Financial and Operational Highlights USD million 2016 2015 2014 2013 2012 (unless otherwise specified) Revenue 7,983 8,680 9,357 9,760 10,891 Adjusted EBITDA 1,489 2,015 1,514 651 915 Adjusted EBITDA Margin 18.7% 23.2% 16.2% 6.7% 8.4% EBIT 1,068 1,409 942 (1,804) 60 Share of Profits/(Losses) from Associates and joint ventures 848 368 536 (467) 333 Pre Tax Profit/(Loss) 1,354 763 147 (3,241) (502) Profit/(Loss) 1,179 558 (91) (3,322) (528) Profit/(Loss) Margin 14.8% 6.4% (1.0%) (34.0%) (4.8%) Adjusted Profit/(Loss) 590 671 17 (666) (498) Adjusted Profit/(Loss) Margin 7.4% 7.7% 0.2% (6.8%) (4.6%) Recurring Profit/(Loss) 1,257 1,097 486 (598) (8) Basic Earnings/(Loss) Per Share (in USD) 0.078 0.037 (0.006) (0.219) (0.035) Total Assets 14,452 12,809 14,857 20,480 25,210 Equity Attributable to Shareholders of the Company 3,299 1,391 2,237 6,550 10,732 Net Debt 8,421 8,372 8,837 10,109 10,829 Annual Report Creating value 2016 2 Contents 5 Corporate Profile 11 Chairman’s Statement 15 CEO’s Review 19 Business Overview 47 Management Discussion and Analysis 87 Profiles of Directors and Senior Management 107 Director’s Report 181 Corporate Governance Report 203 Financial Statements 313 Glossary Appendix A - Principal terms of the Shareholders’ 324 Agreement with the Company Appendix B - Principal terms of the Shareholders’ 327 Agreement between Major Shareholders 334 Corporate Information Creating value / Annual report 2016 3 4 Corporate 1 Profile UC RUSAL is a low cost, vertically integrated UC RUSAL’s production chain include bauxite aluminium producer with core smelting op- and nepheline ore mines, alumina refineries, erations located in Russia, Siberia. In 2016, aluminium smelters and casting houses, foil UC RUSAL remained among the largest produc- mills and packaging production centres. ers of primary aluminium and alloys globally. Primary aluminium production (mln tonnes) * China producers 2016 output wasn’t pub- Source: Based on UC RUSAL’s internal com- lished/publicly available at the time of Annual pany report, and peer companies’ publicly Report preparation, therefore Aladdiny source available results, announcements, reports and was used for the volumes estimation. other information. Creating value / Annual report 2016 5 Secured access to green, re- Focus on higher margin newable electricity. Electricity downstream business. UC is a key component of the alu- RUSAL has a diversified prod- minum production process. UC uct mix with a strong share RUSAL’s core smelting opera- of VAP in the portfolio (1.68 tions are favorably located close million tonnes per annum out to the Siberian hydro power of 3.82 million tonnes of total plants sourcing from them ap- sales). The company targets proximately 90% of the Group’s to increase the production total electricity needs. The Com- of VAP, to up to 2.5 million pany has long term agreements tonnes per annum in 2020 in with the region’s hydro-power particular, through improve- energy suppliers. Using renew- ments to its smelters located able and environmentally friend- in Siberia. ly hydro generated electricity, UC RUSAL is targeting the best Diversified sales geogra- CO2 footprint in the industry. phy. UC RUSAL’s sales mix is represented by a diversi- Captive raw material sup- fied portfolio of regions. The plies. UC RUSAL alumina pro- company delivers aluminium duction capacities are located in products to all key Global con- Russia and abroad. These oper- suming regions (Europe, USA, ations cover over approximately South East Asia) and to the 100% of the Groups’ total alu- domestic market. mina needs. Our alumina refineries baux- Growth potential of the UC ite needs are covered by up RUSAL platform. The BEMO to 80% with supplies from the Project (UC RUSAL and Rus- Group’s bauxite mining op- hydro JV) includes the 3,000 erations. Our existing bauxite megawatt BEMO HPP (the resource base is sufficient to construction of which was supply for over 100 years of completed in 2014) and Bo- operations. guchansky aluminium smelter in the Krasnoyarsk region of Efficient midstream, pro- Russia. The overall smelter prietary R&D and internal project has a designed ca- EPCM expertise. UC RUSAL pacity of approximately 600 aluminum smelting opera- thousand tonnes per annum. tions goes