications and delivery schedules. The Group’s competitors include foreign steel producers, some of which are larger, have greater capital resources and more extensive global operations

16 than the Group, as well as competitors in developing economies which may have comparable production costs. Furthermore, the highly competitive nature of the steel industry combined with excess production capacity for some steel products has resulted, and may in the future continue to result, in downward pressure on prices of some of the Group’s products. The intensity of competition, combined with the cyclical nature of steel markets, results in significant variations in economic performance, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group is dependent on suppliers for some of the raw materials that it uses and a disruption in supply or change in price could have a material adverse effect on its results of operations. The Group requires substantial amounts of raw materials in the steel production process, in particular iron ore and coking coal. While the Group has developed a substantial degree of self-sufficiency in raw material supplies for its Russian operations (which represent more than 95% of the Group’s total crude steel capacity), particularly with regard to iron ore concentrate and sinter ore requirements, iron ore pellets, coke and scrap (in which it is approximately 100%, 97%, 100% and over 60% self-sufficient, respectively), the Group currently relies on third-party suppliers to provide all its coking coal requirements. Although the Group has acquired licences for the exploration and development of coal deposits in Russia (Zhernovskoye-1, including Zhernovski-Gluboki, in Western Siberia and Usinsky-3 in the Komi Republic in the northwest of Russia, which were updated in 2016 and 2017, respectively), the Group considers these deposits as a long-term option. It believes that, provided feasibility studies are complete and approval to proceed with the projects is granted, it will require at least another four to six years before it begins commercial mining at these deposits. In addition, the Group’s operations require various other raw materials, including ferro-alloys and non-ferrous metals, which are currently sourced from third-party suppliers. Further, as noted above, the Group’s operations in the U.S. currently purchase slab from third- party suppliers due to the imposition of import duty by the U.S. The price and availability of raw materials sourced from third parties are subject to market conditions, and the Group may not be able to adjust the prices of its steel products to recover the costs of significant increases in the prices of such raw materials. Any significant change in the prices or supply of raw materials could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘—Increased energy costs or an interruption in the Group’s electricity or natural gas supply could materially adversely affect its business and results of operations’’.

Increased energy costs or an interruption in the Group’s electricity or natural gas supply could materially adversely affect its business and results of operations. Energy costs, particularly the costs of electricity and gas, comprise a significant portion of the Group’s cost of production. Electricity prices have increased in recent years in Russia. In 2018, the price of electricity consumed by NLMK’s Russian subsidiaries, which in 2018 accounted for approximately 95% of the Group’s total crude steel production, increased by approximately 10% compared to the level of 2017. The Group expects further increases in electricity prices in the future. In 2018, the Group purchased 2.5 billion cubic metres of natural gas, out of which 2.3 billion cubic metres of gas was purchased by the Group’s Russian operations from PAO NOVATEK (‘‘NOVATEK’’) and the rest from other suppliers. Domestic natural gas prices have been rising in recent years in line with a restructuring plan for the Russian gas sector aimed at achieving a comparable level of gas prices in the domestic and international markets. In 2018, the average price (in roubles) of natural gas purchased by the Group’s Russian companies increased by approximately 2.7% as compared with 2017. An interruption in the Group’s electricity or natural gas supplies would have a significant effect on its business and results of operations. In the event of a failure in the electricity grid, production of the Group’s steel products could continue for only a limited time. Gas is one of the heating fuels, in addition to coke, that the Group uses in its blast furnaces and any interruption in supply could result in a decrease in the production levels of the blast furnaces and require the Group to consume significantly more coke. Possible future increases in prices of electricity and gas consumed by the Group could materially adversely affect the Group’s profitability.

17 Increased rail transportation costs or a disruption in rail transportation could significantly affect the Group’s operations, product distribution, business and financial results. Railway transportation is the Group’s principal means of transporting raw materials and steel products to its facilities. Railway tariffs for freight of the Group’s raw materials and products increased, on average, by approximately 5.4%, 6%, and 9% in 2018, 2017 and 2016, respectively, resulting in increases in the Group’s transportation costs over the three year period. A further increase in rail tariffs could adversely affect the Group’s profitability. The Group has a long-term cooperation arrangement (expiring in January 2023) with Freight One (currently an entity under common control), which is part of the UCL Holding group, one of the largest railway wagon fleet owners in Russia. However, transportation for the Group’s Russian operations is ultimately dependent on the railway network operated by the state-owned monopoly, Joint Stock Company Russian Railways (‘‘RZD’’). The Russian railway system is subject to risks of disruption as a result of the limited capacity of railway stations. The Group’s coking operations are located in the Altai region of Russia, which is approximately 3,600 kilometres from the Group’s steel production units in Lipetsk, and, therefore, the Group is subject to the risk that the transportation of these supplies may be disrupted. Any prolonged disruption in the supply of raw materials to the Group or delivery of the Group’s steel products could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Wage increases in Russia may reduce the Group’s profit margins. In 2018, the average number of employees of the Group’s Russian operations represented approximately 94% of the total average number of the Group employees in that period. Wage costs in Russia have historically been significantly lower than wage costs in the more economically developed countries of North America and Europe for similarly skilled employees. However, if wage costs were to increase in Russia, this could result in a reduction in the Group’s profit margins. Although the Group has been able in the past to increase production efficiency in order to offset cost pressures resulting from wage inflation, to the extent that the Group is unable to continue to increase the efficiency and productivity of its employees, wage increases could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Equipment failures or production curtailments or shutdowns could adversely affect the Group’s sales and profitability. Interruptions in production processes will inevitably increase production costs and reduce sales and earnings. In addition to equipment failures, the Group’s facilities are also subject to the risk of catastrophic loss due to unanticipated events, such as fires, explosions or adverse weather conditions. The Group makes efforts to address these risks and has implemented a preventive fire safety programme based on international standards such as FM-Global and NFPA. The Group’s manufacturing processes depend on critical pieces of steelmaking equipment, such as blast furnaces, basic oxygen furnaces, continuous casters and rolling equipment, as well as electrical equipment such as transformers, and this equipment may, on occasion, be out of service as a result of unanticipated failures. In the future, the Group may experience material plant shutdowns or periods of reduced production as a result of equipment failures. Despite the fact the Group implemented a risk-oriented medium-term maintenance capital expenditures programme with a five-year planning horizon for equipment that reached critical wear out, has insurance for equipment damage and business interruption, has implemented a fire safety programme and timely replaces equipment with critical degree of wear, there can be no assurance that amounts recoverable under insurance policies would be sufficient to compensate the Group for losses and expenses resulting from equipment failure or shutdown. Furthermore, a longer-term business disruption could result in a loss of customers. In particular, as the Group’s main production site at Lipetsk accounts for approximately 75% of the Group’s steelmaking capacity, if an interruption or shut down were to occur there or at another of the Group’s facilities, future sales and the Group’s profitability could be adversely affected. In addition, the climate of the regions of Russia where the Group’s production facilities are located affects its operations during various times of the year. If colder weather starts earlier or ends later in the year, then the Group’s operating capacity may be reduced or stockpiles of raw materials may be increased.

18 The Group will require a significant amount of cash to fund its capital investments, and, if the Group is unable to generate this cash through its operations or through external sources, this programme may not be completed on schedule or at all. The Group’s business is and will continue to be capital-intensive. The Group’s capital expenditures were US$680 million in 2018, US$592 million in 2017 and US$559 million in 2016 (in each case excluding VAT). In the past, the Group has generated a substantial portion of the cash necessary for these improvements and repairs through internal operations and expects to continue to do so in the foreseeable future. If the Group’s cash flows are reduced, and the Group is not able to obtain alternative sources of external financing at an acceptable cost or in the amounts required, the Group’s planned capital investments may be substantially delayed or interrupted. In addition, the Group’s capital investments are subject to a variety of other uncertainties, including changes in economic conditions, delays in completion, cost overruns and defects in design or construction. No assurance can be given that the Group’s capital projects will be completed on schedule or that expected operational improvements will be fully realised as currently envisioned. A failure to complete the Group’s capital expenditure projects would, in turn, result in decreased efficiency of the Group’s operations as well as declines in production capacity, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group has substantial short-term borrowings. As at 31 March 2019, the Group had short-term borrowings of US$224 million. The Group’s ability to refinance its short-term debt may depend on factors outside its control, including conditions in Russian and global credit markets. In addition, regulatory developments may impact the Group’s borrowing capabilities; for instance, the CBR has announced that it is considering limitations on the amount of borrowings in foreign currencies a Russian company may make. If the Group is unable to refinance such short-term borrowings on acceptable terms, the Group may need to reprioritise the allocation of its capital resources, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group’s existing and future level or scope of insurance coverage may not be adequate. The Group operates many industrial facilities in which hazardous materials and substances that have the potential to present risks to the health or safety of workers and neighbouring populations are in use. In relation to the Group’s Russian operations, the insurance industry in Russia is not as well developed as in certain other jurisdictions. Although the Group believes that, with respect to such Russian operations, it maintains insurance levels generally in line with the relevant local market standards and includes liability and comprehensive business interruption insurance that covers potential claims involving the Group’s business or products, whether it occurs at a production site or during the transport or use of products made by the Group, no assurance can be given that the Group will always be able to maintain existing insurance levels or that the existing insurance levels are adequate to cover the risks they are purchased to insure. There is also no assurance that the Group will be able to obtain additional insurance coverage at commercially reasonable rates, which could lead to future shortfalls between the Group’s liabilities and its insurance coverage. Any such liability shortfalls or losses due to a lack of insurance coverage could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘Business—Insurance’’.

New or more stringent environmental or health and safety laws and regulations or stricter enforcement of existing environmental or health and safety laws and regulations in the countries in which the Group operates may have a significant negative effect on the Group’s operating results. The Group operates in an industry which affects the environment and requires compliance with stringent regulatory requirements. The operations of steelmaking plants have potential environmental issues, including the generation of pollutants and their decontamination, and storage and disposal of wastes and other hazardous materials. Pollutant emissions and discharges, as well as disposed wastes, contain such substances as benzopyrene, nitrogen and sulphur oxides, sulphates, phenols and sludges (including those containing chrome, copper, nickel and zinc). Pollution risks and associated clean-up costs are often impossible to assess until audits of compliance with environmental standards have been performed and the extent of liability under environmental laws can be clearly determined. Environmental regulations are

19 being revised in the Russian Federation and elsewhere, and the Group regularly evaluates its obligations in line with new or amended legislation. New and stricter environmental requirements are being imposed from time to time, and fines and other payments may increase. For example, the National Project ‘‘Ecology’’ approved by the Presidium of the Presidential Council for Strategic Development and National Projects on 24 December 2018 envisages the decrease of emissions of pollutants in major industrial cities of Russia, including Lipetsk, where the Group’s main production site is located. In addition to its Russian operations, the Group has operations in the European Union and the United States and must comply with the environmental regulations in those regions. The Group’s operations are associated with the emission of ‘‘greenhouse gases’’, and the introduction of prospective international obligations on greenhouse gases regulations, including through the Paris Agreement, may have an adverse impact on Group’s operations. The Group is also subject to health and safety laws, regulations and standards, including workplace health and safety requirements. The Group’s compliance with these environmental, health and safety laws and regulations requires a commitment of significant financial resources. These laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons resulting from environmental, health and safety incidents and other impacts of the Group’s past and current operations, and could lead to the imposition of substantial fines, penalties, other civil or criminal sanctions, the curtailment or cessation of operations, orders to pay compensation, orders to remedy the effects of violations and/or orders to take preventative steps against possible future violations. In addition, the Group, when it has acquired businesses, has not always been indemnified against (or released from) any environmental liabilities, or with respect to required expenses for the natural environment restoration, arising from activities that occurred prior to the acquisition of these businesses, and the Group does not maintain insurance for such risks; therefore, the Group may be responsible for the entire amount of such liabilities (if any) and any expenses with regard to their discharge. Furthermore, evolving regulatory standards, enforcement and expectations may result in increased litigation or increased costs, all of which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group may consider further acquisitions as part of its strategic development but there can be no assurance that the Group will be able to integrate successfully such acquired businesses or identify suitable acquisition targets. As part of the implementation of its business strategy, the Group may consider further acquisitions, which will help it to meet its production requirements, increase vertical integration or enhance future growth. The acquisition and integration of new companies and businesses pose significant risks to the Group’s existing operations, such as the difficulty of integrating the operations and personnel of the acquired business, problems with minority shareholders in acquired companies and their material subsidiaries, the potential disruption of the Group’s own business, the assumption of liabilities, including in relation to tax and environmental matters, relating to the acquired assets or businesses, the possibility that indemnification agreements with the sellers of those assets may be unenforceable or insufficient to cover potential tax or other liabilities, the difficulty of implementing effective management, financial and accounting systems and controls over the acquired business, the imposition and maintenance of common standards, controls, procedures and policies and the impairment of relationships with employees and counterparties as a result of difficulties arising out of integration. Furthermore, the value of any business the Group acquires or invests in may be less than the amount that the Group pays for it if, for example, there is a decline in the position of that business in the relevant market in which it operates or there is a decline in the market generally, which could impact the Group’s profitability.

Estimates of the Group’s mining reserves and resources are subject to uncertainties. The estimates concerning the reserves of iron ore deposits and other raw materials that the Group’s mining segment has a licence to mine are subject to considerable uncertainties. These estimates are based on interpretations of geological data obtained from sampling techniques and projected rates of production in the future. Actual production results may differ significantly from reserves estimates. In addition, it may take many years from the exploration phase before production is possible. During that time, the economic feasibility of exploiting a discovery may change as a result of changes in the market price of the relevant raw material. The Group’s ability to develop these reserves is subject to its ability to obtain, maintain and renew the licences to those reserves. See ‘‘—The Group’s business could be adversely affected if it fails to obtain,

20 maintain or renew necessary licences, including subsoil licences, and permits or fails to comply with the terms of its licences and permits’’.

The Group’s mining and steel operations are subject to hazards and risks that could lead to unexpected production delays, increased costs, damage to property or injury or death to persons. The Group’s mining operations, like those of other companies engaged in mining operations, are subject to all of the hazards and risks normally associated with the exploration, development and production of natural resources, any of which could result in production shortfalls or damage to persons or property. In particular, hazards associated with the Group’s open-pit mining operations include flooding of the open pit, collapses of the open-pit wall, accidents associated with the operation of large open-pit mining and ore handling equipment, accidents associated with the preparation and ignition of large-scale open-pit blasting operations, production disruptions due to weather and hazards associated with the disposal of mineralised waste water, such as groundwater and waterway contamination. There are also hazards associated with the Group’s steel production operations, including fires or accidents at blast furnaces and other industrial accidents, and such operations may involve the use of hazardous materials and substances that have the potential to present risks to the health and safety of workers and neighbouring populations. The Group is at risk of experiencing any, some or all of these hazards. The occurrence of any of these hazards could result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental or natural resource damage, delays to production or shipping, reduced sales, increased costs, losses associated with remedying the situation, as well as potential legal liability for the Group. The liabilities resulting from any of these risks may not be adequately covered by insurance, and no assurance can be given that the Group will be able to obtain additional insurance coverage at rates it considers to be reasonable. The Group may therefore incur significant costs that could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘—The Group’s existing and future level or scope of insurance coverage may not be adequate’’.

Inflation, or appreciation in real terms of the rouble against the US dollar or the euro, may materially adversely affect the Group’s results of operations. A substantial majority of the Group’s production activities are located in Russia, and the majority of its direct costs are incurred in Russia. Russia has experienced high levels of inflation since the early 1990s. As a result of inflation, which in 2016 was 5.4%, in 2017 was 2.5%, in 2018 was 4.3% and in the three months ended 31 March 2019 was 1.7%, the Group experienced inflation-driven increases in some of the costs of its Russian operations, such as salaries, that are linked to the general price level in Russia. However, the Group may not be able to increase the prices that it receives for its products sufficiently in order to preserve operating margins, particularly, in the case of export sales, if that inflation is accompanied by real appreciation of the rouble against the US dollar or the euro. Accordingly, high rates of inflation in Russia could increase the Group’s costs in Russia and decrease its operating margins. The Group’s reporting currency is the US dollar. The Group’s products are typically priced in roubles for sales in the Russian Federation and in US dollars and euros for sales outside the Russian Federation, whereas the majority of the Group’s direct costs are incurred in roubles. An appreciation of the rouble against the US dollar or the euro would result in an increase in the Group’s costs relative to revenues, adversely affecting the Group’s results of operations. In this situation, due to competitive pressures, the Group may not be able to raise the prices that it charges for its products sufficiently to preserve its expected operating margins, and real appreciation of the rouble against the US dollar or the euro may materially adversely affect the Group’s results of operations.

Devaluation of the rouble against the US dollar may have a material adverse effect on the Group’s business. The rouble experienced significant depreciation against the US dollar in 2008 and in the beginning of 2009, largely as a result of the 2008-2009 crisis and the significant fall in prices in oil and commodities that are principal generators of Russia’s export earnings, as well as, in 2014 and 2015, due to slowing growth and decline of Russia’s GDP, a substantial decrease in oil prices and capital outflows. The rouble-US dollar exchange rate has fluctuated significantly in recent years, ranging from 60.27 roubles per US$1.00 to 83.59 per US$1.00 in 2016; from 55.85 roubles per US$1.00 to 60.75 roubles per US$1.00 in 2017; from 55.67 roubles per US$1.00 to 69.97 roubles per US$1.00 in 2018.

21 Although a depreciation of the rouble generally reduces the Group’s rouble costs in US dollar terms, it may also negatively affect the Group in a number of ways, including, among other things, by increasing inflation and having a negative effect on the Russian economy, which could have a material adverse effect on the Group’s business. In addition, the Group is exposed to translational and transactional foreign currency exchange rate risks. Translational foreign currency exchange rate risks are the result of translating assets and liabilities denominated in currencies other than US dollars into US dollar amounts for financial reporting purposes. Transactional foreign currency exchange rate risks arise as a result of payments the Group makes or receives that involve foreign currency exchange. Currently, the Group’s international operations are balanced with most of their revenues, borrowings and expenses denominated in the same currency. The Group’s Russian operations have revenues denominated predominantly in roubles, US dollars and euros, with meaningful fluctuations year-on-year. Expenses are mostly in roubles and borrowings are mostly in US dollars and to a lesser extent in euros. As the Group reports its financial results in US dollars and must frequently exchange or translate foreign currency into roubles or roubles into foreign currency, fluctuations in foreign currency exchange rates could have a material adverse effect on the Group’s business, financial condition, results of operations, future prospects and the value of the Notes.

The Group’s business could be adversely affected if it fails to obtain, maintain or renew necessary licences, including subsoil licences, and permits or fails to comply with the terms of its licences and permits. The Group’s mining subsidiaries do not have property rights to the deposits that they mine. Instead, they have licences to explore and develop those deposits. Therefore, the Group’s business depends on the continuing validity of its licences, including subsoil licences for its mining operations, and the issuance of new licences and the Group’s compliance with their terms. In relation to the Group’s mining subsidiaries, Stoilensky principal mining licence expires on 1 January 2041. Stagdok, Dolomit, GOK Zhernovsky-1 and GOK Usinsky-3 also have valid mining licences for subsoil use which expire in 2025–2040. In addition, the Group may require new licences or permits if it seeks to expand its existing operations or commence new operations. Regulatory authorities exercise considerable discretion in the timing of licence issuance and renewal and the monitoring of licensees’ compliance with licence terms. Requirements imposed by these authorities, which require the Group to comply with numerous industrial standards, recruit qualified personnel, maintain necessary equipment and quality control systems, monitor operations, maintain appropriate filings and, upon request, submit appropriate information to the licensing authorities, may be costly and time-consuming and may result in delays in the commencement or continuation of exploration or production operations. Private individuals and the public at large possess rights to comment on and otherwise engage in the licensing process. Accordingly, the licences and permits the Group needs may be invalidated by the court and may not be issued or renewed, or if issued or renewed, may not be issued or renewed in a timely fashion, or may involve requirements which restrict the Group’s ability to conduct its operations or to do so profitably. The legal and regulatory basis for the licensing requirements is often unclear, and ministerial acts and instructions that attempted to clarify licensing requirements are often inconsistent with legislation, which increases the risk that the Group may be found in non-compliance. In addition, it is possible that licences applied for and/or issued in reliance on acts and instructions relating to subsoil rights issued by the Ministry of Natural Resources and Ecology of the Russian Federation could be challenged by the governmental authorities or otherwise as being invalid if they were found to be beyond the authority of that ministry. In the event that the licensing authorities discover a material violation, the Group may be required to suspend its operations or incur substantial costs in eliminating or remedying the violation, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group’s competitive position and future prospects depend on its senior management’s experience and expertise. The Group’s ability to maintain its competitive position and to implement its business strategy is dependent to a large degree on the services of its senior management team. The loss or diminution in the services of members of the Group’s senior management team or an inability to attract, retain and maintain additional senior management personnel could have a material adverse effect on the Group’s business, financial condition, results of operations or prospects. Competition in Russia for personnel with relevant

22 expertise is intense due to the limited quantity of qualified individuals, and this situation seriously affects the Group’s ability to retain its existing senior management and attract additional qualified senior management personnel, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Russian Government may impose export tariffs or pricing restrictions on Russian steel and mining producers, which could adversely affect the demand for its products. Historically, the Russian Government considered adopting export tariffs on certain steel and mining products, potentially including products produced by the Group. Certain of the Group’s major customers, as well as other major consumers of steel products, have presented, and may in the future present, to the Russian Government initiatives to introduce such export tariffs in order to affect the pricing of steel and mining products in the domestic market. However, no decision has been made to this effect or, to NLMK’s knowledge, is being currently considered by the Russian Government, and, therefore, the impact of any such export tariffs or measures as may be adopted on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes is uncertain. The Group’s ability to determine prices for the sales of its products in Russia could also be adversely affected to the extent that pricing ceilings or other restrictions are imposed. See ‘‘—Risks Relating to the Russian Federation—The Group is subject to antimonopoly laws enforced by Russian and regional regulatory bodies, which may result in certain limitations being imposed on the Group’s activities, the violation of which may result in civil, administrative and even criminal liability’’.

If transactions the Group or its predecessors have entered into are challenged for non-compliance with applicable legal requirements, the transactions could be invalidated or liabilities imposed on the Group. The Group and its predecessors have taken a variety of actions relating to share issuances, share disposals and acquisitions, valuation of property, interested party transactions, major transactions and antimonopoly issues, in respect of which the Group, or its predecessors, did not fully comply with applicable legal procedures and which, therefore, could be subject to a legal challenge. A successful challenge against the Group for not complying with applicable legal requirements could result in the invalidation of those transactions or the imposition of liabilities on the Group. Moreover, since applicable provisions of law in various jurisdictions are subject to many different interpretations, the Group may not be able to successfully defend any challenge brought against similar transactions, and the invalidation of any such transactions or imposition of any such liability may, individually or in the aggregate, have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group’s operations could be adversely affected by labour relations. Most of the Group’s employees are members of a trade union. Although the Group considers the Group’s employee relations to be satisfactory, large union representation subjects the Group’s businesses to the threat of interruptions through strikes, lockouts or delays in renegotiations of labour contracts. The Group believes that approximately 85% of employees at its Lipetsk site were represented by a trade union as at 31 March 2019. The Group’s existing collective bargaining agreement with its main trade union at the Lipetsk site is due to expire in December 2019. To the extent that the Group is not able to renew the collective bargaining agreement on terms favourable to the Group or if the Group’s operations are affected by work stoppages or labour disputes at its NLMK Russia, NLMK Europe or NLMK USA divisions, the Group’s business, results of operations and financial condition or the trading price of the Notes could be materially adversely affected.

NLMK is beneficially controlled by a single person. NLMK is beneficially controlled by Mr. Vladimir Lisin (the ‘‘Majority Shareholder’’), who as at the date of this Prospectus controlled indirectly 84% of NLMK’s shares (see ‘‘Principal Shareholders’’). As a result, the Majority Shareholder has the ability to exert significant influence over certain actions in respect of NLMK. While transactions with the Majority Shareholder and affiliates of the Majority Shareholder can benefit the Group and NLMK believes that such transactions have been conducted on an arm’s length basis, there can be no assurance that the Group could not have achieved more favourable terms had such transactions not been entered into with related parties. To the extent that the interests of the Majority Shareholder

23 were to conflict with the interests of the Noteholders, the trading price of the Notes could be materially adversely affected.

RISKS RELATING TO THE RUSSIAN FEDERATION Emerging markets are subject to greater risks than more developed markets, including significant legal, economic and political risks. Investors in emerging markets such as Russia should be aware that these markets are subject to greater risk than more developed markets, including in some cases significant legal, economic and political risks. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in debt or equity markets of all emerging market countries as investors move their money to more stable, developed markets. Financial problems or an increase in the perceived risks associated with investing in emerging economies may adversely affect the level of foreign investment, which may, in turn, adversely affect the economies in those countries. In addition, during such times, companies that operate in emerging markets can face severe liquidity constraints as foreign funding sources are withdrawn. As a result, financial turmoil in Russia could seriously disrupt the Group’s business and its ability to service its payment obligations under the Loan Agreement, as well as result in a decrease in the trading price of the Notes. Investors should also note that an emerging economy such as that of Russia is subject to rapid change and that the information set out in this Prospectus may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved. Potential investors are urged to consult with their own legal and financial advisors before making an investment in the Notes.

Some of Russia’s physical infrastructure is in very poor condition, which could disrupt normal business activity of the Group or lead to increased costs. Russia’s physical infrastructure largely dates back to Soviet times and has not been adequately funded and maintained since the dissolution of the Soviet Union. The rail and road networks, power generation and transmission, communications systems and building stock have been particularly affected. In the past, Russia has experienced electricity and heating shortages and blackouts, and the Russian railway system is subject to risks of disruption as a result of the declining physical condition of rail tracks and a shortage of rail cars. The poor condition or further deterioration of the physical infrastructure in Russia may harm its national economy, disrupt the transportation of goods and supplies, increase the costs of doing business and interrupt business operations, each of which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Investments in Russia may be adversely affected by fluctuations in the global economy. The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. Since Russia is one of the world’s largest producers and exporters of oil, natural gas and metal products, the Russian economy is especially sensitive to commodity prices on the world markets. The sharp decrease in prices for natural resources in 2008 and 2014-2017 resulted in a significant decrease of governmental revenues, which had a negative effect on the Russian economy. Commodity prices continue to be volatile and future fluctuations in the global markets could substantially limit the Group’s access to capital and could adversely affect the financial condition of the Group’s customers. These developments could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Potential political or social conflicts could create an uncertain operating environment hindering the Group’s long-term planning ability and could have a material adverse effect on the value of investments in Russia, including the trading price of the Notes. The Russian Federation is a federation of sub-federal political units, consisting of republics, territories, regions, cities of federal importance and autonomous regions and districts, some of which have the right to manage their internal affairs pursuant to agreements with the federal government and in accordance with applicable laws. The delineation of authority and jurisdiction among the members of the Russian Federation and the federal government is, in some instances, unclear. In practice, the division of authority and uncertainty could hinder the Group’s long-term planning efforts and may create uncertainties in the Group’s operating environment, which may prevent it from effectively carrying out its business strategy.

24 In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, acts of terrorism (principally connected with the North Caucuses region) and military conflict, including the military conflict between the Russian Federation and Georgia in 2008, deterioration in relations between the Russian Federation and Turkey as a result of attack on the Russian military jet by Turkish Air Forces along the Syrian-Turkish border in November 2015 and participation of the armed forces of the Russian Federation in the Syrian conflict. If existing conflicts remain unresolved, or new disturbances or hostilities arise, the Group may be unable to access capital, or access capital on terms reasonably acceptable to it, which may have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

A reversal of reform or government policies targeted at specific individuals or companies could have an adverse effect on the Group’s business as well as investments in Russia more generally. From 2001 until 2013, the political and economic situation in Russia became generally more stable, which accelerated the reform process and made Russia more attractive to investment. Such stability, however, has been negatively affected by the global financial crisis, the economic sanctions imposed by the United States and the EU and the ongoing economic recession. See ‘‘—The ongoing armed conflict in Ukraine, the international reaction to Russia’s actions in connection with Crimea resulting in the imposition of sanctions, and other disputes between Russia and other countries could further materially adversely affect the economic environment in Russia, including the business, financial condition, and results of operations of the Group, and create significant political and economic uncertainty’’. Moreover, in December 2011 and in 2012, there were public protests alleging voting irregularities in federal parliamentary and presidential elections and demanding political reform. In 2018, there were mass public protests against the increase of the retirement age. Further, in March 2019, there were public protests against increasingly restrictive internet policies of the Russian Government, including its post-moderation authorities in relation to content. Any significant further increases in political instability, a struggle over the direction of future reforms, or a reversal of the reform process, could lead to another deterioration in Russia’s investment climate that might constrain the Group’s ability to obtain financing in the international capital markets, limit its sales in Russia or otherwise have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes. In the past, Russian authorities have prosecuted some Russian companies, their executive officers and their shareholders on tax evasion and related charges. In some cases, the result of these prosecutions has been the imposition of prison sentences for individuals and significant claims for unpaid taxes. In addition, the recent arrest of senior management of a major foreign private investment fund operating in Russia provoked a sharply negative reaction from the international investment community. Any similar actions by governmental authorities or events could lead to further negative effect on investor confidence in Russia’s business and legal environment, which could have a material adverse effect on the Group’s ability to raise equity and debt capital in the international markets, as well as the Group’s business, results of operations, financial condition, the its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

Economic instability in Russia could harm the Group’s business and investment plans. Over the last two decades, the Russian economy has experienced at various times: • significant volatility in its GDP; • high levels of inflation; • increases in, or high, interest rates; • sudden price declines in oil and other natural resources; • the impact of sanctions; • instability in the local currency market; • lack of reform in the banking sector and a weak banking system providing limited liquidity to Russian enterprises; • budget deficits;

25 • the continued operation of loss-making enterprises due to the lack of effective bankruptcy proceedings; • capital flight; and • significant increases in poverty rates, unemployment and underemployment. In addition, despite the campaign pursued by the Russian government against crime and corruption, the then President (and current Prime Minister) Mr. Dmitry Medvedev acknowledged in April 2012 that these measures had yielded only limited results to date. The Russian economy has been subject to abrupt downturns in the past. In late 2008, at the outset of the global economic downturn, the Government announced plans to institute more than US$200 billion in emergency financial assistance in order to ease taxes, refinance foreign debt and encourage lending. The impact of the global economic downturn on the Russian economy led to, among other things, several suspensions of trading on MICEX and RTS stock exchange by market regulators since September 2008, a reduction in the Russian GDP and disposable income of the general population, a severe impact on bank liquidity, a significant devaluation of the rouble against the US dollar and euro, sharp decrease in industrial production and a rise in unemployment. Furthermore, following the imposition of economic sanctions by the United States and the EU and the decline of oil prices, in 2015 and 2016 Russia’s GDP declined by 2.3% in real terms. In 2016, 2017 and 2018, Russia’s GDP grew by 0.3%, 1.6% and 2.3%, respectively, according to the new statistics of Rosstat recalculated in March 2019. The Russian Ministry of Economic Development expects a slight decline in the growth of Russian GDP in 2019 with a long-term increase of Russian GDP by approximately 2% in 2020 and by approximately 3% or slightly more in each of years 2021-2025. There is a risk that Russia’s recent growth or expected growth in the future will not continue or be achieved due to unfavourable general economic conditions or geopolitical factors. Instability in the Russian banking sector may also adversely affect Russia’s general economy. For example, according to the CBR, the level of past due loans to non-financial enterprises in the Russian banking sector has increased from 6.9% in February 2018 to 7.9% in February 2019. An increase in the level of underperforming loans generally weakens the level of capital for banks, which, in turn, may lead them to shrink their loan portfolios leading to debt funding being less available for businesses outside the financial sector. In 2014, Trust Bank, Russia’s then 22nd largest bank by assets, was bailed out for RUB 127 billion. In late 2017, the CBR announced its decision to implement measures aimed at improving the financial stability of several Russian banks. The bailout of PJSC Bank Otkritie Financial Corporation, Russia’s eighth largest bank by assets, PJSC B&N Bank, Russia’s eleventh largest bank by assets, and Promsvyazbank, Russia’s ninth largest bank by assets, required approximately RUB 836.2 billion, RUB 50 billion and RUB 243 billion, respectively. In January 2019, the CBR announced the bailout of JSCB Moscow Industrial Bank PC, Russia’s 33rd largest bank by assets, and reserved RUB 77 billion for the prospective bailout. Risk management, corporate governance and transparency and disclosure practices of Russian banks often remain below international best practices. Any deterioration in the general economic conditions in Russia could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The ongoing development in the Russian legal system and Russian legislation creates an uncertain environment for investment and for business activity. Russia continues to develop its legal framework in accordance with international standards and the requirements of a market economy. Since 1991, new Russian domestic legislation has been put into place. Currently, this system includes the Constitution of the Russian Federation of 1993, the Civil Code of the Russian Federation and other federal laws, decrees, orders and regulations issued by the President, the Russian Government and federal ministries, which can be complemented by regional and local rules and regulations, adopted in certain spheres of regulation. Several fundamental Russian laws have only recently become effective and many are still evolving. Consequently, certain areas of judicial practice are not yet fully settled, and are therefore sometimes difficult to predict. The recent nature of the Russian legal system can result in inconsistencies in legal interpretations and impact the enforceability of law. Among the possible risks of the current Russian legal system are: • inconsistencies among (i) federal laws, (ii) decrees, orders and regulations issued by the President, the Russian Government, federal ministries and regulatory authorities and (iii) regional and local laws, rules and regulations;

26 • limited judicial and administrative guidance on interpreting Russian legislation; • the relative inexperience of judges, courts and arbitration tribunals in interpreting new principles of Russian legislation, particularly business and corporate law; • substantial gaps in the regulatory structure due to delay or absence of implementing legislation; and • a high degree of unchecked discretion on the part of governmental and regulatory authorities. There are also legal uncertainties relating to property rights in Russia. During Russia’s transformation to a market economy, the Russian Government has enacted legislation to protect property against expropriation and nationalisation, and, if property is expropriated or nationalised, legislation provides for fair compensation. However, there is no assurance that such protections would be enforced. Notwithstanding recent reforms of the Russian court system, the continued evolution of the Russian legal system could affect the Group’s ability to enforce its rights under contracts, or to defend itself against claims by others, which could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Findings of failure to comply with existing laws or regulations, unlawful, arbitrary or selective government action or increased governmental regulation of the Russian operations of the Group could result in substantial additional compliance costs or various sanctions. The Group’s operations and properties in Russia are subject to regulation by various government entities and agencies at both the federal and regional levels. Regulatory authorities often exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of licences and permits and in monitoring licensees’ compliance with licence terms, which may lead to inconsistencies in enforcement. Russian authorities have the right to, and frequently do, conduct periodic inspections of operations and properties of Russian companies throughout the year. Any such future inspections may conclude that the Group violated applicable laws, decrees or regulations. Findings that the Group failed to comply with existing laws or regulations or directions resulting from government inspections may result in the imposition of fines, penalties or more severe sanctions, including the suspension, amendment or termination of the Group’s licences or permits or in requirements that the Group suspend or cease certain business activities, or in criminal and administrative penalties being imposed on the Group’s officers. In addition, unlawful, arbitrary or selective government actions directed against other Russian companies (or the consequences of such actions) may generally impact on the Russian economy, including the securities market. Any such actions, decisions, requirements or sanctions, or any increase in governmental regulation of the Russian operations of the Group, could increase the Group’s costs and could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Shareholder liability under Russian legislation could cause NLMK to become liable for the obligations of its subsidiaries. Under Russian law, NLMK may be primarily liable for the obligations of its Russian subsidiaries jointly and severally with such entities if: (i) NLMK has the ability to make decisions for such Russian subsidiaries as a result of its ownership interest, the terms of a binding contract or in any other way; and (ii) the relevant Russian subsidiary concluded the transaction giving rise to the obligations pursuant to NLMK’s instructions or with the consent of NLMK. NLMK may also be held liable for damages incurred by its Russian subsidiaries, provided that (i) NLMK is found to have the ability to direct the actions of such subsidiaries and (ii) NLMK’s Russian subsidiaries have incurred damages as a result of NLMK’s fault. In addition, NLMK may have secondary liability for the obligations of its Russian subsidiaries if the subsidiary becomes insolvent or bankrupt as a result of the action of NLMK. Accordingly, NLMK could be liable in some cases for the debts of its subsidiaries, which could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

27 The accession of the Russian Federation to the World Trade Organisation may lead to changes in the business and legal environment in Russia. The Russian Federation officially became a member of the World Trade Organisation (‘‘WTO’’) on 22 August 2012. The accession was supposed to lead to significant changes in Russian legislation including, among others, the regulation of foreign investments in Russian companies and competition laws, as well as changes in the taxation system and customs regulations in Russia. Although during 2012-2015 Russia adopted certain changes to its legislation related to its accession to the WTO (for example, for regulation of intellectual property), it is unclear yet if and when all necessary legislative changes related to the accession will take place. In addition, the Russian Federation implemented annual tariff reductions in line with its WTO commitments. For instance, in September 2018, there was a decrease in tariffs on certain types of goods, including aircraft and cars. If further new legislation is implemented in Russia as a result of its accession to the WTO, such legislation could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

The Group is subject to antimonopoly laws enforced by Russian and regional regulatory bodies, which may result in certain limitations being imposed on the Group’s activities, the violation of which may result in civil, administrative and even criminal liability. Federal Law No. 135-FZ on Protection of Competition dated 26 July 2006, which came into force on 26 October 2006 (the ‘‘Competition Law’’), generally prohibits any concerted action, agreement or coordination of business activity that results or may result in, among other things: (a) price fixing, discounts, extra charges or margins; (b) coordination of auction bids; (c) partition of a commodity market by territory, volume of sales or purchases, types of goods, customers or suppliers; (d) refusal to enter into contracts with buyers (customers) for reasons other than economic or technological reasons; (e) imposing unfavourable contractual terms; (f) fixing disparate prices for the same goods, other than economic or technological reasons; (g) creation of barriers to entering or exiting a market; and (h) restriction of competition in any other way. There is no established court practice on what concerted actions or coordination of business activity is and courts interpret these concepts inconsistently. As a result, there is significant uncertainty as to what actions may be viewed as violation of the Competition Law. In a number of precedents, Russian courts found concerted actions where market participants acted in a similar way within the same period of time, although, arguably, there have been legitimate economic reasons for such behaviour and the behaviour was not aimed at restriction of competition. Therefore, there is a risk that the Group can be found in violation of the Competition Law if its market behaviour vis-a-vis` its customers or suppliers is viewed as being similar to behaviour of the Group’s competitors and perceived by the Federal Antimonopoly Service (‘‘FAS’’) as a purported restriction of competition. The Competition Law also prohibits any form of unfair competition, including, among other things, through defamation or otherwise. Such broad interpretations of the Competition Law may result in the FAS imposing substantial limitations on the Group’s activities, may limit operational flexibility and may result in civil, administrative and even criminal liability. As a major Russian steel and metalware producer, the Group has a market share in the transformer steel and dynamo steel markets in Russia that exceeds 50%, which means that the Group is deemed to have a dominant position in those markets. In other steel and metalware markets in Russia, the Group may have a market share that exceeds 35%, which, taking into account the rule of the Competition Law on a collective dominant position, may potentially lead to the Group having a dominant position with other persons in such other markets. Under the Competition Law, companies having a dominant position may be subject to restrictions on setting prices for their products, which may adversely affect the Group’s results of operations. See ‘‘Regulatory Matters—Regulation of Competition’’. The FAS, which has extensive powers to investigate perceived violations of the Competition Law, has been very active over the last several years in policing marketing, sales and supply strategies of major participants of the Russian steel industry. For example, in 2011, following an investigation, the FAS concluded that the Group had breached the Competition Law in setting prices for sales in Russia of electrical (transformer) steel. Following appeals in 2013-2014, higher courts dismissed the FAS claims and upheld the Group’s position. However, in similar cases in the future fines imposed by the FAS, or orders to change its business operations in a manner that increases costs or reduces profit margin and revenue could adversely affect the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

28 In addition, the Group’s gas pipeline facility at its Lipetsk site is deemed to be a ‘‘natural monopoly’’ for the purposes of Russian law, and, as a result, the Group may face additional regulation or restrictions on the use of such pipeline, including requirements to provide access to the pipeline to third parties or the imposition of pricing conditions. See ‘‘Regulatory Matters—Regulation of Natural Monopolies’’. In August 2016, the Eurasian Economic Commission (‘‘EEC’’), the authority responsible for antimonopoly regulation in the Eurasian Economic Union (‘‘EEU’’), including Russia, launched an antitrust investigation relating to transformer steel against the Group based on allegations that the Group was engaged in price discrimination in respect of certain transformer steel customers. On 26 September 2017, the EEC imposed fines on the Group in the amount of RUB 217 million (approximately US$3.1 million). Subsequently, the Russian Prime Minister Dmitry Medvedev filed an application with the EEC recommending that it consider setting aside the imposed fines. On 31 October 2017, the EEC suspended the decision on the imposition of fines on the Group until the Eurasian Intergovernmental Council, which can set aside, amend or suspend decisions adopted by the EEC, issues its decision on the matter. In November 2018, following the consideration of a further application to launch the antitrust investigation, the EEC recommended that the Group develop and adopt, upon negotiations with its stakeholders, a trading policy for transformer steel. A draft policy is currently being negotiated with the Group’s stakeholders, including antitrust authorities of the EEU member states and major consumers located in the EEU.

RISKS RELATING TO TAXATION The Russian taxation system is relatively underdeveloped. The Russian Government regularly revises its tax system by redrafting parts of the Tax Code of the Russian Federation (the ‘‘Russian Tax Code’’). Since 1 January 2009 the corporate profits tax rate has been 20%. For individuals who are tax residents in the Russian Federation the current personal income tax rate applicable to most types of income is 13%. As of 1 January 2019, the general rate of VAT was increased from 18% to 20%. Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of the Russian Federation, laws that introduce new taxes or worsen a taxpayer’s position cannot be applied retrospectively. Nonetheless, there have been several instances when such laws have been introduced and applied retrospectively. There is a possibility that the Russian Federation could impose arbitrary or onerous taxes and penalties in the future. For instance, legislatures of the Russian Federation’s regions are currently empowered to provide wide-ranging incentives such as reduced income tax rates for business units operating within the region’s territory. However, the federal government of the Russian Federation has recently initiated legislative amendments aimed at reducing region-level authority providing such preferential taxation. Thus, a reduction of the corporate profits tax rate at the regional level will be available solely for targeted types of taxpayers, defined at the federal level. The reduced regional profits tax rates that are currently applicable will remain in effect until 1 January 2023 (at the latest). These conditions complicate tax planning and related business decisions. The related uncertainties could also expose the Group to significant fines and penalties and potentially severe enforcement measures despite the Group’s best efforts at compliance, and could result in a greater than expected tax burden. This, in turn, could have a material adverse effect on the Group’s business, results of operations, financial condition or prospects, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under the Notes. Generally, taxpayers are subject to tax audit for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit was taken. In certain circumstances, repeated tax audits (i.e. audits with respect to the same taxes and the same periods) are possible. Generally, the statute of limitations for the commission of a tax offence is three years after the date on which the tax offence was committed or from the date following the end of the tax period during which the tax offence was committed (depending on the nature of the tax offence). Nevertheless, according to the Russian Tax Code and based on current judicial interpretation, there may be cases where the statute of limitations for tax offences may extend beyond three years. Tax audits or inspections may result in additional costs to the Group, in particular if the relevant tax authorities conclude that the Group did not satisfy its tax obligations in any given year. Such audits or inspections may also impose additional burdens on the Group by diverting the attention of management.

29 In October 2006, the Plenum of the Supreme Arbitrazh Court of the Russian Federation issued a resolution concerning judicial practice with respect to unjustified tax benefits. In this context, a tax benefit means a reduction in the amount of a tax liability resulting, in particular, from a reduction in the tax base, the receipt of a tax deduction or tax concession or the application of a lower tax rate or the receipt of a right to a refund (offset) or reimbursement of tax. The resolution provides that where the true economic intent of business operations is inconsistent with the manner in which it has been taken into account for tax purposes, a tax benefit may be deemed to be unjustified. The same conclusion may apply when an operation lacks a reasonable economic or business rationale. As a result, a tax benefit cannot be regarded as a business objective in its own right. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little case law applicable to distinguishing between lawful tax optimisation and tax avoidance or evasion. The tax authorities have actively sought to apply the resolution of the Supreme Arbitrazh Court when challenging tax positions taken by taxpayers in court, and are expected to extend its application in the future. Although the intention of this resolution is to combat tax abuses, in practice there can be no assurance that the tax authorities will not seek to apply this concept in a broader sense than may have been intended by the Supreme Arbitrazh Court. The above approach was further developed by amendments to the Russian Tax Code, which became effective on 19 August 2017. The amendments introduced the new Article 54.1 to the Russian Tax Code, which limits activities aimed at reducing the amount of taxes payable. Under these provisions, a taxpayer may not reduce the tax base and/or the amount of tax payable by misrepresenting information regarding economic events or the objects of taxation which are required to be disclosed in a taxpayer’s tax and/or accounting records or tax statements. A taxpayer has the right to reduce the tax base and/or the amount of taxes payable, provided that the following conditions are met: (i) it is not the principal objective of a transaction to cause an amount of tax not to be paid or to be refunded; or (ii) the obligation arising from a transaction was performed by a person who is a party to the contract concluded with the taxpayer and/or a person to whom such obligation was transferred by contract or law. The following circumstances do not, on their own, constitute grounds for a tax benefit to qualify as unjustified: (i) if primary documents were signed by unidentified or unauthorised persons; (ii) if a taxpayer’s counterparty violated the tax law; or (iii) if the same economic result could have been obtained through other transactions. As a result of these rules, it is possible that despite the best efforts of the Group to comply with Russian tax laws and regulations, certain transactions and activities of the Group that have not been challenged in the past may be challenged in the future, resulting in a greater than expected tax burden, exposure to significant fines and penalties and potentially severe enforcement measures for the Group. Recent developments show that the Russian tax authorities are scrutinising various tax planning and mitigation techniques used by taxpayers, including international tax planning. In particular, the Russian Federation introduced ‘‘controlled foreign companies’’ (‘‘CFC’’) rules, the concept of ‘‘tax residency for an organisation’’ and the ‘‘beneficial ownership’’ concept, and is increasingly engaged in the international exchange of tax and financial information (including through country-by-country reporting standards and common reporting standards developed and approved by the Organisation for Economic Co-operation and Development (the ‘‘OECD’’)). In 2017, the Russian Federation signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (‘‘MLI’’) implementing a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance. The law ratifying the MLI became effective on 12 May 2019 and the MLI itself would apply in the Russian Federation from 2020. It is currently unclear how the Russian tax authorities will interpret and apply the new tax provisions and what will be the possible impact on the Group. Therefore, it cannot be excluded that the Group might be subject to additional tax liabilities if these changes are applied to transactions carried out by the Group. Furthermore, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue-raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures may affect the Group’s overall tax efficiency and may result in significant additional taxes becoming payable. No assurance can be given that no additional tax exposures will arise for the Group. All the aforesaid evolving tax conditions create tax risks in the Russian Federation that are greater than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on the Group’s operations, including management’s

30 resources. Furthermore, these risks and uncertainties complicate the Group’s tax planning and related business decisions, potentially exposing the Group to significant fines, penalties and enforcement measures, and could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

Consolidation of certain Group companies for Russian tax purposes could be subject to challenge by the Russian tax authorities. In accordance with the amendments to the Russian Tax Code introduced in November 2011, in 2012 NLMK’s management set up a consolidated group of taxpayers (the ‘‘Consolidated Group of taxpayers’’) which includes 20 Group companies as of the date of this Prospectus. The companies among the Consolidated Group of taxpayers are considered a single taxpayer for profits tax purposes. Furthermore, as part of the Consolidated Group of taxpayers the Group companies may reduce the profits tax base of the current tax period by the amount of tax losses incurred by one of the members of the Consolidated Group of taxpayers in such tax period. According to Russian tax law, the transactions conducted between Group companies included in the Consolidated Group of taxpayers should not be considered controlled transactions for transfer pricing purposes. However, there can be no assurance that the above Russian tax treatment of the Group companies as the Consolidated Group of taxpayers will not be challenged by the Russian tax authorities throughout the term of the Loan. However, Federal Law No. 302-FZ dated 3 August 2018 has terminated the right to register new agreements on the establishment of consolidated groups, as well as amendments in existing agreements to include new organizations in a group, and amendments to extend an agreement. Moreover, already executed and registered agreements are valid until the expiration date but no later than 1 January 2023. Starting from 1 January 2023, a consolidated group of taxpayers would not be considered as a single taxpayer and each company will be obliged to comply with the Russian tax law individually. This could lead to an increase in the Group’s tax base since the companies would not be able to offset tax losses of every single member to the single profit tax base and all the transactions, which are considered controlled under the Russian Tax Code, will be subject to Russian transfer pricing rules. See ‘‘—Russian transfer pricing rules may subject the Group’s transfer prices to challenge by the Russian tax authorities’’.

Russian transfer pricing rules may subject the Group’s transfer prices to challenge by the Russian tax authorities. The Russian transfer pricing legislation allows the Russian tax authorities to make transfer pricing adjustments and impose additional tax liabilities with respect to ‘‘controlled’’ transactions. The list of ‘‘controlled’’ transactions under the transfer pricing legislation includes transactions performed with related parties and certain types of cross-border transactions with unrelated parties. Starting from January 2019, (i) transactions between related parties are no longer ‘‘controlled’’ if both related parties are located in the Russian Federation and apply the same corporate profits tax rate (i.e. 20%); and (ii) the minimum threshold of RUB 60 million is introduced for cross-border transactions between related parties. This legislation also shifts the burden of proving market prices from the Russian tax authorities to the taxpayer. Although Russian transfer pricing rules were modelled based on the transfer pricing principles developed by the OECD, there are some peculiarities as to how the OECD transfer pricing principles are reflected in the Russian rules. Special transfer pricing rules continue to apply to transactions with securities and derivatives. Accordingly, due to uncertainties in the interpretation of the Russian transfer pricing legislation and undeveloped court practice, no assurance can be given that the Russian tax authorities will not challenge the Group’s prices and make adjustments which could adversely affect the Group’s tax position. The Russian transfer pricing rules could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement, all of which may affect the trading price of the Notes. See ‘‘—Consolidation of certain Group companies for Russian tax purposes could be subject to challenge by the Russian tax authorities’’.

Payments on the Loan may be subject to Russian withholding tax. In general, interest payments on borrowed funds made by a Russian legal entity to non-residents are subject to Russian withholding tax at a rate of 20% for legal entities or organisations and 30% for

31 non-resident individuals, unless such withholding is reduced or eliminated pursuant to the terms of an applicable double tax treaty (See ‘‘Taxation—Certain Russian Tax Considerations’’). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid with respect to ‘‘quoted bonds’’ (as defined below). In particular, Russian borrowers are exempted from the obligation to withhold Russian withholding tax from interest payments made to foreign companies on debt obligations arising in connection with placement by these foreign companies of quoted bonds, provided that: (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer; and (2) the issuer duly confirms its tax residence. For the purpose of the Russian Tax Code, ‘‘quoted bonds’’ means bonds and other debt obligations (1) which passed the listing procedure and/or (2) which were admitted to circulation on one or more foreign stock exchanges and/or (3) rights to which are recorded by a foreign depositary-clearing organisation, provided such foreign stock exchanges and depositary-clearing organisations are specified in the list of foreign financial intermediaries (the ‘‘List’’). The List includes Euronext Dublin amongst the recognised foreign stock exchanges and Euroclear, the Depository Trust & Clearing Corporation (‘‘DTCC’’) and Clearstream, Luxembourg amongst the recognised foreign depositary-clearing organisations. While DTCC is mentioned in the List, the List does not explicitly mention Depository Trust Company (‘‘DTC’’). According to the shareholding structure of DTCC group, DTC is a member entity of DTCC. However, there is a residual risk that the Russian tax authorities may apply a formalistic approach and take a position that DTC is not included in the List based on the fact that it is not explicitly mentioned in the List. Criteria (1) and (2) should be satisfied as the Notes will be listed on Euronext Dublin. The Notes should satisfy criterion (3) because the rights to the Notes will be held in Euroclear and Clearstream, Luxembourg and/ or DTC, which for the purposes of the Russian Tax Code essentially should mean that the rights to the Notes are ‘‘recorded’’ with one of the above foreign depositary-clearing organisations. According to the Russian Tax Code, in order to be treated as ‘‘quoted bonds’’ fulfilment of one of the above criteria is sufficient. Therefore, the Notes should be recognised as ‘‘quoted bonds’’ for purposes of the Russian Tax Code. NLMK, based on professional advice received, believes that it should not be obligated to withhold Russian withholding tax from interest payments made to the Issuer under the Loan Agreement because (i) the Notes should be considered ‘‘quoted bonds’’ as described above; and (ii) the Loan is financed from the funds received from the issue of the Notes; provided the Issuer duly confirms its Irish tax residence. If the Notes are (i) delisted from Euronext Dublin and (ii) exchanged for duly executed and authenticated registered Notes in definitive form in the limited circumstances specified in the Global Note Certificate, the above exemption related to ‘‘quoted bonds’’ could not apply and NLMK will be required to withhold Russian income tax on interest payments made by NLMK to the Issuer. Besides that, if the Notes are delisted from Euronext Dublin and deposited with a common depository for, and registered in the name of a nominee of, Clearstream, Luxembourg or DTC only, the Notes may potentially not fall within the definition of ‘‘quoted bonds’’ under the Russian Tax Code and, therefore, there is a residual risk that NLMK may be required to withhold Russian tax from interest payments made by NLMK to the Issuer. Importantly, the Russian Tax Code does not provide an exemption to the foreign interest income recipients from Russian withholding tax, although currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay Russian tax (provided that such legal entities are neither Russian tax residents, nor foreign entities, which are recognised as controlled by the Russian tax residents under the Russian CFC Rules). However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities will not attempt to collect the tax from foreign income recipients. See ‘‘Taxation—Certain Russian Tax Considerations’’. If any payments under the Loan are subject to any Russian or Irish withholding tax, NLMK will be obliged to increase the amounts payable as may be necessary to ensure that the Issuer (or other recipient) receives a net amount equal to the amount it would have received in the absence of such withholding taxes. In addition, payments in respect of the Notes will be made without deduction or withholding for or on account of taxes except as required by law or regulation. Subject to certain exceptions (see ‘‘Taxation— Certain Irish Tax Considerations’’), in the event that any deduction or withholding for or on account of Irish taxes is required by law or regulation with respect to payments under the Notes, NLMK will be obliged to increase the amount payable under the Loan Agreement to the extent necessary to ensure that the Issuer receives (or the Noteholders receive, as applicable) the amount which would have been received had such

32 deduction or withholding not been required. If withholding in respect of payments pursuant to the Loan Agreement occurs as a result of application of any amendments or clarification to, or change in the Russian/Ireland tax treaty or as a result of the application of Russian withholding tax, NLMK has a right to prepay the Loan in accordance with clause 5.2 of the Loan Agreement. While the Loan Agreement provides for NLMK to pay such corresponding amounts in these circumstances, there are some doubts as to whether a tax gross up clause such as that contained in the Loan Agreement is enforceable under Russian law. Due to the limited recourse nature of the Notes, if NLMK fails to pay any such gross up amounts, the amount payable by the Issuer under the Notes will be correspondingly reduced. Any failure by NLMK to increase such payments would constitute an Event of Default under the Loan Agreement. In certain circumstances (including following enforcement of the security upon the occurrence of a ‘‘Relevant Event’’ as defined in the Trust Deed), in the event that NLMK is obliged to increase the amounts payable, it may prepay the principal amount of the Loan together with accrued interest and/or additional amounts payable (if any) thereon, and all outstanding Notes would be redeemed by the Issuer (to the extent that it has actually received the relevant funds from NLMK). The Issuer will grant security over certain of its rights in the Loan Agreement to the Trustee in respect of its obligations under the Notes. The security under the Trust Deed will become enforceable upon the occurrence of a Relevant Event, as defined in the Trust Deed. In these circumstances, payments under the Loan Agreement (other than in respect of ‘‘Reserved Rights’’, as described in ‘‘Terms and Conditions of the Notes’’) would be required to be made to, or to the order of, the Trustee. Under Russian tax law, payments of interest and other payments made by NLMK to the Trustee will in general be subject to Russian income tax withholding at a rate of 20% (or, potentially, 30% in respect of non-resident individual Noteholders). It is not expected that the Trustee will, or will be able to, claim a withholding tax exemption under any double tax treaty. However, pursuant to the Russian Tax Code, it is possible that NLMK will be exempt from the obligation to withhold Russian withholding tax from interest payments to the Trustee under the exemption established for ‘‘quoted bonds’’ (as described above). However, there is ambiguity as to the applicability of the exemption in this situation. If the exemption does not apply and tax is withheld it may be possible for some Noteholders who may be eligible for an exemption from Russian withholding tax under double tax treaties and the applicable Russian tax law to claim a refund of tax withheld, although there would be considerable practical difficulties in obtaining any such refund. It is currently unclear whether the provisions obliging NLMK to gross up payments will be enforceable in the Russian Federation. If, in the case of litigation in the Russian Federation, a Russian court does not rule in favour of the Issuer or the Trustee and Noteholders, there is a risk that a gross up for withholding tax will not take place and that interest payments made by NLMK under the Loan Agreement will be reduced by Russian tax withheld by NLMK at the rate of 20%, or, potentially, with respect to Non-Resident Noteholders—Individuals Russian personal income tax at a rate of 30%. See ‘‘Taxation—Certain Russian Tax Considerations’’. In addition, in the event that the Issuer’s interest expenses on the Notes (and on any other ‘‘quoted bonds’’ issued by the Issuer) represent less than 90% of the total expense of the Issuer in any financial year, there is a risk that tax residence rules established by the Russian Tax Code may be applied to the Issuer and the Issuer may be treated as a tax resident of the Russian Federation for Russian tax law purposes in case the Issuer is recognised as managed from the Russian Federation under applicable Russian tax law. In that case, payments of interest under the Notes made by the Issuer to the Noteholders could be recognised by Russian tax authorities as subject to Russian withholding tax at a rate of 20% (or 30% with respect to Non-Resident Noteholders—Individuals). See ‘‘—Payments under the Notes may be subject to Russian withholding tax’’.

Tax might be withheld on disposals of the Notes in the Russian Federation, thereby reducing their value. If a non-resident Noteholder that is a legal entity or organisation, which in each case is not organised under Russian law and which holds and disposes of the Notes otherwise than through a permanent establishment in Russia, sells the Notes and receives proceeds from a source within the Russian Federation, there is a risk that any part of the payment that represents accrued interest may be subject to a 20% Russian withholding tax (even if a disposal is performed at a loss). The foreign Noteholder may be entitled to a reduction of such Russian withholding tax under an applicable double tax treaty. Where proceeds from a disposal of the Notes are received from a source within the Russian Federation by a non-resident Noteholder that is an individual, there is a risk that Russian withholding tax would be charged (or such Noteholder would be required to pay Russian personal income tax on a self-assessment

33 basis) at a rate of 30% on gross proceeds from such disposal of the Notes less any available documented costs (including the acquisition cost of the Notes). Although such tax may be reduced or eliminated under an applicable double tax treaty, subject to compliance with the treaty clearance formalities, in practice individuals would not be able to obtain advance treaty relief in relation to proceeds from a source within the Russian Federation. Obtaining a refund of taxes withheld can be extremely difficult, if not impossible. The imposition or possibility of imposition of the withholding tax could adversely affect the value of the Notes. See ‘‘Taxation—Certain Russian Tax Considerations’’.

Payments under the Notes may be subject to Russian withholding tax. Payments made by the Issuer under the Notes may be subject to Russian withholding tax if the Issuer is treated as a Russian tax resident or if the Issuer’s activities lead to creation of a permanent establishment for the Issuer in the Russian Federation. In these cases, payments of interest under the Notes made by the Issuer to the Non-Resident Noteholders could be recognised by Russian tax authorities as subject to Russian withholding tax at a rate of 20% (or 30% in respect of Individual Non-Resident Noteholders). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid by a Russian organisation to Legal Entity Non-Resident Noteholders under ‘‘quoted bonds’’ issued in accordance with the legislation of a foreign jurisdiction (this exemption is also applicable to foreign organisations, which are either recognised as Russian tax residents, or recognised as organisations, the activities of which lead to the creation of a permanent establishment in the Russian Federation). The Issuer believes that the Notes should be recognised as ‘‘quoted bonds’’ for the purposes of the Russian Tax Code. For details, see ‘‘Taxation—Certain Russian Tax Considerations’’. The Issuer believes that it should be released from the obligation to withhold Russian withholding tax from interest payments made to Legal Entity Non-Resident Noteholders under the Notes provided that the Notes continue to be recognised as ‘‘quoted bonds’’ for the purposes of the Russian Tax Code as outlined above. If the Issuer’s activities lead to the creation of a permanent establishment for the Issuer in the Russian Federation, the payments under the Notes (including interest and principal amounts under the Notes) made by the Issuer to Individual Non-Resident Noteholders less any available cost deduction could be subject to Russian taxation at a rate of 30% subject to any available double tax treaty relief (for details, see ‘‘Taxation—Certain Russian Tax Considerations—Double Tax Treaty Relief’’). Also, if the Issuer is treated as a Russian tax resident or if the Issuer’s activities lead to the creation of a permanent establishment in the Russian Federation, the Issuer will be fully subject to all applicable Russian taxes in accordance with the Russian tax law and will be exposed to all of the risks and implications associated with the Russian tax system. However, up to date there is no relevant court precedents or negative enforcement practice.

Risks relating to changes in Irish tax law. OECD Action Plan on Base Erosion and Profit Shifting Fiscal and taxation policy and practice is constantly evolving and recently the pace of change has increased due to a number of developments. In particular, a number of changes of law and practice are occurring as a result of the Organisation for Economic Co-operation and Development (‘‘OECD’’) Base Erosion and Profit Shifting project (‘‘BEPS’’). Investors should note that certain action points which form part of the OECD BEPS project (such as Action 4, which can deny deductions for financing costs, see See ‘‘—EU Anti-Tax Avoidance Directive’’ or Action 6 on the prevention of treaty abuse) may be implemented in a manner which affects the tax position of the Issuer.

EU Anti-Tax Avoidance Directive As part of its anti-tax avoidance package, and to provide a framework for a harmonised implementation of a number of the BEPS conclusions across the EU, the EU Council adopted Council Directive (EU) 2016/1164 (the ‘‘Anti-Tax Avoidance Directive’’ on 12 July 2016. The EU Council adopted Council Directive (EU) 2017/952 (the ‘‘Anti-Tax Avoidance Directive 2’’) on 29 May 2017, amending the Anti-Tax Avoidance Directive, to provide for minimum standards for counteracting hybrid mismatches involving EU member states and third countries.

34 EU member states must implement the Anti-Tax Avoidance Directive by 2019 (subject to derogations for EU member states which have equivalent measures in their domestic law) and have until 31 December 2019 to implement the Anti-Tax Avoidance Directive 2 (except for measures relating to reverse hybrid mismatches, which must be implemented by 31 December 2021). The Directives contain various measures that could, depending on their implementation in Ireland, potentially result in certain payments made by the Issuer ceasing to be fully deductible. This could increase the Issuer’s liability to tax and reduce the amounts available for payments on the Notes. There are two measures of particular relevance. Firstly, the Anti-Tax Avoidance Directive provides for an ‘‘interest limitation rule’’ which restricts the deductible net borrowing cost of an entity to 30% of its earnings before interest, tax, depreciation and amortisation. Net borrowing costs of an entity is the amount by which its borrowing costs (including interest expense) exceed its taxable interest revenues and other economically equivalent taxable revenues. Secondly, the Anti-Tax Avoidance Directive (as amended by the Anti-Tax Avoidance Directive 2) provides for hybrid mismatch rules. These rules are designed to neutralise arrangements where amounts are deductible from the income of one entity but are not taxable for another, or the same amounts are deductible for two entities. These rules could potentially apply to the Issuer where: (i) the interest that it pays under the Notes, and claims deductions from its taxable income for, is not brought into account as taxable income by the relevant Noteholder, either because of the characterisation of the Notes, or the payments made under them, or because of the nature of the Noteholder itself; and (ii) the mismatch arises between associated enterprises, between the Issuer and an associated enterprise or under a structured arrangement. The exact scope of these two measures, and impact on the Issuer’s tax position, will depend on the implementation of the measures in Ireland.

RISKS RELATING TO THE NOTES AND THE TRADING MARKET Payments under the Notes are limited to the amount of certain payments received by the Issuer from NLMK under the Loan Agreement. The Issuer has an obligation under the Terms and Conditions of the Notes and the Trust Deed to pay such amounts of principal, interest, and additional amounts (if any) as are due in respect of the Notes. However, the Issuer’s obligation to pay is limited to the amount of principal, interest, and additional amounts (if any) actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement. Consequently, if NLMK fails to meet its payment obligations under the Loan Agreement, this will result in the Noteholders receiving less than the scheduled amount of principal or interest or any other amounts, if any, on the relevant due date. Moreover, except as otherwise expressly provided in the ‘‘Terms and Conditions of the Notes’’ and in the Trust Deed, the Noteholders will not have any proprietary or other direct interest in the Issuer’s rights under, or in respect of, the Loan Agreement. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions of the Loan Agreement, or have direct recourse to NLMK, except through action by the Trustee under the Charge (as defined in the ‘‘Terms and Conditions of the Notes’’) or any assignment of rights, including the Assigned Rights (as defined in the ‘‘Terms and Conditions of the Notes’’). Furthermore, Noteholders should be aware that neither the Issuer or the Trustee accepts any responsibility for the performance by NLMK of its obligations under the Loan Agreement (see ‘‘Terms and Conditions of the Notes’’).

The right of the Issuer to receive payments under the Loan (and therefore its ability to make payments under the Notes as they fall due) is effectively subordinated to any liabilities of NLMK’s subsidiaries, and the ability of Noteholders to recover in full could be adversely affected if NLMK, or any of its subsidiaries, declares bankruptcy, liquidates or reorganises. Some of the Group’s operations are conducted through NLMK’s subsidiaries, and, to a certain extent, NLMK depends on the earnings and cash flows of these subsidiaries to meet its debt obligations, including its obligations under the Loan Agreement. Some of NLMK’s subsidiaries have material liabilities, and many of those liabilities are secured. Since NLMK’s subsidiaries do not guarantee its payment obligations under the Loan Agreement or the Issuer’s payment obligations under the Notes, neither the Issuer nor Noteholders will have any direct claim on NLMK’s subsidiaries’ cash flows or assets. In the event of a

35 bankruptcy, liquidation or reorganisation of any of NLMK’s subsidiaries, their creditors will generally be entitled to payment of their claims from the cash flows and assets of those subsidiaries before any cash flows or assets are made available for distribution to NLMK as a shareholder. This may adversely affect NLMK’s ability to service its payment obligations under the Loan Agreement. In addition, a Noteholder’s claims in the currency of the Notes (US dollars) may be converted into roubles in any Russian bankruptcy proceedings and, therefore, in addition to the general risks of less than full recovery associated with any bankruptcy (or similar) proceedings, Noteholders may be adversely affected by movements in the currency exchange rates between the rouble and the US dollar.

The trading price of the Notes may be volatile. The trading price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the Group’s or its competitors’ operating results, adverse business developments, changes to the regulatory environment in which the Group operates, changes in financial estimates by securities analysts, and the actual or expected sale of a large number of debt securities similar to the Notes, as well as other factors. Any such disruptions may harm Noteholders. In addition, in recent years, the global financial markets have experienced significant price and volume fluctuations that, if repeated in the future, could adversely affect the trading price of the Notes without regard to the Group’s results of operations, prospects or financial condition.

The lack of a public market for the Notes could reduce the value of an investment in the Notes. There may not be an existing market for the Notes at the time they are issued. The Notes are expected to be listed and admitted to trading on the regulated market of Euronext Dublin. However, there can be no assurance that a liquid market will develop for the Notes, that Noteholders will be able to sell their Notes or that such holders will be able to sell their Notes for a price that reflects their value.

The Notes may or must be redeemed early in a number of circumstances, and NLMK may be unable to repay its obligations under the Loan Agreement. In certain circumstances, as more fully described in ‘‘Terms and Conditions of the Notes’’, NLMK may, or in some cases must, prepay the Loan in whole or in part together with accrued interest at any time, and (if and to the extent that it has actually received the relevant funds from NLMK) the Issuer shall redeem all outstanding Notes in accordance with the Terms and Conditions of the Notes. On such redemption, or at maturity, NLMK may not have the funds to fulfil its obligations under the Loan Agreement and it may not be able to arrange for additional financing. If the early repayment or maturity date of the Loan occurs at a time when other arrangements prohibit NLMK from repaying the Loan, NLMK may try to obtain waivers of such prohibitions from the lenders under those arrangements, or it could attempt to refinance the borrowings that contain the restrictions. If NLMK could not obtain the waivers or refinance these borrowings, it may be unable to repay the Loan.

Changes to NLMK’s credit rating or that of the Russian Federation may adversely affect the Notes’ trading price. It is expected that the Notes will be rated BBB by Fitch and Baa2 by Moody’s. Any changes in the credit ratings of NLMK or the sovereign rating of the Russian Federation could adversely affect the trading price of the Notes. During the course of 2014, international rating agencies Standard & Poor’s and Moody’s downgraded their foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ and ‘Baa2’, respectively, with negative outlook. On 26 January 2015, Standard & Poor’s cut its long-term foreign currency sovereign bond rating for the Russian Federation to ‘BB+’ with negative outlook and on 20 February 2015, Moody’s cut its sovereign debt rating for the Russian Federation to Ba1 with negative outlook; each of these ratings is below ‘investment grade’. On 9 January 2015, Fitch downgraded its foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ with negative outlook. However, during 2016-2018 Russia’s sovereign rating was constantly recovering back to the investment grade. Further, on 18 January 2019, Standard & Poor’s affirmed Russia’s long-term foreign currency sovereign bond rating at ‘BBB’ with stable outlook, on 8 February 2019 Moody’s upgraded its sovereign debt rating for the Russian Federation to ‘Baa3’ with stable outlook, and on 15 February 2019 Fitch affirmed its foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ with positive outlook.

36 A change in the credit rating of one or more other Russian corporate borrowers or banks could also adversely affect the trading price of the Notes. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation.

Noteholders’ rights will be limited so long as the Notes are issued in book-entry interests. Owners of book-entry interests will not be considered owners or holders of Notes unless and until definitive notes are issued in exchange for book-entry interests. Instead, Euroclear, Clearstream, Luxembourg, or DTC or their nominees, will be the sole holders of the Notes. Payments of principal, interest and other amounts owing on or in respect of the Notes in global form will be made as described in ‘‘Overview of the Provisions Relating to the Notes in Global Form’’ and none of the Issuer, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to, or payments of interest, principal or other amounts to, Euroclear, Clearstream, Luxembourg or DTC, or to owners of book-entry interests. Owners of book-entry interests will not have the direct right to act upon any solicitation for consents or requests for waivers or other actions from holders of the Notes, including enforcement of security for the Notes. Instead, Noteholders who own a book-entry interest will be reliant on the nominees for the common depositary or custodian (as registered holder of the Notes) to act on their instructions and/or will be permitted to act directly only to the extent such holders have received appropriate proxies to do so from Euroclear, Clearstream, Luxembourg or DTC or, if applicable, from a participant. There can be no assurances that procedures implemented for the granting of such proxies will be sufficient to enable the Noteholders to vote on any requested actions or to take any other action on a timely basis.

Further Issues of Securities by the Issuer may affect the trading price of the Notes. The Issuer may from time to time, without the consent of the Noteholders, create and issue further securities having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them, the date of issue and the amount of principal) so as to be consolidated and form a single series with the Notes. Even if such additional securities are treated for non-tax purposes as part of the same series as the Notes, such additional securities may in some cases be treated as a separate series for U.S. federal income tax purposes. In such a case, among other things, such additional securities may be treated as issued with original issue discount (‘‘OID’’) even if the Notes were not issued with OID, or such additional securities may have a greater amount of OID than the Notes for U.S. federal income tax purposes. Additionally, further issues of securities could affect the application of FATCA with respect to the Notes. These differences may affect the market value of the Notes if such additional securities are not otherwise distinguishable from the Notes.

Examiners, preferred creditors under Irish law and floating charges may impose additional risks on the Notes. COMI The Issuer has its registered office in Ireland. Under Regulation (EU) No. 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (the ‘‘Recast EU Insolvency Regulation’’), the Issuer’s centre of main interest (‘‘COMI’’) is presumed to be the place of its registered office (i.e. Ireland) in the absence of proof to the contrary and provided that the Issuer did not move its registered office within the 3 months prior to a request to open insolvency proceedings. As the Issuer’s COMI is presumed to be Ireland, any main insolvency proceedings in respect of the Issuer would fall within the jurisdiction of the courts of Ireland. As to what might constitute ‘‘proof to the contrary’’ regarding the location of a company’s COMI, the key decision is that in Re Eurofood IFSC Ltd ([2004] 4 IR 370 (Irish High Court); [2006] IESC 41 (Irish Supreme Court); [2006] Ch 508; ECJ Case C-341/04 (European Court of Justice)), given in respect of the equivalent provision in the previous EU Insolvency Regulation (Regulation (EC) No. 1346/2000). In that case, on a reference from the Irish Supreme Court, the European Court of Justice concluded that ‘‘factors which are both objective and ascertainable by third parties’’ would be needed to demonstrate that a company’s actual situation is different from that which the location of its registered office is deemed to reflect. For instance, if a company with its registered office in Ireland does not carry on any business in Ireland, that could rebut the presumption that the company’s COMI is in Ireland.

37 As the Issuer has its registered office in Ireland, the majority of its directors are tax resident in Ireland and is registered for tax in Ireland, the Issuer does not believe that factors exist that would rebut the presumption that its COMI is located in Ireland, although this would ultimately be a matter for the relevant court to decide based on the circumstances existing at the time when it was asked to make that decision. If the Issuer’s COMI was found to be in another EU jurisdiction and not in Ireland, main insolvency proceedings would be opened in that jurisdiction instead.

Examinership Examinership is a court moratorium/protection procedure which is available under Irish company law to facilitate the survival of Irish companies in financial difficulties. Where a company, which has its COMI in Ireland is, or is likely to be, unable to pay its debts an examiner may be appointed on a petition to the relevant Irish court under Section 509 of the Companies Act 2014. The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, negative pledges given by the company prior to his appointment will not be binding on the company. Furthermore, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties. During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the relevant Irish court when a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and the relevant Irish court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and the proposals are not unfairly prejudicial to any interested party. The fact that the Issuer is a special purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer. If however, for any reason, an examiner were appointed while any amounts due by the Issuer under the Notes were unpaid, the primary risks to the holders of Notes would be as follows: • the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and • a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders’ views.

Preferred Creditors If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular: • under the terms of the Trust Deed, the Issuer will charge to the Trustee on behalf of Noteholders by way of first fixed charge (the ‘‘Charge’’) as security for its payment obligations in respect of the Notes certain rights under the Loan Agreement and to the Account. Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE and VAT; • under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a fixed charge may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and

38 • in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges.

The proposed financial transactions tax (‘‘FTT’’) On 14 February 2013, the European Commission adopted a proposal (the ‘‘Commission’s Proposal’’) for a Directive for a common FTT in Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain (the ‘‘participating Member States’’). However, Estonia has since stated that it will not participate. The Commission’s Proposal has a very broad scope and could, if introduced, apply to certain transactions relating to the Notes (including secondary market transactions) in certain circumstances. Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain transactions relating to the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, ‘‘established’’ in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State. On 8 December 2015, 10 of the participating Member states issued a statement indicating an agreement on certain features of the FTT. According to this statement, the FTT would apply to certain transactions on shares and derivatives. However, the FTT would not apply to transactions relating to the Notes if it is implemented with the same feature as described in the 8 December 2015 statement. However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.

39 USE OF PROCEEDS The Issuer will use the proceeds received from the issue and sale of the Notes for the sole purpose of making the Loan. NLMK intends to use the proceeds of the Loan for general corporate purposes. The commissions, costs and expenses in connection with the issuance and offering of the Notes and the admission to trading thereof will be paid by NLMK.

40 CAPITALISATION The following table sets forth NLMK’s consolidated capitalisation as of 31 March 2019, derived from the Interim Financial Statements included elsewhere in this Prospectus. The following table should be read in conjunction with ‘‘Selected Consolidated Financial Information’’, ‘‘Operating and Financial Review’’ and the Financial Statements included elsewhere in this Prospectus.

As of 31 March 2019 (Amounts in millions of US dollars) Cash and cash equivalents ...... 736 Long-term borrowings ...... 1,872 Equity attributable to NLMK shareholders Common stock ...... 221 Additional paid-in capital ...... 9 Accumulated other comprehensive loss ...... (6,376) Retained earnings ...... 12,752 Non-controlling interest ...... 16 Total equity ...... 6,622 Total long-term borrowings and equity ...... 8,494

The Group expects to receive net proceeds from the offering of the Notes of approximately US$497,000,000 (taking into account the estimated total commissions and expenses payable in relation to the offering of the Notes and the admission to trading of the Notes, which are expected to be approximately US$3,000,000).

41 SELECTED CONSOLIDATED FINANCIAL INFORMATION The tables below set forth certain selected historical consolidated financial information of the Group. The selected historical consolidated financial information as of and for the years ended 31 December 2018, 2017 and 2016 set forth below has been derived from the Annual Financial Statements included elsewhere in this Prospectus. The financial information as of and for the three months ended 31 March 2019 and 2018 has been derived from the Interim Financial Statements. The selected historical consolidated financial information should be read in conjunction with ‘‘Operating and Financial Review’’ and the Financial Statements included elsewhere in this Prospectus.

Three months ended Year ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars unless otherwise indicated) Selected consolidated statement of profit or loss data Revenue ...... 12,046 10,065 7,636 2,869 2,794 Cost of sales ...... (7,680) (6,798) (5,074) (1,988) (1,815) Gross profit ...... 4,366 3,267 2,562 881 979 General and administrative expenses ...... (375) (364) (316) (82) (86) Selling expenses ...... (886) (788) (699) (226) (211) Net impairment losses on financial assets . . (1) (7) (6) (1) (1) Other operating (expenses)/income, net .... (4) 3 16 2 (1) Taxes other than income tax ...... (88) (80) (70) (15) (23) Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment ...... 3,012 2,031 1,487 559 657 (Loss)/gain on disposals of property, plant and equipment ...... (7) (1) (3) — 2 Impairment of non-current assets ...... (4) (17) (14) (5) — Share of results of joint ventures ...... (243) (90) (61) 4 (21) Result of disposal of subsidiary ...... ————— Income on change of restructuring provision ————— Losses on investments, net ...... (2) (5) (4) — — Finance income ...... 21 29 39 4 10 Finance costs ...... (70) (87) (105) (16) (19) Foreign currency exchange gain/(loss), net . . 33 17 (129) (61) 9 Other expenses, net ...... (11) (54) (38) (20) (10) Profit before income tax ...... 2,729 1,823 1,172 465 628 Income tax expense ...... (486) (371) (233) (83) (124) Profit for the year ...... 2,243 1,452 939 382 504 Profit attributable to: Novolipetsk Steel shareholders ...... 2,238 1,450 935 382 502 Non-controlling interests ...... 524—2 Earnings per share—basic and diluted: Earnings per share attributable to Novolipetsk Steel shareholders (US dollars) ...... 0.3734 0.2419 0.1560 0.0637 0.0838 Weighted-average number of shares outstanding: basic and diluted (in thousands) ...... 5,993,227 5,993,227 5,993,227 5,993,227 5,993,227

42 Three months ended Year ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Selected consolidated statement of cash flows data Net cash provided by operating activities ...... 2,741 1,899 1,699 851 737 Net cash provided by/(used in) investing activities ...... 290 (758) (310) (664) 185 Net cash used in financing activities ...... (2,119) (1,459) (1,120) (616) (495) Net increase/(decrease) in cash and cash equivalents ...... 912 (318) 269 (429) 427 Cash and cash equivalents at the end of the period ...... 1,179 301 610 736 732

As at 31 December As at 2018 2017 2016 31 March 2019 (Amounts in millions of US dollars) Selected consolidated statement of financial position data Current assets ...... 4,350 4,711 4,103 4,071 Non-current assets ...... 5,594 6,285 6,136 6,103 Total Assets ...... 9,944 10,996 10,239 10,174 Current liabilities ...... 2,073 1,999 1,729 1,309 Non-current liabilities ...... 2,037 2,351 2,200 2,243 Total Liabilities ...... 4,110 4,350 3,929 3,552 Total Equity ...... 5,834 6,646 6,310 6,622 Total Liabilities and Equity ...... 9,944 10,996 10,239 10,174

As at or for the three months As at or for the year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars unless otherwise indicated)) Non-IFRS measures Adjusted EBITDA(1) ...... 3,589 2,655 1,943 695 812 Adjusted EBITDA margin (%)(2) ...... 30 26 25 24 29 Net debt(3) ...... 891 923 761 915 883 Net debt to Adjusted EBITDA(4) ...... 0.25 0.35 0.39 0.26 0.31 Free cash flow (FCF)(5) ...... 2,027 1,266 1,092 678 599

(1) The Group’s Adjusted EBITDA for all periods presented was calculated as shown in the reconciliation below. The Group previously reported Adjusted EBITDA calculated using a different method and those amounts are not presented in this Prospectus. NLMK presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Group’s industry. Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis of the Group’s operating results as reported under IFRS. Some of these limitations are as follows:

• (i) Adjusted EBITDA does not reflect the impact of financing costs, which are significant and could further increase if the Group incurs more debt, on the Group’s operating performance; (ii) Adjusted EBITDA does not reflect the impact of income taxes on the Group’s operating performance; (iii) Adjusted EBITDA does not reflect the impact of depreciation and amortisation on the Group’s operating performance. The assets of the Group’s business that are being depreciated and/or amortised will likely have to be replaced in the future and such depreciation and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from Adjusted EBITDA measures, they do not reflect the Group’s future cash requirements for these replacements; (iv) Adjusted EBITDA does not reflect the impact of gain or loss on disposal of property, plant and equipment; (v) Adjusted EBITDA does not reflect the impairment losses and write-off of assets; (vi) Adjusted EBITDA does not reflect the share in net losses of associates and other companies; (vii) Adjusted EBITDA does not reflect gains on investments; (viii) Adjusted EBITDA does not reflect foreign currency exchange gain, net; (ix) Adjusted EBITDA does not reflect other expenses, net, and (x) Adjusted EBITDA excludes items that the Group considers to be one-off or unusual, but such items may in fact occur.

• Other companies in NLMK’s industry may calculate Adjusted EBITDA differently or may use it for different purposes as compared with NLMK, limiting its usefulness as a comparative measure.

43 NLMK compensates for these limitations by relying primarily on its IFRS operating results and using Adjusted EBITDA only supplementally. See the Group’s consolidated statements of profit or loss and consolidated statements of cash flows included in the Financial Statements. Adjusted EBITDA is a measure of the Group’s operating performance that is not required by, or presented in accordance with, IFRS and should not be considered as an alternative to net income, operating income or any other performance measures presented in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of the Group’s liquidity. In particular, Adjusted EBITDA should not be considered as a measure of discretionary cash available to the Group to invest in the growth of its business. A reconciliation of Adjusted EBITDA to operating profit is as follows:

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment ...... 3,012 2,031 1,487 559 657 Adjustments for: Depreciation and amortisation ...... 577 624 456 136 155 Adjusted EBITDA ...... 3,589 2,655 1,943 695 812 (2) Adjusted EBITDA margin is calculated as a percentage of revenue for the relevant period. (3) Net debt is calculated as the sum of long-term and short-term borrowings less cash and cash equivalents and bank deposits with maturities over three months included in short-term financial investments at the end of the relevant period. Net debt is not a measure under IFRS and should not be considered as an alternative to other measures of financial position. NLMK’s calculation of net debt may be different from the calculation used by other companies and therefore comparability may be limited. The following table sets out a calculation of net debt:

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Long-term borrowings ...... 1,677 1,901 1,801 1,872 1,884 Short-term borrowings ...... 398 380 468 224 481 Less: Cash and cash equivalents ...... 1,179 301 610 736 732 Bank deposits with maturities over three months included in short-term financial investments at the end of the relevant period . . 5 1,057 898 445 750 Net debt ...... 891 923 761 915 883 (4) Net debt to Adjusted EBITDA is calculated as net debt as at the end of the relevant period divided by Adjusted EBITDA for the relevant period. Net debt to Adjusted EBITDA for three months ended 31 March 2019 and 2018 is represented by net debt as at the end of the reporting period and Adjusted EBITDA for the 12 months ended 31 March 2019 and 2018, respectively. (5) Free cash flow is defined as net cash provided by operating activities less net interest paid/ (net interest received) less capital expenditures that include advances given in investing activities. Free cash flow is not a measure under IFRS and should not be considered as an alternative to other measures of financial position. NLMK’s calculation of free cash flow may be different from the calculation used by other companies and therefore comparability may be limited. The following table sets out a calculation of free cash flow:

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Net cash provided by operating activities ...... 2,741 1,899 1,699 851 737 Less: Net interest paid/ (net interest received) ...... 34 41 48 (5) 7 Capital expenditures ...... 680 592 559 178 131 Free cash flow ...... 2,027 1,266 1,092 678 599

44 OPERATING AND FINANCIAL REVIEW The following review of the Group’s financial condition and results of operations as of and for the three months ended 31 March 2019 and 2018 and as of and for the years ended 31 December 2018, 2017 and 2016 includes forward-looking statements that involve risks and uncertainties. See ‘‘Risk Factors’’ and ‘‘Forward-Looking Statements’’ for a discussion of important factors that could cause the actual results to differ materially from the results described in the forward-looking statements contained in this Prospectus. The following should be read in conjunction with the Group’s Financial Statements and the related notes included in this Prospectus. Investors should not rely solely on the information contained in this section. Selected consolidated financial information in this section has been derived from the audited Annual Financial Statements and the Interim Financial Statements (which are unaudited), in each case without material adjustment, unless otherwise stated.

Overview The Group is a leading and one of the most efficient international steel producers in the world, with low cash costs per tonne compared to other steel producers (Source: World Steel Dynamics, February 2019), and with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of HVA products to end users. With global operations across Europe, North America and Asia, the Group has a high level of self-sufficiency in key raw materials and energy resources (as described in ‘‘Business—Competitive Strengths-Self-sufficiency in key resources’’); low cost steelmaking operations concentrated in the Central District and the Ural region of Russia, manufacturing 14.6 and 1.9 million tonnes per year or 84% and 11% of the Group’s total steelmaking capacity, respectively; and mini-mills and rolling assets located in close proximity to its key customers in Russia, Europe and the United States. Total downstream capacity of the Group is approximately 14.8 million tonnes per year. In 2018, the Group had total revenue of US$12,046 million, operating profit of US$3,012 million, Adjusted EBITDA of US$3,589 million and Adjusted EBITDA margin of 30%, and, in 2017, it had total revenue of US$10,065 million, operating profit of US$2,031 million, Adjusted EBITDA of US$2,655 million and Adjusted EBITDA margin of 26%. In the three months ended 31 March 2019, the Group had total revenue of US$2,869 million, operating profit of US$559 million, Adjusted EBITDA of US$695 million and Adjusted EBITDA margin of 24%. The Group has the following six reporting segments: • Russian flat products; • NLMK USA; • NLMK DanSteel and Plates Distribution Network; • Russian long products; • Mining; and • Investments in NBH. The Group’s principal business segment is the Russian flat products segment, comprising the operations of the Russian steel production companies Novolipetsk (the main production site in Lipetsk representing approximately 75% of the steelmaking capacity of the Group) and VIZ-Steel LLC (‘‘VIZ-Steel’’), as well as Altai-Koks, a metallurgical coke producer. Operations of steel trading companies are included in the Russian flat products segment to the extent they do not relate to sales of long products. The Russian flat products segment produces and sells saleable pig iron, steel slabs (semi-finished steel products), hot-rolled steel, cold-rolled steel, galvanised and pre-painted steel and electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel, as well as other products including coke. The Russian flat products segment generated revenue from external customers, which are defined as revenues from customers other than the Group’s other operating segments or businesses, of US$6,327 million in 2018 and US$5,595 million in 2017 (US$1,624 million in the three months ended 31 March 2019, as compared to US$1,471 million in the three months ended 31 March 2018). Gross profit for the Russian flat products segment, on a standalone basis before consolidation adjustments, was US$3,071 million in 2018 and US$2,339 million in 2017 (US$594 million in the three months ended 31 March 2019, as compared to US$705 million in the three months ended 31 March 2018) and its operating profit was US$2,005 million in 2018 and US$1,357 million in 2017 (US$346 million in the three months ended 31 March 2019, as compared to US$433 million in the three months ended 31 March 2018).

45 The NLMK USA segment produces and sells flat steel products: hot- and cold-rolled steel and galvanised steel. The NLMK USA segment comprises the operations of the Group’s downstream companies located in the United States (NLMK Indiana, NLMK Pennsylvania and Sharon Coating). The NLMK USA segment generated revenue from external customers of US$2,134 million in 2018 and US$1,670 million in 2017 (US$526 million in the three months ended 31 March 2019, as compared to US$431 million in the three months ended 31 March 2018). In 2018, the NLMK USA segment, on a standalone basis before consolidation adjustments, made a gross profit of US$271 million, compared to a gross profit of US$211 million in 2017 (a gross profit of US$24 million in the three months ended 31 March 2019, as compared to a gross profit of US$42 million in the three months ended 31 March 2018) and it made an operating profit of US$196 million in 2018, compared to an operating profit of US$139 million in 2017 (an operating profit of US$2 million in the three months ended 31 March 2019, as compared to an operating profit of US$26 million in the three months ended 31 March 2018). The NLMK DanSteel and Plates Distribution Network segment produces and sells flat steel products: a wide range of thick plates. The NLMK DanSteel and Plates Distribution Network segment comprises the operations of the Group’s downstream companies located in Denmark (NLMK DanSteel). The NLMK DanSteel and Plates Distribution Network segment generated revenue from external customers of US$513 million in 2018 and US$415 million in 2017 (US$139 million in the three months ended 31 March 2019, as compared to US$138 million in the three months ended 31 March 2018). In 2018, the NLMK DanSteel and Plates Distribution Network segment, on a standalone basis before consolidation adjustments, made a gross profit of US$39 million, compared to a gross profit of US$44 million in 2017 (a gross profit of US$14 million in the three months ended 31 March 2019, as compared to a gross profit of US$8 million in the three months ended 31 March 2018) and it made an operating loss of US$26 million in 2018, compared to an operating loss of US$6 million in 2017 (an operating profit of nil in the three months ended 31 March 2019, as compared to an operating loss of US$7 million in the three months ended 31 March 2018). The core activities of the Russian long products segment are ferrous scrap collection and processing, steelmaking (EAF-based), long products (rebar and wire-rod) and metalware manufacturing. The Russian long products segment primarily comprises the operations of NLMK Ural, NLMK-Metalware and NLMK-Kaluga, as well as the scrap collecting unit Vtorchermet NLMK. Starting from the first quarter of 2016, revenue of steel trading companies generated from long products sales is allocated to the Russian long products segment. The Russian long products segment generated revenue from external customers of US$1,720 million in 2018 and US$1,391 million in 2017 (US$374 million in the three months ended 31 March 2019, as compared to US$418 million in the three months ended 31 March 2018). Gross profit for the Russian long products segment, on a standalone basis before consolidation adjustments, was US$373 million in 2018 and US$272 million in 2017 (US$41 million in the three months ended 31 March 2019, as compared to US$90 million in the three months ended 31 March 2018), and its operating profit was US$161 million in 2018, compared to an operating profit of US$77 million in 2017 (an operating loss of US$4 million in the three months ended 31 March 2019, as compared to an operating profit of US$44 million in the three months ended 31 March 2018). The mining segment mines and processes iron ore concentrate, sinter ore, fluxing limestone and metallurgical dolomite, principally for use in the Group’s steel business. The mining segment primarily comprises the operations of iron ore producer Stoilensky and producers of fluxing materials Dolomit and Stagdok. The mining segment generated revenue from external customers of US$22 million in 2018 and US$24 million in 2017 (US$4 million in the three months ended 31 March 2019, as compared to US$3 million in the three months ended 31 March 2018). Gross profit for the mining segment, on a standalone basis before consolidation adjustments, was US$830 million in 2018 and US$588 million in 2017 (US$175 million in the three months ended 31 March 2019, as compared to US$237 million in the three months ended 31 March 2018), and its operating profit was US$771 million in 2018 and US$524 million in 2017 (US$163 million in the three months ended 31 March 2019, as compared to US$222 million in the three months ended 31 March 2018). The investments in NBH segment represents the Group’s investments in NBH, a group of European downstream companies engaged in production of hot-rolled, cold-rolled coils and galvanised and pre-painted steel, and also production of a wide range of plates, quenched and tempered steel and ingots for forging, as well as a number of steel service centres located in the European Union. NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013. The investments in NBH segment generated revenue from external customers of US$1,772 million in 2018 and US$1,473 million in 2017 (US$385 million in the three months ended 31 March 2019, as compared to

46 US$504 million in the three months ended 31 March 2018). Gross profit for the investments in NBH segment, on a standalone basis before consolidation adjustments, was US$25 million in 2018 and US$44 million in 2017 (US$14 million in the three months ended 31 March 2019, as compared to US$18 million in the three months ended 31 March 2018), and its operating loss was US$162 million in 2018 and US$99 million in 2017 (an operating loss of US$31 million in the three months ended 31 March 2019, as compared to an operating loss of US$28 million in the three months ended 31 March 2018). The following table shows for the periods indicated revenue, gross profit/(loss) and operating profit/(loss) for the Group’s segments on a standalone basis, before giving effect to eliminations on consolidation, as well as intersegmental adjustments and other consolidation adjustments.

Three months ended Year ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Revenue(1) Russian flat products ...... 8,743 7,659 5,587 1,976 2,169 NLMK USA...... 2,134 1,670 1,162 526 431 NLMK DanSteel and Plates Distribution Network ...... 514 416 325 139 138 Russian long products ...... 2,152 1,794 1,294 415 460 Mining ...... 1,211 944 597 268 338 Investments in NBH ...... 1,837 1,539 1,221 396 525 Intersegmental operations(2) ...... (4,038) (3,388) (2,021) (657) (1,075) NBH deconsolidation adjustments ...... (507) (569) (529) (194) (192) Total revenue ...... 12,046 10,065 7,636 2,869 2,794 Gross profit/(loss)(1) Russian flat products ...... 3,071 2,339 1,862 594 705 NLMK USA...... 271 211 171 24 42 NLMK DanSteel and Plates Distribution Network ...... 39 44 33 14 8 Russian long products ...... 373 272 242 41 90 Mining ...... 830 588 379 175 237 Investments in NBH ...... 25 44 57 14 18 Intersegmental operations(2) ...... (182) (160) (124) 13 (98) NBH deconsolidation adjustments ...... (61) (71) (58) 6 (23) Total gross profit ...... 4,366 3,267 2,562 881 979 Operating profit/(loss)(1) Russian flat products ...... 2,005 1,357 1,047 346 433 NLMK USA...... 196 139 117 2 26 NLMK DanSteel and Plates Distribution Network ...... (26) (6) (7) — (7) Russian long products ...... 161 77 91 (4) 44 Mining ...... 771 524 275 163 222 Investments in NBH ...... (162) (99) (77) (31) (28) Intersegmental operations(2) ...... (59) (33) (36) 32 (56) NBH deconsolidation adjustments ...... 126 72 77 51 23 Total operating profit ...... 3,012 2,031 1,487 559 657

(1) Including intersegmental operations. (2) Represent consolidation adjustments eliminating intersegmental operations.

47 The following table shows as at the dates indicated assets for the Group’s segments on a standalone basis, before giving effect to eliminations on consolidation.

As at As at 31 December 31 March 2018 2017 2016 2019 (Amounts in millions of US dollars) Assets Russian flat products ...... 6,822 7,990 7,430 6,891 NLMK USA...... 1,019 891 742 980 NLMK DanSteel and Plates Distribution Network ...... 373 339 285 382 Russian long products ...... 1,150 1,210 1,171 1,124 Mining ...... 2,081 2,041 1,903 2,185 Investments in NBH ...... 1,531 1,626 1,406 1,455 Intersegmental balances(1) ...... (1,748) (1,728) (1,484) (1,615) NBH deconsolidation adjustments ...... (1,284) (1,373) (1,214) (1,228) Total assets ...... 9,944 10,996 10,239 10,174

(1) Represent consolidation adjustments eliminating intersegmental balances, including elimination of NBH liabilities to the Group companies.

Significant Factors Affecting the Group’s Results of Operations The Group’s results of operations are affected by a number of external factors, including the demand and price for steel products in the markets in which the Group operates, Russian macroeconomic trends, production costs (in particular, raw materials, energy and transportation costs) and currency exchange fluctuations, as well as acquisitions and disposals made by the Group.

Global supply and demand trends and price for steel The demand for steel products generally correlates to macroeconomic fluctuations in the economies in which steel producers sell products, as well as in the global economy. The prices of steel products are influenced by various factors, including global and regional steel consumption, worldwide production capacity and capacity utilisation rates, raw material costs, exchange rates, trade barriers and improvements in steelmaking processes. The demand for steel products and global steel production capacity have been strongly influenced by the developing world, particularly China, as well as India and other emerging markets. In recent years, the market has been oversupplied as a result of increasing supply driven by unprecedented growth in crude steel capacity, aggravated by declining demand due to the global economic stagnation. In 2018, excess global steelmaking capacity was six times the total volume of steel produced in Russia. Demand in China increased by 13.8% and 7.9% year-on-year in 2017 and 2018, respectively (although the closure of previously under-reported production at outdated induction furnaces contributed to some of the reported increases), while exports from China were down by 30% and 8% year-on-year in 2017 and 2018, respectively, providing additional support to global steel prices. Chinese FOB hot-rolled products prices rose 10% in 2018, as compared to 2017. Global steel consumption grew by 4.9% in 2018, after an increase by 7.4% in 2017. Steel consumption in Russia was flat in 2018 as compared to 2017 after a growth of 5% in 2017. In the United States, steel consumption increased by 2.5% attributable to strong growth of the economy and demand from the construction, energy and machine-building sectors. In Europe, steel consumption climbed 4% against the backdrop of continued recovery of demand from construction, machine-building and automotive sectors. In 2018, average prices for standard grades of flat and long products in Russia increased in US dollar terms by 4–13% year-on-year; while prices in rouble terms increased by 12–21% as a result of the rouble devaluation (an increase of 8% on a year-on-year basis). In Europe and the United States, prices for steel products in US dollar terms increased in 2018 by 10% and 34%, respectively. The recent trend of global protectionism has had a substantial impact on the global market. For example, in 2014, following the expiration of the agreement between Russia and the U.S. on hot-rolled steel supplies, which suspended the anti-dumping duty established in 1999, the U.S. introduced a 184.56% anti-dumping duty on NLMK’s hot-rolled steel supplies to the U.S. market. As a result of anti-dumping proceedings, the EU authorities introduced a 36.1% anti-dumping duty on cold-rolled steel in August 2016

48 and set a definitive duty rate in the amount of 53.3 euro per tonne. In May 2017, the United States introduced a final 22.19% and 51.78% anti-dumping duty in respect of thick plates products manufactured by NLMK Verona and NLMK Clabecq, respectively. In May 2018, the U.S. Department of Commerce started an administrative review of effective anti-dumping duties on thick plates. The final decision is expected at the end of 2019. In April 2017, India imposed anti-dumping duties on the imports of hot-rolled steel originated in or exported from six countries, including the Russian Federation, in the form of minimum import prices in the range of US$478 per tonne for hot-rolled coils and US$561 per tonne for hot-rolled sheets for five years. In March 2018, the U.S. introduced a 25% duty on all steel products imported to the U.S. in the interests of national security under Section 232. Following this decision, the EU and Turkey initiated safeguard investigations in March 2018 and April 2018, respectively. As a result of these investigations, tariff quotas were established with a 25% duty on imports over the quotas. In the EU, this decision, adopted in February 2019 and expiring in July 2021, is final. In May 2019, Turkey decided to lift the tariff quota. Currently, these trade barriers do not significantly affect Group’s operations as the quotas permit companies to continue duty-free supplies, though, following imposition of 25% duty on steel products by the U.S., NLMK USA ceased purchasing a substantial amount of its slab requirements from the Group’s Russian entities and now purchases such slabs from third parties. Any increase in existing trade barriers, or the imposition of new trade barriers, could cause a significant decrease in the demand for the Group’s products in its principal export markets.

Russian macroeconomic trends A substantial part of the Group’s operations is based in Russia and the Group generates a significant proportion of its sales in Russia, with 33% and 35% of the Group’s total revenue being generated from Russia in the three months ended 31 March 2019 and 2018, and 34%, 39% and 40%, respectively, in the years ended 31 December 2018, 2017 and 2016. As a result, Russian macroeconomic trends, including the overall growth in the economy, significantly influence the Group’s performance. The table below summarises certain key macroeconomic indicators relating to the Russian economy in the years ended 31 December 2018, 2017 and 2016.

Year ended 31 December 2018 2017 2016 GDP growth, % ...... 2.3 1.6 0.3 Percentage change in consumer price index ...... 4.3 2.5 5.4 Unemployment rate, % ...... 4.8 5.2 5.5

Source: Rosstat In 2018, domestic finished steel apparent consumption remained at the level of 2017 or 41 million tonnes. In the long steel sector, demand grew by 2.4%, while end-user flat steel consumption was flat year-on-year. Finished steel exports fell by 1% to 14.2 million tonnes and imports decreased by 6.3% to 5.8 million tonnes. In the two months ended 28 February 2019, domestic consumption of steel products exhibited a positive trend with a growth of 8% year-on-year. Inflation in the Russian Federation was 1.7% in the three months ended 31 March 2019 and 4.3% in 2018, 2.5% in 2017 and 5.4% in 2016. Russian inflation has generally not had a material impact on the Group’s revenues in the periods under review, primarily because the prices of the Group’s products and the raw materials which it uses are mainly determined by global trends. While some of the Group’s costs, in particular employee salaries, are affected by inflation, they have not historically represented a substantial percentage of production costs.

Costs The Group requires substantial amounts of raw materials in the steel production process, in particular iron ore concentrate, sinter ore, pellets, coking coal, limestone, dolomite, ferro-alloys, non-ferrous metal and scrap metal. In furtherance of its vertical integration strategy, the Group has invested in iron ore mining and a processing company primarily to secure a supply of iron ore at competitive market rates and to insulate the Group to a significant extent, on a consolidated basis, from the impact of increases in prices of iron ore materials. Stoilensky, an open pit iron ore mine, currently produces iron ore concentrate and sinter ore covering the Group’s needs. In November 2016, NLMK launched a pelletising plant at

49 Stoilensky, which secured self-sufficiency in iron ore pellets. In 2018, the Stoilensky pelletising plant produced 6.7 million tonnes of pellets. Also, in accordance with Strategy 2017, in 2019, the Group will launch a recycling facility to process iron waste into briquettes with annual capacity of 700,000 tonnes per year. The Group is self-sufficient in metallurgical coke due to its coke production facilities at Altai-Koks and its main production site in Lipetsk. In addition, the Group has licences to develop coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the Kemerovo Region, Western Siberia, and Usinsky-3 in the Komi Republic, which were updated in 2016 and 2017, respectively. The Group considers the development of these deposits as long-term options for further development. Meanwhile, in order to reduce risks associated with the growth in costs related to coking coal consumption in its blast furnace operations, the Group implemented a number of new technologies including pulverised coal injection, tar pitch granulation, among others. The Group has to date installed tar pitch granulation at its Altai-Koks site that improves coke quality and reduces consumption of imported high grade coking coal in coke manufacturing. In addition, the Group completed the installation of Pulverised Coal Injection (PCI) technology at its blast furnaces 6 and 7 at its Lipetsk site, which lowers the consumption of coke and natural gas per tonne of pig iron with cheaper energy (PCI) coal grades. To date, the Group has implemented the PCI technology at 90% of its blast furnace capacities. The Group’s limestone and dolomite demands are fully satisfied by its subsidiaries, Stagdok and Dolomit, respectively, and various strategies are being pursued to ensure that output meets the Group’s growing demand. The Group’s scrap collecting and processing unit, Vtorchermet NLMK, provides approximately 60% of the ferrous scrap required by its Russian steelmaking plants, mitigating the risk of third-party supply interruptions. The Group consumes large volumes of electricity and natural gas and its operating costs are therefore influenced by increases in energy prices. In 2018, natural gas prices increased by 2.7%, and electricity prices increased by approximately 10% (in each case as compared to the average price paid by the Group’s Russian companies in 2017). The Group seeks to mitigate the risk of electric energy price inflation through increasing its in-house generating capacity using by-product gases, as well as through implementing improvements in production efficiency to reduce the volume of energy consumed in steel production. In 2018 and 2017, the Group’s integrated electricity generation facilities supplied approximately 59% and 53%, respectively, of the electricity requirements of the Group’s main production site in Lipetsk (which, in 2018, produced 76% of the Group’s total steel output), with the remainder being purchased from the electricity market. In the three months ended 31 March 2019, the Lipetsk site electricity generating facilities provided approximately 60% of its own electricity requirements. In 2018, the Group signed a new 5-year service agreement with Freight One, which covered the Group’s needs in railway transportation and also enabled a mutually beneficial long-term cooperation allowing the Group to manage its transportation costs efficiently.

Currency exchange fluctuations The Group’s export sales generate foreign currency earnings. As the Group exports a significant part of its production, for which payment is made in US dollars and euros, the Group is exposed to currency exchange rate fluctuations. See ‘‘—Quantitative and Qualitative Disclosures about Market Risk—Foreign currency risk’’. The table below shows the average exchange rate of the rouble against the US dollar and the euro for the periods indicated.

Three months Year ended 31 December ended 31 March 2018 2017 2016 2019 Average exchange rate(1) (roubles per US dollar) ...... 62.71 58.35 67.03 66.13 Average exchange rate(1) (roubles per euro) ...... 73.95 65.90 74.23 75.17

(1) The average of the exchange rate for the relevant period, based on the rates in such period for each Russian business day (quoted by the CBR for that day) and each Russian non-business day (which is equal to the rate quoted by the CBR for the preceding Russian business day).

Acquisitions and Disposals In September 2018, the Group completed the sale of a 2% stake in share capital of NBH to Tubes de Haren et Nimy S.A., a subsidiary of NBH, for a cash consideration of US$5 million, realising a loss of

50 US$2 million upon the decrease of carrying value of the investment of US$7 million. As a result of this transaction, direct ownership of the Group in the share capital of NBH decreased to 49.0%.

Seasonality Seasonal effects have a relatively limited impact on the Group’s results due to market and product diversification. Nonetheless, while the prices of most of the Group’s raw materials are not subject to seasonal variations, the price of scrap metal does fluctuate seasonally, typically rising in spring and autumn and falling in summer and winter, largely as a result of the creation and depletion of winter stockpiles. Consumption of combustive, lubricative and energy supplies during the winter months is generally higher than during the rest of the year. In addition, the Group’s costs of transporting, unloading and storing raw materials in the winter months are higher. There is also usually a lower demand in Russia and CIS countries for steel products used in construction, especially long steel products (rebar, metalware and wire rod), in the winter period, which usually results in lower revenues in the first and the fourth quarters, compared to the second and third quarters of the year.

Recent Developments At the annual general shareholders’ meeting held on 19 April 2019, NLMK shareholders approved the payment of dividends for 2018 in the amount of 22.81 roubles per share, or 102% of the Group’s free cash flow. Considering the previously paid interim dividends, the amount of dividends outstanding to be paid for the fourth quarter of 2018 is 5.80 roubles per share.

Results of Operations for the Three Months ended 31 March 2019 and 2018 The following table sets forth a summary of the Group’s consolidated financial results for the three months ended 31 March 2019 and 2018.

Three months ended 31 March 2019 2018 (Amounts in millions of US dollars) Consolidated statement of profit or loss Revenue ...... 2,869 2,794 Cost of sales ...... (1,988) (1,815) Gross profit ...... 881 979 General and administrative expenses ...... (82) (86) Selling expenses ...... (226) (211) Net impairment losses on financial assets ...... (1) (1) Other operating income/(expenses), net ...... 2 (1) Taxes, other than income tax ...... (15) (23) Operating profit before share of results of joint ventures, impairment of non-current assets and gain on disposals of property, plant and equipment ..... 559 657 Gain on disposals of property, plant and equipment ...... — 2 Impairment of non-current assets ...... (5) — Share of results of joint ventures ...... 4 (21) Finance income ...... 4 10 Finance costs ...... (16) (19) Foreign currency exchange (loss)/gain, net ...... (61) 9 Other expenses, net ...... (20) (10) Profit before income tax ...... 465 628 Income tax expense ...... (83) (124) Profit for the period ...... 382 504 Profit attributable to Novolipetsk Steel shareholders ...... 382 502 Non-controlling interests ...... —2

Revenue Total revenue increased by US$75 million, or 3%, to US$2,869 million in the three months ended 31 March 2019 from US$2,794 million in the three months ended 31 March 2018. This increase was primarily driven by the year-on-year sales growth and improved product mix, with the share of finished products sales increasing from 60% to 61%.

51 The following tables show a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Flat ...... 1,575 55 1,419 51 156 11 Semi-finished ...... 791 28 840 30 (49) (6) Long...... 283 10 302 11 (19) (6) Others(1) ...... 220 7 233 8 (13) (6) Total ...... 2,869 100 2,794 100 75 3

(1) Includes sales of iron ore, coke, scrap and transportation services.

Three months ended 31 March 2019 2018 Change Volumes (%) Volumes (%) (%) (Amounts in thousands of tonnes, except percentages) Pig iron ...... 47 1 258 6 (211) (82) Semi-finished ...... 1,732 38 1,385 33 347 25 Flat ...... 2,093 45 1,806 44 287 16 Plates ...... 146 3 142 4 4 3 Long...... 595 13 556 13 39 7 Total ...... 4,614 100 4,146 100 467 11

In the three months ended 31 March 2019, the volume of sales of flat products increased by 16% to 2.09 million tonnes, and accounted for 45% of total sales volumes (44% in the three months ended 31 March 2018). In addition, the sales volume of long products increased by 7% to 0.595 million tonnes in the three months ended 31 March 2019. The increase in sales volumes of flat and long products were supported by a higher demand for flat steel in the pipe, machine building and white goods sectors and construction industry. In the three months ended 31 March 2019, the Group’s average price for steel products decreased to US$589 per tonne, a 6% decrease from US$626 per tonne in the three months ended 31 March 2018, following low market prices in almost all product segments. The following table shows a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated. The region ‘‘European Union’’ comprises revenue from sales to customers in the member states of the European Union while ‘‘other regions’’ includes revenue from sales to customers in European states that are not a member of the European Union.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 935 33 969 35 (34) (4) North America ...... 561 19 541 19 20 4 European Union ...... 539 19 594 21 (55) (9) Middle East, including Turkey ...... 372 13 323 12 49 15 Central and South America ...... 127 4 121 4 6 5 CIS...... 106 4 112 4 (6) (5) Asia and Oceania ...... 106 4 36 1 70 194 Other regions ...... 123 4 98 4 25 26 Total ...... 2,869 100 2,794 100 75 3

52 In the three months ended 31 March 2019, the Group recorded a decrease in revenue in Russia (a decline of 4%, or US$34 million), the European Union (a decline of 9%, or US$55 million) and CIS (a decline of 5%, or US$6 million). The total revenue of the Group increased in the three months ended 31 March 2019 by 3% to US$2,869 million, compared to US$2,794 million in the three months ended 31 March 2018, primarily as a result of the increase in sales by 11% year-on-year, which was partially offset by the decrease in sales prices by 6% year-on-year along with a 41% year-on-year decrease in slab deliveries to the Group’s international companies and NBH to 0.735 million tonnes. The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages Mining ...... 4 — 3 — 1 33 Russian flat products ...... 1,624 57 1,471 53 153 10 Russian long products ...... 374 13 418 15 (44) (11) NLMK USA...... 526 18 431 15 95 22 NLMK DanSteel and Plates Distribution Network ...... 139 5 138 5 1 1 Investments in NBH ...... 385 13 504 18 (119) (24) NBH deconsolidation adjustments ...... (183) (6) (171) (6) (12) 7 Total ...... 2,869 100 2,794 100 75 3

(1) Revenue of the Russian flat products segment also includes revenue from sales to external customers of Altai-Koks, which produces coke and coke by-products, as well as revenues from sales of the Group’s trading companies, NLMK Trading and Novexco, which, in addition to products of the Russian flat products segment, sell iron ore concentrate, coke and other chemical products.

Russian flat products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian flat products segment for the periods indicated.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 17 1 96 6 (79) (82) Slabs ...... 530 33 319 22 211 66 Hot-rolled ...... 362 22 315 21 47 15 Cold-rolled ...... 229 14 209 14 20 10 Galvanised ...... 141 9 147 10 (7) (5) Pre-painted ...... 80 5 86 6 (6) (7) Transformer ...... 104 6 98 7 6 6 Dynamo ...... 48 3 57 4 (9) (16) Other revenue ...... 113 7 145 10 (32) (22) Total revenue from external customers ...... 1,624 100 1,471 100 153 10

53 Three months ended 31 March 2019 2018 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 47 2 258 13 (211) (82) Slabs ...... 1,117 42 569 27 548 96 Hot-rolled ...... 686 26 514 25 172 33 Cold-rolled ...... 392 15 318 15 74 23 Galvanised ...... 195 7 195 9 — — Pre-painted ...... 89 3 87 4 2 2 Transformer ...... 71 3 68 3 3 4 Dynamo ...... 61 2 72 4 (11) (15) Total sales volumes ...... 2,658 100 2,080 100 578 28

Revenue of the Russian flat products segment, excluding intragroup transactions, increased by 10% to US$1,624 million in the three months ended 31 March 2019 from US$1,471 million in the three months ended 31 March 2018, representing 57% of the Group’s consolidated revenue in the three months ended 31 March 2019, compared to 53% in the three months ended 31 March 2018. The increase in Russian flat products segment revenue was primarily due to an increase in sales volumes of the Russian flat products segment by 28%. The total volume of sales to external customers by the Russian flat products segment increased by 28% in the three months ended 31 March 2019 as compared with the three months ended 31 March 2018 primarily as a result of lower requirements of the Group’s divisions for slabs that were instead shipped to third parties.

Russian long products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian long products segment.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 77 21 105 25 (28) (27) Long products ...... 239 64 256 61 (17) (7) Metalware ...... 39 10 40 10 (1) (3) Scrap ...... 4 1 4 1 — — All others ...... 15 4 13 3 2 15 Total revenue from external customers ...... 374 100 418 100 (44) (11)

Three months ended 31 March 2019 2018 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 173 23 215 28 (42) (20) Long products ...... 526 68 494 64 32 6 Metalware ...... 69 9 62 8 7 11 Total sales volumes ...... 768 100 770 100 (3) —

54 Revenue of the Russian long products segment, excluding intragroup transactions, decreased by 11% to US$374 million in the three months ended 31 March 2019 from US$418 million in the three months ended 31 March 2018, representing 13% of the Group’s consolidated revenue in the three months ended 31 March 2019, compared to 15% in the three months ended 31 March 2018. The decrease in long products segment revenue in the three months ended 31 March 2019 was due to a decrease in average sales prices of the Russian long products segment. Sales volumes of the Russian long products segment were almost flat in the three months ended 31 March 2019 as compared to the three months ended 31 March 2018, primarily due to higher domestic sales, offset by lower export sales. In the three months ended 31 March 2019, average prices for long products and metalware decreased by approximately 12%, as compared to the three months ended 31 March 2018.

NLMK USA segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK USA segment.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... — — 1 — (1) (100) Hot-rolled ...... 257 49 216 50 41 19 Cold-rolled ...... 108 20 107 25 1 1 Coated steel ...... 154 30 99 23 55 56 All others ...... 7 1 8 2 (1) (13) Total revenue from external customers ...... 526 100 431 100 95 22

Three months ended 31 March 2019 2018 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 1.4 — 1.9 — (1) (26) Hot-rolled ...... 330 55 319 58 11 3 Cold-rolled ...... 117 20 124 22 (7) (6) Coated steel ...... 153 25 108 20 45 42 Total sales volumes to external customers ...... 601 100 553 100 48 9

Revenue of the NLMK USA segment, excluding intragroup transactions, increased by 22% to US$526 million in the three months ended 31 March 2019 from US$431 million in the three months ended 31 March 2018, representing 18% of the Group’s consolidated revenue in the three months ended 31 March 2019, compared to 15% in the three months ended 31 March 2018. The increase in the NLMK USA segment revenue in the three months ended 31 March 2019 was primarily due to the strong growth in sales volumes of 9% year-on-year, supported by solid demand from service centres, pipe, construction and machine building industries.

55 NLMK DanSteel and Plates Distribution Network segment The tables below show the breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK DanSteel and Plates Distribution Network segment.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Plate ...... 132 95 111 80 21 19 All others ...... 7 5 27 20 (20) (74) Total revenue from external customers ...... 139 100 138 100 1 1

Three months ended 31 March 2019 2018 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Plate ...... 146 100 142 100 4 3 Total sales volumes to external customers ...... 146 100 142 100 4 3 Revenue of the NLMK DanSteel and Plates Distribution Network segment, excluding intragroup transactions, increased by 1% to US$139 million in the three months ended 31 March 2019 from US$138 million in the three months ended 31 March 2018, representing 5% of the Group’s consolidated revenue in the three months ended 31 March 2019 and 2018. The increase in NLMK DanSteel and Plates Distribution Network segment revenue in the three months ended 31 March 2019 was primarily due to an increase in the segment’s sales volume by 3% year-on-year.

Mining segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the mining segment. Almost all of segment products in the three months ended 31 March 2019 were supplied to the other Group companies.

Three months ended 31 March 2019 2018 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Dolomite ...... 1 25 1 33 — — All others ...... 3 75 2 67 1 50 Total revenue from external customers ...... 4 100 3 100 1 33

Revenue of the mining segment, excluding intragroup transactions, increased by 33% to US$4 million in the three months ended 31 March 2019 from US$3 million in the three months ended 31 March 2018. The mining segment’s sales mostly represented intragroup sales, with the sales volumes to third parties comprising less than 0.1% of the Group’s revenue in US dollar terms. See ‘‘Business—Raw Materials and Energy—Iron ore concentrate and pellets’’.

Investments in NBH segment Revenue of the investments in NBH segment, excluding intragroup transactions, decreased by 24% to US$385 million in the three months ended 31 March 2019 from US$504 million in the three months ended 31 March 2018, representing 13% of consolidated revenue in the three months ended 31 March 2019, compared to 18% in the three months ended 31 March 2018. The decrease in the investments in NBH segment revenue was primarily driven by low capacity utilisation at NLMK Clabecq and a decrease in sales volumes by 20%.

56 Cost of sales and gross margin, depreciation and amortisation Total cost of sales as a percentage of revenue increased to 69% in the three months ended 31 March 2019 from 65% in the three months ended 31 March 2018, decreasing the gross margin to 31% in the three months ended 31 March 2019 from 35% in the three months ended 31 March 2018. The following tables show the gross profit and gross margin for the Group’s segments for the periods indicated, in each case on a standalone segment basis before elimination adjustments for consolidation, as well as intersegmental adjustments and other consolidation adjustments.

Three months ended 31 March 2019 NLMK DanSteel and Russian Russian Plates NBH flat long NLMK Distribution Investments Inter-segmental deconsolidation Mining products products USA Network in NBH operations adjustments Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) . . . 4 1,624 374 526 139 385 — (183) 2,869 Intersegmental revenue(2) .... 264 352 41 — — 11 (657) (11) — Depreciation and amortisation . . (27) (78) (13) (15) (3) (16) — 16 (136) Gross profit .... 175 594 41 24 14 14 13 6 881 Gross margin (%) 65 30 10 5 10 4 (2) (3) 31

Three months ended 31 March 2018 NLMK DanSteel and Russian Russian Plates NBH flat long NLMK Distribution Investments Inter-segmental deconsolidation Mining products products USA Network in NBH operations adjustments Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) . . . 3 1,471 418 431 138 504 — (171) 2,794 Intersegmental revenue(2) .... 335 698 42 — — 21 (1,075) (21) — Depreciation and amortisation . . (32) (90) (17) (14) (2) (20) — 20 (155) Gross profit/(loss) 237 705 90 42 8 18 (98) (23) 979 Gross margin (%) 70 33 20 10 6 3 9 12 35

(1) Represents sales to external customers. (2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment, on a standalone basis before consolidation adjustments, decreased to US$594 million in the three months ended 31 March 2019 from US$705 million in the three months ended 31 March 2018, and its gross margin decreased to 30% in the three months ended 31 March 2019 from 33% in the three months ended 31 March 2018. The decrease in gross margin of the Russian flat products segment was primarily due to the narrowing spreads between raw material and steel prices and sales of accumulated higher cost steel inventories.

57 The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Three months ended 31 March 2019 2018 Cost of sales Cost of sales of Russian of Russian flat products flat products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 303 21 390 27 (22) Coal and coke ...... 387 27 466 32 (17) Scrap ...... 104 8 109 7 (5) Ferro-alloys ...... 63 5 74 5 (15) Other materials, including zinc(1) ...... 91 7 147 10 (38) Electricity (external supplies) ...... 41 3 45 3 (9) Gas...... 40 3 44 3 (9) Payroll costs ...... 107 8 108 7 (1) Depreciation ...... 73 5 85 6 (14) Other costs ...... 173 13 (4) — — Total cost of sales of Russian flat products segment(2) ...... 1,382 100 1,464 100 (6)

(1) Also includes costs attributable to spare parts and ongoing maintenance. (2) Results of operations with NBH with respect to slab sales were included in total cost of sales of Russian flat products segment. NBH is accounted using the equity method and presented separately in the Segment Information note to the Financial Statements. Cost of sales of the Russian flat products segment decreased by 6% in the three months ended 31 March 2019 to US$1,382 million from US$1,464 million in the three months ended 31 March 2018. The decrease in cost of sales was mainly due to the depreciation of the Russian rouble against the US dollar and a decrease of production, which was partially offset by higher cost inventory sales.

Russian long products segment Gross profit of the Russian long products segment, on a standalone basis before consolidation adjustments, decreased to US$41 million in the three months ended 31 March 2019 from US$90 million in the three months ended 31 March 2018, and its gross margin decreased to 10% in the three months ended 31 March 2019 from 20% in the three months ended 31 March 2018, primarily as a result of narrowing price spreads on the back of growth in scrap prices. The segment incurred an operating loss of US$4 million in the three months ended 31 March 2019, as compared to an operating profit of US$44 million in the three months ended 31 March 2018. The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segment basis.

Three months ended 31 March 2019 2018 Cost of sales Cost of sales of Russian of Russian long products long products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 227 61 237 64 (4) Ferro-alloys ...... 10 3 11 3 (9) Other materials ...... 16 4 21 6 (24) Electricity (external supplies) ...... 20 5 22 6 (9) Gas...... 3131— Other energy(1) ...... 3141(25) Payroll costs ...... 22 6 24 6 (8) Depreciation ...... 12 3 14 4 (14) Other costs ...... 61 16 34 9 79 Total cost of sales of Russian long products segment ...... 374 100 370 100 1

(1) Includes fuels and lubricants.

58 Cost of sales of the Russian long products segment increased by 1% in the three months ended 31 March 2019 to US$374 million from US$370 million in the three months ended 31 March 2018. The increase in cost of sales was mainly attributable to higher cost inventory sales and an increase in scrap prices, which was partially offset by the depreciation of the Russian rouble and by a decrease in crude steel production volumes by 7%.

NLMK USA segment Gross profit of the NLMK USA segment, on a standalone basis before consolidation adjustments, was US$24 million in the three months ended 31 March 2019 as compared to a profit of US$42 million in the three months ended 31 March 2018, and its gross margin was 5% in the three months ended 31 March 2019 compared to 10% in the three months ended 31 March 2018. The decrease in gross profit of the NLMK USA segment was primarily due to narrowed spreads between prices for slab and finished products. The segment had an operating profit of US$2 million in the three months ended 31 March 2019, as compared to an operating profit of US$26 million in the three months ended 31 March 2018. The table below shows the components of the cost of sales of the NLMK USA segment for the periods indicated on a standalone segmental basis.

Three months ended 31 March 2019 2018 Cost of sales of Cost of sales of NLMK USA NLMK USA segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 64 13 58 15 10 Ferro-alloys ...... 615120 Other materials(1) ...... 315 62 229 58 38 Electricity (external supplies) ...... 10 2 10 3 — Gas...... 615120 Payroll costs ...... 28 6 27 7 4 Depreciation ...... 14 3 14 4 — Other costs ...... 59 12 41 11 44 Total cost of sales of NLMK USA segment ...... 502 100 389 100 29

(1) Includes slabs. Cost of sales of the NLMK USA segment increased by 29% in the three months ended 31 March 2019 to US$502 million from US$389 million in the three months ended 31 March 2018. The increase in cost of sales was mainly due to higher sales on the back of higher demand and an increase in slab prices (feedstock).

NLMK DanSteel and Plates Distribution Network segment Gross profit of the NLMK DanSteel and Plates Distribution Network segment, on a standalone basis before consolidation adjustments, was US$14 million in the three months ended 31 March 2019 as compared to a profit of US$8 million in the three months ended 31 March 2018, and its gross margin was 10% in the three months ended 31 March 2019 compared to 6% in the three months ended 31 March 2018. The increase in gross profit of the segment was primarily supported by the sales volumes growth and spreads widening between slabs and plate. The segment had an operating profit of nil in the three months ended 31 March 2019, as compared to an operating loss of US$7 million in the three months ended 31 March 2018.

59 The table below shows the components of the cost of sales of the NLMK DanSteel segment for the periods indicated on a standalone segment basis.

Three months ended 31 March 2019 2018 Cost of sales of Cost of sales of NLMK NLMK DanSteel and DanSteel and Plates Plates Distribution Distribution Network Network segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Other materials(1) ...... 85 67 93 72 (9) Electricity (external supplies) ...... 1111— Gas...... 3232— Payroll costs ...... 7675— Depreciation ...... 2211100 Other costs ...... 27 22 25 19 8 Total cost of sales of NLMK DanSteel and Plates Distribution Network segment ...... 125 100 130 100 (4)

(1) Includes slabs. Cost of sales of the NLMK DanSteel and Plates Distribution Network segment decreased by 4% in the three months ended 31 March 2019 to US$125 million from US$130 million in the three months ended 31 March 2018. The decrease in cost of sales was mainly due to a decrease in average slab prices by 2% on a year-on-year basis.

Mining segment Gross profit of the mining segment, on a standalone basis before consolidation adjustments, decreased to US$175 million in the three months ended 31 March 2019 from US$237 million in the three months ended 31 March 2018, and its gross margin decreased to 65% in the three months ended 31 March 2019 from 70% in the three months ended 31 March 2018, primarily due to the decrease in prices for iron ore concentrate. The following table shows, for the three months ended 31 March 2019 and 2018, a cost of sales breakdown for the Group’s mining segment.

Three months ended 31 March 2019 2018 Cost of sales of Cost of sales of Mining Mining segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 6666— Electricity (external supplies) ...... 15 16 16 16 (6) Gas...... 2222— Other energy(2) ...... 665520 Payroll costs ...... 21 23 22 22 (5) Depreciation ...... 26 28 30 30 (13) Other costs ...... 17 19 20 19 (15) Total cost of sales of mining segment ...... 93 100 101 100 (8)

(1) Includes grinding and explosive materials. (2) Includes fuels and lubricants. Cost of sales of the mining segment decreased by 8% in the three months ended 31 March 2019 to US$93 million from US$101 million in the three months ended 31 March 2018. The decrease in cost of

60 sales was mainly due to the effect of the depreciation of the Russian rouble against the US dollar by 16% on a year-on-year basis and the effect of the Group’s efficiency programmes, which was partially offset by production growth.

Investments in NBH segment Gross profit of the investments in NBH segment, on a standalone basis before consolidation adjustments, decreased to US$14 million in the three months ended 31 March 2019 from US$18 million in the three months ended 31 March 2018, and its gross margin increased to 4% in the three months ended 31 March 2019 from 3% in the three months ended 31 March 2018, primarily due to the decrease in sales volumes driven by low capacity utilisation at NLMK Clabecq due to a strike. Cost of sales of the investments in NBH segment decreased by 25% in the three months ended 31 March 2019 to US$382 million from US$507 million in the three months ended 31 March 2018. The decrease in cost of sales was mainly due to the decrease in average slab prices by 6% year-on-year.

General and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax Total general and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax, were US$322 million in the three months ended 31 March 2019 and the three months ended 31 March 2018. The following table shows a breakdown of general and administrative, selling expenses and other operating income and taxes, other than income tax, for the periods indicated.

Three months ended 31 March 2019 2018 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (82) (86) 4 (5) Selling expenses ...... (226) (211) (15) 7 Net impairment losses on financial assets ...... (1) (1) — — Other operating income/(expenses) ...... 2 (1) 3 — Taxes other than income tax ...... (15) (23) 8 (35) Total ...... (322) (322) — —

General and administrative expenses decreased by US$4 million, or 5%, to US$82 million in the three months ended 31 March 2019 from US$86 million in the three months ended 31 March 2018, primarily due to the depreciation of the Russian rouble against the US dollar. Selling expenses increased by US$15 million, or 7%, to US$226 million in the three months ended 31 March 2019 from US$211 million in the three months ended 31 March 2018, primarily due to higher export volumes. Taxes other than income tax decreased by US$8 million, or 35%, to US$15 million in the three months ended 31 March 2019 from US$23 million in the three months ended 31 March 2018, primarily due to the capitalisation of land rent payments into property, plant & equipment on adoption of IFRS 16. As a percentage of total revenue, general and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax, decreased to 11% in the three months ended 31 March 2019, compared to 12% of total revenue in the three months ended 31 March 2018.

Gain on disposals of property, plant and equipment There was no gain on disposals of property, plant and equipment in the three months ended 31 March 2019, compared to a gain of US$2 million in the three months ended 31 March 2018.

61 Impairment of non-current assets Impairment losses of US$5 million in the three months ended 31 March 2019 (nil in the three months ended 31 March 2018) mainly reflected an impairment of a coke oven at Altai-Koks due to conservation.

Share of results of joint ventures Share of results of joint ventures increased by US$25 million to income of US$4 million in the three months ended 31 March 2019 from loss of US$21 million in the three months ended 31 March 2018 due to the release of unrealised profits after the reduction of NLMK slabs in NBH stock.

Finance income Finance income decreased by US$6 million, or 60%, to US$4 million in the three months ended 31 March 2019 from US$10 million in the three months ended 31 March 2018 as a result of the high volatility of rouble-US dollar exchange rate and extremely low interest on deposits (liquid assets are held primarily in cash).

Finance costs Finance costs decreased by US$3 million, or 16%, to US$16 million in the three months ended 31 March 2019 from US$19 million in the three months ended 31 March 2018, primarily as a result of the reduction of average interest rates. Capitalised finance costs in the three months ended 31 March 2019 were flat at US$5 million comparing to the three months ended 31 March 2018.

Foreign currency exchange (loss)/gain, net The Group recorded a net foreign currency exchange loss of US$61 million in the three months ended 31 March 2019, compared to a net gain of US$9 million in the three months ended 31 March 2018. The net foreign currency exchange loss in the three months ended 31 March 2019 resulted from the excess of financial liabilities over financial assets denominated in foreign currencies along with unfavourable fluctuations of exchange rates.

Other expenses, net Other expenses, net in the three months ended 31 March 2019 was a US$20 million expense, as compared with an expense of US$10 million in the three months ended 31 March 2018.

Income tax expense Income tax expense in the three months ended 31 March 2019 was US$83 million, compared to US$124 million in the three months ended 31 March 2018. The expected effective tax rate for the three months ended 31 March 2019 was 18%, compared to 20% for the three months ended 31 March 2018. The effective tax rate is below the statutory tax rate in Russia of 20% due to tax losses carried forward that are expected to be utilised in 2019 at NLMK USA entities.

Profit for the period For the reasons set forth above, net profit decreased by US$122 million, or 24%, to US$382 million in the three months ended 31 March 2019 from US$504 million in the three months ended 31 March 2018.

62 Results of Operations for the Years ended 31 December 2018 and 2017 The following table sets forth a summary of the Group’s consolidated financial results for the years ended 31 December 2018, 2017 and 2016.

Year ended 31 December 2018 2017 2016 (Amounts in millions of US dollars) Consolidated statement of profit or loss Revenue ...... 12,046 10,065 7,636 Cost of sales ...... (7,680) (6,798) (5,074) Gross profit ...... 4,366 3,267 2,562 General and administrative expenses ...... (375) (364) (316) Selling expenses ...... (886) (788) (699) Net impairment losses on financial assets ...... (1) (7) (6) Other operating (expenses)/income, net ...... (4) 3 16 Taxes, other than income tax ...... (88) (80) (70) Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment 3,012 2,031 1,487 Loss on disposals of property, plant and equipment ...... (7) (1) (3) Impairment of non-current assets ...... (4) (17) (14) Share of results of joint ventures ...... (243) (90) (61) Losses on investments, net ...... (2) (5) (4) Finance income ...... 21 29 39 Finance costs ...... (70) (87) (105) Foreign currency exchange gain/(loss), net ...... 33 17 (129) Other expenses, net ...... (11) (54) (38) Profit before income tax ...... 2,729 1,823 1,172 Income tax expense ...... (486) (371) (233) Profit for the year ...... 2,243 1,452 939 Profit attributable to: Novolipetsk Steel shareholders ...... 2,238 1,450 935 Non-controlling interests ...... 524

Revenue Total revenue increased by US$1,981 million, or 20%, to US$12,046 million in 2018 from US$10,065 million in 2017. This increase was attributable to higher average sales prices and volumes.

63 The following tables show a breakdown of revenue and sales volumes from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue Semi-finished ...... 3,265 27 2,383 24 882 37 Flat ...... 6,172 51 5,356 53 816 15 Long...... 1,202 10 978 10 224 23 Others(1) ...... 1,407 12 1,348 13 59 4 Total ...... 12,046 100 10,065 100 1,981 20

(1) Includes sales of iron ore, coke, scrap and transportation services.

Year ended 31 December 2018 2017 Change Sales (%) Sales (%) (%) (Amounts in thousands of tonnes, except percentages) Sales Volume Semi-finished ...... 6,828 39 5,710 35 1,118 20 Flat ...... 8,348 47 8,483 51 (135) (2) Long...... 2,414 14 2,277 14 137 6 Total ...... 17,591 100 16,469 100 1,120 7 The increase in total sales in 2018 was primarily driven by the growth in demand for semi-finished products and higher long product sales in Russia. The volume of sales of semi-finished products to external customers increased in 2018 by 22% to 4.450 million tonnes due to the increased demand in export markets. In 2018, sales of flat products decreased by 0.135 million tonnes to 8.348 million tonnes, and comprised 47% of total volume of sales (51% in 2017). The decrease in sales of flat products, including year-on-year decreases in the sales volumes of hot-rolled steel (a decline by 8%) and cold-rolled steel (a decline by 1%), was partly offset by growth in sales of galvanised steel (11%), plate (9%) and pre-painted steel (5%). Average steel product prices increased by 14% year-on-year following a recovery in demand for steel. The following table shows a breakdown of the revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 4,051 34 3,887 39 164 4 North America ...... 2,556 21 1,932 19 624 32 European Union ...... 2,268 19 1,730 17 538 31 Middle East, including Turkey ...... 1,375 11 1,083 11 292 27 Central and South America ...... 557 5 425 4 132 31 Asia and Oceania ...... 489 4 277 3 212 77 Other regions ...... 750 6 731 7 19 3 Total ...... 12,046 100 10,065 100 1,981 20

64 In 2018, the Group’s revenue in its strategically important Russian market (34% of the total revenue) increased by 4% to US$4,051 million as a result of higher average selling prices in the Russian market driven by the increase of global benchmarks. The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) Revenue (%) (Amounts in millions of US dollars, except percentages) Mining ...... 22 — 24 — (2) (8) Russian flat products ...... 6,327 53 5,595 56 732 13 Russian long products ...... 1,720 14 1,391 14 329 24 NLMK USA...... 2,134 18 1,670 17 464 28 NLMK DanSteel and Plates Distribution Network ...... 513 4 415 4 98 24 Investments in NBH ...... 1,772 15 1,473 15 299 20 NBH deconsolidation adjustments ...... (442) (4) (503) (6) 61 (12) Total ...... 12,046 100 10,065 100 1,981 20

Russian flat products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian flat products segment for the periods indicated.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 351 6 152 3 199 131 Slabs ...... 1,526 24 1,235 22 291 24 Hot-rolled ...... 1,361 21 1,381 25 (20) (1) Cold-rolled ...... 936 15 856 15 80 9 Galvanised ...... 611 10 513 9 98 19 Pre-painted ...... 420 7 376 7 44 12 Transformer ...... 431 7 341 6 90 26 Dynamo ...... 221 3 196 3 25 13 Other revenue ...... 470 7 545 10 (75) (14) Total revenue from external customers ...... 6,327 100 5,595 100 732 13

Year ended 31 December 2018 2017 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 896 10 429 5 467 109 Slabs ...... 2,778 30 2,514 29 264 11 Hot-rolled ...... 2,291 25 2,656 30 (365) (14) Cold-rolled ...... 1,447 16 1,436 16 11 1 Galvanised ...... 804 9 713 8 91 13 Pre-painted ...... 427 4 406 6 21 5 Transformer ...... 280 3 258 3 22 9 Dynamo ...... 281 3 299 3 (18) (6) Total sales volumes to external customers ...... 9,203 100 8,711 100 493 6

65 Revenue of the Russian flat products segment, excluding intragroup transactions, increased by 13% to US$6,327 million in 2018 from US$5,595 million in 2017, representing 53% of the Group’s consolidated revenue in 2018, as compared to 56% in 2017. The increase in Russian flat products segment revenue in 2018 was primarily due to the 5-15% increase in average prices (depending on the product type) and the 6% growth in sales volumes, which were partially offset by the decrease in the share of finished product sales to 60% (a decline of 6 percentage points on a year-on-year basis). The volume of sales by the Russian flat products segment increased by 6% in 2018 from 2017, primarily due to increased third-party shipments of semi-finished products, mainly slabs and pig iron.

Russian long products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian long products segment.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 395 23 295 21 100 34 Long products ...... 1,097 64 877 63 220 25 Metalware ...... 156 9 150 11 6 4 Scrap ...... 17 1 19 1 (2) (11) All others ...... 55 3 50 4 5 10 Total revenue from external customers ...... 1,720 100 1,391 100 329 24

Year ended 31 December 2018 2017 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 771 24 686 23 85 12 Long products ...... 2,162 68 2,006 68 156 8 Metalware ...... 252 8 271 9 (19) (7) Total sales volumes to external customers ...... 3,185 100 2,963 100 222 7

Revenue of the Russian long products segment, excluding intragroup transactions, increased by 24% to US$1,720 million in 2018 from US$1,391 million in 2017, representing 14% of the Group’s consolidated revenue in 2018 and in 2017. The increase in long products segment revenue in 2018 was due to the increase in sales volumes and a favourable pricing environment. In 2018, average prices for the Russian long products segment increased by approximately 16% on a year-on-year basis, with average prices for metalware increasing by approximately 12% and average prices for billets increasing by approximately 19%. The increase in sales volume of the Russian long products segment by 8% in 2018 as compared to 2017 was due to growing demand for finished steel in the Russian market and higher export billet sales, mainly to the Middle East.

66 NLMK USA segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK USA segment.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... 2 — 3 — (1) (33) Hot-rolled ...... 1,052 49 778 47 274 35 Cold-rolled ...... 473 22 410 24 63 15 Coated steel ...... 573 27 448 27 125 28 All others ...... 34 2 31 2 3 10 Total revenue from external customers ...... 2,134 100 1,670 100 464 28

Year ended 31 December 2018 2017 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 5 — 11 — (6) (55) Hot-rolled ...... 1,267 56 1,232 55 35 3 Cold-rolled ...... 477 21 493 22 (16) (3) Coated steel ...... 535 23 503 23 32 6 Total sales volumes to external customers ...... 2,285 100 2,239 100 45 2

Revenue of the NLMK USA segment, excluding intragroup transactions, increased by 28% to US$2,134 million in 2018 from US$1,670 million in 2017, representing 18% of the Group’s consolidated revenue in 2018, compared to 17% in 2017. The increase in NLMK USA products segment revenue in 2018 was primarily due to improved pricing conditions and the increase in sales volumes by 2% on a year-on-year basis due to higher demand from key consumers, driven in turn by less competitive imports due to the introduction of active trade protection measures.

NLMK DanSteel and Plates Distribution Network segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK DanSteel and Plates Distribution Network segment.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Plate ...... 468 91 375 90 93 25 All others ...... 45 9 40 10 5 13 Total revenue from external customers ...... 513 100 415 100 98 24

67 Year ended 31 December 2018 2017 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Plate ...... 520 100 475 100 45 9 Total sales volumes to external customers ...... 520 100 475 100 45 9

Revenue of the NLMK DanSteel and Plates Distribution Network segment, excluding intragroup transactions, increased by 24% to US$513 million in 2018 from US$415 million in 2017, representing 4% of the Group’s consolidated revenue in 2018 and 2017. The increase in NLMK DanSteel and Plates Distribution Network products segment revenue in 2018 was primarily due to the growth in sales volumes and average sales prices by 14%. Sales of the NLMK DanSteel and Plates Distribution Network segment increased by 9% in 2018, driven by the increase in capacity utilisation rates amid growing demand for plate steel in export markets.

Mining segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the mining segment.

Year ended 31 December 2018 2017 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Limestone ...... 5 23 4 17 1 25 Dolomite ...... 9 41 8 33 1 13 All others ...... 8 36 12 50 (4) (33) Total revenue from external customers ...... 22 100 24 100 (2) (8)

Year ended 31 December 2018 2017 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Iron ore concentrate ...... — — 9 1 (9) (100) Limestone ...... 886 51 817 56 69 8 Dolomite ...... 835 49 633 43 202 32 Total sales volumes to external customers ...... 1,721 100 1,459 100 262 18

Revenue of the mining segment from external customers, excluding intragroup transactions, decreased by 8% to US$22 million in 2018 from US$24 million in 2017. The decrease in revenue was primarily due to the cessation of iron ore sales to third parties. Iron ore sales to external customers decreased by 100% in 2018 as compared with 2017, largely due to the growth of consumption from the Lipetsk site. The increase in dolomite sales to external customers by 32%, compared with 2017, was mainly due to expanding markets. Sales of limestone were flat compared with 2017. Average sales prices for the mining segment’s products decreased in 2018 by 8%, mainly due to a decrease in dolomite prices of approximately 14%, partly offset by an increase in limestone sales prices of approximately 5%.

68 Investments in NBH segment Revenue of the investments in NBH segment, excluding intragroup transactions, increased by 20% to US$1,772 million in 2018 from US$1,473 million in 2017, representing 15% of the Group’s consolidated revenue in 2018 and 2017. The increase in revenue of investments in NBH segment was primarily due to an increase in average sales prices and growth in sales volumes by 6%.

Cost of sales and gross margin, depreciation and amortisation Total cost of sales as a percentage of revenue decreased to 64% in 2018 from 68% in 2017, primarily due to favourable market conditions with strong steel prices growth, operational efficiency programmes and the devaluation of the Russian rouble. The gross margin increased to 36% in 2018 from 32% in 2017. In 2018, the slab production cost at the Lipetsk site was US$266 per tonne (an increase of approximately 6% from 2017), mainly due to the increase in average prices for pellets denominated in US dollars by 9%, iron ore by 13% and coking coal by 4%. Slabs production costs at NLMK Indiana were impacted by higher prices for ferrous scrap in the United States. The following tables show the gross profit and gross margin for the Group’s segments for the periods indicated, in each case on a standalone segment basis before elimination adjustments for consolidation, as well as intersegmental adjustments and other consolidation adjustments.

Year ended 31 December 2018 NLMK DanSteel Russian Russian and Plates flat long NLMK Distribution Investments Inter-segmental NBH Mining products products USA Network in NBH operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) .... 22 6,327 1,720 2,134 513 1,772 — (442) 12,046 Intersegmental revenue(2) ..... 1,189 2,416 432 — 1 65 (4,038) (65) — Depreciation and amortisation . . . (117) (334) (60) (57) (9) (75) — 75 (577) Gross profit ..... 830 3,071 373 271 39 25 (182) (61) 4,366 Gross margin (%) . 69 35 17 13 8 1 5 12 36

Year ended 31 December 2017 NLMK DanSteel Russian Russian and Plates flat long Distribution Investments Inter-segmental NBH Mining products products NLMK USA Network in NBH operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) .... 24 5,595 1,391 1,670 415 1,473 — (503) 10,065 Intersegmental revenue(2) ..... 920 2,064 403 — 1 66 (3,388) (66) — Depreciation and amortisation . . . (118) (365) (75) (58) (8) (75) — 75 (624) Gross profit ..... 588 2,339 272 211 44 44 (160) (71) 3,267 Gross margin (%) . 62 31 15 13 11 3 5 12 32

(1) Represents sales to external customers.

(2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment on a standalone basis before consolidation adjustments increased to US$3,071 million in 2018 from US$2,339 million in 2017, while its gross margin increased to 35% in 2018 from 31% in 2017. The increase in gross margin of the Russian flat products segment was primarily due to increased sales volumes, especially of semi-finished products (mainly slabs and pig iron), to third parties and widening of price spreads.

69 The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2018 2017 Cost of sales Cost of sales of Russian of Russian flat products flat products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 1,420 25 1,143 21 24 Coal and coke ...... 1,692 29 1,638 30 3 Scrap ...... 458 8 412 8 11 Ferro-alloys ...... 267 5 269 5 (1) Other materials, including zinc(1) ...... 407 7 485 9 (16) Electricity (external supplies) ...... 172 3 194 4 (11) Gas...... 146 3 162 3 (10) Payroll costs ...... 407 7 416 8 (2) Depreciation ...... 314 6 353 7 (11) Other costs ...... 389 7 248 5 57 Total cost of sales of Russian flat products segment(2) ...... 5,672 100 5,320 100 7

(1) Also includes costs attributable to spare parts and ongoing maintenance. (2) Results of operations with NBH with respect to slab sales were included in total cost of sales of Russian flat products segment. NBH is accounted using the equity method and presented separately in the Segment Information note to the Financial Statements. Cost of sales of the Russian flat products segment increased by 7% in 2018 to US$5,672 million from US$5,320 million in 2017. The increase in cost of sales was mainly due to an increase in sales volumes and increase of iron ore prices.

Russian long products segment Gross profit of the Russian long products segment on a standalone basis before consolidation adjustments increased to US$373 million in 2018 compared to US$272 million in 2017, supported by an increase in sales volumes, and its gross margin increased to 17% in 2018 from 15% in 2017, due to operational efficiency gains, expansion of price spreads and the change in exchange rates against the backdrop of increased exports. The segment had an operating profit of US$161 million in 2018, as compared to an operating profit of US$77 million in 2017.

70 The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2018 2017 Cost of sales Cost of sales of Long of Long products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 1,283 72 1,093 71 17 Ferro-alloys ...... 51 3 40 3 28 Other materials ...... 97 5 42 3 131 Electricity (external supplies) ...... 84 5 81 5 4 Gas...... 11 1 11 1 — Other energy(1) ...... 16 1 17 1 (6) Payroll costs ...... 96 5 91 6 5 Depreciation ...... 55 3 70 5 (21) Other costs ...... 86 5 77 5 12 Total cost of sales of Russian long products segment ...... 1,779 100 1,522 100 17

(1) Includes fuels and lubricants. Cost of sales of the Russian long products segment increased by 17% in 2018 to US$1,779 million from US$1,522 million in 2017. The increase in cost of sales was mainly due to the increase in production by 9% and scrap prices inflation, which was partially offset by operational efficiency gains and the weakening of the Russian rouble against the US dollar.

NLMK USA segment Gross profit of the NLMK USA segment on a standalone basis before consolidation adjustments was US$271 million in 2018, compared to a US$211 million gross profit in 2017. The growth was primarily due to widening slabs—finished products price spreads, as well as an increase in sales. The segment had an operating profit of US$196 million in 2018, as compared to an operating profit of US$139 million in 2017. The following table shows the cost of sales breakdown for the NLMK USA segment for 2018 and 2017.

Year ended 31 December 2018 2017 Cost of sales Cost of sales of NLMK of NLMK USA segment USA segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 252 14 200 14 26 Ferro-alloys ...... 22 1 17 1 29 Other materials(1) ...... 1,187 63 866 59 37 Electricity (external supplies) ...... 37 2 40 3 (8) Gas...... 20 1 18 1 11 Payroll costs ...... 111 6 103 7 8 Depreciation ...... 57 3 57 4 — Other costs ...... 177 10 158 11 12 Total cost of sales of NLMK USA segment ...... 1,863 100 1,459 100 28

(1) Includes slabs. Cost of sales of the NLMK USA segment increased by 28% in 2018 to US$1,863 million from US$1,459 million in 2017. The increase in cost of sales was mainly due to an increase in slabs prices due to the Section 232 import tariffs in the United States.

71 NLMK DanSteel and Plates Distribution Network segment Gross profit of the NLMK DanSteel and Plates Distribution Network segment on a standalone basis before consolidation adjustments was US$39 million in 2018, compared to a US$44 million gross profit in 2017. The decrease in gross profit was primarily due to the narrowing of the price spread between slabs and plate against the backdrop of the growth of slab prices. The segment had an operating loss of US$26 million in 2018, as compared to an operating loss of US$6 million in 2017. The following table shows the cost of sales breakdown for the NLMK DanSteel and Plates Distribution Network segment for 2018 and 2017.

Year ended 31 December 2018 2017 Cost of sales Cost of sales of NLMK of NLMK DanSteel DanSteel and Plates and Plates Distribution Distribution Network Network segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Other materials(1) ...... 357 75 282 76 27 Electricity (external supplies) ...... 4 1 3 1 33 Gas...... 12 3 9 2 33 Payroll costs ...... 26 5 23 6 13 Depreciation ...... 5 1 4 1 25 Other costs ...... 71 15 51 14 39 Total cost of sales of NLMK DanSteel and Plates Distribution Network ...... 475 100 372 100 28

(1) Includes slabs. Cost of sales of the NLMK DanSteel and Plates Distribution Network segment increased by 28% in 2018 to US$475 million from US$372 million in 2017. The increase in cost of sales was mainly due to the increase of slab prices.

Mining segment Gross profit of the mining segment on a standalone basis before consolidation adjustments increased to US$830 million in 2018 from US$588 million in 2017, primarily due to an increase in prices and higher sales volumes of iron ore concentrate. The gross margin of the mining segment increased to 69% in 2018 from 62% in 2017, primarily due to the increase in iron ore prices. The following table shows the cost of sales breakdown for the Group’s mining segment for 2018 and 2017.

Year ended 31 December 2018 2017 Cost of Cost of sales of sales of Mining Mining segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 23 6 21 6 10 Electricity (external supplies) ...... 62 16 60 17 3 Gas...... 7272— Other energy(2) ...... 20 5 16 4 25 Payroll costs ...... 79 21 77 22 3 Depreciation ...... 111 29 109 31 2 Other costs ...... 79 21 66 18 20 Total cost of sales of mining segment ...... 381 100 356 100 7

(1) Includes balls and explosive materials. (2) Includes fuels and lubricants.

72 Cost of sales of the mining segment increased by 7% in 2018 to US$381 million from US$356 million in 2017. The increase in cost of sales was mainly due to the prices growth, effect of operational efficiency programmes and the impact of investment projects.

Investments in NBH segment Gross profit of the investments in NBH segment, on a standalone basis before consolidation adjustments, decreased to US$25 million in 2018 from US$44 million in 2017, and its gross margin decreased to 1% in 2018 from 3% in 2017, primarily due to the narrowing of price spreads between rolled steel and slabs against the backdrop of a spike in slab prices in 2018. Cost of sales of the investments in NBH segment increased by 21% in 2018 to US$1,812 million from US$1,495 million in 2017. The increase in cost of sales was mainly due to the growth of slab prices by 14–18% year-on-year.

General and administrative, selling expenses and other operating income and taxes, other than income tax Total general and administrative, selling expenses and other operating (expenses)/income and taxes, other than income tax, increased by US$118 million, or 10%, to US$1,354 million in 2018 from US$1,236 million in 2017. The following table shows a breakdown of general and administrative, selling expenses and other operating income and taxes, other than income tax, for the periods indicated.

Year ended 31 December 2018 2017 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (375) (364) (11) 3 Selling expenses ...... (886) (788) (98) 12 Net impairment losses on financial assets ...... (1) (7) 6 (86) Other operating (expenses)/income ...... (4) 3 (7) — Taxes, other than income tax ...... (88) (80) (8) 10 Total ...... (1,354) (1,236) (118) 10 General and administrative expenses increased by US$11 million, or 3%, to US$375 million in 2018 from US$364 million in 2017, primarily due to payroll indexation at the Group’s Russian companies. Selling expenses increased by US$98 million, or 12%, to US$886 million in 2018 from US$788 million in 2017, primarily due to the sales growth and the 7% weakening of the Russian rouble against the US dollar as compared to 2017. Net impairment losses on financial assets were US$1 million in 2018 and US$7 million in 2017. Other operating expenses amounted to US$4 million in 2018, compared to other operating income of US$3 million in 2017. Taxes, other than income tax, increased by US$8 million, or 10%, to US$88 million in 2018 from US$80 million in 2017. This increase was primarily due to the increase of transport distances following the increase in export volumes. As a percentage of total revenue, general and administrative, selling expenses and other operating (expenses)/income and taxes, other than income tax, represented 11% and 12% of total revenue in 2018 and in 2017, respectively.

Loss on disposals of property, plant and equipment Loss on disposals of property, plant and equipment was US$7 million in 2018, compared to US$1 million in 2017, an increase of US$6 million.

73 Impairment of non-current assets Impairment of non-current assets of US$4 million in 2018 related to the impairment of stocks accumulated for the Group’s investment programme. Impairment of non-current assets of US$17 million in 2017 related to the impairment of a chalk plant.

Share of results of joint ventures Share of results of joint ventures increased by US$153 million, or 170%, to US$243 million in 2018 from US$90 million in 2017, primarily due to the increase of net losses of NBH.

Losses on investments Losses on investments was US$2 million in 2018, compared to US$5 million in 2017. The loss on investments in 2018 was primarily attributable to the sale of a 2% stake in share capital of NBH to Tubes de Haren et Nimy S.A., a subsidiary of NBH, for a cash consideration of US$5 million.

Finance income Finance income decreased by US$8 million, or 28%, to US$21 million in 2018 from US$29 million in 2017, primarily as a result of the decrease in deposits placed during 2018 compared to 2017.

Finance costs Finance costs decreased by US$17 million, or 20%, to US$70 million in 2018 from US$87 million in 2017, primarily as a result of the decrease in average interest rates.

Foreign currency exchange gain, net Foreign currency exchange gain, net was US$33 million in 2018, compared to US$17 million in 2017. The foreign currency exchange gain, net in 2018 resulted from the devaluation of the Russian rouble against foreign currencies in which the Group held its cash and cash equivalents and financial investments.

Income tax expense Income tax expense in 2018 was US$486 million, compared to US$371 million in 2017. The effective income tax rate for 2018 was 18% compared to 20% for 2017. The decrease in the effective income tax rate was primarily due to the utilisation of previously unrecognised tax losses which were carried forward and were mainly attributable to the profitability of NLMK USA segment in 2018 compared to the loss in 2017 and previous periods, as well as a write-off of previously recognised deferred tax assets, which was partially offset by a decrease in non-deductible expenses.

Profit for the year For the reasons set forth above, profit for the year increased by US$791 million, or 54%, to US$2,243 million in 2018 from US$1,452 million in 2017.

Results of Operations for the Years Ended 31 December 2017 and 31 December 2016 Revenue Total revenue increased by US$2,429 million, or 32%, to US$10,065 million in 2017 from US$7,636 million in 2016. This increase was driven by higher average steel product prices, a 3% increase in sales volumes and growth of the share of finished products in the sales mix by 1% to 65%.

74 The following tables show a breakdown of revenue and sales volumes from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue Semi-finished ...... 2,383 24 1,681 22 702 42 Flat ...... 5,356 53 4,062 53 1,294 32 Long...... 978 10 741 10 237 32 Others ...... 1,348 13 1,152 15 196 17 Total ...... 10,065 100 7,636 100 2,429 32

Year ended 31 December 2017 2016 Change Sales (%) Sales (%) (%) (Amounts in thousands of tonnes, except percentages) Sales Volume Semi-finished ...... 5,710 35 5,714 36 (4) — Flat ...... 8,483 51 8,015 50 468 6 Long...... 2,277 14 2,195 14 82 4 Total ...... 16,469 100 15,925 100 545 3

The growth in total sales was driven by both an increase in export markets sales and an increase in home markets sales that in turn was driven by stronger demand from key consumers in Russia and the U.S. In 2017, sales of flat products grew by 6% to 8,483 thousand tonnes, and comprised 51% of total volume of sales (50% in 2016). The increase in sales of flat products, including year-on-year increases in the sales volume of hot-rolled steel (10%), galvanised steel (24%) and electrical steel (5%), was partially offset by reduced shipments of cold rolled steel (negative 4%), pre-painted steel (negative 12%). The sales volume of semi-finished products to external customers increased slightly in 2017 by 1% to 3,639 thousand tonnes due to stable demand of semi-finished products in external markets. In 2017, the average prices for steel products increased to US$529 per tonne, a 30% increase from US$407 per tonne in 2016, primarily due to the recovery in steel prices across all markets. This was the main driver of the revenue growth in 2017 as compared to 2016. The following table shows a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 3,887 39 3,077 40 810 26 North America ...... 1,932 19 1,328 18 604 45 European Union ...... 1,730 17 1,373 18 357 26 Middle East, including Turkey ...... 1,083 11 629 8 454 72 Central and South America ...... 425 4 377 5 48 13 Asia and Oceania ...... 277 3 317 4 (40) (13) Other regions ...... 731 7 535 7 196 37 Total ...... 10,065 100 7,636 100 2,429 32

In 2017, the Group revenue in its strategically important Russian market increased by 26% to US$3,887 million, or 39% of total revenue denominated in US dollars, as a result of the increase in average sales prices.

75 The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) Revenue (%) (Amounts in millions of US dollars, except percentages) Mining ...... 24 — 166 2 (142) (86) Russian flat products ...... 5,595 56 4,272 56 1,323 31 Russian long products ...... 1,391 14 1,020 13 371 36 NLMK USA...... 1,670 17 1,162 15 508 44 NLMK DanSteel and Plates Distribution Networks ..... 415 4 324 4 91 28 Investments in NBH ...... 1,473 15 1,176 16 297 25 NBH deconsolidation adjustments ...... (503) (6) (484) (6) (19) 4 Total ...... 10,065 100 7,636 100 2,429 32

Russian flat products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian flat products segment for the periods indicated.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 152 3 87 2 65 75 Slabs ...... 1,235 22 938 22 297 32 Hot-rolled ...... 1,381 25 1,009 24 372 37 Cold-rolled ...... 856 15 646 15 210 33 Galvanised ...... 513 9 370 9 143 39 Pre-painted ...... 376 7 366 8 10 3 Transformer ...... 341 6 369 9 (28) (8) Dynamo ...... 196 3 147 3 49 34 Other revenue ...... 545 10 340 8 205 61 Total revenue from external customers ...... 5,595 100 4,272 100 1,323 31

Year ended 31 December 2017 2016 Change (%) (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 429 5 365 4 64 18 Slabs ...... 2,514 29 2,607 30 (93) (4) Hot-rolled ...... 2,656 30 2,599 30 57 2 Cold-rolled ...... 1,436 16 1,464 17 (28) (2) Galvanised ...... 713 8 620 7 93 15 Pre-painted ...... 406 6 460 6 (54) (12) Transformer ...... 258 3 245 3 13 5 Dynamo ...... 299 3 285 3 14 5 Total sales volumes to external customers ...... 8,711 100 8,645 100 66 1

Revenue of the Russian flat products segment, excluding intragroup transactions, increased by 31% to US$5,595 million in 2017 from US$4,272 million in 2016, representing 56% of Group’s consolidated revenue in 2017 and in 2016. The increase in Russian flat products segment revenue in 2017 was primarily due to a 27% increase in US dollar-denominated prices.

76 The sales volumes by the Russian flat products segment increased by 1% in 2017 compared to 2016, mainly due to increased shipments of hot rolled steel, galvanised steel and pig iron.

Russian long products segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the Russian long products segment.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 295 21 183 18 112 61 Long products ...... 877 63 678 66 199 29 Metalware ...... 150 11 111 11 39 35 Scrap ...... 19 1 18 2 1 6 All others ...... 50 4 30 3 20 67 Total revenue from external customers ...... 1,391 100 1,020 100 371 36

Year ended 31 December 2017 2016 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 686 23 612 22 74 12 Long products ...... 2,006 68 1,936 69 70 4 Metalware ...... 271 9 260 9 11 4 Total sales volumes to external customers ...... 2,962 100 2,807 100 155 6

Revenue of the Russian long products segment, excluding intragroup transactions, increased by 36% to US$1,391 million in 2017 from US$1,020 million in 2016, representing 14% of the Group’s consolidated revenue in 2017, compared to 13% in 2016. The increase in long products segment revenue in 2017 was primarily due to a growth of prices for long products and an increase in sales volumes. In 2017, average prices for the Russian long products segment increased by approximately 29% on a year-on-year basis, including average price increases of approximately 25% for long products and approximately 29% for metalware. The increase in sales volumes of the Russian long products segment by 6% in 2017 as compared to 2016 was driven by the growth of export deliveries primarily due to strong demand in external markets.

77 NLMK USA segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK USA segment.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... 3 — 3 — — — Hot-rolled ...... 778 47 491 42 287 58 Cold-rolled ...... 410 24 380 33 30 8 Coated steel ...... 448 27 266 23 182 68 All others ...... 31 2 22 2 9 41 Total revenue from external customers ...... 1,670 100 1,162 100 508 44

Year ended 31 December 2017 2016 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 11 — 9 1 2 22 Hot-rolled ...... 1,232 55 943 51 289 31 Cold-rolled ...... 493 22 545 29 (52) (10) Coated steel ...... 503 23 359 19 144 40 Total sales volumes to external customers ...... 2,239 100 1,856 100 383 21

Revenue of the NLMK USA segment, excluding intragroup transactions, increased by 44% to US$1,670 million in 2017 from US$1,162 million in 2016, representing 17% of the Group’s consolidated revenue in 2017, compared to 15% in 2016. The increase in NLMK USA segment revenue in 2017 was primarily driven by the growth of sales following the launch of Galvanising Line No. 2 and the growth of average sales prices by 19%.

NLMK DanSteel and Plates Distribution Network segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the NLMK DanSteel and Plates Distribution Network segment.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Plate ...... 375 90 265 82 110 42 All others ...... 40 10 59 18 (19) (32) Total revenue from external customers ...... 415 100 324 100 91 28

Year ended 31 December 2017 2016 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Plate ...... 475 100 481 100 (6) (1) Total sales volumes to external customers ...... 475 100 481 100 (6) (1)

78 Revenue of the NLMK DanSteel and Plates Distribution Network segment, excluding intragroup transactions, increased by 28% to US$415 million in 2017 from US$324 million in 2016, representing 4% of the Group’s consolidated revenue in 2017 and in 2016. The increase in NLMK DanSteel and Plates Distribution Network segment revenue in 2017 was primarily due to an increase in average sales prices by 30% year-on-year.

Mining segment The tables below show a breakdown by product of revenue from external customers and sales volumes to external customers of the mining segment.

Year ended 31 December 2017 2016 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Iron ore concentrate ...... — — 140 85 (140) (100) Sinter ore ...... — — 7 4 (7) (100) Limestone ...... 4 17 2 1 2 100 Dolomite ...... 8 33 5 3 3 60 All others ...... 12 50 12 7 — — Total revenue from external customers ...... 24 100 166 100 (142) (86)

Year ended 31 December 2017 2016 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Iron ore concentrate ...... 9 1 3,943 72 (3,934) (100) Sinter ore ...... — — 249 5 (249) (100) Limestone ...... 817 56 730 13 87 12 Dolomite ...... 633 43 559 10 74 13 Total sales volumes to external customers ...... 1,459 100 5,481 100 (4,022) (73)

Revenue of the mining segment, excluding intragroup transactions, decreased by 86% to US$24 million in 2017 from US$166 million in 2016, representing 0,2% of the Group’s consolidated revenue in 2017, compared to 2% in 2016. In 2017, most of the iron ore concentrate sales of the segment were intragroup, resulting in the decrease in standalone revenues of this segment as compared to 2016. The reallocation of segment sales from external customers to Group companies occurred after the launch of the pelletising plant in 2016. An increase in limestone and dolomite sales by 12% and 13%, respectively, compared with 2016, was mainly due to higher demand.

Investments in NBH segment Revenue of the investments in NBH segment, excluding intragroup transactions, increased by 25% to US$1,473 million in 2017 from US$1,176 million in 2016, representing 15% of consolidated revenue in 2017 and in 2016. The increase in the investments in associates was primarily due to the increase in NBH revenue driven by higher prices for finished products, which was partially offset by the decrease in sales volumes.

Cost of sales and gross margin, depreciation and amortisation Total cost of sales as a percentage of revenue increased to 68% in 2017 from 66% in 2016, primarily due to the strengthening of the Russian rouble. The gross margin decreased to 32% in 2017 from 34% in 2016. In 2017, the slab production cost at the Lipetsk site was US$250 per tonne (an increase of approximately 28% from 2016), due mostly to the increase in prices for coking coal and an increase in the share of pellets in consumption. Billet production costs at the Russian long products segment and slab production costs at NLMK Indiana were both impacted by lower prices for ferrous scrap in Russia and the U.S.

79 The following tables show the gross profit and gross margin for the Group’s segments and all other operations for the periods indicated, in each case on a standalone segmental basis before giving effect to eliminations on consolidation, as well as any intersegmental adjustments and other consolidation adjustments.

Year ended 31 December 2017 NLMK DanSteel Russian Russian and Plates flat long NLMK Distribution Investments Inter-segmental NBH Mining products products USA Network in NBH operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) . . . 24 5,595 1,391 1,670 415 1,473 — (503) 10,065 Intersegmental revenue(2) ..... 920 2,064 403 — 1 66 (3,388) (66) — Depreciation and amortisation . . . (118) (365) (75) (58) (8) (75) — 75 (624) Gross profit/(loss) . 588 2,339 272 211 44 44 (160) (71) 3,267 Gross margin (%) . 62 31 15 13 11 3 5 12 32

Year ended 31 December 2016 NLMK DanSteel Russian Russian and Plates flat long NLMK Distribution Investments Inter-segmental NBH Mining products products USA Network in NBH operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) .... 166 4,272 1,020 1,162 324 1,176 — (484) 7,636 Intersegmental revenue(2) ...... 431 1,315 274 — 1 45 (2,021) (45) — Depreciation and amortisation .... (43) (297) (47) (61) (8) (75) — 75 (456) Gross profit/(loss) . 379 1,862 242 171 33 57 (124) (58) 2,562 Gross margin (%) . 63 33 19 15 10 5 6 11 34

(1) Represents sales to external customers outside of the Group. (2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment on a standalone basis before consolidation adjustments increased to US$2,339 million in 2017 from US$1,862 million in 2016, while its gross margin decreased to 31% in 2017 from 33% in 2016. The decrease in gross margin of the Russian flat products segment was driven by the growth of raw material prices (primarily coking coal) and the strengthening of the Russian rouble against the US dollar.

80 The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2017 2016 Cost of sales of Cost of sales of Russian flat Russian flat products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 1,143 21 803 22 42 Coal and coke ...... 1,638 30 923 25 77 Scrap ...... 412 8 271 7 52 Ferro-alloys ...... 269 5 209 6 29 Other materials, including zinc(1) ...... 485 9 373 10 30 Electricity (external supplies) ...... 194 4 152 4 28 Gas...... 162 3 157 4 3 Payroll costs ...... 416 8 348 9 20 Depreciation ...... 353 7 294 8 20 Other costs ...... 248 5 195 5 27 Total cost of sales of Russian flat products segment ...... 5,320 100 3,725 100 43

(1) Also includes costs attributable to spare parts and ongoing maintenance. Cost of sales of the Russian flat products segment increased by 43% in 2017 to US$5,320 million from US$3,725 million in 2016. The increase in cost of sales was mainly due to an increase in raw material prices.

Russian long products segment Gross profit of the Russian long products segment on a standalone basis before consolidation adjustments increased to US$272 million in 2017 compared to US$242 million in 2016, and its gross margin decreased to 15% in 2017 from 19% in 2016, primarily as a result of the increase in sales volumes and the narrowing of spreads between long product and scrap prices. The segment had an operating profit of US$77 million in 2017, as compared to an operating profit of US$91 million in 2016. The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2017 2016 Cost of sales of Cost of sales of Russian long Russian long products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 1,093 71 727 69 50 Ferro-alloys ...... 40 3 27 3 48 Other materials ...... 42 3 34 3 24 Electricity (external supplies) ...... 81 5 62 6 31 Gas...... 11 1 10 1 10 Other energy(1) ...... 17 1 14 1 21 Payroll costs ...... 91 6 73 7 25 Depreciation ...... 70 5 45 4 56 Other costs ...... 77 5 60 6 28 Total cost of sales of Russian long products segment ...... 1,522 100 1,052 100 45

(1) Includes fuels and lubricants.

81 Cost of sales of the Russian long products segment increased by 45% in 2017 to US$1,522 million from US$1,052 million in 2016. The increase in cost of sales was mainly due to the increase in sales and the increase of scrap prices.

NLMK USA segment The NLMK USA segment made a gross profit on a standalone basis before consolidation adjustments of US$211 million in 2017, compared to a US$171 million gross profit in 2016. The profit was supported by the growth of sales. The segment had an operating profit of US$139 million in 2017, as compared to an operating profit of US$117 million in 2016. The table below shows the components of the cost of sales of the NLMK USA segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2017 2016 Cost of sales of Cost of sales of NLMK USA NLMK USA segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 200 14 133 13 50 Ferro-alloys ...... 17 1 11 1 55 Other materials(1) ...... 866 59 555 55 56 Electricity (external supplies) ...... 40 3 36 4 11 Gas...... 18 1 15 2 20 Payroll costs ...... 103 7 95 10 8 Depreciation ...... 57 4 60 6 (5) Other costs ...... 158 11 86 9 84 Total cost of sales of NLMK USA segment ...... 1,459 100 991 100 47

(1) Includes slabs. Cost of sales of the NLMK USA segment increased by 47% in 2017 to US$1,459 million from US$991 million in 2016. The increase in cost of sales was mainly due to an increase in slab prices and an increase in sales by 21% year-to-year.

NLMK DanSteel and Plates Distribution Network segment The NLMK DanSteel segment made a gross profit on a standalone basis before consolidation adjustments of US$44 million in 2017, compared to a US$33 million gross profit in 2016. The profit was primarily due to efficiency programme gains and widening of the price spread between thick plate and slabs. The segment had an operating loss of US$6 million in 2017, as compared to an operating loss of US$7 million in 2016.

82 The table below shows the components of the cost of sales of the NLMK DanSteel segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2017 2016 Cost of sales of Cost of sales of NLMK NLMK DanSteel and DanSteel and Plates Plates Distribution Distribution Network Network segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Other materials(1) ...... 282 76 191 66 48 Electricity (external supplies) ...... 3141(25) Gas...... 9 2 10 3 (10) Payroll costs ...... 23 6 25 9 (8) Depreciation ...... 4141— Other costs ...... 51 14 58 20 (12) Total cost of sales of NLMK DanSteel and Plates Distribution Network segment ...... 372 100 292 100 27

(1) Includes slabs. Cost of sales of the NLMK DanSteel and Plates Distribution Network segment increased by 27% in 2017 to US$372 million from US$292 million in 2016. The increase in cost of sales was mainly due to an increase in export slab prices.

Mining segment Gross profit of the mining segment on a standalone basis before consolidation adjustments increased to US$588 million in 2017 from US$379 million in 2016, and its gross margin decreased to 62% in 2017 from 63% in 2016, primarily due to an increase in prices and the effect of operational efficiency programmes and higher sales volumes of iron ore concentrate. The segment had an operating profit of US$524 million in 2017, as compared to an operating profit of US$275 million in 2016. The following table shows, for 2017 and 2016, a cost of sales breakdown for the Group’s mining segment.

Year ended 31 December 2017 2016 Cost of Cost of sales of sales of Mining Mining segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 21 6 17 8 24 Electricity (external supplies) ...... 60 17 44 20 36 Gas...... 7231133 Other energy(2) ...... 16 4 12 6 33 Payroll costs ...... 77 22 61 28 26 Depreciation ...... 109 31 37 17 195 Other costs ...... 66 18 44 20 50 Total cost of sales of mining segment ...... 356 100 218 100 63

(1) Includes balls and explosive materials. (2) Includes fuels and lubricants. Cost of sales of the mining segment increased by 63% in 2017 to US$356 million from US$218 million in 2016. The increase in cost of sales was mainly due to price inflation and an increase in depreciation after the pelletising plant launch.

83 Investments in NBH segment Gross profit of the investments in NBH segment, on a standalone basis before consolidation adjustments, decreased to US$44 million in 2017 from US$57 million in 2016, and its gross margin decreased to 3% in 2017 from 5% in 2016, mainly due to the narrowing of price spreads between finished steel and slabs. Cost of sales of the investments in NBH segment increased by 28% in 2017 to US$1,495 million from US$1,164 million in 2016. The increase in cost of sales was mainly due to an increase in slab prices.

General and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax Total general and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax, increased by US$161 million, or 15%, to US$1,236 million in 2017 from US$1,075 million in 2016. The following table shows a breakdown of general and administrative, selling expenses, net impairment losses on financial assets and other operating income and taxes, other than income tax, for the periods indicated.

Year ended 31 December 2017 2016 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (364) (316) (48) 15 Selling expenses ...... (788) (699) (89) 13 Net impairment losses on financial assets ...... (7) (6) (1) 17 Other operating income ...... 3 16 (13) (81) Taxes other than income tax ...... (80) (70) (10) 14 Total ...... (1,236) (1,075) (161) 15 General and administrative expenses increased by US$48 million, or 15%, to US$364 million in 2017 from US$316 million in 2016, primarily due to the strengthening of the Russian rouble. Selling expenses increased by US$89 million, or 13%, to US$788 million in 2017 from US$699 million in 2016, primarily due to the strengthening of the Russian rouble and an increase in export volumes by 5%. Net impairment losses on financial assets increased by US$1 million, or 17%, to US$7 million in 2017 from US$6 million in 2016. Other operating income decreased by US$13 million, or 81%, to US$3 million in 2017 from US$16 million in 2016. Taxes, other than income tax, increased by US$10 million, or 14%, to US$80 million in 2017 from US$70 million in 2016. This increase was primarily due to the strengthening of the Russian rouble. As a percentage of total revenue, general and administrative, selling expenses and other operating income/ (expenses) and taxes, other than income tax, decreased to 12% in 2017, compared to 14% of total revenue in 2016.

Loss on disposals of property, plant and equipment Loss on disposals of property, plant and equipment was US$1 million in 2017, compared to US$3 million in 2016, a decrease of US$2 million, or 67%.

Impairment of non-current assets Impairment of non-current assets of US$17 million in 2017 related to the chalk mill at Stoilensky. Impairment of non-current assets of US$14 million in 2016 related to the impairment of stocks for the investment programme.

Share of results of joint ventures Share of losses in results of joint ventures increased by US$29 million, or 48%, to US$90 million in 2017 from US$61 million in 2016, primarily due to the increase of net losses of NBH.

84 Losses on investments Losses on investments was an US$5 million loss in 2017, compared to a US$4 million in 2016, an increase of US$1 million, or 25%.

Finance income Finance income decreased by US$10 million, or 26%, to US$29 million in 2017 from US$39 million in 2016, primarily due to the strengthening of the Russian rouble.

Finance costs Finance costs decreased by US$18 million, or 17%, to US$87 million in 2017 from US$105 million in 2016, primarily due to a decrease in average interest rates.

Foreign currency exchange gain/(loss), net Foreign currency exchange gain, net was US$17 million in 2017, compared to foreign currency exchange loss, net of US$129 million in 2016. The foreign currency exchange gain, net in 2017 resulted from foreign currency exchange rate fluctuations with a significant position in non-functional currency borrowings and other assets and liabilities.

Income tax expense Income tax expense in 2017 was US$371 million, compared to US$233 million in 2016. The effective tax rate for 2017 and 2016 was 20%.

Profit for the year For the reasons set forth above, profit for the year increased by US$513 million, or 55%, to US$1,452 million in 2017 from US$939 million in 2016.

Liquidity and Capital Resources Historically, the Group’s major source of cash has been cash provided by operating activities, and NLMK expects that this will continue to be the Group’s principal source of cash in the future. As of 31 March 2019, the Group had cash and cash equivalents and short-term financial investments of US$1,182 million and total debt of US$2,096 million. See ‘‘—Liquidity’’.

Capital requirements The Group’s principal financing requirements have been, and continue to be, to finance production of steel and steel products and mining operations, and to fund capital expenditures, including the purchase of equipment and modernisation of facilities, as well as acquisitions. Historically, funding of the Group’s capital requirements has come from cash flows from operating activities. NLMK intends to continue to fund the Group’s capital expenditures primarily from these cash flows, as well as, if necessary, external sources of financing.

Capital expenditures The Group’s business is heavily dependent on plant and machinery for the production of steel and steel products and mining. Investments to maintain, expand and increase the efficiency of production facilities are, accordingly, an important priority and have a significant effect on the Group’s cash flows and future results of operations. Following expansion of the scale of the business, the focus of the Group’s strategy has shifted to enhancing operational efficiency. The Group’s capital expenditures in the three months ended 31 March 2019 totalled US$178 million, as compared with US$131 million in the three months ended 31 March 2018. The capital expenditures were primarily related to preparatory works for the launch of Strategy 2022 investment projects as well as final payments for Strategy 2017 projects. In 2018, the Group’s capital expenditures were US$680 million, compared to US$592 million in 2017. The capital expenditure funds were primarily related to Strategy 2017 projects.

85 In 2017, the Group’s capital expenditures were US$592 million, compared to US$559 million in 2016. In 2017, the capital expenditure funds were primarily related to the pelletising plant at Stoilensky, as well as for some of the Group’s projects rescheduled to 2017.

Cash flows The table below sets forth the Group’s summarised cash flows for the periods indicated:

Three months ended Year ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of US dollars) Net cash provided by operating activities ...... 2,741 1,899 1,699 851 737 Net cash provided by/(used in) investing activities ...... 290 (758) (310) (664) 185 Net cash used in financing activities ...... (2,119) (1,459) (1,120) (616) (495) Net increase/(decrease) in cash and cash equivalents ...... 912 (318) 269 (429) 427

Operating activities Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortisation and other items, and the effect of changes in working capital. Net cash provided by operating activities was US$851 million and US$737 million in the three months ended 31 March 2019 and 2018, respectively. Net cash provided by operating activities was US$2,741 million, US$1,899 million and US$1,699 million in the years ended 31 December 2018, 2017 and 2016, respectively. The change in net cash provided by operating activities during these periods was primarily due to the change in steel prices and sales volumes, the effect of operational efficiency programmes and movements in working capital and exchange rates. Changes in working capital items from period to period, including as a result of external factors, have had and will continue to have an effect on cash provided by operating activities. For example, increasing prices of purchased raw materials may warrant maintaining higher inventory levels in order to hedge against further price increases. An increase in steel prices and sales volumes can lead to an increase in account receivables. The increasing size of the Group’s business generally has required and will continue to require higher levels of working capital, although this can partially be offset by optimisation measures.

Investing activities Net cash used in investing activities for the three months ended 31 March 2019 was US$664 million and was primarily attributable to the placement of bank deposits of US$441 million, purchases and construction of property, plant and equipment of US$178 million. Net cash provided by investing activities for the three months ended 31 March 2018 was US$185 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$131 million and withdrawal of bank deposits of US$307 million. Net cash provided by investing activities for the year ended 31 December 2018 was US$290 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$680 million, withdrawal of bank deposits of US$1,044 million and purchases of investments and loans given of US$91 million. Net cash used in investing activities for the year ended 31 December 2017 was US$758 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$592 million, purchases of investments and loans given of US$44 million and placement of bank deposits of US$159 million. Net cash used in investing activities for the year ended 31 December 2016 was US$310 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$559 million, withdrawal of bank deposits of US$272 million and purchases of investments and loans given of US$79 million. See ‘‘—Capital Requirements—Capital expenditures’’.

Financing activities Net cash used in financing activities during the three months ended 31 March 2019 of US$616 million was primarily due to payment of dividends in an amount of US$547 million for the third quarter of 2018, interest payments of US$11 million and net repayments from borrowings of US$54 million. Net cash used

86 in financing activities during the three months ended 31 March 2018 of US$495 million was primarily due to payment of dividends in an amount of US$545 million for the third quarter of 2017, interest payments of US$17 million and net proceeds from borrowings of US$67 million. Net cash used in financing activities during the year ended 31 December 2018 of US$2,119 million was primarily due to US$173 million in net repayments from borrowings and US$1,890 million in dividends to shareholders. Net cash used in financing activities during the year ended 31 December 2017 of US$1,459 million was primarily due to US$105 million in net repayments from borrowings and US$1,285 million in dividends to shareholders. Net cash used in financing activities during the year ended 31 December 2016 of US$1,120 million was primarily due to US$453 million in net repayments from borrowings, US$583 million in dividends to shareholders and US$84 million in interest paid. See ‘‘—Capital Requirements’’.

Liquidity Historically, the Group has relied on cash from operating activities as the main source of liquidity. The Group had cash and cash equivalents of US$736 million as of 31 March 2019. This amount included time deposits in a total amount of US$259 million, of which US$162 million was held in Hong Kong dollars, US$58 million was held in US dollars, US$38 million was held in Russian roubles and US$1 million was held in other currencies. A majority of the Group’s cash and cash equivalents are held in several major Russian banks and Russian subsidiaries of foreign banks. As of 31 March 2019, the Group had total borrowings of US$2,096 million. A summary of the Group’s principal outstanding borrowings is set out below.

Bank Facilities Export Credit Financing Facility In November 2009, NLMK entered into a master export credit financing facility agreement and a number of facilities within the framework of such master agreement with, amongst others, Deutsche Bank AG as global facility agent for a maximum principal amount of EUR 524.0 million with a maturity period of 10 years, insured by Export Credit Agencies. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus an interest margin. This facility was used to finance the Group’s Technical Upgrading Programme. As of 31 March 2019, the amount outstanding was EUR 2.1 million (US$2.3 million). Under the export credit financing facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK’s obligations under this facility are secured in favour of the lenders by a pledge (direct debit rights) over bank accounts.

Kaluga Hermes Facility In December 2010, NLMK-Kaluga (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with, amongst others, Societ´ e´ Gen´ erale´ as facility agent for a loan in the principal amount of EUR 46.5 million with a maturity period of 10 years. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus an interest margin. As of 31 March 2019, the amount outstanding was EUR 8.4 million (US$ 9.4 million). Under the export credit backed facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK-Kaluga’s obligations under this facility are secured in favour of the lenders by a pledge over a bank account.

NLMK DanSteel Hermes Export Credit Facility In October 2011, NLMK DanSteel (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with Societ´ e´ Gen´ erale´ as facility agent and original lender for a principal amount of EUR 90.1 million with a maturity period ending in 2020. This facility was used to finance modernisation of a heavy plate mill of NLMK DanSteel. The amount outstanding under the facility bears an interest at a rate equal to EURIBOR for the relevant six-month interest period plus an interest margin. As of 31 March 2019, the amount outstanding was EUR 22.5 million (US$25.3 million). Under the export credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1.

87 SGOK ECA Facility In July 2012, Stoilensky (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with, amongst others, Societ´ e´ Gen´ erale´ as global facility agent for a loan in the principal amount of EUR 209.5 million with a maturity period ending in 2022. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus an interest margin. This facility is used for financing of equipment deliveries for construction of a pelletising plant in Stary Oskol. As of 31 March 2019, the amount outstanding was EUR 101.3 million (US$113.8 million). Under the export credit backed facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. Obligations under this facility are secured in favour of the lenders by a pledge over a bank account.

Alfa-Bank Credit Facility In July 2013, NLMK (as borrower) entered into a facility agreement (extension agreement) with OJSC Alfa-Bank as lender in the principle amount of RUB 28 billion (approximately US$433 million) with a maturity period up to December 2019. As of 31 March 2019, the facility was unutilised.

Sberbank Credit Facility In December 2015, NLMK (as borrower) entered into a facility agreement with PJSC Sberbank as lender in the principle amount of RUB 25 billion (approximately US$386 million) with a maturity period of up to five years. As of 31 March 2019, the facility was unutilised.

NLMK DanSteel Collateralised Credit Facility In October 2016, NLMK DanSteel (as borrower) and NLMK (as guarantor) entered into an amendment and restatement agreement increasing the principal amount to up to EUR 60 million and extending for an additional four years a revolving collateralised facility agreement with Deutsche Bank AG, Amsterdam Branch as facility agent and collateral agent concluded in March 2013. In March 2018, an accordion option increasing the principal amount up to EUR 70 million was exercised. This facility was used to finance working capital and for general corporate purposes. The amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant interest period plus an interest margin. As of 31 March 2019, the amount outstanding was EUR 70 million (US$78.6 million). Under the collateralised credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK DanSteel’s obligations under this facility are secured in favour of the lenders by a pledge over a bank account and pledges over inventory and receivables.

NLMK USA Collateralised Credit Facility In February 2017, NLMK Pennsylvania LLC., Sharon Coating LLC and NLMK Indiana LLC and NLMK North America Plate LLC. (as borrowers) and NLMK (as guarantor) entered into a revolving collateralised facility agreement with, amongst others, Bank of America N.A. as facility agent and collateral agent in the principal amount of US$250 million with a maturity period of four years. This facility was used for refinancing of a revolving collateralised facility agreement concluded in December 2011, financing of working capital and for general corporate purposes. The amount outstanding under the facility bears interest at a rate equal to the US dollar London interbank offered rate (‘‘LIBOR’’) for the relevant interest period plus an interest margin. As of 31 March 2019, the amount outstanding was US$144.4 million. Under the collateralised credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. The borrowers’ obligations under this facility are secured in favour of the lenders by a pledge over bank accounts and pledges over inventory and receivables.

February 2017 NLMK Trading Revolving Credit Facility In February 2017, NLMK Trading SA (formerly Novex Trading (Swiss) SA) (as borrower) and NLMK (as guarantor) entered into a revolving facility agreement with, amongst others, UniCredit Bank Austria AG

88 as facility agent in the principal amount of EUR 250 million with a maturity period of four years. This facility was used to finance working capital and for general corporate purposes. The amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant interest period plus an interest margin. As of 31 March 2019, the amount outstanding was EUR 250 million (US$280.9 million). Under the collateralised credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1.

March 2017 NLMK Trading Revolving Credit Facility In March 2017, NLMK Trading SA (formerly Novex Trading (Swiss) SA) (as borrower) and NLMK (as guarantor) entered into a revolving facility agreement with Nordea Bank Abp, filial i Sverige (formerly Nordea Bank AB (publ)) as lender in the principle amount of US$200 million with a maturity period of four years. As of 31 March 2019, the facility was unutilised.

VTB Credit Facility In April 2017, NLMK (as borrower) entered into a facility agreement with PJSC VTB Bank as lender in the principle amount of RUB 25 billion (approximately US$386 million) with a maturity period of up to April 2022. As of 31 March 2019, the facility was unutilised. During the years 2016, 2017 and 2018 and the three months of 2019, NLMK has been in compliance with the covenants under each of the Bank facilities listed above.

US dollar and Rouble Bonds 2024 Notes On 21 September 2017, NLMK completed its Eurobond offering of US$500,000,000 4.00% Loan Participation Notes due 2024 (the ‘‘2024 Notes’’). The 2024 Notes were issued by Steel Funding D.A.C. The proceeds from the issue were used to finance the purchase of the US$800,000,000 4.45% Loan Participation Notes due 2018 (the ‘‘2018 Notes’’) and US$500,000,000 4.95% Loan Participation Notes due 2019 (the ‘‘2019 Notes’’) in accordance with the terms and conditions of the Tender Offer announced 4 September 2017, as well as for NLMK’s general corporate purposes and refinancing of its current debt.

2023 Notes On 15 June 2016, NLMK completed its Eurobond offering of US$700,000,000 4.50% Loan Participation Notes due 2023 (the ‘‘2023 Notes’’). The 2023 Notes were issued by Steel Funding D.A.C. The proceeds from the issue were used to finance the purchase of the 2018 Notes and the 2019 Notes in accordance with the terms and conditions of the Tender Offer announced 31 May 2016, as well as for NLMK’s general corporate purposes and refinancing of its current debt.

2018 Notes On 19 February 2013, NLMK completed its Eurobond offering of the 2018 Notes. The 2018 Notes were issued by Steel Funding D.A.C. on a limited recourse basis for the sole purpose of financing a loan to NLMK. As of the date of this Prospectus, all of the 2018 Notes have been repurchased and cancelled.

2019 Notes On 26 September 2012, NLMK completed its debut Eurobond offering of the 2019 Notes. The 2019 Notes were issued by Steel Funding D.A.C. on a limited recourse basis for the sole purpose of financing a loan to NLMK. 2019 Notes in the amount of US$29,286,000 were cancelled on 18 July 2014, 2019 Notes in the amount of US$259,605,000 were cancelled on 17 June 2016 and 2019 Notes in the amount of US$65,371,000 were cancelled on 26 September 2017. As of the date of this Prospectus, an aggregate principal amount of US$145,738,000 of the 2019 Notes remain outstanding.

Rouble bonds The Group currently has no rouble bonds outstanding.

89 Contractual Obligations, Commercial Commitments and Contingencies The following table sets forth the amount of the Group’s contractual obligations and commercial commitments as of 31 March 2019. For more details on the Group’s commitments and contingencies please refer to Note 17 of the Interim Financial Statements.

Payments due by period Less than More than Total 1 year 1–3 years 3–5 years 5 years (Amounts in millions of US dollars) Short-term borrowings and current portion of long-term debt ...... 204 204 — — — Long-term debt obligations, net of current portion . . 1,797 — 597 700 500 Interest payable(1) ...... 12 12 — — — Purchase Obligations ...... — — — — — Short-term finance lease obligations ...... 8 8 — — — Long-term finance lease obligations ...... 75 — 24 16 35 Estimated finance expense(2) ...... 285 66 163 36 20 Estimated average interest rate(2) ...... 3.48 3.79 1.73 4.50 4.00 Total contractual obligations and commercial commitments ...... 2,013 216 597 700 500

(1) Interest payable as of 31 March 2019 amounted to US$12 million for short-term borrowings and current portion of long-term debt. (2) Finance expense is estimated for a five-year period based on (1) estimated cash flows and change of the debt level, (2) forecasted LIBOR rate where applicable and (3) actual long-term contract interest rates and fixed rates, forecasted with reasonable assurance on the basis of historic relations with major banking institutions. As of 31 March 2019 and 31 December 2018, the Group had outstanding guarantees amounting to US$296 million and US$309 million, respectively, which related to NBH group companies (see ‘‘Related Party Transactions’’). The Group does not currently have any other off-balance sheet arrangements.

Critical Accounting Estimates and Judgements The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures. Management also makes certain judgements in the process of applying the Group’s accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including forecasts and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, and management’s estimates can be revised in the future, either positively or negatively, based on the facts surrounding each estimate. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amounts of assets and liabilities within the next financial year are reported below.

Consolidation of subsidiaries Management judgement is involved in the assessment of control and the consolidation of subsidiaries in the Group’s consolidated financial statements.

Tax legislation and potential tax gains and losses The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities which are recorded for income tax positions are determined by management based on the interpretation of current tax laws. Liabilities for penalties, fines and taxes other than on income, are recognised based on management’s best estimate of the expenditure required to settle tax liabilities at the reporting date. The recognised deferred tax assets represent income taxes recoverable through future deductions from taxable profits and are recorded in the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. This includes temporary

90 difference expected to reverse in the future and the availability of sufficient future taxable profit against which the deductions can be utilised. The future taxable profits and the amount of tax benefits that are probable in the future are based on the medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable under the circumstances.

Estimation of remaining useful lives of property, plant and equipment The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may affect future useful lives.

Impairment analysis of property, plant and equipment, goodwill and investments in joint ventures The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a number of significant judgements and estimates to certain variables including volumes of production and extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed for impairment.

Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, the Group’s financial position is subject to a variety of market risks. The Group is exposed to market risks associated with interest rates, foreign currency exchange rates and commodity prices.

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with variable interest rates. To manage this risk the Group analyses interest rate risks on a regular basis. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate loans. The interest rate risk profile of the Group is follows:

As at As at As at As at 31 March 31 December 31 December 31 December 2019 2018 2017 2016 Fixed rate instruments Financial assets ...... 2,412 2,374 2,569 2,420 Cash and cash equivalents ...... 736 1,179 301 610 Short-term financial investments ...... 446 19 1,284 970 Trade and other accounts receivable less allowance . . 1,086 1,091 982 676 Long-term financial investments ...... 144 85 2 164 Financial liabilities ...... (2,038) (2,610) (2,668) (2,385) Trade, other accounts payable and dividends payable . (682) (1,256) (1,167) (899) Short-term borrowings ...... (156) (154) (155) (179) Long-term borrowings ...... (1,200) (1,200) (1,346) (1,307) Variable rate instruments Financial assets ...... — — — — Short-term financial investments ...... — — — — Long-term financial investments ...... — — — — Financial liabilities ...... (740) (721) (780) (783) Borrowings ...... (740) (721) (780) (783) A change of 100 basis points in interest rates for variable rate instruments would result in an insignificant change in profit and equity.

91 Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The export-oriented companies of the Group are exposed to foreign currency risks. To minimise foreign currency risks, the Group’s export programme is designed taking into account potential (forecast) major foreign currencies’ exchange fluctuations. The Group diversifies its revenues in different currencies. In its export contracts the Group controls the balance of currency positions such that payments in foreign currency are generally settled with export revenues in the same currency. Standard hedging instruments to manage foreign currency risk may also be used. The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2018.

Hong Kong Swiss US dollar Euro dollar francs Cash and cash equivalents ...... 84 480 309 24 Trade and other accounts receivable ...... 1 536 1 — Financial investments ...... — 99 — — Trade and other accounts payable ...... (56) (186) — — Borrowings ...... (1,355) (562) — — Net foreign currency position ...... (1,326) 367 310 24 The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2017.

US dollar Euro Cash and cash equivalents ...... 21 92 Trade and other accounts receivable ...... 4 379 Financial investments ...... 1,057 222 Trade and other accounts payable ...... (49) (25) Borrowings ...... (1,501) (686) Net foreign currency position ...... (468) (18) The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2016.

US dollar Euro Cash and cash equivalents ...... 414 50 Trade and other accounts receivable ...... 10 249 Financial investments ...... 861 272 Trade and other accounts payable ...... (57) (91) Borrowings ...... (1,519) (451) Net foreign currency position ...... (291) 29

Sensitivity analysis Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes. A 25% strengthening of the following currencies against the functional currency as at 31 December 2018, 2017 and 2016 would have increased/(decreased) equity by the amounts shown below; however, the effect on profit for the years ended 31 December 2018, 2017 and 2016 would be different, and would amount to

92 US$29 million loss, US$23 million gain and US$45 million gain, respectively, due to foreign exchange gain from intercompany operations.

As at As at As at 31 December 31 December 31 December 2018 2017 2016 US dollar ...... (332) (117) (73) Euro ...... 92 (5) 7 Hong Kong dollar ...... 78 — — Swiss francs ...... 6 — — A 25% weakening of these currencies against the functional currency would have had the equal but opposite effect to the amounts shown above, assuming that all other variables remain constant.

Commodity price risk Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results. The Group minimises its risks, related to production distribution, by having a wide range of geographical zones for sales, which allows the Group to respond quickly to negative changes in the situation on one or more sales markets on the basis of an analysis of the existing and prospective markets. One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products. To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

93 THE STEEL INDUSTRY Global Steel Industry Overview Steel is one of the most important, multi-functional and adaptable materials in use today, and is considered to be a backbone of industrial development. The versatility of steel is attributable to the fact that it is hot and cold formable, weldable, hard, resistant to corrosion, water and heat, 100% recyclable and has good machinability. Among the myriad industries in which steel is used are the automotive, oil and gas, consumer appliances, construction, transportation, packaging and engineering industries. The global steel industry is cyclical and is affected by a combination of factors, including periods of economic growth or recession, worldwide production capacity and the existence of, and fluctuations in, steel imports and protective trade measures. Steel prices respond to supply and demand and have fluctuated in response to general and industry-specific economic conditions. Moreover, the global steel industry is highly competitive and has historically been characterised by oversupply. While global steel production has been historically concentrated in the European Union, North America, Japan and the former Soviet Union, steel production in China, India and the rest of Asia has grown in importance over the past decade, as a result of rising domestic consumption and low manufacturing costs. Europe, Japan and the United States remain significant producers and consumers of steel, particularly the rolling and finishing of semi-finished products. In recent years, the market has been oversupplied as a result of increasing supply driven by unprecedented growth in crude steel capacity, aggravated by declining demand due to the global economic stagnation. In 2018, excess global steelmaking capacity was six times the total volume of steel produced in Russia. Demand in China increased by 13.8% and 7.9% year-on-year in 2017 and 2018, respectively (although the closure of previously under-reported production at outdated induction furnaces contributed to some of the reported increases), while exports from China were down by 30% and 8% year-on-year in 2017 and 2018, respectively, providing additional support to global steel prices. Chinese FOB hot-rolled products prices rose 10% in 2018, as compared to 2017. Global steel consumption grew by 4.9% in 2018, after an increase by 7.4% in 2017. Steel consumption in Russia was flat in 2018 as compared to 2017 after a growth of 5% in 2017. In the United States, steel consumption increased by 2.5% attributable to strong growth of the economy and demand from the construction, energy and machine-building sectors. In Europe, steel consumption climbed 4% against the backdrop of continued recovery of demand from construction, machine-building and automotive sectors. The growing number of trade barriers across the globe has led to market localisation and regional supply- demand misbalances. In early 2018, the U.S. imposed a 25% duty on almost all steel product imports under the Section 232 investigation. As a result, the U.S. average prices for hot-rolled steel products rose by 34% year-on-year. In early 2019, the EU adopted definitive safeguard measures (quotas that are regularly reset) on imports of steel in order to protect itself from the rerouted volumes of steel previously intended for the U.S. market. Russian demand for steel was flat year-on-year in 2018, although demand showed divergent trends in different product categories. For example, demand for rebar used in construction increased by 8% in 2018 as compared with 2017, while demand for flat steel and tubes was stable. Russian steel demand improved further during the first two months of 2019. In 2018, average prices for standard grades of flat and long products in Russia increased in US dollar terms by 4-13% as compared with 2017, while prices in rouble terms increased by 12-21% as compared with 2017 as a result of rouble devaluation. In Europe, prices for steel products in US dollar terms increased in 2018 by 10% as compared to 2017.

Global Steel Production and Consumption Production According to the Worldsteel Association, world crude steel production reached 1,788.1 million tonnes for the year 2018, an increase of 4.4% as compared to 2017. China maintained its position as the world’s largest single producer of crude steel at 927.7 million tonnes. China’s steel production in 2018 increased by 6.5% as compared to 2017, accounting for approximately 51.9% of global steel production.

94 The following table sets forth estimated crude steel production data by country or region for the years 2014 to 2018.

World Crude Steel Production 2018 2017 2016 2015 2014 (Amounts in millions of tonnes) Europe (including CIS) ...... 309.6 310.1 302.1 301.5 313.7 U.S...... 86.6 81.6 78.5 78.8 88.2 North America (excluding the U.S.) ...... 33.9 34.1 31.4 32.1 33.0 South America ...... 44.2 43.7 40.9 43.9 45.0 Middle East/Africa ...... 50.1 45.6 44.6 39.7 45.0 China ...... 927.7 870.9 808.4 803.8 822.7 Japan ...... 104.3 104.7 104.8 105.2 110.7 Asia (excluding China and Japan) ...... 225.3 215.8 211.8 187.0 206.4 Oceania ...... 6.3 6.0 5.9 5.7 5.5 World total ...... 1,788.1 1,712.5 1,629.6 1,620.0 1,670.1 Annual change (%) ...... 4.4 5.1 0.5 (4.3) 1.2

Source: Worldsteel Association The global industry is currently seeing a shift in demand from ‘‘commodity steel’’ to ‘‘high value added steel’’ or ‘‘specialised steel’’ in developed markets. However, the strategy and product mix of steel producers generally vary between producers in industrial countries and producers in emerging markets. Historically, the steel industry had been dominated by steel producers in industrialised countries. Producers in Western Europe and Japan had limited export markets due to the high cost of transporting steel relative to the low value of commodity steel grades. In the second half of the last century, producers in emerging markets began to compete with industrialised country steel producers as they took advantage of the lower manufacturing costs in their countries to offset high transportation costs. Despite the limitations associated with transportation costs, as well as the restrictive effects of protective tariffs, duties and quotas, global imports and exports increased during the last decade. In response, producers in Western Europe and Japan invested heavily in new technology and capacity to produce HVA steel grades in order to differentiate their product portfolio and protect their margins by reducing their exposure to commodity steel prices. However, these similar and simultaneous investments resulted in a build-up of production overcapacities and have put pricing pressures on the value-added segments. More recently, the industry has been characterised by the globalisation of the competitive landscape mainly due to the ability of low-cost emerging market producers to overcome entry barriers resulting from substantial modernisation of the production base, including quality thresholds, reliability of supply, transportation costs and quotas. The increasing pressure on manufacturing companies’ costs has also prompted a growing globalisation of production towards emerging markets. The globalisation of end-customers has led to a reduction in steelmaking capacity in mature markets. Given the high cost of production in these markets due to the lack of available raw materials, the high cost of labour and energy and other factors, liquid steel production in mature markets is becoming increasingly uncompetitive unless supported by trade barriers. The increasing bargaining power of raw materials suppliers and growing raw materials prices led many steel producers, including the Group, to seek to acquire mining companies in order to obtain greater control over raw material supplies and retain increased mining profits internally.

95 Consumption The following table sets forth estimated finished steel consumption data by country or region for the years 2014 to 2018.

World Finished Steel Consumption 2018 2017 2016 2015 2014 (Amounts in millions of tonnes) European Union ...... 169.7 162.7 157.9 154.5 149.0 Other Europe ...... 38.4 42.4 40.6 40.1 37.0 CIS...... 56.2 54.3 51.1 52.4 57.7 U.S...... 100.2 97.7 91.9 96.1 107.0 NAFTA (excluding the U.S.) ...... 42.7 43.1 40.5 38.2 39.2 South America ...... 43.3 42.2 39.9 46.1 49.3 Middle East/Africa ...... 87.1 88.3 90.7 92.5 91.9 China ...... 835.0 773.8 681.0 672.3 710.8 Japan ...... 65.4 64.4 62.2 63.0 67.7 Asia (excluding China, India and Japan) ...... 171.2 168.4 173.2 162.1 156.8 India ...... 96.0 88.7 83.6 80.2 76.1 Oceania ...... 7.0 6.6 6.9 7.4 7.6 World total ...... 1,712.1 1,632.5 1,519.5 1,504.9 1,549.9 Annual change (%) ...... 4.9 7.4 1.0 (2.9) 0.8

Source: Worldsteel Association The majority of the consumption of commodity steel is in Asian and other emerging markets. In 2018, China maintained its position as the world’s largest consumer of finished steel: 835 million tonnes.

Consolidation of the Global Steel Industry Over the last decade, a number of factors emerged which affected the relative bargaining power of major steel producers and adversely impacted their profit margins. Among such factors were the emergence of China as the world’s largest producer and consumer of steel, high prices for raw materials, coupled with the increasing bargaining power of raw materials suppliers, and the overall globalisation of the steel industry. In response, the steel industry itself began a phase of consolidation which included, among others, the merger of Arcelor and Mittal Steel in 2006, Essar Group’s purchase of the Algoma Steel Corporation and Tata Group’s acquisition of Corus Group (both in 2007). The consolidation trend is also apparent in the CIS where, in 2010, Metinvest Group and Ilyich Iron and Steel Works agreed to combine their assets creating a steel producer with a combined production capacity of 20 million tonnes per annum. Consolidation has enabled steel companies to lower their production costs and allowed for more stringent supply-side discipline, including through selective capacity closures which helped enhance the overall efficiency and utilisation rates across the board. Despite the level of consolidation over the last decade, the steel industry remains highly fragmented. However, a merger between two Chinese companies, Baoshan and Wuhan in 2016, forming the second largest steel producer in the world, China Baowu, marked an increased level of market concentration, and the Chinese government has targeted a further industry consolidation. The European steel market is also facing consolidation with continuing merger implementation processes between Tata Steel and Thyssenkrupp as well as between ArcelorMittal and Ilva. According to Worldsteel Association, in 2017, the five largest crude steel producers (ArcelorMittal, China Baowu, Nippon S&M, HBIS Group and POSCO) together accounted for approximately 17% of total worldwide crude steel production, with ArcelorMittal (97.2 million tonnes), the world’s largest producer, accounting for approximately 6%.

Russian Steel Industry Overview Following the collapse of the Soviet Union, the Russian steel industry suffered a substantial decline in production from over 77 million tonnes in 1991 to 44 million tonnes in 1998. Since then, output has increased significantly, and in 2018, Russia produced 71.4 million tonnes of crude steel, or 4% of the global production, making it the world’s sixth largest producer of crude steel. Russia’s crude steel output in 2018 increased by 1% compared to 2017, and its finished steel output increased by 1% during the same period. Since 1991, the industry decreased its operating capacity by 10% and changed its asset structure following a period of sizable investments into modernisation. Currently, the industry operates with close to 85 million

96 tonnes per year capacity, 30% of which is based on the EAF-route (as compared to 5% in 1991), with no open hearth furnaces (as compared to 55% in 1991), and with the rest of steel production based on the BOF-route. According to Metal Expert, in 2018 the Russian steel industry exported over 30.8 million tonnes of finished and semi-finished steel products, or 43% of its total crude steel output (as compared to 30.0 million tonnes, or 42% of its total crude steel output in 2017), primarily to Asia, the Middle East and the European Union. In 2018, Russian exports of steel products comprised 6% of all global exports of steel products, making Russia the fourth largest exporter of such products globally. Import of steel products into Russia in 2018 fell by 6% to 5.8 million tonnes as compared to 6.2 million tonnes in 2017. Russian steel producers tend to focus on vertical integration, as a result of Russia’s large reserves of natural resources, which enables them to secure a stable supply of key raw materials, such as iron ore and coking coal for pig iron. For instance, as a result of the Group’s policy of maximising vertical integration, from 2012 to 2018, all of the Group’s coke, sinter ore, iron ore and flux requirements have been met by its own mining assets. As a result of pelletising plant ramp-up at Stoilensky, the Group achieved 100% sufficiency in pellets. In addition, Russian companies are modernising former state-owned steel production facilities, achieving significant reductions in manufacturing costs, and placing their costs well below those of global (including Western European and North American) producers, and improving product quality and technology.

Domestic market Domestic consumption of steel in Russia in 2018 amounted to 41 million tonnes, the same level as 2017. Construction, machine building and energy sectors were the key consuming industries. Volumes of steel consumed in Russia are substantially less than in developed countries such as Japan, which consumed 65.4 million tonnes in 2018, and the United States, which consumed approximately 100 million tonnes in 2018, according to Worldsteel Association. In 2018, domestic market prices in US dollar terms increased, on average, by 3.9% for hot-rolled steel, 2.4% for cold-rolled steel and 5.9% for galvanised steel, in each case as compared to 2017. Though being a net exporter of steel (over 40% of production), Russia also is an importer of steel, mainly finished value added products. Imported steel comprised 12% of total steel consumed in Russia in 2015–2018.

Export market The total volume of exports of finished rolled steel products represented 25% of overall Russian finished steel production in 2018. In 2018, Russian producers exported 14 million tonnes of finished steel products. Semi-finished products (including slabs and billets) accounted for 54% of exports of steel products, and rolled steel products represented the remaining 46%. The majority of exports of rolled steel products in 2018 comprised flat products (28% of total volume of exports and 62% of volume of exports of rolled steel products) and long products (11% of total volume of exports and 25% of volume of exports of rolled steel products). Europe, Asia and the Middle East are the main export destinations for Russian steel producers. The following table sets forth by percentage the export destinations for Russian flat-rolled steel products in 2018.

Region Percentage Europe ...... 29.8 Asia ...... 17.5 North and South America ...... 4.6 Middle East, including Turkey ...... 37.0 Other ...... 11.1 Total ...... 100

Source: Metal Expert, Federal Customs Service of the Russian Federation

97 Producers The Russian steel industry is characterised by a relatively high concentration of production, with the six largest steel companies (the Group, Evraz, Severstal, Magnitogorsk Iron & Steel Works, Holding Company Metalloinvest and Mechel) accounting for 85% of Russia’s total domestic crude steel production in 2016.

EU Steel Industry Overview Domestic consumption of steel in the European Union in 2018 amounted to 169.7 million tonnes, representing an increase of 4.3% compared to 2017, and comprising approximately 10% of global consumption of finished steel. The member states of the European Union produced 167.8 million tonnes of crude steel in 2018 (9.4% of global total crude steel output). Total EU exports of finished and semi-finished steel products in 2018 amounted to 130 million tonnes, of which 106.5 million tonnes comprised intra EU exports, while 23.3 million tonnes (representing 13.7% of EU steel output) were sold outside the EU. Imports of steel into the European Union from outside the European Union in 2018 were 41.1 million tonnes, representing 24% of EU consumption in that period. (Source: World Steel Association, Eurostat.)

U.S. Steel Industry Overview Domestic consumption of steel in the United States in 2018 amounted to 100 million tonnes, representing an increase of 2.6% compared to 2017, and comprising approximately 5.8% of global consumption of finished steel. The U.S. produced 86.6 million tonnes of crude steel in 2018 (approximately 4.8% of global output). Total U.S. exports of finished and semi-finished steel products in 2018 amounted to 8 million tonnes, representing 9.2% of U.S. steel output, while imports of finished and semi-finished steel products amounted to 30.6 million tonnes, representing 30% of U.S. consumption in that period. (Source: World Steel Association, the U.S. Department of Commerce.)

Types of Steel Steel products are broadly subdivided into two categories—flat and long products. Flat products include hot and cold-rolled steel, plates, galvanised steel, pre-painted steel, transformer steel and dynamo steel. Long products include blooms, billets, wire, bars and metalware. Flat products have various applications in many industries, including construction, electrical engineering, machine building, automotive, energy, shipbuilding, and tube and pipe production. Long steel is largely used in the construction and infrastructure projects which account for over two-thirds of its total consumption. Long steel is also used in the machine building sector.

Raw Materials: Overview of Iron Ore and Metallurgical Coal Industries Iron Ore Global Iron Ore Industry Overview Iron ores are rocks and minerals from which metal is extracted. The global iron ore industry is characterised by a high degree of consolidation, with BHP Billiton, Vale, and Rio Tinto accounting for approximately 62% of the global seaborne iron ore trade. The major iron ore producing countries are Australia, Brazil, China and India, as well as Russia. The dominance of the major producers in the market has led to significant changes in pricing terms. According to SBB-Platts, spot iron ore concentrate prices have decreased from US$178 per tonne in January 2011 to US$72 per tonne at the end of 2018. The incident in early February 2019 at the mine of one of the largest iron ore producers led to a 33% price increase to US$90-95 per tonne. Global iron ore production has risen by more than two times from 980 million tonnes in 2000 to 2.2 billion tonnes in 2018. Historically, Europe, Japan and China have been the major iron ore consumption centres. Since 2002, China and certain countries in the CIS have been showing significant increases in demand as a result of the increases in their domestic steel production. Since that time, global consumption of steel, and, consequently, of iron ore, has significantly increased. China has recently experienced the highest growth in steel consumption, with an increase in demand of more than 85% from 446.9 million tonnes in 2008 to 835 million tonnes in 2018, according to Worldsteel.

98 Russian Iron Ore Industry Overview According to Metal Expert and Worldsteel, in 2018, total iron ore production in Russia was approximately 102.5 million tonnes. During the same period, total iron ore exports were approximately 13.7 million tonnes (as compared to 17.4 million tonnes in 2017), and total imports were approximately 7.7 million tonnes (as compared to 7.5 million tonnes in 2017). Imports to Russia mostly comprise shipments from Kazakhstan and are generally limited by high transportation costs and the lack of port facilities in the Far East and on the Black Sea. Russian iron ore production is highly concentrated, and the four largest producers accounted for approximately 81% of total iron ore production in Russia in 2018, according to Metal Expert and Rudprom. One of the Group’s core mining businesses, Stoilensky, which currently supplies 100% of the Group’s iron ore concentrate requirements, is the second largest iron ore manufacturer in Russia.

Coal Global Coal Industry Overview Coal may be divided into steam (thermal) coal and coking (metallurgical) coal. Steam coal is used in electricity generation and for industrial applications, while coking coal is used to manufacture coke for use in blast furnaces and other metallurgical applications. Coke is used as a raw material in the production of pig iron and is obtained by baking a blend of several grades of ground coking coals in coke ovens. Approximately 10% of total hard coal production is currently used by the steel industry, and approximately 72% of total global steel production is dependent on coal according to Worldsteel. In the production of steel, approximately 350 kilograms of coke is used per tonne of hot metal (pig iron). Historically, Australia, China, Indonesia and South Africa have been the largest coal-producing countries, with Russia increasing its share of world supply in recent years. Between 1990 and 2018, world coal production was estimated to have increased from 4,774 million tonnes to 7,585 million tonnes according to the Ministry of Energy of Russian Federation.

Russian Coal Industry Overview Russia has the world’s second largest proven coal reserves after the United States. As of the end of 2018 (the latest available data), Russia’s proven coal reserves totalled approximately 190 billion tonnes, accounting for 26% of the world’s proven reserves according to U.S. Energy Information Administration (EIA). In 2018, Russia exported approximately 199.5 million tonnes of coal, according to the Ministry of Energy of Russian Federation. In 2018, approximately 50% of Russia’s coking coal production capacity was owned by, or by entities affiliated with, Russian steel producers according to Metal Expert. Coal production in Russia is concentrated in the Kuznetsk Basin and the Kansko-Achinskii Basin, which are east of the Ural Mountains, and together account for the majority of Russia’s total coal production. In 2018, coking coal production in Russia was approximately 57 million tonnes, according to Metal Expert.

99 BUSINESS Overview The Group is a leading and one of the most efficient international steel producers in the world, with low cash costs per tonne compared to other steel producers (Source: World Steel Dynamics, February 2019), and with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of HVA products to end users. With global operations across Europe, North America and Asia, the Group has a high level of self-sufficiency in key raw materials and energy resources (as described in ‘‘—Competitive Strengths-Self-sufficiency in key resources’’); low cost steelmaking operations concentrated in the Central District and the Ural region of Russia, manufacturing 14.6 and 1.9 million tonnes per year or 84% and 11% of the Group’s total steelmaking capacity, respectively; and mini-mills and rolling assets located in close proximity to its key customers in Russia, Europe and the United States. Total downstream capacity of the Group is approximately 14.8 million tonnes per year. The Group has a diversified portfolio of steel products, with a strong presence in many industry sectors in both its Russian and international markets. NLMK is the largest producer of steel in Russia with approximately 23% of total Russian steel production in 2018. The Group’s product range includes slabs, hot-rolled steel, long steel products such as rebar and wire rod and a variety of HVA products, which include a range of hot-rolled thick plates, cold-rolled steel, galvanised and pre-painted steel, electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel and metalware. High value added products represented approximately 29% of the total volume of sales of steel products of the Group in 2018. In 2018, the Group had sales revenue of US$12,046 million, Adjusted EBITDA of US$3,589 million and Adjusted EBITDA margin of 30%, and in the three months ended 31 March 2019 the Group had sales revenue of US$2,869 million, Adjusted EBITDA of US$695 million and Adjusted EBITDA margin of 24%. The Group’s products are sold to approximately 70 countries in Europe, North America, Central and South America, Asia, Africa and the Middle East. The diversity of the Group’s products and export strength gives it the flexibility to focus on the most attractive markets and helps to protect it from downturns in a particular customer segment or in a particular region. The Group identifies the most attractive markets using a range of criteria, including market growth potential, supply and demand balance, profitability, lead times and the complexity of the supply chain. In 2018, the Group produced approximately 13% of the overall Russian hot-rolled steel output, 41% of the overall Russian cold-rolled steel output, 26% of the overall Russian galvanised steel output, 24% of the overall Russian pre-painted steel output and 23% of the overall Russian rebar steel output, according to Metal Expert. The Group is a steel producer with a high degree of vertical integration and with control over a substantial part of its production chain, from its upstream operations, comprising the mining of raw materials and upstream diversified steelmaking (with a balance between BOF and EAF routes of crude steel production), to downstream steel processing (both flat and long finished steel products) close to the end users of its products and export seaports. The Group’s Russian assets represent 100% of the mining capacity of the Group, approximately 95% of its crude steelmaking capacity and approximately 60% of its downstream (production of rolled steel) processing capacity, including flat and long steel production. The Group’s mining division supplies raw materials, including iron ore concentrate, pellets, fluxing materials, coke and scrap to the Group’s Russia-based steelmaking operations. The Group’s core mining business is Stoilensky, an open pit mine with approximately 5 billion tonnes of primary iron ore reserves and one of the lowest cash costs of production (cost of mining and beneficiation per tonne of iron ore concentrate) in the global iron ore industry. Stoilensky supplies approximately 100% of the Group’s iron ore concentrate and sinter ore requirements, as well as approximately 97% of the Group’s pellets requirements. The Group’s other raw material producing subsidiaries include Dolomit and Stagdok, which supply fluxing materials, and Altai-Koks, Russia’s largest non-integrated coke producer, which, together with the Lipetsk site’s coke production facilities, supplies all of the Group’s coke requirements. In addition, approximately 60% of all scrap consumed by the Group’s sites in Russia in 2018 was supplied by the Group’s captive scrap businesses which collect and process ferrous scrap, making NLMK one of the largest scrap collecting and processing companies in Russia. As part of the ongoing upstream development, the Group is currently seeking to expand the production of iron ore at Stoilensky by approximately 16% and to expand its pelletising plant capacities by approximately 19% from the current 6.7 million tonnes per year to 8 million tonnes per year of iron ore pellets to supply additional crude steel capacities. In addition, the Group has licences to two coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the

100 Kemerovo Region, Western Siberia, and Usinsky-3 in the Komi Republic. The Group considers these deposits as a long-term option for further development. The Group seeks to control costs throughout the production cycle and believes that it enjoys one of the most competitive production cost structures in the global steel industry. Management believes that the Group’s main production site in Lipetsk, which accounts for approximately 75% of the overall crude steel capacity of the Group, has one of the lowest cash costs of steel production among global steel producers and one of the lowest among its Russian competitors. The Group achieves this by ensuring economies of scale in the production process and by upgrading its production facilities, which management believes include some of the most modern in the global steel industry. The Group also operates a long steel division in Russia comprising electric arc furnace-steel production and rolling mills producing rebar, wire-rod and metalware. The Group enjoys an advantageous geographical position, with production sites located close to its customer base in regions with extensive transportation infrastructure. The Group’s Russian operations benefit from a long-term agreement with Freight One, a transportation company, for the supply of transport and rail logistics services. Freight One is part of UCL Holding, one of the largest railway wagon fleet owners in Russia. UCL Holding is currently an entity under common control. The Group’s main production site in Lipetsk (Novolipetsk) has convenient access to the Black Sea and Baltic Sea ports from where its products are shipped overseas. In addition, iron ore deposits are situated in close proximity to the Group’s main production site in Lipetsk. Most of the Group’s Russian customers are located within 500 kilometres of its main production site in Lipetsk, helping to streamline the Group’s logistics. In addition, the Group operates rolling mills in two of its key overseas markets through its subsidiaries and affiliates in the European Union (in Belgium, Denmark, France and Italy), which together form the NLMK Europe business unit, and through its subsidiaries in the United States, which together form the NLMK USA business unit. NLMK Europe and NLMK USA, together with their subsidiaries and affiliates, represent approximately 40% of the downstream processing capacity of the Group (or over 6.1 million tonnes per year). A substantial part of the feedstock (slabs) used by NLMK Europe and NLMK USA in the manufacturing of finished steel products, including HVA products, is supplied by the Group’s Russian operations. As a result of the 25% import duty implemented by the U.S. in 2018 under Section 232, NLMK USA switched to third-party slabs supplies from suppliers in the United States and other countries in 2019. In February 2014, the Group announced its Strategy 2017. Strategy 2017 was focused on gaining leadership in operational efficiency, developing a world class resource base and achieving leading positions in strategic markets. Special emphasis was placed on industrial safety, sustainability and human capital development. In 2016, NLMK launched the key investment project included in Strategy 2017: the Stoilensky pelletising plant, with annual capacity of over 6 million tonnes of iron ore pellets with an additional expansion capacity of up to 20%. In 2014-2018, Strategy 2017 delivered an estimated US$1,348 million of net gains (including NBH results) exceeding the initial target of US$1 billion. Operational efficiency projects driven by NLMK Production System contributed an estimated US$0.7 billion. In March 2019, the Group announced its Strategy 2022. Strategy 2022 will focus on enhancing NLMK’s competitive advantages, including low cost steel production, efficient vertical integration, product mix diversification (by product and by market) as well as a high level of product quality and sales localization, and pursuing environmental, safety and social responsibility programmes.

History and Development The Group’s predecessor, Novolipetsk Iron and Steel Works, a state-owned enterprise, first began construction of an iron and steel plant at the Lipetsk iron ore mine in 1931 and produced its first pig iron in 1934. After the plant was dismantled during World War II, Novolipetsk Iron and Steel Works began reconstruction of the iron and steel plant at Lipetsk in 1947 and, during the next four decades, continued to develop its production facilities and product range, including the introduction of cold-rolled grain- oriented (transformer) steel in 1960 and cold-rolled carbon steel in 1980. In accordance with the Russian government’s programme of the privatisation of Russian industry in the early 1990s, NLMK was formed as an open joint stock company on 31 December 1992, and was privatised in stages from 1993, initially through a distribution to its employees of vouchers that could be exchanged for shares in NLMK. By the middle of the 1990s, several investors had acquired significant stakes in NLMK. Between 2000 and 2004, the Group’s current beneficial owner, Mr. Vladimir Lisin, had, through a

101 series of transactions, acquired beneficial ownership of NLMK from this group of investors and NLMK management. In December 2005, NLMK obtained admission of global depositary receipts, each evidencing ordinary shares of NLMK, to listing on the Official List of the United Kingdom Listing Authority and to trading on the regulated market of the London Stock Exchange. NLMK is the parent company of the Group and holds the main assets of its steel operations. In addition, the Group has acquired a number of businesses worldwide, including mining assets that produce raw materials used in the Group’s steel production operations. In 1997, the Group acquired Dolomit, which mines and processes metallurgical dolomite and, in 1999, it acquired Stagdok, which mines and processes fluxing limestone. Both of these companies are located in the Lipetsk Region. In 2004, the Group acquired Stoilensky, an open pit iron ore mine, located approximately 300 kilometres from Lipetsk, which currently supplies all the iron ore concentrate requirements of the Group’s main steel plant in Lipetsk. In 2005, the Group acquired the licence for the exploration and development of the Zhernovskoye-1 coal deposit in the Kemerovo region, Western Siberia, which was updated in 2016. In 2006, the Group acquired Altai-Koks, which currently supplies all the coke requirements of the Group’s main steel plant in Lipetsk. The Group made additional downstream investments in 2006, including the acquisition of DanSteel A/S (now NLMK DanSteel and, since the second half of 2011, a part of NLMK Europe Plate business unit), a steel rolling company based in Denmark and VIZ-Steel, the second largest electrical steel producer in Russia, as well as establishing a joint venture with the Duferco Group through the acquisition of a 50% stake in Steel Invest & Finance (Luxembourg) SA (‘‘SIF’’), which consisted of steelmaking assets and five rolling mill companies (together with a network of metal services centres) in Europe and the United States. In 2007, SIF subsequently acquired Sharon Coating LLC (‘‘Sharon Coating’’, currently a part of NLMK USA business unit), a galvanised steel manufacturer located in the United States. In December 2007, NLMK acquired 50% plus one share of OJSC Maxi-Group, which operated a number of scrap collecting and processing facilities as well as two Electric Arc Furnaces (EAF) and long steel production facilities located in the Ural region of Russia. Following a restructuring of the Maxi-Group businesses, these assets became part of the Group’s long steel division. In 2008, the Group acquired Beta Steel LLC (subsequently renamed NLMK Indiana, currently a part of NLMK USA business unit), a manufacturer of steel (EAF production) and hot-rolled coils in the United States. In 2009, NLMK completed the disposal of its 69.41% shareholding in TMTP (Tuapse Sea Port). In 2010, the Group acquired LLC VMI Recycling Group, which has a ferrous scrap collecting and processing capacity of 500 thousand tonnes per year and is located in the Moscow region. In line with the Group’s strategy of streamlining its asset structure and splitting off non-core assets, in June 2011, the Group sold its 100% interest in NTK (the legal predecessor of Freight One) to UCL Rail B.V., a subsidiary of UCL Holding, a related party, and entered into a long-term agreement (which was prolonged until January 2023) with Freight One for the supply of transport and rail logistics services. UCL Holding, one of the largest railway wagon fleet owners in Russia, is a holding company comprised of a number of railway and logistics, seaport and stevedoring, and shipping and other assets. In July 2011, the Group completed the restructuring of SIF, in which it acquired the remaining 50% interest from the Duferco Group and consolidated the rolling assets within the Group, and SIF transferred certain non-core (steelmaking) assets to the Duferco Group. In October 2011, the Group acquired Nippon Transcore Private Limited (subsequently renamed ‘‘NLMK India Service Centre Pvt Ltd’’), an electrical steel service centre in India (‘‘NLMK India’’). In March 2011, the Group acquired a licence for the exploration and extraction of coal in Usinsky-3 expiring in 2031. In April 2013, NLMK-Kaluga, an EAF long steel facility in the central region of Russia, was commissioned. NLMK began construction of the mill in the Vorsino industrial park located 70 km from Moscow in 2008, investing 38 billion roubles in the project. The annual capacity of NLMK-Kaluga amounts to 1.5 million tonnes of steel and 0.9 million tonnes of rolled products. In March 2015, NLMK Group and SOGEPA agreed on changes to NBH’s ownership structure and governance, with SOGEPA’s interest in NBH increasing from 20.5% to 49%. In September 2018, the Group’s stake in NBH decreased to 49%. See ‘‘Operating and Financial Review—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’. On 29 December 2015, NLMK changed its company type from ‘‘open joint stock company’’ (OJSC) to ‘‘public joint stock company’’ (PJSC) as a result of amendments to the Russian Civil Code which changed the classification of Russian legal entities in 2014.

102 In September 2018, the Group completed the sale of a 2% stake in share capital of NBH to Tubes de Haren et Nimy S.A., a subsidiary of NBH. As a result of this transaction, direct ownership of the Group in the share capital of NBH decreased to 49%.

Competitive Strengths Sustainable growth capabilities The Group seeks to deliver above average long-term growth relative to its competitors, while minimising risks arising from operating in a highly cyclical industry. The Group’s Russian low-cost steelmaking platform remains its main growth engine, and until 2013 the Group focused on expanding its steelmaking capacity. In 2012-2013, the Group launched NLMK-Kaluga with annual capacity of 1.5 million tonnes of steel and 0.9 million tonnes of rolled products. The rolling capacity of the mill can potentially be expanded to 1.5 million tonnes. In 2019, the Group plans to start reconstruction of one of its blast furnaces at the Lipetsk production site. The upgrade will extend the service life of the blast furnace by at least 20 years and boost its productivity by 8% to 3.4 million tonnes of pig iron per year. Pursuing efficient vertical integration remains the Group’s principal means of reducing industry risks. The Group has a high degree of vertical integration comprising a wide range of upstream assets ranging from mining and energy generation to primary steelmaking, processing and distribution. The Group seeks to improve its profitability by enhancing its operational efficiency, increasing self-sufficiency in raw materials and consequentially reducing consumption of expensive resources. The Group has shifted its strategic focus from external expansion to improving efficiency and extending its presence in attractive product niches, industries and regions. Management believes that continuing development of its downstream capacity enables the Group to meet evolving customer requirements and to improve profitability by offering HVA products. By producing HVA products, the Group is able to safeguard the value generated at its upstream production facilities and to maximise their capacity utilisation rates. Following the acquisition of the rolling assets in Europe and the United States that now form its International Operations (NLMK Europe and NLMK USA), the Group is able to process up to 90% of its steel mainly produced in Russia into finished products, even after a significant crude steel capacity expansion in 2012-2013. The Group intends to expand its product offering by developing its downstream capabilities, capturing opportunities in both growing markets, like Russia, as well as in mature markets, in each case by offering HVA and premium quality products, including niche products, manufactured in close proximity to the end-users.

Self-sufficiency in key resources The Group has been pursuing self-sufficiency in key resources in order to secure supplies and to control the steel production costs. The Group’s upstream assets, such as mining, coke production and scrap processing facilities, supply it with the key input materials, such as iron ore, coke, scrap and fluxes required for crude steel production, and enable the Group to manage risks associated with price fluctuations for raw materials. In 2018, iron ore concentrate and sinter ore production at Stoilensky covered all of the Group’s requirements in primary ferrous materials, Stagdok and Dolomit supplied all of the fluxes required by the Group and Altai-Koks (together with the coke operations at the Lipetsk site) fully covered the Group’s coke requirements. The Group’s level of self-sufficiency in iron ore pellets has increased to approximately 97% following the launch of the pelletising plant at Stoilensky in November 2016. In addition, over 60% of all scrap consumed by the Group’s Russian assets was supplied by the captive scrap processing network. The Group has also built a portfolio of mining rights for coking coal deposits and considers them as a long-term investment.

Low-cost and efficient operations Efficiency remains the cornerstone of the Group’s strategy. The Group is a cost leader and it strives to secure and maintain cost leadership positions in all of the core markets where it competes. For instance, the cash cost of slabs produced at the Group’s Lipetsk site in 2018 was US$266 per tonne, considerably below the global average of US$393 per tonne (according to data published by research agencies). The Group produces most of its raw materials and liquid steel in low cost locations combining integrated (BOF) and scrap-based (EAF) production routes, while more than a third of the Group’s finished products are produced in developed markets in close proximity to its diverse customer base. The Group also controls its costs by operating in-house raw materials and energy production, as well as by maintaining

103 lower conversion costs across the entire production chain. The level of in-house generated electric energy self-sufficiency at the Lipetsk site was 59% in 2018. In order to manage the risk related to coking coal prices, the Group is implementing alternative technologies (such as tar pitch, which is already rolled out at Altai-Koks, as well as hot stamping and pulverised coal injection) that allow it to replace premium grades of coal with less expensive coal, while maintaining the same quality of coke. The Group also aims to partly replace the consumption of coke and natural gas with steam coals, also known as PCI coal, with the first of the Group’s blast furnaces transferred to PCI technology in 2013 and 2014. The Group continues to implement technology enhancements, and in June 2017 the PCI technology was expanded across the largest blast furnaces of the Group. As at the end of the first quarter of 2019, the PCI technology was implemented at 90% of the Group’s blast furnace capacities. Productivity in terms of output of crude steel per employee increased from 308 tonnes in 2016 to 328 tonnes in 2018, an increase of 6.5%, reflecting the Group’s commitment to maximising efficiency of its operations. The Group also runs management efficiency initiatives identifying cost reduction opportunities and converting them into cost savings.

Location of assets The Group’s business model is based, in part, on leveraging the geographical location of its assets. The Group’s mining and steel production assets (the most material- and resource-intensive part of the integrated process) are located in Russia, a low-cost region, while production of finished products is concentrated in the key sales markets in close proximity to its customers in Russia, the United States and Europe.

Flexibility The Group has a flexible business model, which enables it to address the increasing challenges in the industry. The diversity and the flexibility of the Group’s business are enhanced by its extensive product mix, which helps manage exposure to divergent industry cycles. The Group’s product portfolio is well balanced between both finished and semi-finished products as well as standard and high-end products, contributing to superior asset performance and profitability. Ongoing technological innovation and product development increases the share of new products in the Group’s product mix, making its business more adaptable to the needs of its clients. In most product categories, the Group seeks to maintain a healthy balance between exposure to emerging and mature markets, thereby balancing growth and stability. The Group’s robust production capabilities and flexible production policy allowed it to increase capacity utilisation rates and, as a result, to raise overall sales volumes in 2018 by 7% as compared to 2017. In the first three months of 2019, the Group’s sales of finished products increased by 13% as compared to the first three months of 2018, while total sales of the Group grew by 11% in the first three months of 2019 as compared to the first three months in 2018. This increase in total sales was primarily due to an increase in slab deliveries and strong demand for finished products, especially for HRC.

Solid financial standing as well as operational and financial performance The Group believes that its balanced business model, control over a significant portion of its raw material and energy supplies and its programme of modernising production facilities have enabled it to achieve a high level of operating and financial performance. As at the end of 2018, the Group’s net debt to Adjusted EBITDA ratio was 0.25x compared to 0.35x in 2017 and 0.39x in 2016. Due to the industry-wide developments, including higher commodity prices, the Group’s revenue for 2018 increased to a record high of US$12,046 million as compared to US$10,065 million in 2017 (up from US$7,636 million in 2016). On 13 February 2019, Moody’s upgraded the Group’s long-term credit rating from ‘Baa3’ to ‘Baa2’ with stable outlook. On 9 April 2019, Fitch upgraded the Group’s long-term credit rating from ‘BBB-’ to ‘BBB’ with stable outlook. The Group’s credit ratings are as follows:

Rating agency Long-term rating Outlook Standard & Poor’s ...... BBB Stable Moody’s ...... Baa2 Stable Fitch ...... BBB Stable

104 Strategy In March 2019, the Group announced the launch of its new Strategy 2022. Strategy 2022 targets net gains of US$1.25 billion to EBITDA per year, with US$0.5 billion per year from operational efficiency programmes that require no additional capital expenditures. Strategy 2022 is based on enhancing the Group’s competitive advantages. Through operational efficiency initiatives and investment projects, as well as debottlenecking the Group’s steelmaking operations, the Group seeks to increase steel output at the Lipetsk site by 1 million tonnes per annum, of which 100% of the steel output growth will be covered by captive iron ore from Stoilensky. To support the increase in production, the Group will work on infrastructure debottlenecking, including expansion of the throughput capacity of a number of stations at the Lipetsk site and carrying out auxiliary initiatives at the BOF, sintering and blast furnace shops. Strategy 2022 contemplates that the additional steel output will be sold in the form of premium and niche HVA products, with growth in sales of HVA products targeted at 1.7 million tonnes, driven by investment into the Group’s rolling operations in Russia, Europe and the U.S. Total sales volumes are targeted to increase by 0.6 million tonnes as compared to 2018. As part of its strategic goal on sustainable development, the Group intends to execute its target programmes aimed at reducing its environmental footprint, improving occupational health and safety and reducing its injury rate. The Group expects that capital expenditures devoted to Strategy 2022 will total approximately U.S.$2.1 billion, with investments peaking in 2019–2020. Strategy 2022 is based on four pillars:

Low cost—lowest steel production cost globally as well as operational and process excellence The Group intends to continue enhancing its operational efficiency with minimum capital outlays, through debottlenecking of its production processes and higher engagement of employees in continuous improvement processes. These projects are aimed at maximizing output at existing capacities through improved logistics and overhauling schedules and achieving better production yields, as well as minor technology adjustments based on internal and external benchmarking of the capabilities of the Group’s capacities. The Group will rely on its ‘‘NLMK Production System’’, which includes a wide range of practices aimed at enhancing the efficiency of key operational, technological and business processes. The Group seeks to achieve the best technologically possible level of operations using existing production process and current facility capabilities. The Group believes that this approach will allow it to moderately increase production of iron ore, pellets and pig iron, as well as to raise finished products output, in particular, hot-rolled steel, at no extra capital outlays. In addition, the Group seeks to further minimise cash costs to maintain global leadership among steel producers. Most of the impact on cash cost reduction is expected to come from improved consumption rates of key raw materials, such as coal, energy and ferroalloys, as well as processes optimization. For example, the Group’s slab cash costs relative to 2018 is expected to be reduced by U.S.$18 per tonne. Improved labour productivity will also support the overall efficiency improvements. Management estimates that the net EBITDA gains from these initiatives are expected to amount to US$0.5 billion as a result of Strategy 2022 execution. The Group expects to incur US$50 million of investments on cash cost reduction projects.

Growing—growth across the integrated production chain while maintaining full self-sufficiency in key raw materials and energy The Group plans to expand further its highly competitive integrated steel production using its existing asset base. Organic growth across the whole value chain is a priority. In order to reach this goal, the Group plans the following: • Increase of 1 million tonne of steel production. To achieve this objective, the Group plans to invest in the upgrade of its continuous casting machine at the Lipetsk site that will also improve the quality of slabs produced and widen the range of slab’s dimensions. The Group expects to achieve the additional growth of iron ore production through the brownfield expansion and utilization of additional capacity of the pelletising plant at Stoilensky, as the Group is planning to maintain its 100% self-sufficiency in iron ore. The Group estimates that this will result in an increase in concentrate and pellets output by 2.3 million tonnes and 1.2 million tonnes, respectively. In addition, to achieve this target, the Group will work on infrastructure debottlenecking, including expansion of the throughput capacity of a number of stations at the Lipetsk site and auxiliary initiatives at the BOF in 2019–2020, sintering and blast furnace shops to support the increase in production.

105 • Increase in energy self-sufficiency. The Group plans to build a 300 MW captive power plant at the Lipetsk site that will be fed with by-product (secondary) fuel gases. The Group aims to achieve 100% by-product gas recovery and 94% energy self-sufficiency on this site, as compared to 59% in 2018. The project is an efficient alternative for replacing the existing outdated gas infrastructure. It should also help to reduce the Group’s environmental impact. • Reduction of premium coal grades consumption. The Group expects that delivery of a coal charge stamping project in 2019 coupled with a number of operational efficiency projects will allow it to reduce the share of premium coal grades in the mix from 45% in 2018 to 40% by 2023. Combined with the PCI technology applied at all of the Group’s blast furnaces, it provides a strong alternative to developing captive coal capacities, which the Group does not possess. Management estimates that the delivery of these targets will result in net EBITDA gains of US$0.3 billion, a reduction of slab cost by U.S.$9 per tonne and requires US$1.0 billion of investments in executing Strategy 2022.

Premium quality—growing exposure to premium segments in our core markets The Group intends to enhance significantly its product mix by expanding it downstream capabilities. The Group plans to convert additional and existing steel production volumes into 1.7 million tonnes of HVA products to be sold in Russia, Europe and the U.S. The Group also plans to launch a new galvanising line at the Lipetsk site with the capacity of 0.4 million tonnes per year to meet rising demand for coated products in Russia. The material produced at the additional Hot-Dip Galvanised (HDG) capacity is to be partially used as a substrate (feedstock) for the existing pre-painted capacity. The Group also plans to increase production of electrical steel products to meet the expected boom in global production of EVs, energy-efficient equipment and transformers. The production of high grade grain-oriented steel is intended to increase by 0.1 million tonnes and the output of premium grade non-grain-oriented steel for electric vehicles and energy-efficient motors will also rise by 0.1 million tonnes. The Group also plans to improve product mix at the Russian Long division. In the Europe Strip division, the Group plans to pursue a market-led growth strategy in niche thin and high-strength steel with total targeted growth of 0.6 million tonnes. This will require upgrading of its hot strip mill and galvanising line. In the Europe Plate division, the Group targets higher production of premium plates at DanSteel to meet growing demand for alternative energy in the region, in particular, for windmills construction. In addition, Strategy 2022 contemplates improvement at Clabecq and Verona sites. Management estimates that the delivery on these targets will result in net EBITDA gains of US$0.45 billion, with 60% of the effect to be generated by the Group’s operations in Russia and 40% by the Group’s operations in Europe and U.S., and requires US$1.1 billion of investments. Most of the EBITDA effect (US$0.27 billion) is expected to be generated in Russia.

Sustainable—safe operations, low environmental footprint, socially responsible business The Group seeks to operate in a safe, socially and environmentally responsible manner. The Group plans to minimise its environmental footprint and seeks to ensure that its production processes comply with the applicable environmental legislation, BAT and occupational health and safety standards. In 2018, the Group’s LTIFR for employees and contractors reached 0.77, down from 1.12 in 2017 and 0.85 in 2016. The Group plans to reduce LTIFR further to 0.5 as part of Strategy 2022 implementation. In 2018, specific air emissions from NLMK’s Lipetsk operations fell to 20.7 kilogrammes per tonne of steel produced as compared to 20.9 kilogrammes in 2017 and 21.3 kilogrammes in 2016. Following Strategy 2022 completion, specific air emissions are expected to drop further to 19.0 kilogrammes. The Group aims to gain improvements in labour productivity supported by a motivated staff. It seeks to create conditions for high labour productivity by providing opportunities for professional training and fostering a strong corporate culture. Labour productivity in 2018 grew by 2% year on year across the Group, with total growth of 31% as compared to 2013, when Strategy 2017 was implemented.

106 Steel Products The Group’s steel product line includes pig iron, slabs (semi-finished steel products for flat steel production), flat steel and long steel products. Slabs represented 29% of the Group’s total volume of sales of steel products in 2018 (34% in the three months ended 31 March 2019), while flat steel products represented 47% of its total volume of sales of steel products in 2018 (51% in the three months ended 31 March 2019). The Group’s flat steel product range includes hot-rolled steel, thick plates, cold-rolled steel, coated steel (including galvanised and pre-painted steel) and electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel. The Group also produces long products and metalware (representing 14% of total sales in 2018 and 13% of the total sales in the three months ended 31 March 2019), which are produced and sold mainly on the Russian market. The Group’s products comply with the main Russian and international quality standards and are sold across various sectors (from construction to energy to machinery building sectors) in approximately 70 countries. The table below shows the production results of the Group’s principal steel products for the periods indicated.

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of tonnes, except for percentages) Product Pig Iron ...... 13.2 12.8 12.7 3.2 3.3 Crude steel ...... 17.3 16.8 16.5 4.2 4.3 NLMK Russia Flat ...... 13.3 13.2 13.0 3.3 3.4 NLMK Russia Long ...... 3.3 3.0 2.9 0.7 0.7 NLMK USA...... 0.7 0.6 0.6 0.2 0.2 Products for sale: Commercial pig iron ...... 0.8 0.6 0.5 0.1 0.2 Semi-finished steel products ...... 5.9 5.3 5.4 1.5 1.3 Slabs ...... 5.2 4.6 4.7 1.4 1.1 Billets ...... 0.8 0.7 0.7 0.1 0.2 Total rolled products ...... 11.0 10.7 10.3 2.7 2.7 Flats ...... 8.5 8.5 8.1 2.1 2.2 Hot-rolled steel ...... 3.7 3.8 3.6 0.9 1.0 Plates ...... 0.5 0.5 0.5 0.1 0.1 Cold-rolled steel ...... 2.0 2.0 2.0 0.5 0.5 Galvanised steel ...... 1.3 1.2 1.0 0.3 0.3 Pre-painted steel ...... 0.4 0.4 0.5 0.1 0.1 Grain-oriented steel ...... 0.3 0.3 0.2 0.1 0.1 Non-grain-oriented steel ...... 0.3 0.3 0.3 0.1 0.1 Long products and metalware ...... 2.4 2.2 2.2 0.6 0.6 Long products ...... 2.2 1.9 1.9 0.5 0.5 Metalware ...... 0.3 0.3 0.3 0.1 0.1 TOTAL STEEL PRODUCTS ...... 17.6 16.6 16.2 4.3 4.2 In 2018, the Group produced 17.3 million tonnes of crude steel (4.2 million tonnes in the three months ended 31 March 2019), 8.5 million tonnes of flats and 2.5 million tonnes of long products and metalware (2.1 million tonnes and 0.6 million tonnes in the three months ended 31 March 2019, respectively). The Group’s total crude steel production increased by 3% as compared to 2017, primarily due to increased steelmaking capacity utilisation at NLMK Russia Long and improved productivity at the Lipetsk site as a result of the implementation of the optimisation programme.

107 The tables below show the sales attributable to the Group’s steel products for the periods indicated.

Three months ended 31 March 2019 2018 Amount % Amount % (Amounts in millions of tonnes, except for percentages) Product Pig iron ...... 0.05 1.0 0.3 6.2 Slabs ...... 1.6 33.8 1.2 28.2 Plates ...... 0.1 3.2 0.1 3.4 Hot-rolled steel ...... 1.0 22.0 0.8 20.1 Cold-rolled steel ...... 0.5 11.0 0.4 10.6 Galvanised steel ...... 0.3 7.5 0.3 7.4 Pre-painted ...... 0.1 1.9 0.1 2.1 Grain-oriented (transformer) steel ...... 0.1 1.5 0.1 1.6 Non-grain-oriented (dynamo) steel ...... 0.1 1.3 0.1 1.7 Billets ...... 0.2 3.7 0.2 5.2 Long Products ...... 0.5 11.4 0.5 11.9 Metalware ...... 0.1 1.5 0.1 1.5 Total ...... 4.6 100.0 4.1 100.0

Year ended 31 December 2018 2017 2016 Amount % Amount % Amount % (Amounts in millions of tonnes, except for percentages) Product Pig iron ...... 0.9 5.1 0.4 2.6 0.4 2.3 Slabs ...... 5.2 29.3 4.6 27.9 4.7 29.7 Plates ...... 0.5 3.0 0.5 2.9 0.5 3.0 Hot-rolled steel ...... 3.6 20.3 3.9 23.6 3.5 22.2 Cold-rolled steel ...... 1.9 10.9 1.9 11.8 2.0 12.7 Galvanised steel ...... 1.3 7.6 1.2 7.4 1.0 6.1 Pre-painted ...... 0.4 2.4 0.4 2.5 0.5 2.9 Grain-oriented (transformer) steel ...... 0.3 1.6 0.3 1.6 0.2 1.5 Non-grain-oriented (dynamo) steel ...... 0.3 1.6 0.3 1.8 0.3 1.8 Billets ...... 0.8 4.4 0.7 4.2 0.6 3.8 Long Products ...... 2.2 12.3 2.0 12.2 1.9 12.2 Metalware ...... 0.3 1.4 0.3 1.6 0.3 1.6 Total ...... 17.6 100.0 16.5 100.0 15.9 100.0 In 2018, the Group’s total sales of steel products grew by 6.7%, to 17.6 million tonnes from 16.5 million tonnes in 2017. The increase was driven by increased export sales of NLMK long products and sales from NLMK USA. Finished flat products accounted for the majority of sales (11.1 million tonnes, or 61%), with the sale of finished products remaining at the same level as 2017. Sales of semi-finished products in 2018 increased by 20% as compared to 2017 to 6.6 million tonnes, primarily due to increased sales of pig iron and sales of slabs to NBH. In 2017, total sales of steel products by the Group was 16.5 million tonnes, an increase of 3.8% from 15.9 million tonnes in 2016. The increase in sales in 2017 was primarily due to higher demand. In 2017, finished steel accounted for the majority of the Group’s total sales of steel products (65%, including flats (52%) and longs (13%)).

108 Geographic Operating Divisions The Group’s operations are organised into three geographical operating divisions: NLMK Russia, NLMK Europe and NLMK USA. The following map shows the Group’s operations through these three divisions.

10MAY201912241052

NLMK Russia NLMK Russia comprises the Group’s mining, coke, steel producing and rolling assets in Russia. NLMK Russia is the Group’s principal operating division, producing 100% of its raw materials, over 95% of its crude steel production, approximately 70% of its flat steel products and 100% of its long products. NLMK Russia comprises three business units: Flat Steel (including NLMK and its subsidiary VIZ-Steel, as well as a coke processing unit, Altai-Koks); Long Steel (including subsidiaries NLMK Ural and NLMK Metalware, NLMK-Kaluga, as well as the scrap processing unit, Vtorchermet NLMK), and Raw Materials (including subsidiaries Stoilensky, Stagdok and Dolomit).

Products of NLMK Russia NLMK Russia produces saleable pig iron, billets, flat steel products (slabs, hot-rolled steel, cold-rolled steel, galvanised steel, pre-painted steel and electrical steel (transformer and dynamo steel)), long steel products (rebar and wire rod) and metalware. NLMK Russia also produces raw materials, including iron ore concentrate, sinter ore, pellets, coke, fluxing materials and scrap, which cover almost all of its

109 requirements in these raw materials. The table below shows the production results of NLMK Russia’s principal products for the periods indicated.

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of tonnes) Product Raw materials Coke (6% moisture) ...... 6.4 6.9 6.9 1.5 1.6 Iron ore concentrate (65% Fe content) ...... 10.2 9.6 15.3 2.6 2.4 Pellets ...... 6.7 6.0 0.3 1.7 1.7 Sinter ore ...... 1.5 1.5 1.6 0.3 0.4 Limestone ...... 4.1 4.1 4.0 1.1 1.1 Dolomite ...... 2.6 2.1 2.4 0.6 0.5 Pig Iron ...... 13.2 12.8 12.7 3.2 3.3 Steel ...... 16.6 16.2 15.9 4.0 4.1 NLMK Russia Flat ...... 13.3 13.2 13.0 3.3 3.4 NLMK Russia Long ...... 3.3 3.0 2.9 0.7 0.7 Commercial pig iron ...... 0.8 0.6 0.5 0.1 0.2 Semi-finished steel products ...... 7.9 7.4 7.3 1.8 2.0 Slabs ...... 7.1 6.7 6.6 1.7 1.8 Billets ...... 0.8 0.7 0.7 0.1 0.2 Total rolled products ...... 8.2 8.1 8.0 2.0 2.0 Flats ...... 5.7 5.9 5.9 1.5 1.5 Hot-rolled steel ...... 2.4 2.6 2.7 0.6 0.6 Cold-rolled steel ...... 1.5 1.5 1.5 0.4 0.4 Galvanised steel ...... 0.8 0.8 0.7 0.2 0.2 Pre-painted steel ...... 0.4 0.4 0.5 0.1 0.1 Grain-oriented steel ...... 0.3 0.3 0.3 0.1 0.1 Non-grain-oriented steel ...... 0.3 0.3 0.2 0.1 0.1 Long products and metalware ...... 2.5 2.2 2.2 0.6 0.6 Long products ...... 2.2 1.9 1.9 0.5 0.5 Metalware ...... 0.3 0.3 0.3 0.1 0.1 TOTAL STEEL PRODUCTS ...... 16.8 16.1 15.7 3.9 4.1

Iron ore concentrate Iron ore concentrate is an ore in the form of powder size fractions which contains between 30% and 65% of iron as well as other valuable minerals. Most of the waste is removed from iron ore concentrate by means of mechanical and electro-magnetic treatment or using the beneficiation processes. Almost 100% of iron ore concentrate produced at Stoilensky is delivered to the Lipetsk site for further processing and to be subsequently used in the blast furnace process. In 2018, NLMK Russia produced 17.4 million tonnes of iron ore concentrate (representing approximately 17% of Russia’s total output of iron ore concentrate) and 1.5 million tonnes of sinter ore.

Sinter ore Sinter ore is an ore in the form of larger fractions which contain a high proportion of iron (approximately 52%). Throughout the production process mined iron ore undergoes mechanical processes such as crushing and sorting in order to remove waste and ensure that the fractions are of the required size. Starting from the first quarter of 2017, 100% of sinter ore produced at Stoilensky is being delivered to the Lipetsk site and is used in the production of sinter and pig iron.

Coke Coke is a processed form of coking coal, which is used in blast furnaces for the smelting of iron. In 2018, NLMK Russia produced 6.4 million tonnes of coke (at 6% moisture). The coke output of NLMK Russia

110 exceeds the Group’s current coke requirements, and, in 2018, NLMK Russia sold 0.8 million tonnes of coke to third parties.

Scrap NLMK Russia sources scrap both externally, from companies and individuals who collect scrap metal, and internally, by utilising amortisation scrap and production waste. In 2018, NLMK Russia processed 5.2 million tonnes of ferrous scrap, which was almost entirely consumed by the Group.

Slabs Slabs are used for the production of flat steel at the Lipetsk site and at the Group’s international rolling facilities. In 2018, approximately 4.3 million tonnes of slabs produced by NLMK Russia were processed into flat-rolled products at the Group’s rolling mills in Europe and in the USA. The remaining portion of the slab output was sold to third parties (both in Russia and in global markets), who process it into other forms of finished steel.

Pig iron NLMK Russia uses the majority of its pig iron output to produce crude steel. A small proportion (up to 6% dependent on demand) of pig iron produced at blast furnace operations in Lipetsk is sold to third parties, primarily in the metallurgy and machine-building sectors, including the automotive industry.

Hot-rolled steel NLMK Russia produces hot-rolled steel for use in various constructions and items, including steel structures, guardrails, ship hulls, machine casings, road-building machinery components and building structures.

Cold-rolled steel NLMK Russia produces cold-rolled steel for the construction, machine-building, automotive and pipes and tubes industries to use in casing components for machinery and installations, frame elements, pipes and tubes, floodlight towers and agricultural machinery.

Galvanised steel NLMK Russia produces galvanised steel for use in the manufacture of casing components for machinery and roofing, as well as frame elements for use in corrosive environments.

Pre-painted steel NLMK Russia produces pre-painted steel sheet for use in the construction industry, in particular in the manufacture of roofing and finishing materials, as well as casings for household and commercial goods. NLMK is one of the largest producers of pre-painted steel in Russia, with a 22% market share in 2018.

Grain-oriented (transformer) steel NLMK Russia produces grain-oriented (transformer) steel for use in the electro-technical industry for the manufacture of transformer cores and stationary components of electric machines. Grain-oriented (transformer) steel is one of the most technically sophisticated types of steel, and NLMK understands that it is produced by less than 20 steel plants worldwide. In 2011, NLMK Russia produced the first samples of a brand new product, a nanostructured, high-permeability transformer steel, using a process developed specifically by the Group’s engineers. This product is principally used in the production of economically efficient high rate power transformers and heavy duty distribution transformers. The technology is currently being introduced at the Lipetsk site and at VIZ-Steel. Management believes that there is a growing demand for this type of steel in emerging and developed markets. In 2018, NLMK Russia had a 9% share of the global transformer steel sales market.

Non-grain-oriented (dynamo) steel NLMK Russia specialises in the production of non-grain-oriented (dynamo) steel for use in electrical equipment such as electric motor components and generators. NLMK Russia produces dynamo steel in

111 different alloying groups, ranging from non-alloyed silicon-free dynamo steel to high-alloyed dynamo steel, to both a fully-processed and semi-processed standard. In 2018, sales by NLMK Russia accounted for 80% of the Russian dynamo steel market.

Billets Billet is a semi-finished product which NLMK Russia produces from scrap through an Electric Arc Furnace steelmaking process at its Russia-based long steel production segment. The bulk of NLMK Russia’s billets are further processed into finished long steel products (rebar, wire rod and metalware). A small portion of the billets are sold to third parties. The key purchasers of billet are rolling mills located internationally, which produce rebar and other downstream products principally used in the construction sector.

Long products (rebar, wire rod and sections) The rebar that NLMK Russia produces is used to strengthen concrete in highway and building construction and as a component in machinery. The production of long products by the Group has increased since launch of NLMK-Kaluga facility in 2013. In addition, NLMK Russia produces wire rod for use in wire products that are applied mainly in the construction industry, as well as in transport machinery. In 2018, NLMK Russia’s share of the Russian long product market was 18%.

Metalware NLMK Russia produces metalware for use in the construction industry, including bolts, nails, fixing hardware, mesh, and as a component in transport machinery. Metalware is principally sold in the Russian market. In 2018, NLMK Russia’s share in the Russian metalware market was 21%.

Steel Production Facilities at NLMK Russia NLMK Russia is the largest member of the Group in terms of product output and is comprised of raw materials, steel production as well as flat and long steel rolling businesses primarily located in the centre of the European part of Russia. NLMK Russia’s operations have a combined capacity of approximately 16.5 million tonnes of crude steel per year, including 13.1 million tonnes of BOF steel capacity and approximately 3.4 million tonnes of EAF steel capacity. The BOF steel capacity of NLMK Russia is principally located at its Lipetsk site. Its integrated steelmaking facility occupies approximately 28 square kilometres. NLMK Russia owns the facility and the land on which it is constructed. The facility comprises: • a sinter plant (with four agglomerators); • a coke plant (with four coke batteries with a capacity of 2.61 million tonnes); • a blast furnace plant, comprising two blast furnace shops and in total, five blast furnaces (including Blast Furnace No. 7, which is one of the most advanced blast furnaces in the world and has a capacity of 4.1 million tonnes per year) with overall output capacity of 13.2 million tonnes per year; • a steelmaking plant, comprising two BOF shops (comprising three BOFs, each with a capacity of 300 tonnes and three BOFs, each with a capacity of 160 tonnes, respectively) capable of producing approximately 13.1 million tonnes per year; • nine continuous casting lines (comprising six curvilinear, one radial-curved and two vertical); • one hot strip finishing plant with a total capacity of approximately 6 million tonnes per year; and • three cold-rolling plants (a cold-rolling plant, a non-grain-oriented steel plant and a grain-oriented steel plant), including production of galvanised and pre-painted steel. In addition, the Group’s subsidiary, VIZ-Steel, located in Yekaterinburg, has the capacity to produce 170 thousand tonnes of transformer steel per year. The Group’s long product operations are conducted by NLMK Ural, NLMK Metalware and NLMK-Kaluga, with a combined capacity of 3.4 million tonnes per year. Both NLMK Ural and NLMK Metalware are located in the Ural region of Russia. NLMK Ural operates two electric arc furnaces with an aggregate capacity of approximately 1.9 million tonnes of steel per year. The semi-finished products

112 (billets) are then rolled into rebar and wire at its two rolling facilities. NLMK Metalware is one of Russia’s largest metalware manufacturers. NLMK Ural supplies re-rolling stock (wire rod) to NLMK Metalware. In addition, in 2013, the Group launched NLMK-Kaluga, which has an aggregate capacity of 1.5 million tonnes of crude steel and 0.8 million tonnes of long products per year and consumes mainly ferrous scrap supplied largely by NLMK’s own scrap collecting facilities.

Sales Division and Marketing at NLMK Russia The Group’s Russian steelmaking operations sell their products primarily pursuant to sales contracts with their customers, typically based on standard terms and conditions, in which they typically agree to provide their customers with an agreed quantity of products during the course of a 12-month period. Prices are determined on a monthly basis in order to allow adjustments in line with its price lists, although, in the case of some of the Group’s major customers, prices may be fixed for a period of three to six months. Prices are established largely by reference to price trends in the international steel market. Generally, the Group requires its Russian customers to pay it in advance of the delivery of its products. The main steel consuming sectors in Russia are the construction and infrastructure sectors (which together account for approximately 65% of total sales), pipe industry (18%) and the machine building sector (18%), including the automotive and the electrical engineering sectors.

Transportation of Products at NLMK Russia Management believes that the advantageous geographic location of the Group’s Russian operations near the Baltic Sea and Black Sea ports and the possibility of transporting finished products by inland waterways provide them with a competitive position as compared to other companies. Freight One, a transportation company, manages the Group’s relations with RZD and, in relation to products sold outside of Russia, port authorities. Freight One is owned by UCL Holding, a related party, which holds a number of railway and logistics, seaport and stevedoring, and shipping and other assets. NLMK Russia’s products are shipped from Baltic Sea ports (St. Petersburg and Kaliningrad) for end-customers in Europe and North America and Black Sea ports (Novorossiysk, Tuapse and Port Yuzhny) for end-customers in the Middle East and South-East Asia). The remaining portion of NLMK Russia’s products that are sold to customers outside of Russia is transported by rail, mainly to customers in other CIS countries. For sales within Russia, title to the products normally transfers upon loading of products into railway cars at Lipetsk. NLMK Russia delivers substantially all of its products by rail. Generally, in return for a fee which is determined by reference to market rates, NLMK Russia arranges transportation of these products. NLMK Russia has convenient rail access to the major steel consuming regions located in the centre of the European part of Russia and the Volga region. NLMK Russia is implementing various projects aimed at reducing its transportation costs, including seeking to increase the volume of container shipments (instead of using railway cars) and outsourcing the internal logistics in the Ural region sites in cooperation with Freight One.

NLMK Europe NLMK Europe comprises the Group’s production and distribution facilities in Europe. NLMK Europe includes two business units: Strip Products (NLMK La Louviere` in Belgium and NLMK Strasbourg in France), with an aggregate annual capacity of 1.7 million tonnes of flat steel products, including galvanised and pre-painted steel, and Plate Products (NLMK DanSteel in Denmark, NLMK Clabecq in Belgium and NLMK Verona in Italy), with an aggregate annual capacity of 1.5 million tonnes. NLMK Europe is strongly integrated with NLMK Russia, which supplies almost all of its slab requirements for further re-rolling. In 2019, a reduction in production levels and headcount was announced as part of the restructuring program for NLMK Clabecq. After the implementation of the restructuring program by 2020, it is planned to reach the production level of 345 thousand tonnes, compared with the production volume of 380 thousand tonnes in 2018, and also shift the focus of production to HVA products (quenched and tempered plate).

113 Products of NLMK Europe NLMK Europe produces strip products (hot-rolled steel, cold-rolled steel, galvanised steel and pre-painted steel) and plate products (thick plates, including several niche grades). The table below shows the production results of NLMK Europe’s principal products for the periods indicated.

Three months ended Year ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in thousands of tonnes) Product(1) NLMK Europe Plate Steel ...... 208 226 203 55 58 NLMK Europe Plate ...... 776 764 777 139 234 Forged ingots ...... 83 89 84 18 25 Plates ...... 693 675 693 121 209 NLMK Europe Strip ...... 1,466 1,364 1,360 376 419 Hot-rolled steel ...... 1,152 1,023 988 284 326 Cold-rolled and full hard steel ...... 31 39 51 12 8 Galvanised steel ...... 179 214 232 52 58 Pre-painted steel ...... 104 88 89 28 27 Total steel products ...... 2,242 2,128 2,137 515 653

(1) The production data for NLMK Europe was calculated based on the data for the companies comprising NLMK Europe as at the end of 2018.

Forged ingots Ingots are produced at the steelmaking facilities of NLMK Verona by solidifying liquid steel at the final stage of its production by using a bottom pouring ingot casting system. Ingots are either sold to third parties, in particular to oil and gas, wind power and energy, machinery and general power generation industries, or rolled by the Group’s own thick plates rolling mill.

Thick plates Thick plates are produced in a variety of grades, including medium and heavy plates, as well as forged plates. Thick plates are principally sold to customers in the construction, shipbuilding, energy, transport, lifting, quarrying and mining equipment industries.

Quenched and tempered plates Quenched and tempered thick plates produced at the quenching and tempering line at NLMK Clabecq are lighter than ordinary thick plates and have superior mechanical properties. The product is principally sold to customers in the yellow goods (earth moving and mining equipment), lifting and transport industries.

Hot-rolled steel NLMK Europe produces a broad range of high-quality hot-rolled steel (including pickled coils) which complies with European standards, including quality and dimensional standards. Purchasers of hot-rolled steel include the construction industry.

Cold-rolled and full-hard steel The cold-rolled coils complies with European quality standards and with automotive manufactures’ specifications and includes various grades, such as Interstitial Free High Strength steels (Y), micro-alloyed steels (LA) and phosphorus alloyed steels (P). It includes full-hard steel, which has undergone a rolling process to reduce the thickness of the steel by up to 50%. The main consumer of cold-rolled steel is the automotive industry.

114 Galvanised steel Galvanised steel is intended to protect steel against corrosion and is used in the automotive industry and for other purposes where steel is subjected to deformation.

Pre-painted steel Pre-painted steel is used in the construction and home appliance industries for the manufacture of profiles and panels for cladding and facing, as well as for the manufacture of doors, suspended ceilings and lighting. Pre-painted steel is also used in the manufacture of furniture, air conditioning and cladding for heating appliances.

Steel Production Facilities at NLMK Europe Using semi-finished products (slabs) supplied by the Group’s Russian operations, NLMK Europe produces flat HVA products in close proximity to its customers. NLMK Europe benefits from a network of service and sales centres located in Belgium and France. The service centres specialise in cutting steel coils to size and producing metal systems for building shells with finished products being used in machine building and construction. NLMK Europe’s production facilities include: Plates Division: • An Electric Arc Furnace and a continuous caster at NLMK Verona, which produces ingots with a diameter of up to 2,000 millimetres, and with a total steelmaking capacity of 0.5 million tonnes per year; • A rolling mill at NLMK Verona which produces hot-rolled plates (‘‘HRPs’’) with a thickness of between 15 and 270 millimetres and forged plates with a thickness of between 140 and 430 millimetres; • A rolling mill at NLMK Clabecq, which produces thin gauge plate products (50% of products have a thickness of between 3 and 10 millimetres); • A quenching and tempering line at NLMK Clabecq with a production capacity of 200 thousand tonnes per year; and • A rolling mill at NLMK DanSteel for the production of thick plates between 5 and 220 millimetres in thickness and widths of up to 4,050 millimetres and with a production capacity of over 500 thousand tonnes per year. Strip Products Division: • A hot strip mill at NLMK La Louviere` in Belgium with a hot-rolled steel designed capacity of 2.2 million tonnes per year; • A galvanising line, which produces coils with width up to 1,530 millimetres at NLMK Strasbourg; and • A pre-painted steel line, which produces coils with a width of up to 1,500 millimetres and thickness of between 0.38 millimetres and 1.25 millimetres at NLMK Strasbourg.

Sales Division and Marketing at NLMK Europe NLMK Europe sells its products pursuant to long-term, medium-term and short-term contracts. The pricing of supply contracts is adjusted quarterly or monthly. Export sales are typically project-based and pricing under such contracts is linked to spot prices, with adjustments for longer lead-times to release orders into production, which is a common feature of project-based sales. The key steel consuming sectors in Europe are the machine-building sector, including the automotive, energy and shipbuilding sectors. NLMK Europe also supplies steel products to the construction and infrastructure sectors.

Transportation at NLMK Europe NLMK Europe generally receives its input materials from the Group’s Lipetsk site. Ships carrying slabs (the main input material used in the manufacture of rolled steel and steel plates) arrive from Russia on a

115 weekly basis and unload slabs in NLMK DanSteel’s own harbour facilities as well as in the ports of Ghent (situated near NLMK La Louviere,` located in close proximity to a variety of transport links, including road, waterway and railway links and NLMK Clabecq) and Marghera (situated near NLMK Verona). Slabs are delivered from the ports to the production facilities (with distances of between 70 and 130 kilometres) by road and railway.

NLMK USA NLMK USA comprises the Group’s flat steel producing assets in the United States. NLMK USA has three production sites: NLMK Indiana in Portage, Indiana; Sharon Coating in Sharon, Pennsylvania; and NLMK Pennsylvania in Farrell, Pennsylvania. The total annual production capacity of NLMK USA includes approximately 0.8 million tonnes of crude steel and approximately 2.9 million tonnes of flat steel. NLMK USA purchases its supplies of slabs mainly from NLMK Russia.

Products of NLMK USA NLMK USA produces slabs, hot-rolled steel, cold-rolled steel and galvanised steel. The table below shows the production results of NLMK USA’s principal products for the periods indicated.

Three months Year ended ended 31 December 31 March 2018 2017 2016 2019 2018 (Amounts in millions of tonnes) Product(1) Steel ...... 0.7 0.6 0.6 0.2 0.2 Steel products ...... 2.3 2.2 1.7 0.5 0.5 Hot-rolled steel ...... 1.3 1.2 0.9 0.3 0.3 Cold-rolled steel ...... 0.5 0.5 0.5 0.1 0.1 Galvanised steel ...... 0.5 0.5 0.3 0.1 0.1

(1) The production data for NLMK USA was calculated based on the data for the companies comprising NLMK USA as at the end of 2018.

Slabs Slabs produced at NLMK Indiana using the electric arc furnace process are re-rolled at the plant’s HRC rolling line.

Hot-rolled steel Hot-rolled steel is supplied to service centres, pipe and tube manufacturers and the machine building industry.

Cold-rolled steel Cold-rolled steel (including full-hard steel) is supplied to service centres and machine building industries.

Galvanised steel Galvanised steel is manufactured in the form of a number of products, including galvanised coils and Z-mill products. Galvanised steel is supplied to service centres and the construction and machine building industries.

Steel Production Facilities at NLMK USA NLMK USA has a total electric arc furnace steelmaking capacity of 0.8 million tonnes per year and a hot-rolling capacity of 2.9 million tonnes per year. NLMK Indiana is a steel mini-mill specialising in the production and sale of hot-rolled coils. It operates an electric arc furnace with a production capacity of 0.8 million tonnes per year and a hot strip mill with a capacity of 1.1 million tonnes per year.

116 NLMK Pennsylvania produces carbon steel, including hot-rolled, cold-rolled and full hard products, as well as other cold-rolled fully finished product types. The plant has a capacity of 1.8 million tonnes per year of hot-rolled steel. Sharon Coating is a producer of hot dip galvanised steel of various types, as well as bake-hardenable (low carbon) steel. It operates two hot dip galvanising lines with a total capacity of 0.7 million tonnes per year.

Sales Division and Marketing at NLMK USA NLMK USA changes base prices monthly for most of its sales that are negotiated monthly or contractually tied to a spot base pricing index. This enables NLMK USA to quickly adjust to any volatility of key input costs such as scrap and slab prices. Most customers’ purchasing requirements vary little from month to month, while NLMK USA’s pricing can change monthly as the index changes. The key steel consuming sectors in the United States include, among other sectors, the pipe and tube and construction sectors.

Transportation at NLMK USA Due to the geographic location of NLMK USA’s facilities, the majority of outbound shipments are made by road, with the remainder comprising rail shipments. Occasional barge shipments are utilised for shipping to the southern regions of the United States. NLMK USA cooperates with a preferred logistics operator which schedules and secures shipments from all three facilities. The remaining shipments are arranged through the customer with their preferred carrier.

NLMK India NLMK India is a grain-oriented (transformer) steel processing and distribution company with approximately 200 employees. It has processing and warehousing capacities of 16,000 tonnes per year and 15,000 tonnes, respectively, located 200 kilometres from Mumbai. It also has warehousing capacities of 40,000 tonnes located 20 kilometres from Mumbai, in the close proximity to the port that facilitates delivery of imported Group’s material.

Steel Production Process NLMK Russia Sintering The primary process involves the agglomeration, or sintering, of prepared raw materials, including iron ore concentrate, iron-bearing tailings and flux, or limestone, followed by crushing, to produce particles of at least 40 millimetres in size. The finished product is referred to as agglomerate, or sinter, and is one of the main raw materials used in the blast furnace process. In 2018, the Group produced approximately 1.5 million tonnes of sinter (0.25 million tonnes in the first three months of 2019).

Production of coke and by-products Coke is obtained from coal concentrate and is one of the main raw materials used in the blast furnace process as a source of heat and as a reducing agent. The primary process involves non-oxidation heating of a prepared coal mixture to a temperature of 900C to 1100C for a period of 15 to 17 hours. The coking distillation process is integrated with a by-product plant, which uses coal screenings and other by-products for the production of different types of chemicals, including ammonium sulphate, crude benzol, and coke pitch. Four of the Group’s nine operational coking batteries are equipped with dry quenching units, while the remaining five coking batteries are equipped with wet quenching units (which the Group has no current plans to replace). Dry quenching technology is used to regenerate a portion of the heat, improve coke quality and reduce pollution. After quenching, coke is fed via conveyor to coke screening, where it is sorted into fractions using roll screens. Metallurgical coke (above +25 mm size) is transported to blast furnace hoppers via conveyors or coke cars. Altai-Koks and the coke batteries at the Lipetsk site meet all of the Group’s requirement in metallurgical coke used in the blast furnaces to produce pig iron. In 2018, the Group produced approximately 6.4 million tonnes of coke (1.5 million tonnes of coke in the first three months of 2019).

117 Blast furnace process To smelt pig iron, iron ore products, principally comprising sinter and pellets, and also coke, natural gas and other fuels, are fed in the blast furnaces. In the resulting combination, the charge is smelted and produces pig iron and slag (a by-product of the blast furnace process, which is typically granulated or processed into crushed stone used for road construction). The smelted product is released from the furnace between 12 and 20 times per day. The pig iron is poured into hot-metal ladle cars and taken to the oxygen converter plant for making into steel, while the slag is poured into slag ladle cars and taken to the slag plant for processing. In 2018, the Group produced approximately 13.2 million tonnes of pig iron (3.2 million tonnes in the first three months of 2019).

NLMK Russia Flat—Lipetsk site production flow chart

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Steelmaking—BOF route Molten pig iron is the main component of the metal charge used in the production of steel in the Group’s basic oxygen converters, which are also referred to simply as oxygen converters. The molten pig iron is transported to the basic oxygen converter shop in hot-metal ladle cars. The pig iron is poured into charging ladles and then into the converter. In addition to pig iron, the metal charge consists of scrap metal. The basic oxygen steelmaking process is exothermic, which requires the use of scrap as a cooling agent. Oxygen, in a form which is over 99.5% pure, is blown into the oxygen converter. This oxidises the carbon and silicon contained in the molten pig iron. The combustion of carbon monoxide (CO) as it exits the oxygen converter vessel also transmits heat. During this melting process, impurities, including sulphur and phosphorus, are removed from the charge. The finished product at this stage is crude steel, ready for further processing at the refining stands. During this processing stage, relatively small quantities of deoxidisers and ferroalloys (for example, aluminium, vanadium and molybdenum) may be added to the crude steel to adjust the quality of the liquid steel to the specific grades required by customers. Depending on the targeted content of carbon, the liquid steel may undergo a further processing stage, referred to as vacuum degassing, before casting. Vacuum degassing is used to achieve ultra-low carbon grades, which are particularly useful for automotive applications. Molten steel is delivered to the continuous casting machines, where it is cast via a tundish (a refractory- lined distributer which receives steel from the ladle), providing for the continuity of the process due to the possibility of ladle turning, into the mould of the required width, where the solid shell of a future slab is formed. After the primary cooling in the mould the liquid core strand passes secondary air mist (or water) cooling, where it solidifies completely, after which it is cut to length, and the slabs obtained are transferred

118 either to the slab yard for gradual cooling or to the hot-rolling shop (a workshop specialising in hot-rolled flat steel). Following this stage of the process, the slabs may be sold or processed further, initially by being rolled into sheets (plates) or coils at the hot-rolling plant, to produce the required dimensions or physical properties in accordance with one or more of the methods described below. In 2018, the Group’s Russian flat assets produced approximately 13.3 million tonnes of crude steel (3.3 million tonnes in the first three months of 2019).

Hot-rolled production In order to produce hot-rolled steel, slabs from the steelmaking plant at the Lipetsk site are re-heated in a methodical furnace to a temperature of around 1250C and rolled in a steel rolling mill. Slabs are reduced in a set of 12 consecutive stands to a thickness of 1.5 to 16 millimetres. Part of the product is sent to the finishing plant for cutting and dispatch, while the rest is further processed into cold-rolled product. In 2018, the Group’s Russian flat assets produced approximately 6 million tonnes of hot-rolled steel, of which 2.6 million tonnes was salable hot-rolled steel, as compared with 6.3 million tonnes of hot-rolled steel in 2017, of which 2.8 million tonnes was salable hot-rolled steel. In the first three months ended 31 March 2019, the Group’s Russian flat assets produced approximately 1.5 million tonnes of hot-rolled steel, of which 0.7 million tonnes was finished hot-rolled steel.

Cold-rolled production In the cold-rolling plant, the hot-rolled product is de-scaled by acid pickling and then rolled with no preheating. The rolled metal is then annealed to obtain the required mechanical and exploitative characteristics (depending on the type of steel). At the final stage, the metal is then cut into the required size and packed. In 2018, the Group’s Russian flat assets produced approximately 1.5 million tonnes of cold-rolled steel, as compared with approximately 1.5 million tonnes of cold-rolled steel in 2017. In the first three months ended 31 March 2019, the Group’s Russian flat assets produced approximately 0.4 million tonnes of cold-rolled steel.

Galvanising Galvanising of cold-rolled (or hot-rolled) strip results in higher steel resistance to corrosion. Galvanised flats are consumed in large quantities by automotive, construction and home appliance industries. There are two ways of steel strip galvanising: electrolytic and hot-dip galvanising. In the process of electrolytic galvanising, zinc ions are transferred by means of applying electric current from a soluble anode to the strip placed in an electrolyte solution. In the process of hot-dip galvanising the strip passes through the line, where it is first heat-treated in the annealing furnace, then is dipped into the pot with molten zinc, after which the required thickness of zinc coating is obtained using air knives. Finished galvanised strip is coiled. In 2018, the Group’s Russian flat assets produced approximately 0.8 million tonnes of galvanised steel, representing an increase of 9% in galvanised production as compared with 2017. In the three months ended 31 March 2019, the Group’s Russian flat assets produced approximately 0.2 million tonnes of galvanised steel.

Pre-painting During the organic coating process, steel passes first through a unit of chemical preparation, then through a paint application appliance and then receives a heat treatment to set the colour and give a uniform coating to the sheet. This process presents the technological challenge of ensuring a perfect application of paint during a short painting process, a uniformity of sheet surface and the required thinness of the applied layer. In 2018, the Group’s Russian flat assets produced approximately 0.4 million tonnes of pre-painted steel (0.1 million tonnes in the first three months of 2019).

Grain-oriented (GO, or transformer) steel The production process for grain-oriented (transformer) steel involves the pickling of hot-rolled strip, followed by a first cold-rolling stage, decarburising annealing, a second cold-rolling stage, the application of heat resistant coating, high temperature annealing, the application of electric insulation coating, thermo-flattening and a final stage of annealing. In 2018, the Group’s Russian flat assets produced approximately 284 thousand tonnes of transformer steel (71 thousand tonnes in the first three months of 2019).

119 Non-grain-oriented (NGO, or dynamo steel) The production process for non-grain-oriented (dynamo) steel involves the pickling of hot-rolled strip, followed by cold-rolling, decarburising annealing and the application of electric insulation coating. In 2018, the Group’s Russian flat assets produced approximately 296 thousand tonnes of dynamo steel (65 thousand tonnes in the first three months of 2019).

NLMK Russia Long production flowchart

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Steelmaking—EAF An Electric Arc Furnace (EAF) is a steelmaking furnace that heats charged materials by means of an electric arc. A typical alternating current furnace has three electrodes. The arc forms between the charged material and the electrode, and the charge is heated both by a current passing through the charge and by the radiant energy evolved by the arc. Scrap is a raw material for EAF production. Scrap is melted to a liquid steel condition in electric-arc furnaces. Then liquid steel is refined in ladle furnaces to the specified chemical composition (through the addition of deoxidisers and additives). After that liquid steel is cast at a continuous casting machine with simultaneous solidification to a solid square billet. Carbon and low-alloyed square concast steel billets with 125 125 mm cross section and length between 8,000 and 12,000 mm are the final products of EAF production. The major portion of billets is rolled at the next production stage and the remaining portion is sold to customers. In 2018, the Group’s Russian long assets produced approximately 3.3 million tonnes of crude steel (0.7 million tonnes in the first three months of 2019).

Long products Long products are processed through heating billets and re-rolling them using bar-rolling mills. In 2018, the Group’s Russian long assets produced approximately 2.5 million tonnes of long products, of which 2.2 million tonnes was finished long products (0.6 and 0.5 million tonnes in the first three months of 2019, respectively).

Metalware Metalware products are processed using special machines, including drawing mills and nail makers. Finished products are treated with chemicals and heat, galvanised and bonderised. In 2018, the NLMK Russia Long assets produced approximately 0.3 million tonnes of metalware products (71 thousand tonnes in the first three months of 2019).

Steel Production at NLMK Europe and NLMK USA Steelmaking—EAF At NLMK Indiana scrap metal is delivered to a scrap bay, and comes in two main grades: shred (home appliance, cars and other objects made of similar light-gauge steel) and heavy melt (large slabs and beams),

120 along with some direct reduced iron or pig iron for chemical balance. Following loading, the electrodes are lowered onto the scrap, an arc is struck, and the electrodes are set to bore into the layer of shred at the top of the furnace. Once the scrap has completely melted down and the temperature and chemistry are correct, the steel is tapped out into a preheated ladle through tilting the furnace. During tapping some alloy additions are introduced into the metal stream, and more lime is added on top of the ladle to begin building a new slag layer. At NLMK Verona the scrap is melted in EAF and refined in a ladle furnace. The vacuum degassing (VD) is an important step in the process to ensure quality steel with low gas content. The liquid steel is solidified by the bottom pouring ingot casting system. Ingots are sold to forging companies or rolled by rolling mill. In 2018, the Group’s international assets (including NBH) produced approximately 0.87 million tonnes of crude steel (0.23 million tonnes in the first three months of 2019).

Hot-rolled production Slabs are heated and subsequently reduced in the roughing mill to a transfer bar which is coiled in a coil box. This coiled transfer bar is rolled in a finishing train (the part of the mill used to impart the desired finish to the steel) to produce a hot-rolled coil. In 2018, the Group’s international assets produced approximately 2.4 million tonnes of hot-rolled steel. In the first three months of 2019, the Group’s international assets produced approximately 0.6 million tonnes of hot-rolled steel.

Plate production NLMK DanSteel In order to produce HRPs, slabs are re-heated in one of two reheating furnaces to a temperature of between 1150–1250C, and subsequently rolled in new 4300 mm heavy plate rolling stand. A number of passes—typically between 12 to 20—deliver plate thicknesses between 5–200 mm. A major part of production is normalised in one of two normalising furnaces, before being cut to size and dispatched. Some part of the finished plates are also delivered shot blast and primed. In 2019, the site began hot testing of its accelerated cooling system. The new cooling system will boost the production of niche premium plate from the current 0.1 million tonnes to 0.35 million tonnes.

NLMK Clabecq NLMK Clabecq produces heavy plates from 3 to 120 mm (maximum final width 2730 mm) through a Quarto mill and a finishing mill. Slab work pieces are reheated in one of two reheating furnaces to a temperature between 1180 and 1320C. Plates between 25.4 and 120 mm are rolled at a Quarto reversing mill in 9 to 21 passes. The rolling of thinner plates from 3 to 25.4 mm is finalised in a finishing mill which incorporates 4 Quarto non-reversing stands.

NLMK Verona NLMK Verona produces HRPs from 20 to 200 mm thick, and forged plates from 150 to 800 mm thick. Plates are rolled on the plates rolling mill from slabs supplied by third parties (mainly by NLMK) and from slab ingots that it produces on site using EAF. In 2018, the Group’s international assets produced approximately 1.2 million tonnes of finished plates. In the first three months of 2019, the Group’s international assets produced approximately 0.26 million tonnes of finished plates.

Cold-rolled production The hot-rolled coils are cooled and then dispatched to customers or the pickling and skin-passing area. Pickling phase consists of removing the oxide coat from hot-rolled coils by making them pass through various baths of hydrochloric acid. The reversible cold-rolling mill reduces the thickness of pickled coils by several passes and the skin pass (a steel rolling process which is used to achieve a smooth steel surface) gives the mechanical properties and the surface condition required by customers. In 2018, the Group’s international assets produced approximately 0.5 million tonnes of cold-rolled steel (0.1 million tonnes in the first three months of 2019).

121 Galvanising Galvanising of cold-rolled (or hot-rolled) strip results in higher steel resistance to corrosion. Galvanised flats are consumed in large quantities by automotive, construction and home appliance industries. There are two ways of steel strip galvanising: electrolytic and hot-dip galvanising. In the process of hot-dip galvanising the strip passes through the line, where it is first heat-treated in the annealing furnace, then is dipped into the pot with molten zinc, after which the required thickness of zinc coating is obtained using air knives. Finished galvanised strip is coiled. In 2018, the Group’s international assets produced approximately 0.7 million tonnes of galvanised steel. In the first three months of 2019, the Group’s international assets produced approximately 0.2 million tonnes of galvanised steel.

Pre-painting During the organic coating process, steel passes first through a unit of chemical preparation, then through a paint application appliance and then receives a heat treatment to set the colour and give a uniform coating to the sheet. This process presents the technological challenge of ensuring a perfect application of paint during a short painting process, a uniformity of sheet surface and the required thinness of the applied layer. The Group’s international assets produced approximately 0.1 million tonnes of pre-painted steel in 2018 and 28 thousand tonnes in the first three months of 2019.

Sales and Transportation of Products The Group’s products are sold in over 70 countries in Asia and Oceania, Europe, the Middle East and North America, in addition to customers in a range of industrial sectors in Russia. In 2018, non-Russian markets accounted for 66% of sales revenue (67% in the three months ended 31 March 2019). The following table shows, as a percentage of the Group’s total sales revenue and the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Region Russia ...... 34 39 40 33 EU(1) ...... 21 19 18 19 Middle East, including Turkey ...... 19 17 8 13 North America ...... 11 11 17 19 Asia and Oceania ...... 5 4 4 4 Central and South America ...... 4 3 5 4 CIS...... 3 4 4 4 Other(2) ...... 3 3 4 4 The following table shows, as a percentage of the Group’s total sales volume, the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Region Russia ...... 33 36 37 32 EU(1) ...... 20 19 22 21 Middle East, including Turkey ...... 13 13 10 15 North America ...... 18 17 14 14 Asia and Oceania ...... 4 3 4 4 Central and South America ...... 5 4 6 5 CIS...... 2 4 4 3 Other(2) ...... 4 3 3 6

(1) Comprises the member states of the European Union only. (2) Includes sales to customers in European states which are not members of the European Union.

122 Non-Russian sales Non-Russian sales generated US$7,995 million of revenue, or 66% of total revenue, in 2018 and US$1,934 million of revenue, or 67% of total revenue, for the three months ended 31 March 2019. In 2018, slabs accounted for 39% of the Group’s international sales in terms of volume, hot-rolled steel for 18% and HVA products for 23%. A substantial proportion of the slab production manufactured at the Group’s main Russian production site in Lipetsk was processed into HVA products at the Group’s rolling mills in Europe and the United States (approximately 0.7 million tonnes in the three months ended 31 March 2019). The table below shows the proportion of the Group’s total non-Russian sales volume attributable to its principal products for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Product Pig iron ...... 8 4 4 1 Slabs ...... 39 37 39 44 Billets ...... 6 6 6 5 Plates ...... 4 5 5 5 Hot-rolled steel ...... 18 21 21 20 Cold-rolled steel ...... 9 10 12 10 Galvanised steel ...... 5 6 4 6 Pre-painted steel ...... 0.1 0.1 0.1 0 Non-grain-oriented (dynamo) steel ...... 2 2 0 1 Grain-oriented (transformer) steel ...... 2 2 5 2 Long products and metalware ...... 6 7 2 5 Total ...... 100 100 100 100 The European Union remained the Group’s key market outside of Russia in 2018. The volume of sales to the European Union among total non-Russian sales increased by 1% to 30% as compared to the 2017 level. In 2018, the volume of sales of steel products to North America and the Middle East, as a percentage of total non-Russian sales, were 27% and 19%, respectively (21% and 22% in the first three months of 2019). The following table shows, as a percentage of the Group’s total non-Russian sales volume, the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Region EU(1) ...... 30 31 34 31 Middle East, including Turkey ...... 19 20 16 22 North America ...... 27 26 23 21 Asia and Oceania ...... 6 4 6 6 Central and South America ...... 8 8 9 8 CIS...... 4 4 7 4 Other(2) ...... 6 7 5 8

(1) Comprises the member states of the European Union only. (2) Includes sales to customers in European states which are not members of the European Union.

Russian sales Russian sales generated US$4,051 million of revenue, or 34% of total revenue, in 2018 and US$935 million of revenue, or 33% of total revenue, for the three months ended 31 March 2019. The Group believes that it was the largest supplier in Russia, in terms of volume, of cold-rolled coil, pre-painted steel and galvanised steel in 2018 (with a market share of 31%, 22% and 23%, respectively).

123 The table below shows the percentage of total volume of Russian sales that the Group derived from each of its principal products for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Product Pig iron ...... 0.1 0.2 0.1 0 Slabs ...... 9 12 14 11 Billets ...... 0.4 0.2 0 0.3 Hot-rolled steel ...... 25 27 25 26 Cold-rolled steel ...... 15 15 13 14 Galvanised steel ...... 13 11 10 11 Pre-painted steel ...... 7 7 8 6 Grain-oriented (transformer) steel ...... 1 1 1 1 Non-grain-oriented (dynamo) steel ...... 1 1 1 1 Long products ...... 26 23 25 25 Metalware ...... 4 3 4 4 The following table shows, as a percentage of total volume of Russian sales, a breakdown of the Group’s sales by industry in Russia for the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (%) Industry Automotive industry ...... 3 2 2 2 Household appliances ...... 1 1 1 1 Metal traders ...... 55 53 59 54 Machine building ...... 1 1 1 2 Metallurgical complex ...... 4 3 2 4 Construction ...... 10 11 13 9 Tube and pipe ...... 18 21 18 20 Electric and instrument engineering ...... 2 2 2 2 Others ...... 7 6 4 6 The majority of Russian sales are made to customers located in the European part of Russia, including the Central region, the Volga region, the North Caucasian region, Black Earth and the Ural region, to which the Group made 50%, 11%, 8%, 9% and 7%, respectively, of its total volume of Russian sales in 2018 (47%, 14%, 10%, 10% and 8%, respectively, in the three months ended 31 March 2019).

Quality Control The Group has implemented a comprehensive set of measures to enhance the quality of its products, which it continually develops in order to meet the requirements of its customers. The Group’s quality control system extends from management level to its production plant floor. The Group’s products have been certified by leading Russian and international authorities. For example, almost all of the Group’s production sites have confirmed compliance with ISO 9001, ISO 14001, ISO 50001 and OHSAS 18001. In addition, in 2017, the Lipetsk site, Dolomite and Altai-Koks successfully passed an audit for compliance with international standards. As of the end of 2018, 14 of the Group’s entities were certified by ISO 14001:2015. The Group’s Lipetsk site has also confirmed the compliance of its Management System with international standards ISO 9001 (2015 version), ISO/TS 16949, ISO 14001 (2015 version), ISO 50001 and OHSAS 18001, the European Directive 2014/68/EU (the Pressure Equipment Directive), German technical regulations AD 2000-Werkblatt W0 (technical requirements for pressure vessel design and manufacture) and Regulation (EU) No 305/2011 (Construction Products Regulation) and was granted the right to use the ‘‘CA’’ mark on steel produced for the construction industry. In October 2016, the Group’s

124 Lipetsk site also successfully undertook the periodical inspection of continuous casting slabs production and hot-rolled steel for shipbuilding for compliance with Lloyd’s Register’s Rules.

Raw Materials and Energy The principal raw materials which the Group uses to produce steel include iron ore concentrate, pellets, coking coal, limestone and dolomite, non-ferrous metal and ferro-alloys and scrap metal. The Group’s production operations also require water, gas, electricity, heating power and ancillary raw materials. Vertical integration is a key strategic priority of the Group to better control its cost base through access to raw materials and energy supply, thereby decreasing its dependence on volatile raw material markets and further increasing its share of HVA products. The Group’s subsidiary Stoilensky, an open pit mine with approximately 5 billion tonnes of iron ore reserves, has a total iron ore concentrate production capacity of 17.4 million tonnes per year, pellet production capacity of 6 million tonnes per year and sinter ore production capacity of up to 1.5 million tonnes per year. Management believes that this asset has one of the lowest cash costs of production in the global industry at approximately US$12 per tonne of over 65% iron content ore concentrate. Stoilensky is conveniently located approximately 300 kilometres from the main production site of NLMK Russia in the Central District of Russia. In 2018, Stoilensky fully met the Group’s iron ore concentrate and sinter ore requirements. The pelletising plant, with a capacity of 6 million tonnes of pellets per year, became operational in November 2016. As a result, the Group is currently almost fully self-sufficient in iron ore pellets which had been previously supplied by a third party. The Group also internally supplies other raw material and energy requirements, including covering 59% of the electricity needs of the Lipetsk site in 2018 (60% in the three months ended 31 March 2019). The Group pursues a policy of diversifying its supplier base. Currently all purchases of raw materials, supplies and equipment are based on market analysis, tenders and negotiations with suppliers for long-term contracts and fixed purchase prices or formula-based prices (where price depends on market indices). NLMK Trading House, which is responsible for consolidated supplies of some raw materials and inputs to the Group, in part centralises the commercial functions for the Group’s business. In this way, the Group is able to minimise its purchasing costs and to streamline its transportation expenses.

Iron ore concentrate and pellets Stoilensky supplied all of the Group’s iron ore concentrate requirements in 2018. Starting from 2017, with the pelletising plant reaching its planned capacity, almost all of Stoilensky products are supplied to NLMK Lipetsk, and going forward Stoilensky sales are planned to be focused on meeting NLMK Lipetsk’s raw material needs. The table below shows the raw materials sold by Stoilensky for the periods indicated.

Three months Year ended 31 December ended 2018 2017 2016 31 March 2019 (Amounts in thousands of tonnes) Iron ore concentrate ...... 10,117 9,656 15,399 2,587 Sinter ore ...... 1,514 1,486 1,638 251 Pellets ...... 6,746 5,996 236 1,751 Total ...... 18,377 17,138 17,273 4,589 Stoilensky is one of Russia’s largest mining companies, specialising in the extraction and processing of iron ore and located in the Belgorod Region in Central Russia, 300 kilometres from the Group’s main production site in Lipetsk. It is a conventional open-pit operation. Following a drilling and blasting stage, ore is hauled via rail to the concentrator plant. At the concentrator, the ore is crushed and ground to a fine particle size, then separated into an iron concentrate slurry and a waste stream using wet magnetic separators. Some of the iron ore concentrate is subsequently processed at a pelletising plant, where it is mixed with other supplemental materials, then pelletised and finally baked in a special machine. The iron ore is upgraded from approximately 34% iron to a concentrate that contains approximately 66.5% iron. The current production facilities comprise an iron ore concentrate plant, a sinter ore plant and a pelletising plant opened in November 2016. In 2018, Stoilensky increased its sales of iron ore concentrate by 5% to 10.1 million tonnes. Sales of sinter ore increased by 2% in 2018 as compared with 2017 and totalled 1.5 million tonnes. In the three months ended 31 March 2019, Stoilensky sold 2.6 million tonnes of iron ore concentrate, 0.3 million tonnes of

125 sinter ore and 1.8 million tonnes of pellets. NLMK estimates that Stoilensky has reserves of approximately 5 billion tonnes, which is sufficient to maintain production at current levels for more than 100 years. In late 2017, the Group commissioned high-pressure grinding roll (HPGR) units (the second upgrade stage of the beneficiation facility), which resulted in a 5% increase in throughput capacity. In late 2018, the Group embarked on the construction of an additional beneficiation section at Stoilensky that is expected to increase production of iron ore materials further. In 2019, a project aimed at increasing of the pelletising plant’s installed capacity began and is expected to be completed by the end of 2020.

Coal and coke The Group purchased approximately 8.4 million tonnes, 9 million tonnes and 9 million tonnes of coking coal in each of 2018, 2017 and 2016, respectively (1.9 million tonnes in the three months ended 31 March 2019). The Group purchases coking coal at market prices that largely correlate with the steel market dynamics. JSC Sibuglemet, JSC Coal Company Kuzbassrazrezugol, JSC VorkutaUgol, PTK Ugol LLC and JSC Stroyservis are the main suppliers of coal concentrate. In accordance with the Group’s policy of vertical integration, in 2005, the Group obtained a prospecting and development licence to the Zhernovskoye-1 coal deposit in the Kemerovo region, Western Siberia. In 2011, the Group acquired a licence for the exploration and extraction of coal in the Zhernovski-Gluboki deposit, located below the Zhernovskoye-1 deposit. The Zhernovskoye-1 deposit, including Zhernovski- Gluboki, has approximately 236 million tonnes of reserves of high-quality hard and semi-soft coking coal (grade GZh, Zh and GZhO according to Russian standards). In 2011, the Group acquired a licence for the exploration and extraction of coal in the Zhernovski-Gluboki deposit, located below the Zhernovskoye-1 deposit. The Zhernovskoye-1 deposit, including Zhernovski-Gluboki, has approximately 236 million tonnes of reserves of high quality hard and semi soft coking coal (grade GZh, Zh and GZhO according to Russian standards). In 2011, the Group also acquired a licence for US$27.2 million for the exploration and extraction of coal in Usinsky-3, the area in the Usinsky coal deposit in the Komi Republic, North West Russia. The Usinsky-3 deposit has approximately 288.3 million tonnes of reserves of high quality hard coking coal (grades Zh and 2Zh, Russian categories of reserves A+B+C1). The Group has conducted a detailed geological survey of the mining area, a feasibility study on the conditions and a high-level development plan, reviewed and optimised by an Australian consulting company. In 2016-2017, the Group updated the licenses for the coal deposits. The Group has decided to put its exploration on hold as market conditions are not yet supportive of developing greenfield coal deposits. The Group currently produces metallurgical coke in excess of its total requirements at its coke batteries at Altai-Koks and the Lipetsk site, which have capacities of up to 4.4 and 2.6 million tonnes per year of coke, respectively. Altai-Koks is Russia’s largest non-integrated coke producer, accounting for 8% of gross coke supplies in the open market in Russia. It is located in the Altai Region, in close proximity to the Kuznetsk coal basin mining companies. In 2018, Altai-Koks produced 3.8 million tonnes of coke, comparing with 4.3 million tonnes of coke in 2017 (0.9 million tonnes in the three months ended 31 March 2019). Coke sales in 2018 totalled 3.6 million tonnes dry weight (0.9 million tonnes in the three months ended 31 March 2019), of which 0.8 million tonnes, or 23%, were sold to third parties (0.2 million tonnes, or 25%, in the three months ended 31 March 2019). External consumers in 2018 included Russian, Kazakh, European and Asian steelmakers, non-ferrous metal and petrochemical companies. The table below shows the coke (6% moisture) produced by Altai-Koks and the Lipetsk site in the periods indicated.

Year ended Three months 31 December ended 2018 2017 2016 31 March 2019 (Amounts in thousands of tonnes) Altai-Koks ...... 3,826 4,286 4,318 897 Novolipetsk ...... 2,591 2,621 2,609 634 Total ...... 6,417 6,907 6,927 1,531

Scrap In 2018, the Group’s ferrous scrap collecting and processing business, Vtorchermet NLMK, supplied over 60% of the scrap requirements of the Group’s Russian assets. In 2018, Vtorchermet NLMK supplied 5.2 million tonnes of scrap, an increase of 5% from 4.9 million tonnes in 2017 (0.7 million tonnes in the

126 three months ended 31 March 2019). Vtorchermet NLMK has a scrap processing capacity of 3.5 million tonnes per year. The Vtorchermet NLMK facilities include special cutting and packaging lines for processing scrap so that it is ready for use in the smelting process. Scrap is sourced both externally from companies and individuals who collect scrap metal and internally, by utilising amortisation scrap and production waste. The Group uses scrap in all steel melting processes. Approximately 99% of the scrap output of the Vtorchermet NLMK facilities is used in the smelting process. In respect of the operations of NLMK USA, NLMK Indiana’s facility is located in the American Midwest, a region which accounts for approximately 20% of scrap generation in the United States.

Other raw materials The Group obtains limestone from its wholly owned subsidiary, Stagdok, whose production facilities are located within 20 kilometres of Lipetsk. Stagdok sold 3.7 million tonnes of limestone in 2018, of which 2.9 million tonnes was sold to entities within the Group. In the three months ended 31 March 2019, Stagdok sold 0.8 million tonnes of limestone, of which 0.7 million tonnes was sold to entities within the Group. Assuming that the current levels of production are maintained, management estimates that these reserves should be sufficient to meet the Group’s limestone needs for approximately 30 years. The licence under which Stagdok mines the limestone deposit is scheduled to expire in 2028. The Group obtains flux dolomite from its wholly owned subsidiary, Dolomit, whose operations are located in Dankov, close to Lipetsk. Dolomit sold 2.6 million tonnes of dolomite in 2018 and 0.5 million tonnes in the three months ended 31 March 2019, of which 68% and 82%, respectively, was sold to entities within the Group. Assuming that the current levels of production are maintained, management estimates that the reserves of Dolomit (which exceed 360 million tonnes) should be sufficient to meet the Group’s limestone needs for more than 100 years (based on Dolomit’s current output of approximately 2.6 million tonnes of limestone per year). Dolomit mines the deposit under a licence which is scheduled to expire in 2029. Dolomit is continuing to implement a technical upgrade and development programme, comprising the renovation and reconstruction of equipment. The Group also requires a wide range of ferro-alloys for its steelmaking process. The Group purchases most of its ferro-alloy requirements from third-party suppliers based both in Russia and overseas, generally under flexible annual contracts. The Group also requires a range of non-ferrous metals, including zinc, manganese and aluminium, for use primarily in its production of HVA steel products, including, for example, galvanised sheet. The Group purchases all of its non-ferrous metal requirements from third-party suppliers in Russia.

Energy The steelmaking process which the Group operates requires significant amounts of electricity and fuel gases to power the blast furnaces, steel melting and rolling facilities. During 2018, the Group’s Russian companies consumed 7.3 billion kilowatt-hours of power energy. In 2018, the Lipetsk site’s electricity generating facilities provided 59% of its own electricity requirements (approximately 60% in the three months ended 31 March 2019). These facilities generate electricity by burning waste by-product gasses, including blast-furnace gas, coke oven gas and natural gas, as well as gas pressure energy. Power for Lipetsk site is produced by the Cogeneration Plant with 332 MW capacity, the Recovery Cogeneration Plant with 150 MW capacity and the Top-pressure Recovery Turbine Plant with two top-pressure recovery turbines with 20 MW installed capacity each. The Group reconstructed one of the turbo-generators at the Cogeneration Plant with a 60 MW capacity, which has increased its electricity self-sufficiency to 59%. The Group does not use coal to generate electricity. The Group purchases the remainder of its electricity requirements for its Russian operations from the electricity market. The Group estimates that the cost of electricity which the Group produces is approximately one-third less than that of electricity purchased from external suppliers. The Group uses blast furnace gas, coke oven gas and natural gas as a heat source in its blast furnaces, reheating lines and power plants. In 2015, the Group signed long-term contracts with NOVATEK for the supply of natural gas to all facilities of NLMK Russia for five years starting from 1 January 2016. In 2016, the Group signed a further agreement with NOVATEK for the supply of natural gas to all facilities of NLMK Russia for ten years starting from 1 January 2016. The agreements provide for the supply of an annual volume of 2.8 billion cubic metres of natural gas to NLMK Russia production facilities which will

127 cover 100% of their natural gas needs. In 2018, the Group’s Russian companies purchased 2.3 billion cubic metres of natural gas. The Group has sought to reduce its energy and natural gas consumption by implementing innovative technologies and utilising secondary energy. In 2018, these initiatives resulted in a 0.4% year-on-year improvement in the energy intensity of its products on the Lipetsk site. In October 2012, the Group became the first major Russian steel producer to successfully complete a TUV¨ SUD¨ certification audit for compliance of the energy management system used at the Lipetsk site with the ISO 50001:2011 international standard. All main Russian entities of the Group have passed certification for compliance with ISO 50001.

Transportation of raw materials In 2018, the Group received substantially all its raw materials by rail. The Group’s principal supplier of rail transportation services is Freight One, a subsidiary of UCL Holding, a related party. NLMK has signed a long-term agreement (expiring in January 2023) with Freight One for transport and rail logistics services for the Group. NLMK expects that the Group’s transportation needs will be fully met by the arrangements with Freight One in the foreseeable future.

Technical Upgrading Programme The Group’s technical upgrading programme is a key component of its Strategy 2022.

128 The table below shows details of the key projects of the Group’s technical upgrading programme completed in 2016–2018.

Year of Completion Key Projects 2016 ...... Expansion of the slab warehouse at the Lipetsk site (stage 2) HDG-1 upgrade at Lipetsk site Implementation of high pressure grinding rolls technology in sections 1 and 4 of Stoilensky plant Implementation of an automatic sinter machine 2 control system at Lipetsk site Crushing and screening facility for processing steel slag Implementation of an automatic sinter machine 1 control system at Lipetsk site Commissioning of pelletising plant at Stoilensky Construction of a gas turbine distribution system for blast furnaces 6, 7 at the Lipetsk site Construction of a wet gas cleaning facility at BF-6 at the Lipetsk site Reconstruction of the path for unloading and supplying bulk materials of section No. 3 with replacement by filters at the Lipetsk site Construction of the central gas cleaning system behind the shaft furnaces Nos. 1-3 at the Lipetsk site 2017 ...... Construction and commissioning of iron tails thickening system (Stage 2) at Stoilensky Construction of an inert gas mixture production plant at the Lipetsk site Construction of a system for injecting pulverised coal into blast furnaces No. 6.7 at the Lipetsk site Automated surface control system at Clabecq Roll Coolant F0-F6 at NLMK Pennsylvania Technological connection of technical re-equipment to external electric networks at the Lipetsk site Grinding and enrichment, control and certification of commercial products of Stoilensky Implementation of high pressure grinding rolls technology in sections 2 and 3 of Stoilensky Increase of production to 37 million tonnes per year of Stoilensky 2018 ...... Organization of additional shipment area No. 1 for processing and shipment of metal products at the Lipetsk site Equipment for processing wood waste combine at the Lipetsk site Casting pit upgrade at NLMK Verona Replacement of the turbogenerator No. 5 at the Lipetsk site Widening of V4 cross transport for 28m plates at NLMK DanSteel Reconstruction of the hull dewatering sludge blast furnace-7 at the Lipetsk site HSM surface inspection system at NLMK Indiana Self-propelled sorting machine at the Lipetsk site Technical re-equipment of an automatic process control system of a sludge disposal site 2 at the Lipetsk site Technical re-equipment of cutting unit No. 3 with installation of an oil machine at the Lipetsk site Investments on HDG Thermal process automatisation at NLMK Strasbourg Changing the design of the furnaces of the thermal section with the transfer to the use of muffles and bench area at the Lipetsk site HSM surface inspection system at NLMK Pennsylvania Organization of additional section of shipment No. 2 for processing and shipment of steel products at the Lipetsk site Reconstruction of the normalization unit and shot blasting unit installation at the Lipetsk site New FAC furnace at NLMK Verona Q&T extension at NLMK Verona Seasonal production warehouse at the Lipetsk site

129 Corporate Responsibility Management regards sustainable development as one of the Group’s key objectives. In 2002, the Group (at its Lipetsk site) first obtained certification of its environmental management system (‘‘EMS’’) for compliance with ISO 14001:1996 (2004) standards by the German certification agency, TUV¨ CERT. It recertified its compliance with the standard in 2014 with British Standard Institution and passed a compliance audit in 2016. The Group’s EMS monitors current Russian and international environmental regulations, in order to enable the Group to comply with applicable regulations and implement any necessary remedial actions. The Group seeks to anticipate potential issues, and, if it concludes that action is necessary, it is generally able to implement measures to address the problem at a relatively early stage. The Group also regularly engages international experts and auditing firms to assist it at various stages in this process. In 2016, the Group implemented the new version of ISO 14001 standard (ISO 14001:2015), NLMK-Kaluga and Altai-Koks received BSI certificates of environmental management system registration and NLMK Ural also passed an audit for certification. As of the end of 2018, 14 of the Group’s entities have already been ISO 14001:2015 certified. Recertification audits for compliance with ISO 14001:2015 are carried out on a regular basis. The Group has almost halved its emission rates and believes it is now very close to BAT. Since 2001, the Group has invested approximately US$1.4 billion in environmental programmes. The Group has implemented programmes to reduce the impact of its operations on the environment. For example, it has reduced discharges of industrial effluents to less than 3% of the 2008 level, eliminating them altogether at most of the facilities. It has also reduced discharges of industrial effluents, eliminating them altogether at most of the facilities. The Lipetsk site, Altai-Koks, Stoilensky, NLMK-Kaluga and VIZ-Steel have deployed a closed loop water system, which eliminates waste water discharge. In 2018 recycling of generated iron-containing waste increased to 99.5% at the Lipetsk site from 88.4% in 2013. Lipetsk, home to 75% of the Group’s production facilities, has been officially recognised as being the cleanest steelmaking city in Russia, according to data from Russia Federal Service for Hydrometeorology and Environmental Monitoring (Roshydromet). As a result of environmental protection measures implemented at the Lipetsk site, the Integrated Air Pollution Index (IAPI) in Lipetsk fell by more than 10 times between 2000 and 2018. The Group is aware of the potential consequences of climate change, and is committed to reducing greenhouse gas emissions by implementing measures to reduce the specific consumption of non-renewable fuel and to boost energy efficiency. The Group’s specific direct and indirect carbon dioxide emissions amounted to 1.91 t/t steel in 2018, which is below the industry average of 2.1 t/t steel as per Science Based Targets. In May 2017, the Group announced the start of the fourth stage of its environmental programme, which is scheduled to run until 2020. It aims at achieving compliance with all environmental regulations for all the Group companies; reducing specific emissions by the Lipetsk site from 20.9 to the steelmaking industry’s best available technology levels; eliminating waste water at all production sites; increasing its recycling rate; and recycling accumulated waste including the slag heap in Lipetsk resulting from more than 80 years of operation and the 40-year-old sludge reservoir at NLMK Ural in Revda. Total investments in the programme are expected to exceed US$39 million. The Group recognises that the long term sustainability of its operations depends greatly upon the economic state of the communities surrounding its production facilities. For this reason, it pursues a number of social programmes, including mandatory and voluntary medical coverage for its employees, participation in a private pension benefit programme and other activities. The Group reinforces its social work with a strong commitment to charity work promoting health and fitness, sports, science, culture and the arts. Total social investment by NLMK Group in 2018 equalled 2.73 billion roubles, out of which 2.44 billion roubles was allocated to social support programmes for NLMK Group employees and 0.29 billion roubles was allocated to local community development. Key areas of investment in external social programmes include development of grassroots and children’s sports, supporting veterans and retired employees, developing education and social support for regions where NLMK operates, supporting healthcare and developing culture and arts. NLMK’s social and charity activities to support and develop the regions in which it operates are pursued chiefly in collaboration with the Group’s social partner, the Miloserdiye (Compassion) charity fund for social assistance. Over 30,000 people benefit from the Miloserdiye Fund each year. Since its establishment

130 the overall amount of the fund’s charitable contributions have exceeded 4.5 billion roubles. Since 2017, the Steel Tree grant competition, aimed at supporting welfare initiatives of NLMK Group employees and residents of the cities where the Group operates, has been held annually. To ensure that human rights are observed in the Group’s activities everywhere the Group operates, the Group’s Human Rights Policy was approved in 2018.

Research and Development The Group maintains specialist departments to carry out basic research and applied technology development activities, primarily focusing on the improvement of existing technologies and products in accordance with its end customers’ requirements, new product and equipment development and increasing production efficiency. The Group’s research and development departments employed, in aggregate, 29 staff as of 31 December 2018. As a result of these programmes and policies, the Group’s research and development staff hold 229 patents with 1 new patent application submitted in 2018. The Group invested approximately RUB 0.23 billion (US$3.6 million) in its research and development activities during 2016 to 2018 (approximately US$0.2 million in the three months ended 31 March 2019).

Employees and Health and Safety The Group considers its employees to be one of the most important assets of the organisation and has implemented a personnel policy which incorporates mutual accountability for results, a performance-based wage structure, equal opportunities for all employees and the provision of safe working environments. The table below shows the average number of employees of the Group for the periods indicated.

Year ended 31 December 2018 2017 2016 (thousands of employees) NLMK Russia ...... 49.8 49.7 50.9 NLMK Europe ...... 2.2 2.1 2.1 NLMK USA...... 1.2 1.0 1.0 Group total ...... 53.2 52.8 54.0 As at 31 March 2019, 94% of the Group’s personnel were employed at the Group’s Russian operations, with the remainder in the Group’s European and U.S. operations as well as in other countries where the Group’s assets are located. From 2016 to 2018, the productivity per employee at the Group’s Lipetsk site increased, in terms of output of steel per employee in its steel operations, to 503.4 tonnes in 2018 from 482 tonnes in 2016, an increase of 4.4%. The Group’s staff remuneration structure consists of a base component, calculated according to the qualifications of the employee, and a performance-related bonus. The remuneration package that NLMK Russia offers its employees also includes voluntary medical insurance, dental care and membership of a non-state pension fund scheme. Within the Group’s Russian businesses, average monthly salaries were RUB 60,750 (US$969) in 2018. Since 2007, the Group’s Occupational Health and Industrial Safety Management System at the Lipetsk site has been certified by Bureau Veritas Certification as in compliance with OHSAS 18001:2007, the internationally recognised standard for occupational health and safety management systems. In 2016, auditors from the British Standards Institution confirmed that NLMK’s OHS management system met international standards. In 2018, the Group invested approximately US$125.5 million in its occupational health and safety programme. As at 31 March 2019, to the Group’s knowledge, approximately 85% of employees of the Group’s Lipetsk site and approximately 43% of employees of Stoilensky were members of a trade union.

131 The number of industrial accidents which resulted in lost time injuries at the Group’s facilities was 89, 121 and 95 in 2018, 2017 and 2016, respectively (15 in the three months ended 31 March 2019). Four industrial accidents resulted in death in 2018 (one in the three months ended 31 March 2019). NLMK Russia has established its non-state pension fund programme, Sotsialnoye Razvitie NPF, in cooperation with various other organisations and enterprises. As of 31 March 2019, over 5,660 of the employees of NLMK were members of the pension fund. In 2018 and in the three months ended 31 March 2019, NLMK paid US$2.1 million and US$2.1 million, respectively, into the fund. In February 2017, the O1 Group acquired 100% of shares of Sotsialnoye Razvitie NPF. In addition, the Group maintains defined benefit pension and defined contribution plans for the majority of its employees at its operations in the European Union.

Insurance One of the most important ways in which the Group manages its risk exposure is by developing and managing its insurance programme. The Group’s insurance function is centralized at the Group level, with common insurance principles covering areas such as tendering procedure for purchases of insurance services, administration of insurance policies and claims handling processes. All insurance services are required to be tendered, and all qualified insurance companies and brokers must be invited to the tender process. The list of qualified brokers is reconsidered annually, or at other times at the initiative of the Risk Management Department. The Group has several multinational programmes, which cover companies in different countries with similar terms, insurers, or reinsurance structures. The Group’s property and business interruption programme covers all major production companies of the Group in Russia, Europe and the United States. The programme’s limits cover maximum foreseeable losses, which are recalculated every two years by risk-engineers of leading insurance companies and brokers. The Group’s trade credit insurance programme covers Russian, American, European, Asian and African companies. The Group’s Directors’ and Officers’ liability insurance programme covers any management position of any company of the Group in any jurisdiction. NLMK Russia has a unified insurance programme. Its insurance protection consists of voluntary health, cargo, auto, contractors’ all risks and general liability insurance, as well as the insurance policies it is required to maintain under Russian law (including third-party liability insurance for hazardous facilities). NLMK Europe and NLMK USA have insurance programmes which cover potential risks of loss to the Group, its employees, assets, operations, customers and reputation. NLMK Europe and NLMK USA also have insurance in respect of workers’ compensation and employee healthcare, as well as vehicle, management, strict liability and environmental liability insurance. The Group requires that reinsurers of its major programmes have an equivalent credit rating to A or higher by Standard & Poor’s. The same requirements are applied to direct insurers in respect of NLMK non-Russian companies.

Litigation NLMK is party to various proceedings in connection with the share purchase agreement dated 22 November 2007 between NLMK and Mr. Nikolay Maximov for the acquisition by NLMK of a controlling interest in OJSC Maxi-Group from Mr. Maximov. Following an action brought by NLMK in March 2011, on 7 April 2014, the Moscow Arbitrazh Court declared the 22 November 2007 agreement void, and ordered Mr. Maximov to pay NLMK RUB 7.3 billion (approximately US$105.5 million) in restitution. This judgement was confirmed by the Ninth Arbitrazh Appellate Court on 10 July 2014 and further by the Arbitrazh Court of the Moscow District on 17 December 2014. On 9 April 2015, a judge of the Supreme Court of the Russian Federation dismissed a further appeal sought by Mr. Maximov and refused to refer the case to the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation for hearings and review. An appeal brought by Mr. Maximov on 16 April 2015 to the Chairman (Deputy Chairman) of the Supreme Court of the Russian Federation with respect to this was also dismissed. NLMK intends to seek to enforce the Moscow Arbitrazh Court judgement in Russia and other jurisdictions. In addition, Mr. Maximov has sought to enforce an arbitral award made by the International Commercial Arbitration Court (ICAC) of the Chamber of Commerce and Industry of the Russian Federation against NLMK in the amount of RUB 9.6 billion (approximately US$162 million), representing the remainder of

132 the purchase price alleged to be due under the 22 November 2007 agreement, plus accrued interest (the ‘‘ICAC Award’’). The ICAC Award was set aside by the Moscow Arbitrazh Court in June 2011, a decision which was upheld on appeal. Mr. Maximov has sought to enforce the ICAC award against NLMK’s assets located in various jurisdictions outside Russia, including the Netherlands, Luxembourg, France and the United Kingdom. Previous attachment proceedings against property of Novexco (Cyprus), NLMK’s affiliated trading company, in Cyprus were dismissed. In the Netherlands, the Amsterdam District Court on 17 November 2012 rejected Mr. Maximov’s action seeking to enforce the ICAC Award. On 27 September 2016, the Amsterdam Court of Appeal rejected Mr. Maximov’s appeal and upheld the judgement of the court of first instance. Mr. Maximov filed a cassation appeal with the Supreme Court of the Netherlands for reconsideration of the judgement, which was dismissed in full in November 2017. On 20 June 2012, the Court of Luxembourg dismissed an appeal by Mr. Maximov that sought to freeze the shares of SIF, and a case on the merits of claims made by Mr. Maximov against NLMK International in Luxembourg was dismissed on procedural grounds. In France, the Paris Court of First Instance authorised the enforcement of the ICAC Award in a judgement delivered on 16 May 2012, on 1 April 2014, an appeal brought by NLMK with the Paris Court of Appeal was dismissed, and on 25 May 2016, the Court of Cassation rejected NLMK’s cassation appeal. Under the enforcement procedure of the judgement, Mr. Maximov put a seizure on NLMK’s international trade mark registered in France. NLMK challenged the seizure and filed an application for lifting the seizure, which was dismissed on 27 February 2018. NLMK has filed an appeal with a higher court, which is scheduled for 12 June 2019. In September 2014, Mr. Maximov filed two applications to the High Court of Justice of England and Wales for the recognition and enforcement of the ICAC Award and seeking recovery of the sums awarded in the ICAC Award, together with accrued interest in an amount of RUB 2.9 billion (approximately US$49 million). On 27 July 2017, the High Court dismissed Mr. Maximov’s application and refused Mr. Maximov permission to appeal against this judgement. Mr. Maximov did not challenge the refusal to grant him permission to appeal during the relevant term for appeal, which expired on 15 September 2017. There can be no assurance that Mr. Maximov will not continue to seek to enforce the ICAC Award against NLMK’s assets located outside of Russia. The parties have brought other claims and actions in relation to this dispute and it is likely that further actions will be brought in the future. SIF is subject to proceedings brought by the European Commission alleging violation of government aid laws. On 20 January 2016, the European Commission determined that several investments of the Walloon Region made under the business activities in metallurgical industry in Belgium do not comply with legislation on government aid. Loans granted to SIF by Foreign Strategic Investments Holding (FSIH), a Walloon Region state company, were the subject of the investigation. The Commission claimed that the interest rates under the loan granted to SIF were lower than market rates. Under the decision, the Commission seeks the recovery of a payment in the amount of EUR 9.96 million, being the difference between the applied rates and market rates, from SIF. SIF has filed a claim with the European Court to challenge the decision of the Commission. On 28 November 2017, the European Court dismissed SIF’s claim. Save as disclosed above, there are no governmental, legal or arbitration proceedings nor, so far as NLMK is aware, are any governmental, legal or arbitration proceedings pending or threatened, which may have, or have had in the 12 months preceding the date of this document, significant effects on NLMK’s or the Group’s financial position or profitability.

133 MANAGEMENT AND CORPORATE GOVERNANCE Board of Directors The Board of Directors is responsible for general management matters, with the exception of those matters designated by law and NLMK’s charter as being the exclusive responsibility of the General Meeting of Shareholders. The Board of Directors currently consists of nine members. Five members of the Board of Directors are independent directors in accordance with the criteria set out in Russian Federal Law No. 208-FZ on Joint Stock Companies dated 26 December 1995, as amended (the ‘‘Joint Stock Companies Law’’) and NLMK’s Regulations on the Board of Directors, which differ in certain respects from the criteria for independent directors that are set out in the U.K. Corporate Governance Code. Those directors are referred to as independent directors. The table below shows the current members of the Board of Directors. All of the current directors were elected on 19 April 2019 and their terms expire on the date of the next annual general shareholders’ meeting. The business address for all directors is Pl. Metallurgov 2, Lipetsk 398040, Russian Federation.

Name Year of Birth Position Mr. Vladimir Lisin .... 1956 Chairman of the Board of Directors Mr. Oleg Bagrin ...... 1974 Director, Chairman of the Strategic Planning Committee Mr. Nikolai Gagarin . . . 1950 Director Mr. Joachim Limberg . . 1954 Director (Independent) Mrs. Marjan Oudeman . 1958 Director (Independent) and Chairman of the Audit Committee Mr. Karen Sarkisov .... 1963 Director Mr. Benedict Sciortino . 1950 Director (Independent) Mr. Stanislav Shekshnia . 1964 Director (Independent) and Chairman of the Human Resources, Remuneration and Social Policies Committee Mr. Tomas Veraszto . . . 1962 Director (Independent) Mr. Vladimir Lisin Board member since 1996, Chairman of the Board since 1998. Started career in 1975 as an electrical fitter. Worked at Tulachermet, rising through the ranks from assistant steelmaker to deputy shop manager. From 1986, worked in Kazakhstan, first as Deputy Chief Engineer, and later as Deputy CEO of the Karaganda Steel Plant. Member of the boards of directors of several leading Russian steel companies since 1993. Graduate of the Siberian Metallurgic Institute, majoring in Ferrous and Non-Ferrous Foundries. In 1990, graduated from the Higher School of Commerce with the Foreign Trade Academy. In 1992, graduated from the Academy of National Economy, majoring in Economics and Management. Holds a Ph.D. in Technology and Economics. Winner of the USSR Council and Ministers prize for Science and Technology. Honorary Metallurgist of the Russian Federation. Knight of the Order of Honour and Knight of the Order of Alexander Nevsky. President of the International Shooting Sport Federation. Mr. Oleg Bagrin Board member since 2004, President (Chairman of the Management Board) of NLMK from 2012 to March 2018. Chairman of the Strategic Planning Committee, member of the Human Resources, Remuneration and Social Policies Committee. Board member of a number of NLMK subsidiary and affiliate companies. Chairman of the Board of Directors of management company Libra Capital, investment company Libra Capital, Moscow, Member of the Board of JSC Freight One. Director, Member of the Board of Directors of FLETCHER GROUP HOLDINGS LIMITED. Holds a graduate degree in Operations Research and a postgraduate degree in Economics from the State Management University, Moscow, and a degree in Business Administration from the University of Cambridge, U.K. Mr. Nikolai Gagarin Board member since 2001. Member of the Audit Committee. In 2003, as Managing Partner, he was appointed Chairman of the Board at Reznik, Gagarin, Abushakhmin and Partners Law Offices. Chairman of the Board, Managing Partner at Reznik, Gagarin and Partners Law Offices, Moscow, since 2009. Graduate of Lomonosov Moscow State University, majoring in Law. Mr. Joachim Limberg Board member since 2019. Independent Director. Member of the Strategic Planning Committee and member of the Human Resources, Remuneration and Social Policies Committee. From October 2009 to 31 December 2018, Mr. Limberg was Chairman of the Management Board of Materials Services Business Area and CEO and Chairman of the Executive Board of Thyssenkrupp Materials International GmbH, where he was responsible for the Materials units Germany, North America, Eastern Europe and Western Europe/Asia Pacific, Materials Processing Europe, Materials Trading, the Special

134 Materials’ units (special steels) AST and Distribution Stainless, as well as the Special Services units Plastics Europe, Aerospace and Technical Services. Mr. Limberg began his career in 1976 at Klockner.¨ He then spent several years as managing director/CEO of various small and medium-size companies. In 1995, Mr. Limberg joined thyssenkrupp 5 Group, initially as head of the Product Management Steel and Materials Management departments in thyssenkrupp Schulte. In 1998, he was appointed to the Executive Board. From 2002 to 2005, he was Chairman of the Executive Board of thyssenkrupp Schulte GmbH. Mr. Limberg was appointed to the Executive Board of thyssenkrupp Materials AG, later thyssenkrupp Services AG, on 1 April 2001. From January 2002, he was additionally responsible for the North American operations of thyssenkrupp Materials N.A., of which he was Chairman. With the establishment of thyssenkrupp Materials Europe GmbH on 1 June 2005, Mr. Limberg took over as Chairman of the company’s Executive Board and continued in this position after the company was renamed thyssenkrupp Materials International GmbH. From October 2006 to September 2009, Mr. Limberg was Vice Chairman of the Executive Board of thyssenkrupp Services AG, where he was primarily responsible for strategic corporate development. One particular focus was on developing activities in North America, Eastern Europe and South America, as well as establishing the aerospace and services business as core activities. This as well included business actions in Asia, which he was in charge of for several years, being located in Hong Kong. A professional exporter, Mr. Limberg has a degree in economics (DIPLOM-OKONOM)¨ from the Open University of Hagen. Mrs. Marjan Oudeman Board member since 2017. Chairman of the Audit Committee, member of the Strategic Planning Committee and member of the Audit Committee. Mrs. Oudeman was the President of the Executive Board of Utrecht University (The Netherlands) from 2013 until June 2017. From 2010 to 2013, Mrs. Oudeman was a member of the Executive Committee of AkzoNobel, responsible for HR and Organisational Development. Previously Mrs. Oudeman was a member of the Executive Committee of Corus Group and Executive Director Corus Strip Products Division from 2007 to 2010. She also held positions of the CEO Corus Nederland BV, Managing Director Corus Strip Products IJmuiden from 2004 to 2007 and Managing Director Corus Packaging Plus from 2000 to 2004. Before joining Corus, Mrs. Oudeman worked for Hoogovens Group NV, holding various corporate staff positions at Hoogovens Group NV in legal, corporate finance and controlling, culminating in 1998-2000 as a Member of the Management Board of the Steel Division of Hoogovens Group NV and Managing Director Hoogovens Packaging Steel. Mrs. Oudeman holds positions in governing bodies of a number of entities, being a member of the Boards of Solvay SA, SHV Holdings, NV Aalberts Industries NV, UPM-Kymmene Corporation. Mrs. Oudeman has extensive experience as a line manager in the steel industry and considerable international business experience. Mrs. Oudeman has a law degree from Rijksuniversiteit Groningen in the Netherlands and an MBA in Business Administration from the University of Rochester, New York, USA and Erasmus University, Rotterdam, the Netherlands. Mr. Karen Sarkisov Board member since 2010. Member of the Strategic Planning Committee and member of the Audit Committee. Mr. Sarkisov serves as an Aide to the Chairman of the Board of Directors on External Economic Relations. He is also a member of the Board of Directors at NLMK International BV. From 2006 to 2007, Mr. Sarkisov served as the Chairman of the Board of Directors of VIZ-Steel. From the early 1990’s to 2008, he worked at a number of steel trading companies, holding various executive positions at a number of international trading entities. Graduate of Tashkent State University, majoring in Oriental Studies. Mr. Benedict Sciortino Board member since 2012. Independent Director. Member of the Strategic Planning Committee. From 1977 to 1995, Mr. Sciortino worked as an attorney-at-law and a partner with Baker & McKenzie, New York. He joined Duferco in 1995. He now serves as a member of the Board of Directors of Duferco S.A. responsible for Duferco Group North American and South African business, as well as trading operations, finance and legal matters, mergers and acquisitions. Mr. Sciortino serves as a director of several operating companies. He graduated from Queens College, New York with a BA degree and received JD and LLM degrees from New England School of Law (Boston, MA) and New York University Law School, New York. Dr. Stanislav Shekshnia Board member since 2015. Independent Director. Chairman of the Human Resources, Remuneration and Social Policies Committee and member of the Audit Committee. In 1991–2002, Dr. Shekshnia held senior executive positions at Russian and international corporations, including HR Director of Otis Elevator in Central and Eastern Europe, President and CEO of Millicom International Cellular in Russia and the CIS, COO of VimpelCom and CEO of Alfa-Telecom. Dr. Shekshnia has served as Chairman of SUEK, Vimpelcom-R and as director of a number of Russian and Ukrainian companies. Previously, Dr. Shekshnia was an independent director of DTEK BV, Ilim

135 Timber Industry, NIS (Naftna Industria Srbie) and Ener1. Currently Mr. Shekshnia is Chairman of the Board of Russian Fishery Company. In 2002, Dr. Shekshnia co-founded Zest Leadership International Consultancy. Currently Dr. Shekshnia is a Senior Partner of LEADERSHIP VECTOR, a Talent Equity Consulting practice. Dr. Shekshnia focuses on leadership, leadership development, corporate governance and business in emerging economies The company has offices in Moscow, Paris, St. Petersburg, Almaty and Riga. Dr. Shekshnia also provides personal coaching to business owners and corporate executives. Dr. Shekshnia is an Affiliate Professor of Entrepreneurship at INSEAD. Dr. Shekshnia has over 15 years of graduate level teaching experience in Russia, France and the United States and is the author, co-author, or editor of seven books, as well as numerous articles, executive commentaries, interviews and case studies on entrepreneurship, leadership, people management, intercultural management and business and management in Russia. Dr. Shekshnia has a Master’s Degree in Economics, a Ph.D. from Moscow State University, and an MBA from Northeastern University in Boston. Mr. Tomas Veraszto Board member, Independent Director. Member of the Strategic Planning Committee and member of the Human Resources, Remuneration and Social Policies Committee. Mr. Veraszto was a Partner and Managing Director with the Boston Consulting Group (BCG) in 2014-2015, serving primarily clients in the industrial goods sector on strategy, organizational development and operational improvement. He continues to be a Senior Advisor of BCG in this area. Mr. Veraszto has held senior management positions in large industrial and consulting companies such as McKinsey & Company, where he spent 15 years, serving clients in various industries. Mr. Veraszto received a Dr. Jur. in Law and Mag. phil. in Slavic languages in 1984 and 1985, respectively, both from the University of Graz (Austria). In 1988, he also received a Diploma from the Bologna Center of the School of Advanced International Studies at Johns Hopkins University.

Management Board The Management Board is NLMK’s collective executive body and is appointed by the Board of Directors. The Management Board is principally responsible for the day-to-day management of the Group’s business. The President (Chairman of the Management Board) exercises executive authority over all activities, except for issues assigned to the exclusive competence of the General Meeting of Shareholders or the Board of Directors. An annual general shareholders’ meeting of NLMK was held on 19 April 2019 at which Mr. Grigory Fedorishin was re-elected as the President (Chairman of the Management Board). The table below shows the current members of the Management Board. The business address for all members of the Management Board is Pl. Metallurgov, 2, Lipetsk 398040, Russian Federation.

Name Year of Birth Position Mr. Grigory Fedorishin ...... 1979 President (Chairman of the Management Board) Ms. Tatyana Averchenkova ...... 1979 Vice President, Operational Efficiency Mr. Mikhail Arkhipov ...... 1982 Vice President, HR& Management System Mr. Ilya Guschin ...... 1976 Vice President, Sales Mr. Barend De Vos ...... 1967 Vice President, International Operations Mr. Sergey Likharev ...... 1964 Vice President, Logistics Mr. Evgeny Ovcharov ...... 1977 Vice President, Risk of Management Mr. Sergey Filatov ...... 1959 Managing Director Mr. Sergey Chebotarev ...... 1979 Vice President, Energy Mr. Grigory Fedorishin President, Chairman of the Management Board since March 2018. Mr. Fedorishin was Senior Vice President, Deputy Chairman of the Management Board from March 2017 until March 2018 and Vice President for Finance from 2013 until 2017. In 2016, he headed NLMK Group’s Long Products Division in Russia, and from 2011 to 2013, he served as NLMK Director of Strategy and Business Development. From 2009 to 2011, Mr. Fedorishin served as an investment manager at Libra Capital. From 2001 to 2009, he worked for PricewaterhouseCoopers consulting company where he held positions up to a director of business restructuring practice. Mr. Fedorishin graduated from the Academy of Finance, Moscow. He holds a master degree in Business Administration from INSEAD business school, France & Singapore and is a member of the association of Certified Financial Analysts (CFA). Ms. Tatyana Averchenkova Vice President, Operational Efficiency. Ms. Averchenkova has been with NLMK since 2001. She served as Director for Controlling and held various senior management positions in the Strategy Department. In 2016, she was appointed Vice President for Operational Efficiency.

136 Ms. Averchenkova graduated from Lipetsk State Technical University, majoring in Economics & Management. Mr. Mikhail Arkhipov Vice President, HR & Management System. Mr. Arkhipov joined NLMK in January 2018. From 2013 to 2018, he was member of the Management Board and Vice President of HR at MTS Group. From 2009 to 2013, he held various positions at the HR Department at SIBUR up to HR Director. From 2004 to 2009, Mr. Arkhipov worked in senior management positions in HR at SUN InBev and KPMG. Mr. Arkhipov graduated with honours from the Faculty of Sociology of Lomonosov Moscow State University. Mr. Ilya Guschin Vice President, Sales. Mr. Guschin joined NLMK in December 2013. From 2009 to 2013, he worked for SIBUR Group, including as head of SIBUR International, the group’s export division. From 2008 to 2009, he served as Financial Director at Skolkovo School of Management, Moscow. From 2002 to 2007, he held various positions at Microsoft. He is a graduate of the Faculty of Economics, Lomonosov Moscow State University and holds a Ph.D. in economics. Mr. Barend De Vos Vice President, International Operations. Since 2011, Mr. De Vos has been a Director of NLMK Belgium Holdings as well as a number of subsidiaries. He is CEO, Chairman of the Management Board of NLMK International B.V., leading its turnaround and operating efficiency programmes. He joined Duferco La Louviere` in Belgium in 2004 and was appointed a management board member of SIF between 2007 and 2011. After starting his career as production and development engineer in 1990, he held various management positions at Iscor and Saldanha Steel (now ArcelorMittal South Africa) between 1995 and 2003, ending with export sales. Mr. De Vos holds a B.Eng. (Hons) Electrical and M.Eng (industrial) from the University of Pretoria. Mr. Sergey Likharev Vice President, Logistics. Mr. Likharev joined NLMK in October 2013. From 2012 to 2013, he was Aviation Business Director at Russian Machines Group and Chairman of the Board of Directors of the Aviacor aviation plant. After serving as CEO of Aviacor Aviation Plant in Samara from 2004 to 2007, he became CEO of the Basel Aero airport group from 2008 to 2012. From 1993 to 2004, he held senior positions at Interros, Ostankino Meat Processing Plant, Golden Telecom, Cannon Associates and Coopers & Lybrand. From 1990 to 1993, he worked as a researcher at Lomonosov Moscow State University. Mr. Likharev holds a Ph.D. in Physics and Mathematics and a Masters of Business Administration from Cornell University. Mr. Evgeny Ovcharov Vice President, Risk Management. Mr. Ovcharov joined NLMK in 1998. Before being appointed Vice President of Risk Management in 2016, Mr. Ovcharov held the positions of Director for Internal Control and Risk Management, Head of Corporate Finance, and senior management positions at the Department of Economics and Finance. He graduated from Lipetsk State Technical University. Mr. Ovcharov holds a Ph.D. in economics. Mr. Sergey Filatov Managing Director. Mr. Filatov has been with NLMK since October 2012, serving as Deputy Senior Vice President—General Director for Production and Technology. In 2013, he was appointed to the position of NLMK’s Managing Director. From 2009 to 2012, he served as Chief Engineer at NTMK. From 2007 to 2009, he was Project Manager at NTMK Project Management Department. Mr. Filatov graduated from the Moscow Institute of Steel and Alloys, holds a Ph.D. in technology and is an Honorary Metallurgist of Russia. Mr. Sergey Chebotarev Vice President, Energy. Mr. Chebotarev joined NLMK in 2000 as an economist in the Fuel and Energy Complex Department. He was Head of Energy Policy Management and Director for Energy Efficiency and Energy Markets, before being promoted to Vice President of Energy in 2016. He graduated from Lipetsk State Technical University, majoring in Applied Mathematics. Mr. Chebotarev holds a Ph.D. in technology.

Remuneration of Directors and Management The aggregate amount of remuneration paid by NLMK to the Directors and members of the Management Board as a group for services as Directors of NLMK and Management, respectively, during the year ended 31 December 2018 was approximately US$2.5 million and US$7.1 million, respectively, in salary, bonuses and refunded expenses.

137 Interests of Directors and Management As of the date of this Prospectus, Mr. Vladimir Lisin, the Chairman of the Board of Directors, is the beneficial owner of 84% of NLMK’s share capital. See ‘‘Principal Shareholders’’.

Corporate Governance As a public company, NLMK consistently strives to improve its standards of corporate governance, to improve management efficiency and to support the sustainability of its business model and long-term economic growth. As part of NLMK’s corporate governance measures, the Board of Directors has established the following three committees:

Audit Committee The Audit Committee is chaired by one of the independent Directors, Mrs. Marjan Oudeman, and also includes two other independent Directors, Mr. Stanislav Shekshnia and Mr. Benedict Sciortino, and Directors Mr. Karen Sarkisov and Mr. Nikolai Gagarin. This Committee drafts and submits to the Board of Directors recommendations regarding the efficient supervision of the financial and business activities of NLMK, including annual external audits of financial statements, the quality of services provided by the external auditor and compliance with the requirements for external auditor independence.

Strategic Planning Committee The Strategic Planning Committee is chaired by Mr. Oleg Bagrin, and also includes the Chairman of the Board of Directors, Mr. Vladimir Lisin, the four independent Directors, Mr. Benedict Sciortino, Mrs. Marjan Oudeman, Mr. Thomas Veraszto and Mr. Joachim Limberg, Director Mr. Karen Sarkisov, as well as President (Chairman of the Management Board) of NLMK Mr. Grigory Fedorishin and Mr. Helmut Weiser. This Committee drafts and submits recommendations to the Board of Directors regarding NLMK’s long-term development strategy, areas of activity and projects that ensure the achievement of strategic objectives.

Human Resources, Remuneration and Social Policies Committee The Human Resources, Remuneration and Social Policies Committee is chaired by independent Director Mr. Stanislav Shekshnia, and includes the Chairman of the Board of Directors, Mr. Vladimir Lisin, independent Directors Mr. Joachim Limberg and Mr. Thomas Veraszto and Director Mr. Oleg Bagrin. This Committee is charged with the preliminary review of issues connected with the establishment of an effective and transparent remuneration policy, personnel planning (planning of continuity), staffing and efficiency of work of the Board of Directors. Its main aim is to support the effectiveness of the Board in respect of appointment of members of management bodies and key employees, their assessment and remuneration, as well as the Group’s social policy.

138 PRINCIPAL SHAREHOLDERS The following table shows the name and shareholding of each registered shareholder of NLMK holding over 5% of its share capital as of the date of this Prospectus based on the information received from NLMK’s share registrar and as notified by those shareholders.

Percentage share in share Name of the registered shareholder capital (%) Fletcher Group Holdings Limited(1) ...... 84 Other ...... 16 Total ...... 100

(1) Mr. Vladimir Lisin, Chairman of the Board of Directors of NLMK, is the majority shareholder of Fletcher Group Holdings Limited. See ‘‘Management and Corporate Governance’’. Mr. Vladimir Lisin is the beneficial owner of NLMK. NLMK is not aware of any arrangements in existence as of the date of this Prospectus which could reasonably be expected to result in a change of control of NLMK.

139 RELATED PARTY TRANSACTIONS The following is a summary of the Group’s transactions with related parties for the three months ended 31 March 2019 and 2018 and the years ended 31 December 2018, 2017 and 2016. Related parties relationships are determined with reference to IAS 24 (Related Party Disclosures). For further details, see Note 23 to the Annual Financial Statements and Note 16 to the Interim Financial Statements included in this Prospectus.

Sales to and Purchases from Related Parties Sales Sales to NBH group companies were US$1,330 million, US$970 million and US$692 million in the years ended 31 December 2018, 2017 and 2016, respectively (US$202 million and US$333 million in the three months ended 31 March 2019 and 2018, respectively). Sales to other related parties were US$3 million, US$2 million and US$2 million in the years ended 31 December 2018, 2017 and 2016, respectively (nil in the three months ended 31 March 2019 and 2018).

Purchases Purchases from the UCL Holding group companies under common control providing transportation services to the Group were US$410 million, US$335 million and US$330 million in the years ended 31 December 2018, 2017 and 2016, respectively (US$87 million and US$89 million in the three months ended 31 March 2019 and 2018, respectively). Purchases from other related parties were US$70 million, US$70 million and US$51 million in the years ended 31 December 2018, 2017 and 2016, respectively (US$14 million and US$22 million in the three months ended 31 March 2019 and 2018, respectively).

Accounts Receivable from and Accounts Payable to Related Parties Accounts receivable from and advances given to NBH group companies were US$412 million, US$289 million, and US$199 million as at 31 December 2018, 2017 and 2016, respectively (US$327 million and US$320 million as at 31 March 2019 and 2018, respectively). Accounts receivable from and advances given to UCL Holding group companies were US$32 million, US$26 million and US$34 million as at 31 December 2018, 2017 and 2016, respectively (US$19 million and US$12 million as at 31 March 2019 and 2018, respectively). Accounts payable to UCL Holding group companies were US$6 million, US$5 million and US$3 million as at 31 December 2018, 2017 and 2016, respectively (US$10 million and US$21 million as at 31 March 2019 and 2018, respectively). Accounts payable to NBH group companies were US$31 million, US$25 million and US$16 million as at 31 December 2018, 2017 and 2016, respectively (US$31 million and US$26 million as at 31 March 2019 and 2018, respectively).

Financial Transactions The carrying amount of loans to NBH group companies, including interest accrued, was US$99 million, US$222 million and US$230 million as of 31 December 2018, 2017 and 2016, respectively (US$145 million and US$229 million as at 31 March 2019 and 2018, respectively). Guarantees issued by the Group for borrowings of NBH group companies amounted to US$309 million, US$304 million and US$255 million as of 31 December 2018, 2017 and 2016, respectively (US$296 million and US$310 million as at 31 March 2019 and 2018, respectively), which is the maximum potential amount of future payments, paid on demand of the guarantee. No amount has been accrued in the Financial Statements for the Group’s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low.

Common Control Transfers and Disposal of Investments In September 2018, the Group completed the sale of a 2% stake in share capital of NBH to Tubes de Haren et Nimy S.A., a subsidiary of NBH, for a cash consideration of US$5 million, realising a loss of US$2 million upon the decrease of carrying value of the investment of US$7 million. As a result of this transaction, direct ownership of the Group in the share capital of NBH decreased to 49.0%. This transaction was carried out in line with the Group’s management of its portfolio of none-core assets.

140 REGULATORY MATTERS Regulation of the Russian Steel Industry The Russian Federation has not enacted any specific legislation governing the operation of the steel industry and the business of steel-manufacturing companies. The production, sale and distribution of steel in the Russian Federation is regulated by general civil and administrative legislation and special legislation and regulations relating to quality standards, industrial safety, environmental, employment and other issues. The Ministry of Industry and Trade of the Russian Federation (‘‘Minpromtorg’’) on 5 May 2014 approved the Strategy for the Development of the Ferrous Metal Manufacturing Industry of the Russian Federation for the Period from 2014 until 2020 and until 2030 in the long term and the Strategy for the Development of the Non-Ferrous Metal Manufacturing Industry of the Russian Federation for the Period from 2014 until 2020 and until 2030 in the long term (the ‘‘Strategies’’). The Strategies supersede the Strategy for the Development of the Metal Manufacturing Industry of the Russian Federation for the Period until 2020 dated 18 March 2009. The Strategies, among other things, outlined the key trends and factors relevant for the development of national ferrous and non-ferrous metallurgy, set out four stages for the development of Russian metallurgy (2014–2016, 2017–2020, 2021–2025 and 2026–2030) and determined that promotion of investments and development of innovation technologies would be the state priorities in the sphere of metal manufacturing industry. Other targets for development of Russian steel industry (including, among others, import substitution, promotion of internal demand for metal products and protection of Russian exporters on foreign markets) are set forth in the Subprogramme ‘‘Metal Industry’’ of the State Programme for Development of Industry and Increase of Its Competitive Abilities approved by the Government of the Russian Federation on 15 April 2014 and the Industrial Plan of Measures for Import Substitution in Steel Industry approved by Minpromtorg.

Federal, regional and local regulatory authorities governing the steel industry At the federal level, regulatory supervision over the steel industry is divided primarily between Minpromtorg and the Ministry of Natural Resources and Ecology of the Russian Federation (‘‘Minprirody’’). Minpromtorg is responsible for the development of governmental policy over the steel industry. In addition, it regulates certain aspects of the export from and import into Russia of steel products. Minprirody is responsible for the development of governmental policy over, and regulation of, natural resources, including subsoil resources. In particular, Minprirody passes regulations, among other things, setting: • the rules for determining the amounts of regular payments for subsoil resources use; • the order of re-issuance and transfer of subsoil licences; • the procedure for filing ‘‘pay-to-pollute’’ declarations; and • the accounting rules regarding on-balance sheet natural resources belonging to the state and classification and evaluation of natural resources. The federal ministries in Russia are generally not responsible for compliance control or management of state property and provision of services, which are exercised by the federal services and the federal agencies, respectively. The federal services and agencies that are relevant to the Group’s activities include: • the Federal Service for Ecological, Technological and Nuclear Supervision (‘‘Rostekhnadzor’’), which sets procedures for, and oversees compliance with, industrial safety and environmental rules and issues licences for certain industrial activities and activities relating to safety protection; • the Federal Agency of Subsoil Use (‘‘Rosnedra’’), which organises auctions and issues licences for subsoil use and approves design documentation for subsoil geological research activities; • the Federal Agency for Technical Regulation and Metrology, which determines and oversees levels of compliance with obligatory state standards and technical regulations; and • the Federal Service for the Supervision of the Use of Natural Resources (‘‘Rosprirodnadzor’’), which exercises general ecological controls, as well as supervision over the observance of environmental legislation (including legislation relating to handling of hazardous wastes), geological exploration, the rational use and protection of subsoil (including compliance with the relevant terms and conditions of subsoil licences) and exercises land controls.

141 Aside from the above-mentioned federal executive bodies, which are directly involved in regulating and supervising the steel sector in Russia, there are a number of other federal regulators that, together with their structural subdivisions, have authority over general issues relevant to the Russian steel industry, such as defence, internal affairs, security, border services, justice, tax enforcement, rail transport and other matters. Generally, regional and municipal authorities with jurisdiction over the specific territory in which a steel- producing enterprise is located have authority in certain matters, in particular with regard to land-use allocations with fresh ground water production volume less than 500 cubic metres per day.

Technical Regulations Federal Law on Technical Regulation No. 184-FZ dated 27 December 2002, as amended (the ‘‘Technical Regulation Law’’), introduced a new regime for the development, enactment, application and enforcement of mandatory rules applicable to production, design (including survey), storage, manufacturing, transportation, sale, disposal and certain other operations and processes, as well as in relation to the quality of production and processes, including technical regulations, standards and certification. It was expected that these rules, or technical regulations, would replace previously adopted state standards (the so-called ‘‘GOSTs’’). However, most technical regulations are yet to be implemented, and, in the absence of such technical regulations, the existing federal laws and regulations, including the GOSTs, that prescribe rules for different products and processes remain in force and are mandatory to the extent that they protect health, property, the environment and/or consumers. In addition, the State Committee on Standardisation and Metrology (a predecessor of the Federal Agency for Technical Regulation and Metrology) has declared GOSTs and interstate standards adopted before 1 July 2003 to be the applicable national standards. In certain cases, companies are obliged to obtain certification of compliance confirming their compliance with the requirements of the applicable technical regulations, standards or terms of contracts. Currently, a number of products produced by the Group companies must be certified. Where certification is not mandatory, a company may elect for voluntary certification by applying for a compliance certificate from the relevant authorities. Following the issuance of such a certificate, the applicant has the right to use the relevant compliance mark on its products. Mandatory rules applicable to products and product-related operations and processes are also established by the current technical regulations of the Customs Union which replace prior national regulations.

Licensing of Operations The Group is required to obtain numerous licences, authorisations and permits from Russian governmental authorities for its operations. Federal Law No. 99-FZ on Licensing of Certain Types of Activities dated 4 May 2011, as amended (the ‘‘Licensing Law’’), as well as other laws and regulations, set forth the activities which are subject to licence and establishes the procedures for issuing licences. In particular, some of the Group’s Russian companies need to obtain licences, permits and approvals from executive authorities to carry out certain activities, including, among others: • the exploitation of explosive and chemically hazardous industrial facilities; • the gathering, transportation, processing, utilisation, deactivation and disposal of waste; and • the collection, storage, processing and sale of ferrous and non-ferrous scrap. Under the Licensing Law, licences are issued for an unlimited term. Licences issued prior to, and valid as at the date of, the Licensing Law entering into force, also have unlimited duration. Nevertheless, licences can be suspended by the licensing authority and/or revoked by court order for non-compliance with the licensing requirements or conditions. Under the licensing regulations and the terms of their licences and permits, Group companies must comply with numerous industrial standards, employ qualified personnel, provide training, maintain certain equipment and a system of quality control, monitor operations, maintain and make appropriate filings and, upon request, submit information requested by the licensing authorities that oversee and inspect their licensed activities. A license may be suspended in case of (i) imposition of an administrative punishment on the company for a failure to comply with a requirement to rectify a gross breach of a licensing requirement within a prescribed term, and (ii) administrative suspension of the company’s operations for a gross breach of the licencing requirements. A license may also be cancelled by the court if the company fails to rectify a gross breach of a licensing requirement within a prescribed term.

142 Subsoil Licensing In Russia, the mining of minerals requires a subsoil licence with respect to an identified mineral deposit, as well as the right (through ownership, lease or other right) to use the land where such licensed mineral deposit is located. In addition, operating permits are required for specific operations associated with subsoil use. The licensing regime for the use of subsoil for geological research, exploration and production of mineral resources is established primarily by the Law of the Russian Federation No. 2395-1 on Subsoil dated 21 February 1992, as amended (the ‘‘Subsoil Law’’). The procedure for subsoil use licensing, as well as certain rules regarding the exploration and production of mineral resources, was established by the Resolution of the Supreme Soviet of the Russian Federation on 15 July 1992, as amended (the ‘‘Licensing Regulation’’). The Subsoil Law provides for several types of subsoil licences granted in relation to geological research and exploration and production of natural resources, including: (i) licences for geological research and exploration of a subsoil plot (‘‘exploration licences’’); (ii) licences for production of natural resources (‘‘production licences’’); and (iii) so-called combined licences for geological research, exploration and production of natural resources (‘‘exploration and production licences’’). Under the Subsoil Law, the payment system for the use of subsoil currently consists of the following payment obligations: • one-off payments in cases specified in the licence; • regular payments for subsoil use; • fees for the right to participate in tenders and auctions; and • other payments and fees set forth by the legislation of the Russian Federation on taxes and duties. The Subsoil Law contains a range of minimum and maximum rates of regular payments for the use of subsoil and the federal authorities have authority to set the rate for any particular licence. The Russian Tax Code contains the relevant rates of mineral extraction tax and water extraction tax.

Issuance of licences Subsoil licences are generally issued by Rosnedra. Most of the currently existing production licences owned by companies derive from (i) pre-existing rights granted during the Soviet era and up to the enactment of the Subsoil Law to state-owned enterprises that were subsequently reorganised in the course of post-Soviet privatisations, or (ii) tender or auction procedures held in the post-Soviet period. The Subsoil Law and the Licensing Regulation contain the major requirements relating to tenders and auctions. In general, production licences and combined licences are currently issued by auction. The auctions (tenders) for licences of subsoil deposits are conducted by special commissions of Rosnedra. While the auction or tender commission formed by Rosnedra must include a representative of the relevant region of the Russian Federation, a separate approval of regional authorities is generally not required in order to issue subsoil licences. The Subsoil Law provides that, in a tender, the licence should be awarded to the bidder which has submitted the most technically competent, socially and environmentally sound proposal with the most efficient recovery ratio that meets the relevant, published tender terms and conditions; and, in an auction, to the bidder which has offered the largest one-off payment for the use of the subsoil plot. In limited circumstances defined by law, production licences may also be issued without holding an auction or tender, including, for instance, to holders of exploration licences that discover natural resource deposits through exploration work at their own expense. Regional authorities may also issue production licences for ‘‘common’’ mineral resources, such as clay, sand or limestone. Auctions of subsoil plots of federal importance (as defined by Article 2.1 of the Subsoil Law) and in certain other cases are arranged by the Russian Government, and the Russian Government may impose restrictions on companies with foreign ownership to participate in any auction for the right of subsoil use of a subsoil plot of federal importance. In the interests of national defence and security a company with foreign participation may also be denied by the Russian Government the right to conduct exploration and production if geological research conducted at a subsoil site has identified a deposit falling under the classification of a subsoil plot of federal importance during exploration of the subsoil plot.

143 Exploration licences are generally awarded, without a tender or auction process, by a special commission formed by Rosnedra, which includes representatives of the relevant regional executive authority. Minprirody maintains an official list of deposits in respect of which exploration licences can be issued. A company may obtain a licence for geological research (to be conducted at the company’s own expense) of a deposit included in the above-mentioned list by filing an application with Rosnedra (or its regional department). The special commission decides whether to grant the licence based upon the merits of the application, unless there is more than one application with respect to the same deposit (in which case Rosnedra sets up an auction for an exploration and production licence for the deposit). For subsoil plots of federal importance, only production licences and combined licences may be issued. A licence for subsoil plot of federal importance can be issued by Rosnedra only on the basis of a relevant decision of the Russian Government taken either upon the results of a tender or auction, or upon the discovery of natural resources within such subsoil plot or subsoil plot deemed as of federal importance as a result of discovery of such natural resources. Under the Subsoil Law, exploration and production of natural resources on a subsoil plot of federal importance by a foreign investor or entity controlled by a foreign investor may only commence upon the decision of the Russian Government, in contrast to the general rule, which provides that exploration and mining operations may be conducted simultaneously with geological research.

Extension of licences In accordance with the current Subsoil Law subsoil plots are provided for use either for a specified period or an unlimited period. The subsoil plot use period is calculated from the date of state registration of the licence for use of the relevant subsoil plot. Subsoil plots for a specified period are provided for use for the following purposes: geological research— up to 5 years or up to 7 years for geological research of subsoil plots fully or partially located in the Republic of Sakha (Yakutia), the Komi Republic, the Kamchatka Krai, the Krasnoyarsk Krai, the Khabarovsk Krai, the Irkutsk Region, the Magadan Region, the Sakhalin Region, the Nenets Autonomous District, the Chukotka Autonomous District and the Yamalo-Nenets Autonomous District, or for up to 10 years for the geological research of subsoil plots under inland sea waters, territorial waters and continental shelf of the Russian Federation; production of natural resources—for the useful life of a mineral reserves field, calculated on the basis of a feasibility study for exploration and production that ensures rational use and protection of the subsoil; ground water production—for up to 25 years; production of natural resources based on a short-term right for subsoil use—up to 1 year; and research and production of ‘‘common’’ natural resources on subsoil pots of local importance—for the term required for construction, reconstruction, capital repair or maintenance of certain public highways. Subsoil plots may be provided for an unlimited period for construction and operation of underground facilities not related to the production of natural resources, construction and operation of underground facilities related to landfilling, construction and operation of oil and gas holders, disposal in rock formations of associated waters and waters used by subsoil users for their own production and process requirements in exploration and production of raw hydrocarbons, as well as for other purposes. The Subsoil Law permits a subsoil licensee to request an extension of a subsoil licence in order to complete the exploration or evaluation of a minefield, complete production of the natural resources from the relevant land plot or vacate the land plot once the use of the subsoil is complete, provided that the licensee does not breach any license term. In order to amend any condition of a subsoil licence, a company must submit an extension application accompanied by all necessary documentation to the competent federal authority, Rosnedra. In practice, the factors that may affect a company’s ability to obtain approval for the amendment of a licence include its compliance with the terms and conditions of the licence and its management’s experience and expertise relating to subsoil issues, including experience in amending licences.

Maintenance of licences A licence granted under the Subsoil Law is generally accompanied by a licensing agreement. The licensing agreement sets out the terms and conditions for the use of the subsoil licence. Currently, Rosnedra and the licensee are the only parties to licence agreements. Licensing agreements for subsoil use identify the terms and conditions for the use of the subsoil, the rights and obligations of the licensee and the manager of the subsoil plot and the amounts of payments to be

144 made by the licensee on the terms of the licence. Although most of the conditions set out in a licence are based on mandatory rules, the parties may negotiate a number of provisions in a licensing agreement not contradicting the Subsoil Law. Generally, under a licensing agreement, the licensee makes certain environmental, safety and production commitments, including (i) extracting an agreed target amount of reserves per annum; (ii) conducting agreed mining and other exploratory and development activities; (iii) protecting the environment in the licence areas from damage; (iv) providing geological information and data to the relevant authorities; (v) submitting on a regular basis formal progress reports to regional authorities; (vi) making all obligatory payments when due and (vii) participating in social and economic development of the region. If the licence holder fails to fulfil the licence conditions, upon notice, the licence may be terminated by the governmental authorities that issued the licence. However, if a licence holder cannot meet certain deadlines or achieve certain volumes of exploration work or production output as set forth in the licence due to material changes in circumstances, it may apply to amend the relevant licence conditions. Moreover, pursuant to instructions of the President of the Russian Federation No. Pr-254 dated 12 February 2015 and the order established by the Regulations on One-off Updating of Subsoil Licences approved by Order of Rosnedra No. 427 dated 25 June 2015, each subsoil user will be entitled to apply to a territorial authority of Rosnedra for licence updating and make justified amendments to the licence. All major mining companies of the Group have completed the one-off updating of subsoil licences. As a result of the one-off updating, conditions and terms of subsoil use were reconsidered in favour of the mining companies of the Group.

Termination of licences Governmental authorities may undertake periodic reviews for ensuring compliance by subsoil users with the terms of their licences and applicable legislation. The Subsoil Law contains extensive provisions for licence termination. The licence can be limited, suspended or terminated for a number of reasons, including repeated breaches of the laws regulating subsoil use, the occurrence of a direct threat to the lives or health of people working or residing in the local area or the occurrence of certain emergency situations. A licence may also be limited, suspended or terminated for violations of ‘‘material’’ licence terms. Although the Subsoil Law does not specify which terms are material, failure to pay subsoil taxes and failure to commence operations in a timely manner have been common grounds for suspension or termination of licences. Consistent underproduction and failure to meet obligations to finance a project or to submit data reports (as required by law) would also likely constitute violations of material licence terms. In addition, certain licences provide that the violation by a subsoil licensee of any of its obligations may constitute grounds for limiting, suspending or terminating the licence. If the licensee does not agree with a decision of the licensing authorities, including a decision relating to a licence limitation, suspension or termination or the refusal to reissue an existing licence, the licensee may appeal the decision through administrative or judicial proceedings. In certain cases of termination, the licensee has the right to attempt to cure the violation within three months of its receipt of notice of the violation. If the issue has been resolved within such a three-month period, the licensing authorities may decide not to terminate the licence but may still take other action against the licensee. For the violation of licence terms, the subsoil user can also be held administratively or criminally liable.

Transfer of licences Licences may be transferred only under certain limited circumstances that are identified in the Subsoil Law, including the reorganisation of the licence holder or in the event that an initial licence holder transfers its licence to a legal entity that has been established for the purpose of continuing operations at the relevant subsoil site and in which the initial licence holder has an ownership interest of at least 50%. Licences can also be transferred from a parent company to its subsidiary, from a subsidiary to its parent company and between two subsidiaries of the same parent company (provided that a transferee is a Russian company), as well as in the case of the acquisition of the property complex of the previous subsoil user in the course of bankruptcy proceedings. In any of the above instances, a licence may be transferred (by way of cancellation and reissuance by Rosnedra) only if the transferee meets the requirements necessary to conduct the exploration or production activity that is covered by the transferred licence. Generally, the Subsoil Law prohibits the transfer of rights of subsoil use over the subsoil plots of federal importance to a Russian legal entity in which a foreign investor or a group of persons including a foreign

145 investor hold an interest if such foreign investor or such group of persons including a foreign investor: (i) directly or indirectly possess more than 10% of the total number of votes conferred by voting shares in the share capital of that entity; or (ii) have the right, on the basis of a contract or another ground, to issue binding instructions to that entity, including control over the business operations; or (iii) have the right to appoint chief executive officer and/or more than 10% of the members of the collective executive body, and/or have an unconditional right to elect more than 10% of the board of directors or another collective management body of that entity. Such entities may obtain a subsoil use right over the subsoil plots of federal importance in exceptional cases at the discretion of the Russian Government.

Mining allotments Under the Subsoil Law, a subsoil plot is provided to a subsoil user as a ‘‘mining allotment’’, i.e., a geometric block of subsoil. Rosnedra determines preliminary mining allotment boundaries at the time it issues the licence, which is subject to approval of the territorial bodies of Rostekhnadzor. Following the preparation of a development plan by the licensee, which the state mining supervision authorities and an environmental examination committee must approve, Rostekhnadzor approves the exact mining allotment boundaries based on the report and certifies such boundaries in a mining allotment act, which it issues to the licence holder. The licence will then incorporate the exact mining allotment boundaries.

Land Use Rights Land use rights are generally needed and licences are obtained for the licence area being owned by a state or municipal authorities, including the plot being mined, access areas, and areas where other mining related activity is occurring. Under the Land Code of the Russian Federation No. 136-FZ of 25 October 2001, as amended (the ‘‘Land Code’’), companies may have ownership or lease rights with regard to land in the Russian Federation. Russian law currently categorises all land as having a particular designated purpose, for example: agricultural land, industry land, settlement lands, lands under specially protected territories and objects. Land should be used in accordance with the purpose designated by the relevant category. In November 2018, the Ministry of Economic Development of the Russian Federation prepared a new draft federal law regulating categorization of the land plots, which has not yet been submitted to the Russian State Duma. If the draft law is adopted, the land categories will be abolished, and all land plots (save for the most valuable agriculture land) will be divided into certain functional zones. Most land in the Russian Federation is owned by federal, regional or municipal authorities, which can sell, lease or grant other rights of use to third parties, including through auctions. Under Russian law, land that is owned by state or municipal authorities and is required for subsoil use may be leased to subsoil users without holding an auction or a tender. Generally, a lessee has no pre-emptive right as to entering into a new land lease agreement with a lessor upon the expiration of the lease of the land owned by federal, regional or municipal authorities. However, a new lease agreement can be concluded without holding an auction when the following criteria have been met: (i) a lessee applies for conclusion of a new agreement before the expiration of lease, (ii) no one has an exclusive right to obtain the relevant land plot, (iii) the previous lease agreement had not been terminated on any of the grounds provided by the Civil Code or the Land Code (such as improper use of the land plot) and (iv) as of the date of entering into a new lease agreement the legal grounds for provision of the land plot to the lessee without conducting a public auction remain. Any lease agreement of a land plot for a period of one year or more must be registered with the Russian Federal Service for State Registration, Cadastre and Cartography (‘‘Rosreestr’’). The Group’s mining subsidiaries generally have a property right to their land plots or a long-term lease. Rosreestr records details of land plots, including their measurements and boundaries, in a unified register. A landowner must obtain a state cadastre number for a land plot as a condition to selling, leasing or otherwise transferring interests in that plot. Rosreestr maintains the Unified State Register of Immovable Property (the ‘‘Register of Immovable Property’’) containing data on the specifications of immovable property (cadastral record data) and the rights to immovable property. Generally, under the Civil Code, the right of ownership and the other rights to real estate property (such as buildings, land plots and other real estate items), the restriction of these rights and their arising, transfer and cessation shall be registered with the Register of Immovable Property. Federal Law No. 218-FZ on State Registration of Immovable Property dated 13 July 2015, as amended, regulates the procedure for the state registration of rights and transactions. A person acquires the right to the real estate property only upon the state registration of such

146 right in the Register of Immovable Property. A person, whose right has been registered earlier in the Register of Immovable Property, has a right to register an objection note with respect to the subsequently registered right of another person. However, if the person who registered the objection has not pursued such challenge in the court within three months, the objection note must be cancelled and a further objection by the same person will not be allowed.

Environmental Considerations The Group is subject to laws, regulations and other legal requirements relating to the protection of the environment, including those governing the discharge of polluting substances into the air and water, the management and disposal of hazardous substances and wastes (including their neutralisation, where applicable), the rehabilitation of contaminated areas in production sites and the protection of natural environment. Issues of environmental protection in Russia are regulated primarily by Federal Law No. 7-FZ on Environmental Protection dated 10 January 2002, as amended (the ‘‘Environmental Protection Law’’), as well as by a number of other federal and regional legal acts.

Payments for negative impact on the environment The Environmental Protection Law establishes a ‘‘pay-to-pollute’’ principle administered by federal and local authorities. Minprirody adopts regulatory documents governing the permissible impact on the environment and the extraction of resources, while Rosprirodnadzor establishes limits on emissions and disposals of substances and waste. A company may obtain approval for exceeding these statutory limits from the federal or regional authorities depending on the type and scale of the environmental impact. As a condition for such approval, a plan of measures for environmental protection and the increase of environmental effectiveness must be developed by the company and cleared with an appropriate governmental authority. Fees, as set forth in Regulation of the Russian Government on Calculation and Collection of Payments for Negative Impact on the Environment No. 255 dated 3 March 2017, are assessed on a sliding scale for both the statutory and individually approved limits on emissions and effluents and for pollution in excess of these limits. Under this sliding scale, the lowest fees are imposed for pollution within the statutory limits, higher fees are imposed for pollution within the individually approved limits and the highest fees are imposed for pollution exceeding such limits. Payments for negative impact on the environment do not relieve a company from its responsibility to take environmental protection measures and undertake restoration of the territory after the activities are completed. The Russian Government has established fees for the statutory approved limits on emissions and effluents and for pollution in excess of these limits. The fees may be increased by statutory approved multiples. Under the Environmental Protection Law, multiples that may reach up to 25 for emissions and effluents in excess of statutory limits will be effective until 31 December 2019. Starting 1 January 2020, the highest multiple will be increased to 100 and will apply to companies exceeding such pollution limits and having a significant negative environmental impact. Payments of such fees do not relieve a company from its responsibility to take environmental protection measures and undertake restoration and clean-up activities.

Industrial environmental monitoring Under the Environmental Protection Law, objects having a negative environmental impact are divided into four categories based on the level of impact: objects having a significant negative environmental impact, objects having a moderate negative environmental impact, objects having a low negative environmental impact and objects having a minimal negative environmental impact. The criteria for determining the appropriate category of impact are determined by the Russian Government and take into account such factors as the level of negative environmental impact on business and/or production activity, toxic levels and the carcinogenic property of polluting substances and the classification of industrial facilities. All objects having a negative environmental impact are to be registered with state authorities. The Environmental Protection Law requires companies operating businesses and activities at a specified impact level to carry out industrial environmental monitoring, which includes implementation of a programme of industrial environmental monitoring and reporting on the results of the industrial environmental monitoring to Rosprirodnadzor.

147 Ecological approval Federal Law No. 174-FZ on Ecological Expert Examination dated 23 November 1995, as amended (the ‘‘Ecological Examination Law’’), provides for mandatory ecological approval by a state ecological expert of documentation required for the implementation of specified types of business activities in order to prevent the negative impact of such activities on the environment. The receipt of a positive conclusion of the state ecological expert examination, which is conducted by federal and regional authorities, comprises one of the key preconditions for financing and implementation of a project. Violation of the requirements of the Ecological Examination Law may result in administrative fines, civil liability (to compensate for damages and losses) and criminal liability as described below in ‘‘Environmental liability’’.

Environmental protection authorities Rosprirodnadzor, Rostekhnadzor, the Russian Federal Service for Hydrometeorology and Environmental Monitoring, Rosnedra, the Russian Federal Agency for Forestry and the Russian Federal Agency on Water Resources (along with their regional branches) are primarily responsible for environmental control and the monitoring, implementation and enforcement of the relevant laws and regulations. The Russian Government and Minprirody are responsible for the development of regulatory documents in the sphere of environmental protection and for the coordination of activities of the regulatory authorities in this area. These regulatory authorities, along with other state and non-governmental authorities and individuals, also have the right to initiate lawsuits for the compensation of damage caused to the environment. The statute of limitations for such lawsuits is 20 years.

Environmental liability If the operations of a company violate environmental requirements or cause harm to the environment or any individual or legal entity, the environmental authorities may suspend these operations (for up to 90 days) or a court action may be brought to suspend or terminate these operations and require the company to remedy the effects of the violation. Any company that fails to comply with environmental regulations may incur administrative or civil liability, and its employees may be held disciplinary, administratively or criminally liable. A court may impose an obligation to conduct reclamation measures pursuant to a plan of restorative works. Owners of certain types of hazardous facilities are required to obtain insurance for liability for harm caused to third parties as a result of accidents at the facilities, except for harm caused to the environment. In addition, Minprirody has recommended that a voluntary environmental insurance policy be obtained to cover events of accidental environmental pollution of air or land or accidental discharge of waste waters or other clean-up liabilities. The Group has, in the past, been subject to fines and, in some cases, court actions in relation to breaches of environmental regulations. Although none of these court actions and fines have had, individually or in aggregate, a material adverse effect on the business and performance results of the Group, its business and results of operations, there can be no assurance that any such court actions or fines will not have a material adverse effect on the Group in the future.

Reclamation Reclamation activities such as re-cultivation, conservation, restoration, regeneration and other methods of rehabilitation are prescribed in Regulations on Land Re-cultivation and Conservation, approved by Resolution of the Russian Government No. 800 dated 10 July 2018. In general, reclamation activities of the Group involve both a technical stage and a biological stage. In the first, technical stage, the Group performs landscaping operations (backfilling of the pits, grades and terraces mound slopes, levelling of the surface of the mounds, and adding clay rock on top for greater adaptability of young plants). In the second, biological stage, the Group plants conifers, such as pine, larch or cedar, on horizontal and gently sloping surfaces, as well as shrubs and bushes to reinforce inclines. Russian environmental regulations do not require the reclaimed sites to achieve the approximate original contour of the property as is required, for example, in the United States.

Environmental protection programmes The Group has been developing and implementing environmental protection programmes. The Group’s programmes include measures to achieve compliance with limits imposed on water pollution and storage

148 of industrial waste, in particular the introduction of environmentally friendly industrial technologies, the construction of purification and filtering facilities, the repair and reconstruction of industrial water supply systems, the installation of metering systems, reforestation and the treatment of water and industrial waste recycling. The scope of state support for business activities carried out by companies and individual entrepreneurs in order to protect the environment has been significantly extended. State support is provided by way of tax benefits, benefits with respect to payments for negative impact on the environment and funding from federal and regional budgets. Other measures of state support may also be established in federal and regional legislation.

Health and Safety Due to the nature of the Group’s business, much of its activity is conducted at industrial sites by large numbers of workers, and workplace safety issues are of significant importance to the operation of these sites. The principal law regulating industrial safety is the Federal Law No. 116-FZ on Industrial Safety of Dangerous Industrial Facilities dated 21 July 1997, as amended (the ‘‘Safety Law’’). The Safety Law applies, in particular, to industrial facilities and sites where companies undertake certain activities, including activities related to the usage, production, processing, storage, transportation or utilisation of fuels and explosive, toxic and environmentally dangerous substances, as well as usage of lifting machines, production of alloys of ferrous and non-ferrous metals and certain types of mining. The Safety Law also contains a list of dangerous substances, and, in the event of critical concentration of these dangerous substances at the industrial facility or site, a company is obliged to adopt an industrial safety declaration. Dangerous industrial facilities under the Safety Law are divided in four classes based on the level of hazard that varies from level one (extremely dangerous industrial sites) to level four (least dangerous industrial sites). Dangerous industrial facilities are classified at the time of their state registration, which is done by the Rostekhnadzor and some other services in accordance with the rules adopted by the Russian Government. For the purposes of state registration companies are to file the information regarding the facilities with the relevant authority within 10 days after they start to operate the facility. Other Russian regulations address safety rules for coal mines, the production and processing of ore and production of alloys. Additional safety rules also apply to certain industries, including metallurgical and coke chemical enterprises, and the foundry industry. Any construction, reconstruction, liquidation or other activity in relation to regulated industrial facilities is subject to an industrial safety review. Any deviation from project documentation in the process of construction, reconstruction and liquidation of industrial sites is prohibited, unless the revised documentation is examined by an expert and approved by Rostekhnadzor.

Maintenance of Industrial Safety Companies that operate regulated industrial sites have a wide range of obligations under the Safety Law and the Labour Code of the Russian Federation No. 197-FZ dated 30 December 2001, as amended (the ‘‘Labour Code’’). In particular, they must limit access to such sites to qualified specialists, maintain industrial safety controls and carry mandatory civil liability insurance for damage resulting from accidents occurred as a result of emergency at a hazardous industrial facility. The Safety Law also requires these companies to enter into contracts with professional accident-rescue service companies or create their own accident- rescue services in certain cases, conduct personnel training programmes, create systems to cope with and inform Rostekhnadzor of accidents and maintain these systems in good working order. In certain cases, companies operating regulated industrial sites must also prepare declarations of industrial safety that summarise the risks associated with operating such sites and the measures that the company has taken and will take to mitigate such risks. Such declarations must be adopted by the chief executive officer of the company, who is personally responsible for the completeness and accuracy of the data contained in the declarations. Declarations of industrial safety are filed with Rostekhnadzor or its territorial body for further submission to the register of declarations of industrial safety. An industrial safety declaration and various other documents, including an industrial safety expert review, are required for the issuance of a licence permitting the operation of a dangerous industrial facility (in cases when such licence is required).

149 State Oversight of Industrial Safety Rostekhnadzor has broad authority in the area of industrial safety. In case of an accident, a special commission led by a representative of Rostekhnadzor conducts a technical investigation of the causes of the accidents in cases envisaged by the Labour Code of the Russian Federation. The company operating the industrial facility where the accident took place bears all costs of such investigation. Rostekhnadzor has the right to access industrial sites and may inspect documents to ensure a company’s compliance with safety rules. Rostekhnadzor may also impose administrative liability on a company or its officials, as well as suspend a company’s operations for failure to comply with health and safety legislation.

Liability Any company or individual violating industrial safety rules may incur administrative and/or civil liability and individuals may also incur criminal liability. A company that violates safety rules in a way that negatively impacts the health of an individual may also be liable to compensate the individual for lost earnings and health-related damages and, in certain cases, its activity may be suspended.

Regulation of Competition The antimonopoly regulation of the Russian Federation is based primarily on the Competition Law, and other federal laws and regulations governing antimonopoly issues. Compliance with antimonopoly legislation in the Russian Federation is monitored by the FAS. Under the Competition Law, if a company (or group of companies) has an ability to exercise decisive influence on the general conditions of circulation of goods in a relevant market or to cause the removal of other business entities from the relevant market or to create obstacles for entry of other business entities to the relevant market, such company will be deemed to have a dominant position. Generally, a company is considered dominant if its market share exceeds 50%. In certain cases, a company may be considered dominant with a market share below 50% and, in limited cases defined by the Competition Law, below 35%. In specified cases, several companies that do not belong to the same group of companies may also be deemed to have a collective dominant position. In addition, natural monopolies, as defined by Federal Law No. 147-FZ on Natural Monopolies dated 17 August 1995, as amended (the ‘‘Natural Monopolies Law’’), are considered dominant. Companies having a dominant position in a particular goods market are prohibited from a number of actions that may limit competition in the market, including artificially limiting the supply of goods, maintaining high or low monopolistic prices and refusing without justification to sell goods to third parties. Prior clearance from the FAS is required for any acquisition of: (i) more than 25% of the voting shares in a Russian joint stock company (or a one-third interest in a Russian limited liability company) and any subsequent increase of that stake to more than 50% or more than 75% of the voting shares (or a one-half and two-third interest in a Russian limited liability company); (ii) subject to certain exceptions, fixed production assets or goodwill of a company located in Russia in an amount exceeding 20% of the aggregate balance sheet value of all fixed production assets and goodwill of such company; (iii) the right to control the business activities of another Russian company or perform the functions of its executive body; or (iv) more than 50% of the voting shares (or a 50% interest) in, or other right to control the business activities or perform the functions of the executive body of, a company registered outside Russia, which, during the previous year, delivered or provided goods or services into Russia for an aggregate total amount exceeding RUB 1 billion (approximately US$14,395 million). Certain other transactions are also subject to a prior antimonopoly clearance from the FAS. Any of the above acquisition transactions would require prior approval by the FAS if according to the latest balance sheet: (i) the aggregate asset value of a purchaser (and its group) together with the target (and its group) exceeds RUB 7 billion (approximately US$100,763 million), or the total revenues of such persons for the preceding calendar year exceed RUB 10 billion (approximately US$143,947 million); and (ii) the total asset value of the target (and its group) exceeds RUB 400 million (approximately US$5,758 million). Transactions within the same group are exempt from pre-transactional clearance by the FAS, subject to compliance with certain reporting requirements. The Competition Law expressly provides for extraterritorial application to transactions which are made outside of the Russian Federation but lead to the restriction of competition in the Russian Federation. Under the Competition Law, if an acquirer has acted in violation of the merger control rules and acquired, for example, shares without obtaining the prior approval of the FAS, the transaction may be invalidated by

150 a court in proceedings initiated by the FAS, provided that such transaction has led or may lead to the restriction of competition, for example, by means of strengthening of a dominant position in the relevant market. More generally, Russian legislation provides for civil, administrative and criminal liability for the violation of antimonopoly legislation.

Antitrust proceedings Since January 2015, the EEC has also become an authority responsible for antimonopoly regulation in the EEU, including Russia. As a result, the Group is now subject to the EEC’s antimonopoly regulation. In August 2016, the EEC launched an antitrust investigation relating to transformer steel against the Group. On 26 September 2017, the EEC imposed fines on the Group in the amount of RUB 217 million. Subsequently, the Russian Prime Minister Dmitry Medvedev filed an application with the EEC recommending that it consider setting aside the imposed fines. On 31 October 2017, the EEC suspended the decision on imposition of the fines on the Group until the Eurasian Intergovernmental Council, which can set aside, amend or suspend decisions adopted by the EEC, issues its decision on the matter. In November 2018, following the consideration of a further application to launch the antitrust investigation, the EEC recommended that the Group develop and adopt, upon negotiations with its stakeholders, a trading policy for transformer steel. A draft policy is currently being negotiated with the Group’s stakeholders, including antitrust authorities of the EEU member states and major consumers located in the EEU.

Regulation of Natural Monopolies The Natural Monopolies Law defines a ‘‘natural monopoly’’ as a condition of the commodities market where demand for particular products or services is satisfied more effectively in the absence of competition and where the monopoly product or service cannot be easily replaced. NLMK is entered on the list of natural monopolies in respect of gas pipeline transportation in Lipetsk. Consequently, NLMK’s operation of this facility is subject to the terms of the Natural Monopolies Law, Federal Law No. 69-FZ on Gas Supply in the Russian Federation dated 31 March 1999, as amended, and Resolution of the Government of the Russian Federation No. 1021 on State Regulation of Gas Prices and Tariffs for Gas Transportation within the Territory of the Russian Federation dated 29 December 2000, as amended. Pursuant to these laws and resolution, NLMK is obliged, among other things, to accept offers to enter into a gas transportation agreement with particular customers, submit ongoing reports on its activities and drafts of capital investment plans and disclose additional information about its pipeline operation. Furthermore, NLMK is subject to additional regulatory measures, including determination of tariffs for use of the gas pipeline by the FAS. Under the Natural Monopolies Law, prior regulatory clearance of particular transactions (if the value of natural monopoly’s assets involved exceeds 10% of the natural monopoly’s equity capital) is required only when such transactions relate to production of goods not governed by the Natural Monopolies Law and the revenue obtained by a natural monopoly from its activities in the sphere of natural monopolies exceeds 1% of its total revenue. The competent supervising authority can adopt binding decisions in the case of a breach of the Natural Monopolies Law and issue binding instructions to a natural monopoly to remedy the breach or cease or refrain from conduct in breach of the Natural Monopolies Law, including instructing it to eliminate the consequences of a breach.

Trade Barriers and Anti-Dumping Regulations Steel-producing countries generally view their steel industries as strategically important and therefore as requiring protection from foreign competition. In addition, the governments of some emerging economies use non-market methods for the protection and development of their steel industries, and, while those governments seek to achieve the desired balance in their economies between production levels and product mix and consumption, they may resort to protectionist measures against steel imports. Currently, export from and import of steel to the Russian Federation are regulated by the Agreement on the Eurasian Economic Union and its implementing regulations. Following the Russian Federation’s accession to the WTO on 22 August 2012, exports of steel from the Russian Federation are also subject to the relevant WTO agreements, including the Accession Protocol of Russia and the GATT 1994.

151 In general, the recent trend worldwide has been for the increase of protection measures and for expansion of trade investigations. The largest importers of the Group’s products are located in the European Union, the Middle East and North America. Restrictive measures on imported steel introduced by some Latin American countries have not historically affected the Group’s business adversely, as the Group’s exports have been principally directed at markets in the European Union, the Middle East and North America. NLMK believes that, due to the Russian Federation being granted ‘‘market economy’’ status by the European Union and the United States (both in 2002), as well as by South Africa and Brazil and other countries, it has become relatively easier for Russian steel producers to defend their interests in anti-dumping and other trade proceedings. Moreover, following the Russian Federation’s formal accession to the WTO on 22 August 2012, Russian steel exporters have obtained improved legal status to challenge the application of anti-dumping duties.

United States Russian exporters of steel products such as cold-rolled, galvanised and semi-finished steel and long products have been operating in the U.S. market without any restrictions on the import of these products since the expiry of the Comprehensive Steel Agreement on 11 July 2004 and the Russian Federation’s accession to the WTO, which took place on 22 August 2012. In 2014, following the expiration of the agreement between Russia and the U.S. on hot-rolled steel supplies, which suspended the anti-dumping duty established in 1999, the U.S. introduced a 184.56% anti-dumping duty on NLMK’s hot-rolled steel supplies to the U.S. market. In May 2017, the U.S. introduced 22.19% and 51.78% anti-dumping duties in respect of thick plates products manufactured by NLMK Verona and NLMK Clabecq, respectively. In May 2018, the U.S. Department of Commerce started an administrative review of effective anti-dumping duties on thick plates. The final decision is expected at the end of 2019. Due to the imposition by the U.S. of Section 232 national security measures on steel in March 2018, the Group’s products imported to the U.S. are subject to a 25% duty.

Anti-dumping and safeguard proceedings In October 2015, the EU completed its anti-dumping investigation of transformer steel imports. The investigation resulted in the imposition of a 21.6% import duty for all Russian steel producers. However, NLMK and VIZ-Steel preserved the right to export their products to the EU without any duties if they sell steel at a minimum price of 1,536 euro per tonne or higher. In May 2015, the EU commenced another investigation targeting cold-rolled flat steel products. As a result of this investigation, EU authorities introduced a 36.1% anti-dumping duty on NLMK sales of cold-rolled steel to the EU in August 2016. In October 2017, EU authorities introduced an anti-dumping duty on NLMK’s hot-rolled steel supplies to the EU in the amount of 53.3 euro per tonne. In February 2019, the EU introduced a definitive safeguard measure on a wide range of steel products (excluding slabs and transformer steel), which is valid until July 2021. The safeguard measure is a tariff quota, where volumes under a quota are imported into the EU without duty and volumes exceeding the amount of quota are subject to a 25% duty.

Other markets In April 2016, India initiated anti-dumping investigations against six countries, including Russia, in respect of the hot-rolled steel market. In April 2017, it imposed anti-dumping duties on the imports of hot-rolled steel originated in or exported from six countries, including the Russian Federation, in the range of US$478–561 per tonne for five years. In April 2018, Turkey initiated a safeguard investigation on a wide range of steel products (excluding slabs). In October 2018, Turkey introduced a preliminary safeguard measure valid until May 2019. The safeguard measure is a tariff quota, where volumes under a quota are imported into Turkey without duty and volumes exceeding the quota are subject to 25% duty. In May 2019, Turkey decided to lift the tariff quota.

152 Employment and Labour The Labour Code is the principal law in Russia which governs labour matters. In addition to this core legislation, various federal laws, such as Law of the Russian Federation No. 1032-1 on Employment of Population in the Russian Federation dated 19 April 1991, as amended, regulate relationships between employers and employees.

Employment contracts As a general rule, employers must conclude employment contracts for an indefinite term with all employees. Russian labour legislation expressly limits the possibility of entering into fixed term employment contracts. However, employers and employees may enter into an employment contract for a fixed term in certain cases where it is not possible to establish labour relations for an indefinite term due to the nature of the duties or the conditions of the performance of such duties, as well as in other cases expressly identified by federal law. An employer may terminate an employment contract only on the basis of specific grounds stated in the Labour Code, including, among others: • the liquidation of the enterprise or downsizing of staff; • the failure of the employee to comply with the position’s requirements due to incompetence; • the systematic failure of the employee to fulfil his or her labour duties if he or she was the subject of disciplinary measures; • a gross violation by the employee of labour duties; and • the provision by the employee of false documents upon entering into the employment contract. The Labour Code provides an employee with certain minimum rights, which an employer may extend by an employment contract, including the right to a working environment that complies with health and safety requirements, the right to receive a salary on a timely basis and the right to participate in the management of the authorised entity, whether directly or through an authorised party, including in connection with the approval of any collective agreements, resolution of labour disputes or electing representatives to the employer’s labour disputes committee (if applicable). An employee dismissed from an enterprise due to downsizing or liquidation is entitled to receive compensation from his or her employer, including a severance payment and, depending on the circumstances, payments equal to his or her average salary for between one to three months. The Labour Code also provides protections for specified categories of employees. For example, except in limited circumstances, an employer cannot dismiss minors, expectant mothers, mothers with a child under the age of three, single mothers with a child under the age of 14 (or with a disabled child under the age of 18) or other persons caring for a child under the age of 14 without a mother. Any termination by an employer that is inconsistent with the Labour Code requirements may be invalidated by a court which may require the employer to reinstate such employee. Lawsuits resulting in the reinstatement of illegally dismissed employees and the payment of damages for wrongful dismissal are increasingly frequent and Russian courts tend to support employees’ rights in most cases. Where a court reinstates an employee, the employer must compensate the employee for unpaid salary for the period between the wrongful termination and reinstatement, as well as for any mental distress.

Work time The Labour Code sets the regular working week at 40 hours. In general, an employer must compensate an employee for any time worked beyond 40 hours per week, as well as work on public holidays and weekends, at a higher rate. Annual paid vacation leave under the law is generally 28 calendar days. The Group’s employees who perform open-pit mining works or other work in harmful conditions are entitled to additional paid vacation of at least seven calendar days. Employees required to work non-standardised working hours are entitled to additional paid vacation of at least three calendar days. In 2018, Russian Government began a major pension reform, increasing the retirement age. From 2019 until 2028, the retirement age is to be increased gradually from 55.5 to 60 years for females and from 60.5

153 to 65 for males. However, the retirement ages of males who have worked in arduous working conditions for at least 12 years and six months and females who have worked in arduous working conditions for at least 10 years are 55 years and 50 years, respectively. In the case of work involving underground operations, hazardous conditions or hot workshops, the retirement age is 50 years for males who have worked in such conditions for at least 10 years and 45 years for females who have worked in such conditions for at least 7 years and six months. Persons who have worked as miners in open-pit mines or underground mines for at least 25 years and, in specified circumstances, for at least 20 years may also retire, regardless of age.

Salary The minimum monthly salary in Russia is established by federal law from time to time. Starting from 1 July 2019, the minimum monthly salary is set at an amount of RUB 11,280 (approximately US$162). Although the law requires that the minimum wage be at or above a minimum subsistence level, the current statutory minimum monthly salary is generally considered to be less than the minimum subsistence level. Salaries of the Group’s employees are higher than the statutory minimum in the region and none are below such minimum.

Strikes The Labour Code defines a strike as the temporary and voluntary refusal of workers to fulfil their work duties with the intention of settling a collective labour dispute. Russian legislation contains several requirements which must be met for strikes to be legal. An employer may not use an employee’s participation in a legal strike as grounds for terminating an employment contract, although Russian law generally does not require employers to pay wages to striking employees for the duration of the strike. Conversely, an employee’s participation in an illegal strike may provide adequate grounds for termination of his or her employment contract.

Trade unions Trade unions are defined by Federal Law No. 10-FZ on Trade Unions, Their Rights and Guaranties of Their Activity dated 12 January 1996, as amended (the ‘‘Trade Union Law’’), as voluntary unions of individuals with common professional interests which are created for the purposes of representing and protecting social and labour rights and interests of their members. Russian law also permits national trade union associations, which coordinate activities of trade unions throughout Russia. Although Russian labour regulations have curtailed the authority of trade unions, they still retain significant influence over employees and, as such, may affect the operations of large industrial companies in Russia. The Group’s management routinely interacts with trade unions in order to ensure the appropriate treatment of its employees and the stability of the Group’s business. The activities of trade unions are generally governed by the Trade Union Law and applicable legal acts including the Labour Code. As part of their activities, trade unions may: • negotiate collective contracts and agreements such as those between the trade unions and employers, federal, regional and local governmental authorities and other entities; • monitor compliance with labour laws, collective contracts and other agreements; • access work sites and offices, and request information relating to labour issues from the management of companies and state and municipal authorities; • represent their members and other employees in individual and collective labour disputes with management; • participate in strikes, as well as meetings to protect social and labour rights of employees; and • monitor the redundancy of employees and seek action by municipal authorities to delay or suspend mass redundancies. Russian laws require that companies cooperate with trade unions and not interfere with their activities. Trade unions and their members enjoy certain guarantees as well, such as: • the retention of job positions for those employees who stop working due to their election to the management of trade unions;

154 • protection from dismissal for employees who previously served in the management of a trade union for two years after the termination of the office term; and • the provision of the necessary equipment, premises and transportation vehicles by the employer for use by the trade union free of charge, if provided for by a collective bargaining contract or other agreement. If a trade union discovers any violation of work conditions requirements, notification is sent to the employer with a request to cure the violation and to suspend work if there is an immediate threat to the lives or health of employees. The trade union may receive information on social and labour issues from an employer (or employers’ unions) and state and local authorities, as well as cooperate with state authorities for the purposes of supervision of compliance with Russian labour laws. Trade unions may also initiate collective labour disputes, which may lead to strikes. To initiate a collective labour dispute, trade unions must present their demands to the employer. The employer is then obliged to consider the demands and notify the trade union of its decision. If the dispute remains unresolved, a reconciliation commission attempts to end the dispute. If this proves unsuccessful, collective labour disputes are generally referred to mediation or labour arbitration. The Trade Union Law provides that those who violate the rights and guarantees of trade unions and their officers may be subject to disciplinary, administrative and criminal liability. The Russian Code on Administrative Offences No. 195-FZ dated 30 December 2001, as amended, specifies that such violations may lead to imposition of an administrative fine or, in certain circumstances, administrative suspension of activities for up to 90 days. Although the Russian Criminal Code No. 63-FZ dated 13 June 1996, as amended, currently has no provisions specifically relating to these violations, general provisions and sanctions may be applicable.

155 DESCRIPTION OF THE ISSUER The Issuer The Issuer was incorporated in Ireland as a private limited company on 14 August 2012, registered number 516421 under the Companies Acts 1963-2012 (as amended) of Ireland, and was subsequently re-registered as a designated activity company under the Companies Act 2014 (the ‘‘Companies Act 2014’’) on 20 August 2016 when its name was changed to Steel Funding Designated Activity Company. The registered office of the Issuer is Block A, George’s Quay Plaza, George’s Quay, Dublin 2, Ireland and phone number +353 1 963 1030. The authorised share capital of the Issuer is EUR 100 divided into 100 ordinary shares of par value EUR 1 each (the ‘‘Shares’’). The Issuer has issued one Share, which is fully paid and is held on trust by Vistra Capital Markets (Ireland) Limited (formerly known as Deutsche International Finance (Ireland) Limited) (the ‘‘Share Trustee’’) under the terms of a declaration of trust (the ‘‘Declaration of Trust’’) dated 22 August 2012, under which the Share Trustee holds the Shares on trust for charity. The Share Trustee has no beneficial interest in and derives no benefit (other than any fees for acting as Share Trustee) from its holding of the Shares. The Share Trustee will apply any income derived from the Issuer solely for the above purposes. Vistra Alternative Investments (Ireland) Limited (the ‘‘Corporate Services Provider’’), an Irish company, acts as the corporate services provider to the Issuer. The office of the Corporate Services Provider serves as the general business office of the Issuer. Through the office and pursuant to the terms of the corporate services agreement entered into on 24 September 2012 between the Issuer and Deutsche International Corporate Services (Ireland) Limited (‘‘DICSIL’’), and as novated from DICSIL to the Corporate Services Provider pursuant to the terms of a deed of novation dated 15 July 2018 (the ‘‘Corporate Services Agreement’’), the Corporate Services Provider performs various management functions on behalf of the Issuer, including the provision of certain clerical, reporting, accounting, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Services Provider receives various fees and other charges payable by the Issuer at rates agreed upon from time to time plus expenses. The terms of the Corporate Services Agreement provide that either party may terminate the Corporate Services Agreement upon the occurrence of certain stated events, including any material breach by the other party of its obligations under the Corporate Services Agreement which is either incapable of remedy or which is not cured within 30 days from the date on which it was notified of such breach. In addition, either party may terminate the Corporate Services Agreement at any time by giving at least 90 days written notice to the other party. The Corporate Services Provider’s principal office is at Block A, George’s Quay Plaza, George’s Quay, Dublin 2, Ireland.

Business The principal objects of the Issuer are set forth in clause 3 of its Memorandum of Association (as currently in effect) and permit the Issuer, inter alia, to lend money and give credit, secured or unsecured, to issue debentures, enter into derivatives and otherwise to borrow or raise money and to grant security over its property for the performance of its obligations or the payment of money. The Issuer is organised as a special purpose company. The Issuer was established to raise capital by the issue of debt securities and to use an amount equal to the proceeds of each such issuance to advance a loan to NLMK. Since its incorporation the Issuer has not engaged in any material activities other than those incidental to its registration as a private company, re-registration as a designated activity company and those related to the issue of the 2019 Notes, the 2018 Notes, the 2023 Notes, the 2024 Notes and the Notes. The Issuer has no employees.

Directors and Company Secretary The Issuer’s Articles of Association provide that the Board of Directors of the Issuer will consist of at least two Directors.

156 The Directors of the Issuer and their business addresses are as follows:

Eimir McGrath ...... Block A, Georges Quay Plaza, George’s Quay, Dublin 2, Ireland. Shengjie Xu ...... Block A, George’s Quay Plaza, George’s Quay, Dublin 2, Ireland. The Company Secretary is Vistra Alternative Investments (Ireland) Limited.

Financial Statements The financial year of the Issuer ends on 31 December in each year. The audited financial statements of the Issuer as at and for the years ended 31 December 2017 and 2016, together with the audit reports thereon, have been filed with the Central Bank of Ireland. The Issuer does not prepare interim financial statements. The profit and loss account and balance sheet can be obtained free of charge from the registered office of the Issuer. The auditors of the Issuer are PricewaterhouseCoopers of 1 Spencer Dock, North Wall Quay, Dublin 1, Ireland who are chartered accountants and are members of the Institute of Chartered Accountants and registered auditors qualified to practice in Ireland.

157 OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY The following summary description should be read in conjunction with, and is qualified in its entirety by, ‘‘Terms and Conditions of the Notes’’ and the form of the Loan Agreement. The transaction will be structured around the Loan from the Issuer to NLMK. The Issuer will issue the Notes, which will be limited recourse secured loan participation notes issued for the sole purpose of funding the Loan to NLMK. The Notes will be constituted by, be subject to, and have the benefit of, the Trust Deed. The obligations of the Issuer to make payments under the Notes shall constitute an obligation only to account to the Noteholders for an amount equal to the sums of principal, interest and/or additional amounts (if any) due under the Loan and actually received and retained (net of tax) by or for the account of the Issuer from NLMK pursuant to the Loan Agreement less any amount in respect of the Reserved Rights (as defined in the Trust Deed). In the event that the amount due and payable by the Issuer under such Notes exceeds the sums so received or recovered and retained (net of tax), the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts. As provided in the Trust Deed, the Issuer, with full title guarantee and as continuing security for the payment of all sums under the Trust Deed and the Notes, will charge by way of first fixed charge in favour of the Trustee (the ‘‘Charge’’): • all its rights to principal, interest and other amounts now or hereafter payable to the Issuer by NLMK under the Loan Agreement; • the right to receive all sums which may be or become payable by NLMK under any claim, award or judgement relating to the Loan Agreement, as the case may be; and • all the rights, title and interest in and to all sums of money now or in the future deposited in an account with the Principal Paying Agent in the name of the Issuer (the ‘‘Account’’) and the debts represented thereby (including interest from time to time earned on the Account, if any), provided that, for the avoidance of doubt, the Issuer shall remain the legal and beneficial owner of the property subject to the Charge following the granting of the Charge and that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. In addition, the Issuer with full title guarantee will assign to the Trustee for the benefit of the Trustee and the Noteholders all the rights, interest and benefits, both present and future, which have accrued or may accrue to the Issuer as lender under or pursuant to the Loan Agreement (including, without limitation, all moneys payable to the Issuer and any claims, awards and judgements in favour of the Issuer in connection with the Loan Agreement and the right to declare the Loan immediately due and payable in certain circumstances and to take proceedings to enforce the obligations of NLMK thereunder) other than any rights, title, interests and benefits which are subject to the Charge and other than the Reserved Rights and any amounts relating to the Reserved Rights. As a consequence of such assignment, the Trustee will assume the rights of the Issuer under the Loan Agreement as set out in the relevant provisions of the Trust Deed. Formal notice of the Charge and assignment will be given to NLMK, who will be required to acknowledge the same. The Issuer will covenant not to agree to any amendments to, or any modification, recession, cancellation, termination or waiver of, or authorise any breach by any counterparty or proposed breach by any counterparty of, the terms of the Loan Agreement unless the Trustee has given its prior written consent or unless authorised to do so by an Extraordinary Resolution (as defined in the Trust Deed) or Written Resolution (as defined in the Trust Deed) of the Noteholders (except in relation to Reserved Rights). The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, save as otherwise provided in the Trust Deed or the Loan Agreement. Any amendments, modifications, waivers, recession, cancellation, termination or authorisations made with the Trustee’s consent shall be notified to the Noteholders in accordance with Condition 13 of the Terms and Conditions relating to the Notes.

158 LOAN AGREEMENT The following is the text of the Loan Agreement to be entered into between NLMK and the Issuer. This Agreement is made on 28 May 2019 between: (1) NOVOLIPETSK STEEL (‘‘NLMK’’); and (2) STEEL FUNDING D.A.C. (the ‘‘Lender’’). Whereas: The Lender has at the request of NLMK agreed to make available to NLMK a loan facility in the amount of U.S.$500,000,000 on the terms and subject to the conditions of this Agreement. Now it is hereby agreed as follows: 1 Definitions and Interpretation 1.1 Definitions In this Agreement (including the recitals), the following terms shall have the meanings indicated: ‘‘Account’’ means the account in the name of the Lender with the Principal Paying Agent, account number (Correspondent Bank: Citibank, N.A., New York branch; SWIFT: CITIUS33; Beneficiary Bank: Citibank, N.A., London Branch; SWIFT: CITIGB2L; Beneficiary Account Name: STEEL FUNDING LIMITED USD SEC; Account Number: 10714577) (or such other account as may from time to time be agreed by the Lender with the Trustee and NLMK pursuant to the Trust Deed and notified to NLMK in writing at least five Business Days in advance of such change); ‘‘Accounting Standards’’ means, with respect to a person, as applicable, U.S. GAAP, or, to the extent that such person has elected to prepare its consolidated financial statements on the basis of IFRS or other generally accepted accounting standards within the European Union (each, an ‘‘EU Accounting Standard’’) and has commenced generating financial data on such alternative basis, IFRS or such EU Accounting Standard; ‘‘Advance’’ means the advance to be made under Clause 3 of the sum equal to the amount of the Facility; ‘‘Agency’’ means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not) of, or of the government of, any state or supra-national body; ‘‘Agreement’’ means this Agreement as originally executed or as it may be amended from time to time; ‘‘Business Day’’ means a day on which (a) the London interbank market is open for dealings between banks generally and (b) if on that day a payment is to be made hereunder, commercial banks generally are open for business in New York City, Moscow and in the city where the specified office of the Principal Paying Agent is located; ‘‘Closing Date’’ means 30 May 2019; ‘‘Comparable Treasury Issue’’ means the United States Treasury security selected by the Determination Agent as having a maturity comparable to the remaining term of the Loan from the Make Whole Optional Prepayment Date to the Repayment Date, that would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a maturity most nearly equal to the Repayment Date; ‘‘Comparable Treasury Price’’ means, with respect to any Make Whole Optional Prepayment Date, the average of three, or such lesser number as is obtained by the Determination Agent, Reference Treasury Dealer Quotations for the Make Whole Optional Prepayment Date; ‘‘Consolidated Assets’’ means the total amount of assets appearing on the consolidated balance sheet of NLMK, prepared in accordance with the Accounting Standards, as of the date of the most recently prepared consolidated financial statements; ‘‘Default’’ means an Event of Default or a Potential Event of Default; ‘‘Definitive Certificate’’ means the definitive certificates in registered form representing the Notes, to be issued in limited circumstances pursuant to the Trust Deed;

159 ‘‘Determination Agent’’ means a financial adviser or bank being a reputable financial institution operating in the United States Treasury Securities market in New York which is independent of NLMK, appointed by NLMK and at NLMK’s expense for the purpose of determining the Make Whole Prepayment Amount; ‘‘Dollars’’, ‘‘U.S.$’’ and ‘‘U.S. Dollars’’ means the lawful currency of the United States of America; ‘‘Domestic Relevant Indebtedness’’ means any Relevant Indebtedness which is not quoted, listed or ordinarily dealt in or traded on any stock exchange or any public or institutional securities market, in each case outside the Russian Federation; ‘‘Event of Default’’ has the meaning assigned to such term in sub-clause 11.1 hereof; ‘‘Facility’’ means the facility specified in Clause 2; ‘‘Global Certificate’’ means the Regulation S Global Certificate and the Rule 144A Global Certificate; ‘‘Group’’ means NLMK and its Subsidiaries for the time being; ‘‘IFRS’’ means International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board (‘‘IASB’’) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time); ‘‘Indebtedness’’ means, in respect of any person, any indebtedness for, or in respect of (without duplication): (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) any amount of money raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; (e) the amount of any liability in respect of a capital lease that would be required to be capitalised on a balance sheet in accordance with the Accounting Standards and (without double counting) the amount of any liability in respect of any guarantee or indemnity (whether on or off balance sheet) for any of the items referred to above; provided that, for the avoidance of doubt, Indebtedness shall not include moneys raised by way of the issue of share capital (whether or not for cash consideration) and any premium on such share capital; and provided further that Indebtedness shall not include Indebtedness among NLMK and Subsidiaries or among Subsidiaries; and provided further that Indebtedness shall not include any trade credit extended to such person in connection with the acquisition of goods and/or services on arm’s length terms and in the ordinary course of trading of that person; ‘‘Interest Payment Date’’ means 30 May and 30 November of each year, commencing on 30 November 2019; ‘‘Loan’’ means, at any time, an amount equal to the aggregate principal amount of the Facility granted by the Lender pursuant to this Agreement or the principal amount outstanding for the time being under the Facility; ‘‘Make Whole Optional Prepayment Date’’ has the meaning assigned to such term in sub-clause 5.4 hereof; ‘‘Make Whole Prepayment Amount’’ means the higher of (a) the portion of the Loan that is to be prepaid pursuant to sub-clause 5.4 and (b) the amount equal to the sum of the present values of the portion of the Loan that is to be prepaid pursuant to sub-clause 5.4, together with the present values of the scheduled interest payments on such portion of the Loan from the Make Whole Optional Prepayment Date to the Repayment Date in each case, discounted to the Make Whole Optional Prepayment Date on a semi-annual compounded basis at the adjusted U.S. Treasury Rate plus 50 basis points, all as determined by the Determination Agent; ‘‘Material Adverse Effect’’ means a material adverse effect on (a) the financial condition or operations of NLMK or the Group, or (b) NLMK’s ability to perform its payment or other material obligations under this Agreement or (c) the validity, legality or enforceability of this Agreement or the rights or remedies of the Lender under this Agreement;

160 ‘‘Material Subsidiary’’ means any Subsidiary of NLMK whose gross assets constitute ten per cent (10%) of the total consolidated gross assets of the Group determined by reference to the most recent annual consolidated financial statements of the Group and the most recent annual stand-alone reporting forms of the relevant Subsidiary, which were used for the purposes of preparing the Group’s consolidated financial statements and, for the avoidance of doubt, excluding intra-Group items, in each case taking into account, on a pro-forma basis, any subsequent consolidation, amalgamation or merger referred to in sub-clause 9.2; ‘‘Noteholder’’ means, in relation to a Note, the person in whose name such Note is for the time being registered in the register of Noteholders (or, in the case of a joint holding, the first named holder thereof); ‘‘Notes’’ means the loan participation notes proposed to be issued by the Lender; ‘‘Officers’ Certificate’’ means a certificate signed by two authorised signatories of NLMK, one of whom shall be the principal executive officer, a member of the management board, principal accounting officer or principal financial officer of NLMK; ‘‘Opinion of Counsel’’ means a written opinion from international legal counsel who is acceptable to the Lender and the Trustee, each acting reasonably; ‘‘Par Optional Prepayment Date’’ has the meaning assigned to such term in sub-clause 5.5 hereof; ‘‘Paying Agency Agreement’’ means the paying agency agreement to be dated on or about 28 May 2019, as amended, varied, novated, supplemented, extended or restated relating to the Notes; ‘‘Paying Agent’’ shall have the meaning attributed to it in the Paying Agency Agreement; ‘‘Permitted Security Interest’’ means: (a) any Security Interests: (i) existing on the Closing Date; or (ii) securing Refinancing Indebtedness in respect of Indebtedness existing on the Closing Date, provided that such Security Interests are limited to all or part of the assets, undertaking, property or revenues that secured the original Indebtedness and that the aggregate principal amount of such Refinancing Indebtedness secured over such assets does not exceed the sum of (x) the aggregate principal amount of the Indebtedness being refinanced; (y) accrued and unpaid interest on such Refinancing Indebtedness and (z) fees, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness; (b) any Security Interest created or existing in respect of Domestic Relevant Indebtedness; (c) any Security Interests: (i) existing on any undertaking, property, assets or revenues of any person at the time such person becomes a Subsidiary (as defined below) or such undertaking property, assets or revenues are acquired by NLMK or any Subsidiary provided that such Security Interest was not created in contemplation of such event and that no such Security Interest shall extend to other undertaking property, assets or revenues of such person or the Group; or (ii) securing Refinancing Indebtedness in respect of the Indebtedness specified in paragraph (c)(i) above provided that such Security Interests are limited to all or part of the undertaking, assets, property or revenues that secured the original Indebtedness and that the aggregate principal amount of such Refinancing Indebtedness secured over such assets does not exceed the sum of (x) the aggregate principal amount of the Indebtedness being refinanced; (y) accrued and unpaid interest on such Refinancing Indebtedness and (z) fees, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness; (d) any Security Interest on the undertaking, property, assets or revenues of NLMK or any Subsidiary created or existing in respect of Relevant Indebtedness the principal amount of which (when aggregated with the principal amount of any other Relevant Indebtedness which then has the benefit of a Security Interest on the undertaking, property, assets or revenues of NLMK or any Subsidiary) does not exceed 20 per cent. of Consolidated Assets, as determined by reference to the most recently available consolidated financial statements prepared in accordance with the Accounting Standards; or (e) any Security Interest created or existing in respect of any Indebtedness or other obligation or liability that is not Relevant Indebtedness;

161 ‘‘person’’ means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organisation, limited liability company or government or other entity; ‘‘Potential Event of Default’’ means an event or circumstance which could, with the giving of notice, and/or the lapse of time, or the making of any determination under this Agreement, become an Event of Default; ‘‘Principal Paying Agent’’ means Citibank, N.A., London Branch; ‘‘Prospectus’’ means the prospectus of even date herewith prepared in connection with the listing of the Notes; ‘‘Rate of Interest’’ has the meaning assigned to such term in sub-clause 4.1; ‘‘Reference Treasury Dealer’’ means each of the three nationally recognised firms selected by the Determination Agent that are primary U.S. Government securities dealers; ‘‘Reference Treasury Dealer Quotations’’ means with respect to each Reference Treasury Dealer and any Make Whole Optional Prepayment Date, the average, as determined by the Determination Agent, of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Determination Agent by such Reference Treasury Dealer at 5:00pm (New York City time) on the third business day (in New York City) immediately preceding such Make Whole Optional Prepayment Date; ‘‘Refinance’’ means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. ‘‘Refinanced’’ and ‘‘Refinancing’’ shall have correlative meanings; ‘‘Refinancing Indebtedness’’ means Indebtedness that is incurred to Refinance any existing Indebtedness, including Indebtedness that Refinances Refinancing Indebtedness; ‘‘Regulation S Global Certificate’’ means the single, permanent global certificate in fully registered form without interest coupons representing the Notes to be issued pursuant to Clause 3.1 of the Trust Deed outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act; ‘‘Relevant Indebtedness’’ means any present or future Indebtedness in the form of, or represented by, notes, debentures, bonds or other debt securities (but for the avoidance of doubt, excluding term or revolving loans (whether syndicated or unsyndicated), credit facilities, credit agreements and other similar facilities and evidence of indebtedness under such loans, facilities or credit agreements) which either are by their terms payable, or confer a right to receive payment, in any currency and are for the time being, or ordinarily are quoted, listed or ordinarily dealt in or traded on any stock exchange or any public or institutional securities market; ‘‘Repayment Date’’ means 30 May 2026; ‘‘Reserved Rights’’ has the meaning specified in the Trust Deed; ‘‘Rule 144A Global Certificate’’ means the single, permanent global certificate in fully registered form without interest coupons representing the Notes to be issued pursuant to Clause 3.1 of the Trust Deed to qualified institutional buyers (as defined in Rule 144A under the Securities Act) that are also qualified purchasers (as defined in Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940) in reliance on the exemption from registration under the Securities Act provided by Rule 144A thereunder; ‘‘Same-Day Funds’’ means Dollar funds settled through the New York Clearing House Interbank Payments System or such other funds for payment in Dollars as the Lender may at any time determine to be customary for the settlement of international transactions in New York City of the type contemplated hereby; ‘‘Securities Act’’ means the U.S. Securities Act of 1933, as amended; ‘‘Security Interest’’ means any mortgage, charge, pledge, lien or other form of encumbrance or security interest securing any obligation of any person; ‘‘Subscription Agreement’’ means the agreement between NLMK, the Lender and the Joint Lead Managers (as defined therein) dated on or about 28 May 2019 providing for the issuance of the Notes; ‘‘Subsidiary’’ means any corporation or other business entity of which NLMK owns or controls (either directly or through one or more Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect a majority of the directors, managers or trustees of such corporation or other business entity;

162 ‘‘Taxes’’ means any present or future taxes, levies, imposts or duties (including interest or penalties thereon) imposed, assessed, charged, collected, demanded, withheld or claimed by the Russian Federation, Ireland or any tax authority thereof or therein provided, however, that for the purposes of this definition the references to Ireland shall, upon the occurrence of a Relevant Event (as this term is defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term ‘‘Taxation’’ shall be construed accordingly; ‘‘Trust Deed’’ means the trust deed between the Lender and the Trustee to be dated on or about the Closing Date as amended, varied, novated, supplemented, extended or restated from time to time; ‘‘Trustee’’ means Citicorp Trustee Company Limited as trustee under the Trust Deed and any successor thereto as provided thereunder; ‘‘U.S. Dollar Equivalent’’ means with respect to any amount denominated in a currency other than U.S. Dollars, at any time for the determination thereof, the amount of U.S. Dollars obtained by converting such other currency involved into U.S. Dollars at the spot rate for the purchase of U.S. Dollars with such other currency as most recently published under ‘‘Currency Rates’’ in the section of the Financial Times entitled ‘‘Currencies, Bonds & Interest Rates’’ (or, if the Financial Times is no longer published, or if such information is no longer available in the Financial Times, such other source as may be selected in good faith by NLMK); ‘‘U.S. GAAP’’ means generally accepted accounting principles set forth as of the relevant date in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are in effect and applicable to the circumstances as of the date of determination; and ‘‘U.S. Treasury Rate’’ means either (i) the rate per annum equal to the yield, under the heading that represents the average for the week immediately preceding the third business day (in New York City) prior to the Make Whole Optional Prepayment Date, appearing in the most recently published statistical release designated ‘‘H.15(519)’’ or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption ‘‘Treasury Constant Maturities’’ for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Repayment Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the U.S. Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the third business day (in New York City) prior to the relevant date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the Make Whole Optional Prepayment Date, in each case calculated on the third business day (in New York City) immediately preceding the Make Whole Optional Prepayment Date.

1.2 Other Definitions Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement shall have the meanings assigned to such terms therein, provided that in the case of terms defined or references herein to documents to which NLMK is not a party, NLMK has been sent an up-to-date copy of such documents by the Lender as soon as reasonably practicable (including any amendments thereto that may affect the meaning or interpretation of any such term or reference).

1.3 Interpretation Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement: 1.3.1 all references to ‘‘Clause’’ or ‘‘sub-clause’’ are references to a Clause or sub-clause of this Agreement. 1.3.2 the terms ‘‘hereof’’, ‘‘herein’’ and ‘‘hereunder’’ and other words of similar import shall mean this Agreement as a whole and not any particular part hereof.

163 1.3.3 words importing the singular number include the plural and vice versa. 1.3.4 the table of contents and the headings are for convenience only and shall not affect the construction hereof. 1.3.5 a reference to ‘‘this agreement’’ or to any other agreement or document referred to in this agreement is a reference to this agreement or such other document or agreement as varied, amended, novated, supplemented, extended or restated (in each case, other than in breach of the provisions of this agreement) from time to time. 1.3.6 a reference to a statute or statutory provision shall include all subordinate legislation under that statute or statutory provision, or replacement or substitution of such legislation, made from time to time. 1.3.7 a Default is ‘‘continuing’’ if has not been remedied or waived.

2 Facility 2.1 Facility On the terms and subject to the conditions set forth herein, the Lender hereby agrees to lend NLMK, and NLMK hereby agrees to borrow from the Lender, U.S.$500,000,000.

2.2 Purpose The proceeds of the Advance will be used for the purposes set out in the Prospectus, but the Lender shall not be concerned with the application thereof.

2.3 Facility Fee NLMK shall pay a fee to the Lender in consideration of the arrangement of the Facility of U.S.$2,730,110.25 (the ‘‘Facility Fee’’).

3 Drawdown 3.1 Drawdown On the terms and subject to the conditions set forth herein, on the Closing Date the Lender shall make the Advance to NLMK and NLMK shall make a single drawing in the full amount of the Facility.

3.2 Payment of the Facility Fee NLMK agrees to pay the Facility Fee to the Lender in Same-Day Funds by 2:30 pm (London time) (or such earlier time as the Lender and NLMK may otherwise agree) one Business Day prior to the Closing Date to such account as the Lender and NLMK may agree in writing.

3.3 Disbursement Subject to the conditions set forth herein, on the Closing Date the Lender shall transfer in Same Day Funds (unless the Lender and NLMK agree otherwise) the amount of the Advance to such account as the Lender and NLMK may agree in writing.

3.4 Ongoing Fees and Expenses In consideration of the Lender (i) making the Loan available to NLMK; and (ii) supporting such a continuing facility, NLMK shall pay in one or more instalments within 10 Business Days of demand to the Lender each year an additional amount equating to all documented ongoing costs and expenses of the Lender properly incurred in connection with this Agreement or the Notes (including, without limitation, any taxes and any properly incurred and documented corporate service provider fees, legal fees, listing fees, audit fees and any expenses incurred in order to maintain the Lender as a validly incorporated company and any expenses required to cover the Lender’s anticipated winding-up expenses) as set forth in an invoice from the Lender to NLMK. Before such payment is made by NLMK, the Lender shall submit an invoice providing, in reasonable detail, the nature and calculation of the invoiced amount, and shall provide NLMK with an executed act of acceptance (an ‘‘Act of Acceptance’’), the form of which NLMK shall provide to the Lender in advance.

164 4 Interest 4.1 Rate of Interest NLMK will pay interest in U.S. Dollars to the Lender on the outstanding principal amount of the Loan from time to time hereunder at the rate of 4.70 per cent. per annum (the ‘‘Rate of Interest’’).

4.2 Payment Interest at the Rate of Interest shall accrue from day to day, starting from (and including) the Closing Date and shall be paid in respect of each Interest Period in arrear not later than 2:30 pm (London time) one Business Day prior to each Interest Payment Date to the Account. Interest on the Loan will cease to accrue from (and excluding) the due date for repayment thereof unless payment of principal is improperly withheld or refused, in which event interest will continue to accrue (before or after any judgment) at the Rate of Interest to but excluding the date on which payment in full of the principal thereof is made. The amount of interest payable in respect of the Loan for any Interest Period shall be calculated by applying the Rate of Interest to the Loan, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). If interest is required to be calculated for any other period, it will be calculated on the basis of a 360 day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of actual days elapsed. ‘‘Interest Period’’ means each period beginning on (and including) the Closing Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date.

5 Repayment and Prepayment 5.1 Repayment Except as otherwise provided herein, NLMK shall repay the Loan not later than 2:30 pm (London time) one Business Day prior to the Repayment Date.

5.2 Special Prepayment If, (i) either (a) as a result of the application of any amendments or clarifications to, or change in, the double tax treaty between the Russian Federation and Ireland or the laws or regulations of the Russian Federation or Ireland or of any political sub-division thereof or any authority having power to tax therein (including as a result of a judgment of a court of competent jurisdiction) or a change in, or the clarification of, the application or official interpretation of such double tax treaty, such laws or regulations which in each case becomes effective (or enacted, adopted or made) on or after the date of this Agreement or as a result of the application of Russian withholding tax, or (b) as a result of the enforcement of the security provided for in the Trust Deed, NLMK would thereby be required to make or increase any payment due hereunder as provided in sub-clauses 6.2 or 6.3, or (ii) (for whatever reason) NLMK would have to or has been required to pay additional amounts pursuant to Clause 8, then NLMK may (without premium or penalty), upon not less than 30 days’ notice to the Lender (which notice shall be irrevocable), prepay the Loan in whole (but not in part).

5.3 Illegality If, at any time, by reason of the introduction of any change after the date of this Agreement in any applicable law, regulation, regulatory requirement or directive of any Agency the Lender reasonably determines (setting out in reasonable detail the nature and extent of the relevant circumstances) (following receipt of such determination NLMK may request from the Lender an Opinion of Counsel with the cost of such Opinion of Counsel being borne solely by NLMK) that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive for the Lender to allow all or part of the Loan or the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes, then upon notice by the Lender to NLMK in writing, NLMK and the Lender shall consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 days of the date on which it so notified NLMK. If such a basis has not been determined within the 30 days, then upon notice by the Lender to NLMK in writing, NLMK shall prepay the Loan in whole (but not in part) without premium on the next Interest Payment Date or on such earlier date as the Lender shall certify on not less than 15 days notice to be

165 necessary to comply with the requirements of such law, regulation, regulatory requirement or directive (in any event being not earlier than the last Business Day of any grace period allowed by applicable laws or regulations).

5.4 Optional Prepayment at Make Whole NLMK may, at any time, on giving not less than 30 nor more than 60 days’ notice to the Lender (which notice shall be irrevocable and shall specify the date fixed for prepayment (the ‘‘Make Whole Optional Prepayment Date’’)), prepay in whole or in part the Loan at the Make Whole Prepayment Amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the Make Whole Optional Prepayment Date.

5.5 Optional Prepayment at Par NLMK may, at any time on or after the date three months prior to the Repayment Date, on giving not less than 10 nor more than 60 days’ notice to the Lender (which notice shall be irrevocable and shall specify the date fixed for prepayment (the ‘‘Par Optional Prepayment Date’’)), prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the Par Optional Prepayment Date.

5.6 Reduction of Loan Upon Cancellation of Notes The Lender, NLMK or any member of the Group may from time to time, in accordance with the terms and conditions of the Notes, purchase Notes in the open market or by tender or by a private agreement at any price. The Lender, NLMK or any such member of the Group may, at its option, hold, reissue, resell or, in the case of NLMK or such member of the Group, from time to time deliver to the Lender Notes together with a request (a ‘‘Request’’) for the Lender to present such Notes to the Registrar for cancellation or from time to time procure the delivery to the Registrar of instructions (‘‘Instructions’’) to redeem and thereafter cancel a specified aggregate principal amount of Notes represented by a Global Certificate in each case upon not less than 30 days’ notice. Any Instructions shall be accompanied by evidence reasonably satisfactory to the Issuer and the Registrar that the Lender, NLMK or any such member of the Group is entitled to give such Instructions or Request (or, in the case of Notes represented by a Global Certificate, request that the account entries in the records of the relevant clearing system reflecting the Lender’s, NLMK’s or any such member of the Group’s beneficial interest in such part of the relevant Global Certificate be updated to reflect such cancellation) on the date specified in the Instructions or Request (as the case may be) whereupon the relevant Register shall be updated accordingly to reflect such cancellation. On and with effect from the date specified in any Request or, as the case may be, Instructions, the Loan shall be deemed to be prepaid for all purposes in an amount as corresponds to the aggregate principal amount of Notes so cancelled and no further interest shall be payable with respect thereto.

5.7 Payment If the Loan is to be prepaid by NLMK pursuant to any of the provisions of sub-clauses 5.2, 5.3, 5.4 or 5.5: 5.7.1 no later than one Business Day prior to the due date for such prepayment, NLMK shall deposit in the Account an amount in cash equal to the amount required to be paid on such due date; and 5.7.2 NLMK shall, simultaneously with such prepayment, pay to the Lender (by deposit in the Account) accrued but unpaid interest thereon to (but excluding) the date of such prepayment and all other sums then payable by NLMK pursuant to this Agreement in relation to the amount to be prepaid.

5.8 Provisions Exclusive NLMK may not voluntarily prepay the Loan except in accordance with the express terms of this Agreement. Any amount prepaid may not be re-borrowed.

6 Payments 6.1 Making of Payments All payments of principal and interest and other amounts payable under sub-clause 6.2 hereof (other than those in respect of Reserved Rights) to be made by NLMK under this Agreement shall be made unconditionally by credit transfer to the Lender not later than 2:30 pm (London time) one Business Day

166 prior to each Interest Payment Date, the Repayment Date or any other due date for redemption (as the case may be) in Same-Day Funds to the Account, or as the Trustee may otherwise direct following the occurrence of a Relevant Event (as defined in the Trust Deed). The Lender agrees with NLMK that the Lender will not deposit any other monies into the Account and that no withdrawals shall be made from the Account other than for payments to be made in accordance with the Trust Deed and Paying Agency Agreement.

6.2 No Set-Off, Counterclaim or Withholding; Gross-Up All payments to be made by NLMK under this Agreement (including any amounts payable under sub-clause 6.3) shall be (i) made in full without set-off or counterclaim and (except to the extent required by law) without deduction or withholding for or on account of any Taxes and (ii) made only from the Russian Federation, Ireland or such other jurisdiction which would not require any deductions or withholding from any such payment. If NLMK shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of any such Taxes, it shall, on the due date of such payment, increase any payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in Dollars equal to the full amount which it would have received had payment not been made subject to such Taxes, it shall account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and it shall deliver to the Lender without undue delay evidence reasonably satisfactory to the Lender of such deduction or withholding and of the accounting therefor to the relevant taxing authority. If the Lender pays any amount in respect of any Taxes, including penalties or interest, NLMK shall reimburse the Lender in Dollars, for such payment within 5 Business Days of demand. Any notification by the Lender to NLMK in connection with this sub-clause 6.2 shall be given as soon as reasonably practicable after the Lender becomes aware of any obligation on it to make any such withholding or deduction or pay any Taxes. The Lender shall, as soon as reasonably practicable following request by NLMK, provide NLMK (at NLMK’s expense) with reasonable detail in writing as to the reasons for such withholding or deduction or payment of Taxes. Nothing in this paragraph shall prejudice in any way the obligation to gross up contained in this sub-clause 6.2.

6.3 Withholding on the Notes If the Lender notifies NLMK (setting out in reasonable detail the nature and extent of the obligation and providing, upon the request of NLMK, an Opinion of Counsel in respect of the existence of such obligation, with the cost of such Opinion of Counsel to be borne solely by NLMK) that it has become obliged to make any withholding or deduction for or on account of any Taxes imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax from any payment which it is obliged to make, or would otherwise be obliged to make but for the imposition of any such withholding or deduction for or on account of any such Taxes, under or in respect of the Notes, NLMK agrees to pay into the Account for the benefit of the Lender, not later than 2:30 pm (London time) one Business Day prior to the date on which payment is due to the Noteholders in Same-Day Funds, such additional amounts as are equal to the additional amounts which the Lender would be required to pay in order for the net amounts received by the Noteholders after such withholding or deduction to equal the respective amounts which would have been received by the Noteholders in the absence of such withholding or deduction; provided, however, that the Lender shall immediately upon receipt from any Paying Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Noteholders, as the case may be, are not entitled to such additional amounts pursuant to the terms and conditions of the Notes, pay such additional amounts to NLMK (it being understood that neither the Lender, nor the Principal Paying Agent nor any Paying Agent shall have any obligation to determine whether any Noteholder is entitled to such additional amounts).

6.4 Reimbursement To the extent that the Lender subsequently obtains and uses any tax credit or allowance or obtains any other reimbursements or refunds relating to a deduction or withholding or payment of Taxes with respect to which NLMK has made a payment pursuant to this Clause 6, the Lender shall promptly pay to NLMK so much of the benefit or refund it received as will leave the Lender, to the maximum extent possible, in the same position as it would have been had no additional amount been required to be paid by NLMK pursuant to this Clause 6; provided, however, that the question of whether any such benefit or refund has

167 been received, and accordingly, whether any payment should be made to NLMK, the amount of any such payment and the timing of any such payment, shall be determined reasonably by the Lender, in consultation with NLMK, and the Lender shall notify NLMK promptly upon determination that it has received any such benefit or refund.

6.5 Mitigation and Substitution 6.5.1 If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of NLMK to make any deduction, withholding or payment as described in sub-clauses 6.2 or 6.3, then, without in any way limiting, reducing or otherwise qualifying the Lender’s rights, or NLMK’s obligations, under such sub-clauses, such party shall as soon as reasonably practicable upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of such party would have any adverse effect upon its business, operations or financial condition or would be in breach of any provision of the NLMK Agreements, take such reasonable steps as may be available to it to avoid such obligation or mitigate the effect of such circumstances. NLMK agrees to reimburse the Lender upon receipt of an original demand for payment for all reasonable, properly incurred and documented costs and expenses (including but not limited to legal fees) incurred by the Lender in connection with this sub-clause. 6.5.2 If the Lender ceases, as a result of the Lender’s actions, to be tax resident in Ireland for the purposes of a double taxation treaty between the Russian Federation and Ireland, and such cessation results in NLMK being required to make payments pursuant to sub-clauses 6.2 or 6.3 or Clause 8 then, except in circumstances where the Lender has ceased to be tax resident in Ireland by reason of any change of law (as described in sub-clause 5.2) (including without limitation, a change in a double taxation treaty or in such law or treaty’s application or interpretation), NLMK may require the Lender to seek the substitution of the Lender as obligor under the Notes and as lender under any Loan. NLMK shall bear all costs and expenses relating to or arising out of such substitution.

6.6 Tax Treaty Relief 6.6.1 The Lender shall once in each calendar year, no later than 10 Business Days prior to the first date on which any payment by NLMK is due hereunder in that calendar year, deliver to NLMK, at the expense of NLMK (provided that the incurred expenses are reasonable and documented), a notarised tax residency certificate issued or certified by (as applicable) the competent authorities of Ireland confirming that the Lender is tax resident in Ireland in that calendar year. At the cost of NLMK (provided that the incurred expenses are reasonable and documented), the residency certificate shall be apostilled at the Irish Department of Foreign Affairs, or otherwise approved by the competent authority in Ireland as contemplated by applicable law or regulations. The Lender shall not be responsible for any failure to provide, or any delays in providing, such tax residency certificate as a result of any action or inaction of any authority of Ireland, but shall notify NLMK promptly about any such failure or delay with a detailed description of the actions taken by the Lender to obtain such tax residency certificate. 6.6.2 If Russian legislation regulating the procedures for obtaining an exemption from Russian withholding tax on income changes, the Lender shall use its reasonable and timely efforts to assist NLMK to obtain relief from such tax pursuant to the double taxation treaty between the Russian Federation and Ireland. In all other cases, the Lender shall, subject to being fully indemnified by NLMK for all documented costs it incurs in so doing, co-operate with NLMK in completing any procedural formalities necessary for NLMK to obtain authorisation to make any payment without any deduction or withholding on account of any Taxes. 6.6.3 Notwithstanding sub-clause 6.4, if NLMK makes a withholding or deduction for or on account of Taxes from a payment under or in respect of this Agreement, NLMK may apply on behalf of the Lender to the relevant taxing authority of the Russian Federation (the ‘‘Russian Taxing Authority’’) for a payment to be made by such authority to the Lender with respect to such Tax. If, whether following a claim made on its behalf by NLMK or otherwise, the Lender receives such a payment

168 (‘‘Russian Tax Payment’’) from the Russian Taxing Authority with respect to such Taxes, it will as soon as reasonably possible notify NLMK that it has received that payment (and the amount of such payment); whereupon, provided that NLMK has notified the Lender in writing of the details of an account (the ‘‘Borrower Account’’) to which a payment or transfer should be made, and that the Lender is able to make a payment or transfer under applicable laws and regulations, the Lender will, as soon as reasonably practicable, pay or transfer an amount equal to the Russian Tax Payment to the Borrower Account. 6.6.4 The Lender agrees promptly, upon becoming aware thereof, to notify NLMK if it ceases to be resident in Ireland for tax purposes. 6.6.5 Subject to sub-clauses 6.5 and 8.2, the Lender agrees that it shall maintain its residency for tax purposes only in Ireland. 6.6.6 The Lender represents and warrants to NLMK as of the Closing Date as follows: (i) the Lender is a resident of Ireland for taxation purposes and is subject to taxation in Ireland not merely on the basis of the source of its income or location of its property but on the basis of its registration as a legal entity, location of its management body or other similar criteria. The Lender will be able to receive certification to the effect that it is tax resident in Ireland for taxation purposes; (ii) at the date hereof, the Lender does not have a permanent establishment or presence outside Ireland, including in particular in the Russian Federation; (iii) the Lender does not have a branch, representation, division, bureau, office, agency or any other economically autonomous subdivision or other place of business in any other country than Ireland through which the business of the Lender is wholly or partially carried out; (iv) the Lender did not explicitly grant authority to and is not aware of an implied authority for NLMK or any other person located outside Ireland to negotiate key parameters of any contracts or sign any contracts on behalf of the Lender, bind the Lender to any contracts by other means or otherwise represent the Lender in dealings with third parties; (v) the Lender has its central management and control in Ireland. The Lender’s place of effective management is only in Ireland; (vi) the directors of the Lender are Irish nationals and reside in Ireland and shall at all times act independently and exercise their authority from and within Ireland by taking all key decisions relating to the Lender in the Ireland; (vii) the Notes and the Loan will be fully accounted for by the Lender on its balance sheet, meaning that the Loan will be treated as an asset of the Lender under generally accepted accounting practice applicable to the Lender in Ireland, while the Notes will be treated as a liability of the Lender under generally accepted accounting practices applicable to the Lender in Ireland; (viii) the Lender does not own, either directly or indirectly, any shares of NLMK; (ix) there is no reference to the territory of Russia as the actual place of the Lender’s activity in the memorandum or articles of association of the Lender; and (x) the board of directors of the Lender is located in Ireland.

7 Conditions Precedent The obligation of the Lender to make the Advance shall be subject to the further conditions precedent that as of the Closing Date (a) the Lender shall have received the proceeds of the issue of the Notes pursuant to the Subscription Agreement and (b) the Lender shall have received the Facility Fee.

8 Change in Law; Increase in Cost 8.1 Compensation In the event that after the date of this Agreement there is any change in or introduction of any tax, law, regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial

169 practice of financial institutions in the country concerned) or in the official interpretation or application thereof by any Agency and/or any compliance by the Lender in respect of the Loan or the Facility with any request, policy or guideline (whether or not having the force of law but, if not having the force of law, the observances of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) made or issued after the date of this Agreement from or of any Agency, which: 8.1.1 subjects or will subject the Lender to any Taxes with respect to payments of principal of or interest on the Loan or any other amount payable under this Agreement (other than any Taxes payable by the Lender on its overall net income or any Taxes referred to in sub-clauses 6.2 or 6.3); or 8.1.2 increases or will increase the taxation of or changes or will change the basis of taxation of payments to the Lender of principal of or interest on the Loan or any other amount payable under this Agreement (other than any such increase or change which arises by reason of any increase in the rate of tax payable by the Lender on its overall net income or as a result of any Taxes referred to in sub-clauses 6.2 or 6.3); or 8.1.3 imposes or will impose on the Lender any other condition affecting this Agreement, the Facility or the Loan, and if as a result of any of the foregoing: (i) the cost to the Lender of making, funding or maintaining the Loan or the Facility is increased; or (ii) the amount of principal, interest or other amount payable to or received by the Lender hereunder is reduced; or (iii) the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from NLMK hereunder or makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of the Loan, then subject to the following, and in each such case: (a) the Lender shall, as soon as practicable after becoming aware of such increased cost, reduced amount or payment made or foregone, give written notice to NLMK, together with a certificate signed by one authorised officer of the Lender describing in reasonable detail the introduction or change or request which has occurred and the country or jurisdiction concerned and the nature and date thereof and demonstrating the connection between such introduction, change or request and such increased cost, reduced amount or payment made or foregone, and setting out in reasonable detail the basis on which such amount has been calculated, and enclosing all relevant supporting documents evidencing the matters set out in such certificate; and (b) NLMK, in the case of items (i) and (iii) above, shall promptly on demand by the Lender, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such increased cost, and, in the case of item (ii) above, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, payment or foregone interest or other return; provided, however, the amount of such increased cost, reduced amount or payment made or foregone shall be deemed not to exceed an amount equal to the proportion thereof which is directly attributable to this Agreement and provided that the Lender shall not be entitled to such additional amount where such increased cost arises as a result of the negligence or wilful default of the Lender, provided that this sub-clause 8.1 will not apply to or in respect of any matter for which the Lender has already been compensated under sub-clauses 6.2 or 6.3.

8.2 Mitigation In the event that the Lender becomes entitled to make a claim pursuant to sub-clause 8.1, the Lender shall consult in good faith with NLMK and shall use reasonable efforts (based on the Lender’s reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, NLMK’s obligations to pay any additional amount pursuant to such sub-clause, except that nothing in this sub-clause 8.2 shall obligate the Lender to incur any costs or expenses in taking any action (other than minor costs of an administrative or similar nature) which, in the

170 reasonable opinion of the Lender, is prejudicial to its interests, unless NLMK agrees to reimburse the Lender for such costs and expenses.

9 Covenants The covenants in this Clause 9 shall remain in force from the date of this Agreement for so long as the Loan or any other sum owing to the Lender hereunder remains outstanding.

9.1 Negative Pledge NLMK will not, and will procure that no Material Subsidiary will, create or permit to subsist any Security Interest other than a Permitted Security Interest upon the whole or any part of its respective undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any Relevant Indebtedness: (i) payment of any sum due in respect of any such Relevant Indebtedness; (ii) any payment under any guarantee of any such Relevant Indebtedness; or (iii) any payment under any indemnity or other like obligation relating to any such Relevant Indebtedness, without in any such case at the same time or prior thereto procuring that the Loan is secured at least equally and rateably with such Relevant Indebtedness for so long as such Relevant Indebtedness is so secured.

9.2 Mergers NLMK shall not enter into or become subject to, and shall not permit any Material Subsidiary to enter into or become subject to, any reorganisation (as such term is construed by applicable legislation, including, without limitation and where applicable, any amalgamation, demerger, merger or corporate reconstruction) or other analogous event (as determined by the legislation of the relevant jurisdiction) if such reorganisation or other analogous event would have a Material Adverse Effect.

9.3 Payment of Taxes NLMK shall pay or discharge or cause to be paid or discharged, before the same shall become overdue, all taxes, levies, imposts or duties levied or imposed upon, or upon the income, profits or assets of NLMK (a ‘‘Relevant Tax’’), provided, however, that NLMK shall not be required to pay or discharge or cause to be paid or discharged any Relevant Tax (x) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with the Accounting Standards or other appropriate provision has been made or (y) where such non-payment or failure to discharge, together with non-payment or failure to discharge any other unpaid or undischarged Relevant Taxes, does not have in the aggregate a Material Adverse Effect, and provided further that in the case of either (x) or (y) above if any Relevant Tax (including any applicable penalties) is paid or discharged after becoming overdue, such payment or discharge shall be deemed to remedy any breach of this sub-clause 9.3 with respect to such Relevant Tax.

9.4 Delivery of Information 9.4.1 NLMK will (i) make available on its website and (ii) deliver to the Lender and the Trustee as soon as they become available, but in any event within 150 days after the end of each of its financial years, copies of consolidated financial statements of the Group for such financial year audited and prepared in accordance with the Accounting Standards. 9.4.2 NLMK will (i) make available on its website and (ii) deliver to the Lender and the Trustee as soon as the same become available, but in any event within 150 days after the end of the first half of each of its financial years, copies of consolidated financial statements of the Group for such period reviewed and prepared in accordance with the Accounting Standards. 9.4.3 NLMK will ensure that each set of consolidated financial statements delivered by it pursuant to this sub-clause 9.4 is accompanied by a report or review thereon by or of its auditors (including any accompanying notes).

171 9.4.4 NLMK will deliver to the Lender and the Trustee on each Interest Payment Date (or if such Interest Payment Date is not a Business Day, on the first succeeding Business Day) or within 14 days of any request of the Lender or the Trustee an Officers’ Certificate stating that, to the best of the knowledge, information and belief of the signatories to such Officers’ Certificate, having made all reasonable enquiries, no Default is continuing as at a date (the ‘‘Certification Date’’) not more than 5 Business Days before the date of such certificate, or, if any Default are, to the knowledge, information and belief of such signatories, continuing as at the Certification Date, specifying such Default. 9.4.5 Subject to any restrictions under applicable law or regulations (including without limitation regarding insider dealing or market abuse), NLMK hereby undertakes that it will deliver to the Lender and the Trustee, without undue delay, such additional information as it or the Trustee reasonably requires for the purposes of the discharge of the duties and discretions vested in it under this Loan Agreement or the Trust Deed, including providing, without limitation (a) an Officers’ Certificate certifying (i) those Subsidiaries which are Material Subsidiaries and (ii) as to the Notes held by or on behalf of NLMK or any member of the Group as at the date of such certificate, such Officers’ Certificate to be provided within 14 days of NLMK’s audited and consolidated annual accounts being made available pursuant to sub-clause 9.4.1 above, and (b) a notification whenever it or any member of the Group purchases and retains Notes for its own account. 9.4.6 NLMK undertakes to furnish to the Lender such information as the Irish Stock Exchange Plc, trading as Euronext Dublin (or any other or further stock exchange or stock exchanges on which the Notes may, from time to time, be listed or admitted to trading) may require in respect of NLMK or the Group as necessary in connection with the listing or admission to trading on such stock exchange of such instruments. 9.4.7 NLMK agrees that any information provided to the Lender pursuant to this sub-clause 9.4 may also be provided to the Trustee, if so requested by the Trustee, without violating any duty of confidentiality or secrecy that the Lender may owe to NLMK under the laws of Ireland.

10 FATCA Information and Compliance Each party to this Agreement shall, reasonably promptly following a reasonable request by another party, provide such other party with such information or assistance reasonably requested by the other party so as to enable such other party to comply with its obligation under Section 1471(b) of the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’) or otherwise imposed pursuant to Section 1471 through 1474 of the Code and any regulations or agreements thereunder, any intergovernmental agreement between the U.S. and any other jurisdiction which facilitates the implementation of any such law, regulation or interpretation, official interpretations thereof or law implementing an intergovernmental approach thereto, and any legislation, regulations or guidance enacted in any jurisdiction that seeks to implement a similar reporting or withholding regime, as well as any other tax reporting regime to which a party is subject.

11 Events of Default 11.1 Events of Default If one or more of the following events shall occur and be continuing (each, an ‘‘Event of Default’’), the Lender shall be entitled to exercise the remedies set forth in sub-clause 11.3: 11.1.1 NLMK fails to pay any amount of principal, interest or other amounts payable hereunder within seven Business Days (in the case of principal) or fourteen Business Days (in the case of interest or other amounts) of when the same were due hereunder; 11.1.2 NLMK fails to perform or observe any of its other obligations under this Agreement and except where such default is not capable of remedy, such default remains unremedied for the period of 45 calendar days after written notice thereof, addressed to NLMK by the Lender, has been delivered to NLMK; or 11.1.3 any present or future Indebtedness of NLMK or any Material Subsidiary (i) is not paid upon the later of (a) when due upon final maturity or (b) if there is an originally applicable grace period in respect of such Indebtedness at final maturity, upon the expiration of such originally applicable grace period or (ii) becomes due and payable prior to its specified maturity as a result of an event

172 of default (however described); provided that, either, (x) the individual amount of such Indebtedness that is not so paid (after the expiration of any such originally applicable grace period) or so due and payable equals or exceeds U.S.$50,000,000 or (y) the aggregate amount of such Indebtedness that is not so paid (after the expiration of any such originally applicable grace period) or so due and payable equals or exceeds U.S.$150,000,000 or, in the case of an amount specified in (i) or (ii) above, its U.S. Dollar Equivalent; or 11.1.4 an effective resolution is passed by NLMK or an order of a court of competent jurisdiction is made (and has come into force) that NLMK be wound-up or dissolved, in each case otherwise than for the purposes of or pursuant to a reorganisation, consolidation, amalgamation, merger or reconstruction permitted by this Agreement or the terms of which shall have previously been approved in writing by the Lender; or 11.1.5 an effective resolution is passed by a Material Subsidiary or an order of a court of competent jurisdiction is made (and has come into force) for the winding-up or dissolution of any Material Subsidiary except (i) for the purposes of or pursuant to a consolidation or amalgamation with or merger into NLMK or any other Subsidiary (provided such Subsidiary will be a Material Subsidiary following such consolidation, amalgamation or merger), (ii) for the purposes of or pursuant to a reorganisation, consolidation, amalgamation, merger or reconstruction permitted by this Agreement or the terms of which shall have previously been approved in writing by the Lender or (iii) by way of a voluntary winding-up or dissolution and there are surplus assets in any Material Subsidiary and any such surplus assets attributable to NLMK and/or any Material Subsidiary are distributed to NLMK and/or any other Subsidiary (provided such Subsidiary will be a Material Subsidiary following such winding-up or dissolution); or 11.1.6 an encumbrancer takes possession or a receiver is appointed of the whole or a material part of the assets or undertaking of NLMK or any Material Subsidiary and the same has a Material Adverse Effect, if such possession or appointment is not discharged or rescinded within 120 days thereof (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned); or 11.1.7 a distress, execution or seizure before judgment is levied or enforced upon the whole or a material part of the property of NLMK and the same has a Material Adverse Effect, unless such distress, execution or seizure is stayed or discharged within 120 days of its commencement (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned); or 11.1.8 NLMK or any Material Subsidiary through an official action of the board of directors of NLMK or such Material Subsidiary (as the case may be) announces its inability to pay, or is unable to pay its debts generally as and when they fall due; or 11.1.9 proceedings shall have been initiated against NLMK or any Material Subsidiary for its liquidation, insolvency, bankruptcy or dissolution under any applicable bankruptcy or insolvency law and, in respect of a Material Subsidiary only, such liquidation, insolvency, bankruptcy or dissolution would have a Material Adverse Effect, and such proceedings shall not have been discharged or stayed within a period of 120 days (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned) unless, and for so long as, the Lender, acting reasonably, is satisfied that it is being contested in good faith; or 11.1.10 NLMK or any Material Subsidiary shall initiate or consent to proceedings for its liquidation, insolvency, bankruptcy or dissolution relating to itself under any applicable bankruptcy, or insolvency law or make a general assignment for the benefit of, or enters into any general composition with, its creditors generally, unless, in respect of a Material Subsidiary only, such liquidation, insolvency, bankruptcy or dissolution would not have a Material Adverse Effect; or 11.1.11 a moratorium is agreed or declared in respect of any Indebtedness of NLMK and the same has a Material Adverse Effect, or any governmental authority or agency condemns, seizes, compulsorily purchases, transfers or expropriates all or (in the reasonable opinion of the Lender) a material part of the assets, licences or shares of NLMK; or 11.1.12 any event occurs which under the laws of Ireland, the Russian Federation or, in the case of a Material Subsidiary (where applicable) the jurisdiction of its incorporation (if different), has an analogous effect to any of the events referred to in sub-clauses 11.1.4 to 11.1.11 above.

173 11.2 Notice of Default NLMK shall deliver to the Lender and the Trustee, promptly after becoming aware thereof, written notice in the form of an Officers’ Certificate of any Default, its status and what action, if any, NLMK is taking or proposes to take with respect thereto.

11.3 Default Remedies If any Event of Default shall occur and be continuing, the Lender may, by notice in writing to NLMK, (a) declare the obligations of the Lender hereunder to be immediately terminated, whereupon such obligations shall terminate, and (b) declare the principal outstanding amount of the Loan, together with accrued interest to such date, to be immediately due and payable, whereupon all such amounts shall become immediately due and payable, all without diligence, presentment, demand of payment or protest of any kind, which are expressly waived by NLMK.

11.4 Rights Not Exclusive The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law.

11.5 Right of Set-off If any Event of Default shall occur and be continuing, NLMK authorises the Lender to proceed, to the fullest extent permitted by applicable law, without prior notice, by right of set-off, banker’s lien, counterclaim or otherwise, against any assets of NLMK in any currency that may at any time be in the possession of the Lender, at any branch or office, to the full extent of all amounts due and payable to the Lender hereunder.

12 Indemnity 12.1 Indemnification NLMK undertakes to the Lender, that if the Lender, or any director, officer, employee or agent of the Lender (each an ‘‘indemnified party’’) incurs any loss, liability, claim, demand or damage, charge or expense (including without limitation reasonable legal fees, costs and expenses) (a ‘‘Loss’’) as a result of or in connection with the Loan or this Agreement (or enforcement thereof) (excluding any Loss that is the subject of the undertakings contained in Clause 8 and sub-clause 13.8 of this Agreement (it being understood that the Lender may not recover twice in respect of the same Loss) and excluding any taxes (which exclusion shall, for the avoidance of doubt, be without prejudice to the provisions of sub-clause 13.4 below)), and/or the issue, constitution, sale, listing and/or enforcement of the Notes and/or the Notes being outstanding, NLMK shall pay to the Lender within 5 Business Days of demand an amount equal to such Loss and (without duplication) all documented costs, charges and expenses which it or any indemnified party has reasonably incurred or may reasonably incur in connection with investigating, disputing or defending any such action or claim as such costs, charges and expenses are incurred unless such Loss, cost, charge or expense was either caused by any indemnified party’s gross negligence, bad faith, fraud or wilful misconduct or arises out of a breach of the representations, warranties or undertakings of the Lender contained in this Agreement, the Trust Deed, the Paying Agency Agreement or the Subscription Agreement. The Lender shall not have any duty or obligation whether as fiduciary or trustee for any indemnified party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause. The indemnity set out in this sub-clause 12.1 shall not apply to: (a) any indirect Loss, or special or punitive damages, or (b) any loss of profits, suffered or incurred by any indemnified party, whether any claim for such loss or damage is based on tort (including negligence), strict liability, contract (including breach of or failure to perform the agreement or the breach of any representation or warranty hereunder, whether express or implied) or otherwise, other than any such indirect Loss, special or punitive damages or loss of profits of a person that is not an indemnified party and which have been awarded against an indemnified party where the indemnified party has complied in full with any requirements imposed upon it by sub-clause 12.2.

174 12.2 Conduct of Claims 12.2.1 NLMK agrees that: (i) if it becomes aware of any claims, actions, suits, proceedings (including any government or regulatory investigation), demands, judgments and awards, joint or several (each a ‘‘Claim’’) relevant for the purpose of sub-clause 12.1 or any matter which may give rise to a Claim, NLMK shall notify the Lender, on behalf of the indemnified parties thereof and shall provide them with such information and copies of such documents relating to the Claim as the Lender, on behalf of the indemnified parties may reasonably request; and (ii) it will not, without the prior written consent of the Lender, on behalf of the indemnified parties, settle or compromise or consent to the entry into of any judgment with respect to any pending or threatened Claim in respect of which indemnification may be sought under sub-clause 12.1 (whether or not any indemnified party is an actual or potential party to such Claim) unless such settlement, compromise or consent includes an unconditional release of the indemnified party from all liability arising out of such Claim and does not include a statement as to, or an admission of, fault, culpability or failure to act by or on behalf of any indemnified party. 12.2.2 Promptly after it becomes aware of any Claim made or threatened within the scope of the indemnity set out above, the Lender shall, in strict confidence, notify NLMK of the relevant Claim (indicating the nature of the allegations being made), provided that any failure to so notify shall not relieve NLMK of its obligation to indemnify under sub-clause 12.1 unless and to the extent that NLMK did not otherwise learn of such action and such failure results in NLMK being materially prejudiced. 12.2.3 Subject to this sub-clause 12.2.3 NLMK may elect to participate in the defence of any Claim. If it so elects after receipt of the notice referred to in sub-clause 12.2.2, NLMK may assume the defence of the Claim at its own expense with legal advisers chosen by it and reasonably satisfactory to the indemnified party. Notwithstanding such election, the indemnified parties may employ separate legal advisers and NLMK shall bear the reasonable fees and expenses of such separate legal advisers if (i) NLMK has failed within a reasonable time to retain legal advisers reasonably satisfactory to the Lender; (ii) the Lender shall have reasonably concluded that there may be legal defences available to them that are different from or in addition to those available to NLMK; or (iii) the parties in any such Claim include both NLMK and an indemnified party and representation of all parties by the same legal advisers would be inappropriate due to actual or potential differing interests between them, provided that (unless it would be inappropriate due to actual or potential differing interests among indemnified parties) NLMK shall not be responsible for the fees and expenses of more than one counsel (including local counsel) with respect to all indemnified parties in a Claim for which indemnification is sought without the consent of NLMK. If NLMK assumes the defence of the Claim, NLMK shall not be liable for any fees or expenses of legal advisers of the indemnified parties incurred thereafter in connection with the Claim, except as stated above. 12.2.4 NLMK shall not be liable in respect of any settlement or any action effected without its prior written consent, such consent not to be unreasonably withheld or delayed. 12.2.5 Save as provided in sub-clauses 12.1 and 12.2, indemnified parties other than the Lender will not be entitled directly to enforce their rights against NLMK under this Agreement, under the Contracts (Rights of Third Parties) Act 1999 or otherwise. The Lender (without obligation) has the right to enforce any rights of the indemnified parties on their behalf. NLMK and the Lender may agree to terminate this Agreement or vary any of its terms without the consent of any indemnified party and the Lender will have no responsibility to any indemnified party under or as a result of this Agreement.

12.3 Independent Obligation Sub-Clause 12.1 constitutes a separate and independent obligation of NLMK from its other obligations under or in connection with this Agreement and shall not affect, or be construed to affect, any other provision of this Agreement.

175 12.4 Evidence of Loss A certificate of the Lender setting forth the amount of Loss described in sub-clause 12.1 and specifying in full detail the basis therefor shall, in the absence of manifest error be prima facie evidence of the amount of such losses, expenses and liabilities.

12.5 Survival The obligations of NLMK pursuant to sub-clause 12.1 shall survive the execution and delivery of this Agreement, the drawdown of the Facility and the repayment of the Loan and all payments due thereunder, in each case by NLMK.

13 General 13.1 Evidence of Debt The entries made by the Lender in the accounts maintained by the Lender in accordance with its usual practice and evidencing the amounts from time to time lent by and owing to it hereunder shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of NLMK’s obligations recorded herein.

13.2 Stamp Duties NLMK shall pay all stamp, registration and documentary taxes or duties (if any) imposed on or payable by NLMK or the Lender in the United Kingdom, the Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement or admissibility in evidence of this Agreement. NLMK shall indemnify the Lender against any and all costs and expenses which may be incurred or suffered by the Lender with respect to, or resulting from, delay or failure by NLMK to comply with its obligation under this sub-clause 13.2 to pay such taxes or similar charges.

13.3 VAT Where a sum is payable under this Agreement to the Lender, NLMK will, in addition, pay in respect of VAT: 13.3.1 where the payment (or any part of it) constitutes the consideration (or any part thereof) for any supply of services made to NLMK, such amounts as equal any VAT properly chargeable thereon on receipt of a valid VAT invoice; 13.3.2 where the payment is to reimburse or indemnify the Lender for any cost, charge or expense incurred by it (except where the payment falls within sub-clause 13.3.3 below), such amount as equals any VAT, which the Lender represents in good faith is not recoverable by it or by the representative member of any VAT group of which it is a member, charged to or incurred by the Lender in respect of any cost, charge or expense which gives rise to or is reflected in the payment on production of relevant invoices or equivalent evidence of such payment having been made; and 13.3.3 where the payment is in respect of costs or expenses incurred by the Lender as agent for NLMK and except where section 47(3) of the United Kingdom Value Added Tax Act 1994 (or any equivalent legislation in a jurisdiction outside the United Kingdom) applies, such amount as equals the amount included in the costs or expenses in respect of VAT and in such case the Lender shall use reasonable efforts to procure that the actual supplier of goods or services which the Lender received as agent issues a valid VAT invoice directly to NLMK in respect of the relevant supply.

13.4 Payment Gross-Up Where any payment is made under this Agreement to the Lender pursuant to an indemnity, compensation or reimbursement provision, the sum payable shall take into account (i) any charge to Taxation in the hands of the Lender in respect of such payment and (ii) any tax relief available to the Lender in respect of the matter giving rise to the payment and which may be offset against the charge to Taxation, such that the Lender shall be left with a sum equal to the sum that it would have retained in the absence of such a charge to Taxation and such tax relief.

176 13.5 Waivers No failure to exercise and no delay in exercising, on the part of the Lender or NLMK, any right, power or privilege hereunder and no course of dealing between NLMK and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights, or remedies provided by applicable law.

13.6 Notices 13.6.1 Method Each communication under this Agreement shall be made by fax or otherwise in writing (by hand, courier or pre-paid express delivery service). Each communication or document to be delivered to any party under this Agreement shall be sent to that party at the fax number or postal address, and marked for the attention of the person (if any), from time to time designated by that party to each other party for the purpose of this Agreement. The initial fax number, postal address and person so designated by the parties under this Agreement are set out below: if to NLMK: Address 2, pl. Metallurgov, Lipetsk 348040, Russia Fax: +7 495 504 0504 Attention: Ksenia Sergeeva, Head of Debt Financing Dmitry Donov, Head of Legal Department E-mail: [email protected] [email protected] if to the Lender: Address Steel Funding DAC Block A, George’s Quay Plaza George’s Quay Dublin 2 Ireland Fax: +353 1686 4879 Attention: The Directors E-mail: [email protected] or to such other address or fax number as any party may hereafter specify in writing to the other.

13.6.2 Deemed Receipt Any communication from any party to any other under this Agreement shall be effective, (if by fax) when the relevant delivery receipt is received by the sender and, (if in writing) when delivered; provided that any communication which is received (or deemed to take effect in accordance with the foregoing) outside business hours or on a non-business day in the place of receipt shall be deemed to take effect at the opening of business on the next following business day in such place. Any communication delivered to any party under this Agreement which is to be sent by fax will be written legal evidence.

13.7 Assignment 13.7.1 Subject to sub-clauses 13.7.2 and 13.7.3, this Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a party’s rights under this Agreement. Any reference in this Agreement to any party shall be construed accordingly and, in particular, references to the exercise of any rights, benefits and discretions or the making of any determination (including forming an opinion) by, and the delivery of notices, certificates and information to, the Lender, shall include references to the exercise of any such rights, benefits or discretions by or the making of such determination (including forming an opinion) by the Trustee (as Trustee). Notwithstanding the foregoing, the

177 Trustee shall not be entitled to participate in any determinations by, and the delivery of notices, certificates and information to, the Lender or any discussions between the Lender and NLMK or any agreements of the Lender or NLMK, pursuant to sub-clauses 6.4, 6.5 or Clause 8. 13.7.2 NLMK shall not assign or transfer all or any part of its rights or obligations hereunder to any other party or person. 13.7.3 Subject to the provisions of Clause 17 of the Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights, obligations and benefits under this Agreement other than the Reserved Rights except that the Lender may charge by way of first fixed charge in favour of the Trustee (as Trustee) certain of the Lender’s rights and benefits under this Agreement and assign to the Trustee certain rights, interests and benefits under this Agreement, in each case, as set out in Clause 4 of the Trust Deed.

13.8 Currency Indemnity To the fullest extent permitted by law, the obligation of NLMK in respect of any amount due in Dollars under this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in Dollars that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any reasonable premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in Dollars that may be so purchased for any reason falls short of the amount originally due (the ‘‘Due Amount’’), NLMK hereby agrees to indemnify and hold harmless the Lender against any deficiency in Dollars. Any obligation of NLMK not discharged by payment in Dollars shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect. If the amount in Dollars that may be purchased exceeds that Due Amount the Lender shall promptly pay the amount of the excess to NLMK.

13.9 Contracts (Rights of Third Parties) Act 1999 Except as otherwise specifically provided herein and other than in the case of the Trustee who shall have rights under the Contracts (Rights of Third Parties) Act 1999 under this Agreement, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. This Agreement may be terminated and any term may be amended or waived without the consent of any such person so expressly provided for under this Agreement.

13.10 Governing Law This Agreement and any non-contractual obligations arising out of or in connection with it are governed by and shall be construed in accordance with English law.

13.11 Jurisdiction The parties irrevocably agree that any dispute arising out of or in connection with this Agreement, including a dispute as to the formation, validity, existence breach, enforceability, applicability or termination of this Agreement and/or this sub-clause 13.11 or the consequences of its or their nullity (a ‘‘Dispute’’), shall be referred to and finally resolved by arbitration seated in London, England. The arbitration shall be conducted in the English language by three arbitrators and administered by the LCIA (formerly the London Court of International Arbitration in accordance with its rules (‘‘LCIA Rules’’) in effect at the time of the arbitration, except as they may be modified herein of by mutual agreement of the parties. The LCIA Rules are deemed to be incorporated by reference into this Clause. The claimant shall nominate an arbitrator in its request for arbitration, and the respondent shall nominate an arbitrator within 30 days of receipt of the request for arbitration. The two arbitrators so nominated shall jointly nominate a third arbitrator within 30 days of the nomination of the second arbitrator. The third arbitrator shall be the Chairman of the tribunal. If any of the three arbitrators is not nominated within the time periods prescribed above, any party may request that the LCIA chooses and appoints that arbitrator. The arbitration award shall be final and binding on the parties. The parties agree to exclude the jurisdiction of the English court under Sections 45 and 69 of the Arbitration Act 1996.

178 13.12 Waiver of Immunity To the extent that NLMK or the Lender may now or hereafter be entitled, in any jurisdiction in which any legal action or proceeding may at any time be commenced with respect to this Agreement, to claim for itself or any of its undertaking, properties, assets or revenues present or future any immunity (sovereign or otherwise) from suit, jurisdiction of any court, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or award or from set-off, banker’s lien, counterclaim or any other legal process or remedy with respect to its obligations under this Agreement and/or to the extent that in any such jurisdiction there may be attributed to NLMK or the Lender any such immunity (whether or not claimed), NLMK and the Lender hereby irrevocably agree not to claim, and hereby waive, any such immunity.

13.13 Severability In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

13.14 Counterparts This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement.

13.15 Language The language which governs the interpretation of this Agreement is the English language.

13.16 Amendments Except as otherwise provided by its terms, this Agreement may not be varied except by an agreement in writing signed by the parties.

13.17 Partial Invalidity The illegality, invalidity or unenforceability to any extent of any provision of this Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision.

13.18 Prescription In the event that any Notes become void pursuant to Condition 10 of the Notes, the Lender shall forthwith repay to NLMK the principal amount of such Notes subject to the Lender having previously received from NLMK, and being in possession of, a corresponding amount in respect of principal pursuant to this Agreement.

13.19 Limited Recourse and Non-Petition NLMK hereby agrees that, notwithstanding any other provisions hereof, it shall have recourse in respect of any claim against the Lender only to sums in respect of principal, interest or other amounts (if any), as the case may be, received by or for the account of the Lender pursuant to this Agreement (after deduction or withholding of such taxes as may be required to be made by the Lender by law in respect of each such sum or in respect of the Notes and for which the Lender has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Lender) in respect thereof pursuant to this Agreement) (the ‘‘Lender Assets’’), subject always to (i) the Security Interests and (ii) to the fact that any claims of the Managers (as defined in the Subscription Agreement) shall rank in priority to any claims of NLMK hereunder and that any such claim by any and all such Managers or NLMK shall be reduced pro rata so that the total of all such claims does not exceed the aggregate value of the Lender Assets after meeting claims secured on them. Neither NLMK nor any person acting on behalf of it shall be entitled to take any further steps against the Lender to recover any further sums and no debt shall be owed by the Lender to NLMK in respect of any such further sum. In particular, neither NLMK nor any other person acting on behalf of it shall be entitled

179 at any time to institute against the Lender, or join in any institution against the Lender of any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Lender relating to the Notes or otherwise owed to the Lender’s creditors, save for lodging a claim in the liquidation of the Lender which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Lender. No party to this Agreement shall have any recourse against any director, shareholder, or officer of the Lender in respect of any obligations, covenants or agreement entered into or made by the Lender in respect of this Agreement, except to the extent that any such person acts in bad faith or is negligent or is wilfully in default in the context of its obligations. The provisions of this sub-clause 13.19 shall survive the termination of this Agreement.

180 TERMS AND CONDITIONS OF THE NOTES The following is the text of the Terms and Conditions of the Notes, which contains summaries of certain provisions of the Trust Deed and which (subject to completion and amendment) will be attached to the Notes in definitive form (if any) and (subject to the provisions thereof) will apply to the Global Certificates. The U.S.$500,000,000 4.70 per cent. Loan Participation Notes due 2026 (the ‘‘Notes’’ which expression includes any further Notes issued pursuant to Condition 14 and forming a single series herewith), without coupons, of Steel Funding D.A.C. (the ‘‘Issuer’’ which expression shall include any entity substituted for the Issuer in accordance with the Trust Deed) are constituted by, are subject to, and have the benefit of a trust deed (the ‘‘Trust Deed’’, which expression includes such trust deed as from time to time modified in accordance with the provisions therein contained and any deed or other document expressed to be supplemental thereto, as from time to time so modified) 30 May 2019 and made between the Issuer and Citicorp Trustee Company Limited (the ‘‘Trustee’’, which expression shall include any successor as trustee) as trustee for the Noteholders (as defined below). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing a U.S.$500,000,000 loan (the ‘‘Loan’’) to Novolipetsk Steel (‘‘NLMK’’). The terms of the Loan are set forth in a loan agreement (the ‘‘Loan Agreement’’) dated 28 May 2019 between the Issuer and NLMK. In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligations of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amounts in respect of the Reserved Rights (as defined in the Trust Deed). Noteholders must therefore rely on the covenant to pay under the Loan Agreement and the credit and financial standing of NLMK. Noteholders shall have no recourse (direct or indirect) to any other asset of the Issuer. The Issuer has charged, by way of first fixed charge in favour of the Trustee for the benefit of itself and the Noteholders, certain of its rights and interests as lender under the Loan Agreement and under the Account (as defined in the Trust Deed) as security for its payment obligations in respect of the Notes and under the Trust Deed (the ‘‘Charge’’) and has assigned certain other rights under the Loan Agreement to the Trustee (the ‘‘Assigned Rights’’ and, together with the Charge, the ‘‘Security Interests’’), in each case excluding the Reserved Rights. In certain circumstances, the Trustee can (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) be required by Noteholders holding in aggregate at least 25 per cent. of the principal amount of the Notes outstanding (as defined in the Trust Deed) or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising under the Security Interests). Payments in respect of the Notes will be made (subject to the receipt of the relevant funds from NLMK under the Loan Agreement) pursuant to a paying agency agreement (the ‘‘Paying Agency Agreement’’) dated 28 May 2019 and made between the Issuer, NLMK, Citibank, N.A., London Branch as the principal paying agent, and a transfer agent (the ‘‘Principal Paying Agent’’, the ‘‘Transfer Agent’’, which expressions shall include any successors), Citigroup Global Markets Europe AG as the registrar (the ‘‘Registrar’’, which expression shall include any successors and the Rule 144A registrar), Citigroup Global Markets AG as the Rule 144A registrar and the Trustee. References herein to the ‘‘Agents’’ are to the Registrar, the Paying Agents and the Transfer Agents and any reference to an ‘‘Agent’’ is to any one of them. Copies of the Trust Deed, the Loan Agreement and the Paying Agency Agreement are available for inspection during normal business hours at (i) the registered office of the Trustee being, at the date hereof, at Citigroup Centre, 33 Canada Square, London E14 5 LB, United Kingdom; (ii) the registered office of the Issuer being, at the date hereof, Block A, George’s Quay Plaza, George’s Quay, Dublin 2, Ireland; and (iii) at the specified office of the Principal Paying Agent, the initial specified office of which is set out below. Certain provisions of these terms and conditions (the ‘‘Conditions’’) are summaries or restatements of, and are subject to, the detailed provisions of the Trust Deed, the Loan Agreement (the form of which is scheduled to and incorporated in the Trust Deed) and the Paying Agency Agreement. Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust

181 Deed and are deemed to have notice of all the provisions of the Loan Agreement and the Paying Agency Agreement that are applicable to them. Unless otherwise stated, terms not defined herein shall have the meanings given to them in the Trust Deed.

1 Status The Notes are limited recourse secured obligations of the Issuer. The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum to the extent that the Issuer has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Issuer) in respect thereof) by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of the Reserved Rights. The Trust Deed provides that payments in respect of the Notes equal to the sums actually received by or for the account of the Issuer by way of principal, interest or additional amounts (if any) pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights will be made pro rata among all Noteholders (subject to Condition 7), on the Business Day following the date of, and in the currency of, and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. As provided therein, the Issuer shall be under no obligation to exercise in favour of the Noteholders any rights of set-off or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and NLMK. Noteholders have notice of, and have accepted, these Conditions and the contents of the Trust Deed, the Paying Agency Agreement and the Loan Agreement. It is hereby expressly provided that, and Noteholders are deemed to have accepted that: (a) neither the Issuer nor the Trustee makes any representation or warranty in respect of, or shall at any time have any responsibility for, or, (in the case of the Issuer) save as otherwise expressly provided in the Trust Deed, in Condition 1(f) below or in the Loan Agreement (in the case of the Issuer), any liability or obligation in respect of the performance and observance by NLMK of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest (or any additional amounts) due or to become due from NLMK under the Loan Agreement save that nothing in this Condition shall absolve the Trustee from responsibility and liability for performance of its trusts, duties and obligations pursuant to, and subject to the terms of, the Trust Deed; (b) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial or otherwise), creditworthiness, affairs, status, nature or prospects of NLMK; (c) neither the Issuer nor the Trustee shall at any time be liable for any representation or warranty or any act, default or omission of NLMK under or in respect of the Loan Agreement; (d) neither the Issuer nor the Trustee shall at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Agents of their respective obligations under the Paying Agency Agreement; (e) the payment of principal, interest and other amounts, if any, under, and performance of the terms of, the Notes depend upon performance by NLMK of its obligations under the Loan Agreement, and NLMK’s credit and financial standing; (f) the Issuer and the Trustee shall be entitled to rely on delivery to them of Officers’ Certificates (as defined in the Trust Deed) and/or any other certificates (whether or not addressed to the Issuer or the Trustee) from NLMK as a means of monitoring whether NLMK is complying with its obligations under the Loan Agreement or as to the identity of NLMK’s Material Subsidiaries (as defined in the Loan Agreement) and shall not otherwise be responsible for investigating any aspect of NLMK’s performance in relation thereto and, (in the case of the Issuer) subject as further provided in the Trust Deed, neither the Issuer as lender under the Loan Agreement nor the Trustee will be liable for any failure to make the usual or any investigations which might be made by a lender or a security holder

182 (as applicable) in relation to the property which is subject to the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the property which is subject to the Security Interests whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will the Trustee have any liability for the enforceability of the security created by the Security Interests whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security or the priority of such security; the Trustee has no responsibility for the value or validity of such security; (g) neither the Trustee nor the Issuer shall at any time be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its obligations or duties or the exercise of any right, power, authority or discretion pursuant to these Conditions until the Issuer, or the Trustee, as the case may be, has received an indemnity and/or security to its satisfaction and/or the funds that are necessary to cover the costs and expenses in connection with such performance or exercise, or has been (in its sole discretion) sufficiently assured that it will receive such funds; and (h) the Issuer will not be liable to make any payments to compensate for any withholding or deduction required to be made by or on behalf of the Issuer in respect of any payment relating to the Notes, or for any payment for or on account of tax required to be made by the Issuer on or in relation to any sum received by it under the Loan Agreement, save to the extent that it has received additional amounts under the Loan Agreement in respect of such withholding or deduction or payment. The Issuer shall not be obliged to take any actions or measures as regards such deduction or withholding or payment, other than those set out in this context in the Loan Agreement. The Trustee shall have no liability in respect of any such deduction, withholding or payment. Under the Trust Deed, the obligations of the Issuer in respect of the Notes rank pari passu and rateably without any preference among themselves. In the event that the payments under the Loan Agreement are made by NLMK to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent, they will pro tanto, to the extent of such payment, satisfy the obligations of the Issuer in respect of the Notes, unless, upon the due presentation of a Note, payment is improperly withheld or refused. Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer’s right under or in respect of the Loan Agreement or the Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce the Loan Agreement or direct recourse to NLMK except through action by the Trustee pursuant to the relevant Security Interests granted to the Trustee in the Trust Deed. Neither the Issuer nor, following the enforcement of the Security Interests created in the Trust Deed, the Trustee shall be required to take any steps, actions or proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured and/or prefunded by the Noteholders to its satisfaction. As provided in the Trust Deed, and notwithstanding any other provision hereof, the obligations of the Issuer are solely to make payments of amounts in aggregate equal to each sum actually received by or for the account of the Issuer pursuant to the Loan Agreement from NLMK in respect of principal, interest, additional amounts (if any), as the case may be, (less any amount in respect of the Reserved Rights) (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum or in respect of the Notes), the right to which will be subject to the Security Interests as provided in the Trust Deed. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received or recovered by or on behalf of the Issuer or the Trustee (following a Relevant Event (as defined in the Trust Deed) or (if applicable) an Event of Default (as defined in the Loan Agreement)). Noteholders shall look solely to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer’s other assets (other than those subject to the Security Interests) in respect thereof. Noteholders must therefore rely upon the covenant to pay under the Loan Agreement and the credit and financial standing of NLMK and no other assets of the Issuer (other than those subject to the Security Interests) will be available to the Noteholders. Notwithstanding any other provisions of these Conditions and the provisions in the Trust Deed, the Trustee and the Noteholders shall have recourse only to the Security Interests in accordance with Clause 4 of the Trust Deed. After realisation of the security which has become enforceable and distribution of the

183 proceeds in accordance with Clause 8 of the Trust Deed, the obligations of the Issuer with respect to the Trustee and the Noteholders in respect of the Notes shall be satisfied and none of the foregoing parties may take any further steps against the Issuer to recover any further sums in respect thereof and the right to receive any such sums shall be extinguished. In particular, none of the Noteholders, the Trustee, nor any other person acting on behalf of any of them shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors or the Trustee, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer. Neither the Noteholders nor the Trustee shall have any recourse against any director, shareholder, or officer of the Issuer in respect of any representations, warranties, obligations, covenants or agreements entered into or made by the Issuer in respect of the Notes except to the extent that any such person acts in bad faith or is negligent or is wilfully in default in the context of its obligations.

2 Form, Denomination, Register and Transfers 2.1 Form and denomination: Notes are in registered form, in the denominations of U.S.$200,000 or integral multiples of U.S.$1,000 in excess thereof (each an ‘‘Authorised Holding’’), without coupons attached. The Notes will be initially issued in global, fully registered form, and represented by (i) a Rule 144A Global Certificate (the ‘‘Rule 144A Global Certificate’’), interests in which are to be sold to qualified institutional buyers (each a ‘‘QIB’’), within the meaning of, and pursuant to, Rule 144A (‘‘Rule 144A’’) under the U.S. Securities Act of 1933 (the ‘‘Securities Act’’), each of whom is also a qualified purchaser (‘‘QP’’) (as defined in Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940) and (ii) a Regulation S Global Certificate (the ‘‘Regulation S Global Certificate’’ and, together with the Rule 144A Global Certificate, the ‘‘Global Certificates’’), interests in which are to be offered outside the United States to non-U.S. persons within the meaning of, and pursuant to, Regulation S under the Securities Act (‘‘Regulation S’’) which will each be exchangeable for Notes in definitive, fully registered form in the limited circumstances specified in the Global Certificates and the Paying Agency Agreement.

2.2 Register, Title and Transfers: (a) Register The Registrar will maintain a register (the ‘‘Register’’) in respect of the Notes in accordance with the provisions of the Paying Agency Agreement. In these Conditions the ‘‘holder’’ of a Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and ‘‘Noteholder’’ shall be construed accordingly. A definitive certificate (a ‘‘Definitive Certificate’’) will be issued to each Noteholder in respect of its registered holding of Notes.

(b) Title Title to the Notes will pass by and upon registration in the Register. The holder of each Note shall (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Definitive Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Definitive Certificate) and no person shall be liable for so treating such holder.

(c) Transfers Subject to the terms of the Paying Agency Agreement and paragraphs (d), (e), (f) and (g) of this Condition 2.2, a Note may be transferred upon surrender of the relevant Definitive Certificate, with the endorsed form of transfer duly completed, at the specified office of the Registrar or at the specified office of the Transfer Agent, together with such evidence as the Registrar or the Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided however, that a Note may not be transferred unless the principal amount of the Notes

184 transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of the Notes not transferred are Authorised Holdings. Where not all the Notes represented by the surrendered Definitive Certificates are the subject of the transfer, a new Definitive Certificate in respect of the balance of the Notes not transferred will be issued to the transferor.

(d) Registration and delivery of Definitive Certificates Subject to paragraph (e) of this Condition 2.2, within five business days of the surrender of a Definitive Certificate in accordance with paragraph (c) above, the Registrar will register the transfer in question and deliver a new Definitive Certificate to each relevant holder at its specified office or (at the request and risk of such relevant holder) by uninsured first class mail (airmail if overseas) to the address specified for the purpose by such relevant holder. In this paragraph, ‘‘business day’’ means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar has its specified office. In the case of the transfer of only a part of the Notes, a new Definitive Certificate in respect of the balance of the Notes not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor.

(e) No charge The transfer of Notes will be effected without charge to the holder or transferee thereof but against such indemnity as the Registrar or the Transfer Agent, as applicable, may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer.

(f) Closed periods Noteholders may not require transfers to be registered (i) during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes and (ii) after any Note has been called for redemption.

(g) Regulations concerning Transfers and Registration All transfers of Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Paying Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Noteholder who requests in writing a copy of such regulations and who can confirm they are a Noteholder to the satisfaction of the Registrar and a copy of such regulations will also be available at the specified office of the Registrar.

3 Restrictive Covenant As provided in the Trust Deed, so long as any of the Notes remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution or a Written Resolution (each as defined in the Trust Deed), agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, or agree any novation, assignment, rescission, cancellation or termination of the terms of the Loan Agreement (other than in respect of Reserved Rights) and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement, as the case may be. Any such amendment, modification, waiver, authorisation, novation, assignment, rescission, cancellation or termination made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition 13. Save as provided above, so long as any Note remains outstanding, the Issuer, without the prior written consent of the Trustee or an Extraordinary Resolution or a Written Resolution, shall not, inter alia, incur any other indebtedness for borrowed money other than the issue of Notes and any further notes in accordance with Condition 14 or the issue of notes on a limited recourse basis, provided that such notes are not secured on assets of the Issuer over which the Security Interests have been created or the Issuer’s share capital, engage in any business (other than entering into any agreements related to the Notes or any other issue of notes as aforesaid (including any repurchase or exchange thereof), activities reasonably required to maintain its existence or comply with any applicable law, regulation, judgment or its constitutional documents and performing any acts incidental to or necessary in connection with the Notes

185 or any other issue of notes as aforesaid or such related agreements (including the holding of any security in connection with any of the foregoing), making the Loan to NLMK pursuant to the Loan Agreement or any future loans to NLMK in connection with the issue of notes as aforesaid and performing any act or executing any document incidental to or necessary in connection therewith), declare any dividends, have any subsidiaries or employees, purchase, own, lease or otherwise acquire any real property, consolidate or merge with any other person or convey or transfer its properties or assets substantially as an entirety (to the extent the same is within the control of the Issuer) to any person (otherwise than as contemplated in these Conditions and the Trust Deed), issue any further shares (other than those required to convert the Issuer’s status to that of a public limited company or as are in issue as at the date of the Trust Deed) (to the extent the same is within the control of the Issuer) or make any distribution to its shareholders, give any guarantee or assume any other liability (other than in connection with any act or agreement permitted pursuant to this Condition 3), or, unless required under the laws of Ireland, petition for any winding-up or bankruptcy.

4 Interest On each Interest Payment Date (or such later date as amounts equivalent to amounts of interest due on such date are received) the Issuer shall account to the Noteholders for an amount equal to the amount of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement which interest under the Loan is payable at a rate of 4.70 per cent. per annum calculated on the outstanding principal amount of the Loan from time to time as set out in Clause 4 of the Loan Agreement. Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall accrue (after as well as before judgment) at the rate of interest and until the time set out in Clause 4 of the Loan Agreement. In these Conditions, ‘‘Interest Payment Date’’ means 30 May and 30 November of each year commencing on 30 November 2019.

5 Redemption and Purchase (a) Final Redemption Unless previously prepaid or repaid pursuant to the terms of the Loan Agreement, NLMK will be required to repay the Loan on 30 May 2026 (the ‘‘Repayment Date’’) and, subject to such repayment, as set forth in the Loan Agreement, all the Notes then outstanding will on the Repayment Date be redeemed or repaid by the Issuer at 100 per cent. of the principal amount thereof together with accrued interest. (b) Early Redemption Under the Loan Agreement: (i) NLMK may, in the circumstances set out in Clause 5.2 of the Loan Agreement prepay the Loan in whole but not in part; or (ii) NLMK may be required to prepay the Loan in whole but not in part in the circumstances set out in Clause 5.3 of the Loan Agreement. If the Loan should become repayable pursuant to the terms of the Loan Agreement prior to the Repayment Date, as set forth in the Loan Agreement, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at 100 per cent. of the principal amount together with accrued interest and (subject to the Loan being repaid together with accrued interest and such amounts actually being received by the Issuer) shall be redeemed or repaid by the Issuer on the date specified pursuant to the Loan Agreement and the Issuer will endeavour to give not less than 14 days’ notice thereof to the Trustee and the Noteholders in accordance with Condition 13.

(c) Optional Redemption at the option of the Issuer under Make Whole Call Option At any time prior to the Repayment Date NLMK may, at its option, on giving not less than 30 nor more than 60 days’ notice to the Issuer (which notice shall be irrevocable and shall specify the date fixed for prepayment (the ‘‘Make Whole Optional Prepayment Date’’)), prepay in whole or in part the Loan at the Make Whole Prepayment Amount (as defined in the Loan Agreement) plus accrued and unpaid interest on the Loan so prepaid to but excluding the Make Whole Optional Prepayment Date (the ‘‘Make Whole Call Option’’).

186 Immediately on receipt of such notice, the Issuer shall forward it to the Noteholders (in accordance with Condition 13), the Trustee and the Principal Paying Agent. If, as a result of the Make Whole Call Option, the Loan is repaid by NLMK as set forth in the Loan Agreement prior to the Repayment Date, the Notes will thereupon become due and repayable and the Issuer shall, subject to receipt of the relevant amounts from NLMK under the Loan, redeem the Notes on the Make Whole Optional Prepayment Date. In the case of a partial redemption, the Notes shall be selected for redemption either: (a) in accordance with the procedures of the relevant Clearing Systems; or (b) if the Notes are not held in a Clearing System or if the relevant Clearing Systems prescribe no method of selection, the Notes will be redeemed on a pro rata basis according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection made pursuant to this Condition 5(c). The Issuer’s obligations in respect of this Condition 5(c) to redeem and make payment for the Notes shall constitute an obligation only to account to Noteholders on the Make Whole Optional Prepayment Date for an amount equivalent to the sums received by or for the account of the Issuer pursuant to the Loan Agreement.

(d) Optional Redemption at the option of the Issuer under Par Call Option At any time on or after the date three months prior to the Repayment Date, NLMK may, on giving not less than 10 nor more than 60 days’ notice to the Issuer (which notice shall be irrevocable and shall specify the date fixed for prepayment (the ‘‘Par Optional Prepayment Date’’)), prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the Par Optional Prepayment Date (the ‘‘Par Call Option’’). Immediately on receipt of such notice, the Issuer shall forward it to the Noteholders (in accordance with Condition 13), the Trustee and the Principal Paying Agent. If, as a result of the Par Call Option, the Loan is repaid by NLMK as set forth in the Loan Agreement prior to the Repayment Date, the Notes will thereupon become due and repayable and the Issuer shall, subject to receipt of the relevant amounts from NLMK under the Loan, redeem the Notes on the Par Optional Prepayment Date. In the case of a partial redemption, the Notes shall be selected for redemption either: (a) in accordance with the procedures of the relevant Clearing Systems; or (b) if the Notes are not held in a Clearing System or if the relevant Clearing Systems prescribe no method of selection, the Notes will be redeemed on a pro rata basis according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection made pursuant to this Condition 5(d). The Issuer’s obligations in respect of this Condition 5(d) to redeem and make payment for the Notes shall constitute an obligation only to account to Noteholders on the Par Optional Prepayment Date for an amount equivalent to the sums received by or for the account of the Issuer pursuant to the Loan Agreement.

(e) Purchases The Loan Agreement provides that the Issuer, NLMK or any member of the Group (as defined in the Loan Agreement) may, among other things, purchase Notes from time to time, in the open market or by tender or by private agreement at any price. Such Notes may, at the option of the Issuer, NLMK or such member of the Group, be held, reissued, resold or, in the case of NLMK or such member of the Group, delivered to the Issuer together with a request for the Issuer to present such Notes to the Registrar for cancellation on not less than 30 days notice, whereupon the Issuer shall, pursuant to the Paying Agency Agreement, instruct the Registrar, subject to the satisfaction of certain conditions set out in the Loan Agreement, to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by NLMK in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon, and no further payment shall be made or required to be made by the Issuer in respect of such Notes. The Issuer may compel any beneficial owner of Rule 144A Certificates to certify that it is a QIB that is also a QP and may compel any such beneficial owner to sell its interest in such Rule 144A Certificates, or may sell such interest on behalf of such holder, if such holder is a U.S. person that is not a QIB that is also a QP.

187 6 Payments (a) Principal and interest Payment of principal and interest in respect of the Notes will be made to the person(s) shown as the holder in the Register at the opening of business on the Record Date (as defined below). Payments of all amounts other than as provided in this Condition 6(a) will be made as provided in these Conditions.

(b) Payments Each payment in respect of the Notes pursuant to Condition 6(a) shall be made by transfer to a U.S. Dollar account maintained by or on behalf of the payee with a bank in New York City and (in the case of interest payable on redemption) upon surrender of the relevant Definitive Certificates at the specified office of the Principal Paying Agent or at the specified office of a Transfer Agent. Payment instructions (for value on the due date or, if that is not a business day (as defined in (d) below), for value the first following day which is a business day) will be initiated on the business day preceding the due date for payment (for value the next business day).

(c) Payments subject to fiscal law All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 7. No commissions or expenses shall be charged to the Noteholders in respect of such payments.

(d) Payments on business day A Note may only be presented for payment on a day which is a business day in the place of presentation. If the due date for payment of interest or principal is not a business day, the holder of a Note shall not be entitled to payment of the amount due until the next following business day and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, ‘‘business day’’ means a day on which (i) the London interbank market is open for dealings between banks generally and (ii) if on that day a payment is to be made hereunder, commercial banks generally are open for business in Dublin, New York City and in the city where the specified office of the Principal Paying Agent is located.

(e) Record Date Each payment in respect of a Note will be made to the person shown as the holder in the Register at the opening of business (in the place of the Registrar’s specified office) on the fifteenth day before the due date for each payment (the ‘‘Record Date’’).

(f) Agents The Paying Agency Agreement provides that the Issuer may at any time, with the prior written approval of the Trustee appoint a successor Registrar or Principal Paying Agent and/or additional or successor paying agents or transfer agents provided that for so long as the Notes are listed on the Irish Stock Exchange plc, trading as Euronext Dublin (the ‘‘Stock Exchange’’), the Issuer will use its best efforts to ensure that it maintains (i) a Principal Paying Agent, (ii) a Registrar, (iii) a Transfer Agent, and (iv) such other agents as may be required by any stock exchange on which the Notes may be listed. Any such appointment of successor or other Agents shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 days’ and not less than 30 days’ notice thereof shall have been given to the continuing Agents, NLMK, the Trustee and to the Noteholders in accordance with Condition 13. In acting under the Paying Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders.

(g) Payments by NLMK Save as directed by the Trustee at any time after the Security Interests created under the Trust Deed become enforceable, the Issuer will require NLMK to make all payments of principal, interest and additional amounts (if any) to be made pursuant to the Loan Agreement to an account in the name of the Issuer with the Principal Paying Agent. Pursuant to the Charge, the Issuer will charge by way of first fixed

188 charge, all its rights, title and interest in and to all sums of money (with the exception of sums relating to the Reserved Rights) then or in the future so deposited in such account and the debts represented thereby to the Trustee for the benefit of the Trustee and the Noteholders.

(h) Currency other than U.S. Dollars In respect of the Issuer’s obligations under Conditions 4, 5, 6 and 7, and subject to the following sentence, if the Issuer receives any amount under the Loan Agreement in a currency other than U.S. Dollars, the Issuer’s obligation under the relevant Condition shall be fully satisfied by paying such sum (after deducting any costs of exchange) as the Issuer receives upon conversion of such sum into U.S. Dollars in accordance with customary banking practice in the spot market on the business day immediately following the day on which such sum is received by the Issuer, provided that the Issuer shall use its best efforts to procure payment of any amounts due from NLMK pursuant to Clause 12.8 of the Loan Agreement. If the Issuer receives any payment from NLMK pursuant to Clause 12.8 of the Loan Agreement with respect to amounts due under the Notes, the Issuer shall pay such sum to the Noteholders in accordance with this Condition 6.

7 Taxation All payments in respect of the Notes by or on behalf of the Issuer shall be made without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied, collected, withheld or assessed by or on behalf of any authority having the power to tax, unless the deduction or withholding of such taxes or duties is required by law or regulation. In the event any such taxes, duties, assessments or governmental charges of whatever nature are imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax, the Issuer shall, except as provided below, make such additional payments as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required. However, the Issuer shall only be required to make such additional payments to the extent and at such time as it shall receive equivalent sums from NLMK under the Loan Agreement. To the extent that the Issuer does not receive any such equivalent sum, the Issuer shall account to the relevant Noteholder for an additional amount equivalent to a pro rata proportion of such additional amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement on the date of, in the currency of, and subject to any conditions attaching to the payment of such additional amount to the Issuer provided that no such additional amount will be payable: (i) to a Noteholder who (A) is liable for such taxes or duties by reason of his having some connection with Ireland other than the mere holding of such Notes or the receipt of payments in respect thereof or (B) is able to avoid such withholding or deduction by satisfying any statutory requirements or by making a declaration of non-residence or other claim for exemption to the tax authority; (ii) in respect of a Note presented for payment of principal more than 30 days after the Relevant Date except to the extent that such additional payment would have been payable if such Note had been presented for payment on such thirtieth day; (iii) in respect of a Note held by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying Agent in a Member State of the European Union; (iv) where such withholding or deduction is required pursuant to Section 1471(b) of the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version), any current or future regulations or agreements (including any intergovernmental agreements) thereunder, official interpretations thereof or any law, regulation or official interpretation implementing any of the foregoing; or (v) any combination of the above.

189 As used herein, ‘‘Relevant Date’’ means the later of (i) the date on which the equivalent payment under the Loan Agreement first becomes due and (ii) if the full amount payable by NLMK corresponding to such payment has not been received by, or for the account of, the Issuer pursuant to the Loan Agreement on or prior to such date, the date on which such full amount shall have been so received and notice to that effect shall have been duly given to the Noteholders by or on behalf of the Issuer in accordance with Condition 13. Any reference herein or in the Trust Deed to payments in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable in accordance with the Trust Deed and this Condition 7 or any undertaking given in addition thereto or in substitution therefor pursuant to the Trust Deed. If the Issuer becomes subject to any taxing jurisdiction other than or in addition to Ireland, references in these Conditions to Ireland shall be construed as references to Ireland and/or such other jurisdiction.

8 Enforcement The Trust Deed provides that only the Trustee may pursue the remedies under the general law, the Trust Deed or the Notes to enforce the rights of the Noteholders and no Noteholder will be entitled to pursue such remedies unless the Trustee (having become bound to do so in accordance with the terms of the Trust Deed) fails to do so within a reasonable period and such failure is continuing. The Trust Deed also provides that, in the case of an Event of Default that is continuing, or of a Relevant Event, the Trustee may, and shall, if requested in writing to do so by Noteholders holding at least 25 per cent. in principal amount of the Notes outstanding, or if directed to do so by an Extraordinary Resolution, and, in any such case, subject to it being secured and/or indemnified and/or prefunded to its satisfaction, institute such steps (subject to the non-petition covenant in Condition 1), actions or proceedings as it may think fit to enforce the rights of the Noteholders and the provisions of the Trust Deed, including to declare all amounts payable under the Loan Agreement by NLMK to be immediately due and payable in certain circumstances (in the case of an Event of Default), or exercise any rights under the Security Interests created in the Trust Deed in favour of the Trustee (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default and a declaration as provided herein, the Notes will be redeemed or repaid at their principal amount together with accrued interest thereon and thereupon shall cease to be outstanding.

9 Meetings of Noteholders; Modification of Notes, Trust Deed and Loan Agreement; Waiver; Substitution of the Issuer (a) Meeting of Noteholders The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes, the Loan Agreement or the Trust Deed. Noteholders will be entitled to one vote per U.S.$1,000 in principal amount of Notes held by them. Such a meeting may be convened by the Issuer, NLMK or the Trustee and shall be convened by the Issuer or by the Trustee, subject to its being indemnified and/or secured and/or prefunded to its satisfaction, upon the request in writing of holders of the Notes holding not less than one tenth of the principal amount of the outstanding Notes. The Trust Deed provides that special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and currency of payment under the Loan Agreement. Under the terms of the Trust Deed, an Extraordinary Resolution means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions contained therein by (i) the affirmative vote of holders of outstanding (as defined in the Trust Deed) Notes present in person or represented by proxy or representative owning in the aggregate more than half in principal amount of the outstanding Notes owned by the Noteholders who are so present or represented at the meeting or (ii) in respect of an Extraordinary Resolution the business of which includes the modification of certain terms, conditions and provisions as listed in the proviso to paragraph 5 (Powers of Meetings) of Schedule 4 (Provisions for Meetings of the Noteholders) of the Trust Deed the affirmative vote of holders of outstanding Notes present in person or represented by proxy or representative owning in aggregate not less than two-thirds in principal amount of the outstanding Notes owned by the Noteholders who are present or represented at the meeting. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders, whether present or not.

190 The Trust Deed provides that a Written Resolution signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

(b) Modification and Waiver The Trustee may agree, without the consent of the Noteholders, to any modification of the Notes and the Trust Deed, the Paying Agency Agreement or the Loan Agreement which, in each case, in the sole opinion of the Trustee is of a formal, minor or technical nature, is made to correct a manifest error or (other than as mentioned in the Trust Deed) in the opinion of the Trustee is not materially prejudicial to the interests of the Noteholders. The Trustee may also waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of the Conditions or the Trust Deed or, following the creation of the Security Interests, by NLMK of the terms of the Loan Agreement or determine that any event which would or might otherwise give rise to a right of acceleration under the Loan Agreement or any Relevant Event shall not be treated as such, if in the sole opinion of the Trustee, to do so would not be materially prejudicial to the interests of the Noteholders, provided always that the Trustee may not exercise such power of waiver in contravention of a written request given by holders of 25 per cent. in aggregate principal amount of the Notes then outstanding or any express direction by Extraordinary Resolution. Any such modification, waiver, authorisation or determination shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be promptly notified to the Noteholders in accordance with Condition 13.

(c) Substitution The Trust Deed contains provisions to the effect that the Issuer may, with the consent of NLMK, and further provided certain conditions have been met (as further set out in the Trust Deed), and subject to having complied with the requirements set out in the Trust Deed and such requirements as the Trustee may direct (without obtaining the consent of the Noteholders) in the interest of Noteholders, substitute any entity in place of the Issuer as creditor under the Loan Agreement, as issuer and principal obligor in respect of the Notes and as obligor under the Trust Deed, subject to the substitute’s entity’s rights under the Loan Agreement being charged and assigned to the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. Not later than 14 days after compliance with the aforementioned requirements, notice thereof shall be given by the Issuer to the Noteholders in accordance with Condition 13, failing which the Issuer shall use its best endeavours to ensure that the substitute obligor does so.

(d) Exercise of powers In connection with the exercise of any of its powers, trusts, authorities or discretions, the Trustee shall have regard to the interests of the Noteholders as a class and, in particular, shall not have regard to the consequences of such exercise for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder is entitled to claim from the Issuer, NLMK or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders.

10 Prescription Notes will become void unless presented for payment within 10 years (in the case of principal) or five years (in the case of interest) from the due date for payment in respect thereof.

11 Indemnification and Removal of the Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances, including provisions relieving it from taking steps, actions or proceedings to enforce payment unless indemnified and/or secured and/or prefunded to its satisfaction, and to be paid its costs and expenses in priority to any claims of Noteholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer and/or NLMK and any entity relating to the Issuer and/or NLMK without accounting for any profit.

191 The Trustee’s responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or by NLMK in respect of the Loan Agreement. The Trustee is entitled to assume that NLMK is performing all of its obligations pursuant to the Loan Agreement and that the Issuer is performing its obligations under the Notes, the Loan Agreement and the Trust Deed (and shall have no liability for doing so) until it has actual knowledge to the contrary. The Trustee shall have no liability to any Noteholder or any other person for any shortfall such Noteholder or other person may suffer if such Noteholder or other person is liable for tax in respect of any payments received by such Noteholder or other person or as a result of the Security Interests being enforced by the Trustee. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a Trustee in office after such removal.

12 Replacement of Notes If a Definitive Certificate shall become mutilated, defaced, lost, stolen or destroyed it may, subject to all applicable laws and regulations and requirements of the Stock Exchange (or any other stock exchange on which the Notes are listed or quoted from time to time), be replaced at the specified offices of the Transfer Agents in London on payment of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, security and indemnity and otherwise as may reasonably be required by or on behalf of the Issuer and/or the Transfer Agents. Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.

13 Notices All notices to Noteholders shall be deemed to have been validly given if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) or, if such publication shall not be practicable, in an English language newspaper of general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which such publication is made. The Issuer shall also ensure that all notices are duly published (if such publication is required) in a manner which complies with the rules and regulations of the Stock Exchange or any other stock exchange on which the Notes are for the time being listed and/or admitted to trading. Any such notice shall be deemed to have been given on the date of such notice. In case by reason of any other cause it shall be impracticable to publish any notice to Noteholders as provided above, then such notification to such Noteholders as shall be given with the approval of the Trustee in accordance with the rules of the Stock Exchange (or any other stock exchange on which the Notes are listed or quoted from time to time) shall constitute sufficient notice to such Noteholders for every purpose hereunder.

14 Further Issues The Issuer may from time to time, with the consent of NLMK but without the consent of the Noteholders, create and issue further securities having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them, the date of issue and the amount of principal) so as to be consolidated and form a single series with the Notes. Such further notes shall be issued under a deed supplemental to the Trust Deed containing such provisions as the Trustee may reasonably require. In relation to any further issue which is to be consolidated and form a single series with the Notes, the Issuer will enter into a loan agreement with NLMK on the same terms as the Loan Agreement (or the same terms except for the date of the first payment of interest, the provisions relating to the fees payable by NLMK to the Issuer (whether payable as a lump sum payment, additional interest or otherwise) and the amount of principal) and supplemental to the Loan Agreement, or may amend and restate the same with NLMK on substantially the same terms as the Loan Agreement (except for the date of the first payment of interest, the provisions relating to the fees payable by NLMK to the Issuer (whether payable as a lump sum payment, additional interest or otherwise) and the amount of principal). The Issuer will provide a first

192 fixed charge in favour of the Trustee in respect of certain of its rights and interests under such loan agreement and will assign absolutely to the Trustee certain of its rights under such loan agreement, which will secure both the Notes and such further securities and which will supplement the Security Interests in relation to the existing Notes or may amend and supplement the Security Interests for such purpose. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides. Application will be made for such further securities to be listed and admitted to trading on the stock exchange on which the Notes are from time to time listed or quoted.

15 Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Notes or the Trust Deed under the Contracts (Rights of Third Parties) Act 1999.

16 Governing Law The Notes, these Conditions, the Trust Deed and any non-contractual obligations arising out of or in connection therewith, are governed by, and shall be construed in accordance with, English law. The Issuer has submitted in the Trust Deed to the jurisdiction of the courts of England and has appointed an agent for the service of process in England.

193 OVERVIEW OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM The Global Note Certificates The Regulation S Notes will be evidenced on issue by the Regulation S Global Note Certificate registered in the name of a nominee for, and deposited with a common depository on behalf of, Euroclear and Clearstream, Luxembourg. Beneficial interests in the Regulation S Global Note Certificate may be held only through Euroclear or Clearstream, Luxembourg at any time. See ‘‘Clearing and Settlement— Book-Entry Procedures for the Global Note Certificates’’. By acquisition of a beneficial interest in the Regulation S Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is not a U.S. person, that it is located outside the United States and that, if it determines to transfer such beneficial interest prior to the expiration of the ‘‘distribution compliance period’’ (as such term is defined in Rule 902 of Regulation S), it will transfer such interest only (a) to a non-U.S. person in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (b) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB that is also a QP purchasing for its own account or the account of a QIB that is also a QP, in each case in accordance with any applicable securities laws of any state of the United States. See ‘‘Transfer Restrictions’’. The Rule 144A Notes will be evidenced on issue by the Rule 144A Global Note Certificate deposited with a custodian for, and registered in the name of a nominee of, DTC. Beneficial interests in the Rule 144A Global Note Certificate may only be held through DTC at any time. See ‘‘Clearing and Settlement— Book-Entry Procedures for the Global Note Certificates’’. By acquisition of a beneficial interest in the Rule 144A Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is a QIB and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Trust Deed. See ‘‘Transfer Restrictions’’. Beneficial interests in Global Note Certificates will be subject to certain restrictions on transfer set forth therein and in the Trust Deed and the Global Note Certificates will bear the applicable legends regarding the restrictions set forth under ‘‘Transfer Restrictions’’. A beneficial interest in the Regulation S Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate only in denominations greater than or equal to the minimum denominations applicable to interests in the Rule 144A Global Note Certificate and only upon receipt by the Registrar of a written certification (in the form provided in a Paying Agency Agreement relating to the Notes (the ‘‘Paying Agency Agreement’’)) to the effect that the transferor reasonably believes that the transferee is a QIB and that such transaction is in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in the Rule 144A Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate only upon receipt by the Registrar of a written certification (in the form provided in the Paying Agency Agreement) from the transferor to the effect that the transfer is being made in an offshore transaction in accordance with Regulation S. Any beneficial interest in the Regulation S Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate will, upon transfer, cease to be an interest in the Regulation S Global Note Certificate and become an interest in the Rule 144A Global Note Certificate, and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Rule 144A Global Note Certificate for as long as it remains such an interest. Any beneficial interest in the Rule 144A Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate will, upon transfer, cease to be an interest in the Rule 144A Global Note Certificate and become an interest in the Regulation S Global Note Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Regulation S Global Note Certificate for so long as it remains such an interest. No service charge will be made for any registration of transfer or exchange of Notes, but the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Except in the limited circumstances described below, owners of beneficial interests in Global Note Certificates will not be entitled to receive physical delivery of Definitive Certificates. The Notes are not issuable in bearer form.

194 Exchange For Definitive Certificates Exchange Subject to receipt by the Issuer of the funds necessary to cover the cost realised from NLMK, each Global Note Certificate will be exchangeable, free of charge to the holder, on or after its Exchange Date (as defined below), in whole but not in part, for Notes in definitive form if: (i) a Global Note Certificate is held by or on behalf of (A) DTC, and DTC notifies the Issuer that it is no longer willing or able to discharge properly its responsibilities as depository with respect to the Global Note Certificate or ceases to be a ‘‘clearing agency’’ registered under the Exchange Act or if at any time it is no longer eligible to act as such, and the Issuer is unable to locate a qualified successor within 90 days of receiving notice or becoming aware of such ineligibility on the part of DTC or (B) Euroclear or Clearstream, Luxembourg, as the case may be, and Euroclear or Clearstream, Luxembourg, as the case may be, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention to permanently cease business or does in fact do so, by the holder giving notice to the Registrar or any Transfer Agent and the Issuer or (ii) the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 7 which would not be suffered were the Notes in definitive form and a note to such effect signed by the requisite number of signatories of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Registrar or any Transfer Agent and the Noteholders of its intention to exchange the relevant Global Note Certificate for Definitive Certificates on or after the Exchange Date (as defined below) specified in the notice or (iii) the Trustee has instituted or has been directed to institute any judicial proceeding in a court to enforce the rights of the Noteholders under the Notes and the Trustee has been advised by counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the Notes, by the Trustee giving notice to the Registrar or any Transfer Agent and the Noteholders. The Registrar will not register the transfer of, or exchange of interests in, a Global Note Certificate for Definitive Certificates for a period of 15 calendar days ending on the date for any payment of principal or interest in respect of the Notes. If only one of the Global Note Certificates (the ‘‘Exchanged Global Note Certificate’’) becomes exchangeable for Definitive Certificates in accordance with the above paragraphs, transfers of Notes may not take place between, on the one hand, persons holding Definitive Certificates issued in exchange for beneficial interests in the Exchanged Global Note Certificate and, on the other hand, persons wishing to purchase beneficial interests in the other Global Note Certificate. ‘‘Exchange Date’’ means a day falling not later than 90 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Registrar and any Transfer Agent is located.

Delivery In such circumstances, the relevant Global Note Certificate shall be exchanged in full for Definitive Certificates and the Issuer will, at the cost of the Issuer (and against such indemnity as the Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Definitive Certificates to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders. A person having an interest in a Global Note Certificate must provide the Registrar with (a) a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such Notes and (b) in the case of the Rule 144A Global Note Certificate only, a fully completed, signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of simultaneous sale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule 144A to a QIB that is also a QP. Definitive Certificates issued in exchange for a beneficial interest in the Rule 144A Global Note Certificate shall bear the legend applicable to transfer pursuant to Rule 144A, as set forth under ‘‘Transfer Restrictions’’.

Legends The holder of a Definitive Certificate may transfer the Notes evidenced thereby in whole or in part in the applicable minimum denomination by surrendering it at the specified office of the Registrar or any

195 Transfer Agent, together with the completed form of transfer thereon. Upon the transfer, exchange or replacement of a Rule 144A Definitive Certificate bearing the legend referred to under ‘‘Transfer Restrictions’’, or upon specific request for removal of the legend on a Rule 144A Definitive Certificate, the Issuer will deliver only Rule 144A Definitive Certificates that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act and the Investment Company Act. In addition, each Global Note Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Note Certificate. The following is a summary of these provisions:

Payments Payments of principal and interest in respect of Notes evidenced by a Global Certificate shall be made to the person who appears at the relevant time on the register of Noteholders as holder of the relevant Global Certificate against presentation and (if no further payment falls to be made on it) surrender thereof to or to the order of the Principal Paying Agent (or to or to the order of such other Paying Agent as shall have been notified to the Noteholders for this purpose) which shall endorse such payment or cause such payment to be endorsed in Schedule A to the relevant Global Certificate (such endorsement being prima facie evidence that the payment in question has been made). No person shall however be entitled to receive any payment on the relevant Global Certificate falling due after the Exchange Date, unless the exchange of the relevant Global Certificate for the relevant Definitive Certificates is improperly withheld or refused by or on behalf of the Issuer.

Notices Notwithstanding Condition 13, so long as the Global Note Certificate is held by or on behalf of DTC, Euroclear, Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative Clearing System’’), notices to Noteholders represented by the Global Note Certificate may be given by delivery of the relevant notice to DTC, Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System provided that, for so long as the Notes are listed, all notices will also be given in accordance with the rules of the relevant stock exchange.

Issuer’s Option Any option of the Issuer provided for in the Conditions of any Notes while such Notes are represented by a permanent Global Note Certificate shall be exercised by the Issuer giving notice to the Noteholders within the time limits set out in and containing the information required by the Conditions, except that the notice shall not be required to contain the serial numbers of Notes drawn in the case of a partial exercise of an option and accordingly no drawing of Notes shall be required. In the event that any option of the Issuer is exercised in respect of some but not all of the Notes, the rights of accountholders with a clearing system in respect of the Notes will be governed by the standard procedures of Euroclear, Clearstream, Luxembourg, DTC or any other clearing system (as the case may be).

Record Date All payments in respect of Notes represented by a Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where ‘‘Clearing System Business Day’’ means (i) in respect of the Regulation S Global Note Certificate, held on behalf of Euroclear or Clearstream, Luxembourg, a day when Euroclear or Clearstream, Luxembourg is open for business and (ii) in respect of a the Rule 144A Global Note Certificate held on behalf of DTC, a day when DTC is open for business.

Meetings The holder of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as having one vote in respect of each US$1,000 in principal amount of Notes represented by the relevant Global Certificate.

196 Trustee’s Powers In considering the interests of Noteholders whilst the Global Certificate is held on behalf of a clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Certificate and may consider such interests as if such accountholders were the holders of the Global Certificate.

Cancellation Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the Global Certificate by a record made in the Register.

Prescription Claims in respect of principal, interest and other amounts payable in respect of the Global Certificates will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest or any other amounts) from the due date for payment in respect thereof.

Benefit of the Conditions Unless a Global Certificate has been exchanged or cancelled the holder hereof shall, except as provided in the relevant Global Certificate, be entitled to the same rights and benefits and subject to the Conditions as if such holder were the holder of the relevant Definitive Certificates for which the Global Certificate may be exchanged. Each Global Certificate shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the Registrar. The Global Certificates and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law.

197 TRANSFER RESTRICTIONS Because of the following restrictions, you are advised to consult legal counsel prior to making any offer, resale or other transfer of the Notes offered hereby.

Rule 144A Notes Each purchaser of Rule 144A Notes, by accepting delivery of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is (a) a QIB that is also a QP, (b) not a broker-dealer that owns and invests on a discretionary basis less than US$25 million in securities of unaffiliated issuers, (c) not a participant-directed employee plan, such as a 401(k) plan, (d) acquiring such Notes for its own account, or for the account of one or more QIBs each of which is also a QP, (e) not formed for the purpose of investing in the Notes or the Issuer, and (f) aware, and each beneficial owner of such Notes has been advised, that the seller of such Notes to it may be relying on Rule 144A. 2. It will (a) along with each account for which it is purchasing, hold and transfer beneficial interests in the Rule 144A Notes in a principal amount that is not less than US$200,000 and (b) provide notice of these transfer restrictions to any subsequent transferees. In addition, it understands that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositories. 3. It understands that the Rule 144A Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB that is also a QP purchasing for its own account or for the account of one or more QIBs that are also QPs each of which is purchasing not less than US$200,000 principal amount of Notes or (b) in an offshore transactions to a person, that is not a U.S. person in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, and in each case in accordance with any applicable securities laws of any State of the United States. 4. It understands that the Issuer has the power under the Trust Deed to compel any beneficial owner of Rule 144A Notes that is not a QIB and also a QP to sell its interest in the Rule 144A Notes, or may sell such interest on behalf of, or purchase such interest from, such owner at a price equal to the least of (x) the purchase price therefor paid by the beneficial owner, (y) 100 per cent. of the principal amount thereof or (z) the fair market value thereof. The Issuer has the right to refuse to honour the transfer of an interest in the Rule 144A Notes to a U.S. person who is not a QIB and also a QP. 5. It understands that the Rule 144A Notes, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, will bear a legend to the following effect: THIS NOTE AND THE LOAN IN RESPECT THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A ‘‘QIB’’) THAT IS ALSO A QUALIFIED PURCHASER (A ‘‘QP’’) WITHIN THE MEANING OF SECTION 2(a)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE ‘‘INVESTMENT COMPANY ACT’’) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, AND IN AN AMOUNT FOR EACH ACCOUNT OF NOT LESS THAN US$200,000 PRINCIPAL AMOUNT OF NOTES OR (2) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’), AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES IN RESPECT HEREOF OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. TRANSFER

198 IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE OR EFFECT, WILL BE VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER OF THIS NOTE, THE TRUSTEE OR ANY INTERMEDIARY. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. EACH BENEFICIAL OWNER HEREOF REPRESENTS THAT (1) IT IS A QIB THAT IS ALSO A QP; (2) IT IS NOT A BROKER-DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN US$25,000,000 IN SECURITIES OF UNAFFILIATED ISSUERS; (3) IT IS NOT A PARTICIPANT-DIRECTED EMPLOYEE PLAN, SUCH AS A 401 (k) PLAN; (4) IT IS HOLDING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QIB THAT IS ALSO A QP; (5) IT WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE ISSUER OR THIS NOTE; (6) IT, AND EACH ACCOUNT FOR WHICH IT HOLDS NOTES, WILL HOLD AND TRANSFER AT LEAST US$200,000 IN PRINCIPAL AMOUNT OF NOTES; (7) IT UNDERSTANDS THAT THE ISSUER MAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES AND (8) IT WILL PROVIDE NOTICE OF THE FOREGOING TRANSFER RESTRICTIONS TO ITS SUBSEQUENT TRANSFEREES. THE BENEFICIAL OWNER HEREOF HEREBY ACKNOWLEDGES THAT, IF AT ANY TIME WHILE IT HOLDS AN INTEREST IN THIS NOTE IT IS A PERSON WHO IS NOT A QIB THAT IS ALSO A QP, THE ISSUER MAY (A) COMPEL IT TO SELL ITS INTEREST IN THIS NOTE TO A PERSON (1) WHO IS ALSO A QIB THAT IS ALSO A QP AND WHO IS OTHERWISE QUALIFIED TO PURCHASE THIS NOTE IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) IN AN OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A U.S. PERSON IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S OR (B) COMPEL THE BENEFICIAL OWNER TO SELL ITS INTEREST IN THIS NOTE TO THE ISSUER OR AN AFFILIATE OF THE ISSUER OR TRANSFER ITS INTEREST IN THIS NOTE TO A PERSON DESIGNATED BY OR ACCEPTABLE TO THE ISSUER AT A PRICE EQUAL TO THE LEAST OF (X) THE PURCHASE PRICE THEREFOR PAID BY THE BENEFICIAL OWNER, (Y) 100 PER CENT. OF THE PRINCIPAL AMOUNT THEREOF OR (Z) THE FAIR MARKET VALUE THEREOF. THE ISSUER HAS THE RIGHT TO REFUSE TO HONOR A TRANSFER OF AN INTEREST IN THIS NOTE TO A PERSON WHO IS NOT A QIB AND ALSO A QP. THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. BY ACCEPTING THIS NOTE (OR ANY INTEREST IN THE NOTES REPRESENTED HEREBY) EACH BENEFICIAL OWNER HEREOF, AND EACH FIDUCIARY ACTING ON BEHALF OF THE BENEFICIAL OWNER (BOTH IN ITS INDIVIDUAL AND CORPORATE CAPACITY), WILL BE DEEMED TO REPRESENT, WARRANT AND AGREE THAT, DURING THE PERIOD IT HOLDS ANY INTEREST IN THIS NOTE (1) EITHER (A) IT IS NOT, AND IT IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST THEREIN) WILL NOT BE, OR BE ACTING ON BEHALF OF) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (‘‘ERISA’’) SUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, A PLAN TO WHICH SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (‘‘CODE’’) APPLIES, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ‘‘PLAN ASSETS’’ UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3 101 OR OTHERWISE FOR THE PURPOSES OF ERISA OR THE CODE BY REASON OF SUCH AN EMPLOYEE BENEFIT PLAN’S OR PLAN’S INVESTMENT IN SUCH ENTITY (EACH, A ‘‘BENEFIT PLAN INVESTOR’’) OR A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN OR ARRANGEMENT WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SUBSTANTIALLY SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE AND/OR THE FIDUCIARY RESPONSIBILITY AND/OR THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND/OR SECTION 4975 OF THE CODE (‘‘SIMILAR LAWS’’) AND NO PART OF THE ASSETS TO BE USED BY IT TO PURCHASE OR HOLD SUCH NOTES OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR SUCH A

199 GOVERNMENTAL, CHURCH OR NON-U.S. PLAN OR (B) IT IS, OR IS ACTING ON BEHALF OF A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN OR ARRANGEMENT SUBJECT TO SIMILAR LAWS, AND SUCH ACQUISITION AND HOLDING DOES NOT AND WILL NOT RESULT IN A NON EXEMPT VIOLATION OF ANY SIMILAR LAWS AND WILL NOT SUBJECT THE ASSETS OF THE ISSUER TO ANY SIMILAR LAWS; AND (2) IT WILL NOT SELL OR OTHERWISE TRANSFER THIS NOTE OR ANY INTEREST HEREIN OTHERWISE THAN TO A PURCHASER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE. NO PURCHASE BY OR TRANSFER TO A BENEFIT PLAN INVESTOR OF THIS NOTE, OR ANY INTEREST HEREIN, WILL BE EFFECTIVE, AND NEITHER THE ISSUER NOR THE TRUSTEE WILL RECOGNISE ANY SUCH ACQUISITION OR TRANSFER. IN THE EVENT THAT THE ISSUER DETERMINES THAT THIS NOTE IS HELD BY A BENEFIT PLAN INVESTOR, THE ISSUER MAY CAUSE A SALE OR TRANSFER IN THE MANNER DESCRIBED IN THIS PROSPECTUS. THE ISSUER MAY COMPEL EACH BENEFICIAL OWNER HEREOF TO CERTIFY PERIODICALLY THAT SUCH OWNER IS A QIB AND ALSO A QP. 6. It understands and acknowledges that its purchase, holding and disposition of such Notes constitutes a representation and agreement by it that at the time of purchase and throughout the period it holds such Notes or any interest therein (1) either (i) it is not, and is not acting on behalf of (and for so long as it holds such Notes (or any interest therein) will not be, or be acting on behalf of), a Benefit Plan Investor or a governmental, church or non-U.S. plan which is subject to any Similar Laws and/or laws or regulations that provide that the assets of the Issuer could be deemed to include ‘‘plan assets’’ of such plan under Section 3(42) of ERISA, the Plan Assets Regulation or otherwise, and no part of the assets used by it to purchase or hold such Note or any interest therein constitutes the assets of such Benefit Plan Investor or such plan, or (ii) it is, or is acting on behalf of, a governmental, church or non-U.S. plan, and such purchase or holding of such Note does not and will not result in a non-exempt violation of any Similar Laws, and will not subject the Issuer to any laws, rules or regulations applicable to such plan solely as a result of the investment in the Issuer by such plan; and (2) it will not sell or otherwise transfer any note or interest therein to any person without first obtaining these same foregoing representations, warranties and covenants from that person with respect to its acquisition, holding and disposition of such Note. 7. It acknowledges that the Issuer, NLMK, the Registrars, the Managers and their respective affiliates, and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements and agrees that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer, NLMK and the Managers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts who are QIBs that are also QPs, it represents that it has sole investment discretion with respect to each such account, and that it has full power to make the above acknowledgements, representations and agreements on behalf of each such account. 8. It understands that the Rule 144A Notes will be evidenced by the Rule 144A Global Note Certificate. Before any interest in the Rule 144A Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Paying Agency Agreement) as to compliance with applicable securities laws. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S Notes Each purchaser of Regulation S Notes, by accepting delivery of this Prospectus and the Regulation S Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is, or at the time Regulation S Notes are purchased will be, the beneficial owner of such Regulation S Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Issuer, NLMK or a person acting on behalf of such an affiliate.

200 2. It understands that the Regulation S Notes have not been and will not be registered under the Securities Act and that, prior to the expiration of the ‘‘distribution compliance period’’ (as such term is defined in Rule 902 of Regulation S), it will not offer, sell, pledge or otherwise transfer such Notes except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believes is a QIB that is also a QP purchasing for its own account or for the account of a QIB that is also a QP or (b) in an offshore transaction to a person that is not a U.S. person in accordance with Rule 903 or Rule 904 of Regulation S, in the case of (a) and (b), in accordance with any applicable securities laws of any state of the United States. 3. It understands that the Regulation S Notes will be evidenced by the Regulation S Global Note Certificate. Before any interest in the Regulation S Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Paying Agency Agreement) as to compliance with applicable securities laws. 4. It understands and acknowledges that its purchase, holding and disposition of such Notes (or any interest therein) constitutes a representation and agreement by it that (1) either (i) it is not, and is not acting on behalf of (and for so long as it holds such Notes or any interest therein will not be, or be acting on behalf of), a Benefit Plan Investor or a governmental, church or non-U.S. plan or arrangement which is subject to any Similar Laws and no part of the assets used by it to purchase or hold such Note or any interest therein constitutes the assets of such Benefit Plan Investor or such plan, or (ii) it is, or is acting on behalf of, a governmental, church or non-U.S. plan or arrangement subject to Similar Laws, and such purchase or holding of such Note (or any interest therein) does not and will not result in a non-exempt violation of any Similar Laws, and will not subject the assets of the Issuer to any Similar Laws; and (2) it will not sell or otherwise transfer any Note or interest therein otherwise than to any person without first obtaining these same foregoing representations, warranties and covenants from that person with respect to its acquisition, holding and disposition of such Note.

201 CERTAIN ERISA CONSIDERATIONS Notes are not permitted to be acquired or held by employee benefit plans subject to the fiduciary or prohibited transaction provisions of Title I of ERISA (‘‘ERISA Plans’’), individual retirement accounts or other plans subject to Section 4975 of the Internal Revenue Code of 1986 (the ‘‘Code’’) or other entities or accounts whose underlying assets are treated as assets of such plans pursuant to the U.S. Department of Labor ‘‘plan assets’’ regulation, 29 CFR Section 2510.3 101 (as modified by Section 3(42) of ERISA, the ‘‘Plan Asset Regulation’’) or other similar provisions under ERISA (collectively ‘‘Benefit Plan Investors’’). While perhaps not subject to ERISA or Section 4975 of the Code, a governmental, church or non-U.S. plan, or an entity or account in which any such plan invests, may be subject to federal, state, local, non-U.S. or other laws or regulations that are substantially similar to the fiduciary responsibility or the prohibited transaction provisions of ERISA, Section 4975 of the Code and/or the Plan Asset Regulation or other similar provisions under ERISA (‘‘Similar Laws’’). Such plans, entities or accounts may, subject to certain conditions, acquire and hold Notes or any beneficial interest therein. Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code (together with ERISA Plans, ‘‘Plans’’)) and certain persons (referred to as ‘‘parties in interest’’ or ‘‘disqualified persons’’) having certain relationships to such Plans, unless a statutory or administrative exemption applies to the transaction. In particular, an extension of credit between a Plan and a ‘‘party in interest’’ or ‘‘disqualified person’’ may constitute a prohibited transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes or other liabilities under ERISA and the Code. The Issuer or the Trustee, directly or through affiliates, may be considered a party in interest or disqualified person with respect to many Plans. Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if the Notes are acquired by a Plan with respect to which the Issuer or the Trustee or any of their respective affiliates is a party in interest or a disqualified person, unless the Notes are acquired pursuant to and in accordance with an applicable exemption. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may apply depending in part on the type of Plan fiduciary making the decision to acquire a Note and the circumstances under which that decision is made. Under a ‘‘look through rule’’ set forth in the Plan Assets Regulation, if a Plan invests in an ‘‘equity interest’’ of an entity and no other exception applies, the Plan’s assets include both the equity interest and an undivided interest in each of the entity’s underlying assets. This rule will only apply where equity participation in an entity by Benefit Plan Investors is ‘‘significant.’’ Equity participation by Benefit Plan Investors is significant if 25 per cent. or more of the value of any class of equity interest in the entity is held by Benefit Plan Investors. The term ‘‘Benefit Plan Investor’’ includes (a) an employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to Title I of ERISA; (b) a plan defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code; or (c) any entity or account whose underlying assets include ‘‘plan assets’’ by reason of any such plan’s investment in the entity or account. The Plan Asset Regulation defines the term ‘‘equity interest’’ as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and which has no substantial equity features, and specifically includes a beneficial interest in a trust. Where the value of an equity interest in an entity relates solely to identified property of the entity, that property is treated as the sole property of a separate entity. Because the Notes do not represent an interest in any property of the Issuer other than the Loan, they may be regarded for ERISA purposes as equity interests in a separate entity whose sole asset is the Loan. Furthermore, neither the Trustee nor the Issuer will be able to monitor the Noteholders’ possible status as benefit plan investors. Accordingly, the Notes may not be purchased or held by any Benefit Plan Investor. Accordingly, the Notes either (a) may not be purchased or held by any Benefit Plan Investor or by any governmental, church or non-U.S. plan (or any entity or account in which any such plan has invested) which is subject to Similar Laws, or (b) may be purchased or held by any governmental, church or non-U.S. plan (or any entity or account in which any such plan has invested) which is subject to Similar Laws where such acquisition, holding and subsequent disposition does not and will not result in a non-exempt violation of any Similar Laws and will not subject the Issuer to any Similar Laws. BY ITS ACQUISITION, HOLDING OR DISPOSITION OF THE NOTES (OR ANY INTEREST THEREIN) A PURCHASER OR TRANSFEREE, AND EACH FIDUCIARY ACTING ON BEHALF

202 OF SUCH PURCHASER OR TRANSFEREE (BOTH IN ITS INDIVIDUAL AND CORPORATE CAPACITY), WILL BE DEEMED TO REPRESENT, WARRANT AND AGREE THAT, DURING THE PERIOD SUCH PURCHASER OR TRANSFEREE HOLDS ANY INTEREST IN THE NOTES (1) EITHER (A) IT IS NOT, AND IT IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS THE NOTES (OR ANY INTEREST THEREIN) WILL NOT BE, OR BE ACTING ON BEHALF OF) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA) SUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, A PLAN TO WHICH SECTION 4975 OF THE CODE APPLIES, OR ANY ENTITY OR ARRANGEMENT WHOSE UNDERLYING ASSETS INCLUDE ‘‘PLAN ASSETS’’ UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3 101 OR OTHERWISE FOR THE PURPOSES OF ERISA OR THE CODE OR A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY AND/OR THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND/OR LAWS OR REGULATIONS THAT PROVIDE THAT THE ASSETS OF THE ISSUER COULD BE DEEMED TO INCLUDE ‘‘PLAN ASSETS’’ OF SUCH PLAN UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3 101 OR OTHERWISE UNDER ERISA (‘‘SIMILAR LAWS’’), AND NO PART OF THE ASSETS TO BE USED BY IT TO PURCHASE OR HOLD SUCH NOTES OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR SUCH A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN OR (B) SUCH PURCHASER OR TRANSFEREE IS, OR IS ACTING ON BEHALF OF, A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN, OR OTHER ENTITY OR ARRANGEMENT WHICH IS NOT SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE AND WHICH IS SUBJECT TO SIMILAR LAWS, AND SUCH ACQUISITION, HOLDING AND DISPOSITION DOES NOT AND WILL NOT RESULT IN A NON EXEMPT VIOLATION OF ANY SIMILAR LAWS AND WILL NOT SUBJECT THE ASSETS OF THE ISSUER TO ANY SIMILAR LAWS; AND (2) IT WILL NOT SELL OR OTHERWISE TRANSFER THE NOTES OR ANY INTEREST HEREIN OTHERWISE THAN TO A PURCHASER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE. NO PURCHASE BY OR TRANSFER TO A BENEFIT PLAN INVESTOR OF THE NOTES, OR ANY INTEREST HEREIN, WILL BE EFFECTIVE, AND NEITHER THE ISSUER NOR THE TRUSTEE WILL RECOGNISE ANY SUCH ACQUISITION OR TRANSFER. IN THE EVENT THAT THE ISSUER DETERMINES THAT THIS NOTE IS HELD BY A BENEFIT PLAN INVESTOR, THE ISSUER MAY CAUSE A SALE OR TRANSFER IN THE MANNER DESCRIBED HEREIN.

203 CLEARING AND SETTLEMENT Book-Entry Procedures for the Global Note Certificates Custodial and depository links are to be established among Euroclear, Clearstream, Luxembourg and DTC to facilitate the initial issue of the Notes and cross-market transfers of the Notes associated with secondary market trading. See ‘‘—Book-Entry Ownership’’ and ‘‘—Settlement and Transfer of Notes’’.

Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Investors may hold their interests in the Regulation S Global Note Certificate directly through Euroclear or Clearstream, Luxembourg if they are accountholders (‘‘Direct Participants’’) or indirectly (‘‘Indirect Participants’’ and together with Direct Participants, ‘‘Participants’’) through organisations which are accountholders therein.

DTC DTC has advised the Issuer as follows: DTC is a limited-purpose trust company organised under the laws of the State of New York, a ‘‘banking organisation’’ under the laws of the State of New York, a member of the U.S. Federal Reserve System, a ‘‘clearing corporation’’ within the meaning of the New York Uniform Commercial Code and a ‘‘clearing agency’’ registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants (‘‘DTC Participants’’) and facilitate the clearance and settlement of securities transactions between DTC Participants through electronic computerised book-entry changes in accounts of its DTC Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. Investors may hold their interests in the Rule 144A Global Note Certificate directly through DTC if they are DTC Participants in the DTC system, or indirectly through organisations which are DTC Participants in such system. DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more DTC Participants and only in respect of such portion of the aggregate principal amount of the relevant Rule 144A Global Note Certificate as to which such DTC Participant or DTC Participants has or have given such direction.

Book-Entry Ownership Euroclear and Clearstream, Luxembourg The Regulation S Global Note Certificate will have an ISIN and a Common Code and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg. The address of Euroclear is 1 Boulevard du Roi Albert 11, B-1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, L-1855, Luxembourg.

DTC The Rule 144A Global Note Certificate will have a CUSIP number, an ISIN and a Common Code and will be deposited with a custodian (the ‘‘Custodian’’) for, and registered in the name of a nominee of, DTC.

204 The Custodian and DTC will electronically record the principal amount of the Notes held within the DTC, system. The address of DTC is 55 Water Street, New York, New York 10041, United States of America.

Relationship of Participants with Clearing Systems Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder of a Note evidenced by a Global Note Certificate must look solely to Euroclear, Clearstream, Luxembourg or DTC (as the case may be) for his share of each payment made by the Issuer to the holder of such Global Note Certificate and in relation to all other rights arising under that Global Note Certificate, subject to and in accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or DTC (as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note Certificate, the common depositary by whom such Note is held, or nominee in whose name it is registered, will immediately credit the relevant participants’ or accountholders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Global Note Certificate as shown on the records of the relevant clearing system or its nominee. The Issuer also expects that payments by Direct Participants or DTC Participants (as the case may be) in any clearing system to owners of beneficial interests in such Global Note Certificate held through such Direct Participants or DTC Participants (as the case may be) in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Note Certificate and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of such Global Note Certificate in respect of each amount so paid. None of the Issuer, the Trustee or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Note Certificate or for maintaining, supervising or reviewing any records relating to such ownership interests.

Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants or DTC Participants (as the case may be), which will receive a credit for such Notes on the clearing system’s records. The ownership interest of each actual purchaser of each such Note (the ‘‘Beneficial Owner’’) will in turn be recorded on the Direct Participants’, Indirect Participants’ or DTC Participants’ records (as the case may be). Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant, Indirect Participant or DTC Participant (as the case may be) through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be affected by entries made on the books of Direct Participants, Indirect Participants or DTC Participants (as the case may be) acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Note Certificate held within a clearing system are exchanged for individual note certificates. No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the Direct Participants or DTC Participants (as the case may be) to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct Participants or the DTC Participants (as the case may be) will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants or DTC Participants (as the case may be), by Direct Participants to Indirect Participants, and by Direct Participants, Indirect Participants or DTC Participants (as the case may be) to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in the Global Note Certificates to such persons may be limited. In particular, because DTC can only act on behalf of DTC Participants the ability of a person having an interest in the Rule 144A Global Note Certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.

205 Trading between Euroclear and/or Clearstream, Luxembourg Participants Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional Eurobonds.

Trading between DTC Participants Secondary market sales of book-entry interests in the Notes between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to U.S. corporate debt obligations in DTC’s Same-Day Funds Settlement system in same-day funds, if payment is effected in US dollars, or free of payment, if payment is not effected in US dollars. Where payment is not effected in US dollars, separate payment arrangements outside DTC; are required to he made between DTC Participants.

Trading between DTC Seller and Euroclear/Clearstream, Luxembourg Purchaser When book-entry interests in Notes are to be transferred from the account of a DTC Participant holding a beneficial interest in the Rule 144A Global Note Certificate to the account of a Euroclear or Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in the Regulation S Global Note Certificate (subject to the certification procedures provided in the Paying Agency Agreement), the DTC Participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12:00 p.m., New York time, on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg Participant. On the settlement date, the custodian of the Rule 144A Global Note Certificate will instruct the Registrar to (1) decrease the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate of the relevant class and (2) increase the amount of Notes registered in the name of the nominee of the common depository for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate. Book-entry interests will be delivered free of payment to Euroclear or Clearstream, Luxembourg, as the case may be, for credit to the relevant accountholder on the first business day following the settlement date.

Trading between Euroclear/Clearstream, Luxembourg Seller and DTC Purchaser When book-entry interests in the Notes are to be transferred from the account of a Euroclear or Clearstream, Luxembourg accountholder to the account of a DTC Participant wishing to purchase a beneficial interest in the Rule 144A Global Note Certificate (subject to the certification procedures provided in the Paying Agency Agreement), the Euroclear or Clearstream, Luxembourg participant must send to Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7:45 p.m., Brussels or Luxembourg time, one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will in turn transmit appropriate instructions to the common depository for Euroclear and Clearstream, Luxembourg and the Registrar to arrange delivery to the DTC Participant on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg accountholder, as the case may be. On the settlement date, the common depositary for Euroclear and Clearstream, Luxembourg will (a) transmit appropriate instructions to the custodian of the Rule 144A Global Note Certificate who will in turn deliver such book-entry interests in the Notes free of payment to the relevant account of the DTC Participant and (b) instruct the Registrar to (1) decrease the amount of Notes registered in the name of the nominee of the common depository for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate; and (2) increase the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate. Although Euroclear, Clearstream, Luxembourg and DTC have agreed to the foregoing procedures in order to facilitate transfers of beneficial interest in Global Note Certificates among participants and accountholders of Euroclear, Clearstream, Luxembourg and DTC, they are under no obligation to perform or continue to perform such procedure, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or any Agent will have the responsibility for the performance, by Euroclear, Clearstream, Luxembourg or DTC or their respective Direct Participants, Indirect Participants or DTC

206 Participants, as the case may be, of their respective obligations under the rules and procedures governing their operations.

Pre-issue Trades Settlement It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which could be more than three business days following the date of pricing. Settlement procedures in different countries will vary. Purchasers of Notes may be affected by such local settlement practices, and purchasers of Notes between the relevant date of pricing and the Closing Date should consult their own advisors.

207 TAXATION The following is a general description of certain tax considerations relating to the Notes and does not purport to be a comprehensive discussion of the tax treatment of the Notes. Prospective investors in the Notes should consult their own tax advisors as to the tax consequences of the purchase, ownership and disposition of the Notes in light of their particular circumstances, including but not limited to the consequences of receipt of interest and sale or redemption of the Notes.

CERTAIN RUSSIAN TAX CONSIDERATIONS Taxation of the Notes General The following is an overview of certain Russian tax considerations relevant to the purchase, ownership and disposal of the Notes, as well as the taxation of interest income on the Loan. The overview is based on the laws of the Russian Federation in effect on the date of this Prospectus, which are subject to potential change (possibly with retroactive effect). The overview does not seek to address the applicability of, or procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of the Russian Federation, nor does it seek to address the availability of double tax treaty relief in respect of income payable on the Notes, or practical difficulties connected with claiming such double tax treaty relief. Prospective investors should consult their own tax advisers regarding the tax consequences of investing in the Notes that may arise in their own particular circumstances. No representation with respect to the Russian tax consequences of investing in, owning or disposing of the Notes pertinent to any particular Noteholder is made hereby. Many aspects of the Russian tax laws are subject to significant uncertainty and lack of interpretive guidance, resulting in inconsistent interpretations and application thereof. Further, provisions of the Russian Tax Code applicable to financial instruments and the interpretation and application of those provisions by the Russian tax authorities may be subject to more rapid and unpredictable changes (possibly with retroactive effect) and inconsistent interpretation than in jurisdictions with more developed capital markets or more developed taxation systems. In particular, the interpretation and application of such provisions will in practice rest substantially with local tax inspectorates and relevant interpretations may constantly change. In practice, interpretation by different tax inspectorates may be inconsistent or contradictory, and may result in the imposition of conditions, requirements or restrictions that are not explicitly stated in the Russian Tax Code. Similarly, in the absence of binding precedents, court rulings on tax or other related matters taken by different Russian courts relating to the same or similar facts and circumstances may also be inconsistent or contradictory. For the purposes of this overview, the term ‘‘Resident Noteholder’’ means: (a) a Noteholder which is a legal entity or an organisation and is: (i) a Russian legal entity; (ii) a foreign legal entity or organisation recognised as a Russian tax resident based on Russian domestic law (if the Russian Federation is recognised as the place of management of such legal entity or organisation as determined in the Russian Tax Code unless otherwise envisaged by an applicable double tax treaty); (iii) a foreign legal entity or organisation recognised as a Russian tax resident based on the provisions of an applicable double tax treaty (for the purposes of application of such double tax treaty); or (iv) a foreign legal entity or organisation which holds and/or disposes of the Notes through its permanent establishment in the Russian Federation (a ‘‘Legal Entity Resident Noteholder’’), and (b) an individual Noteholder and is actually present in Russian Federation in total 183 calendar days or more in any period comprised of 12 consecutive months (an ‘‘Individual Resident Noteholder’’). Presence in the Russian Federation is not considered interrupted if an individual departs for short periods (less than six months) from the Russian Federation for medical treatment or education purposes as well as for the employment or other duties related to the performance of works (services) on offshore hydrocarbon fields. The interpretation of this definition by the Ministry of Finance of the Russian Federation states that, for tax withholding purposes, an individual’s tax residence status should be determined on the date of the income payment (based on the number of days spent in the

208 Russian Federation in the 12-month period preceding the date of the payment). An individual’s final tax liability in the Russian Federation for any reporting calendar year should be determined based on the number of days spent in the Russian Federation in such calendar year. For the purposes of this overview, the term ‘‘Non-Resident Noteholder’’ means any Noteholder (including any individual (the ‘‘Individual Non-Resident Noteholder’’) and any legal entity or an organisation (the ‘‘Legal Entity Non-Resident Noteholder’’)) that does not qualify as a Resident Noteholder. The Russian tax treatment of interest payments made by NLMK to the Issuer under the Loan Agreement may affect the holders of the Notes. For details, see ‘‘—Taxation of Interest Income on the Loan’’ below. Noteholders should seek professional advice on their tax status in Russia.

Non-Resident Noteholders Legal Entity Non-Resident Noteholders Acquisition of the Notes The acquisition of the Notes by a Legal Entity Non-Resident Noteholder (whether upon issuance or in the secondary market) should not trigger any Russian tax implications for the Legal Entity Non-Resident Noteholder.

Interest and repayment of principal on the Notes Non-Resident Noteholders—Legal Entities generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer subject to the conditions and requirements described in ‘‘—Taxation of Interest Income on the Loan’’.

Disposal of the Notes A Legal Entity Non-Resident Noteholder generally should not be subject to any Russian taxes in respect of gain or other income realised on sale, redemption or a disposal of the Notes, provided that no portion of proceeds from such sale, redemption or other disposal of the Notes is received from either a source within the Russian Federation or from a Russian tax resident which is a legal entity and no portion thereof is attributable to accrued interest. Any portion of such proceeds received from either a source within the Russian Federation or from a Russian tax resident which is a legal entity attributable to accrued interest may be subject to Russian withholding tax at a rate of 20% even if the sale, redemption of disposal itself results in a capital loss, subject to the provisions outlined in ‘‘—Double Tax Treaty Relief’’ below. Legal Entity Non-Resident Noteholders should consult their tax advisers with respect to the tax consequences of the acquisition and disposal of the Notes and the tax consequences of the receipt of proceeds from a source within the Russian Federation in respect of a sale, redemption or other disposal of the Notes and applicability of double tax treaty relief.

Individual Non-Resident Noteholders Acquisition of the Notes The taxation of income of Individual Non-Resident Noteholders will depend on whether the income is characterised as received from a Russian or non-Russian source. In certain circumstances, the acquisition of the Notes by Individual Non-Resident Noteholders (either at original issuance if the Notes are not issued at par, or in the secondary market) may constitute a taxable event for Russian personal income tax purposes. In particular, if Individual Non-Resident Noteholders acquire the Notes in the Russian Federation or from a Russian entity and the acquisition price of the Notes is below fair market value (calculated under a specific procedure for the determination of market prices of securities for Russian personal income tax purposes), this may constitute a taxable event pursuant to the provisions of the Russian Tax Code relating to material benefit (deemed income) received by individuals as a result of acquiring securities. Although the Russian Tax Code does not contain any provisions as to how the source of the related material benefit should be determined, in practice the Russian tax authorities may infer that such income should be considered as Russian-source income if the Notes are purchased ‘‘in the Russian Federation’’. In the absence of any additional guidance as to what should be considered as a purchase of securities in the Russian Federation, the Russian tax authorities may apply various criteria, including looking at the place of conclusion of the acquisition transaction, the location of the seller, or other similar

209 criteria. In such a case, Individual Non-Resident Noteholders may be subject to Russian personal income tax at a rate of 30% on an amount equal to the difference between the fair market value and the purchase price of the Notes. The tax may be withheld at source of payment or, if the tax is not withheld, the Individual Non-Resident Noteholder may be required to declare its income in the Russian Federation by filing a tax return and paying tax.

Interest and repayment of principal on the Notes Non-Resident Noteholders—Individuals generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer.

Disposal of the Notes Individual Non-Resident Noteholders generally should not be subject to any Russian taxes in respect of gain or other income realised on a redemption, sale or disposal of the Notes outside the Russian Federation, provided that the proceeds of such sale, redemption, or other disposal of the Notes are not received from either a source within the Russian Federation or from a Russian legal entity that qualifies as a tax agent for Russian personal income tax purposes (generally, a licensed broker or an asset manager that carries out operations in the Russian Federation in the interests of an Individual Non-Resident Noteholder under an asset management agreement, a brokerage service agreement, an agency agreement or a commission agreement). If proceeds from the sale, redemption or other disposal of the Notes, including any portion of such proceeds attributable to accrued interest income under the Notes, are received either from a Russian source or from a Russian legal entity qualified as a tax agent for Russian personal income tax purposes, an Individual Non-Resident Noteholder will generally be subject to Russian personal income tax at a rate of 30%, in respect of the gross proceeds from such sale, redemption or other disposal less any available deduction of expenses incurred by the Noteholder (which includes the purchase price of the Notes) subject to any available double tax treaty relief, as discussed below in ‘‘—Double Tax Treaty Relief’’. Income received from a sale, redemption or disposal of securities should be treated as having been received from a Russian source if such sale, redemption or disposal occurs in the Russian Federation. In the absence of any guidance as to what should be considered as a sale or other disposal of securities ‘‘in the Russian Federation’’, the Russian tax authorities may apply various criteria in order to determine the source of the sale or other disposal, including looking at the place of conclusion of the transaction, the location of the buyer, or other similar criteria. There is no assurance, therefore, that proceeds received by Individual Non-Resident Noteholders from a sale, redemption or disposal of the Notes will not become subject to tax in the Russian Federation. Further, there is a risk that, if the documentation supporting the cost deductions is deemed insufficient by the Russian tax authorities or by the person remitting the proceeds to an Individual Non-Resident Noteholder (where such person is considered the tax agent, obliged to calculate and withhold Russian personal income tax and remit it to the Russian budget), the cost deductions may be disallowed and the tax will apply to the gross amount of the sale, redemption or disposal proceeds. In certain circumstances, if the sale and/or disposal proceeds (including accrued interest on the Notes) are paid to an Individual Non-Resident Noteholder by a licensed broker or an asset manager that carries out operations in the Russian Federation in the interests of an Individual Non-Resident Noteholder under an asset management agreement, a brokerage service agreement, an agency agreement or a commission agreement, the applicable Russian personal income tax at the rate of 30% (or such other tax rate as may be effective at the time of payment) should be withheld at source by such entity who will be considered as the tax agent. The withholding tax rate should be applied to the difference between the proceeds paid to the Individual Non-Resident Noteholder and the amount of duly documented deductions relating to the original purchase cost and related expenses incurred by the Noteholder on the purchase, holding and sale of the Notes to the extent that such deductions and expenses can be determined by the entity making the payment. The entity making the payment would be required to report to the Russian tax authorities the income received by and a deduction allowed to the Individual Non-Resident Noteholder and tax withheld upon the sale or disposal of the Notes. If a Russian personal income tax obligation arises as a result of the sale, redemption or other disposal of the Notes but the tax has not been withheld in the absence of a tax agent, an Individual Non-Resident

210 Noteholder is required to file a personal income tax return in the Russian Federation to report the amount of income received to the Russian tax authorities and apply for a deduction in the amount of the acquisition cost and other expenses related to the acquisition, holding, sale or other disposal of the Notes, based on the provision of supporting documentation. The applicable personal income tax will then have to be paid by the individual on the basis of the filed personal income tax return. If a Russian personal income tax obligation arises as a result of the sale, redemption or other disposal of the Notes but the tax agent was not able to withhold the tax and reported this fact to the Russian tax authorities, the tax is payable by the Individual Non-Resident Noteholder based on a tax assessment issued by the Russian tax authorities. Under certain circumstances, gains received and losses incurred by an Individual Non-Resident Noteholder as a result of the sale, redemption or other disposal of the Notes and other securities of the same category (i.e., securities qualified as traded or non-traded for Russian personal income tax purposes) occurring within the same tax year may be aggregated for Russian personal income tax purposes, which would affect the total amount of personal income of an Individual Non-Resident Noteholder subject to taxation in the Russian Federation. Since the sale, redemption or other disposal proceeds and deductible expenses for Russian tax purposes are calculated in roubles, the taxable base may be affected by fluctuations in the exchange rates between the currency in which the Notes were acquired, the currency in which the Notes were sold, and roubles, i.e. there could be a loss or no gain in the currency of the Notes but a gain in roubles which could be potentially subject to taxation. Individual Non-Resident Noteholders should consult their tax advisers with respect to the tax consequences of the acquisition and disposal of the Notes and the tax consequences of the receipt of proceeds from a source within the Russian Federation in respect of a sale, redemption or other disposal of the Notes.

Resident Noteholders A Resident Noteholder will generally be subject to all applicable Russian taxes and responsible for complying with any documentation requirements that may be established by law or practice in respect of gain from the sale, redemption or other disposal of the Notes and interest income received on the Notes. Resident Noteholders should consult their own tax advisors with respect to the effect that the acquisition, holding and disposal of the Notes may have on their tax position.

Legal Entity Resident Noteholders A Legal Entity Resident Noteholder should, prima facie, be subject to Russian profits tax at the rate of up to 20% on interest (coupon) income on the Notes as well as on the capital gain from the sale, redemption or other disposal of the Notes. Generally, Legal Entity Resident Noteholders are required to submit Russian profits tax returns, and assess and pay tax on capital gains and interest (coupon) income.

Individual Resident Noteholders An Individual Resident Noteholder should generally be subject to personal income tax at a rate of 13% on (i) deemed income resulting from the acquisition of the Notes at a price below fair market value, (ii) on interest (coupon) income on the Notes and (iii) income received from the sale, redemption or other disposal of the Notes. If such income is paid to an Individual Resident Noteholder by a tax agent, the applicable Russian personal income tax of 13% should be withheld at source by such tax agent. For the purposes of taxation of interest (coupon) income and income received from a sale, redemption and/or other disposal of the Notes, a tax agent is, inter alia, a licensed broker or an asset manager who carries out operations in the interest of an Individual Resident Noteholder under an asset management agreement, a brokerage service agreement, an agency agreement or a commission agreement, or in certain cases a Russian organisation (e.g. the Issuer), which makes payments under the notes. If the Russian personal income tax has not been withheld (if there was no tax agent) Individual Resident Noteholders are required to submit annual personal income tax returns, assess and pay the tax. If the tax agent in the Russian Federation was not able to withhold the tax and reported this fact to the Russian tax authorities, the tax is payable by the Individual Resident Noteholder based on a tax assessment issued by the Russian tax authorities. Resident Noteholders should consult their own tax advisers with respect to their tax position regarding the Notes.

211 Double Tax Treaty Relief Advance relief The Russian Federation has concluded double tax treaties with a number of countries. These double tax treaties may contain provisions that allow for the reduction or elimination of Russian withholding taxes with respect to income or proceeds received by Non-Resident Noteholders from a source within Russia, including income or proceeds from the sale, redemption or other disposal of the Notes. To the extent double tax treaty relief is available and the Russian Tax Code requirements are met (i.e. the ‘‘beneficial ownership’’ concept and the concept of the ‘‘tax residency’’), a Non-Resident Noteholder must comply with the information, documentation and reporting requirements which are then in force in the Russian Federation in order to obtain such relief. A Legal Entity Non-Resident Noteholder who is the beneficial owner of income or proceeds in terms of an applicable double tax treaty and the Russian Tax Code would need to provide the payer of the income or proceeds with a certificate of tax residence issued by the competent tax authority of the relevant treaty country in advance of payment of income or proceeds in order to obtain a relief from Russian withholding taxes under a double tax treaty. This certificate should confirm that the respective Legal Entity Non-Resident Noteholder is a tax resident of the relevant double tax treaty country in the particular calendar year during which the income or proceeds is paid. This certificate should be apostilled or legalised and needs to be renewed on an annual basis. A notarised Russian translation of the certificate may be required. However, the payer of the income or proceeds in practice may request additional documents confirming the eligibility of the Legal Entity Non-Resident Noteholder for the benefits of the double tax treaty. In addition, in order to enjoy benefits under an applicable double tax treaty, the person claiming such benefits must be the beneficial owner of the relevant income or proceeds according to the respective requirements of the Russian Tax Code. In addition to a certificate of tax residency the Russian Tax Code obliges the Legal Entity Non-Resident Noteholder to provide the tax agent with a confirmation that it is the beneficial owner of the relevant income or proceeds in advance of payment of income or proceeds. As of the date of this Prospectus, there has been no guidance on the form of such confirmation and it is at the moment unclear how these measures will be applied in practice. Due to introduction of these changes, there can be no assurance that the treaty relief at source will be available in practice. Currently, in order to obtain a full or partial exemption from taxation in the Russian Federation under an applicable double tax treaty at source, an Individual Non-Resident Noteholder should confirm to a tax agent that he or she is a tax resident in a relevant foreign jurisdiction having a double tax treaty with the Russian Federation by providing the tax agent with (i) a passport of a foreign resident, or (ii) another document envisaged by an applicable federal law or recognised as a personal identity document of a foreign resident in accordance with an international treaty, and (iii) if such passport/document does not confirm tax resident status in a foreign country, upon request of the tax agent, an official confirmation issued by the competent authorities evidencing his or her status of a tax resident in the respective country. A notarised Russian translation of such official confirmation is required. The above provisions are intended to provide a tax agent with the opportunity of applying reduced (or zero) withholding tax rates under an applicable double tax treaty at source. As of the date of this Prospectus, there has been no guidance on the applicability of the beneficial owner concept to Non-Resident Noteholders—Individuals and it is at the moment unclear how it will be applied in practice. Non-Resident Noteholders should consult their own tax advisers with respect to the applicability of any double tax treaty relief and the relevant procedures required in Russia.

Refund of Tax Withheld If (i) Russian withholding tax on income derived from either Russian sources, or from a Russian tax resident which is a legal entity, by a Non-Resident Noteholder has been withheld at source or (ii) tax on such income has been paid by a Non-Resident Noteholder on the basis of a tax return, and such Non-Resident Noteholder is entitled to relief from tax on such income under an applicable double tax treaty allowing it not to pay the tax or to pay the tax at a reduced rate, a claim for a refund of such tax can be filed within three years from the end of the tax period in which the tax was withheld or paid (subject to limitations described below). In order to obtain a refund, the Legal Entity Non-Resident Noteholder would need to file with the Russian tax authorities a duly notarised, apostilled and translated certificate of tax residence issued by the competent tax authority of the relevant double tax treaty country and other documents confirming the

212 right for a refund under the Russian Tax Code (including the above Russian Tax Code requirements under the ‘‘beneficial ownership’’ concept). If an Individual Non-Resident Noteholder wishes to obtain a refund, he or she should provide a claim for a refund of the tax withheld and documents confirming the right for a refund under the Russian Tax Code to the tax agent (if there is an agent in Russia). If there is no tax agent on the date of the receipt by the individual of confirmation of its tax residence status in a relevant foreign jurisdiction having an applicable double tax treaty with the Russian Federation, the individual can file a claim for a refund and documents confirming the right for a refund directly with the Russian tax authorities. As of the date of this Prospectus, there has been no guidance on the applicability of the beneficial owner concept to Non-Resident Noteholders—Individuals and it is at the moment unclear how it will be applied in practice. Obtaining a refund of Russian taxes withheld may be a time-consuming process and can involve considerable practical difficulties, including the possibility that a tax refund may be denied for various reasons. Non-Resident Noteholders should consult their tax advisors regarding the procedures required to be fulfilled in order to obtain a refund of Russian income tax which was excessively withheld at source.

Taxation of Interest Income on the Loan In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity or organisation having no permanent establishment in the Russian Federation are subject to Russian withholding income tax at a rate of 20% (or 30% in respect of non-resident individuals), subject to reduction or elimination pursuant to the terms of an applicable double tax treaty and applicable provisions of the Russian Tax Code (i.e. the ‘‘beneficial ownership’’ concept and the concept of ‘‘tax residency’’). However, the Russian Tax Code provides a specific release from the withholding tax obligation for interest income payable by a Russian legal entity on debt obligations arising in connection with the issuance of quoted bonds by foreign organisations resident in jurisdictions that have double tax treaties with the Russian Federation, provided that: (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer; and (2) the issuer duly confirms its tax residence. A debt obligation is treated as connected with the issuance of quoted bonds by a foreign organisation if this is explicitly stated in the agreement governing the relevant debt obligation, including the terms and conditions, and/or prospectus of issuance of quoted bonds, or if this fact is confirmed by the actual transfer of funds upon the issuance of the quoted bonds. For the purpose of the above exemption, the term ‘‘quoted bonds’’ mean bonds and other debt obligations which (1) passed the listing procedure and/or (2) were admitted to circulation on one or more foreign stock exchanges and/or (3) rights to which are recorded by a foreign depositary-clearing organisation, provided such foreign stock exchanges and depositary-clearing organisations are specified in the list of foreign financial intermediaries (the ‘‘List’’). The List includes Euronext Dublin amongst the recognised foreign stock exchanges and Euroclear, the Depository Trust & Clearing Corporation (‘‘DTCC’’) and Clearstream, Luxembourg amongst the recognised foreign depositary-clearing organisations. While DTCC is mentioned in the List, the List does not explicitly mention the Depository Trust Company (‘‘DTC’’). According to the shareholding structure of the DTCC group, DTC is a member entity of DTCC. However, there is a residual risk that the Russian tax authorities may apply a formalistic approach and take a position that DTC is not included in the List based on the fact that it is not explicitly mentioned in the List. Criteria (1) and (2) should be satisfied in this case as the Notes will be listed on Euronext Dublin. The Notes should also satisfy criterion (3) because the rights to the Notes will be held in Euroclear and Clearstream, Luxembourg and/ or DTC, which for the purposes of the Russian Tax Code essentially should mean that the rights to the Notes are ‘‘recorded’’ with one of the above foreign depositary-clearing organisations. According to the Russian Tax Code, in order to be treated as ‘‘quoted bonds’’ fulfilment of one of the above criteria is sufficient. Therefore, the Notes should be recognised as ‘‘quoted bonds’’ for purposes of the Russian Tax Code. NLMK, based on professional advice received, believes that it should not be obligated to withhold Russian withholding tax from interest payments made to the Issuer under the Loan Agreement because: (i) the Notes should be considered ‘‘quoted bonds’’ as described above; and (ii) the Loan is financed from the funds received from the issue of the Notes; provided the Issuer duly confirms its Irish tax residence.

213 If the Notes are (i) delisted from Euronext Dublin and (ii) exchanged for duly executed and authenticated registered Notes in definitive form in the limited circumstances specified in the Global Note Certificate, the above exemption will not apply and NLMK will be required to withhold Russian withholding income tax from interest payments made by NLMK to the Issuer. In addition, if the Notes are delisted from Euronext Dublin and deposited with a common depository for, and registered in the name of a nominee of, Clearstream, Luxembourg and/ or DTC only, then the Notes may potentially not fall within the definition of quoted bonds under the Russian Tax Code (as Clearstream, Luxembourg and DTC are not explicitly mentioned in the List), and therefore, there is a residual risk that NLMK may potentially be required to withhold Russian withholding tax from interest payments made by NLMK to the Issuer. Release from the tax agent duty effectively means that, in practice, income tax on interest payments under the Loan should not arise in the Russian Federation, because currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay the tax (provided that such legal entities are neither Russian tax residents, nor foreign entities, which are recognised as controlled by the Russian tax residents under the Russian CFC Rules). However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities would not seek to collect the tax from foreign income recipients. In addition, in the event that the Issuer’s interest expenses on the Notes (and on any other ‘‘quoted bonds’’ issued by the Issuer) represent less than 90% of the total expense of the Issuer in any financial year, there is a risk that tax residence rules established by the Russian Tax Code may be applied to the Issuer and the Issuer may be treated as a tax resident of the Russian Federation for Russian tax law purposes in case the Issuer is recognised as managed from the Russian Federation under applicable Russian tax law. In that case, payments of interest under the Notes made by the Issuer to the Noteholders could be recognised by Russian tax authorities as subject to Russian withholding tax at a rate of 20% (or 30% with respect to Non-Resident Noteholders—Individuals). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid by a Russian organisation under ‘‘quoted bonds’’ issued in accordance with the legislation of the foreign jurisdiction (this exemption is also applicable to the foreign organisations, which are either recognised as Russian tax residents, or as those organisations, which activities are leading to creation of a permanent establishment in Russia). Based on the above, the Issuer should be released from the obligation to withhold Russian withholding tax from interest payments made to the Noteholders under the Notes provided that the Notes continue to be recognised as ‘‘quoted bonds’’ for the purposes of the Russian Tax Code as outlined above. If the payments under the Loan are subject to Russian withholding tax for any reason (as a result of which the Issuer may reduce payments made under the Notes by the amount of such withholding taxes), NLMK is required (subject to certain conditions) to increase payments under the Loan Agreement as may be necessary so that the Issuer (or the Noteholders, as applicable) receive a net amount equal to the full amount they would have received in the absence of such withholding. It should be noted, however, that it is currently unclear whether the provisions obliging NLMK to gross up interest payments under the Loan will be enforceable in the Russian Federation. There is a risk that a gross up for withholding tax will not take place and that the interest payments made by NLMK under the Loan Agreement will be reduced by the amount of the Russian income tax withheld by NLMK at the rate of 20% (or such other rate as may be in force at the time of payment) or, potentially, with respect to Non-Resident Noteholders—Individuals Russian personal income tax at a rate of 30% (or such other rate as may be in force at the time of payment). If NLMK is obliged to increase payments under the Loan Agreement, it may (without premium or penalty), subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes would be redeemable at par together with accrued and unpaid interest and additional amounts, if any, to the date of the redemption. No VAT will be payable in the Russian Federation in respect of interest and principal payments under the Loan.

CERTAIN IRISH TAX CONSIDERATIONS The following is a summary of the principal Irish tax consequences for individuals and companies of ownership of the Notes based on the laws and practice of the Irish Revenue Commissioners currently in force in Ireland and may be subject to change. It deals with Noteholders who beneficially own their Notes as an investment. Particular rules not discussed below may apply to certain classes of taxpayers holding Notes, such as dealers in securities, trusts, etc. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Notes should consult their

214 professional advisers on the tax implications of the purchase, holding, redemption or sale of the Notes and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile.

Taxation of Noteholders Withholding Tax In general, tax at the standard rate of income tax (currently 20 per cent.) is required to be withheld from payments of Irish source interest which should include interest payable on the Notes. The Issuer will not be obliged to make a withholding or deduction for or on account of Irish income tax from a payment of interest on a Note where: (a) the Notes are Quoted Eurobonds, i.e. securities which are issued by a company (such as the Issuer), which are listed on a recognised stock exchange (such as Euronext Dublin) and which carry a right to interest; and (b) the person by or through whom the payment is made is not in Ireland, or if such person is in Ireland, either: (i) the Notes are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised); or (ii) the person who is the beneficial owner of the Notes is not resident in Ireland and has made a declaration to a relevant person (such as a paying agent located in Ireland) in the prescribed form; and (c) one of the following conditions is satisfied: (i) the Noteholder is resident for tax purposes in Ireland or, if not so resident, is otherwise within the charge to corporation tax in Ireland in respect of the interest; or (ii) the interest is subject, under the laws of a relevant territory, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which corresponds to income tax or corporation tax in Ireland and which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory; or (iii) the Noteholder is not a company which, directly or indirectly, controls the Issuer, is controlled by the Issuer, or is controlled by a third company which also directly or indirectly controls the Issuer, and neither the Noteholder, nor any person connected with the Noteholder, is a person or persons: i. from whom the Issuer has acquired assets; ii. to whom the Issuer has made loans or advances; or iii. with whom the Issuer has entered into a Swap Agreement, where the aggregate value of such assets, loans, advances or Swap Agreements represents not less than 75 per cent. of the aggregate value of the assets of the Issuer, or (iv) the Issuer is not aware at the time of the issue of any Notes that any Noteholder of those Notes is (i) a person of the type described in (c)(iii) above AND (ii) is not subject, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory, where for these purposes, the term ‘‘Relevant Territory’’ means a member state of the European Union (other than Ireland) or a country with which Ireland has signed a double tax treaty; and ‘‘Swap Agreement’’ means any agreement, arrangement or understanding that— (i) provides for the exchange, on a fixed or contingent basis, of one or more payments based on the value, rate or amount of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or

215 economic interests or property of any kind, or any interest therein or based on the value thereof, and (ii) transfers to a person who is a party to the agreement, arrangement or undertaking, or to a person connected with that person, in whole or in part, the financial risk associated with a future change in any such value, rate or amount without also conveying a current or future direct or indirect ownership interest in the asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred. Thus, so long as the Notes continue to be quoted on Euronext Dublin are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised), and one of the conditions set out in paragraph (c) above is satisfied, interest on the Notes can be paid by any Paying Agent acting on behalf of the Issuer free of any withholding or deduction for or on account of Irish income tax. If the Notes continue to be quoted but cease to be held in a recognised clearing system, interest on the Notes may be paid without any withholding or deduction for or on account of Irish income tax provided such payment is made through a Paying Agent outside Ireland, and one of the conditions set out in paragraph (c) above is satisfied.

Encashment Tax Irish tax will be required to be withheld at the standard rate of income tax (currently 20 per cent.) from interest on any Note, where such interest is collected or realised by a bank or encashment agent in Ireland on behalf of any Noteholder. There is an exemption from encashment tax where the beneficial owner of the interest is not resident in Ireland and has made a declaration to this effect in the prescribed form to the encashment agent or bank.

Income Tax, PRSI and Universal Social Charge Notwithstanding that a Noteholder may receive interest on the Notes free of withholding tax, the Noteholder may still be liable to pay Irish income tax with respect to such interest. Noteholders resident or ordinarily resident in Ireland who are individuals may be liable to pay Irish income tax, pay related social insurance (PRSI) contributions and the universal social charge in respect of interest they receive on the Notes. Interest paid on the Notes may have an Irish source and therefore may be within the charge to Irish income tax, notwithstanding that the Noteholder is not resident in Ireland. In the case of Noteholders who are non-resident individuals such Noteholders may also be liable to pay the universal social charge in respect of interest they receive on the Notes. Ireland operates a self-assessment system in respect of tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope. There are a number of exemptions from Irish income tax available to certain non-residents. Firstly, interest payments made by the Issuer are exempt from income tax so long as the Issuer is a qualifying company for the purposes of Section 110 of the Taxes Consolidation Act 1997 (TCA), the recipient is not resident in Ireland and is resident in a Relevant Territory and, the interest is paid out of the assets of the Issuer. Secondly, interest payments made by the Issuer in the ordinary course of its trade or business to a company are exempt from income tax provided the recipient company is not resident in Ireland and is a company which is either resident for tax purposes in a Relevant Territory which imposes a tax that generally applies to interest receivable in that Relevant Territory by companies from sources outside that Relevant Territory and which tax corresponds to income tax or corporation tax in Ireland or, in respect of the interest is exempted from the charge to Irish income tax under the terms of a double tax agreement which is either in force or which is not yet in force but which will come into force once all ratification procedures have been completed. Thirdly, interest paid by the Issuer free of withholding tax under the quoted Eurobond exemption is exempt from income tax, where the recipient is a person not resident in Ireland and resident in a Relevant Territory or is a company not resident in Ireland which is under the control, whether directly or indirectly, of person(s) who by virtue of the law of a Relevant Territory are resident for the purpose of tax in a Relevant Territory and are not under the control of person(s) who are not so resident or is a company not resident in Ireland where the principal class of shares of the company or its 75% parent is substantially and regularly traded on a recognised stock exchange. For the purposes of these exemptions and where not specified otherwise, residence is determined under the terms of the relevant double taxation

216 agreement or in any other case, the law of the country in which the recipient claims to be resident. Interest falling within the above exemptions is also exempt from the universal social charge. Notwithstanding these exemptions from income tax, a corporate recipient that carries on a trade in Ireland through a branch or agency in respect of which the Notes are held or attributed, may have a liability to Irish corporation tax on the interest. Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient. Interest on the Notes which does not fall within the above exemptions is within the charge to income tax and, in the case of Noteholders who are individuals, is subject to the universal social charge. In the past the Irish Revenue Commissioners have not pursued liability to income tax in respect of persons who are not regarded as being resident in Ireland except where such persons have a taxable presence of some sort in Ireland or seek to claim any relief or repayment in respect of Irish tax. However, there can be no assurance that the Irish Revenue Commissioners will apply this treatment in the case of any Noteholder.

Capital Gains Tax A Noteholder will not be subject to Irish tax on capital gains on a disposal of Notes unless (i) such holder is either resident or ordinarily resident in Ireland or (ii) such holder carries on a trade in Ireland through a branch or agency in respect of which the Notes were used or held or (iii) the Notes cease to be listed on a stock exchange in circumstances where the Notes derive their value or more than 50% of their value from Irish real estate, mineral rights or exploration rights.

Capital Acquisitions Tax A gift or inheritance of Notes will be within the charge to capital acquisitions tax (which subject to available exemptions and reliefs, will be levied at 33 per cent.) if either (i) the disponer or the donee/ successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/ successor) on the relevant date or (ii) if the Notes are regarded as property situate in Ireland (i.e. if the Notes are physically located in Ireland or if the register of the Notes is maintained in Ireland).

Stamp Duty No stamp duty or similar tax is imposed in Ireland on the issue, transfer or redemption of the Notes provided the Issuer is a qualifying company for the purposes of Section 110 of the TCA and the proceeds of the Notes are used in the course of the Issuer’s business.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS The following is a discussion of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of the Notes by U.S. Holders (as defined below) that purchase the Notes at their issue price (generally the first price at which a substantial amount of the Notes is sold for money, excluding sales to bond houses, brokers or similar persons or organisations acting in the capacity of underwriters, placement agents or wholesalers) pursuant to this Offering and hold such Notes as capital assets. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’), U.S. Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address all of the U.S. federal income tax considerations that may be relevant to specific U.S. Holders in light of their particular circumstances (including U.S. Holders that are directly or indirectly related to the Issuer or NLMK) or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, dealers in securities or other U.S. Holders that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, U.S. Holders that hold a Note as part of a straddle, hedge, conversion or other integrated transaction or U.S. Holders that have a ‘‘functional currency’’ other than the US dollar). This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. As used in this discussion, the term ‘‘U.S. Holder’’ means a beneficial owner of a Note that, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States, (ii) a corporation

217 created or organised in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has in effect a valid election under applicable U.S. Treasury regulations to be treated as a United States person. If an entity treated as a partnership for U.S. federal income tax purposes invests in a Note, the U.S. federal income tax considerations relating to such investment will depend in part upon the status and activities of such entity and the particular partner in such entity. Any such entity should consult its own tax adviser regarding the U.S. federal income tax considerations applicable to it and its partners relating to the purchase, ownership and disposition of a Note. EACH PERSON CONSIDERING AN INVESTMENT IN THE NOTES SHOULD CONSULT ITS OWN TAX ADVISERS REGARDING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES.

Characterisation of the Notes There are no regulations, published rulings or judicial decisions addressing the characterisation for U.S. federal income tax purposes of securities issued under substantially the same circumstances and with substantially the same terms as the Notes. To the extent that it is relevant to U.S. Holders, the Issuer intends to take the position that the Notes constitute debt of the Issuer for U.S. federal income tax purposes. However, no ruling will be obtained from the U.S. Internal Revenue Service (the ‘‘IRS’’) with respect to the characterisation of the Notes as debt, and there can be no assurance that the IRS or the courts would agree with this characterisation of the Notes. If, due to the capital structure of the Issuer or otherwise, the Notes were treated as equity interests in the Issuer, U.S. Holders would be treated as owning interests in a ‘‘passive foreign investment company’’ (‘‘PFIC’’). Treatment of the Notes as equity interests in a PFIC could have adverse U.S. federal income tax consequences to certain categories of U.S. Holders. Accordingly, prospective investors should consult their own tax advisers regarding the characterisation of the Notes for U.S. federal income tax purposes and the consequences of owning an equity interest in a PFIC. The remainder of this discussion assumes that the Notes will be treated as debt of the Issuer for U.S. federal income tax purposes.

Certain Accrual Method U.S. Holders A U.S. Holder that computes its taxable income under an accrual method of accounting for U.S. federal income tax purposes and maintains an applicable financial statement may be required to include certain items (such as original issue discount, including de minimis original issue discount (‘‘OID’’)) in income no later than when such items are taken into account as revenue in an applicable financial statement of such U.S. Holder. Accordingly, the U.S. federal income tax considerations relating to such U.S. Holder’s investment in the Notes may be different from those described below. Each such U.S. Holder should consult its own tax advisor regarding the applicability of this rule to its investment in the Notes.

Certain Additional Payments In certain circumstances, the Issuer is required to make payments on the Notes other than stated principal and interest. For example, the Issuer is required to redeem the Notes (i) on the Make Whole Optional Prepayment Date at the Make Whole Prepayment Amount (subject to the receipt of the relevant amounts from NLMK) if NLMK exercises its Make Whole Call Option and (ii) at its principal amount plus any accrued and unpaid interest on the Par Optional Prepayment Date (subject to the receipt of the relevant amounts from NLMK) if NLMK exercises its Par Call Option as described above under the headings ‘‘Terms and Conditions of the Notes—Redemption and Purchase—Optional Redemption at the option of the Issuer under Make Whole Call Option’’ and ‘‘Terms and Conditions of the Notes—Redemption and Purchase—Optional Redemption at the option of the Issuer under Par Call Option’’. U.S. Treasury regulations provide special rules for contingent payment debt instruments that, if applicable, could cause the timing, amount and character of a U.S. Holder’s income, gain or loss with respect to the Notes to be different from those described below. The Issuer intends to treat the possibility of making any of the above payments as not causing the Notes to be contingent payment debt instruments. The Issuer’s

218 treatment will be binding on all U.S. Holders, except a U.S. Holder that discloses its differing treatment in a statement attached to its timely filed U.S. federal income tax return for the taxable year during which such U.S. Holder acquired its Notes. However, the Issuer’s treatment is not binding on the IRS. If the IRS were to challenge the Issuer’s treatment, a U.S. Holder might be required to accrue income on the Notes in excess of stated interest and to treat as ordinary income, rather than capital gain, gain recognised on the disposition of the Notes. In any event, if the Issuer actually makes any such payment, the timing, amount and character of a U.S. Holder’s income, gain or loss with respect to the Notes may be affected. The remainder of this discussion assumes that the Notes will not be treated as contingent payment debt instruments.

Interest on the Notes In general, interest payable on a Note (without reduction for any non-U.S. tax withheld with respect to such payment) will be taxable to a U.S. Holder as ordinary interest income when it is received or accrued, in accordance with such U.S. Holder’s regular method of accounting for U.S. federal income tax purposes. The Notes are not expected to be issued with more than de minimis OID. OID will be considered to be de minimis if it is less than 0.25% of the principal amount multiplied by the number of complete years to maturity of the Notes. However, if the Notes are issued with more than de minimis OID, each U.S. Holder generally will be required to include OID in its income (as interest) as it accrues, regardless of its regular method of accounting for U.S. federal income tax purposes, using a constant yield method, before such U.S. Holder receives any payment attributable to such income. The remainder of this discussion assumes that the Notes are not issued with more than de minimis OID. Interest income on the Notes generally will be treated as income from sources outside the United States and generally will be categorised for U.S. foreign tax credit purposes as ‘‘passive category income’’ or, in the case of some U.S. Holders, as ‘‘general category income’’. The rules relating to U.S. foreign tax credits are very complex, and each U.S. Holder should consult its own tax adviser regarding the application of such rules.

Sale, Exchange, Retirement or Other Disposition of the Notes Upon the sale, exchange, retirement or other disposition of a Note, a U.S. Holder generally will recognise gain or loss in an amount equal to the difference between the amount realised on such sale, exchange, retirement or other disposition (which does not include any amount attributable to accrued stated interest, which, if not previously included in such U.S. Holder’s income, will be taxable as interest income to such U.S. Holder) and such U.S. Holder’s adjusted tax basis in such Note. Any gain or loss so recognised generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder has held such Note for more than one year at the time of such sale, exchange, retirement or other disposition. Net long-term capital gain of certain non-corporate U.S. Holders generally is subject to preferential rates of tax. The deductibility of capital losses is subject to limitations. Such gain or loss generally will be from sources within the United States.

Substitution of the Issuer If another entity is substituted in place of the Issuer as the obligor under the Notes, such substitution could be treated for U.S. federal income tax purposes as a taxable exchange of the Notes for new securities of the new obligor. In such event, a U.S. Holder could be required to recognise gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the issue price of the new securities (as determined for U.S. federal income tax purposes) and such U.S. Holder’s adjusted tax basis in the Notes, with the consequences described above under the heading ‘‘Sale, Exchange Retirement or Other Disposition of the Notes’’, and such new securities could have OID or premium. U.S. Holders should consult their own tax advisers as to the U.S. federal income tax considerations relating to a substitution of the obligor under the Notes.

Medicare Tax In addition to regular U.S. federal income tax, certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8 per cent. tax on all or a portion of their ‘‘net investment income’’, which may include all or a portion of their interest income with respect to, and net gain from the sale, exchange, retirement or other disposition of, a Note. U.S. Holders should consult their own tax advisors regarding the application of the Medicare tax on net investment income to the ownership and disposition of the Notes.

219 Information Reporting and Backup Withholding Under certain circumstances, information reporting and/or backup withholding may apply to a U.S. Holder with respect to payments of interest on, or proceeds from the sale, exchange, retirement or other disposition of, a Note, unless an applicable exemption is satisfied. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by such U.S. Holder on a timely basis to the IRS.

Disclosure Requirements for Specified Foreign Financial Assets Individual U.S. Holders (and certain U.S. entities specified in U.S. Treasury regulations) who, during any taxable year, hold any interest in any ‘‘specified foreign financial asset’’ generally will be required to file with their U.S. federal income tax returns certain information on IRS Form 8938 (or any successor form) if the aggregate value of all such assets exceeds certain specified amounts. ‘‘Specified foreign financial asset’’ generally includes any financial account maintained with a non-U.S. financial institution and may also include the Notes if they are not held in an account maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations on assessment and collection of U.S. federal income taxes may be extended, in the event of a failure to comply. U.S. Holders should consult their own tax advisers as to the possible application to them of this filing requirement.

CERTAIN CONSIDERATIONS UNDER THE U.S. FOREIGN ACCOUNT TAX COMPLIANCE ACT Under the Foreign Account Tax Compliance Act provisions of the Code and related U.S. Treasury guidance (‘‘FATCA’’), a withholding tax of 30% will be imposed in certain circumstances on (i) payments of certain U.S. source income, including interest and dividends (‘‘withholdable payments’’) and (ii) payments by certain foreign financial institutions (such as banks, brokers, investment funds or certain holding companies) (‘‘FFIs’’) that agree to comply with FATCA (‘‘participating FFIs’’) that are attributable to withholdable payments (‘‘foreign passthru payments’’). It is uncertain at present when payments will be treated as ‘‘attributable’’ to withholdable payments. FATCA withholding on foreign passthru payments generally will not apply to debt obligations that are issued on or before the date that is six months after the date on which the final U.S. Treasury regulations defining foreign passthru payments (‘‘passthru payment regulations’’) are filed unless such obligations are materially modified after that date or are treated as equity for U.S. federal income tax purposes. It is possible that, in order to comply with FATCA, the Issuer (or if the Notes are held through an FFI, such FFI) may be required, pursuant to the intergovernmental agreement between the United States and Ireland or any law enacted in connection with such agreement, an agreement with the United States (an ‘‘FFI Agreement’’) or under applicable non-U.S. law enacted in connection with an intergovernmental agreement between the United States and another jurisdiction (an ‘‘IGA’’) to request certain information and documentation from the holders or beneficial owners of the Notes, which may be provided to the home tax authorities of the Issuer or other FFI or to the IRS. In addition, (i) if the Notes are treated as debt for U.S. federal income tax purposes and the terms of the Notes are materially modified, including by substitution of another obligor for the Issuer, on a date more than six months after the date on which the passthru payment regulations are filed or (ii) if the Notes are treated as equity for U.S. federal income tax purposes, then it is possible that the Issuer or a financial institution through which the Notes are held may be required to apply FATCA withholding tax to any payment with respect to the Notes treated as a foreign passthru payment made on or after the date that is two years after the date on which the passthru payment regulations are published if any required information or documentation is not provided or if payments are made to certain FFIs that have not agreed to comply with an FFI Agreement (and are not subject to similar requirements under applicable non-U.S. law enacted in connection with an IGA). The Issuer will not have any obligation to gross up or otherwise pay additional amounts for any withholding or deduction required with respect to payments on the Notes under or in connection with FATCA. Each non U.S. person considering an investment in the Notes should consult its own tax advisers regarding the application of FATCA to the Notes.

220 SUBSCRIPTION AND SALE Each of ING Bank N.V., London Branch, J.P. Morgan Securities plc, Societ´ e´ Gen´ erale´ and UniCredit Bank AG (together, the ‘‘Managers’’ and each, a ‘‘Manager’’) have, in a subscription agreement dated 28 May 2019 (the ‘‘Subscription Agreement’’) among the Issuer, NLMK and the Managers upon the terms and subject to the conditions contained therein, severally and not jointly, agreed to subscribe and pay for the Notes at their issue price of 100 per cent. of their principal amount. The Managers shall make any offers and sales into the United States, to the extent necessary, through their U.S. registered broker-dealer affiliates as permitted by FINRA regulations. The Managers are entitled to commissions and reimbursement of certain expenses pursuant to the Subscription Agreement. The Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes.

Selling Restrictions United States The Notes and the Loan have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except in certain transactions exempt from the registration requirements of the Securities Act. Each Manager has agreed, severally and not jointly, that, except as permitted by the Subscription Agreement, it will not offer or sell the Notes (1) as part of its distribution at any time or (2) otherwise until 40 days after completion of the distribution compliance period within the United States to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes (other than a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S. Each Manager has agreed, severally and not jointly, that neither it nor any of its affiliates (as defined in Rule 501(b) of Regulation D, nor any person acting on its or their behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer and sale of the Notes in the United States. The Managers only may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of the Notes in the United States only to QIBs in accordance with Rule 144A. The Notes are being offered and sold outside of the United States in reliance on Regulation S. The Subscription Agreement provides that the Managers may directly or through their respective U.S. broker- dealer affiliates arrange for the offer and resale of Notes in the United States only to persons whom they reasonably believe are QIBs that are also QPs who can represent that (a) they are QPs who are QIBs within the meaning of Rule 144A; (b) they are not broker-dealers that own and invest on a discretionary basis less than US$25 million in securities of unaffiliated issuers; (c) they are not participant directed employee plans, such as a 401(k) plan; (d) they are acting for their own account, or the account of one or more QIBs each of which is also a QP; (e) they are not formed for the purpose of investing in the Issuer or the Notes; (f) each account for which they are purchasing will hold and transfer at least US$200,000 in principal amount of Notes at any time; (g) they understand that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositaries; and (h) they will provide notice of the transfer restrictions set forth in this Prospectus to any subsequent transferees. In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of Notes within the United States by a dealer that is participating in the Offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A. The Issuer and the Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Prospectus does not constitute an offer to any person in the United States or to any U.S. person other than any QIB who is also a QP and to whom an offer has been made directly by one of the Managers or its U.S. broker-affiliate. Distribution of this Prospectus by any non-U.S. person outside the United States or by any QIB who is also a QP within the United States to any U.S. person or any person within the United States other than any QIB who is also a QP, and those persons, if any, retained to

221 advise such person outside the United States or QIB who is also a QP with respect thereto, is unauthorised and any disclosure without the prior written consent of the Issuer of any of its contents to any such U.S. person or any person within the United States other than any QIB who is also a QP and those persons, if any, retained to advise such non-U.S. person outside the United States or QIB who is also a QP, is prohibited.

Prohibition of Sales to EEA Retail Investors Each Manager has severally and not jointly nor jointly and severally represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any retail investor in the European Economic Area. For the purposes of this provision the expression ‘‘retail investor’’ means a person who is one (or more) of the following: (a) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, ‘‘MiFID II’’); or (b) a customer within the meaning of Directive 2002/92/EC (as amended or superseded, the ‘‘Insurance Mediation Directive’’), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

United Kingdom Each Manager has severally and not jointly nor jointly and severally represented and agreed that: • it has only communicated or caused to be communicated, and will only communicate or cause to be communicated, any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and • it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Russian Federation Each Manager has severally agreed that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian Law.

Ireland Each Manager has represented and agreed that: (a) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the European Union (Markets in Financial Instruments) Regulations 2017 (as amended, the ‘‘MiFID II Regulations’’), including, without limitation, Regulation 5 (Requirement for authorisation (and certain provisions regarding MTFs and OTFs)) thereof, any rules or any codes of conduct made under the MiFID II Regulations, and the provisions of the Investor Compensation Act 1998 (as amended); (b) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the Companies Act 2014 (as amended, the ‘‘Companies Act’’), the Central Bank Acts 1942-2015 (as amended) and any codes of practice made under Section 117(1) of the Central Bank Act 1989 (as amended); (c) it will not underwrite the issue of, or place, or do anything in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Prospectus (Directive 2003/71/EC) Regulations 2005 (as amended) and any rules issued by the Central Bank of Ireland (the ‘‘Central Bank’’) under Section 1363 of the Companies Act; and (d) it will not underwrite the issue of, place or otherwise act in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Market Abuse Regulation (EU 596/2014) (as amended) and any rules and guidance issued by the Central Bank under Section 1370 of the Companies Act.

222 Singapore Each Manager has severally and not jointly nor jointly and severally represented and agreed that it has not offered or sold, or made the subject of an invitation for subscription or purchase, any Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘Securities and Futures Act’’)) pursuant to Section 274 of the Securities and Futures Act, (ii) to a relevant person (as defined in Section 275(2) of the Securities and Futures Act) pursuant to Section 275(1) of the Securities and Futures Act, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. Where the Notes are subscribed or purchased under Section 275 of the Securities and Futures Act by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in the Securities and Futures Act)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each as defined in Section 2(1) of the Securities and Futures Act) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the Securities and Futures Act except: (i) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the Securities and Futures Act; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the Securities and Futures Act; or (v) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore. Any reference to the Securities and Futures Act is a reference to the Securities and Futures Act, Chapter 289 of Singapore and a reference to any term as defined in the Securities and Futures Act or any provision in the Securities and Futures Act is a reference to that term as modified or amended from time to time including by such of its subsidiary legislation as may be applicable at the relevant time.

General Each Manager has agreed that it has, to the best of its knowledge and belief, complied and will comply with applicable laws and regulations in each jurisdiction in which it offers, sells or delivers Notes or distributes this Prospectus or any other offering or publicity material relating to the Notes, the Issuer or NLMK. No action has or will be taken in any jurisdiction by the Issuer, NLMK or any of the Managers that would, or is intended to, permit a public offer of the Notes or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Accordingly, each Manager has undertaken to the Issuer and NLMK that it will not, directly or indirectly, offer or sell any Notes or distribute or publish this Prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms. These selling restrictions may be modified by the agreement of the Issuer, NLMK and the Managers following a change in a relevant law, regulation or directive. The Managers and their respective affiliates have engaged in transactions with NLMK and other members of the Group (including, in some cases, credit agreements and credit lines) in the ordinary course of their banking business and the Managers performed various investment banking, financial advisory, and other services for NLMK, for which they received customary fees, and the Managers and their respective affiliates may provide such services in the future.

223 INDEPENDENT AUDITORS The Group’s consolidated financial statements as of and for the years ended 31 December 2018 and 2017 included in this Prospectus have been audited by AO PricewaterhouseCoopers Audit, independent auditors, as stated in their reports appearing elsewhere in this Prospectus. AO PricewaterhouseCoopers Audit is a member of Self-regulated organisation of auditors ‘‘Russian Union of Auditors’’ (Association). With respect to the unaudited interim condensed consolidated financial statements of the Group as of 31 March 2019 and for the three months ended 31 March 2019 included in this Prospectus, AO PricewaterhouseCoopers Audit reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated 23 April 2019 and appearing elsewhere in this Prospectus states that they did not audit and they do not express an opinion on the unaudited interim condensed consolidated financial statements of the Group as of 31 March 2019 and for the three months ended 31 March 2019. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied.

224 GENERAL INFORMATION 1. NLMK was incorporated in the Russian Federation on 28 January 1993, as a joint stock company for an unlimited duration. NLMK operates under the laws of the Russian Federation. NLMK has its registered office at Pl. Metallurgov 2, Lipetsk 398040, Russian Federation, with state registration number 1024800823123, and its telephone number is +7 4742 44-00-41. 2. The Notes have been accepted for clearance through Euroclear, Clearstream, Luxembourg and DTC. The Common Code and the ISIN numbers for the Regulation S Notes are 184343533 and XS1843435337, respectively. The Common Code, CUSIP and ISIN numbers for the Rule 144A Notes are 11730636, 85812RAB5 and US85812RAB50, respectively. 3. It is expected that admission of the Notes to trading on the regulated market of Euronext Dublin will be granted on or before 30 May 2019, subject only to the issue of the Notes. Transactions will normally be effected for settlements in US dollars and for delivery on the third business day after the day of the transaction. 4. Application has been made to Euronext Dublin for the Notes to be admitted to the Official List and to trading on its regulated market, through the Listing Agent, Arthur Cox Listing Services Limited (‘‘ACLSL’’). ACLSL is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission to the Official List of Euronext Dublin or to trading on the regulated market of Euronext Dublin for the purposes of the Prospectus Directive. 5. Hard copies of the following documents may be inspected at the registered office of the Issuer and the specified offices of the Principal Paying Agent during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for so long as the Notes are listed on Euronext Dublin: • a copy of this Prospectus, together with any supplement to this Prospectus; • the constitution of the Issuer; • the charter of NLMK (English translation); • the Annual Financial Statements, including the independent auditor’s reports thereon, and the Interim Financial Statements, including the review report thereon; • the Loan Agreement; • the Paying Agency Agreement; • the Trust Deed, which includes the forms of the Global Certificates and the Definitive Certificates; and • the audited financial statements of the Issuer in respect of the financial years ended 31 December 2017 and 2016. 6. The issue of the Notes and the entry into the Loan Agreement was authorised by a decision of the Board of Directors of the Issuer on 24 May 2019. 7. No consents, approvals, authorisations or orders of any regulatory authorities are required by the Issuer under the laws of the Ireland for maintaining the Loan or for issuing the Notes. 8. Since 31 December 2017, the date of the last published audited financial statements of the Issuer, there has been no material adverse change in the financial position or prospects of the Issuer and no significant change in the financial or trading position of the Issuer. The Issuer has no subsidiaries. 9. Save for the fees payable to the Managers, the Trustee and the Agents, so far as the Issuer is aware, no person involved in the issue of the Notes has an interest that is material to the issue of the Notes. 10. There has been no significant change in the financial or trading position of NLMK or of the Group since 31 March 2019 and no material adverse change in the financial position or prospects of NLMK or of the Group since 31 December 2018. 11. There have been no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which any of the Issuer is aware), during the previous 12 months in relation to the Issuer which may have, or have had in the recent past, significant effects on the Issuer’s financial position or profitability.

225 12. NLMK has obtained all necessary consents, approvals and authorisations in the Russian Federation in connection with its entry into, and performance of its obligations under, the Loan Agreement. 13. Citigroup Global Markets Europe AG will act as Registrar in relation to the Notes. 14. The loan to value ratio of the Notes is 100 per cent. 15. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a trustee in office after such removal. Furthermore, the Trust Deed provides, inter alia, that the Trustee may act and/or rely on the opinion or advice of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant, auditor or other expert (whether or not addressed to the Trustee), notwithstanding that such opinion, advice, certificate or information contains a monetary or other limit on the liability of any of the above mentioned persons in respect thereof. 16. The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. 17. The Issuer does not intend to provide any post-issuance transaction information regarding the Notes or the Loan. 18. The Issuer expects that the total expenses related to the listing and admission of the Notes to trading will be approximately EUR 8,000.

226 GLOSSARY OF TERMS

Term or expression Meaning TECHNOLOGY Beneficiation ...... A variety of processes whereby extracted ore from mining is separated into mineral (for further processing or direct use) and gangue (the commercially worthless part of the ore). Blast furnace ...... Facility for converting prepared iron ore into liquid iron (pig iron). It works on the counter flow principle: the charge, consisting of iron ore (including iron ore concentrate and pellets) and coke, is introduced from the top—usually via a rotary chute. The hot blast flows in the opposite direction. The blast is pre-heated in stoves and injected into the furnace through tuyeres. Coke is used as reduction agent. Depending on charge and method of operation, different types of pig iron can be produced. A blast furnace remains in operation for many years (furnace campaign). Blast furnace by-products are blast furnace gas and blast furnace slag. Basic oxygen furnace (BOF)/ Converter ...... In the basic oxygen furnace, molten iron is made into steel. Oxygen is injected to drive out carbon and other impurities dissolved in the melt. This process generates a lot of heat, so scrap is added to keep the melt at around 1700C. The resulting crude steel is then further purified, alloyed in subsequent secondary metallurgy processes, or brought directly to the casting process. Ladle furnace ...... The facility used to maintain and adjust the temperature of liquid steel during processing after tapping from the BOF (or EAF). This also allows the molten steel to be kept ready for use in the event of a delay later in the steelmaking process. Vacuum degassing ...... Vacuum degassing involves exposing the liquid steel to vacuum to improve its properties by reducing the content of gases (hydrogen and oxygen) and the amount of non-metallic inclusions. Continuous casting ...... This is the process of continuously producing billets or slabs from liquid steel that is poured from a ladle, through a tundish into a cast or mould. Electric Arc Furnace (EAF) ...... A method of producing steel through the melting of recycled steel and other sources of iron (pig iron, pellets, etc.) using electricity as a key energy source. Hot-rolling ...... The process of plastically deforming a hot slab into coil of specified thickness by passing it between rolls at a relatively high temperature. Cold-rolling ...... Changes in the structure and shape of steel achieved through rolling the steel at a low temperature (often room temperature). It is used to create a permanent increase in the hardness and strength of the steel. It is affected by the application of forces to the steel, which cause changes in the composition, enhancing certain properties. In order for these improvements to be sustained, the temperature must be below a certain range because the structural changes in the steel are eliminated at higher temperatures. Pickling ...... Removing surface oxides from metals by a chemical reaction. Hot dip galvanising ...... A process whereby steel is dipped into molten zinc or zinc alloy. The process can be performed continuously (by running steel strip through the molten metal) or in batches (by dipping complete products such as automobile bodies or gates into a metal bath).

227 Term or expression Meaning Pre-painting line ...... The method for applying organic coating involves the chemical treatment of the strip, followed by passing the strip through rolls to apply the paint and the subsequent thermal treatment of the strip to polymerise the paint. The goal is to apply the coating evenly in a short process, to obtain a uniform surface and the required coating thickness. Quenched and tempered steel .... Quenching and tempering lines are used for the thermal treatment of thick plates. Quenching is a heat treatment process involving heating steel to above the crystal structure transformation temperature, followed by rapid cooling. This improves the hardness of steel, but increases brittleness and makes it less ductile. Tempering is used after quenching to reduce brittleness and improve ductility and involves reheating the steel and then allowing it to cool slowly. As a result, ductility is improved, brittleness is reduced and the required hardness is achieved. Such steels are used to manufacture low-wear mechanism components (i.e. excavator buckets, etc.). Quarto mill ...... A four-roll mill with rolls positioned in one vertical plane, two of which are interior and smaller in diameter (work rolls) and two are exterior and larger in diameter (back-up rolls). RAW MATERIALS AND SEMI-FINISHED PRODUCTS Coke ...... The basic fuel consumed in blast furnaces in the smelting of iron. Coke is a processed form of coking coal concentrate. Iron ore concentrate ...... Iron ore containing the valuable minerals of an ore from which most of the waste material has been removed by various treatment processes. Iron (Fe) content: 66.5%. Pellets ...... An enriched form of iron ore shaped into small balls used in the steelmaking processes. Fe content: 65%. Fluxes ...... Materials added to the charge to form slag and regulate its composition. Scrap (ferrous) ...... Ferrous (iron-containing) material that is generally remelted in electric arc furnaces. Steel mills also use scrap for up to 25% of their basic oxygen furnace charge. Scrap is waste steel, prepared for recycling. Sinter ...... A product of sintering iron-bearing particles under high temperature into chunks to remove impurities and agglomerate small fractions of iron ores and concentrates. Alloy ...... A material with metallic properties consisting of several chemical elements. Changing the composition and hence the microstructure of alloys enables the targeted engineering of desired material properties. Crude steel ...... Steel in its primary form of hot molten metal. Slab ...... Rectangular block of steel, product of the casting process in the melt shop, used as a starting material in the rolling mills to produce hot strip. Pig iron ...... An alloy of iron and carbon that is produced in a blast furnace.

228 Term or expression Meaning Billet ...... A semi-finished steel form that is used for long steel products such as bars, channels, wire rod or other structural shapes. OTHER Apparent consumption ...... The mathematical sum of production plus imports minus exports of finished steel products adjusted for flat steel used in pipes production. It does not recognise changes in stock levels. High value added (HVA) products . Finished high value added steel products, including hot-rolled plates (‘‘HRPs’’), cold-rolled steel, galvanised and pre-painted steel, electrical grain-oriented (transformer) and non-grain- oriented (dynamo) steel and metalware. Lipetsk site ...... The main production facility of NLMK Russia located in Lipetsk (Novolipetsk).

229 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT 31 MARCH 2019 AND FOR THE THREE MONTHS ENDED 31 MARCH 2019 Report on review of interim condensed consolidated financial statements ...... F-4 Interim condensed consolidated statement of financial position ...... F-5 Interim condensed consolidated statement of profit or loss ...... F-6 Interim condensed consolidated statement of comprehensive income ...... F-7 Interim condensed consolidated statement of changes in equity ...... F-8 Interim condensed consolidated statement of cash flows ...... F-9 Notes to the interim condensed consolidated financial statements ...... F-10 CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 Independent auditor’s report ...... F-24 Consolidated statement of financial position ...... F-31 Consolidated statement of profit or loss ...... F-32 Consolidated statement of comprehensive income ...... F-33 Consolidated statement of changes in equity ...... F-34 Consolidated statement of cash flows ...... F-35 Notes to the consolidated financial statements ...... F-36 CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 Independent auditor’s report ...... F-85 Consolidated statement of financial position ...... F-93 Consolidated statement of profit or loss ...... F-94 Consolidated statement of comprehensive income ...... F-95 Consolidated statement of changes in equity ...... F-96 Consolidated statement of cash flows ...... F-97 Notes to the consolidated financial statements ...... F-98

F-1 NOVOLIPETSK STEEL

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS AT 31 MARCH 2019 AND FOR THE THREE MONTHS ENDED 31 MARCH 2019 (UNAUDITED)

F-2 Novolipetsk Steel Interim condensed consolidated financial statements as at 31 March 2019 and for the three months ended 31 March 2019 (unaudited) CONTENTS

Report on review of interim condensed consolidated financial statements ...... F-4 Interim condensed consolidated statement of financial position ...... F-5 Interim condensed consolidated statement of profit or loss ...... F-6 Interim condensed consolidated statement of comprehensive income ...... F-7 Interim condensed consolidated statement of changes in equity ...... F-8 Interim condensed consolidated statement of cash flows ...... F-9 Notes to the interim condensed consolidated financial statements ...... F-10

F-3 10MAY201912182479 Report on Review of Interim Condensed Consolidated Financial Statements To the Shareholders and Board of Directors of Novolipetsk Steel:

Introduction We have reviewed the accompanying interim condensed consolidated statement of financial position of Novolipetsk Steel and its subsidiaries (together—the ‘‘Group’’) as of 31 March 2019 and the related interim condensed consolidated statements of profit or loss, comprehensive income, changes in equity and of cash flows for the three-month period then ended and the related notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard 34, ‘‘Interim Financial Reporting’’. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’. A review of interim condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘‘Interim Financial Reporting’’.

23 April 2019 Moscow, Russian Federation

Signed on the original: A. S. Ivanov

A.S. Ivanov, certified auditor (licence no. Nº 01-000531), AO PricewaterhouseCoopers Audit

Audited entity: Novolipetsk Steel Independent auditor: AO PricewaterhouseCoopers Audit State registration certificate No. 5-G, Registered by the Government Agency Moscow Registration Chamber issued by the Administration of on 28 February 1992 under No. 008.890 Levoberezhny district of the city of Lipetsk on 28 January 1993 Certificate of inclusion in the Unified Record made in the Unified State Register of Legal Entities on State Register of Legal Entities issued on 22 August 2002 under State Registration Number 1027700148431 9 July 2002 under registration No. 1024800823123 2, Metallurgov sq., Lipetsk, 398040, Member of Self-regulated organization of auditors «Russian Union of Russian Federation auditors» (Association) Principal Registration Number of the Record in the Register of Auditors and Audit Organizations—11603050547

10MAY201912185388

F-4 Novolipetsk Steel Interim condensed consolidated statement of financial position (unaudited) (millions of US dollars)

As at As at Note 31 March 2019 31 December 2018 Assets Current assets Cash and cash equivalents ...... 3 736 1,179 Short-term financial investments ...... 4 446 19 Trade and other accounts receivable ...... 5 1,279 1,326 Inventories ...... 6 1,602 1,816 Other current assets ...... 8 10 4,071 4,350 Non-current assets Long-term financial investments ...... 4 144 85 Investments in joint ventures ...... 4 160 159 Property, plant and equipment ...... 7 5,219 4,807 Goodwill ...... 8 239 224 Other intangible assets ...... 8 168 156 Deferred income tax assets ...... 161 152 Other non-current assets ...... 12 11 6,103 5,594 Total assets ...... 10,174 9,944 Liabilities and equity Current liabilities Trade and other accounts payable ...... 9 1,046 1,122 Dividends payable ...... 5 525 Short-term borrowings ...... 10 224 398 Current income tax liability ...... 34 28 1,309 2,073 Non-current liabilities Long-term borrowings ...... 10 1,872 1,677 Deferred income tax liability ...... 370 346 Other long-term liabilities ...... 1 14 2,243 2,037 Total liabilities ...... 3,552 4,110 Equity attributable to Novolipetsk Steel shareholders Common stock ...... 221 221 Additional paid-in capital ...... 9 10 Accumulated other comprehensive loss ...... (6,376) (6,782) Retained earnings ...... 12,752 12,370 6,606 5,819 Non-controlling interests ...... 16 15 Total equity ...... 6,622 5,834 Total liabilities and equity ...... 10,174 9,944

The interim condensed consolidated financial statements as set out on pages 5 to 23 were approved by the Group’s management and authorised for issue on 23 April 2019. The accompanying notes constitute an integral part of these interim condensed consolidated financial statements.

F-5 Novolipetsk Steel Interim condensed consolidated statement of profit or loss (unaudited) (millions of US dollars, unless otherwise stated)

For the For the three months ended three months ended Note 31 March 2019 31 March 2018 Revenue ...... 12,15 2,869 2,794 Cost of sales ...... (1,988) (1,815) Gross profit ...... 881 979 General and administrative expenses ...... (82) (86) Selling expenses ...... (226) (211) Net impairment losses on financial assets ...... (1) (1) Other operating income/(expenses), net ...... 2 (1) Taxes, other than income tax ...... (15) (23) Operating profit before share of results of joint ventures, impairment of non-current assets and gain on disposals of property, plant and equipment ...... 559 657 Gain on disposals of property, plant and equipment ..... — 2 Impairment of non-current assets ...... (5) — Share of results of joint ventures ...... 4 (21) Finance income ...... 4 10 Finance costs ...... (16) (19) Foreign currency exchange (loss)/gain, net ...... 13 (61) 9 Other expenses, net ...... (20) (10) Profit before income tax ...... 465 628 Income tax expense ...... 14 (83) (124) Profit for the period ...... 382 504 Profit attributable to: Novolipetsk Steel shareholders ...... 382 502 Non-controlling interests ...... —2 Earnings per share—basic and diluted: Earnings per share attributable to Novolipetsk Steel shareholders (US dollars) ...... 11 0.0637 0.0838

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements.

F-6 Novolipetsk Steel Interim condensed consolidated statement of comprehensive income (unaudited) (millions of US dollars)

For the For the three months ended three months ended 31 March 2019 31 March 2018 Profit for the period ...... 382 504 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Cumulative translation adjustment ...... 407 29 Total comprehensive income for the period ...... 789 533 attributable to: Novolipetsk Steel shareholders ...... 788 531 Non-controlling interests ...... 1 2

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements.

F-7 Novolipetsk Steel Interim condensed consolidated statement of changes in equity (unaudited) (millions of US dollars)

NLMK shareholders Accumulated Additional other Common paid-in comprehensive Retained Non-controlling Total stock capital loss earnings interest equity Balance at 1 January 2018 ...... 221 10 (5,631) 12,029 17 6,646 Profit for the period ...... — — — 502 2 504 Cumulative translation adjustment . — — 29 — — 29 Total comprehensive income ..... — — 29 502 2 533 Acquisition of non-controlling interest ...... — — — (1) (3) (4) Balance at 31 March 2018 ...... 221 10 (5,602) 12,530 16 7,175 Balance at 1 January 2019 ...... 221 10 (6,782) 12,370 15 5,834 Profit for the period ...... — — — 382 — 382 Cumulative translation adjustment . — — 406 — 1 407 Total comprehensive income ..... — — 406 382 1 789 Disposal of assets to an entity under common control ...... — (1) — — — (1) Balance at 31 March 2019 ...... 221 9 (6,376) 12,752 16 6,622

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements.

F-8 Novolipetsk Steel Interim condensed consolidated statement of cash flows (unaudited) (millions of US dollars)

For the For the three months ended three months ended Note 31 March 2019 31 March 2018 Cash flows from operating activities Profit for the period ...... 382 504 Adjustments to reconcile profit for the period to net cash provided by operating activities: Depreciation and amortisation ...... 136 155 Gain on disposals of property, plant and equipment .... — (2) Finance income ...... (4) (10) Finance costs ...... 16 19 Share of results of joint ventures ...... (4) 21 Income tax expense ...... 14 83 124 Impairment of non-current assets ...... 5 — Foreign currency exchange loss/(gain), net ...... 13 61 (9) Change in impairment allowance for inventories and credit loss allowance of accounts receivable ...... 1 — Changes in operating assets and liabilities Decrease/(increase) in trade and other accounts receivable ...... 65 (78) Decrease in inventories ...... 302 34 Decrease/(increase) in other operating assets ...... 2 (2) (Decrease)/increase in trade and other accounts payable . (107) 104 Cash provided by operating activities ...... 938 860 Income tax paid ...... (87) (123) Net cash provided by operating activities ...... 851 737 Cash flows from investing activities Purchases and construction of property, plant and equipment and intangible assets ...... (178) (131) Proceeds from sale of property, plant and equipment . . . — 2 Purchases of investments and loans given, net ...... (61) — Placement of bank deposits ...... (444) (242) Withdrawal of bank deposits ...... 3 549 Interest received ...... 16 10 Acquisition of non-controlling interest ...... — (3) Net cash (used in)/provided by investing activities ...... (664) 185 Cash flows from financing activities Proceeds from borrowings ...... 40 308 Repayment of borrowings ...... (94) (241) Payments on leases ...... (4) — Interest paid ...... (11) (17) Dividends paid to Novolipetsk Steel shareholders ...... (547) (545) Net cash used in financing activities ...... (616) (495) Net (decrease)/increase in cash and cash equivalents ..... (429) 427 Effect of exchange rate changes on cash and cash equivalents ...... (14) 4 Cash and cash equivalents at the beginning of the year .... 3 1,179 301 Cash and cash equivalents at the end of the period ...... 3 736 732

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements.

F-9 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (millions of US dollars)

1 Background Novolipetsk Steel (the ‘‘Parent Company’’ or ‘‘NLMK’’) and its subsidiaries (together—the ‘‘Group’’) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Group is a vertically integrated steel company and the largest steel producer in Russia. The Group also operates in the mining segment. The Group’s main operations are in the Russian Federation, the European Union and the USA and are subject to the legislative requirements of the subsidiaries’ state and regional authorities. The Parent Company’s registered office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation.

2 Basis of preparation These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (‘‘IAS’’) 34 ‘‘Interim Financial Reporting’’, should be read in conjunction with the audited consolidated financial statements of the Group as at and for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’). The functional currency of all of the Group’s Russian entities is considered to be the Russian ruble (‘‘RUR’’). The functional currency of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars (‘‘USD’’) as presentation currency of these interim condensed consolidated financial statements. For users’ convenience all amounts in the financial statements are rounded to the nearest million, if not stated otherwise. The Central Bank of the Russian Federation’s Russian ruble to the main foreign currencies closing rates of exchange as at the reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated below.

2019 2018 Russian ruble to US dollar For the 1st quarter ...... 66.1271 56.8803 As at 31 March ...... 64.7347 57.2649 As at 31 December ...... 69.4706 Russian ruble to Euro For the 1st quarter ...... 75.1715 69.8727 As at 31 March ...... 72.7230 70.5618 As at 31 December ...... 79.4605

3 Cash and cash equivalents

As at As at 31 March 2019 31 December 2018 Cash ...... 455 526 Bank deposits ...... 259 627 Other cash equivalents ...... 22 26 736 1,179

F-10 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

4 Investments

As at As at 31 March 2019 31 December 2018 Short-term financial investments Bank deposits ...... 445 5 Loans to related parties (Note 16(c)) ...... 1 14 446 19 Long-term financial investments Loans to related parties (Note 16(c)) ...... 144 85 144 85 590 104

The carrying amounts of financial investments approximate their fair values.

Investments in joint ventures

As at As at 31 March 2019 31 December 2018 As at As at Ownership Ownership 31 March 2019 31 December 2018 NLMK Belgium Holdings S.A. (‘‘NBH’’) ...... 49.0% 49.0% 150 149 TBEA & NLMK (Shenyang) Metal Product Co., Ltd...... 50.0% 50.0% 10 10 160 159

Management has analysed the performance of NBH in the three months ended 31 March 2019 and believes that no changes are necessary to the estimate of the recoverable amount of the investment made in the consolidated financial statements as at 31 December 2018.

5 Trade and other accounts receivable

As at As at 31 March 2019 31 December 2018 Financial assets Trade accounts receivable ...... 1,095 1,099 Credit loss allowance of trade accounts receivable ...... (22) (21) Other accounts receivable ...... 32 30 Credit loss allowance of other accounts receivable ...... (19) (17) 1,086 1,091 Non-financial assets Advances given to suppliers ...... 63 76 Allowance for impairment of advances given to suppliers ...... (3) (3) VAT and other taxes receivable ...... 132 161 Accounts receivable from employees ...... 1 1 193 235 1,279 1,326

The carrying amounts of trade and other accounts receivable approximate their fair values.

F-11 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

5 Trade and other accounts receivable (continued) As at 31 March 2019 and 31 December 2018, accounts receivable with a carrying value of $222 and $173, respectively, served as collateral for certain borrowings (Note 10).

6 Inventories

As at As at 31 March 2019 31 December 2018 Raw materials ...... 772 859 Work in process ...... 459 504 Finished goods ...... 422 501 1,653 1,864 Impairment allowance ...... (51) (48) 1,602 1,816

As at 31 March 2019 and 31 December 2018, inventories with a carrying value of $436 and $472, respectively, served as collateral for certain borrowings (Note 10).

7 Property, plant and equipment

As at As at 31 March 2019 31 December 2018 Land...... 140 119 Buildings ...... 1,946 1,774 Land and buildings improvements ...... 2,109 1,956 Machinery and equipment ...... 6,106 5,701 Vehicles ...... 310 266 Construction in progress ...... 1,191 1,050 11,802 10,866 Accumulated depreciation and impairment ...... (6,583) (6,059) 5,219 4,807

The amount of borrowing costs capitalized was $10 and $8 for the three months ended 31 March 2019 and 31 March 2018, respectively. The capitalisation rate was 1.2% and 1.5% for the three months ended 31 March 2019 and 31 March 2018, respectively. Management estimates the outstanding commitments in connection with equipment supply and construction works amounted to $843 and $714 as at 31 March 2019 and 31 December 2018, respectively. Management has analysed the performance of key cash generating units in the three months ended 31 March 2019 and believes that no changes to the estimates made as at 31 December 2018 regarding impairment of fixed assets and goodwill are required. As at 31 March 2019, the Group reclassified beneficial contracts with a carrying value of $9 from category ‘‘Other intangible assets’’ into category ‘‘Land’’ within property, plant and equipment. The reclassification was made for the users’ convenience following adoption of IFRS 16 in relation to all lease contracts with a term of more than 12 months (Note 18) and did not result in changes of estimated useful life and depreciation charges. Comparative amounts as at 31 December 2018 were also corrected.

F-12 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

8 Intangible assets

As at As at 31 March 2019 31 December 2018 Goodwill ...... 254 238 Mineral rights ...... 318 296 Industrial intellectual property ...... 64 57 636 591 Accumulated amortization and impairment ...... (229) (211) 407 380

9 Trade and other accounts payable

As at As at 31 March 2019 31 December 2018 Financial liabilities Trade accounts payable ...... 537 584 Other accounts payable ...... 140 147 677 731 Non-financial liabilities Accounts payable and accrued liabilities ...... 169 177 Advances received ...... 92 120 Taxes payable other than income tax ...... 108 94 369 391 1,046 1,122

The carrying amounts of the trade and other accounts payable approximate their fair values.

10 Borrowings

As at As at Rates Currency Maturity 31 March 2019 31 December 2018 Bonds From 4.00% to 4.95% ...... USD 2019–2024 1,356 1,354 Loans From EURIBOR+0.90% to EURIBOR+1.60% EUR 2019–2022 511 562 LIBOR+1.50% ...... USD 2021 146 159 Leases From 2.80% to 10.45% ...... 2020–2089 83 — 2,096 2,075 Less: short-term loans and current maturities of long-term loans, bonds and leases ...... (224) (398) Long-term borrowings ...... 1,872 1,677

F-13 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

10 Borrowings (continued) The carrying amounts and fair value of long-term bonds are as follows:

As at 31 December As at 31 March 2019 2018 Carrying Carrying amount Fair value amount Fair value Bonds ...... 1,200 1,182 1,200 1,150

The fair value of bonds is based on market price and is within level 1 of the fair value hierarchy. The carrying amounts of loans and leases approximate their fair values.

Collateral As at 31 March 2019 and 31 December 2018, the total amount of the Group companies’ collateral was $658 and $645, respectively (Notes 5 and 6).

11 Earnings per share

For the three For the three months ended months ended 31 March 2019 31 March 2018 Profit for the period attributable to NLMK shareholders (millions of US dollars) ...... 382 502 Weighted average number of shares ...... 5,993,227,240 5,993,227,240 Basic and diluted earnings per share (US dollars) ...... 0.0637 0.0838

The Parent Company does not have potentially dilutive financial instruments outstanding.

12 Revenue (a) Revenue by type

For the three For the three months ended months ended 31 March 2019 31 March 2018 Revenue from sale of goods Flat products ...... 1,575 1,419 Pig iron, slabs and billets ...... 791 840 Long products and metalware ...... 283 302 Coke and other chemical products ...... 74 89 Scrap ...... 21 24 Other products ...... 41 58 Total revenue from sale of goods ...... 2,785 2,732 Revenue from transportation services ...... 84 62 2,869 2,794

F-14 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

12 Revenue (continued) (b) Revenue by geographical area The allocation of total revenue by geographical area is based on the location of end customers who purchased the Group’s products. The Group’s total revenue from external customers by geographical area is as follows:

For the three For the three months ended months ended 31 March 2019 31 March 2018 Russia ...... 935 969 North America ...... 561 541 European Union ...... 539 594 Middle East, including Turkey ...... 372 323 Central and South America ...... 127 121 CIS ...... 106 112 Asia and Oceania ...... 106 36 Other regions ...... 123 98 2,869 2,794

Except for NBH Group (Note 16), the Group does not have customers with a share of more than 10% of the total revenue.

13 Foreign exchange differences

For the three For the three months ended months ended 31 March 2019 31 March 2018 Foreign exchange loss on cash and cash equivalents ...... (71) — Foreign exchange (loss)/gain on financial investments ...... (104) 3 Foreign exchange gain/(loss) on debt financing ...... 122 (4) Foreign exchange (loss)/gain on other assets and liabilities ...... (8) 10 (61) 9

14 Income tax Income tax expense is recognised based on management’s estimate of the effective annual income tax rate expected for the full financial year. The expected effective annual income tax rates used for the three months ended 31 March 2019 and 31 March 2018 are 18% and 19%, respectively. The lower tax rate expected for 2019 was the result of increase in share of profits of foreign subsidiaries for which the Group plan to utilise tax losses carried forward.

15 Segment information The Group has six reportable business segments: Mining, Russian flat products, Russian long products, NLMK USA, NLMK DanSteel and Plates Distribution Network, and Investments in NBH. These segments are combinations of entities, have separate management teams and offer different products and services. The above six segments meet the criteria for reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and governance. The Group management determines pricing for intersegmental sales, as if the sales were to third parties. The revenue from external parties is measured in the same way as in the consolidated statement of profit or loss. The Group management evaluates performance of the segments based on segment revenues, gross profit, operating profit before share of results of joint ventures, impairment of non-current assets and gain

F-15 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

15 Segment information (continued) on disposals of property, plant and equipment, profit for the period and amount of total assets and total liabilities. Elimination of intersegmental operations and balances represents elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within ‘‘Profit for the period’’ line together with other intercompany elimination adjustments, including elimination of NBH’s liabilities to the Group companies (Note 16). NBH deconsolidation adjustments include elimination of NBH’s sales, recognition of the Group’s sales to NBH and elimination of unrealised profits (Notes 16), elimination of NBH’s assets and liabilities and recognition of the investment in joint venture, recognition of impairment and share of NBH’s loss, and other consolidation adjustments. Information on segments’ profit or loss for the three months ended 31 March 2019 is as follows:

NLMK DanSteel Russian Russian and Plates Intersegmental NBH flat long NLMK Distribution Investments operations deconsolidation Mining products products USA Network in NBH and balances adjustments Total Revenue from external customers . 4 1,624 374 526 139 385 — (183) 2,869 Intersegment revenue 264 352 41 — — 11 (657) (11) — Gross profit ...... 175 594 41 24 14 14 13 6 881 Operating profit/ (loss)* ...... 163 346 (4) 2 — (31) 32 51 559 Profit/(loss) for the period ...... 106 239 (10) 3 (1) (33) 20 58 382 Segment assets ..... 2,185 6,891 1,124 980 382 1,455 (1,615) (1,228) 10,174 Segment liabilities . . . (286) (3,774) (412) (322) (264) (1,317) 1,977 846 (3,552) Depreciation and amortization ..... (27) (78) (13) (15) (3) (16) — 16 (136)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and gain on disposals of property, plant and equipment. Information on segments’ profit or loss for the three months ended 31 March 2018 is as follows:

NLMK DanSteel Russian Russian and Plates Intersegmental NBH flat long NLMK Distribution Investments operations deconsolidation Mining products products USA Network in NBH and balances adjustments Total Revenue from external customers . 3 1,471 418 431 138 504 — (171) 2,794 Intersegment revenue . 335 698 42 — — 21 (1,075) (21) — Gross profit ...... 237 705 90 42 8 18 (98) (23) 979 Operating profit/ (loss)* ...... 222 433 44 26 (7) (28) (56) 23 657 Profit/(loss) for the period ...... 181 384 31 25 (8) (32) (83) 6 504 Segment assets ..... 2,081 6,822 1,150 1,019 373 1,531 (1,748) (1,284) 9,944 Segment liabilities . . . (412) (4,262) (450) (350) (251) (1,357) 2,126 846 (4,110) Depreciation and amortization ..... (32) (90) (17) (14) (2) (20) — 20 (155)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and gain on disposals of property, plant and equipment.

F-16 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

16 Related party transactions Parties are considered to be related if one party has the ability to control the other party, is under common control or can exercise significant influence or joint control over the other party in making financial or operational decisions as defined by IAS 24 ‘‘Related Party Disclosures’’. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group carries out operations with related parties on an arm’s length basis.

(a) Sales to and purchases from related parties

For the For the three months ended three months ended 31 March 2019 31 March 2018 Sales NBH group companies ...... 202 333 Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 87 89 NBH group companies ...... 11 21 Other related parties ...... 3 1 NBH group companies together are the major customer of the Group. Sales to NBH group are performed by the Russian flat products segment and represent 7.0% and 11.9% of the total sales of the Group for the three months ended 31 March 2019 and 31 March 2018, respectively.

(b) Accounts receivable from and accounts payable to related parties

As at As at 31 March 2019 31 December 2018 Accounts receivable and advances given NBH group companies ...... 327 412 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 19 32 Accounts payable NBH group companies ...... 31 31 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 10 6

(c) Financial transactions As at 31 March 2019 and 31 December 2018, loans issued to NBH group companies amounted to $145 and $99, respectively. When issuing loans to the foreign companies of the Group and joint ventures, interest rate is determined using information on similar external deals subject to company’s internal credit rating.

(d) Financial guarantees issued As at 31 March 2019 and 31 December 2018, guarantees issued by the Group for borrowings received by NBH group companies amounted to $296 and $309, respectively, which is the maximum potential amount of future payments, payable on demand of the guarantee. No amount has been accrued in these interim condensed consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses the probability of cash outflows related to these guarantees, as low.

F-17 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

16 Related party transactions (continued) The maturity of the guaranteed obligations is as follows:

As at As at 31 March 2019 31 December 2018 Less than 1 year ...... 56 57 Over 2 years ...... 240 252 296 309

17 Commitments and contingencies (a) Anti-dumping investigations The Group’s export trading activities are subject from time to time to compliance reviews by the regulatory authorities in the importers’ jurisdictions. The Group’s export sales prices were considered by local governments within several anti-dumping investigation frameworks. The Group takes steps to address negative effects of the current and potential anti-dumping investigations and participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any possible agreements and decisions as a result of anti-dumping investigations has been made in the consolidated financial statements.

(b) Litigation The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The Group management believes that any liability resulting from these legal actions will not significantly affect its financial position or results of operations, and no amount has been accrued in the consolidated financial statements.

(c) Environmental matters The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised in financial statements immediately. Potential liabilities, which might arise as a result of future changes in existing regulations, civil litigation or legislation, cannot be reasonably estimated. In the current enforcement climate under existing environmental legislation, management believes that the Group has met the Government’s federal and regional requirements concerning environmental matters, therefore, there are no significant liabilities for environmental damage and remediation.

(d) Social commitments The Group makes contributions to mandatory and voluntary social programs. The Group’s social contributions, as well as local social programs, benefit the community at large and are not normally restricted to the Group’s employees. The Group has transferred certain social operations and assets to local authorities, however, the Group management expects that the Group will continue to fund certain social programs for the foreseeable future. These costs are recorded in the period they are incurred.

(e) Tax contingencies and provisioning Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review by tax authorities of transactions without a clear business purpose or with tax-incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when the decision about the review was made. Under certain circumstances reviews may cover longer periods.

F-18 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

17 Commitments and contingencies (continued) The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm’s length. Tax liabilities arising from transactions between companies within the Group are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the basis that these companies are not subject to Russian income tax, because they do not have a permanent establishment in Russia. This interpretation of the relevant legislation may be challenged. The Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). The CFC income may be subject to a 20% tax rate. Tax, customs and currency legislation in Russia and other countries where the Group operates does not provide definitive guidance in certain areas. Management currently estimates that the positions and interpretations that it has taken can probably be sustained. Where management has assessed that, in the event of a challenge by the authorities, there would more likely than not be an outflow of resources, a provision has been made and included in non-financial accounts payable. The impact and probability of any such future challenge cannot be estimated to a high degree of precision and therefore given the nature of such matters there remains a risk that the ultimate outflow of resources may be greater than the level of provision established and it may be significant to the financial position and/or the overall operations of the Group.

(f) Major terms of loan agreements Certain of the loan agreements contain covenants that impose restrictions on the purposes for which the loans may be utilised, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or guarantees, obligations in respect of any future reorganisations procedures or bankruptcy of the borrowers, and also require that the borrowers maintain pledged assets to their current value and conditions. In addition, these agreements contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the borrowers, including cross-default provisions, as well as to legal claims in excess of certain amount, where reasonable expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill contractual obligations. The Group companies were in compliance with all debt covenants as at 31 March 2019 and 31 December 2018.

18 Significant accounting policies The accounting policies applied in these interim condensed consolidated financial statements are consistent with those of the consolidated financial statements for the year ended 31 December 2018 except for the adoption of amended Standards that are mandatory for financial annual periods beginning on 1 January 2019 and the estimation of income tax expenses using the effective tax rate method (Note 14).

IFRS 16 ‘‘Leases’’ The Group leases land, buildings, land and buildings improvements and equipment. A lease is a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. The Group assesses the lease term as the non-cancellable period of the lease plus periods covered by lessee’s options either to extend or to terminate if the lessee is reasonably certain to exercise the extension option or not exercise the termination option. Lease contracts are negotiated on

F-19 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

18 Significant accounting policies (continued) an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. In accordance with the transition provisions in IFRS 16, the Group has elected the modified retrospective method without restatement of comparatives with the effect of transition to be recognised as at 1 January 2019. In accordance with the core principles of the standard, the Group has amended the accounting policy for the recognition, measurement, presentation and disclosure of leases. Starting 1 January 2019, the Group has implemented a single lessee accounting model using the practical expedient permitted by the standard for treating operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases. In respect of leases previously classified as operating leases the lease liability is measured as remaining lease payments comprised of fixed payments discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The lease liability is initially recognised at the commencement day and measured at an amount equal to the present value of the lease payments during the lease term that are not yet paid. The right-of-use asset is initially recognised at the commencement day and measured at cost, consisting of the amount of the initial measurement of the lease liability, plus any lease payments made to the lessor at or before the commencement date. The right-of-use asset is subsequently measured at cost, less accumulated depreciation and any accumulated impairment losses. The lease liability is subsequently measured using the effective interest rate method. It remeasures the carrying amount to reflect any re-assessment, lease modification, or revised in-substance fixed lease payments. A re-assessment of the lease liability takes place if the cash flows change based on the original terms and conditions of the lease. A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease. Any remeasurement of the lease liability based on situations described above results in a corresponding adjustment to the right-of-use asset. Any change that is triggered by a clause that is already part of the original lease contract, including changes due to a market rent review clause or the exercise of an extension option, is a re-assessment and not a modification. The effective date of the modification is the date on which the parties agree to the modification of the lease. The Group calculates depreciation of the right-of-use asset on a straight-line basis over the shorter of the lease term and the useful life of the right-of-use asset. Depreciation of right-of-use assets is presented separately from interest on lease liabilities in the statement of profit or loss and other comprehensive income. As at 1 January 2019, the Group recognised lease liabilities in the amount of $79 in relation to leases which classified as operating leases as of 31 December 2018 under the principles of IAS 17 Leases. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 is 5.94%. A reconciliation of future minimum lease payments to recognized lease liabilities is as follows:

Total future minimum lease payments for operating leases as at 31 December 2018 ...... 293 Future lease payments change on renegotiated lease contracts from 1 January 2019 ...... (50) Future lease payments that are due in periods subject to lease extension options that are reasonably certain to be exercised ...... 9 Future lease payments for leases with a term of less than 12 months ...... (2) Effect of discounting to present value ...... (171) Total lease liabilities recognized as at 1 January 2019 ...... 79

F-20 Novolipetsk Steel Notes to the interim condensed consolidated financial statements (unaudited) (continued) (millions of US dollars)

18 Significant accounting policies (continued) A breakdown of leases recognised as a right-of-use asset is as follows:

As at 1 January 2019 Land...... 22 Buildings ...... 42 Land and buildings improvements ...... 2 Machinery and equipment ...... 13 Total leases recognized as a right-of-use asset ...... 79

19 Subsequent events On 19 April 2019, the shareholders of the Parent Company approved dividends for the fourth quarter of 2018 of 5.80 Russian rubles per share in the total amount of $543 at the exchange rate as at 19 April 2019. On 19 April 2019, the Board of Directors of the Parent Company recommended dividends for the first quarter of 2019 of 7.34 Russian rubles per share in the total amount of $687 at the exchange rate as at 19 April 2019.

F-21 NOVOLIPETSK STEEL

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018

(WITH INDEPENDENT AUDITOR’S REPORT THEREON)

F-22 Novolipetsk Steel Consolidated financial statements as at and for the year ended 31 December 2018 CONTENTS

Independent auditor’s report ...... F-24 Consolidated statement of financial position ...... F-31 Consolidated statement of profit or loss ...... F-32 Consolidated statement of comprehensive income ...... F-33 Consolidated statement of changes in equity ...... F-34 Consolidated statement of cash flows ...... F-35 Notes to the consolidated financial statements ...... F-36

F-23 10MAY201912182479

Independent auditor’s report To the Shareholders and the Board of Directors of Novolipetsk Steel:

Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Novolipetsk Steel and its subsidiaries (together—the ‘‘Group’’) as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited The Group’s consolidated financial statements comprise: • the consolidated statements of: • financial position as at 31 December 2018; • profit or loss for the year ended 31 December 2018; • comprehensive income for the year ended 31 December 2018; • changes in equity for the year ended 31 December 2018; • cash flows for the year ended 31 December 2018; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

11MAY201907451020

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Our audit approach Overview

• Overall Group materiality: 123 million US Dollars (USD), which represents 1% of the Group’s consolidated revenue • We conducted audit work at 11 components (entities or business activities, which prepare financial information that is included in the consolidated financial statements) in five countries • The Group engagement team visited the Group companies in the Russian Federation, Switzerland and the Netherlands and also the joint venture located in Belgium • Our audit scope covered 92% of the Group’s consolidated revenues and 90% of the Group’s consolidated total assets • Key Audit Matter 1—Management assessment of the carrying value of goodwill, intangible assets and property, plant and equipment 12MAY201903131434 • Key Audit Matter 2—Determination of the carrying value of the investment in NBH As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole.

Overall Group materiality ...... USD 123 million (2017: USD 100 million) How we determined it ...... 1% of the Group’s consolidated revenue Rationale for the materiality benchmark applied .... We chose revenue as the benchmark because, in our view, it is the benchmark which objectively best represents the performance of the Group over a period of time while financial results are volatile. We determined overall materiality as 1%, which in our experience is within the range of acceptable quantitative materiality thresholds applied for public companies in the relevant industry. We also take into account misstatements and/or possible misstatements that, in our judgement, are material for qualitative reasons.

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Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the Key audit matter 1. Management’s assessment of the carrying value of goodwill, intangible assets and property, plant and equipment Refer to Notes 8 and 9 to the consolidated financial statements The Group management performed an analysis of We obtained, understood and evaluated existence of indicators of impairment of the management’s impairment models. We involved our Group’s property, plant and equipment (PP&E), valuation experts to assist in the evaluation of the intangible assets and goodwill as well as indicators methodology, mathematical accuracy and of potential reversal of an impairment loss assumptions used in the models. recognised in prior periods as of 30 September 2018 Specific work performed over the impairment test and updated it as of 31 December 2018. This included: analysis revealed: • comparing the key assumptions used within the • high volatility on the market of certain finished impairment models to the historic performance products and raw materials; of the respective CGUs, approved estimates, • continuing recovery of the US economy and other supporting calculations; followed by strong prices on steel products; • benchmarking the key assumptions used within and the impairment models, including price forecasts, inflation and discount rates, against • price increase for long products. external expert valuations, macroeconomic and The analysis triggered testing a number of the industry forecasts, which corroborated their Group’s cash-generating units (CGUs) for validity; impairment. Indication that an impairment loss • performing a sensitivity analysis over the key recognised in prior periods may no longer exist or assumptions in order to assess their potential may have decreased has not been identified. impact on impairment results and ranges of The recoverable amount of PP&E, intangible assets possible outcomes of the recoverable amounts; and goodwill for each Group’s CGU subject to • examining management’s assessment of the testing was calculated by management as of degree to which steel prices and sales volumes 30 September 2018 and updated based on the would need to reduce and the discount rates actual performance of these CGUs as of would need to increase, in isolation from other 31 December 2018. changes in assumptions, before an impairment Management assessed the recoverable amount arises on these CGUs; being value in use for each such CGU using • validating the key assumptions used in the discounted cash flow models and concluded that no impairment models also as of 31 December impairment or reversal of previously recognised 2018; impairment were required as of 31 December 2018. • assessing compliance with the requirements of We focused on this area because of the significant IFRS of the related disclosures in the judgmental factors involved in the calculation of consolidated financial statements. recoverable amount of each CGU, and the significant carrying value of the assets in scope of the test.

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Key audit matter How our audit addressed the Key audit matter 2. Determination of the carrying value of the investment in NBH Refer to Note 4 and Note 26(d) to the Consolidated Financial Statements NBH is a joint venture between the Group and Our audit procedures included: Societe Wallonne de Gestion et de 1) agreeing the amount of the Group’s additional Participations S.A. (hereinafter—‘‘SOGEPA’’). contribution into the share capital to In December 2018, the Group contributed an supporting documentation; additional USD 210 million into the share capital of 2) testing management’s impairment assessment NBH in the form of conversion of a loan previously of the investment in NBH. We performed audit issued to NBH. procedures over the impairment models, The Group management considered that including: SOGEPA’s share in this contribution should not be • comparing the key assumptions used expensed immediately, but the investment in NBH within the impairment models to historic as a whole should be tested for impairment as of the performance and approved forecasts of date of this additional contribution using a the three CGUs within NBH; discounted cash flow model. • benchmarking the key assumptions used Management performed an analysis of the business within the impairment models, including performance, industry outlook and operational price forecasts, inflation and discount plans. High volatility on the markets of finished rates, against external expert valuations, goods and raw materials triggered impairment macroeconomic and industry forecasts, testing of investment in the share capital of NBH. which corroborated their validity; As a result of this testing performed by management, additional impairment loss of • performing sensitivity analysis over key USD 87 million was recognized as of 31 December assumptions (for example, weighted 2018. average cost of capital, sales prices and volumes forecasts); We focused on this area as the amount of contribution made in 2018 and the judgement over • involving our valuation experts to assess impairment of the investment in NBH are the appropriateness of management’s significant for the consolidated financial statements impairment models; taken as a whole. • verifying accuracy of the carrying value of the investment in NBH.

How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the geographic and management structure of the Group, the Group’s accounting processes and controls, and the industry in which the Group operates. The Group’s major production facilities are located in the Russian Federation, the USA and Western Europe and the trading company is based in Switzerland. Based on our continuing assessment, we included in our group audit scope the 11 components located in these regions. The audits of the components were conducted by PwC network firms in the Russian Federation, USA, Denmark and Belgium in accordance with International Standard on Auditing (ISA) 600 ‘‘Special considerations—audits of group financial statements (including the work of component auditors)’’. The Group engagement team’s instructions to component auditors included results of our risk assessment, materiality levels and the approach to the audit of centralised processes and systems. The Group

F-27 10MAY201912182479 engagement team is in regular contact with the component auditors and its representatives visited several component teams to review their work. Our selection is based on the relative significance of the entities within the Group or specific risks identified. By performing the procedures above at the components in combination with additional procedures performed at Group level, we have obtained sufficient and appropriate audit evidence regarding the consolidated financial statements as a whole that provides a basis for our opinion.

Other information Management is responsible for the other information. The other information comprises information included in the Group Annual Report for 2018 and the Issuer’s Report for the first quarter of 2019, but does not include the consolidated financial statements and our auditor’s report thereon. Both of these reports are expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the Group Annual Report for 2018 and the Issuer’s Report for the first quarter of 2019, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error,

F-28 10MAY201912182479

as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The certified auditor responsible for the audit resulting in this independent auditor’s report is A.S. Ivanov.

7 February 2019 Moscow, Russian Federation Signed on the original: A.S. Ivanov.

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A.S. Ivanov, certified auditor (licence No. Nº 01-000531), AO PricewaterhouseCoopers Audit

Audited entity: Novolipetsk Steel Independent auditor: AO PricewaterhouseCoopers Audit State registration certificate No. 5-G, issued by the Administration of Levoberezhny district of the city Registered by the Government Agency Moscow of Lipetsk on 28 January 1993 Registration Chamber on 28 February 1992 under No. 008.890 Certificate of inclusion in the Unified State Register of Legal Entities issued on 9 July 2002 Record made in the Unified State Register of Legal under registration No. 1024800823123 Entities on 22 August 2002 under State Registration Number 1027700148431 2, Metallurgov sq., Lipetsk, 398040, Russian Federation Member of Self-regulated organization of auditors «Russian Union of auditors» (Association) Principal Registration Number of the Record in the Register of Auditors and Audit Organizations— 11603050547

F-30 Novolipetsk Steel Consolidated statement of financial position (millions of US dollars)

As at As at As at 31 December 31 December 31 December Note 2018 2017 2016 Assets Current assets Cash and cash equivalents ...... 3 1,179 301 610 Short-term financial investments ...... 5 19 1,284 970 Trade and other accounts receivable ...... 6 1,326 1,228 955 Inventories ...... 7 1,816 1,879 1,549 Other current assets ...... 10 19 19 4,350 4,711 4,103 Non-current assets Long-term financial investments ...... 5 85 2 164 Investments in joint ventures ...... 4 159 205 181 Property, plant and equipment ...... 8 4,798 5,549 5,328 Goodwill ...... 9 224 265 253 Other intangible assets ...... 9 165 164 140 Deferred income tax assets ...... 17 152 84 62 Other non-current assets ...... 11 16 8 5,594 6,285 6,136 Total assets ...... 9,944 10,996 10,239 Liabilities and equity Current liabilities Trade and other accounts payable ...... 10 1,122 1,029 888 Dividends payable ...... 525 537 361 Short-term borrowings ...... 11 398 380 468 Current income tax liability ...... 28 53 12 2,073 1,999 1,729 Non-current liabilities Long-term borrowings ...... 11 1,677 1,901 1,801 Deferred income tax liability ...... 17 346 417 386 Other long-term liabilities ...... 14 33 13 2,037 2,351 2,200 Total liabilities ...... 4,110 4,350 3,929 Equity attributable to Novolipetsk Steel shareholders Common stock ...... 12(a) 221 221 221 Additional paid-in capital ...... 10 10 10 Accumulated other comprehensive loss ...... (6,782) (5,631) (5,978) Retained earnings ...... 12,370 12,029 12,039 5,819 6,629 6,292 Non-controlling interests ...... 15 17 18 Total equity ...... 5,834 6,646 6,310 Total liabilities and equity ...... 9,944 10,996 10,239

The consolidated financial statements as set out on pages 11 to 65 were approved by the Group’s management and authorised for issue on 7 February 2019.

The accompanying notes constitute an integral part of these consolidated financial statements.

F-31 Novolipetsk Steel Consolidated statement of profit or loss (millions of US dollars, unless otherwise stated)

For the year For the year For the year ended ended ended 31 December 31 December 31 December Note 2018 2017 2016 Revenue ...... 14 12,046 10,065 7,636 Cost of sales ...... (7,680) (6,798) (5,074) Gross profit ...... 4,366 3,267 2,562 General and administrative expenses ...... (375) (364) (316) Selling expenses ...... (886) (788) (699) Net impairment losses on financial assets ...... (1) (7) (6) Other operating (expenses)/income, net ...... (4) 3 16 Taxes other than income tax ...... 16 (88) (80) (70) Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment ..... 3,012 2,031 1,487 Loss on disposals of property, plant and equipment . . . (7) (1) (3) Impairment of non-current assets ...... 4, 8, 9 (4) (17) (14) Share of results of joint ventures ...... 4 (243) (90) (61) Losses on investments, net ...... (2) (5) (4) Finance income ...... 18 21 29 39 Finance costs ...... 18 (70) (87) (105) Foreign currency exchange gain/(loss), net ...... 19 33 17 (129) Other expenses, net ...... (11) (54) (38) Profit before income tax ...... 2,729 1,823 1,172 Income tax expense ...... 17 (486) (371) (233) Profit for the year ...... 2,243 1,452 939 Profit is attributable to: Novolipetsk Steel shareholders ...... 2,238 1,450 935 Non-controlling interests ...... 524 Earnings per share: Earnings per share attributable to Novolipetsk Steel shareholders (US dollars) ..... 13 0.3734 0.2419 0.1560 Weighted-average number of shares outstanding: basic and diluted (in thousands) ...... 12(a) 5,993,227 5,993,227 5,993,227

The accompanying notes constitute an integral part of these consolidated financial statements.

F-32 Novolipetsk Steel Consolidated statement of comprehensive income (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2018 31 December 2017 31 December 2016 Profit for the year ...... 2,243 1,452 939 Other comprehensive (loss)/income: Items that may be reclassified subsequently to profit or loss: Cumulative translation adjustment ...... 2(b) (1,154) 348 1,013 Total comprehensive income for the year .. 1,089 1,800 1,952 attributable to: Novolipetsk Steel shareholders ...... 1,087 1,797 1,946 Non-controlling interests ...... 2 3 6

The accompanying notes constitute an integral part of these consolidated financial statements.

F-33 Novolipetsk Steel Consolidated statement of changes in equity (millions of US dollars)

Attributable to Novolipetsk Steel shareholders Accumulated Additional other Common paid-in comprehensive Retained Non-controlling Total Note stock capital loss earnings interest equity Balance at 1 January 2016 ...... 221 10 (6,989) 11,883 12 5,137 Profit for the year ...... — — — 935 4 939 Cumulative translation adjustment . . 2(b ) — — 1,011 — 2 1,013 Total comprehensive income ...... — — 1,011 935 6 1,952 Dividends to shareholders ...... 12(b) — — — (779) — (779) Balance at 31 December 2016 ..... 221 10 (5,978) 12,039 18 6,310 Profit for the year ...... — — — 1,450 2 1,452 Cumulative translation adjustment . . 2(b ) — — 347 — 1 348 Total comprehensive income ...... — — 347 1,450 3 1,800 Acquisition of non-controlling interest ...... — — — — (1) (1) Dividends to shareholders ...... 12(b) — — — (1,460) (3) (1,463) Balance at 31 December 2017 ..... 221 10 (5,631) 12,029 17 6,646 Profit for the year ...... — — — 2,238 5 2,243 Cumulative translation adjustment . . 2(b ) — — (1,151) — (3) (1,154) Total comprehensive income ...... — — (1,151) 2,238 2 1,089 Acquisition of non-controlling interest ...... — — — (1) (3) (4) Dividends to shareholders ...... 12(b) — — — (1,896) (1) (1,897) Balance at 31 December 2018 ..... 221 10 (6,782) 12,370 15 5,834

The accompanying notes constitute an integral part of these consolidated financial statements.

F-34 Novolipetsk Steel Consolidated statement of cash flows (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2018 31 December 2017 31 December 2016 Cash flows from operating activities Profit for the year ...... 2,243 1,452 939 Adjustments to reconcile profit for the year to net cash provided by operating activities: Depreciation and amortisation ...... 577 624 456 Loss on disposals of property, plant and equipment .... 7 1 3 Losses on investments ...... 2 5 4 Finance income ...... 18 (21) (29) (39) Finance costs ...... 18 70 87 105 Share of results of joint ventures ...... 4 243 90 61 Income tax expense ...... 17 486 371 233 Impairment of non-current assets ...... 4 17 14 Foreign currency exchange (gain)/loss, net ...... 19 (33) (17) 129 Change in impairment allowance for inventories and credit loss allowance of accounts receivable ...... 1 13 14 Changes in operating assets and liabilities (Increase)/decrease in trade and other accounts receivable ...... (258) (223) 3 Increase in inventories ...... (187) (262) (201) Decrease/(increase) in other operating assets ...... 7 — (9) Increase in trade and other accounts payable ...... 177 105 244 Cash provided by operations ...... 3,318 2,234 1,956 Income tax paid ...... (577) (335) (257) Net cash provided by operating activities ...... 2,741 1,899 1,699 Cash flows from investing activities Purchases and construction of property, plant and equipment and intangible assets ...... (680) (592) (559) Proceeds from sale of property, plant and equipment . . . 3 10 9 Purchases of investments and loans given, net ...... (91) (44) (79) Placement of bank deposits ...... (305) (1,264) (989) Withdrawal of bank deposits ...... 1,349 1,105 1,261 Interest received ...... 22 28 36 Acquisition of subsidiary, net of cash and cash equivalents acquired ...... (4) — — Acquisition of non-controlling interest ...... (4) (1) — Cash received in the course of bankruptcy proceedings . . — — 11 Net cash provided by/(used in) investing activities ...... 290 (758) (310) Cash flows from financing activities Proceeds from borrowings ...... 470 988 803 Repayment of borrowings ...... (643) (1,093) (1,256) Interest paid ...... (56) (69) (84) Dividends paid to Novolipetsk Steel shareholders ..... (1,888) (1,283) (583) Dividends paid to non-controlling interests ...... (2) (2) — Net cash used in financing activities ...... (2,119) (1,459) (1,120) Net increase/(decrease) in cash and cash equivalents .... 912 (318) 269 Effect of exchange rate changes on cash and cash equivalents ...... (34) 9 (2) Cash and cash equivalents at the beginning of the year . . . 3 301 610 343 Cash and cash equivalents at the end of the year ...... 3 1,179 301 610 Supplemental disclosures of cash flow information: Non-cash investing activities: Conversion of debt to equity ...... 4 210 84 139

The accompanying notes constitute an integral part of these consolidated financial statements.

F-35 Novolipetsk Steel Notes to the consolidated financial statements (millions of US dollars)

1 Background Novolipetsk Steel (the ‘‘Parent Company’’ or ‘‘NLMK’’) and its subsidiaries (together—the ‘‘Group’’) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Parent Company is a public joint stock company in accordance with the Civil Code of the Russian Federation. The Parent Company was originally established as a State owned enterprise in 1934 and was privatised in the form of an open joint stock company on 28 January 1993. On 29 December 2015, the legal form of the Parent Company was changed to public joint stock company due to changes in legislation of the Russian Federation. The Group is a vertically integrated steel company and the largest steel producer in Russia. The Group also operates in the mining segment (Note 21). The Group’s main operations are in the Russian Federation, the European Union and the USA and are subject to the legislative requirements of the respective state and regional authorities. The Parent Company’s registered office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation. As at 31 December 2018, 2017 and 2016, the Parent Company’s major shareholder with 84.03% ownership interest is Fletcher Group Holdings Limited, which is beneficially owned by Mr. Vladimir Lisin. The major companies of the Group by reportable segment (see Note 21) are:

Share at Share at Share at Country of 31 December 31 December 31 December Activity incorporation 2018 2017 2016 Russian flat products LLC VIZ-Steel ...... Production of steel Russia 100.00% 100.00% 100.00% JSC Altai-Koks ...... Production of blast Russia 100.00% 100.00% 100.00% furnace coke NLMK Trading S.A. (formerly—Novex Trading (Swiss) S.A.) ...... Trading Switzerland 100.00% 100.00% 100.00% NLMK DanSteel and Plates Distribution Network NLMK DanSteel A/S .... Production of steel Denmark 100.00% 100.00% 100.00% NLMK USA NLMK Indiana LLC ...... Production of steel USA 100.00% 100.00% 100.00% NLMK Pennsylvania LLC . . Production of steel USA 100.00% 100.00% 100.00% Russian long products JSC NLMK-Ural ...... Production of steel Russia 92.59% 92.59% 92.59% and long products LLC NLMK-Metalware .... Production of Russia 100.00% 100.00% 100.00% LLC NLMK-Kaluga ...... Production of long Russia 100.00% 100.00% 100.00% products LLC Vtorchermet NLMK . . Processing of metal Russia 100.00% 100.00% 100.00% Mining JSC Stoilensky GOK ...... Mining, processing and Russia 100.00% 100.00% 100.00% pelletising of iron-ore Among joint ventures the major is:

Share at Share at Share at Country of 31 December 31 December 31 December Activity incorporation 2018 2017 2016 NLMK Belgium Holdings S.A. . . Holding company* Belgium 49.00% 51.00% 51.00%

* NLMK Belgium Holdings S.A. is owned jointly by the Group and SOGEPA, a Belgian state company (Note 4). It comprises strip and plate manufacturers located in Belgium, France and Italy.

F-36 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

2 Basis of preparation of the consolidated financial statements (a) Basis of preparation These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) under the historical cost convention except as described in the principal accounting policies applied in the preparation of these consolidated financial statements, as set out in Note 25. These policies have been consistently applied to all the periods presented in these consolidated financial statements except for new standards adopted as set out in Note 27. Figures for three reporting periods are presented for users’ convenience.

(b) Functional and reporting currency The functional currency of all of the Group’s Russian entities is considered to be the Russian ruble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars as the presentation currency of these consolidated financial statements. All amounts in the consolidated financial statements are rounded to the nearest million unless otherwise stated. The results of operations and financial position of each Group entity are translated into the presentation currency as follows: • assets and liabilities in the statement of financial position are translated at the closing rate at the end of the respective reporting period; • income and expenses are translated at average exchange rates for each month (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); • components of equity are translated at the historical rate; • all resulting exchange differences are recognised in other comprehensive income. Items of consolidated statement of cash flows are translated at average exchange rates for each month (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case proceeds and disposals are translated at the dates of the transactions). When control over a foreign operation is lost, the previously recognised exchange differences on translation to a different presentation currency are reclassified from accumulated other comprehensive income/loss to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity. The Central Bank of the Russian Federation’s Russian ruble to the main foreign currencies closing rates of exchange as of the reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated below.

2018 2017 2016 Russian ruble to US dollar For the year ended 31 December ...... 62.7078 58.3529 67.0349 As at 31 December ...... 69.4706 57.6002 60.6569 Russian ruble to Euro For the year ended 31 December ...... 73.9546 65.9014 74.2310 As at 31 December ...... 79.4605 68.8668 63.8111

F-37 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

3 Cash and cash equivalents

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Cash Russian rubles ...... 44 11 11 US dollars ...... 138 63 89 Euros ...... 318 70 52 Swiss francs ...... 24 — — Other currencies ...... 2 4 2 Deposits Russian rubles ...... 103 98 49 US dollars ...... 42 19 394 Euros ...... 168 24 1 Hong Kong dollars ...... 309 — — Other currencies ...... 5 — 1 Other cash equivalents ...... 26 12 11 1,179 301 610

4 Investments in joint ventures

As at As at As at 31 December 2018 31 December 2017 31 December 2016 NLMK Belgium Holdings S.A. (‘‘NBH’’) ...... 149 194 171 TBEA & NLMK (Shenyang) Metal Product Co., Ltd...... 10 11 10 159 205 181

The table below summarises the movements in the carrying amount of the Group’s investments in joint ventures.

2018 2017 2016 As at 1 January ...... 205 181 118 Share of net loss ...... (120) (61) (61) Conversion of debt to equity ...... 210 84 139 Impairment of investments ...... (87) — — Disposal of 2% stake in NBH ...... (7) — — Share of change in unrealised profit in inventory ...... (36) (29) (5) Share of change in other comprehensive income ...... (2) — 1 Translation adjustment ...... (4) 30 (11) As at 31 December ...... 159 205 181

F-38 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

4 Investments in joint ventures (continued) Summarised consolidated financial information for NBH before impairment losses is as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Current assets ...... 969 940 736 Non-current assets ...... 562 686 670 Total assets ...... 1,531 1,626 1,406 Current liabilities ...... (684) (864) (560) Non-current liabilities ...... (673) (548) (634) Total liabilities ...... (1,357) (1,412) (1,194) Equity ...... 174 214 212

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Revenue ...... 1,837 1,539 1,221 Net loss ...... (242) (122) (120) NBH cash and cash equivalents as at 31 December 2018, 2017 and 2016 amounted to $1, $26 and $52, respectively. NBH financial liabilities excluding trade and other accounts payable as at 31 December 2018, 2017 and 2016 amounted to $690, $794 and $671, respectively, and are included in current and non-current liabilities. Reconciliation of net assets of NBH, calculated in accordance with its consolidated financial statements, to the carrying amount of the investment is below.

2018 2017 2016 Net assets as at 1 January ...... 19 29 4 Net loss for the year ...... (197) (97) (111) Conversion of debt to equity ...... 210 84 139 Acquisition of treasury shares ...... (5) — — Other comprehensive income ...... 1 — 1 Translation adjustment ...... 5 3 (4) Net assets as at 31 December ...... 33 19 29 PP&E valuation difference ...... 141 195 183 Adjusted net assets as at 31 December ...... 174 214 212 As at 31 December: Share in net assets ...... 85 109 108 Excess of fair value of investment in NBH as at the deconsolidation date ...... 100 104 104 Accumulated share of the other investor in conversion of debt to equity ...... 316 218 177 Accumulated impairment of investments ...... (318) (240) (240) Share of unrealised profit in inventory ...... (70) (34) (5) Cumulative translation adjustment ...... 36 37 27 Investments in NBH ...... 149 194 171

The other investor in NBH is SOGEPA, a Belgian state-owned company, controlling the stake of 49.0% as of 31 December 2018, 2017 and 2016.

F-39 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

4 Investments in joint ventures (continued) In December 2018, the Group converted existing loans to NBH into share capital in the amount of $210 (in December 2017: $84; in June 2016: $139). Information about the Group’s operations with NBH and investment impairment testing is disclosed in Notes 23 and 8, respectively.

5 Financial investments

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Short-term financial investments Bank deposits (Note 22 (c)), including: —Russian rubles ...... — 6 1 —US dollars ...... — 1,051 855 —Euros ...... — — 42 —Other currencies ...... 5 — — Total bank deposits ...... 5 1,057 898 Loans to related parties (Note 23) ...... 14 222 66 Other short-term financial investments ...... — 5 6 19 1,284 970 Long-term financial investments Loans to related parties (Note 23) ...... 85 — 164 Bank deposits ...... — 2 — 85 2 164 104 1,286 1,134

The carrying amounts of financial investments approximate their fair values.

6 Trade and other accounts receivable

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Financial assets Trade accounts receivable ...... 1,099 996 693 Credit loss allowance of trade accounts receivable . (21) (23) (24) Other accounts receivable ...... 30 29 25 Credit loss allowance of other accounts receivable . (17) (20) (18) 1,091 982 676 Non-financial assets Advances given to suppliers ...... 76 58 54 Allowance for impairment of advances given to suppliers ...... (3) (3) (2) VAT and other taxes receivable ...... 161 190 225 Accounts receivable from employees ...... 1 1 2 235 246 279 1,326 1,228 955

The carrying amounts of trade and other accounts receivable approximate their fair values.

F-40 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

6 Trade and other accounts receivable (continued) As at 31 December 2018, 2017 and 2016, accounts receivable with a carrying value of $173, $160 and $122, respectively, served as collateral for certain borrowings (Note 11). Movements in the credit loss allowance of financial receivables are as follows:

2018 2017 2016 As at 1 January ...... (43) (42) (31) Credit loss allowance recognised ...... (8) (11) (16) Accounts receivable written-off ...... — 4 2 Credit loss allowance reversed ...... 7 6 8 Disposal of subsidiary ...... — 3 — Translation adjustment ...... 6 (3) (5) As at 31 December ...... (38) (43) (42)

7 Inventories

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Raw materials ...... 859 830 705 Work in process ...... 504 603 460 Finished goods ...... 501 514 443 1,864 1,947 1,608 Impairment allowance ...... (48) (68) (59) 1,816 1,879 1,549

As at 31 December 2018, 2017 and 2016 inventories with a carrying value of $472, $423 and $296, respectively, served as collateral for certain borrowings (Note 11). Cost of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2018, 2017 and 2016 amounted to $5,521, $4,676 and $3,443, respectively. Cost of fuel and energy resources in cost of sales for the years ended 31 December 2018, 2017 and 2016 amounted to $632, $651 and $552, respectively.

F-41 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment

Land and buildings Machinery Construction Land Buildings improvements and equipment Vehicles in progress Total Cost at 1 January 2016 ...... 101 1,378 1,687 4,687 219 950 9,022 Accumulated depreciation and impairment ...... — (561) (1,061) (2,795) (153) — (4,570) Net book value at 1 January 2016 ..... 101 817 626 1,892 66 950 4,452 Additions ...... — — — — — 540 540 Disposals ...... — (1) (1) (4) — (6) (12) Transfers ...... — 159 118 526 21 (824) — Depreciation charge ...... — (34) (46) (350) (19) — (449) Translation adjustment ...... 20 156 115 294 14 198 797 Cost at 31 December 2016 ...... 121 1,799 2,113 5,994 266 858 11,151 Accumulated depreciation and impairment ...... — (702) (1,301) (3,636) (184) — (5,823) Net book value at 31 December 2016 ... 121 1,097 812 2,358 82 858 5,328 Additions ...... — — — — — 585 585 Disposals ...... — — (4) (1) — (6) (11) Impairment ...... — — — — — (8) (8) Transfers ...... — 171 110 314 23 (618) — Depreciation charge ...... — (52) (76) (471) (18) — (617) Translation adjustment ...... 7 58 44 115 4 44 272 Cost at 31 December 2017 ...... 128 2,057 2,328 6,533 279 855 12,180 Accumulated depreciation and impairment ...... — (783) (1,442) (4,218) (188) — (6,631) Net book value at 31 December 2017 ... 128 1,274 886 2,315 91 855 5,549 Additions ...... — — — — — 731 731 Disposals ...... — (1) (1) (3) — (4) (9) Impairment ...... — — — — — (4) (4) Transfers ...... 5 55 37 201 43 (341) — Reclassification to intangible assets (Note 9) ...... — — — — — (24) (24) Depreciation charge ...... — (47) (76) (424) (16) — (563) Translation adjustment ...... (23) (207) (147) (321) (17) (167) (882) Cost at 31 December 2018 ...... 110 1,774 1,956 5,701 266 1,050 10,857 Accumulated depreciation and impairment ...... — (700) (1,257) (3,933) (165) (4) (6,059) Net book value at 31 December 2018 ... 110 1,074 699 1,768 101 1,046 4,798

The amount of borrowing costs capitalised is $36, $37 and $37 for the years ended 31 December 2018, 2017 and 2016, respectively. The capitalisation rate was 6.5%, 3.7% and 4.1% in 2018, 2017 and 2016, respectively. The Group management made an analysis of impairment indicators of the Group’s assets as well as indicators of potential reversal of an impairment loss recognized in prior periods as at 30 September 2018. High volatility on the market of certain finished products and raw materials triggered impairment assessment of some of the Group’s assets, which required the reassessment of the recoverable amounts using the income approach based primarily on Level 3 inputs as at 31 December 2018. Goodwill was also tested for impairment as of the same date. Indication of an impairment loss recognized in prior periods may no longer exists or may have decreased has not been identified. As of 31 December 2018 the Group’s management did not reveal any additional impairment indicators or indicators of reversal previously recognized impairment loss. Testing for impairment in the comparative periods was also caused by similar factors and was conducted as of 31 December 2017 and 31 October 2016.

F-42 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment (continued) For the purpose of the impairment test, the Group management used a forecast of cash flows for five years and normalised cash flows for a post-forecast period. The table below summarises cash generating units (further—‘‘CGUs’’) and types of assets, subject to determination of the recoverable amount as of 31 December 2018, major assumptions and their sensitivity used in the impairment models. Sales price is estimated using an average annual growth rate, over the 5-year (31 December 2017: 6-year; 31 October 2016: 7-year) forecast period based on current industry trends and including long-term inflation forecasts for each territory. Sales volume is estimated using an average annual growth rate over the same forecast period based on past performance and management’s expectations of market development. Discount rate reflects specific risks relating to the relevant segments and the countries in which they operate. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying values. As of 31 December 2018 impairment testing showed that recoverable amount of investment (value in use) in NLMK Belgium Holdings S.A. was below its carrying amount by $87.

Average sale Sensitivity, % of change Discount price*, $ per Sales Sales Discount CGU Asset type rate, % Product types tonne (FCA) Price volume rate NLMK Belgium Holdings S.A...... Investment 7.6% Flat products 642 0.7% 6.9% 0.8 p.p. and plate JSC Altai-Koks ...... Property, plant 13.0% Coke, chemical 187 15.4% 10.6% 13.5 p.p. and equipment products JSC Altai-Koks ...... Goodwill 13.0% Coke, chemical 187 2.4% 1.6% 1.5 p.p. products NLMK DanSteel A/S .... Property, plant 7.8% Plate 674 0.7% 3.6% 0.8 p.p. and equipment

* Weighted average prices based on the forecast product mix, averaged for the period from 2019 to 2023. The table below summarises CGUs and types of assets, subject to determination of the recoverable amount as of 31 December 2017, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined based on forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying

F-43 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment (continued) values. As of 31 December 2017 testing showed neither impairment, nor reversal of previously recognised impairment loss.

Average sale Sensitivity, % of change Discount price*, $ per Sales Sales Discount CGU Asset type rate, % Product types tonne (FCA) Price volume rate NLMK Belgium Holdings S.A...... Investment 9% Flat products and 687 0.0% 0.3% 0.0 p.p. plate NLMK Pennsylvania LLC . . . Property, plant 11% Flat products 737 5% 38% 9 p.p. and equipment JSC Stoilensky GOK . . . Property, plant 15% Iron ore and 54 44% 61% 35 p.p. and equipment pellets JSC Stoilensky GOK . . . Goodwill 15% Iron ore and 54 43% 63% 33 p.p. pellets JSC NLMK-Ural ..... Property, plant 15% Long products and 461 0.1% 0.4% 0.2 p.p. and equipment semi-finished goods LLC NLMK-Kaluga . . . Property, plant 14% Long-products and 467 0.4% 4% 0.3 p.p. and equipment semi-finished goods NLMK DanSteel A/S . . Property, plant 9% Plate 692 2% 10% 2 p.p. and equipment

* Weighted average prices based on the forecast product mix, averaged for the period from 2018 to 2023. The table below summarises CGUs and types of assets, subject to determination of the recoverable amount as of 31 October 2016, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined based on forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying values. As of 31 October 2016 testing showed neither impairment, nor reversal of previously recognised impairment loss.

Sensitivity, % of Average sale change Discount price*, $ per Sales CGU Asset type rate, % Product types tonne (FCA) Price volume NLMK Pennsylvania LLC . Property, plant 11% Flat products 705 2% 17 p.p. and equipment NLMK Indiana LLC ..... Property, plant 10% Flat products 582 1% 7 p.p. and equipment NLMK Indiana LLC ..... Goodwill 10% Flat products 582 1% 6 p.p. Scrap collecting assets in Russian long products segment ...... Property, plant 15% Metal scrap 237 0.05% 0.2 p.p. and equipment JSC NLMK-Ural ...... Property, plant 15% Long products and 452 1% 2 p.p. and equipment semi-finished goods LLC NLMK-Kaluga ..... Property, plant 14% Long-products and 429 0.04% 0.4 p.p. and equipment semi-finished goods NLMK DanSteel A/S .... Property, plant 9% Plate 685 0.3% 2 p.p. and equipment

* Weighted average prices based on the forecast product mix, averaged for the period from November 2016 to 2023.

F-44 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

9 Intangible assets

Industrial Beneficial Mineral intellectual lease Goodwill rights property interest Total Cost at 1 January 2016 ...... 229 277 9 9 524 Accumulated amortisation and impairment ...... (14) (173) (3) (1) (191) Net book value at 1 January 2016 ...... 215 104 6 8 333 Additions ...... — — 11 — 11 Amortisation charge ...... — (7) (5) — (12) Translation adjustment ...... 38 21 2 — 61 Cost at 31 December 2016 ...... 267 333 23 9 632 Accumulated amortisation and impairment ...... (14) (215) (9) (1) (239) Net book value at 31 December 2016 ...... 253 118 14 8 393 Additions ...... — — 29 — 29 Amortisation charge ...... — (7) (6) — (13) Translation adjustment ...... 12 6 2 — 20 Cost at 31 December 2017 ...... 279 351 53 9 692 Accumulated amortisation and impairment ...... (14) (234) (14) (1) (263) Net book value at 31 December 2017 ...... 265 117 39 8 429 Additions ...... — 1 18 — 19 Reclassification from property, plant and equipment (Note 8) ...... — 24 — — 24 Amortisation charge ...... — (4) (10) — (14) Translation adjustment ...... (41) (21) (7) — (69) Cost at 31 December 2018 ...... 238 296 57 9 600 Accumulated amortisation and impairment ...... (14) (179) (17) (1) (211) Net book value at 31 December 2018 ...... 224 117 40 8 389

Mineral rights include a license for iron ore and non-metallic minerals mining of Stoilensky iron-ore deposit in Belgorod Region expiring in 2040, with the carrying value of $68, $86 and $86 as at 31 December 2018, 2017 and 2016, respectively. Goodwill arising on acquisitions was allocated to the appropriate business segments in which the respective acquisitions took place. Allocation of net book value of goodwill to each segment is as follows:

As at As at As at 31 December 31 December 31 December 2018 2017 2016 Russian flat products ...... 146 176 167 NLMK USA...... 21 21 21 Russian long products ...... 3 3 3 Mining ...... 54 65 62 224 265 253

Goodwill impairment testing The Group tested goodwill for impairment as at 31 December 2018, 31 December 2017 and 31 October 2016. For the purpose of annual impairment testing of goodwill related to CGUs JSC Stoilensky

F-45 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

9 Intangible assets (continued) GOK, LLC VIZ-Steel and LLC NLMK Indiana as at 31 December 2018, management decided to use the previous detailed calculations of these CGUs’ recoverable amounts as there were no significant changes in the underlying businesses. The recoverable amount has been determined as value in use of the respective assets. For the purpose of this impairment testing, the Group used the same assumptions and estimates as for other assets, as disclosed in Note 8. Impairment testing showed no impairment of goodwill as at 31 December 2018, 31 December 2017 and 31 October 2016.

10 Trade and other accounts payable

As at As at As at 31 December 31 December 31 December 2018 2017 2016 Financial liabilities Trade accounts payable ...... 584 524 463 Other accounts payable ...... 147 106 75 731 630 538 Non-financial liabilities Accounts payable and accrued liabilities to employees ...... 177 156 179 Advances received ...... 120 153 130 Taxes payable other than income tax ...... 94 90 41 391 399 350 1,122 1,029 888

The carrying amounts of trade and other accounts payable approximate their fair values.

11 Borrowings

As at As at As at 31 December 31 December 31 December Rates Currency Maturity 2018 2017 2016 Bonds 8.05% to 11.10% ...... RUR 2017 — — 168 4.00% to 4.95% ...... USD 2019–2024 1,354 1,501 1,318 Loans LIBOR +1.50% ...... USD 2021 159 94 332 EURIBOR +0.90% to EURIBOR +1.60% ...... EUR 2019–2022 562 686 451 2,075 2,281 2,269 Less: short-term borrowings and current maturities of long-term borrowings . . . (398) (380) (468) Long-term borrowings ...... 1,677 1,901 1,801

The carrying amounts and fair value of long-term bonds are as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value Bonds ...... 1,200 1,150 1,346 1,385 1,307 1,325

F-46 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

11 Borrowings (continued) The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings approximate their carrying amount. The fair values of bonds are based on market price and are within level 1 of the fair value hierarchy. The Group has complied with the financial and non-financial covenants of its borrowing facilities during the years ended 31 December 2018, 2017 and 2016. The long-term borrowings mature as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 1–2 years ...... 133 228 586 2–5 years ...... 1,044 473 501 Over 5 years ...... 500 1,200 714 1,677 1,901 1,801

Collateral As at 31 December 2018, 2017 and 2016, the loan facilities were secured by inventories and accounts receivable with the total carrying value of $645, $583 and $418, respectively (Notes 6, 7).

Net debt reconciliation

Short-term Long-term Cash and cash Short-term borrowings borrowings equivalents bank deposits Net debt Balance at 1 January 2017 ...... (468) (1,801) 610 898 (761) Cash flows ...... 207 (32) (315) 135 (5) Interest accrued ...... (88) — — 23 (65) Foreign exchange difference ...... (6) 32 (3) (54) (31) Translation adjustment ...... (25) (100) 9 55 (61) Balance at 31 December 2017 ...... (380) (1,901) 301 1,057 (923) Cash flows ...... 55 199 840 (1,055) 39 Interest accrued ...... (77) — — 12 (65) Foreign exchange difference ...... (19) (246) 72 62 (131) Translation adjustment ...... 23 271 (34) (71) 189 Balance at 31 December 2018 ...... (398) (1,677) 1,179 5 (891)

12 Shareholders’ equity (a) Shares As at 31 December 2018, 2017 and 2016, the Parent Company’s share capital consisted of 5,993,227,240 issued common shares, with a par value of 1 Russian ruble each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

(b) Dividends Dividends are paid on common shares at the recommendation of the Board of Directors and approval at a General Shareholders Meeting, subject to certain limitations as determined by the Russian legislation. Profits available for distribution to the shareholders in respect of any reporting period are determined by reference to the statutory financial statements of the Parent Company. As at 31 December 2018, 2017 and 2016, the retained earnings of the Parent Company, available for distribution in accordance with the

F-47 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

12 Shareholders’ equity (continued) legislative requirements of the Russian Federation, amounted to $4,689, $5,728 and $5,024, converted into US dollars using the exchange rates at 31 December 2018, 2017 and 2016, respectively. According to the Group’s dividend policy, the Group pays dividends on a quarterly basis as follows: • if Net Debt/EBITDA for the preceding 12 months is 1.0x or less: dividends are in the range between 50% of net profit and 50% of free cash flow for the respective quarter calculated based on IFRS consolidated financial statements; • if Net Debt/EBITDA for the preceding 12 months exceeds 1.0x: dividends are in the range between 30% of net profit and 30% of free cash flow for the respective quarter calculated based on IFRS consolidated financial statements. Dividends, declared by the Parent Company and translated at the historical rate as of the announcement date, are as in the table below.

2018 2017 2016 Declaration Per Total Per Total Per Total period share* amount share* amount share* amount For the 4th quarter of previous year ...... June 3.36 326 3.38 358 2.43 218 For the 1st quarter of current year ...... June 5.73 556 2.35 249 1.13 102 For the 2nd quarter of current year ...... September 5.24 477 3.20 328 1.08 102 For the 3rd quarter of current year ...... December 6.04 537 5.13 525 3.63 357 1,896 1,460 779

* Dividends per share are shown in Russian rubles.

(c) Capital management The Group’s objectives when managing capital are to safeguard financial stability and a target return for the shareholders, as well as the reduction of cost of capital and optimisation of its structure. To achieve these objectives, the Group may revise its investment program, borrow new or repay existing loans, offer equity or debt instruments on capital markets. When managing capital, the Group uses the following indicators: • the return on invested capital ratio, which is defined as operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment less tax divided by capital employed for the last twelve months, should exceed cost of capital; • the net debt to EBITDA ratio, which is defined as total debt less cash and cash equivalents and short-term bank deposits divided by operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment less depreciation and amortization for the last twelve months; • free cash flow, which is defined as net cash provided by operating activities less net interest paid less capital expenditures, should be positive. There were no changes in the Group’s approach to capital management during the reporting period.

F-48 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

13 Earnings per share

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Profit for the year attributable to the NLMK shareholders (millions of US dollars) ...... 2,238 1,450 935 Weighted average number of shares ...... 5,993,227,240 5,993,227,240 5,993,227,240 Basic earnings per share (US dollars) ...... 0.3734 0.2419 0.1560

Basic net earnings per share is calculated by dividing profit for the year attributable to the NLMK shareholders by the weighted average number of common shares outstanding during the reporting period. NLMK does not have potentially dilutive financial instruments during the years ended 31 December 2018, 2017 and 2016.

14 Revenue (a) Revenue by product

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Revenue from sale of goods Flat products ...... 6,172 5,356 4,062 Pig iron, slabs and billets ...... 3,265 2,383 1,681 Long products and metalware ...... 1,202 978 741 Coke and other chemical products ...... 257 280 150 Scrap ...... 73 67 49 Iron ore and sintering ore ...... — — 130 Other products ...... 214 268 174 Total revenue from sale of goods ...... 11,183 9,332 6,987 Revenue from transportation services ...... 863 733 649 12,046 10,065 7,636

(b) Revenue by geographical area The allocation of total revenue by geographical area is based on the location of end customers who purchased the Group’s products. The Group’s total revenue from external customers by geographical area is as follows:

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Russia ...... 4,051 3,887 3,077 North America ...... 2,556 1,932 1,328 European Union ...... 2,268 1,730 1,373 Middle East, including Turkey ...... 1,375 1,083 629 Central and South America ...... 557 425 377 Asia and Oceania ...... 489 277 317 CIS...... 405 432 317 Other regions ...... 345 299 218 12,046 10,065 7,636

Except for NBH Group (Note 23), the Group does not have customers with a share of more than 10% of the total revenue.

F-49 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

15 Labour costs The Group’s labour costs, including social security costs, which are included in the corresponding lines of the consolidated statement of profit or loss, were as indicated below.

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Cost of sales ...... 720 711 602 General and administrative expenses ...... 230 221 194 Selling expenses ...... 29 28 28 979 960 824

Remuneration of the key management personnel that comprises payments to members of the Management Board and the Board of Directors of the Parent Company, is recorded within general and administrative expenses and includes annual compensation and performance bonus contingent on the Group’s results for the reporting year and a provision for the long-term incentive plan for achievement of the Group’s strategic targets in 2017–2018. Total remuneration of the key management personnel, including social security costs amounted to $38, $24 and $31 in 2018, 2017 and 2016, respectively. As at 31 December 2018, 2017 and 2016 accrued liabilities to key management personnel related to the long-term incentive plan amounted to $25, $9 and $18, respectively.

16 Taxes other than income tax Allocation of taxes other than income tax to the functional items of consolidated statement of profit or loss is indicated below.

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Cost of sales ...... 76 70 64 General and administrative expenses ...... 4 3 2 Other operating expenses ...... 8 7 4 88 80 70

17 Income tax Income tax charge comprises the following:

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Current income tax expense ...... (574) (374) (237) Deferred income tax benefit ...... 88 3 4 Total income tax expense ...... (486) (371) (233)

The corporate income tax rate applicable to the Group entities located in Russia, is predominantly 20%. The corporate income tax rate applicable to income of foreign subsidiaries ranges from 10% to 30%.

F-50 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued) Profit before income tax is reconciled to the income tax expense as follows:

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Profit before income tax ...... 2,729 1,823 1,172 Income tax at rate 20% ...... (546) (365) (234) Change in income tax: —tax effect of non-deductible expenses ...... — (16) (13) —non-taxable translation adjustments ...... 7 (2) (5) —effect of different tax rates ...... 27 5 — —unrecognized deferred tax asset on investments in joint ventures ...... (71) (21) (20) —unrecognised tax loss carry forward for the year ...... (8) (3) (2) —utilisation of previously unrecognised tax loss carry forward ...... 56 50 51 —effect of tax on intercompany dividends .... (6) — — —write-off of previously recognised deferred tax assets ...... (15) (19) (21) —recognition of previously unrecognised tax loss carry forward ...... 70 — —other ...... — — 11 Total income tax expense ...... (486) (371) (233)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities, are presented below:

As at (Charged)/credited Translation As at 31 December 2018 to profit or loss adjustment 1 January 2018 Deferred tax assets Trade and other accounts payable ...... 28 11 (4) 21 Trade and other accounts receivable .... 9 (2) (3) 14 Inventories ...... 23 6 (6) 23 Tax losses carried forward ...... 87 56 1 30 147 71 (12) 88 Deferred tax liabilities Property, plant and equipment ...... (331) 20 59 (410) Other intangible assets ...... (10) (3) 4 (11) (341) 17 63 (421) Total deferred tax liability, net ...... (194) 88 51 (333)

F-51 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued)

As at (Charged)/credited Translation As at 31 December 2017 to profit or loss adjustment 1 January 2017 Deferred tax assets Trade and other accounts payable ...... 21 (5) 2 24 Trade and other accounts receivable .... 14 (1) 1 14 Inventories ...... 23 22 1 — Tax losses carried forward ...... 30 (36) 1 65 88 (20) 5 103 Deferred tax liabilities Property, plant and equipment ...... (410) 15 (17) (408) Other intangible assets ...... (11) (3) — (8) Inventories ...... — 11 — (11) (421) 23 (17) (427) Total deferred tax liability, net ...... (333) 3 (12) (324)

As at (Charged)/credited Translation As at 31 December 2016 to profit or loss adjustment 1 January 2016 Deferred tax assets Trade and other accounts payable ...... 24 (124) 74 74 Trade and other accounts receivable .... 14 20 (9) 3 Tax losses carried forward ...... 65 149 (84) — Other ...... — (36) 20 16 103 9 1 93 Deferred tax liabilities Property, plant and equipment ...... (408) (21) (45) (342) Other intangible assets ...... (8) 3 (3) (8) Inventories ...... (11) 9 (7) (13) Other non-current liabilities ...... — 4 (3) (1) (427) (5) (58) (364) Total deferred tax liability, net ...... (324) 4 (57) (271)

The amount of tax loss carry-forwards that can be utilised each year is limited under the Group’s different tax jurisdictions. The Group regularly evaluates assumptions underlying its assessment of the realisability of its deferred tax assets and makes adjustments to the extent necessary. In assessing the probability that future taxable profit against which the Group can utilise the potential benefit of the tax loss carry forwards will be available, management considers the current situation and the future economic benefits outlined in specific business plans for each subsidiary. Deferred tax assets are recorded only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised.

F-52 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued) The table below summarises unused cumulative tax losses for which no deferred tax assets has been recognised, with a breakdown by the expiry dates.

As at As at As at 31 December 2018 31 December 2017 31 December 2016 From 1 to 5 years ...... — 99 211 From 5 to 10 years ...... — 115 98 More than 10 years ...... — 749 828 No expiration ...... 1,393 1,486 1,398 Total ...... 1,393 2,449 2,535

The unused tax losses were incurred mostly by subsidiaries located in Europe. The Group has not recorded a deferred tax liability in respect of temporary differences of $1,728, $1,569 and $1,448 for the years ended 31 December 2018, 2017 and 2016, respectively, associated with investments in subsidiaries and joint ventures as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future. In accordance with the statutory legislation, the Group’s entities in Russia (major entities, including NLMK) and USA were integrated in two separate consolidated groups of taxpayers for the purpose of assessment and payment of corporate income tax in line with the combined financial result of business operations. The Group’s entities that are not part of the consolidated groups of taxpayers assess their income taxes individually. As at 31 December 2018, 2017 and 2016, the Group analysed its tax positions for uncertainties affecting recognition and measurement thereof. Following the analysis, the Group believes that all deductible tax positions which form the basis for income tax returns of the Group companies, are recognised and measured in accordance with the applicable tax legislation.

18 Finance income and costs

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Interest income on bank accounts and bank deposits ...... 12 23 29 Other finance income ...... 9 6 10 Total finance income ...... 21 29 39 Interest expense on borrowings ...... (77) (88) (104) Capitalised interest ...... 21 23 33 Other finance costs ...... (14) (22) (34) Total finance costs ...... (70) (87) (105)

F-53 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

19 Foreign exchange differences

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Foreign exchange gain/(loss) on cash and cash equivalents ...... 72 (3) (84) Foreign exchange gain/(loss) on financial investments ...... 245 (56) (434) Foreign exchange (loss)/gain on debt financing . . . (250) 28 393 Foreign exchange (loss)/gain on other assets and liabilities ...... (34) 48 (4) 33 17 (129)

20 Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Within 1 year ...... 15 13 12 From 1 to 5 years ...... 50 46 43 After 5 years ...... 228 238 241 Total commitments for minimum lease payments .. 293 297 296

In 2018, 2017 and 2016 total rental expenses relating to operating leases were $17, $13 and $9, respectively.

21 Segment information The Group management examines the Group’s performance both from a product and geographic perspective and has identified six reportable segments of its business: Mining, Russian flat products, Russian long products, NLMK USA, NLMK DanSteel and Plates Distribution Network, and Investments in NBH. Each of these segments represents a combination of subsidiaries (except for Investments in NBH—see Note 4), offers its own products, has a separate management team and is managed separately with relevant results reviewed on a monthly basis by the Group’s Management Board which is the Chief Operating Decision Maker as defined by IFRS 8 Segment Reporting. The Group management determines pricing for intersegmental sales, as if the sales were to third parties. The revenue from external parties is measured in the same way as in the consolidated statement of profit or loss. The Group management evaluates performance of each segment based on segment revenues, gross profit, operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment, profit for the year and amount of total assets and total liabilities. Elimination of intersegmental operations and balances represents elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within ‘‘Profit for the year’’ line together with other intercompany elimination adjustments, including elimination of NBH’s liabilities to the Group companies (Note 23). NBH deconsolidation adjustments include elimination of NBH’s sales, recognition of the Group’s sales to NBH and elimination of unrealised profits (Notes 4, 23), elimination of NBH’s assets and liabilities and recognition of the investment in joint venture (Note 4), recognition of impairment and share of NBH’s loss, and other consolidation adjustments.

F-54 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

21 Segment information (continued) Information on the segments’ profit or loss for the year ended 31 December 2018 and their assets and liabilities as of this date is as follows:

NLMK DanSteel Elimination of Russian Russian and Plates intersegmental NBH flat long NLMK Distribution Investments operations deconsolidation Mining products products USA Network in NBH and balances adjustments Total Revenue from external customers . 22 6,327 1,720 2,134 513 1,772 — (442) 12,046 Intersegment revenue 1,189 2,416 432 — 1 65 (4,038) (65) — Cost of sales ...... (381) (5,672) (1,779) (1,863) (475) (1,812) 3,856 446 (7,680) Gross profit ...... 830 3,071 373 271 39 25 (182) (61) 4,366 Operating profit/ (loss)* ...... 771 2,005 161 196 (26) (162) (59) 126 3,012 Net finance income/ (costs) ...... 19 (49) (6) (9) (4) (12) — 12 (49) Income tax (expense)/ benefit ...... (179) (355) (25) 69 (4) 19 8 (19) (486) Profit/(loss) for the year ...... 706 1,875 155 255 (34) (242) (435) (37) 2,243 Segment assets ..... 2,081 6,822 1,150 1,019 373 1,531 (1,748) (1,284) 9,944 Segment liabilities . . . (412) (4,262) (450) (350) (251) (1,357) 2,126 846 (4,110) Depreciation and amortisation ..... (117) (334) (60) (57) (9) (75) — 75 (577) Capital expenditures . (137) (520) (36) (20) (37) (116) — 116 (750)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment. Information on the segments’ profit or loss for the year ended 31 December 2017 and their assets and liabilities as of this date is as follows:

NLMK DanSteel Elimination of Russian Russian and Plates intersegmental NBH flat long NLMK Distribution Investments operations deconsolidation Mining products products USA Network in NBH and balances adjustments Total Revenue from external customers . 24 5,595 1,391 1,670 415 1,473 — (503) 10,065 Intersegment revenue 920 2,064 403 — 1 66 (3,388) (66) — Cost of sales ...... (356) (5,320) (1,522) (1,459) (372) (1,495) 3,228 498 (6,798) Gross profit ...... 588 2,339 272 211 44 44 (160) (71) 3,267 Operating profit/ (loss)* ...... 524 1,357 77 139 (6) (99) (33) 72 2,031 Net finance income/ (costs) ...... 12 (52) (5) (9) (4) (17) — 17 (58) Income tax (expense)/ benefit ...... (92) (279) (13) 4 (21) 15 30 (15) (371) Profit/(loss) for the year ...... 403 1,586 56 133 (32) (122) (576) 4 1,452 Segment assets ..... 2,041 7,990 1,210 891 339 1,626 (1,728) (1,373) 10,996 Segment liabilities . . . (479) (4,288) (580) (367) (303) (1,412) 2,179 900 (4,350) Depreciation and amortisation ..... (118) (365) (75) (58) (8) (75) — 75 (624) Capital expenditures . (116) (422) (22) (28) (15) (27) — 27 (603)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment.

F-55 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

21 Segment information (continued) Information on segments’ profit or loss for the year ended 31 December 2016 and their assets and liabilities on this date is as follows:

NLMK DanSteel Elimination of Russian Russian and Plates intersegmental NBH flat long NLMK Distribution Investments operations deconsolidation Mining products products USA Network in NBH and balances adjustments Total Revenue from external customers . 166 4,272 1,020 1,162 324 1,176 — (484) 7,636 Intersegment revenue 431 1,315 274 — 1 45 (2,021) (45) — Cost of sales ...... (218) (3,725) (1,052) (991) (292) (1,164) 1,897 471 (5,074) Gross profit ...... 379 1,862 242 171 33 57 (124) (58) 2,562 Operating profit/ (loss)* ...... 275 1,047 91 117 (7) (77) (36) 77 1,487 Net finance income/ (costs) ...... 13 (60) (3) (13) (3) (19) — 19 (66) Income tax (expense)/ benefit ...... (48) (205) (4) 8 1 5 15 (5) (233) Profit/(loss) for the year ...... 190 660 89 111 (10) (120) (40) 59 939 Segment assets ..... 1,903 7,430 1,171 742 285 1,406 (1,484) (1,214) 10,239 Segment liabilities . . . (312) (3,939) (591) (302) (288) (1,194) 1,932 765 (3,929) Depreciation and amortisation ..... (43) (297) (47) (61) (8) (75) — 75 (456) Capital expenditures . (218) (301) (16) (19) (5) (21) — 21 (559)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment. Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA and Europe. The following is a summary of non-current assets other than financial instruments, investments in joint ventures and deferred tax assets by location:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Russian Federation ...... 4,731 5,512 5,242 USA...... 310 350 378 Denmark ...... 145 124 103 Other ...... 12 8 6 5,198 5,994 5,729

22 Risks and uncertainties (a) Operating environment of the Group The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations (Note 24(f)). The Russian economy continues to be negatively impacted by ongoing political tension in the region and international sanctions against certain Russian companies and individuals. Firm oil prices, low unemployment and rising wages supported a modest growth of the economy in 2018. This environment may have a significant impact on the Group’s operations and financial position and the future effects of the current economic situation are difficult to predict therefore management’s current expectations and estimates could differ from actual results. Management is taking necessary measures to ensure sustainability of the Group’s operations.

F-56 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) The major financial risks inherent to the Group’s operations are those related to market risk, credit risk and liquidity risk. The objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits.

(b) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and commodity price risk.

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk of changes in market interest rates relates primarily to the Group’s long-term borrowings with variable interest rates. To manage this risk, the Group continuously monitors interest rate movements. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate borrowings. The interest rate risk profile of the Group is follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Fixed rate instruments Financial assets —cash and cash equivalents (Note 3) ...... 1,179 301 610 —financial investments (Note 5) ...... 104 1,286 1,134 —trade and other accounts receivable less credit loss allowance (Note 6) ...... 1,091 982 676 2,374 2,569 2,420 Financial liabilities —trade and other accounts payable (Note 10) . . . (731) (630) (538) —dividends payable ...... (525) (537) (361) —borrowings (Note 11) ...... (1,354) (1,501) (1,486) (2,610) (2,668) (2,385) Variable rate instruments Financial liabilities ...... —borrowings (Note 11) ...... (721) (780) (783) (721) (780) (783)

A change of 100 basis points in interest rates for variable rate instruments would not have significantly affected profit for the year and equity.

Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The export-oriented companies of the Group are exposed to foreign currency risks. To minimise foreign currency risks, the export program is designed taking into account potential (forecast) major foreign currencies’ exchange fluctuations. The Group diversifies its revenues in different currencies. In its export

F-57 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) contracts, the Group controls the balance of currency positions: payments in foreign currency are settled with export revenues in the same currency. The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2018.

US dollar Euro Hong Kong dollar Swiss franc Cash and cash equivalents ...... 84 480 309 24 Trade and other accounts receivable ...... 1 536 1 — Financial investments ...... — 99 — — Trade and other accounts payable ...... (56) (186) — — Borrowings ...... (1,355) (562) — — Net foreign currency position ...... (1,326) 367 310 24

The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2017.

US dollar Euro Cash and cash equivalents ...... 21 92 Trade and other accounts receivable ...... 4 379 Financial investments ...... 1,057 222 Trade and other accounts payable ...... (49) (25) Borrowings ...... (1,501) (686) Net foreign currency position ...... (468) (18)

The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2016.

US dollar Euro Cash and cash equivalents ...... 414 50 Trade and other accounts receivable ...... 10 249 Financial investments ...... 861 272 Trade and other accounts payable ...... (57) (91) Borrowings ...... (1,519) (451) Net foreign currency position ...... (291) 29

Sensitivity analysis Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes. A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2018, 2017 and 2016 would have increased/(decreased) equity by the amounts shown below, however effect

F-58 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) on profit for the year would be different, and would amount to $29 loss, $23 gain and $45 gain, respectively, due to foreign exchange movements from intercompany operations (Note 19).

As at As at As at 31 December 2018 31 December 2017 31 December 2016 US dollar ...... (332) (117) (73) Euro ...... 92 (5) 7 Hong Kong dollar ...... 78 — — Swiss franc ...... 6 — — A 25 percent weakening of these currencies against the functional currency would have had an equal but opposite effect to the amounts shown above, provided all other variables remain constant.

Commodity price risk Commodity price risk is the risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results. The Group minimises its risks related to metal prices by having a wide range of geographical zones for sales, which allows the Group to respond quickly to negative changes in the situation on its existing markets on the basis of an analysis of the existing and prospective sales markets. One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products. To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

(c) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss for the Group. The Group is exposed to credit risk from its operating activities (primarily for outstanding receivables from customers) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. The Group controls the levels of credit risk it undertakes by assessing the degree of risk for each counterparty or groups of parties. In order to minimise credit risk, management developed and maintains the Group’s credit risk grading to categorise exposures according to their degree of risk of default. A default on a financial asset is when the counterparty fails to make contractual payments within 30 days of when they fall due. The Group’s credit risk grading framework comprises six categories: • AAA—investments grade which correspond to international agencies ratings from AAA till BB+; • A—low risk non-investments grade which correspond to international agencies ratings BB and BB–; • B—moderate risk non-investments grade which correspond to international agencies ratings B+ and B; • C—high risk non-investments grade which correspond to international agencies rating B–; • D—critical risk non-investments grade which correspond to international agencies ratings from CCC till D; • NR—not rated category used for related parties or secured debts.

F-59 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) The credit rating information is based on a range of data that is determined to be predictive of the risk of default and applying experienced credit judgement. The nature of the exposure and type of borrower are taken into account in the analysis. Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. The credit risk grades are designed and calibrated to reflect the risk of default as credit risk deteriorates. As the credit risk increases the difference in risk of default between grades changes. Each exposure is allocated to a credit risk grade at initial recognition, based on the available information about the counterparty. All exposures are monitored and the credit risk grade is updated to reflect current information. The monitoring procedures followed are both general and tailored to the type of exposure. The following data are typically used to monitor the Group’s exposures: • Payment record, including payment ratios and ageing analysis; • Extent of utilisation of granted limit; • Changes in business, financial and economic conditions; • Credit rating information supplied by external rating agencies. The Group monitors all financial assets, loans issued and financial guarantee contracts that are subject to the impairment requirements to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Group will measure the loss allowance based on lifetime rather than 12-month estimated credit loss. In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the remaining maturity at the current reporting date when the financial instrument was first recognised. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort, based on the Group’s historical experience and expert credit assessment. The Group analyses all data collected using statistical models and estimates the remaining lifetime probability of default exposures and how these are expected to change over time. The factors taken into account in this process include macro-economic data such as GDP growth, unemployment and interest rates. Multiple economic scenarios form the basis of determining the probability of default at initial recognition and at subsequent reporting dates. Different economic scenarios will lead to a different probability of default. It is the weighting of these different scenarios that forms the basis of a weighted average probability of default that is used to determine whether credit risk has significantly increased. Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due unless the Group has reasonable and supportable information that demonstrates otherwise. The Group has monitoring procedures in place to make sure that the criteria used to identify significant increases in credit are effective, meaning that significant increase in credit risk is identified before the exposure is defaulted or when the asset becomes 30 days past due. The Group performs periodic back-testing of its ratings to consider whether the drivers of credit risk that led to default were accurately reflected in the rating in a timely manner. The Group uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of expected credit loss. The Group employs experts who use external and internal information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The base case scenario is the most likely outcome. The external information used includes

F-60 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) economic data and forecasts published by governmental bodies and monetary authorities. The Group applies probabilities to the forecast scenarios identified and calculate probability-weighted expected credit loss by running each scenario through the relevant expected credit loss model and multiplying it by the appropriate scenario weighting. The Group has not made changes in the estimation techniques or significant assumptions made during the reporting period. The Group holds collateral to mitigate credit risk associated with trade accounts receivable by reducing expected credit loss in case of default. The main types of collateral are bank coverage and credit insurance. There was no change in the Group’s collateral policy during the year. Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analysing historical data over the past 3 years. The measurement of expected credit loss is based on probability weighted average credit loss. As a result, the measurement of the loss allowance should be the same regardless of whether it is measured on an individual basis or a collective basis. In relation to the assessment of whether there has been a significant increase in credit risk it can be necessary to perform the assessment on a collective basis. The Group’s maximum exposure to credit risk by class of assets reflected in the carrying amounts of financial assets on the consolidated statement of financial position is as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Cash and cash equivalents (Note 3) ...... 1,179 301 610 Trade and other accounts receivable (Note 6) ..... 1,091 982 676 Financial investments (Note 5) ...... 104 1,286 1,134 Total on-balance sheet exposure ...... 2,374 2,569 2,420 Financial guarantees issued (Note 23(d)) ...... 309 304 255 2,683 2,873 2,675

Analysis of trade accounts receivable, net of credit loss allowance, by credit quality, based on internal credit ratings is as follows:

As at As at 31 December 2018 31 December 2017 AAA...... 19 40 A ...... 25 41 B ...... 41 95 C ...... 18 21 D ...... 2 5 NR, including: —NBH Group companies ...... 411 288 —Credit insurance (AA international agencies’ credit ratings) .... 284 214 —Bank coverage (A– and above international agencies’ credit ratings) ...... 202 137 —Not covered ...... 76 132 1,078 973

F-61 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) Analysis by credit quality, based on international agencies’ credit rating, of bank balances and bank deposits is as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Bank balances and term deposits AAA–BBB ...... 1,173 199 517 BB–B ...... 4 99 91 Unrated and cash on hand ...... 2 3 2 1,179 301 610 Short-term and long-term bank deposits AAA–BBB ...... 5 724 396 BB–B ...... — 335 502 5 1,059 898

As at 31 December 2018, ageing of trade and other receivables is as follows:

Trade and other receivables Gross Credit loss Net of amount allowance allowance Not past due ...... 995 (10) 985 Past due, including: —up to 1 month ...... 93 — 93 —from 1 to 3 months ...... 6— 6 —from 3 to 12 months ...... 8 (2) 6 —over 12 months ...... 27 (26) 1 Total ...... 1,129 (38) 1,091

As at 31 December 2017, ageing of trade and other receivables is as follows:

Trade and other receivables Gross Credit loss Net of amount allowance allowance Not past due ...... 869 — 869 Past due, including: —up to 1 month ...... 102 — 102 —from 1 to 3 months ...... 4— 4 —from 3 to 12 months ...... 8 (1) 7 —over 12 months ...... 42 (42) — Total ...... 1,025 (43) 982

F-62 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) As at 31 December 2016, ageing of trade and other receivables is as follows:

Trade and other receivables Gross Credit loss Net of amount allowance allowance Not past due ...... 624 — 624 Past due, including: —up to 1 month ...... 40 — 40 —from 1 to 3 months ...... 8— 8 —from 3 to 12 months ...... 7 (3) 4 —over 12 months ...... 39 (39) — Total ...... 718 (42) 676

(d) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources. The Group monitors its risk to a shortage of funds using a regular cash flow forecast. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases. To provide for sufficient cash balances required for settlement of its obligations in time the Group uses detailed budgeting and cash flow forecasting instruments. The table below analyses the Group’s short-term and long-term borrowings by their remaining corresponding contractual maturity. The amounts disclosed in the maturity table are the undiscounted cash outflows.

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Less than 1 year ...... 296 348 536 From 1 to 2 years ...... 193 298 647 From 2 to 5 years ...... 1,342 735 609 Over 5 years ...... 520 1,255 762 Total borrowings ...... 2,351 2,636 2,554

Liquidity risk related to financial guarantees issued, is disclosed in Note 23(d). As at 31 December 2018, 2017 and 2016, the Group does not have significant trade and other accounts payable with maturity over one year and its carrying amount approximates its fair value.

(e) Insurance To minimize risks the Group concludes insurance policies which cover property damages and business interruptions, freightage, vehicles and commercial (trade) credits. In respect of legislation requirements, the Group purchases compulsory motor third party liability insurance, insurance of civil liability of organizations operating hazardous facilities. The Group also buys civil liability insurance of the members of self-regulatory organizations, directors and officers liability insurance, voluntary health insurance and accident insurance for employees of the Group.

F-63 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

23 Related party transactions Parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial or operational decisions as defined by IAS 24, Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group carries out operations with related parties on an arm’s length basis.

(a) Sales to and purchases from related parties

For the year ended For the year ended For the year ended 31 December 2018 31 December 2017 31 December 2016 Sales NBH group companies ...... 1,330 970 692 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 2 1 1 Other related parties ...... 1 1 1 Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 410 335 330 NBH group companies ...... 65 66 45 Other related parties ...... 5 4 6 NBH group companies together are the major customer of the Group. Sales to NBH group are performed by the Russian flat products segment and represent 11.0%, 9.6% and 9.1% of the total sales of the Group for the years ended 31 December 2018, 2017 and 2016, respectively.

(b) Accounts receivable from and accounts payable to related parties

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Accounts receivable and advances given NBH group companies ...... 412 289 199 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 32 26 34 Accounts payable NBH group companies ...... 31 25 16 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 6 5 3

(c) Financial transactions As at 31 December 2018, 2017 and 2016, loans issued to NBH group companies amounted to $99, $222 and $230, respectively. When issuing loans to the foreign companies of the Group and joint ventures, interest rate is determined using information on similar external deals subject to company’s internal credit rating.

(d) Financial guarantees issued As at 31 December 2018, 2017 and 2016, guarantees issued by the Group for borrowings received by NBH group companies amounted to $309, $304 and $255, respectively, which is the maximum potential amount

F-64 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

23 Related party transactions (continued) of future payments, payable on demand of the guarantee. No amount has been accrued in these consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses the probability of cash outflows related to these guarantees, as low. The maturity of the guaranteed obligations is as follows:

As at As at As at 31 December 2018 31 December 2017 31 December 2016 Less than 1 year ...... 57 105 70 From 1 to 2 years ...... — 199 5 Over 2 years ...... 252 — 180 309 304 255

(e) Investments transactions In September 2018, the Group completed the sale of 2% stake in share capital of NBH to Tubes de Haren et Nimy S.A., a subsidiary of NBH, for a cash consideration of $5, realising a loss of $2 upon the decrease of carrying value of the investment of $7. As a result of this transaction, direct ownership of the Group in the share capital of NBH decreased to 49.0%.

24 Commitments and contingencies (a) Anti-dumping investigations The Group’s export trading activities are subject from time to time to compliance reviews by the regulatory authorities in the importers’ jurisdictions. The Group’s export sales prices were considered by local governments within several anti-dumping investigation frameworks. The Group takes steps to address negative effects of the current and potential anti-dumping investigations and participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any possible agreements and decisions as a result of anti-dumping investigations has been made in the consolidated financial statements.

(b) Litigation The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The Group management believes that any liability resulting from these legal actions will not significantly affect its financial position or results of operations, and no amount has been accrued in the consolidated financial statements.

(c) Environmental matters The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised in financial statements immediately. Potential liabilities, which might arise as a result of future changes in existing regulations, civil litigation or legislation, cannot be reasonably estimated. In the current enforcement climate under existing environmental legislation, management believes that the Group has met the Government’s federal and regional requirements concerning environmental matters, therefore, there are no significant liabilities for environmental damage and remediation.

F-65 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

24 Commitments and contingencies (continued) (d) Capital commitments Management estimates the outstanding agreements in connection with equipment supply and construction works amounted to $714, $629 and $473 as at 31 December 2018, 2017 and 2016, respectively.

(e) Social commitments The Group makes contributions to mandatory and voluntary social programs. The Group’s social contributions, as well as local social programs, benefit the community at large and are not normally restricted to the Group’s employees. The Group has transferred certain social operations and assets to local authorities, however, the Group management expects that the Group will continue to fund certain social programs for the foreseeable future. These costs are recorded in the period they are incurred.

(f) Tax contingencies Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review by tax authorities of transactions without a clear business purpose or with tax-incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when the decision about the review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm’s length. Tax liabilities arising from transactions between companies within the Group are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the basis that these companies are not subject to Russian income tax, because they do not have a permanent establishment in Russia. This interpretation of the relevant legislation may be challenged. The Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). The CFC income may be subject to a 20% tax rate. Russian tax legislation does not provide definitive guidance in certain areas. Management currently estimates that the tax positions and interpretations that it has taken can probably be sustained. But there is a possible risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

(g) Major terms of loan agreements Certain of the loan agreements contain covenants that impose restrictions on the purposes for which the loans may be utilised, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or guarantees, obligations in respect of any future reorganisations procedures or bankruptcy of the borrowers, and also require that the borrowers maintain pledged assets to their current value and conditions. In addition, these agreements contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the borrowers, including cross-default provisions, as well as to legal claims in excess of certain amount, where reasonable expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill contractual obligations. The Group companies were in compliance with all debt covenants as at 31 December 2018, 2017 and 2016.

F-66 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The Group from one reporting period to another has consistently applied these accounting policies.

(a) Basis of consolidation Subsidiaries Subsidiaries are those entities that the Group controls because the Group has (a) power over the investees (that is, it can direct relevant activities of the investees that significantly affect their returns); (b) exposure, or rights, to variable returns from its involvement with the investees; and (c) the ability to use its power over the investees to affect the amount of investor returns. Subsidiaries are consolidated when the Group obtains control over an investee and terminates when the Group ceases to have control over the investee. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests, which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Parent Company’s equity. The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction-by-transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree. Goodwill is measured by deducting the net assets of an acquiree from the aggregate of: the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree, and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (‘‘negative goodwill’’) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement. Consideration transferred for an acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and similar professional services. Transaction costs related to an acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. All intercompany transactions, balances and unrealised gains on transactions between the Group companies are eliminated. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Parent Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Joint ventures Joint ventures are entities over which the Group has joint control over financial or operating policies. Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

F-67 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Investments in joint ventures are initially recognised at cost (fair value of the consideration transferred). The Group uses the equity method of accounting to subsequent measurement for an investment in joint ventures. Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. The Group’s share of profits or losses of joint ventures after acquisition is recorded in the consolidated statement of profit or loss for the year as share of financial result of joint ventures. The Group’s share in the change of other comprehensive income after the acquisition is recorded within other comprehensive income as a separate line item. All other changes in the Group’s share of the carrying amount of net assets of the joint ventures are recognised in profit or loss within the share of financial results of the joint ventures, or consolidated statement of changes in equity depending on the substance of the change. However, when the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless this is required by law or it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses arising from transactions between the Group and its joint ventures are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. In the consolidated statement of financial position, the Group’s share in the joint venture is presented at the carrying amount inclusive of goodwill at the acquisition date and the Group’s share of post-acquisition profits and losses net of impairment loss.

Disposals of subsidiaries and joint ventures When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured to its fair value as at the date of ceasing control or significant influence, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as a joint venture, or financial asset. In addition, any amounts previously recognised in other comprehensive income, in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss. At the date when the Group’s control ceases, it de-recognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognises profit or loss connected with the loss of control attributable to the former controlling stake. If the ownership interest in a joint venture is reduced but joint control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(b) Cash and cash equivalents Cash and cash equivalents include cash balances in hand, cash on current accounts with banks, bank deposits and other short-term highly liquid investments with original maturities of three months or less.

(c) Value added tax (VAT) Output value added tax arising upon the sale of goods (performance of work, provision of services) is payable to the tax authorities on the earlier of: (a) collection of receivables from customers; or (b) delivery of goods (work, services) or property rights to customers. VAT is excluded from revenue. Input VAT on goods and services purchased (received) is generally recoverable against output VAT upon receipt of the VAT invoice. VAT related to sales / purchases and services provision / receipt payments to the budget which has not been settled with at the balance sheet date (deferred VAT) is recognised in the

F-68 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) consolidated statement of financial position on a gross basis and disclosed separately within current assets and current liabilities. Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debt, including VAT.

(d) Inventories Inventories are recorded at the lower of cost and net realisable value (the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses). Inventories include raw materials designated for use in the production process, finished goods, work in progress and goods for resale. Release to production or any other write-down of inventories is carried at the weighted average cost. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Other costs are included in the cost of inventories only to the extent they were incurred to provide for the current location and condition of inventories. When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories, including obsolete inventories written down, shall be recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(e) Property, plant and equipment (PP&E) Measurement at recognition Property, plant and equipment are initially stated at cost (historical cost model). The PP&E cost includes: • its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; • costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the relevant entity’s management; • the initial estimate of the cost of subsequent dismantling and removal of a fixed asset, and restoring the site on which it was located, the obligation for which the relevant entity incurs either when the item is acquired or as a consequence of having used the item during a specific period for purposes other than to produce inventories during that period. The value of property, plant and equipment built using an entity’s own resources includes the cost of materials and labour, and the relevant portion of production overhead costs directly attributable to the construction of the PP&E. Borrowing costs directly attributable to the acquisition, construction or production of an asset which takes a substantial period of time to prepare for use or sale are included in the cost of this asset. Recognition of costs in the carrying amount of a property, plant and equipment item ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management of the relevant entity.

F-69 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Subsequent measurement Property, plant and equipment items are carried at cost less accumulated depreciation and recognised impairment losses.

Subsequent expenditures The costs of minor repairs and maintenance are expensed when incurred. The costs of regular replacement of large components of property, plant and equipment items are recognised in the carrying amount of the relevant asset when incurred subject to recognition criteria. The carrying amount of the parts being replaced is de-recognised. When a large-scale technical inspection is conducted, related costs are recognised in the carrying amount of a fixed asset as replacement of previous technical inspection subject to recognition criteria. Any costs related to the previous technical inspection that remain in the carrying value shall be de-recognised. Other subsequent expenditures are capitalised only when they increase the future economic benefits embodied in these assets. All other expenses are treated as costs in the consolidated statement of profit or loss in the reporting period as incurred. Property, plant and equipment line of the consolidated statement of financial position also includes capital construction and machinery, and equipment to be installed. If PP&E items include major units with different useful lives, then each individual unit of the related asset is accounted for separately.

Borrowing costs Borrowing costs are capitalised from the date of capitalisation and up to the date when the assets are substantially ready for utilisation or sale. The commencement date for capitalisation is when the Group (a) incurs expenditures for the qualifying asset; (b) incurs borrowing costs; and (c) undertakes activities that are necessary to prepare the asset for its intended use or sale. When funds borrowed for common purposes are used to purchase an asset, capitalised borrowing costs are determined through multiplying the capitalisation rate by expenses related to the asset. Interest payments capitalised under IAS 23 are classified in consolidated statement of cash flows in a manner that is consistent with the classification of the underlying asset on which the interest is capitalised. All other borrowing costs are attributed to expenses in the reporting period when incurred and recorded in the consolidated statement of profit or loss in the ‘‘Finance costs’’ line.

Mineral rights Exploration and evaluation assets are carried at original cost and classified consistently within tangible or intangible assets depending on their nature. Mineral rights acquired as a result of a business combination are measured at fair value at the acquisition date. Other mineral rights and licenses are recorded at cost. Mineral rights are amortised using the straight-line basis over the license term given approximately even production output during the license period.

Depreciation Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets through an even write-down of historical cost to their net book value. Property, plant and equipment items under finance leases and subsequent capitalised expenses are depreciated on a straight-line basis

F-70 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) over the estimated remaining useful lives of the individual assets. Depreciation commences from the time an asset is available for use, i.e. when the location and condition provide for its operation in line with the Group management’s intentions. Depreciation is not charged on assets to be disposed of and on land. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the consumption of benefits to be derived from it. The range of estimated useful lives of different asset categories is as follows:

Buildings and land and buildings improvements ...... 10–70 years Machinery and equipment ...... 2–30 years Vehicles ...... 5–25 years The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal if the asset was already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. If the cost of land includes the costs of site dismantlement, removal of PP&E items and restoration expenses, that portion of the land asset is depreciated over the period of consumption of benefits obtained by incurring those costs. Impairment of PP&E is outlined in section (h) ‘‘Impairment of non-current assets’’.

(f) Leasing Leasing transactions are classified according to the relevant lease agreements, which specify the risks and rewards associated with the leased property and distributed between the lessor and lessee. Lease agreements are classified as financial leases or operating leases. In a financial lease, the Group receives the major portion of economic benefits and risks associated with the ownership of the asset. At the commencement of the lease term, the leased asset is recognised in the consolidated statement of financial position at the lower of fair value or discounted value of future minimum lease payments. The corresponding rental obligations are included in borrowings. Interest expenses within lease payments are charged to profit or loss over the lease term using the effective interest method. Accounting policies for depreciation of leased assets are consistent with the accounting policies applicable to owned depreciable assets. A lease is classified as an operating lease if it does not imply transferring the major portion of risks and rewards associated with the ownership of the asset. Payments made under operating leases are recorded as an expense on a straight-line basis over the lease term.

(g) Goodwill and intangible assets Goodwill is the difference between: • the comprehensive fair value of the consideration transferred on the acquisition date and non-controlling interest, and, where the entity is acquired in instalments, the acquisition date fair value of the non-controlling interest previously held by the buyer in the acquired entity; and • the share of net fair value of identifiable assets acquired and liabilities assumed. The excess of the share of net fair value of identifiable assets bought and obligations assumed by the Group over the consideration transferred and the fair value of non-controlling interest at the acquisition

F-71 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) date previously owned by the buyer in the acquired entity, represents income from a profitable acquisition. Income is recognised in the consolidated statement of profit or loss at the acquisition date. Goodwill on joint ventures is included in the carrying amount of investments in these entities. When interest in the previously acquired entity increases (within non-controlling interest) goodwill is not recognised. The difference between the acquired share of net assets and consideration transferred is recognised in equity. Goodwill is measured at historical cost and subsequently stated less accumulated impairment losses.

Impairment of goodwill The goodwill is not amortised but tested for impairment at least annually and whenever there are indications that goodwill may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (‘‘CGUs’’) that are expected to benefit from the synergies of the combination. The evaluation of impairment for cash-generating units, among which goodwill was distributed, is performed once a year or more often, when there are indicators of impairment of such CGUs. If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to any other assets of the CGU pro-rata to the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods.

Disposal of goodwill If goodwill is a part of the cash-generating unit, and a part of the unit is disposed of, the goodwill pertaining to that part of disposed operations is included in the carrying amount of that operation when profit or loss on its disposal is determined. In such circumstances, the goodwill disposed of is generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

Intangible assets Intangible assets are initially recognised at cost. The cost of a separately acquired intangible asset comprises: • its purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates; • directly attributable cost of preparing the asset for its intended use. If an intangible asset is acquired as a result of a business combination, the cost of the intangible asset equals its fair value at the acquisition date. If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the entire period of credit unless it is capitalised in accordance with IAS 23, ‘‘Borrowing Costs’’. If an intangible asset is an integral part of a fixed asset to which it belongs, then it is recorded as part of that asset. After the initial recognition of intangibles, they are carried at cost less sum of accumulated amortisation and accumulated impairment loss. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.

F-72 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Amortisation Intangible assets with a definite useful life are amortised using the straight-line method over the shorter of: the useful life or legal rights thereto. The range of estimated useful lives of different asset categories is as follows:

• Mineral rights ...... 20–36 years • Industrial intellectual property ...... 1–10 years • Beneficial lease interest ...... 80 years

(h) Impairment of non-current assets At each reporting date, the Group determines if there are any objective indications of potential impairment of an individual asset or group of assets. Intangible assets with indefinite useful lives are tested for impairment at least once a year if their carrying amount impairment indicators are identified.

Recoverable value measurement If any such impairment indicators exist, then the asset’s recoverable amount is estimated. In the event of impairment, the value of the asset is written down to its recoverable value, which represents the higher of: the fair value less costs to sell or the value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset or payable on the transfer of a liability at the evaluation date, in an arm’s length transaction between knowledgeable, willing parties, less any direct costs related to the sale or transfer. Value in use is the present value of estimated future cash flows from expected continuous use of an asset and its disposal at the end of its useful life. In assessing value-in-use, the anticipated future cash proceeds are discounted to their current value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units), which in most cases are determined as individual subsidiaries of the Group. Estimated cash flows are adjusted in line with the risk of specific conditions at sites and discounted at the rate based on the weighted average cost of capital. With regard to assets that do not generate cash regardless of cash flows generated by other assets, the recoverable amounts are based on the cash-generating unit to which such assets relate.

Impairment loss The asset’s carrying amount is written down to its estimated recoverable value, and loss is included in the consolidated statement of profit or loss for the period. Impairment loss is reversed if there are indications that the assets’ impairment losses (other than goodwill) recognised in previous periods no longer exist or have been reduced, and if any consequent increase in the recoverable value can be objectively linked to the event that took place after the impairment loss recognition. Impairment loss is reversed only to the extent that the carrying amount of an asset does not exceed its carrying amount that would be established (less amortisation) if the asset impairment loss had not been recognised. An impairment loss is reversed for the relevant asset immediately through consolidated statement of profit or loss.

F-73 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) (i) Provisions for liabilities and charges Provisions for liabilities and charges are accrued when the Group: • has present obligations (legal or constructive) as a result of past events; • it is probable that an outflow of resources embodying economic benefits will be required to settle such an obligation; • a reliable estimate of the amount of the obligation can be made. The amount recognised as a provision shall be the best estimate of the expenses required to settle the present obligation at the end of the reporting period. Where the impact of the time factor on the value of money is significant, the provision should equal the present value of the expected cost of settling the liability using the discount rate before taxes. Any increase in the carrying amount of the provision is recorded in the consolidated statement of profit or loss as finance costs. The nature and estimated value of contingent liabilities and assets (including court proceedings, environmental costs, etc.) are disclosed in notes to the consolidated financial statements where the probability of economic benefits outflow is insignificant. The creation and release of provision for impaired receivables have been included in impairment losses on financial assets in the consolidated statement of profit or loss. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

(j) Income taxes Income tax expense comprises current and deferred tax. The current and deferred taxes are recognised in profit or loss for the period, except for the portion thereof that arises from a business combination or transactions or events that are recognised directly within equity.

Current tax Current tax liabilities are measured in the amount expected to be paid to (recovered from) the tax authorities, applying the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax Deferred tax assets and liabilities are recognised for the differences between the carrying amount of an asset or liability in the consolidated statement of financial position and their tax base. Deferred tax is not recognised if temporary differences: • arise at the goodwill initial recognition; • arise at the initial recognition (except for business combination) of assets and liabilities that do not impact taxable or accounting profits; • are associated with investments in subsidiaries where the Group controls the timing of the reversal of these temporary differences, and it is probable that the temporary differences will not be utilised in the foreseeable future. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Estimation of tax assets and liabilities reflects tax implications that would arise depending on the method to be used at the end of the reporting period to recover or settle carrying value of these assets or liabilities.

F-74 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Deferred tax assets are recognised in respect of the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits may be utilised. The carrying amount of deferred tax assets is subject to revision at the end of each reporting period and is decreased to the extent of reduced probability of receiving sufficient taxable income to benefit from utilising the deferred tax assets partially or in full. Deferred tax assets and liabilities are offset if there is a legal right for the offset of current tax assets and liabilities, and when they relate to income taxes levied by the same tax authority or on the same taxpayer; and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Uncertain tax positions The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

(k) Dividends payable Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting date and before the consolidated financial statements have been authorised for issue are disclosed in the subsequent events note.

(l) Revenue recognition Revenue from sales of goods and provision of services Revenue is recognised at a transaction price that represents an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring those goods or services. Revenue from sale of goods and services is recognised when a performance obligation is satisfied, i.e. when control over the goods or services underlying the particular performance obligation is transferred to the customer. If the Group agrees to transport goods to a specified location (typically under contracts based on certain Incoterms types), revenue is split into two performance obligations—sale of goods and rendering of transportation services. Revenue from sale of goods is recognised at a point of time, when control over the goods is transferred to the customer, normally when the goods are shipped and the risks, rewards and legal title are passed. Revenue from rendering of transportation services is recognised over time as the transportation service is provided to the customer. This is determined based on the actual days of transportation relative to the average expected days of transportation. The transaction price is allocated to the rendering of transportation services on an average transportation price per ton basis. Costs related to the rendering of transportation services are included in selling expenses. Revenue is recorded net of discounts, provisions, value added tax and export duties, and refunds, and after excluding intra-group sales turnover. No element of financing is deemed present as the sales are made with an average credit term of 60 days, which is consistent with market practice.

Interest income Interest income is recognised on a time-proportion basis using the effective interest method.

F-75 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Dividend income Dividend income on investments is recognised when the Group becomes entitled to receive the payment.

(m) Segment information The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph 11 of IFRS 8, ‘‘Operating Segments’’. The Group’s organisation comprises six reportable segments: • the Mining segment, which comprises mining, processing and sales of iron ore, fluxing limestone and metallurgical dolomite, and supplies raw materials to the steel segment and third parties; • the Russian flat products segment, comprising production and sales of steel products and coke, primarily pig iron, steel slabs, hot rolled steel, cold rolled steel, galvanised cold rolled sheet and cold rolled sheet with polymeric coatings and also electro-technical steel; • the Russian long products segment, comprising a number of steel-production facilities combined in a single production system beginning from scrap iron collection and recycling to steel-making, production of long products, reinforcing rebar and metalware; • NLMK USA, comprising production and sales of steel products in the United States; • NLMK DanSteel and Plates Distribution Network, comprising production and sales of plates in Europe and other regions of the world; • Investments in NBH, comprising production of hot rolled, cold rolled coils and galvanised and pre-pained steel, and also production of a wide range of plates as well as a number of steel service centers located in the European Union. The accounting policies of each segment consist with the principles outlined in significant accounting policies.

(n) Financial instruments Financial assets The Group’s financial assets include cash and cash equivalents, trade and other accounts receivable and short-term financial instruments which are measured at amortised cost. Debt instruments have the following categories based on the business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest: • debt instruments the payments on which represent solely payments of principal and interest and that are intended to collect payments are classified as those to be measured subsequently at amortised cost; • debt instruments the payments on which represent solely payments of principal and interest and that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets are classified as those to be measured subsequently at fair value through other comprehensive income; and • other financial assets are measured subsequently at fair value through profit or loss. The Group does not have equity financial instruments. To assess the expected credit loss on financial assets measured subsequently at amortised cost the Group uses the expected credit losses model in accordance with a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. The Group assesses expected credit

F-76 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) losses using lifetime expected credit losses for cash and cash equivalents, trade and other accounts receivable and short-term financial investments since their terms are less than 12 months.

Initial recognition of financial assets Financial investments measured subsequently at fair value are initially recorded at fair value. All other financial assets are initially recorded at fair value plus transaction costs. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (‘‘regular way’’ purchases and sales) are recorded at the trade date, which is the date when the Group commits to buy or sell a financial asset.

Write-off Financial assets are written-off, in whole or in part, when the Group exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write-off represents a de-recognition event. Indicators that there is no reasonable expectation of recovery include expiration of statute of limitation.

De-recognition The Group de-recognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets, or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control in respect of these assets. Control of an asset is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. If the Group neither transfers nor retains substantially all risks and rewards of ownership of the asset, but retains control over such transferred asset, the Group continues recognition of its share in this asset and the related obligation in the amount of the anticipated consideration.

Modification The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset or a significant extension of a loan when the borrower is not in financial difficulties. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a significant increase in credit risk has occurred. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate

F-77 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) (or credit-adjusted effective interest rate for purchased or originated credit impaired financial assets), and recognises a modification gain or loss in profit or loss.

Financial liabilities The Group’s financial liabilities include trade and other payables, bank overdrafts, borrowings and financial guarantee agreements. Financial liabilities are respectively classified as: • financial liabilities at fair value through profit or loss; • borrowings and loans.

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trade and financial liabilities designated initially at fair value through profit or loss. Financial liabilities are classified as held for trade if acquired for the purpose of selling in the short term. Income and expense on liabilities held for trade are recognised in the consolidated statement of profit or loss, except for the change of the fair value attributable to the change of own credit risk, which is recognized in other comprehensive income.

Borrowings After initial recognition, interest-bearing borrowings are carried at amortised cost using the effective interest method. Gains and losses on such financial liabilities are recognised in consolidated statements of profit or loss upon their de-recognition and also as amortisation accrued using the effective interest method.

Initial recognition of financial liabilities All financial liabilities are initially recorded at fair value less transaction costs incurred (except for financial liabilities at fair value through the consolidated statements of profit or loss).

De-recognition A financial liability is de-recognised from the consolidated statement of financial position if it was settled, cancelled or expired. If the existing financial liability is replaced by another liability to the same creditor, on terms that significantly differ from the previous terms, or the terms of the existing liability significantly differ from the previous terms, such replacement or change is recorded as de-recognition of the initial liability and recognition of a new liability, and the difference in their carrying amount is recognised in the consolidated statement of profit or loss.

Financial guarantee agreements Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of: • the amount determined in accordance with the expected credit loss model under IFRS 9 Financial Instruments; or • the amount initially recognized, where applicable, less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers. The fair value of financial guarantees is determined based on the present value of the difference in cash flows between the contractual payments required under the debt instrument and the payments that would

F-78 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

26 Critical accounting estimates and judgements The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures. Management also makes certain judgements in the process of applying the Group’s accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including forecasts and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, and management’s estimates can be revised in the future, either positively or negatively, based on the facts surrounding each estimate. Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements, and estimates that can cause a significant adjustment to the carrying amounts of assets and liabilities within the next financial year are reported below.

(a) Tax legislation and potential tax gains and losses The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities which are recorded for income tax positions are determined by management based on the interpretation of current tax laws. Liabilities for penalties, fines and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle tax liabilities at the reporting date (Note 24). The recognised deferred tax assets represent income taxes recoverable through future deductions from taxable profits and are recorded in the statement of financial position (Note 17). Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. This includes temporary difference expected to reverse in the future and the availability of sufficient future taxable profit against which the deductions can be utilised. The future taxable profits and the amount of tax benefits that are probable in the future are based on the medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable under the circumstances.

(b) Estimation of remaining useful lives of property, plant and equipment The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may affect future useful lives (Note 8).

(c) Impairment analysis of property, plant and equipment, goodwill and investments in joint ventures The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a number of significant judgements and estimates to certain variables including volumes of production and extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed for impairment (Notes 8, 9).

F-79 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations The following new standards and interpretations became effective from 1 January 2018:

IFRS 9 ‘‘Financial Instruments’’ (with amendments issued in July 2014). For the periods starting 1 January 2018, the Group changed its accounting policy relating to classification and measurement of financial assets and liabilities in accordance with the core principles of the standard. Details of the new accounting policy are disclosed in Note 25. The adoption of IFRS 9 did not significantly impact the balance sheet classification of financial assets and liabilities in the consolidated financial statements of the Group. The amount of expected credit losses as at 1 January 2018 does not materially differ from the amount of recognised provisions and allowances in the consolidated financial statements as at 31 December 2017 and therefore there is no quantitative effect of transition as of 1 January 2018. Financial assets and liabilities previously classified in accordance with IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ within categories loans and receivables, investments held to maturity and other financial liabilities measured at amortised cost using the effective interest method, in accordance with IFRS 9 ‘‘Financial instruments’’ are classified as financial assets and financial liabilities carried at amortised cost. Measurement of cash and cash equivalents, trade and other receivables and payables, long-term and short-term loans and borrowings, held-to-maturity investments has not changed and these financial instruments are measured at amortised cost.

IFRS 15 ‘‘Revenue from Contracts with Customers’’ (with amendments issued in April 2016) In accordance with the transition provisions in IFRS 15 the Group has elected the simplified transition method with the effect of transition to be recognised as at 1 January 2018. The Group applied the practical expedient available for the simplified transition method. Details of the new accounting policy are disclosed in Note 25. Apart from providing more extensive disclosures on the Group’s revenue transactions (Note 14), including presentation of goods transportation services as a separate performance obligation and disaggregation of revenue by geographical area, the adoption of IFRS 15 did not have a significant impact on the financial position or financial performance of the Group. Therefore comparative information and opening equity as at 1 January 2018 were not restated. The following amended standards became effective from 1 January 2018, but did not have a material impact on the Group. • Amendments to IFRS 2 Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or after 1 January 2018). • Applying IFRS 9 Financial Instruments with Amendments to IFRS 4 Insurance Contracts (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach). • Annual Improvements to IFRSs 2014–2016 cycle—Amendments to IFRS 1 and IAS 28 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • Amendments to IAS 40 Transfers of Investment Property (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018).

F-80 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations (continued) Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2019 or later, and which the Group has not early adopted: IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Management estimates that on adoption of IFRS 16 starting 1 January 2019, the Group will recognise lease liabilities in the amount of $89 in relation to leases which classified as operating leases as of 31 December 2018 under the principles of IAS 17 Leases. The weighted average lessee’s incremental borrowing rate to be applied to the lease liabilities on 1 January 2019 expected to be 6.45%. The Group decided that it will apply the standard using the modified retrospective method, without restatement of comparatives. A reconciliation of the operating lease commitments to this liability is as follows:

As at 31 December 2018 Total future minimum lease payments for non-cancellable operating leases (Note 20) . 293 Future lease payments that are due in periods subject to lease extension options that are reasonably certain to be exercised ...... 14 Future lease payments for leases with a term of less than 12 months ...... (2) Effect of discounting to present value ...... (216) Total lease liabilities on adoption of IFRS 16 ...... 89

The following other new pronouncements are not expected to have any material impact on the Group financial statements when adopted: • IFRS 17 ‘‘Insurance Contracts’’ (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). • IFRIC 23 ‘‘Uncertainty over Income Tax Treatments’’ (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019). • Prepayment Features with Negative Compensation—Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Long-term Interests in Associates and Joint Ventures—Amendments to IAS 28 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Annual Improvements to IFRSs 2015–2017 cycle—Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019). • Plan Amendment, Curtailment or Settlement—Amendments to IAS 19 (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019). • Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020).

F-81 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations (continued) • Definition of a business—Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning of annual reporting period that starts on or after 1 January 2020). • Definition of materiality—Amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods beginning on or after 1 January 2020). Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

F-82 NOVOLIPETSK STEEL

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017

(WITH INDEPENDENT AUDITOR’S REPORT THEREON)

F-83 Novolipetsk Steel Consolidated financial statements as at and for the year ended 31 December 2017 CONTENTS

Independent auditor’s report ...... F-85 Consolidated statement of financial position ...... F-93 Consolidated statement of profit or loss ...... F-94 Consolidated statement of comprehensive income ...... F-95 Consolidated statement of changes in equity ...... F-96 Consolidated statement of cash flows ...... F-97 Notes to the consolidated financial statements ...... F-98

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Independent auditor’s report To the Shareholders and the Board of Directors of Novolipetsk Steel:

Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Novolipetsk Steel and its subsidiaries (together—the ‘‘Group’’) as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited The Group’s consolidated financial statements comprise: • the consolidated statements of: • financial position as at 31 December 2017; • profit or loss for the year ended 31 December 2017; • comprehensive income for the year ended 31 December 2017; • changes in equity for the year ended 31 December 2017; • cash flows for the year ended 31 December 2017; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

11MAY201907451020

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Our audit approach Overview • Overall Group materiality: 100 million US Dollars (USD), which represents 1% of the Group’s consolidated revenue • We conducted audit work at 12 components (entities or business activities, which prepare financial information that is included in the consolidated financial statements) in six countries • The Group engagement team visited the Group companies in the Russian Federation and United States of America and also the joint venture located in Belgium • Our audit scope covered 91% of the Group’s consolidated revenues and 90% of the Group’s consolidated total assets • Key Audit Matter 1—Management assessment of the carrying value of goodwill, intangible assets and property, plant and equipment 12MAY201903131434 • Key Audit Matter 2—Accounting for the investment in NLMK Belgium Holdings S.A. (hereinafter—NBH) • Key Audit Matter 3—Determination of the carrying value of the investment in NBH We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of the concept of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatements. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole. Overall Group materiality ...... USD 100 million (2016: USD 71 million) How we determined it ...... 1% of the Group’s consolidated revenue Rationale for the materiality benchmark applied .... We chose revenue as the benchmark because, in our view, it is the benchmark which objectively best represents the performance of the Group over a period of time while financial results are volatile. We determined overall materiality as 1%, which in our experience is within the range of acceptable quantitative materiality thresholds applied for public companies in the relevant industry. We also take misstatements and/or possible misstatements into account that, in our judgement, are material for qualitative reasons.

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Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the accompanying consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion on these consolidated financial statements and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the Key audit matter 1. Management’s assessment of the carrying value of goodwill, intangible assets and property, plant and equipment Refer to Notes 8 and 9 to the consolidated financial statements The Group management performed an analysis of We obtained, understood and evaluated existence of indicators of impairment of the management’s impairment models. We involved our Group’s property, plant and equipment (PP&E), valuation experts to assist in the evaluation of the intangible assets and goodwill as at 30 September methodology, mathematical accuracy and 2017, that revealed: assumptions used in the models. • high volatility on the market of finished Specific work performed over the impairment test products and raw materials (coal and ore); and included: • continuing recovery of the US economy • comparing the key assumptions used within the followed by strong prices on steel products. impairment models to the historic performance of the respective CGUs and approved The analysis triggered testing a number of the estimates; Group’s cash-generating units (CGUs) for impairment or potential reversal of previously • benchmarking the key assumptions used within recognised impairment. the impairment models, including price forecasts, inflation and discount rates, against The recoverable amount of PP&E, intangible assets external expert valuations, macroeconomic and and goodwill for each CGU subject to testing was industry forecasts, which corroborated their calculated by management as of 30 September 2017 validity; and updated based on the actual performance of the CGUs as of 31 December 2017. • performing a sensitivity analysis over the key assumptions in order to assess their potential IFRS require management to assess the recoverable impact on impairment results and ranges of amount of each CGU subject to testing, as the possible outcomes of the recoverable amounts; higher of its value in use and its fair value less cost to sell. Management assessed the value in use for • examining management’s assessment of the each such CGU using discounted cash flow models, degree to which steel prices and sales volumes and concluded that it is higher than fair value less would need to reduce and the discount rates cost to sell, as the assumptions of an average would need to increase, in isolation from other market participant for a similar company would changes in assumptions, before an impairment generally be the same or, in some cases, even more arises on these CGUs; conservative. Therefore the recoverable amount • validating the key assumptions used in the was determined as value in use. impairment models also as of 31 December As a result of the testing performed, management 2017; concluded that no impairment or reversal of • assessing compliance with the requirements of previously recognised impairment were required as IFRS of the related disclosures in the of 31 December 2017. consolidated financial statements.

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Key audit matter How our audit addressed the Key audit matter We focused on this area because of the significant As a result of performing the above procedures, we judgmental factors involved in the calculation of have not identified any circumstances that would recoverable amount of each CGU, and the lead to material adjustments to the carrying value of significant carrying value of the assets in scope of goodwill, intangible assets and PP&E, recorded in the test. the accompanying consolidated financial statements, or to the related disclosures. 2. Accounting for the investment in NBH Refer to Notes 4 and 26(d) to the consolidated Our audit work in respect of the management financial statements judgement as to existence of control / joint control / significant influence that impacts classification of NBH is a joint venture between the Group and the investment in NBH and the accounting method Societe Wallonne de Gestion et de (consolidation or equity method), included: Participations S.A. (hereinafter—SOGEPA), which is accounted for using the equity method. Its • inquiries of management of different levels carrying value as of 31 December 2017 was both in Russia and in Belgium; USD 194 million. In selecting the method of • review of the shareholders’ agreement and accounting for this investment, management made charter documents; a judgement as to the assessment of joint control over NBH. • review of minutes of meetings of NBH Board of directors and shareholders’ meetings to We focused on this area because of its significance corroborate the assertion on joint decision and the degree of judgement involved in making. classification of the investment in NBH. We also considered whether there were facts and As a result, we concurred with the management’s circumstances which would trigger reassessment of assessment of existence of joint control and with the the accounting treatment as required by IFRS. classification and the accounting treatment of the investment in NBH as of 31 December 2017 in the consolidated financial statements.

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Key audit matter How our audit addressed the Key audit matter 3. Determination of the carrying value of the investment in NBH Refer to Note 4 and Note 26(d) to the Consolidated Financial Statements In December 2017, the Group contributed an Our audit procedures included: additional USD 84 million into the share capital of • agreeing the amount of the Group’s additional NBH. This contribution was made to increase the contribution into the share capital to net assets of NBH to the minimum level prescribed supporting documentation; by the Belgium law and was in the form of conversion of a loan previously issued to NBH. • obtaining evidence over SOGEPA’s participation in NBH activities, including The Group management considered that review of minutes of meetings of NBH Board SOGEPA’s share in this contribution should not be of directors and Shareholders’ meetings to expensed immediately, but the investment in NBH confirm joint decision making; as a whole should be tested for impairment as of the date of this additional contribution using a • testing management’s impairment assessment discounted cash flow model. of the investment in NBH. We performed audit procedures over the impairment models, Management performed an analysis of the business including: performance, industry outlook and operational plans and then assessed the recoverable value of the • comparing the key assumptions used CGUs within NBH for the purpose of impairment within the impairment models to historic testing of the investment in the share capital of performance and approved forecasts of NBH. As a result of this impairment testing the three CGUs within NBH; performed by management, no additional • performing sensitivity analysis over key impairment/reversal of previously recognized assumptions (for example, weighted impairment was identified as of 31 December 2017. average cost of capital, sales prices and We focused on this area as the amount of volumes forecasts); contribution made and the judgement over • involving our valuation experts to assess impairment of the investment in NBH are the appropriateness of management’s significant for the consolidated financial statements impairment models; taken as a whole. • verifying accuracy of the carrying value of the investment in NBH. For more details in respect of work performed over key assumptions refer to the Key audit matter 1 above. We compared the carrying value of the investment in the share capital of NBH as of 31 December 2017 to its recoverable amount and did not identify any material adjustments to the carrying value of investment in NBH in the accompanying consolidated financial statements.

How we tailored our group audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the consolidated financial statements as a whole, taking into account the geographic and management structure of the Group, the Group’s accounting processes and controls, and the industry in which the Group operates.

F-89 10MAY201912182479

The Group’s major production facilities are located in the Russian Federation, the USA and Western Europe and the trading companies are based out of Switzerland and Cyprus. Based on our continuing assessment, we included in our group audit scope the 12 components located in these regions. The audits of the components were conducted by PwC network firms in the Russian Federation, USA, Denmark, Belgium, Switzerland and Cyprus in accordance with International Standard on Auditing (ISA) 600 «Special considerations—audits of group financial statements (including the work of component auditors)». The Group engagement team’s instructions to component auditors included results of our risk assessment, materiality levels and the approach to the audit of centralised processes and systems. The Group engagement team is in regular contact with the component auditors and its representatives visited several component teams to review their work. Our selection is based on the relative significance of the entities within the Group or specific risks identified. By performing the procedures above at the components in combination with additional procedures performed at Group level, we have obtained sufficient and appropriate audit evidence regarding the consolidated financial statements as a whole that provides a basis for our opinion.

Other information Management is responsible for the other information. The other information comprises information included in the Group Annual Report for 2017 and the Issuer’s Report for the first quarter of 2018, but does not include the consolidated financial statements and our auditor’s report thereon. Both of these reports are expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information referred to above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

F-90 10MAY201912182479

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The certified auditor responsible for the audit resulting in this independent auditor’s report is A.S. Ivanov.

AO PricewaterhouseCoopers Audit

19 February 2018 Moscow, Russian Federation

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Signed on the original: A. S. Ivanov A.S. Ivanov, certified auditor (licence No. Nº 01-000531), AO PricewaterhouseCoopers Audit

Audited entity: Novolipetsk Steel Independent auditor: AO PricewaterhouseCoopers Audit State registration certificate No. 5-G, issued by the Administration of Levoberezhny district of the city State registration certificate No. 008.890, issued by of Lipetsk on 28 January 1993 the Moscow Registration Chamber on 28 February 1992 Certificate of inclusion in the Unified State Register of Legal Entities issued on 9 July 2002 Certificate of inclusion in the Unified State under registration No. 1024800823123 Register of Legal Entities issued on 22 August 2002 under registration No. 1027700148431 2, Metallurgov sq., Lipetsk, 398040, Russian Federation Member of Self-regulated organization of auditors «Russian Union of auditors» (Association) ORNZ 11603050547 in the register of auditors and audit organizations

F-92 Novolipetsk Steel Consolidated statement of financial position (millions of US dollars)

As at As at As at Note 31 December 2017 31 December 2016 31 December 2015 Assets Current assets Cash and cash equivalents ...... 3 301 610 343 Short-term financial investments ...... 5 1,284 970 1,243 Trade and other accounts receivable .... 6 1,228 955 921 Inventories ...... 7 1,879 1,549 1,205 Other current assets ...... 19 19 9 4,711 4,103 3,721 Non-current assets Long-term financial investments ...... 5 2 164 220 Investments in joint ventures ...... 4 205 181 118 Property, plant and equipment ...... 8 5,549 5,328 4,452 Goodwill ...... 9 265 253 215 Other intangible assets ...... 9 135 126 112 Deferred income tax assets ...... 17 84 62 68 Other non-current assets ...... 45 22 12 6,285 6,136 5,197 Total assets ...... 10,996 10,239 8,918

Liabilities and equity Current liabilities Trade and other accounts payable ...... 10 1,029 888 565 Dividends payable ...... 537 361 161 Short-term borrowings ...... 11 380 468 560 Current income tax liability ...... 53 12 28 1,999 1,729 1,314 Non-current liabilities Long-term borrowings ...... 11 1,901 1,801 2,116 Deferred income tax liability ...... 17 417 386 339 Other long-term liabilities ...... 33 13 12 2,351 2,200 2,467 Total liabilities ...... 4,350 3,929 3,781

Equity attributable to Novolipetsk Steel shareholders Common stock ...... 12(a) 221 221 221 Additional paid-in capital ...... 23(e) 10 10 10 Accumulated other comprehensive loss . . (5,631) (5,978) (6,989) Retained earnings ...... 12,029 12,039 11,883 6,629 6,292 5,125 Non-controlling interests ...... 17 18 12 Total equity ...... 6,646 6,310 5,137 Total liabilities and equity ...... 10,996 10,239 8,918

The consolidated financial statements as set out on pages 11 to 69 were approved by the Group’s management and authorised for issue on 19 February 2018.

The accompanying notes constitute an integral part of these consolidated financial statements.

F-93 Novolipetsk Steel Consolidated statement of profit or loss (millions of US dollars, unless otherwise stated)

For the year ended For the year ended For the year ended Note 31 December 2017 31 December 2016 31 December 2015 Revenue ...... 14 10,065 7,636 8,008 Cost of sales ...... (6,798) (5,074) (5,496) Gross profit ...... 3,267 2,562 2,512 General and administrative expenses . . . (364) (316) (261) Selling expenses ...... (795) (705) (802) Other operating income ...... 3 16 14 Taxes, other than income tax ...... 16 (80) (70) (76) Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment ...... 2,031 1,487 1,387 Loss on disposals of property, plant and equipment ...... (1) (3) (8) Impairment of non-current assets ...... 4, 8, 9 (17) (14) (85) Share of results of joint ventures ...... 4 (90) (61) (103) (Losses)/gains on investments, net ..... (5) (4) 80 Finance income ...... 18 29 39 52 Finance costs ...... 18 (87) (105) (95) Foreign currency exchange gain/(loss), net...... 19 17 (129) 110 Other expenses, net ...... (54) (38) (17) Profit before income tax ...... 1,823 1,172 1,321 Income tax expense ...... 17 (371) (233) (353) Profit for the year ...... 1,452 939 968 Profit is attributable to: Novolipetsk Steel shareholders ...... 1,450 935 967 Non-controlling interests ...... 241 Earnings per share: Earnings per share attributable to Novolipetsk Steel shareholders (US dollars) ...... 13 0.2419 0.1560 0.1613 Weighted-average number of shares outstanding: basic and diluted (in thousands) ...... 12(a) 5,993,227 5,993,227 5,993,227

The accompanying notes constitute an integral part of these consolidated financial statements.

F-94 Novolipetsk Steel Consolidated statement of comprehensive income (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2017 31 December 2016 31 December 2015 Profit for the year ...... 1,452 939 968 Other comprehensive income/(loss): Items that may be reclassified subsequently to profit or loss: Cumulative translation adjustment ...... 2(b) 348 1,013 (1,501) Total comprehensive income/(loss) for the year ...... 1,800 1,952 (533) attributable to: Novolipetsk Steel shareholders ...... 1,797 1,946 (530) Non-controlling interests ...... 3 6 (3)

The accompanying notes constitute an integral part of these consolidated financial statements.

F-95 Novolipetsk Steel Consolidated statement of changes in equity (millions of US dollars)

Attributable to Novolipetsk Steel shareholders Accumulated Additional other Common paid-in comprehensive Retained Non-controlling Total Note stock capital loss earnings interest equity Balance at 1 January 2015 ...... 221 — (5,492) 11,513 15 6,257 Profit for the year ...... — — — 967 1 968 Cumulative translation adjustment . . 2(b) — — (1,497) — (4) (1,501) Total comprehensive loss ...... — — (1,497) 967 (3) (533) Disposal of assets to an entity under common control ...... 23(e) — 10 — — — 10 Dividends to shareholders ...... 12(b) — — — (597) — (597) Balance at 31 December 2015 ..... 221 10 (6,989) 11,883 12 5,137 Profit for the year ...... — — — 935 4 939 Cumulative translation adjustment . . 2(b) — — 1,011 — 2 1,013 Total comprehensive income ...... — — 1,011 935 6 1,952 Dividends to shareholders ...... 12(b) — — — (779) — (779) Balance at 31 December 2016 ..... 221 10 (5,978) 12,039 18 6,310 Profit for the year ...... — — — 1,450 2 1,452 Cumulative translation adjustment . . 2(b) — — 347 — 1 348 Total comprehensive income ...... — — 347 1,450 3 1,800 Acquisition of non-controlling interest ...... — — — — (1) (1) Dividends to shareholders ...... 12(b) — — — (1,460) (3) (1,463) Balance at 31 December 2017 ..... 221 10 (5,631) 12,029 17 6,646

The accompanying notes constitute an integral part of these consolidated financial statements.

F-96 Novolipetsk Steel Consolidated statement of cash flows (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2017 31 December 2016 31 December 2015 Cash flows from operating activities Profit for the year ...... 1,452 939 968 Adjustments to reconcile profit for the year to net cash provided by operating activities: Depreciation and amortisation ...... 624 456 556 Loss on disposals of property, plant and equipment ...... 1 3 8 Losses/(gains) on investments ...... 5 4 (80) Finance income ...... (29) (39) (52) Finance costs ...... 87 105 95 Share of results of joint ventures ...... 4 90 61 103 Income tax expense ...... 17 371 233 353 Impairment of non-current assets ...... 17 14 85 Foreign currency exchange (gain)/loss, net ...... (17) 129 (110) Change in impairment allowance for inventories and accounts receivable ...... 13 14 14 Changes in operating assets and liabilities (Increase)/decrease in trade and other accounts receivable ...... (223) 3 (1) (Increase)/decrease in inventories ...... (262) (201) 75 Increase in other operating assets ...... — (9) (6) Increase/(decrease) in trade and other accounts payable ...... 105 244 (79) Cash provided by operations ...... 2,234 1,956 1,929 Income tax paid ...... (335) (257) (307) Net cash provided by operating activities ...... 1,899 1,699 1,622 Cash flows from investing activities Purchases and construction of property, plant and equipment ...... (592) (559) (595) Proceeds from sale of property, plant and equipment ...... 10 9 11 Purchases of investments and loans given, net . . . (44) (79) (199) Placement of bank deposits ...... (1,264) (989) (1,595) Withdrawal of bank deposits ...... 1,105 1,261 954 Interest received ...... 28 36 44 Contribution to share capital of joint venture . . . . — — (22) Acquisition of non-controlling interest ...... 4 (1) — — Disposal of assets to an entity under common control ...... 23(e) — — 10 Cash received in the course of bankruptcy proceedings ...... — 11 17 Net cash used in investing activities ...... (758) (310) (1,375) Cash flows from financing activities Proceeds from borrowings ...... 988 803 676 Repayment of borrowings ...... (1,093) (1,256) (579) Interest paid ...... (69) (84) (79) Dividends paid to Novolipetsk Steel shareholders . (1,283) (583) (395) Dividends paid to non-controlling interests ..... (2) — — Net cash used in financing activities ...... (1,459) (1,120) (377) Net (decrease)/increase in cash and cash equivalents (318) 269 (130) Effect of exchange rate changes on cash and cash equivalents ...... 9 (2) (76) Cash and cash equivalents at the beginning of the year ...... 3 610 343 549 Cash and cash equivalents at the end of the year .. 3 301 610 343 Supplemental disclosures of cash flow information: Non-cash investing activities: Conversion of debt to equity ...... 4 84 139 110

The accompanying notes constitute an integral part of these consolidated financial statements.

F-97 Novolipetsk Steel Notes to the consolidated financial statements (millions of US dollars)

1 Background Novolipetsk Steel (the ‘‘Parent Company’’ or ‘‘NLMK’’) and its subsidiaries (together—the ‘‘Group’’) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Parent Company is a public joint stock company in accordance with the Civil Code of the Russian Federation. The Parent Company was originally established as a State owned enterprise in 1934 and was privatised in the form of an open joint stock company on 28 January 1993. On 29 December 2015, the legal form of the Parent Company was changed to public joint stock company due to changes in legislation of the Russian Federation. The Group is a vertically integrated steel company and the largest steel producer in Russia. The Group also operates in the mining segment (Note 21). The Group’s main operations are in the Russian Federation, the European Union and the USA and are subject to the legislative requirements of the respective state and regional authorities. The Parent Company’s registered office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation. As at 31 December 2017, the Parent Company’s major shareholder with 84.035% ownership interest is Fletcher Group Holdings Ltd., which is beneficially owned by Mr. Vladimir Lisin. The major companies of the Group by reportable segment (see Note 21) are:

Share at Share at Share at Country of 31 December 31 December 31 December Activity incorporation 2017 2016 2015 Russian flat products LLC VIZ-Steel ...... Production of steel Russia 100.00% 100.00% 100.00% JSC Altai-Koks ...... Production of blast furnace Russia 100.00% 100.00% 100.00% coke Novex Trading (Swiss) S.A...... Trading Switzerland 100.00% 100.00% 100.00% Novexco (Cyprus) Ltd. . . . Trading Cyprus 100.00% 100.00% 100.00% NLMK DanSteel and Plates Distribution Network NLMK DanSteel A/S .... Production of steel Denmark 100.00% 100.00% 100.00% NLMK USA NLMK Indiana LLC ..... Production of steel USA 100.00% 100.00% 100.00% NLMK Pennsylvania LLC . Production of steel USA 100.00% 100.00% 100.00% Russian long products JSC NLMK-Ural ...... Production of steel and Russia 92.59% 92.59% 92.59% long products LLC NLMK-Metalware . . . Production of metalware Russia 100.00% 100.00% 100.00% LLC NLMK-Kaluga ..... Production of long Russia 100.00% 100.00% 100.00% products LLC Vtorchermet NLMK . Processing of metal scrap Russia 100.00% 100.00% 100.00% Mining JSC Stoilensky GOK ..... Mining, processing and Russia 100.00% 100.00% 100.00% pelletising of iron-ore

F-98 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

1 Background (continued) Among joint ventures the major is:

Share at Share at Share at Country of 31 December 31 December 31 December Activity incorporation 2017 2016 2015 NLMK Belgium Holdings S.A...... Holding company* Belgium 51.00% 51.00% 51.00%

* NLMK Belgium Holdings S.A. is owned jointly by the Group and SOGEPA, a Belgian state company (Note 4). It comprises strip and plate manufacturers located in Belgium, France and Italy.

2 Basis of preparation of the consolidated financial statements (a) Basis of preparation These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) under the historical cost convention except as described in the principal accounting policies applied in the preparation of these consolidated financial statements, as set out in Note 25. These policies have been consistently applied to all the periods presented in these consolidated financial statements. Figures for three reporting periods are presented for users’ convenience.

(b) Functional and reporting currency The functional currency of all of the Group’s Russian entities is considered to be the Russian ruble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars as the presentation currency of these consolidated financial statements. All amounts in the consolidated financial statements are rounded to the nearest million for users’ convenience unless otherwise stated (in prior years’ consolidated financial statements, all amounts were rounded to the nearest million decimal). This adjustment did not result in significant changes in comparative data. The results of operations and financial position of each Group entity are translated into the presentation currency as follows: • assets and liabilities in the statement of financial position are translated at the closing rate at the end of the respective reporting period; • income and expenses are translated at average exchange rates for each month (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); • components of equity are translated at the historical rate; • all resulting exchange differences are recognised in other comprehensive income. Items of consolidated statement of cash flows are translated at average exchange rates for each month (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case proceeds and disposals are translated at the dates of the transactions). When control over a foreign operation is lost, the previously recognised exchange differences on translation to a different presentation currency are reclassified from other comprehensive income to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity.

F-99 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

2 Basis of preparation of the consolidated financial statements (continued) The Central Bank of the Russian Federation’s Russian ruble to the main foreign currencies closing rates of exchange as of the reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated below.

2017 2016 2015 Russian ruble to US dollar For the year ended 31 December ...... 58,3529 67,0349 60,9579 As at 31 December ...... 57,6002 60,6569 72,8827 Russian ruble to Euro For the year ended 31 December ...... 65,9014 74,2310 67,7767 As at 31 December ...... 68,8668 63,8111 79,6972

3 Cash and cash equivalents

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Cash Russian rubles ...... 11 11 20 US dollars ...... 63 89 99 Euros ...... 70 52 41 Other currencies ...... 4 2 2 Deposits Russian rubles ...... 98 49 30 US dollars ...... 19 394 140 Euros ...... 24 1 — Other currencies ...... — 1 11 Other cash equivalents ...... 12 11 — 301 610 343

The cash and cash equivalents as at 31 December 2017 and 2016 include $12 and $10, respectively, which are subject to regulatory restrictions and are therefore not available for general use by the entities within the Group.

4 Investments in joint ventures

As at As at As at 31 December 2017 31 December 2016 31 December 2015 NLMK Belgium Holdings S.A. (‘‘NBH’’) ...... 194 171 109 TBEA & NLMK (Shenyang) Metal Product Co., Ltd...... 11 10 9 205 181 118

F-100 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

4 Investments in joint ventures (continued) The table below summarises the movements in the carrying amount of the Group’s investments in joint ventures.

2017 2016 2015 As at 1 January ...... 181 118 106 Share of net loss ...... (61) (61) (103) Conversion of debt to equity ...... 84 139 110 The Group’s contribution to the share capital ...... — — 22 Disposal of 28.5% stake in NBH ...... — — (36) Share of change in unrealised profit in inventory ...... (29) (5) 30 Share of change in other comprehensive income ...... — 1 1 Translation adjustment ...... 30 (11) (12) As at 31 December ...... 205 181 118

Summarised consolidated financial information for NBH before impairment losses is as follows:

As at As at As at 31 December 31 December 31 December 2017 2016 2015 Current assets ...... 940 736 734 Non-current assets ...... 686 670 751 Total assets ...... 1,626 1,406 1,485 Current liabilities ...... (864) (560) (658) Non-current liabilities ...... (548) (634) (623) Total liabilities ...... (1,412) (1,194) (1,281) Equity ...... 214 212 204

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Revenue ...... 1,539 1,221 1,278 Net loss ...... (122) (120) (191) NBH cash and cash equivalents as at 31 December 2017, 2016 and 2015 amounted to $26, $52 and $60, respectively. NBH financial liabilities excluding trade and other accounts payable as at 31 December 2017, 2016 and 2015 amounted to $794, $671 and $715, respectively, and are included in current and non-current liabilities.

F-101 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

4 Investments in joint ventures (continued) Reconciliation of net assets of NBH, calculated in accordance with its consolidated financial statements, to the carrying amount of the investment is below.

2017 2016 2015 Net assets as at 1 January ...... 29 4 28 Net loss for the year ...... (97) (111) (178) Proportional contributions into share capital ...... ——43 Conversion of debt to equity ...... 84 139 110 Other comprehensive income ...... — 1 1 Translation adjustment ...... 3 (4) — Net assets as at 31 December ...... 19 29 4 PP&E valuation difference ...... 195 183 200 Adjusted net assets as at 31 December ...... 214 212 204 As at 31 December: Share in net assets ...... 109 108 104 Excess of fair value of investment in NBH as at the deconsolidation date ...... 104 104 104 Accumulated share of the other investor in conversion of debt to equity ...... 218 177 109 Accumulated impairment of investments ...... (240) (240) (240) Share of unrealised profit in inventory ...... (34) (5) — Cumulative translation adjustment ...... 37 27 32 Investments in NBH ...... 194 171 109

The other investor in NBH is SOGEPA, a Belgian state-owned company. In March 2015, the Group and SOGEPA signed an agreement providing for the increase of SOGEPA’s stake in NBH from 20.5% to 49% and on further joint management of NBH’s businesses. The Group reflected the disposal of its 28.5% stake in NBH (loss on the disposal amounting to $21) and derecognition of certain financial instruments previously included in other long-term liabilities (gain amounting to $76) in ‘‘(Losses)/gains on investments, net’’ line of the consolidated statement of profit or loss for the year ended 31 December 2015 in the net amount of $55. In March 2015, in accordance with the agreement, the Group and SOGEPA made additional pro-rata contributions to the share capital of NBH of $22 and $21, respectively. The Group and SOGEPA also agreed to support NBH in obtaining financing of its working capital. In December 2017, the Group converted existing loans to NBH into share capital in the amount of $84 (in June 2016: $139; in December 2015: $110). These contributions were also a part of the agreement signed in March 2015 and did not further change the Group’s share in NBH. Information about the Group’s operations with NBH and investment impairment testing is disclosed in Notes 23 and 8, respectively.

F-102 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

5 Financial investments

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Short-term financial investments Bank deposits (Note 22 (c)) —Russian rubles ...... 6 1 15 —US dollars ...... 1,051 855 1,091 —Euros ...... — 42 66 Total bank deposits ...... 1,057 898 1,172 Loans to related parties (Note 23) ...... 222 66 65 Other short-term financial investments ...... 5 6 6 1,284 970 1,243 Long-term financial investments Loans to related parties (Note 23) ...... — 164 220 Bank deposits ...... 2 — — 2 164 220 1,286 1,134 1,463

The fair value of short-term financial investments equals their carrying amount. The fair values of long-term financial investments approximate their carrying amount.

6 Trade and other accounts receivable

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Financial assets Trade accounts receivable ...... 996 693 613 Allowance for impairment of trade accounts receivable ...... (23) (24) (16) Other accounts receivable ...... 29 25 40 Allowance for impairment of other accounts receivable ...... (20) (18) (15) 982 676 622 Non-financial assets Advances given to suppliers ...... 58 54 54 Allowance for impairment of advances given to suppliers ...... (3) (2) (4) VAT and other taxes receivable ...... 190 225 247 Accounts receivable from employees ...... 1 2 2 246 279 299 1,228 955 921

Due to the short-term nature of trade and other accounts receivable, their carrying amount is considered to be the same as their fair value. As at 31 December 2017, 2016 and 2015, accounts receivable of $160, $122 and $74, respectively, served as collateral for certain borrowings (Note 11).

F-103 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

6 Trade and other accounts receivable (continued) Movements in the allowance for impairment of financial receivables are as follows:

2017 2016 2015 As at 1 January ...... (42) (31) (49) Allowance for impairment recognised ...... (11) (16) (28) Accounts receivable written-off ...... 4 2 21 Allowance for impairment reversed ...... 6 8 14 Disposal of subsidiary ...... 3 — — Translation adjustment ...... (3) (5) 11 As at 31 December ...... (43) (42) (31)

7 Inventories

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Raw materials ...... 830 705 522 Work in process ...... 603 460 400 Finished goods ...... 514 443 341 1,947 1,608 1,263 Impairment allowance ...... (68) (59) (58) 1,879 1,549 1,205

As at 31 December 2017, 2016 and 2015 inventories of $423, $296 and $304, respectively, served as collateral for certain borrowings (Note 11). Cost of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2017, 2016 and 2015 amounted to $4,676, $3,443 and $3,488, respectively. Cost of fuel and energy resources in cost of sales for the years ended 31 December 2017, 2016 and 2015 amounted to $651, $552 and $601, respectively.

F-104 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment

Land and Machinery buildings and Construction Land Buildings improvements equipment Vehicles in progress Total Cost at 1 January 2015 ...... 131 1,712 1,435 6,434 270 906 10,888 Accumulated depreciation and impairment — (652) (671) (3,789) (161) — (5,273) Net book value at 1 January 2015 ...... 131 1,060 764 2,645 109 906 5,615 Additions ...... — — — — — 640 640 Disposals ...... (1) (1) (4) (12) (2) (33) (53) Impairment ...... — (14) (7) (27) (11) — (59) Transfers ...... 1 30 38 225 15 (309) — Depreciation charge ...... — (40) (46) (396) (24) — (506) Translation adjustment ...... (30) (218) (119) (543) (21) (254) (1,185) Cost at 31 December 2015 ...... 101 1,378 1,687 4,687 219 950 9,022 Accumulated depreciation and impairment — (561) (1,061) (2,795) (153) — (4,570) Net book value at 31 December 2015 .... 101 817 626 1,892 66 950 4,452 Additions ...... — — — — — 540 540 Disposals ...... — (1) (1) (4) — (6) (12) Transfers ...... — 159 118 526 21 (824) — Depreciation charge ...... — (34) (46) (350) (19) — (449) Translation adjustment ...... 20 156 115 294 14 198 797 Cost at 31 December 2016 ...... 121 1,799 2,113 5,994 266 858 11,151 Accumulated depreciation and impairment — (702) (1,301) (3,636) (184) — (5,823) Net book value at 31 December 2016 .... 121 1,097 812 2,358 82 858 5,328 Additions ...... — — — — — 585 585 Disposals ...... — — (4) (1) — (6) (11) Impairment ...... — — — — — (8) (8) Transfers ...... — 171 110 314 23 (618) — Depreciation charge ...... — (52) (76) (471) (18) — (617) Translation adjustment ...... 7 58 44 115 4 44 272 Cost at 31 December 2017 ...... 128 2,057 2,328 6,533 279 855 12,180 Accumulated depreciation and impairment — (783) (1,442) (4,218) (188) — (6,631) Net book value at 31 December 2017 .... 128 1,274 886 2,315 91 855 5,549

The amount of borrowing costs capitalised is $37, $37 and $51 for the years ended 31 December 2017, 2016 and 2015, respectively. The capitalisation rate was 3.7%, 4.1% and 4.4% in 2017, 2016 and 2015, respectively. The Group management made an analysis of impairment indicators of the Group’s assets as at 30 September 2017. High volatility on the market of finished products and main raw materials (coal and ore) triggered impairment assessment of some of the Group’s assets, while positive trends on the steel market in the second half of 2017 caused by increases in metal prices, particularly in Russia and the USA, represented triggers for potential reversal of previously recognised impairment losses, which required the reassessment of the recoverable amounts of certain assets using the income approach based primarily on Level 3 inputs as at 31 December 2017. Goodwill was also tested for impairment as of the same date. Testing for impairment in the comparative periods was caused by a deterioration in the steel market and was conducted as of 31 October 2016 and 31 December 2015. For the purpose of the impairment test, the Group management used a forecast of cash flows for six years due to the relatively long useful lives of steel making equipment, and normalised cash flows for a post-forecast period.

F-105 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment (continued) The table below summarises cash generating units (further—‘‘CGUs’’) and types of assets, subject to determination of the recoverable amount as of 31 December 2017, major assumptions and their sensitivity used in the impairment models. Sales price in this estimate is an average annual growth rate, over the 6-year (31 October 2016: 7-year; 31 December 2015: 7-year) forecast period based on current industry trends and including long-term inflation forecasts for each territory. Sales volume is an average annual growth rate over the 6-year (31 October 2016: 7-year; 31 December 2015: 7-year) forecast period; based on past performance and management’s expectations of market development. Discount rate reflects specific risks relating to the relevant segments and the countries in which they operate. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying values. As of 31 December 2017 testing showed neither impairment, nor reversal of previously recognised impairment loss.

Sensitivity, Average sale % of change Discount price*, $ per Sales Sales Discount CGU Asset type rate, % Product types tonne (FCA) Price volume rate NLMK Belgium Holdings S.A...... Investment 9% Flat products 687 0.0% 0.3% 0.0% and plate NLMK Pennsylvania LLC . . . Property, plant 11% Flat products 737 5% 38% 9% and equipment JSC Stoilensky GOK ...... Property, plant 15% Iron ore and 54 44% 61% 35% and pellets equipment JSC Stoilensky GOK ...... Goodwill 15% Iron ore and 54 43% 63% 33% pellets JSC NLMK-Ural ...... Property, plant 15% Long products 461 0.1% 0.4% 0.2% and and semi- equipment finished goods LLC NLMK-Kaluga ...... Property, plant 14% Long-products 467 0.4% 4% 0.3% and and semi- equipment finished goods NLMK DanSteel A/S ...... Property, plant 9% Plate 692 2% 10% 2% and equipment

* Weighted average prices based on the forecast product mix, averaged for the period from 2018 to 2023 The table below summarises CGUs and types of assets, subject to determination of the recoverable amount as of 31 October 2016, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined based on forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying

F-106 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment (continued) values. As of 31 October 2016 testing showed neither impairment, nor reversal of previously recognised impairment loss.

Sensitivity, Average sale % of change Discount price*, $ per Sales CGU Asset type rate, % Product types tonne (FCA) Price volume NLMK Pennsylvania LLC ..... Property, plant and 11% Flat products 705 2% 17% equipment NLMK Indiana LLC . . . Property, plant and 10% Flat products 582 1% 7% equipment NLMK Indiana LLC . . . Goodwill 10% Flat products 582 1% 6% Scrap collecting assets in Russian long products segment . . Property, plant and 15% Metal scrap 237 0.05% 0.2% equipment JSC NLMK-Ural ...... Property, plant and 15% Long products and 452 1% 2% equipment semi-finished goods LLC NLMK-Kaluga . . . Property, plant and 14% Long-products and 429 0.04% 0.4% equipment semi-finished goods NLMK DanSteel A/S . . Property, plant and 9% Plate 685 0.3% 2% equipment

* Weighted average prices based on the forecast product mix, averaged for the period from November 2017 to 2023 The table below summarises CGUs and types of assets, subject to impairment test as of 31 December 2015, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined based on forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their carrying values. As of 31 December 2015 impairment testing showed that recoverable amount of property, plant and equipment (value in use) of scrap collecting assets in Russian long products segment and JSC NLMK-Ural was below its carrying

F-107 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

8 Property, plant and equipment (continued) amount by $24 and $35, respectively. Impairment testing also showed impairment of goodwill in NLMK Indiana LLC by $14.

Sensitivity, Average sale % of change Discount price*, $ per Sales CGU Asset type rate, % Product types tonne (FCA) Price volume JSC Stoilensky GOK . . . Property, plant 15% Iron ore 44 43% 56% and equipment and intangible assets JSC Stoilensky GOK . . . Goodwill 15% Iron ore 44 36% 47% NLMK Property, plant 10% Flat products 646 3% 22% Pennsylvania LLC ..... and equipment NLMK Indiana LLC . . . Property, plant 10% Flat products 540 0.4% 3% and equipment NLMK Indiana LLC . . . Goodwill 10% Flat products 540 +0.3% +2% JSC Altai-Koks ...... Property, plant 16% Coke, chemical 172 15% 40% and equipment products JSC Altai-Koks ...... Goodwill 16% Coke, chemical 172 13% 35% products Scrap collecting assets in Property, plant 14% Metal scrap 171 +3% — Russian long products and equipment segment ...... JSC NLMK-Ural ...... Property, plant 14% Long products and 344 +1% +2% and equipment semi-finished goods LLC NLMK-Kaluga . . . Property, plant 14% Long-products and 353 0.2% 1% and equipment semi-finished goods LLC NLMK-Metalware . Property, plant 15% Metalware 464 7% 31% and equipment NLMK DanSteel A/S . . Property, plant 9% Plate 630 1% 5% and equipment

* Weighted average prices based on the forecast product mix, averaged for the period from 2016 to 2022

F-108 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

9 Intangible assets

Industrial Beneficial Mineral Customer intellectual lease Goodwill rights base property interest Total Cost at 1 January 2015 ...... 285 359 148 30 9 831 Accumulated amortisation and impairment . . — (217) (110) (25) (1) (353) Net book value at 1 January 2015 ...... 285 142 38 5 8 478 Amortisation charge ...... — (7) (38) (5) — (50) Impairment ...... (14) — — — — (14) Translation adjustment ...... (56) (31) — — — (87) Cost at 31 December 2015 ...... 229 277 — — 9 515 Accumulated amortisation and impairment . . (14) (173) — — (1) (188) Net book value at 31 December 2015 ...... 215 104 — — 8 327 Amortisation charge ...... — (7) — — — (7) Translation adjustment ...... 38 21 — — — 59 Cost at 31 December 2016 ...... 267 333 — — 9 609 Accumulated amortisation and impairment . . (14) (215) — — (1) (230) Net book value at 31 December 2016 ...... 253 118 — — 8 379 Additions ...... — — — 10 — 10 Amortisation charge ...... — (7) — — — (7) Translation adjustment ...... 12 6 — — — 18 Cost at 31 December 2017 ...... 279 351 — 10 9 649 Accumulated amortisation and impairment . . (14) (234) — — (1) (249) Net book value at 31 December 2017 ...... 265 117 — 10 8 400

The intangible assets were acquired in business combinations and met the criteria for separate recognition. They were recorded at fair values at the date of acquisition, based on their appraised values. Mineral rights include a license for iron ore and non-metallic minerals mining of Stoilensky iron-ore deposit in Belgorod Region expiring in 2040, with the carrying value of $86, $86 and $76 as at 31 December 2017, 2016 and 2015, respectively. Goodwill arising on acquisitions was allocated to the appropriate business segments in which the respective acquisitions took place. Allocation of net book value of goodwill to each segment is as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Russian flat products ...... 176 167 139 NLMK USA...... 21 21 21 Russian long products ...... 3 3 3 Mining ...... 65 62 52 265 253 215

F-109 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

9 Intangible assets (continued) Goodwill impairment testing The Group tested goodwill for impairment as at 31 December 2017, 31 October 2016 and 31 December 2015. For the purpose of annual impairment testing of goodwill related to CGUs JSC Altai-Koks, LLC VIZ-Steel and LLC NLMK Indiana as at 31 December 2017, management decided to use the previous detailed calculations of these CGUs’ recoverable amounts prepared as at 31 October 2016 as there were no significant changes in the underlying businesses. The recoverable amount has been determined as value in use of the respective assets. For the purpose of this impairment testing, the Group used the same assumptions and estimates as for other assets, as disclosed in Note 8. Impairment testing showed no impairment of goodwill as at 31 December 2017 and 31 October 2016 and showed impairment of goodwill related to NLMK Indiana LLC by $14 as at 31 December 2015.

10 Trade and other accounts payable

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Financial liabilities Trade accounts payable ...... 600 522 342 Other accounts payable ...... 30 16 16 630 538 358 Non-financial liabilities Accounts payable and accrued liabilities to employees ...... 156 179 105 Advances received ...... 153 130 63 Taxes payable other than income tax ...... 90 41 39 399 350 207 1,029 888 565

Due to the short-term nature of trade and other accounts payable, their carrying amount is considered to be the same as their fair values.

11 Borrowings

As at As at As at Rates Currency Maturity 31 December 2017 31 December 2016 31 December 2015 Bonds 8.05% to 11.10% ...... RUR 2017 — 168 350 4.00% to 4.95% ...... USD 2018–2024 1,501 1,318 1,196 Loans LIBOR +2.00% ...... USD 2021 94 332 583 EURIBOR +0.90% to EURIBOR +2.00% ...... EUR 2018–2022 686 451 547 2,281 2,269 2,676 Less: short-term borrowings and current maturities of long-term borrowings .... (380) (468) (560) Long-term borrowings ..... 1,901 1,801 2,116

F-110 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

11 Borrowings (continued) The carrying amounts and fair value of long-term bonds are as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value Bonds ...... 1,346 1,385 1,307 1,325 1,316 1,301

The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings approximate their carrying amount. The fair values of bonds are based on market price and are within level 1 of the fair value hierarchy. The Group has complied with the financial and non-financial covenants of its borrowing facilities during the years ended 31 December 2017, 2016 and 2015. The long-term borrowings mature as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 1–2 year ...... 228 586 360 2–5 years ...... 473 501 1,719 over 5 years ...... 1,200 714 37 1,901 1,801 2,116

Collateral As at 31 December 2017, 2016 and 2015, the loan facilities were secured by inventories and accounts receivable in the total amount of $583, $418 and $378, respectively (Notes 6, 7).

Net debt reconciliation

Short-term Long-term Cash and cash Short-term borrowings borrowings equivalents bank deposits Net debt Balance at 31 December 2016 ...... (468) (1,801) 610 898 (761) Cash flows ...... 207 (32) (314) 135 (4) Interest accrued ...... (88) — — 23 (65) Foreign exchange difference ...... (6) 32 (4) (54) (32) Translation adjustment ...... (25) (100) 9 55 (61) Balance at 31 December 2017 ...... (380) (1,901) 301 1,057 (923)

12 Shareholders’ equity (a) Shares As at 31 December 2017, 2016 and 2015, the Parent Company’s share capital consisted of 5,993,227,240 issued common shares, with a par value of 1 Russian ruble each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

(b) Dividends Dividends are paid on common shares at the recommendation of the Board of Directors and approval at a General Shareholders Meeting, subject to certain limitations as determined by the Russian legislation. Profits available for distribution to the shareholders in respect of any reporting period are determined by reference to the statutory financial statements of the Parent Company. As at 31 December 2017, 2016 and

F-111 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

12 Shareholders’ equity (continued) 2015, the retained earnings of the Parent Company, available for distribution in accordance with the legislative requirements of the Russian Federation, amounted to $5,728, $5,024 and $4,361, converted into US dollars using exchange rates at 31 December 2017, 2016 and 2015, respectively. According to the Group’s dividend policy, the Group pays dividends on a quarterly basis as follows: • if Net Debt/EBITDA for the preceding 12 months is 1.0x or less: dividends are in range with the boundaries of 50% of net profit and 50% of free cash flow calculated based on IFRS consolidated financial statements; • if Net Debt/EBITDA for the preceding 12 months exceeds 1.0x: dividends are in range with the boundaries of 30% of net profit and 30% of free cash flow calculated based on IFRS consolidated financial statements. Dividends, declared by the Parent Company and translated at the historical rate as of the announcement date, are as in the table below.

2017 2016 2015 Declaration Total Total Total period Per share* amount Per share* amount Per share* amount For the 4th quarter of previous year . . . June 3.38 358 2.43 218 1.56 170 For the 1st quarter of current year .... June 2.35 249 1.13 102 1.64 179 For the 2nd quarter of current year .... September 3.20 328 1.08 102 0.93 84 For the 3rd quarter of current year .... December 5.13 525 3.63 357 1.95 164 1,460 779 597

* Dividends per share are shown in Russian rubles.

(c) Capital management The Group’s objectives when managing capital are to safeguard financial stability and a target return for the shareholders, as well as the reduction of cost of capital and optimisation of its structure. To achieve these objectives, the Group may revise its investment program, borrow new or repay existing loans, offer equity or debt instruments on capital markets. When managing capital, the Group uses the following indicators: • the return on invested capital ratio, which is defined as operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment less tax divided by capital employed for the last twelve months, should exceed cost of capital; • the net debt to EBITDA ratio, which is defined as total debt less cash and cash equivalents and short-term bank deposits divided by operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment less depreciation and amortization for the last twelve months; • free cash flow, which is defined as net cash provided by operating activities less net interest paid less capital expenditures, should be positive. There were no changes in the Group’s approach to capital management during the reporting period.

F-112 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

13 Earnings per share

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Profit for the year attributable to the NLMK shareholders (millions of US dollars) ...... 1,450 935 967 Weighted average number of shares ...... 5,993,227,240 5,993,227,240 5,993,227,240 Basic earnings per share (US dollars) ...... 0.2419 0.1560 0.1613

Basic net earnings per share is calculated by dividing profit for the year attributable to the NLMK shareholders by the weighted average number of common shares outstanding during the reporting period. NLMK does not have potentially dilutive financial instruments during the years ended 31 December 2017, 2016 and 2015. The average shares outstanding for the purposes of basic earnings per share information was 5,993,227,240 for the years ended 31 December 2017, 2016 and 2015.

14 Revenue (a) Revenue by product

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Flat products ...... 5,674 4,325 4,366 Pig iron, slabs and billets ...... 2,612 1,887 2,207 Long products and metalware ...... 1,090 838 809 Coke and other chemical products ...... 346 210 229 Scrap ...... 75 55 47 Iron ore and sintering ore ...... — 147 166 Other products ...... 268 174 184 10,065 7,636 8,008

(b) Revenue by geographical area The allocation of total revenue by geographical area is based on the location of end customers who purchased the Group’s products. The Group’s total revenue from external customers by geographical area is as follows:

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Russia ...... 3,887 3,077 3,146 North America ...... 1,932 1,328 1,357 European Union ...... 1,730 1,373 1,603 Middle East, including Turkey ...... 1,083 629 684 Asia and Oceania ...... 277 317 374 Other regions ...... 1,156 912 844 10,065 7,636 8,008

Other regions are represented by countries from Central America, South America and the CIS. The Group does not have customers with a share of more than 10% of the total revenue.

F-113 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

15 Labour costs The Group’s labour costs, including social security costs, which are included in the corresponding lines of the consolidated statement of profit or loss, were as indicated below.

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Cost of sales ...... 711 602 608 General and administrative expenses ...... 221 194 154 Selling expenses ...... 28 28 31 960 824 793

Remuneration of the key management personnel that comprises payments to members of the Management Board and the Board of Directors of the Parent Company, is recorded within general and administrative expenses and includes annual compensation and performance bonus contingent on the Group’s results for the reporting year and a provision for long-term incentive plan for the Group’s strategic targets in 2017–2018. Total remuneration of the key management personnel, including social security costs amounted to $24, $31 and $11 in 2017, 2016 and 2015, respectively. As at 31 December 2017 accrued liabilities to key management personnel related to long-term incentive plan and recorded within other long-term liabilities amounted to $9.

16 Taxes, other than income tax Allocation of taxes, other than income tax to the functional items of consolidated statement of profit or loss is indicated below.

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Cost of sales ...... 70 64 67 General and administrative expenses ...... 3 2 4 Other operating expenses ...... 7 4 5 80 70 76

17 Income tax Income tax charge comprises the following:

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Current income tax expense ...... (374) (237) (301) Deferred income tax benefit/(expense) ...... 3 4 (52) Total income tax expense ...... (371) (233) (353)

The corporate income tax rate applicable to the Group entities located in Russia, is predominantly 20%. The corporate income tax rate applicable to income of foreign subsidiaries ranges from 11% to 35%.

F-114 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued) Profit before income tax is reconciled to the income tax expense as follows:

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Profit before income tax ...... 1,823 1,172 1,321 Income tax at applicable tax rate 20% ...... (365) (234) (264) Change in income tax: —tax effect of non-deductible expenses ...... (16) (13) (27) —non-taxable translation adjustments ...... (2) (5) 17 —effect of different tax rates ...... 5 — 32 —unrecognized deferred tax asset on investments in joint ventures ...... (21) (20) (36) —unrecognised tax loss carry forward for the year ...... (3) (2) (83) —utilisation of previously unrecognised tax loss carry forward ...... 50 51 — —change in option and in NBH ownership .... — — 19 —write-off of previously recognised deferred tax assets ...... (19) (21) (10) —other ...... — 11 (1) Total income tax expense ...... (371) (233) (353)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities, are presented below:

As at Charged/(credited) Translation As at 31 December 2017 to profit or loss adjustment 1 January 2017 Deferred tax assets Trade and other accounts payable ...... 21 (5) 2 24 Trade and other accounts receivable .... 14 (1) 1 14 Inventories ...... 23 22 1 — Tax losses carried forward ...... 30 (36) 1 65 88 (20) 5 103 Deferred tax liabilities Property, plant and equipment ...... (410) 15 (17) (408) Other intangible assets ...... (11) (3) — (8) Inventories ...... — 11 — (11) (421) 23 (17) (427) Total deferred tax liability, net ...... (333) 3 (12) (324)

F-115 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued)

As at Charged/(credited) Translation As at 31 December 2016 to profit or loss adjustment 1 January 2016 Deferred tax assets Trade and other accounts payable ...... 24 (124) 74 74 Trade and other accounts receivable .... 14 20 (9) 3 Tax losses carried forward ...... 65 149 (84) — Other ...... — (36) 20 16 103 9 1 93 Deferred tax liabilities Property, plant and equipment ...... (408) (21) (45) (342) Other intangible assets ...... (8) 3 (3) (8) Inventories ...... (11) 9 (7) (13) Other non-current liabilities ...... — 4 (3) (1) (427) (5) (58) (364) Total deferred tax liability, net ...... (324) 4 (57) (271)

As at Charged/(credited) Translation As at 31 December 2015 to profit or loss adjustment 1 January 2015 Deferred tax assets Trade and other accounts payable ...... 74 (18) (9) 101 Trade and other accounts receivable .... 3 (10) (3) 16 Inventories ...... — (21) (4) 25 Tax losses carried forward ...... — (13) (2) 15 Other ...... 16 3 (1) 14 93 (59) (19) 171 Deferred tax liabilities Property, plant and equipment ...... (342) 12 76 (430) Other intangible assets ...... (8) (1) 2 (9) Inventories ...... (13) (14) 1 — Other non-current liabilities ...... (1) 10 3 (14) (364) 7 82 (453) Total deferred tax liability, net ...... (271) (52) 63 (282)

The amount of tax loss carry forwards that can be utilised each year is limited under the Group’s different tax jurisdictions. The Group regularly evaluates assumptions underlying its assessment of the realisability of its deferred tax assets and makes adjustments to the extent necessary. In assessing the probability that future taxable profit against which the Group can utilise the potential benefit of the tax loss carry forwards will be available, management considers the current situation and the future economic benefits outlined in specific business plans for each subsidiary. Deferred tax assets are recorded only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised.

F-116 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

17 Income tax (continued) The table below summarises unused cumulative tax losses for which no deferred tax assets has been recognised, with a breakdown by the expiry dates.

As at As at As at 31 December 2017 31 December 2016 31 December 2015 From 1 to 5 years ...... 99 211 294 From 5 to 10 years ...... 115 98 376 More than 10 years ...... 749 828 851 No expiration ...... 1,486 1,398 977 Total ...... 2,449 2,535 2,498

The unused tax losses were incurred mostly by subsidiaries located in Europe. The Group has not recorded a deferred tax liability in respect of temporary differences of $1,569, $1,448 and $908 for the years ended 31 December 2017, 2016 and 2015, respectively, associated with investments in subsidiaries and joint ventures as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future. In accordance with the statutory legislation, the Group’s entities in Russia (major entities, including NLMK) and USA were integrated in two separate consolidated groups of taxpayers for the purpose of assessment and payment of corporate income tax in line with the combined financial result of business operations. The Group’s entities that are not part of the consolidated groups of taxpayers assess their income taxes individually. As at 31 December 2017, 2016 and 2015, the Group analysed its tax positions for uncertainties affecting recognition and measurement thereof. Following the analysis, the Group believes that all deductible tax positions which form the basis for income tax returns of the Group companies, are recognised and measured in accordance with the applicable tax legislation.

18 Finance income and costs

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Interest income on bank accounts and bank deposits ...... 23 29 45 Other finance income ...... 6 10 7 Total finance income ...... 29 39 52 Interest expense on borrowings ...... (88) (104) (119) Capitalised interest ...... 23 33 32 Other finance costs ...... (22) (34) (8) Total finance costs ...... (87) (105) (95)

F-117 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

19 Foreign exchange differences

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Foreign exchange (loss)/gain on cash and cash equivalents ...... (3) (84) 45 Foreign exchange (loss)/gain on financial investments ...... (56) (434) 542 Foreign exchange gain/(loss)on debt financing . . . 28 393 (415) Foreign exchange gain/(loss) on other assets and liabilities ...... 48 (4) (62) 17 (129) 110

20 Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Within 1 year ...... 10 9 7 From 1 to 5 years ...... 35 33 28 After 5 years ...... 16 20 23 Total commitments for minimum lease payments .. 61 62 58

In 2017, 2016 and 2015 total rental expenses relating to operating leases were equal to $11, $7 and $5, respectively.

21 Segment information The Group management examines the Group’s performance both from a product and geographic perspective and has identified six reportable segments of its business: Mining, Russian flat products, Russian long products, NLMK USA, NLMK DanSteel and Plates Distribution Network, and Investments in NBH. Each of these segments represents a combination of subsidiaries (except for Investments in NBH—see Note 4), offers its own products, has a separate management team and is managed separately with relevant results reviewed on a monthly basis by the Group’s Management Board which is the Chief Operating Decision Maker as defined by IFRS 8, Segment Reporting. The Group management determines pricing for intersegmental sales, as if the sales were to third parties. The revenue from external parties is measured in the same way as in the consolidated statement of profit or loss. The Group management evaluates performance of the segments based on segment revenues, gross profit, operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment, profit for the year and amount of total assets and total liabilities. Elimination of intersegmental operations and balances represents elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within ‘‘Profit for the year’’ line together with other intercompany elimination adjustments, including elimination of NBH’s liabilities to the Group companies (Note 23). NBH deconsolidation adjustments include elimination of NBH’s sales, recognition of the Group’s sales to NBH and elimination of unrealised profits (Notes 4, 23), elimination of NBH’s assets and liabilities and recognition of the investment in joint venture (Note 4), recognition of impairment and share of NBH’s loss, and other consolidation adjustments.

F-118 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

21 Segment information (continued) Information on the segments’ profit or loss for the year ended 31 December 2017 and their assets and liabilities as of this date is as follows:

NLMK Elimination of DanSteel intersegmental Russian Russian and Plates operations NBH flat long NLMK Distribution Investments and deconsolidation Mining products products USA Network in NBH balances adjustments Total Revenue from external customers ...... 24 5,595 1,391 1,670 415 1,473 — (503) 10,065 Intersegment revenue . . 920 2,064 403 — 1 66 (3,388) (66) — Cost of sales ...... (356) (5,320) (1,522) (1,459) (372) (1,495) 3,228 498 (6,798) Gross profit ...... 588 2,339 272 211 44 44 (160) (71) 3,267 Operating profit/(loss)* . 524 1,357 77 139 (6) (99) (33) 72 2,031 Net finance income/ (costs) ...... 12 (52) (5) (9) (4) (17) — 17 (58) Income tax (expense)/ benefit ...... (92) (279) (13) 4 (21) 15 30 (15) (371) Profit/(loss) for the year . 403 1,586 56 133 (32) (122) (576) 4 1,452 Segment assets ...... 2,041 7,990 1,210 891 339 1,626 (1,728) (1,373) 10,996 Segment liabilities .... (479) (4,288) (580) (367) (303) (1,412) 2,179 900 (4,350) Depreciation and amortisation ...... (118) (365) (75) (58) (8) (75) — 75 (624) Capital expenditures . . . (116) (422) (22) (28) (15) (27) — 27 (603)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment. Information on the segments’ profit or loss for the year ended 31 December 2016 and their assets and liabilities as of this date is as follows:

NLMK Elimination of DanSteel intersegmental Russian Russian and Plates operations NBH flat long NLMK Distribution Investments and deconsolidation Mining products products USA Network in NBH balances adjustments Total Revenue from external customers ...... 166 4,272 1,020 1,162 324 1,176 — (484) 7,636 Intersegment revenue . . 431 1,315 274 — 1 45 (2,021) (45) — Cost of sales ...... (218) (3,725) (1,052) (991) (292) (1,164) 1,897 471 (5,074) Gross profit ...... 379 1,862 242 171 33 57 (124) (58) 2,562 Operating profit/(loss)* . 275 1,047 91 117 (7) (77) (36) 77 1,487 Net finance income/ (costs) ...... 13 (60) (3) (13) (3) (19) — 19 (66) Income tax (expense)/ benefit ...... (48) (205) (4) 8 1 5 15 (5) (233) Profit/(loss) for the year . 190 660 89 111 (10) (120) (40) 59 939 Segment assets ...... 1,903 7,430 1,171 742 285 1,406 (1,484) (1,214) 10,239 Segment liabilities .... (312) (3,939) (591) (302) (288) (1,194) 1,932 765 (3,929) Depreciation and amortisation ...... (43) (297) (47) (61) (8) (75) — 75 (456) Capital expenditures . . . (218) (301) (16) (19) (5) (21) — 21 (559)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment.

F-119 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

21 Segment information (continued) Information on segments’ profit or loss for the year ended 31 December 2015 and their assets and liabilities on this date is as follows:

NLMK Elimination of DanSteel intersegmental Russian Russian and Plates operations NBH flat long NLMK Distribution Investments and deconsolidation Mining products products USA Network in NBH balances adjustments Total Revenue from external customers ...... 184 4,732 858 1,098 343 1,221 — (428) 8,008 Intersegment revenue . . 405 1,344 293 — 1 57 (2,043) (57) — Cost of sales ...... (226) (4,004) (1,025) (1,192) (321) (1,121) 2,064 329 (5,496) Gross profit/(loss) ..... 363 2,072 126 (94) 23 157 21 (156) 2,512 Operating profit/(loss)* . 257 1,199 (16) (155) (11) (172) 113 172 1,387 Net finance income/ (costs) ...... 16 1 (26) (30) (4) (20) — 20 (43) Income tax (expense)/ benefit ...... (71) (253) 2 6 1 7 (38) (7) (353) Profit/(loss) for the year . 278 1,285 (93) (192) (14) (191) (193) 88 968 Segment assets ...... 1,477 7,456 951 744 288 1,485 (2,125) (1,358) 8,918 Segment liabilities ..... (326) (3,603) (565) (1,101) (284) (1,281) 2,604 775 (3,781) Depreciation and amortisation ...... (41) (378) (65) (62) (10) (80) — 80 (556) Capital expenditures . . . (281) (266) (25) (20) (3) (39) — 39 (595)

* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment. Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA and Europe. The following is a summary of non-current assets other than financial instruments, investments in joint ventures and deferred tax assets by location:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Russian Federation ...... 5,512 5,242 4,260 USA...... 350 378 420 Denmark ...... 124 103 107 Other ...... 8 6 4 5,994 5,729 4,791

22 Risks and uncertainties (a) Operating environment of the Group The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations (Note 24(f)). The Russian economy was growing in 2017, after overcoming the economic recession of 2015 and 2016. The economy is negatively impacted by low oil prices, ongoing political developments in the region and international sanctions against certain Russian companies and individuals. The financial markets continue to be volatile. This environment may have a significant impact on the Group’s operations and financial position and the future effects of the current economic situation are difficult to predict therefore management’s current expectations and estimates could differ from actual results. Management is taking necessary measures to ensure sustainability of the Group’s operations.

F-120 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) The major financial risks inherent to the Group’s operations are those related to market risk, credit risk and liquidity risk. The objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits.

(b) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and commodity price risk.

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk of changes in market interest rates relates primarily to the Group’s long-term borrowings with variable interest rates. To manage this risk, the Group continuously monitors interest rate movements. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate borrowings. The interest rate risk profile of the Group is follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Fixed rate instruments Financial assets —cash and cash equivalents (Note 3) ...... 301 610 343 —financial investments (Note 5) ...... 1,286 1,134 1,463 —trade and other accounts receivable less allowance for impairment (Note 6) ...... 982 676 622 2,569 2,420 2,428 Financial liabilities —trade and other accounts payable (Note 10) . . . (630) (538) (358) —dividends payable ...... (537) (361) (161) —borrowings (Note 11) ...... (1,501) (1,486) (1,546) (2,668) (2,385) (2,065) Variable rate instruments Financial liabilities —borrowings (Note 11 ...... (780) (783) (1,130) (780) (783) (1,130)

A change of 100 basis points in interest rates for variable rate instruments would not have significantly affected profit for the year and equity.

Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The export-oriented companies of the Group are exposed to foreign currency risks. To minimise foreign currency risks, the export program is designed taking into account potential (forecast) major foreign currencies’ exchange fluctuations. The Group diversifies its revenues in different currencies. In its export

F-121 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) contracts, the Group controls the balance of currency positions: payments in foreign currency are settled with export revenues in the same currency. The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2017.

US dollar Euro Cash and cash equivalents ...... 21 92 Trade and other accounts receivable ...... 4 379 Financial investments ...... 1,057 222 Trade and other accounts payable ...... (49) (25) Borrowings ...... (1,501) (686) Net foreign currency position ...... (468) (18)

The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2016.

US dollar Euro Cash and cash equivalents ...... 414 50 Trade and other accounts receivable ...... 10 249 Financial investments ...... 861 272 Trade and other accounts payable ...... (57) (91) Borrowings ...... (1,519) (451) Net foreign currency position ...... (291) 29

The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between financial assets and financial liabilities denominated in a currency other than the functional currency of each entity at 31 December 2015.

US dollar Euro Cash and cash equivalents ...... 196 40 Trade and other accounts receivable ...... 3 304 Financial investments ...... 1,080 351 Trade and other accounts payable ...... (42) (95) Borrowings ...... (1,598) (547) Net foreign currency position ...... (361) 53

Sensitivity analysis Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes. A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2017, 2016 and 2015 would have increased/(decreased) equity by the amounts shown below, however effect

F-122 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) on profit for the year would be different, and would amount to $23, $45 and $88, respectively, due to foreign exchange gain from intercompany operations (Note 19).

As at As at As at 31 December 2017 31 December 2016 31 December 2015 US dollar ...... (117) (73) (90) Euro ...... (5) 7 13 A 25 percent weakening of these currencies against the functional currency would have had an equal but opposite effect to the amounts shown above, provided all other variables remain constant.

Commodity price risk Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results. The Group minimises its risks related to metal prices by having a wide range of geographical zones for sales, which allows the Group to respond quickly to negative changes in the situation on its existing markets on the basis of an analysis of the existing and prospective sales markets. One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products. To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

(c) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss for the Group. The Group is exposed to credit risk from its operating activities (primarily for outstanding receivables from customers) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. The Group controls the levels of credit risk it undertakes by assessing the degree of risk for each counterparty or groups of parties. Prior to acceptance of a new counterparty, management assesses the credit quality of a potential customer or financial institution and defines credit limits. Credit limits attributable to counterparties are regularly reviewed, at a minimum quarterly. The Group’s management on a monthly basis reviews ageing analysis of outstanding trade receivables and follows up on past due balances.

F-123 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued)

The Group’s maximum exposure to credit risk by class of assets reflected in the carrying amounts of financial assets on the consolidated statement of financial position is as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Cash and cash equivalents (Note 3) ...... 301 610 343 Trade and other accounts receivable (Note 6) ..... 982 676 622 Financial investments (Note 5) ...... 1,286 1,134 1,463 Total on-balance sheet exposure ...... 2,569 2,420 2,428 Financial guarantees issued (Note 23(d)) ...... 304 255 273 2,873 2,675 2,701

Analysis of trade accounts receivable, net of allowance for impairment, by credit quality, based on geographical area is as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 European Union ...... 380 279 289 Russia ...... 314 182 131 North America ...... 140 98 59 Middle East, including Turkey ...... 57 50 49 Asia and Oceania ...... 33 23 42 Other regions ...... 49 37 27 973 669 597

Other regions are represented by countries from Central America, South America and the CIS. Analysis by credit quality, based on international agencies’ credit rating, of bank balances and bank deposits is as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Bank balances and term deposits AAA–BBB ...... 199 517 244 BB–B ...... 99 91 96 Unrated and cash on hand ...... 3 2 3 301 610 343 Short-term and long-term bank deposits AAA–BBB ...... 724 396 756 BB–B ...... 335 502 416 1,059 898 1,172

F-124 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) As at 31 December 2017, ageing of trade and other receivables is as follows:

Trade and other receivables Allowance for Net of allowance Gross amount impairment for impairment Not past due ...... 869 — 869 Past due, including: ...... — —up to 1 month ...... 102 — 102 —from 1 to 3 months ...... 4— 4 —from 3 to 12 months ...... 8 (1) 7 —over 12 months ...... 42 (42) — Total ...... 1,025 (43) 982

As at 31 December 2016, ageing of trade and other receivables is as follows:

Trade and other receivables Allowance for Net of allowance Gross amount impairment for impairment Not past due ...... 624 — 624 Past due, including: ...... — —up to 1 month ...... 40 — 40 —from 1 to 3 months ...... 8 — 8 —from 3 to 12 months ...... 7 (3) 4 —over 12 months ...... 39 (39) — Total ...... 718 (42) 676

As at 31 December 2015, ageing of trade and other receivables is as follows:

Trade and other receivables Allowance for Net of allowance Gross amount impairment for impairment Not past due ...... 505 — 505 Past due, including: ...... — —up to 1 month ...... 86 — 86 —from 1 to 3 months ...... 17 — 17 —from 3 to 12 months ...... 18 (4) 14 —over 12 months ...... 27 (27) — Total ...... 653 (31) 622

(d) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources. The Group monitors its risk to a shortage of funds using a regular cash flow forecast. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases. To provide for sufficient cash balances required for settlement of its obligations in time the Group uses detailed budgeting and cash flow forecasting instruments.

F-125 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

22 Risks and uncertainties (continued) The table below analyses the Group’s short-term and long-term borrowings by their remaining corresponding contractual maturity. The amounts disclosed in the maturity table are the undiscounted cash outflows.

As at As at As at 31 December 31 December 31 December 2017 2016 2015 Less than 1 year ...... 348 536 752 From 1 to 2 years ...... 298 647 473 From 2 to 5 years ...... 735 609 1,800 Over 5 years ...... 1,255 762 38 Total borrowings ...... 2,636 2,554 3,063

Liquidity risk related to financial guarantees issued, is disclosed in Note 23(d). As at 31 December 2017, 2016 and 2015, the Group does not have significant trade and other accounts payable with maturity over one year and its carrying amount approximates its fair value.

(e) Insurance To minimize risks the Group concludes insurance policies which cover property damages and business interruptions, freightage, vehicles and commercial (trade) credits. In respect of legislation requirements, the Group purchases compulsory motor third party liability insurance, insurance of civil liability of organizations operating hazardous facilities. The Group also buys civil liability insurance of the members of self-regulatory organizations, directors and officers liability insurance, voluntary health insurance and accident insurance for employees of the Group.

23 Related party transactions Parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial or operational decisions as defined by IAS 24, Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group carries out operations with related parties on arm’s length.

(a) Sales to and purchases from related parties

For the year ended For the year ended For the year ended 31 December 2017 31 December 2016 31 December 2015 Sales NBH group companies ...... 970 692 793 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 1 1 2 Other related parties ...... 1 1 3 Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 335 330 325 NBH group companies ...... 66 45 57 Other related parties ...... 4 6 8

F-126 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

23 Related party transactions (continued) (b) Accounts receivable from and accounts payable to related parties

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Accounts receivable and advances given NBH group companies ...... 289 199 221 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 26 34 27 Accounts payable ...... NBH group companies ...... 25 16 18 Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) ...... 5 3 6 Other related parties ...... — — 1

(c) Financial transactions As at 31 December 2017, 2016 and 2015, loans issued to NBH group companies amounted to $222, $230 and $285, respectively. When issuing loans to the foreign companies of the Group and joint ventures, interest rate is determined using information on similar external deals subject to company’s internal credit rating.

(d) Financial guarantees issued As at 31 December 2017, 2016 and 2015, guarantees issued by the Group for borrowings received by NBH group companies amounted to $304, $255 and $273, respectively, which is the maximum potential amount of future payments, paid on demand of the guarantee. No amount has been accrued in these consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses the probability of cash outflows related to these guarantees, as low. The maturity of the guaranteed obligations is as follows:

As at As at As at 31 December 2017 31 December 2016 31 December 2015 Less than 1 year ...... 66 70 82 From 1 to 2 years ...... 238 5 14 Over 2 years ...... — 180 177 304 255 273

(e) Common control transfers In September 2015, the Parent Company completed the sale of its full controlling interest in OJSC North Oil and Gas Company (51.0%) to a company under common control for a cash consideration of $10 realising a gain of $10 upon deconsolidation of assets amounting to $20 and liabilities amounting to $20. The difference between transaction price and value of net assets is recorded in the line item ‘‘Disposal of assets to an entity under common control’’ of the consolidated statement of changes in equity. Revenue and profit of OJSC North Oil and Gas Company for the nine months ended 30 September 2015 were not material. This transaction was carried out in line with the Group’s strategy to dispose of its none-core assets portfolio.

F-127 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

24 Commitments and contingencies (a) Anti-dumping investigations The Group’s export trading activities are subject from time to time to compliance reviews by the regulatory authorities in the importers’ jurisdictions. The Group’s export sales prices were considered by local governments within several anti-dumping investigation frameworks. The Group takes steps to address negative effects of the current and potential anti-dumping investigations and participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any possible agreements and decisions as a result of anti-dumping investigations has been made in the consolidated financial statements.

(b) Litigation The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The Group management believes that any liability resulting from these legal actions will not significantly affect its financial position or results of operations, and no amount has been accrued in the consolidated financial statements.

(c) Environmental matters The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised in financial statements immediately. Potential liabilities, which might arise as a result of future changes in existing regulations, civil litigation or legislation, cannot be reasonably estimated. In the current enforcement climate under existing environmental legislation, management believes that the Group has met the Government’s federal and regional requirements concerning environmental matters, therefore, there are no significant liabilities for environmental damage and remediation.

(d) Capital commitments Management estimates the outstanding agreements in connection with equipment supply and construction works amounted to $629, $473 and $565 as at 31 December 2017, 2016 and 2015, respectively.

(e) Social commitments The Group makes contributions to mandatory and voluntary social programs. The Group’s social contributions, as well as local social programs, benefit the community at large and are not normally restricted to the Group’s employees. The Group has transferred certain social operations and assets to local authorities, however, the Group management expects that the Group will continue to fund certain social programs for the foreseeable future. These costs are recorded in the period they are incurred.

(f) Tax contingencies Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review by tax authorities of transactions without a clear business purpose or with tax-incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when the decision about the review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm’s length.

F-128 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

24 Commitments and contingencies (continued) Tax liabilities arising from transactions between companies within the Group are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the basis that these companies are not subject to Russian income tax, because they do not have a permanent establishment in Russia. This interpretation of the relevant legislation may be challenged. The Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). The CFC income may be subject to a 20% tax rate. Russian tax legislation does not provide definitive guidance in certain areas. Management currently estimates that the tax positions and interpretations that it has taken can probably be sustained. But there is a possible risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

(g) Major terms of loan agreements Certain of the loan agreements contain covenants that impose restrictions on the purposes for which the loans may be utilised, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or guarantees, obligations in respect of any future reorganisations procedures or bankruptcy of the borrowers, and also require that the borrowers maintain pledged assets to their current value and conditions. In addition, these agreements contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the borrowers, including cross-default provisions, as well as to legal claims in excess of certain amount, where reasonable expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill contractual obligations. The Group companies were in compliance with all debt covenants as at 31 December 2017, 2016 and 2015.

25 Significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The Group from one reporting period to another has consistently applied these accounting policies.

(a) Basis of consolidation Subsidiaries Subsidiaries are those entities that the Group controls because the Group has (a) power over the investees (that is, it can direct relevant activities of the investees that significantly affect their returns); (b) exposure, or rights, to variable returns from its involvement with the investees; and (c) the ability to use its power over the investees to affect the amount of investor returns. Subsidiaries are consolidated when the Group obtains control over an investee and terminates when the Group ceases to have control over the investee. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests, which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Parent Company’s equity. The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

F-129 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction-by-transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree. Goodwill is measured by deducting the net assets of an acquiree from the aggregate of: the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree, and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (‘‘negative goodwill’’) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement. Consideration transferred for an acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and similar professional services. Transaction costs related to an acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. All intercompany transactions, balances and unrealised gains on transactions between the Group companies are eliminated. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Parent Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Joint ventures Joint ventures are entities over which the Group has joint control over financial or operating policies. Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in joint ventures are initially recognised at cost (fair value of the consideration transferred). The Group uses the equity method of accounting to subsequent measurement for an investment in joint ventures. Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. The Group’s share of profits or losses of joint ventures after acquisition is recorded in the consolidated statement of profit or loss for the year as share of financial result of joint ventures. The Group’s share in the change of other comprehensive income after the acquisition is recorded within other comprehensive income as a separate line item. All other changes in the Group’s share of the carrying amount of net assets of the joint ventures are recognised in profit or loss within the share of financial results of the joint ventures, or consolidated statement of changes in equity depending on the substance of the change. However, when the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless this is required by law or it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses arising from transactions between the Group and its joint ventures are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. In the consolidated statement of financial position, the Group’s share in the joint venture is presented at the carrying amount inclusive of goodwill at the acquisition date and the Group’s share of post-acquisition profits and losses net of impairment loss.

F-130 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Disposals of subsidiaries and joint ventures When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured to its fair value as at the date of ceasing control or significant influence, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as a joint venture, or financial asset. In addition, any amounts previously recognised in other comprehensive income, in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss. At the date when the Group’s control ceases, it de-recognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognises profit or loss connected with the loss of control attributable to the former controlling stake. If the ownership interest in a joint venture is reduced but joint control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(b) Cash and cash equivalents Cash and cash equivalents include cash balances in hand, cash on current accounts with banks, bank deposits and other short-term highly liquid investments with original maturities of three months or less.

(c) Value added tax (VAT) Output value added tax arising upon the sale of goods (performance of work, provision of services) is payable to the tax authorities on the earlier of: (a) collection of receivables from customers; or (b) delivery of goods (work, services) or property rights to customers. VAT is excluded from revenue. Input VAT on goods and services purchased (received) is generally recoverable against output VAT upon receipt of the VAT invoice. VAT related to sales / purchases and services provision / receipt payments to the budget which has not been settled with at the balance sheet date (deferred VAT) is recognised in the consolidated statement of financial position on a gross basis and disclosed separately within current assets and current liabilities. Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debt, including VAT.

(d) Inventories Inventories are recorded at the lower of cost and net realisable value (the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses). Inventories include raw materials designated for use in the production process, finished goods, work in progress and goods for resale. Release to production or any other write-down of inventories is carried at the weighted average cost. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Other costs are included in the cost of inventories only to the extent they were incurred to provide for the current location and condition of inventories. When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories, including obsolete inventories written down, shall be recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal

F-131 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(e) Property, plant and equipment (PP&E) Measurement at recognition Property, plant and equipment are initially stated at cost (historical cost model). The PP&E cost includes: • its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; • costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the relevant entity’s management; • the initial estimate of the cost of subsequent dismantling and removal of a fixed asset, and restoring the site on which it was located, the obligation for which the relevant entity incurs either when the item is acquired or as a consequence of having used the item during a specific period for purposes other than to produce inventories during that period. The value of property, plant and equipment built using an entity’s own resources includes the cost of materials and labour, and the relevant portion of production overhead costs directly attributable to the construction of the PP&E. Borrowing costs directly attributable to the acquisition, construction or production of an asset which takes a substantial period of time to prepare for use or sale are included in the cost of this asset. Recognition of costs in the carrying amount of a property, plant and equipment item ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management of the relevant entity.

Subsequent measurement Property, plant and equipment items are carried at cost less accumulated depreciation and recognised impairment losses.

Subsequent expenditures The costs of minor repairs and maintenance are expensed when incurred. The costs of regular replacement of large components of property, plant and equipment items are recognised in the carrying amount of the relevant asset when incurred subject to recognition criteria. The carrying amount of the parts being replaced is de-recognised. When a large-scale technical inspection is conducted, related costs are recognised in the carrying amount of a fixed asset as replacement of previous technical inspection subject to recognition criteria. Any costs related to the previous technical inspection that remain in the carrying value shall be de-recognised. Other subsequent expenditures are capitalised only when they increase the future economic benefits embodied in these assets. All other expenses are treated as costs in the consolidated statement of profit or loss in the reporting period as incurred. Property, plant and equipment line of the consolidated statement of financial position also includes capital construction and machinery, and equipment to be installed. If PP&E items include major units with different useful lives, then each individual unit of the related asset is accounted for separately.

F-132 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Borrowing costs Borrowing costs are capitalised from the date of capitalisation and up to the date when the assets are substantially ready for utilisation or sale. The commencement date for capitalisation is when the Group (a) incurs expenditures for the qualifying asset; (b) incurs borrowing costs; and (c) undertakes activities that are necessary to prepare the asset for its intended use or sale. When funds borrowed for common purposes are used to purchase an asset, capitalised borrowing costs are determined through multiplying the capitalisation rate by expenses related to the asset. Interest payments capitalised under IAS 23 are classified in consolidated statement of cash flows in a manner that is consistent with the classification of the underlying asset on which the interest is capitalised. All other borrowing costs are attributed to expenses in the reporting period when incurred and recorded in the consolidated statement of profit or loss in the ‘‘Finance costs’’ line.

Mineral rights Exploration and evaluation assets are carried at original cost and classified consistently within tangible or intangible assets depending on their nature. Mineral rights acquired as a result of a business combination are measured at fair value at the acquisition date. Other mineral rights and licenses are recorded at cost. Mineral rights are amortised using the straight-line basis over the license term given approximately even production output during the license period.

Depreciation Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets through an even write-down of historical cost to their net book value. Property, plant and equipment items under finance leases and subsequent capitalised expenses are depreciated on a straight-line basis over the estimated remaining useful lives of the individual assets. Depreciation commences from the time an asset is available for use, i.e. when the location and condition provide for its operation in line with the Group management’s intentions. Depreciation is not charged on assets to be disposed of and on land. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the consumption of benefits to be derived from it. The range of estimated useful lives of different asset categories is as follows:

Buildings and land and buildings improvements ...... 10–50 years Machinery and equipment ...... 2–25 years Vehicles ...... 5–25 years The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal if the asset was already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. If the cost of land includes the costs of site dismantlement, removal of PP&E items and restoration expenses, that portion of the land asset is depreciated over the period of consumption of benefits obtained by incurring those costs. Impairment of PP&E is outlined in section (i) ‘‘Impairment of non-current assets’’.

F-133 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) (f) Leasing Leasing transactions are classified according to the relevant lease agreements, which specify the risks and rewards associated with the leased property and distributed between the lessor and lessee. Lease agreements are classified as financial leases or operating leases. In a financial lease, the Group receives the major portion of economic benefits and risks associated with the ownership of the asset. At the commencement of the lease term, the leased asset is recognised in the consolidated statement of financial position at the lower of fair value or discounted value of future minimum lease payments. The corresponding rental obligations are included in borrowings. Interest expenses within lease payments are charged to profit or loss over the lease term using the effective interest method. Accounting policies for depreciation of leased assets are consistent with the accounting policies applicable to owned depreciable assets. A lease is classified as an operating lease if it does not imply transferring the major portion of risks and rewards associated with the ownership of the asset. Payments made under operating leases are recorded as an expense on a straight-line basis over the lease term.

(g) Goodwill and intangible assets Goodwill is the difference between: • the comprehensive acquisition date fair value of the consideration transferred and non-controlling interest, and, where the entity is acquired in instalments, the acquisition date fair value of the non-controlling interest previously held by the buyer in the acquired entity; and • the share of net fair value of identifiable assets acquired and liabilities assumed. The excess of the share of net fair value of identifiable assets bought and obligations assumed by the Group over the consideration transferred and the fair value of non-controlling interest at the acquisition date previously owned by the buyer in the acquired entity, represents income from a profitable acquisition. Income is recognised in the consolidated statement of profit or loss at the acquisition date. Goodwill on joint ventures is included in the carrying amount of investments in these entities. When interest in the previously acquired entity increases (within non-controlling interest) goodwill is not recognised. The difference between the acquired share of net assets and consideration transferred is recognised in equity. Goodwill is measured at historical cost and subsequently stated less accumulated impairment losses.

Impairment of goodwill The goodwill is not amortised but tested for impairment at least annually and whenever there are indications that goodwill may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (‘‘CGUs’’) that are expected to benefit from the synergies of the combination. The evaluation of impairment for cash-generating units, among which goodwill was distributed, is performed once a year or more often, when there are indicators of impairment of such CGUs. If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to any other assets of the CGU pro-rata to the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods.

F-134 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Disposal of goodwill If goodwill is a part of the cash-generating unit, and a part of the unit is disposed of, the goodwill pertaining to that part of disposed operations is included in the carrying amount of that operation when profit or loss on its disposal is determined. In such circumstances, the goodwill disposed of is generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

Intangible assets Intangible assets are initially recognised at cost. The cost of a separately acquired intangible asset comprises: • its purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates; • directly attributable cost of preparing the asset for its intended use. If an intangible asset is acquired as a result of a business combination, the cost of the intangible asset equals its fair value at the acquisition date. If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the entire period of credit unless it is capitalised in accordance with IAS 23, ‘‘Borrowing Costs’’. If an intangible asset is an integral part of a fixed asset to which it belongs, then it is recorded as part of that asset. After the initial recognition of intangibles, they are carried at cost less sum of accumulated amortisation and accumulated impairment loss. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.

Amortisation Intangible assets with a definite useful life are amortised using the straight-line method over the shorter of: the useful life or legal rights thereto. The range of estimated useful lives of different asset categories is as follows:

• Mineral rights ...... 20–36 years • Industrial intellectual property ...... 5 years • Beneficial lease interest ...... 80 years

(h) Decommissioning obligation The Group’s obligations related to assets disposal include estimating costs related to restoration of land in accordance with applicable legal requirements and licenses. Decommissioning costs are carried at the present value of expected expenses to settle obligations that is calculated using estimated cash flows and are recognised as a part of the historical cost of the asset. Capitalised costs are amortised over the asset’s useful life. Cash flows are discounted at the current rate before tax, which reflects risks inherent to the asset decommissioning obligations. The effect of discounting is recognised in the consolidated statement of profit or loss as finance costs. The estimated future costs related to decommissioning are reviewed annually and adjusted as necessary.

F-135 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) (i) Impairment of non-current assets At each reporting date, the Group determines if there are any objective indications of potential impairment of an individual asset or group of assets. Intangible assets with indefinite useful lives are tested for impairment at least once a year if their carrying amount impairment indicators are identified.

Recoverable value measurement If any such impairment indicators exist, then the asset’s recoverable amount is estimated. In the event of impairment, the value of the asset is written down to its recoverable value, which represents the higher of: the fair value less costs to sell or the value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset or payable on the transfer of a liability at the evaluation date, in an arm’s length transaction between knowledgeable, willing parties, less any direct costs related to the sale or transfer. Value in use is the present value of estimated future cash flows from expected continuous use of an asset and its disposal at the end of its useful life. In assessing value-in-use, the anticipated future cash proceeds are discounted to their current value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units), which in most cases are determined as individual subsidiaries of the Group. Estimated cash flows are adjusted in line with the risk of specific conditions at sites and discounted at the rate based on the weighted average cost of capital. With regard to assets that do not generate cash regardless of cash flows generated by other assets, the recoverable amounts are based on the cash-generating unit to which such assets relate.

Impairment loss The asset’s carrying amount is written down to its estimated recoverable value, and loss is included in the consolidated statement of profit or loss for the period. Impairment loss is reversed if there are indications that the assets’ impairment losses (other than goodwill) recognised in previous periods no longer exist or have been reduced, and if any consequent increase in the recoverable value can be objectively linked to the event that took place after the impairment loss recognition. Impairment loss is reversed only to the extent that the carrying amount of an asset does not exceed its carrying amount that would be established (less amortisation) if the asset impairment loss had not been recognised. An impairment loss is reversed for the relevant asset immediately through consolidated statement of profit or loss.

(j) Pension and post-retirement benefits other than pensions The Parent Company and some other Group companies maintain defined contribution plans in accordance with which contributions are made on a monthly basis to a non-government pension fund (the ‘‘Fund’’), calculated as a certain fixed percentage of the employees’ salaries. These pension contributions are accumulated in the Fund during the employment period and subsequently distributed by the Fund. Accordingly, the Group has no long-term commitments to provide funding, guarantees, or other support to the Fund. The Group complies with the pension and social insurance legislation of the Russian Federation and the other countries where it operates. Contributions to the Russian Federation Pension Fund by the employer are calculated as a percentage of current gross salaries. Such contributions constitute defined contribution plans.

F-136 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued)

Payments under defined contribution plans are expensed as incurred.

(k) Provisions for liabilities and charges Provisions for liabilities and charges are accrued when the Group: • has present obligations (legal or constructive) as a result of past events; • it is probable that an outflow of resources embodying economic benefits will be required to settle such an obligation; • a reliable estimate of the amount of the obligation can be made. The amount recognised as a provision shall be the best estimate of the expenses required to settle the present obligation at the end of the reporting period. Where the impact of the time factor on the value of money is significant, the provision should equal the present value of the expected cost of settling the liability using the discount rate before taxes. Any increase in the carrying amount of the provision is recorded in the consolidated statement of profit or loss as finance costs. The nature and estimated value of contingent liabilities and assets (including court proceedings, environmental costs, etc.) are disclosed in notes to the consolidated financial statements where the probability of economic benefits outflow is insignificant. The creation and release of provision for impaired receivables have been included in selling expenses in the consolidated statement of profit or loss. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

(l) Call and put options Call and put options are carried at their fair value in the consolidated financial statements. These options are accounted for as assets when their fair value is positive (for call options) and as liabilities when the fair value is negative (for put options). Changes in the fair value of options are reflected in the consolidated statement of profit or loss.

(m) Income taxes Income tax expense comprises current and deferred tax. The current and deferred taxes are recognised in profit or loss for the period, except for the portion thereof that arises from a business combination or transactions or events that are recognised directly within equity.

Current tax Current tax liabilities are measured in the amount expected to be paid to (recovered from) the tax authorities, applying the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax Deferred tax assets and liabilities are recognised for the differences between the carrying amount of an asset or liability in the consolidated statement of financial position and their tax base. Deferred tax is not recognised if temporary differences: • arise at the goodwill initial recognition; • arise at the initial recognition (except for business combination) of assets and liabilities that do not impact taxable or accounting profits;

F-137 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) • are associated with investments in subsidiaries where the Group controls the timing of the reversal of these temporary differences, and it is probable that the temporary differences will not be utilised in the foreseeable future. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Estimation of tax assets and liabilities reflects tax implications that would arise depending on the method to be used at the end of the reporting period to recover or settle carrying value of these assets or liabilities. Deferred tax assets are recognised in respect of the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits may be utilised. The carrying amount of deferred tax assets is subject to revision at the end of each reporting period and is decreased to the extent of reduced probability of receiving sufficient taxable income to benefit from utilising the deferred tax assets partially or in full. Deferred tax assets and liabilities are offset if there is a legal right for the offset of current tax assets and liabilities, and when they relate to income taxes levied by the same tax authority or on the same taxpayer; and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Uncertain tax positions The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

(n) Dividends payable Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting date and before the consolidated financial statements have been authorised for issue are disclosed in the subsequent events note.

(o) Revenue recognition Revenue from sales of goods and provision of services Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. The Group recognises revenue when the amount can be reliably measured, it is probable that future economic benefits will flow to the Group, and the specific criteria stipulated by IAS 18, ‘‘Revenue’’ have been met for each type of Group revenues. Revenue is recorded less of discounts, provisions, value added tax and export duties, and refunds, and after excluding internal Group sales turnover. Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Revenue from services is recognised in the period in which the services were rendered, by reference to the

F-138 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be rendered under the relevant agreement.

Interest income Interest income is recognised on a time-proportion basis using the effective interest method.

Dividend income Dividend income on investments is recognised when the Group becomes entitled to receive the payment.

(p) Segment information The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph 11 of IFRS 8, ‘‘Operating Segments’’. The Group’s organisation comprises six reportable segments: • the Mining segment, which comprises mining, processing and sales of iron ore, fluxing limestone and metallurgical dolomite, and supplies raw materials to the steel segment and third parties; • the Russian flat products segment, comprising production and sales of steel products and coke, primarily pig iron, steel slabs, hot rolled steel, cold rolled steel, galvanised cold rolled sheet and cold rolled sheet with polymeric coatings and also electro-technical steel; • the Russian long products segment, comprising a number of steel-production facilities combined in a single production system beginning from scrap iron collection and recycling to steel-making, production of long products, reinforcing rebar and metalware; • NLMK USA, comprising production and sales of steel products in the United States; • NLMK DanSteel and Plates Distribution Network, comprising production and sales of plates in Europe and other regions of the world; • Investments in NBH, comprising production of hot rolled, cold rolled coils and galvanised and pre-pained steel, and also production of a wide range of plates as well as a number of steel service centers located in the European Union. The accounting policies of each segment are similar to the principles outlined in significant accounting policies.

(q) Financial instruments Financial assets The Group’s financial assets include cash and short-term deposits, trade and other accounts receivable, loans and other amounts receivable, quoted and non-quoted financial instruments and derivatives. Financial assets have the following categories: • loans and receivables; • held-to-maturity investments.

Loans and receivables Loans and receivables represent non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to the initial recognition, such financial assets are measured at amortised cost using the effective interest method less any impairment losses.

F-139 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity investments if the Group intends and is able to hold them to maturity. Subsequent to the initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment losses.

Valuation techniques Depending on their classification, financial instruments are carried at fair value or amortised cost. Below are the methods and key definitions. Fair value is the price that would be received from selling an asset or paid when transferring a liability in an orderly transaction between market participants as at the valuation date. The best evidence of fair value is the price quoted in an active market. The fair value of financial instruments traded in active markets at each reporting date is determined based on the market quotes or dealers’ quotes (buy quotes for long positions and sell quotes for short positions) without deducting transaction costs. Valuation techniques, such as discounted cash flow models, or models based on recent arm’s length transactions or consideration of financial data of the investees, are used to measure the fair value of financial instruments for which external market pricing information is unavailable. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount and the maturity amount (calculated using the effective interest method), and for financial assets less any impairment loss. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument.

Initial recognition of financial assets Financial investments available for sale and financial assets at fair value through profit or loss are initially recorded at fair value. All other financial assets are initially recorded at fair value plus transaction costs. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (‘‘regular way’’ purchases and sales) are recorded at the trade date, which is the date when the Group commits to buy or sell a financial asset.

De-recognition The Group de-recognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets, or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control in respect of these assets. Control of an asset is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. If the

F-140 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Group neither transfers nor retains substantially all risks and rewards of ownership of the asset, but retains control over such transferred asset, the Group continues recognition of its share in this asset and the related obligation in the amount of the anticipated consideration.

Impairment of financial assets At each reporting date, the Group assesses whether the objective indicators exist that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets are considered to be impaired only when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that have had an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or group of debtors are experiencing significant financial difficulty, cannot service their debt or are demonstrating delinquency in interest or principal payments; or they are likely to undergo bankruptcy procedures or any other financial reorganisation. In addition, such evidence includes observable data testifying to an identifiable decline in estimated future cash flows under a financial instrument, in particular, negative changes in a counterparty’s payment status caused by changes in the national or local business environment that impact the counterparty, or a significant impairment of collateral, if any, as a result of deteriorated market conditions.

Impairment of financial assets carried at amortised cost The carrying amount of an asset is reduced by the amount of the allowance for impairment of financial assets. Losses from impairment of financial assets carried at amortised cost are carried through profit or loss as they arise. Accrual of interest income on the reduced carrying value is continued based on the interest rate applied to discounting the future cash flows for impairment loss assessment. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then de-recognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows.

Impairment of financial investments available for sale For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that a financial investment or a group of financial investments is impaired. Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (‘‘loss events’’) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss, is reclassified from other comprehensive income to finance costs in profit or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the current period’s profit or loss.

F-141 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Financial liabilities The Group’s financial liabilities include trade and other payables, bank overdrafts, borrowings, financial guarantee agreements and derivative financial instruments. Financial liabilities are respectively classified as: • financial liabilities at fair value through profit or loss; • borrowings and loans.

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trade and financial liabilities designated initially at fair value through profit or loss. Financial liabilities are classified as held for trade if acquired for the purpose of selling in the short term. Income and expense on liabilities held for trade are recognised in the consolidated statement of profit or loss.

Borrowings After initial recognition, interest-bearing borrowings are carried at amortised cost using the effective interest method. Gains and losses on such financial liabilities are recognised in consolidated statements of profit or loss upon their de-recognition and also as amortisation accrued using the effective interest method.

Initial recognition of financial liabilities All financial liabilities are initially recorded at fair value less transaction costs incurred (except for financial liabilities at fair value through the consolidated statements of profit or loss).

De-recognition A financial liability is de-recognised from the consolidated statement of financial position if it was settled, cancelled or expired. If the existing financial liability is replaced by another liability to the same creditor, on terms that significantly differ from the previous terms, or the terms of the existing liability significantly differ from the previous terms, such replacement or change is recorded as de-recognition of the initial liability and recognition of a new liability, and the difference in their carrying amount is recognised in the consolidated statement of profit or loss.

Financial guarantee agreements Financial guarantees issued by the Group are irrevocable agreements requiring a payment to compensate losses incurred by the owner of the agreement due to the inability of the debtor to duly pay under the terms of a debt instrument. Financial guarantee agreements are initially recorded at fair value. Consequently the liability is measured at the higher of the best likelihood estimate of costs necessary to settle the liability at the reporting date, and the amount of the liability less accumulated amortisation.

Derivative financial instruments Derivative financial instruments, including foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps, and currency and interest rate options, are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting.

F-142 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

25 Significant accounting policies (continued) Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

26 Critical accounting estimates and judgements The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures. Management also makes certain judgements in the process of applying the Group’s accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including forecasts and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, and management’s estimates can be revised in the future, either positively or negatively, based on the facts surrounding each estimate. Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements, and estimates that can cause a significant adjustment to the carrying amounts of assets and liabilities within the next financial year are reported below.

(a) Tax legislation and potential tax gains and losses The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities which are recorded for income tax positions are determined by management based on the interpretation of current tax laws. Liabilities for penalties, fines and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle tax liabilities at the reporting date (Note 24).

(b) Estimation of remaining useful lives of property, plant and equipment The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may affect future useful lives (Note 8).

(c) Impairment analysis of property, plant and equipment and goodwill The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a number of significant judgements and estimates to certain variables including volumes of production and extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed for impairment (Notes 8, 9).

(d) Control and the consolidation or accounting using equity method of accounting of entities in the Group’s consolidated financial statements Management judgement is involved in the assessment of whether the Group controls certain entities and, accordingly, whether consolidation or equity method of accounting for these investments in the consolidated financial statements is appropriate. As at 31 December 2017, 2016, and 2015, the Group owned 51% of shares in NBH, however, management concluded that in the light of giving certain governance rights to the party that owns the residual interest in this company, the Group does not control it, thus the Group’s investment in NBH is accounted for under the equity method.

F-143 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2018 or later, and which the Group has not early adopted: IFRS 9 ‘‘Financial Instruments’’ (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are: • Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL). • Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition. • Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. • Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. • IFRS 9 introduces a new model for the recognition of impairment losses—the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables. • Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. Management performed an analysis of Group financial assets and financial liabilities as of 31 December 2017 based on factors and circumstances that existed on these date and also using forward-looking information and concluded that application of the new standard since 1 January 2018 will not significantly impact classification of assets and liabilities in the consolidated financial statements of the Group and also that the amount of expected credit loss as of 1 January 2018 does not materially differ from the amount of recognized provisions and allowances in the consolidated financial statements as of 31 December 2017. IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to

F-144 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations (continued) secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual periods beginning on or after 1 January 2018). The amendments do not change the underlying principles of the Standard but clarify how those principles should be applied. The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and how to determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. In accordance with the transition provisions in IFRS 15 the Group has elected the simplified transition method with the effect of transition to be recognised as at 1 January 2018 in the consolidated financial statements for the year-ending 31 December 2018 which will be the first year when the Group will apply IFRS 15. The Group plans to apply the practical expedient available for the simplified transition method. The Group applies IFRS 15 retrospectively only to contracts that are not completed at the date of initial application (1 January 2018). Based on the analysis of the Group’s revenue streams for the year ended 31 December 2017, individual contracts’ terms and on the basis of the facts and circumstances that exist at that date in view of the simplified transition method application, the management of the Group is not expecting a significant impact on its consolidated financial statements from the adoption of the new standard on 1 January 2018. IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Management is currently assessing the impact of the new standard on its consolidated financial statements. IFRS 17 ‘‘Insurance Contracts’’ (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss immediately. Management is currently assessing the impact of the new standard on its consolidated financial statements. IFRIC 22 ‘‘Foreign currency transactions and advance consideration’’ (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). This interpretation considers how to determine the date

F-145 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations (continued) of the transaction when applying the standard on foreign currency transactions, IAS 21. The interpretation applies where an entity either pays or received consideration in advance for foreign currency-denominated contracts. The interpretation specifies that the date of transaction is the date on which the entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration. Management is currently assessing the impact of the interpretation on its consolidated financial statements. IFRIC 23 ‘‘Uncertainty over Income Tax Treatments’’ (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority’s right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation. Management is currently assessing the impact of the interpretation on its consolidated financial statements. The following other new pronouncements are not expected to have any material impact on the Group financial statements when adopted: • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture—Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB). • Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or after 1 January 2018). • Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts—Amendments to IFRS 4 (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach). • Transfers of Investment Property—Amendments to IAS 40 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • Annual Improvements to IFRSs 2014-2016 cycle—Amendments to IFRS 1 and IAS 28 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • Prepayment Features with Negative Compensation—Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).

F-146 Novolipetsk Steel Notes to the consolidated financial statements (continued) (millions of US dollars)

27 New or revised standards and interpretations (continued) • Long-term Interests in Associates and Joint Ventures—Amendments to IAS 28 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Annual Improvements to IFRSs 2015-2017 cycle—Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019). Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements. The following amended standards became effective from 1 January 2017, but did not have a material impact on the Group. • Disclosure Initiative—Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017). The new disclosures are included in Note 11. • Recognition of Deferred Tax Assets for Unrealised Losses—Amendment to IAS 12 (issued on 19 January 2016 and effective for annual periods beginning on or after 1 January 2017). • Amendments to IFRS 12 included in Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2017).

F-147 REGISTERED OFFICE OF THE BORROWER Novolipetsk Steel Pl. Metallurgov 2 Lipetsk, 398040 Russian Federation

REGISTERED OFFICE OF THE ISSUER Steel Funding D.A.C. Block A, George’s Quay Plaza George’s Quay Dublin 2 Ireland

JOINT GLOBAL COORDINATORS AND JOINT BOOKRUNNERS J.P. Morgan Securities plc Soci´et´e G´en´erale 25 Bank Street 29 Boulevard Haussmann Canary Wharf 75009 Paris London E14 5JP France United Kingdom

JOINT BOOKRUNNERS ING Bank N.V., London Branch UniCredit Bank AG 8-10 Moorgate Arabellastrasse 12 London EC2R 6DA D-81925 Munich United Kingdom Germany

LEGAL ADVISERS TO THE BORROWER As to English and U.S. law: As to Russian law Debevoise & Plimpton LLP (other than as to Russian tax matters): 65 Gresham Street Debevoise & Plimpton LLP London EC2V 7NQ Business Center Mokhovaya United Kingdom Ulitsa Vozdvizhenka, 4/7 Stroyeniye 2 Moscow, 125009 Russian Federation

LEGAL ADVISERS TO THE MANAGERS AND THE TRUSTEE As to English and U.S. law: As to Russian law: Linklaters LLP Linklaters CIS One Silk Street Paveletskaya Square 2/2 London EC2Y 8HQ Moscow, 115054 United Kingdom Russian Federation LEGAL ADVISER TO THE ISSUER As to Irish law: Arthur Cox Ten Earlsfort Terrace Dublin 2 Ireland

AUDITORS TO THE BORROWER AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, 125047 Russian Federation

PRINCIPAL PAYING AGENT TRUSTEE AND TRANSFER AGENT Citicorp Trustee Company Limited Citibank, N.A., London Branch Citigroup Centre Citibank N.A. London Canada Square 6th Floor, Citigroup Centre Canary Wharf Canada Square London E14 5LB Canary Wharf United Kingdom London E14 5LB United Kingdom

REGISTRAR Citigroup Global Markets Europe AG Reuterweg 16 60323 Frankfurt Germany

LISTING AGENT Arthur Cox Listing Services Limited Ten Earlsfort Terrace Dublin 2 Ireland Toppan Merrill London 19-9131-1