through regular Currently the 1st complex of upgrades. UC RUSAL has de- the smelter was launched and veloped its own in-house is operating at capacity of 149 R&D, design and engineering thousand tonnes per annum. centres and operates RA-300, RA-400 and Green Soeder- Implementing environmental berg smelting technologies. initiatives. UC RUSAL is the first A new energy efficient and Russian company to publish a environmentally friendly RA- report on its corporate imple- 500, RA-550 smelting tech- mentation of the UN Global nology has been designed and Compact and the first to join currently RUSAL is testing it, the UNDP. By following its en- targeting the best energy ef- vironmental policy and un- ficiency yields in the industry. dertaking to regularly review and update its provisions, the Cost efficiency. The efficient Company is constantly de- smelting technologies togeth- veloping and improving its er with low cost input material environmental management and utilities mix secures the system and implementing its Company’s global leadership principles at all production on the cost curve. facilities. 6 Creating value / Annual report 2016 Diversification opportunities through investments As at the Latest Practicable Date, UC RUSAL owns an effective 27.82% interest in Norilsk Nickel, the world’s largest nickel and palladium producer and one of the leading producers of platinum and copper1. UC RUSAL’s 50/50 LLP Bogatyr Komir coal joint ven- ture in the Ekibastuz coal basin, one of the largest coal basins in the CIS, provides UC RUSAL with a natural energy hedge. Key facts In 2016, UC RUSAL accounted approximately about 6.2 % 6.5% of the world’s of the world’s aluminium output aluminium production2 Generated from the following facilities located around the world: 10 7 5 1 4 3 2 aluminium alumina refiner- bauxite mines nepheline foil mills of powder silicon fac- smelters of ies of which 3 of which 2 mine in Rus- which 3 are plants all of tories all of which 9 are are in Russia, are in Russia, sia in Russia which are in which are in in Russia, 1 in Ireland, 1 1 in Jamaica, and 1 in Russia Russia and 1 in in Ukraine 1 in 1 in Guinea Armenia Sweden Jamaica, and 1 and 1 in in Australia Guyana UC RUSAL’s ordinary shares are listed on the Hong Kong Stock Exchange, on the Mos- cow Exchange and are also listed on the Euronext Paris in the form of GDSs (Global De- positary Shares) and on the Moscow Exchange in the form of RDRs (Russian Depositary Receipts). 1 Source: www.nornik.ru 2 Source: Brook Hunt (A Wood Mackenzie Company). Creating value / Annual report 2016 7 Our Global 2.01 2.02 1.04 1.08 5.12 1.14 1.19 1.03 1.05 3.09 6.13 7.15 1.20 Footprint 2.06 3.10 1.16 1.21 4.07 1.11 9.17 2.18 1.Aluminium 2.Alumina 3.Bauxite 4.Foil 5.Powders 6.Silicon 7.Nepheline ore Russia 8.Cryolite and cathodes 18 Achinsk Alumina Refinery 16 Boguchansky Aluminium Smelter 9.Other business (BEMO) 17 Boguchanskaya HPP (BEMO) 08 Bogoslovsky Alumina Refinery Armenia 06 Boksitogorsk Alumina Refinery 31 Armenal 20 Bratsk Aluminium Smelter 21 Irkutsk Aluminium Smelter Australia 04 Kandalaksha Aluminium Smelter 42 QAL 38 Khakas Aluminium Smelter 15 Kia-Shaltyr Nepheline Mine Guinea 12 Krasnoturyinsk Powder Metallurgy 25 Compagnie des Bauxites de Kin- 39 Krasnoyarsk Aluminium Smelter dia (CBK) 05 Nadvoitsy Aluminium Smelter 26 Dian Dian Bauxite Mine & Alu- 09 North Urals Bauxite Mine mina Plant Project 14 Novokuznetsk Aluminium Smelter 24 Friguia Bauxite & Alumina Com- 34 Polevskoe Cryolite Plant plex 07 Sayana Foil 36 SAYANAL Guyana 37 Sayanogorsk Aluminium Smelter 23 Bauxite Company of Guyana 41 Shelekhov Powder Metallurgy (BCGI) 40 Silicon (ZAO Kremniy), Shelekhov 32 South Urals Cryolite Plant 5.41 Ireland 19 Taishet Aluminium Smelter (proj- 3.23 6.40 01 Aughinish Alumina ect) 10 Timan Bauxite 4.31 1.39 Italy 11 Urals Aluminium Smelter 3.26 1.30 8.34 1.38 02 Eurallumina 33 Urals Foil 13 Urals Silicon 2.22 3.25 5.29 4.33 1.37 Jamaica 30 Volgograd Aluminium Smelter 2.24 1.27 2.288.329.354.36 2.42 22 Windalco 29 Volgograd Powder Metallurgy Kazakhstan Sweden 35 LLP Bogatyr Komir 03 KUBAL Nigeria Ukraine 27 ALSCON 28 Nikolaev Alumina Refinery 8 Creating value / Annual report 2016 2.01 2.02 1.04 1.08 5.12 1.14 1.19 1.03 1.05 3.09 6.13 7.15 1.20 2.06 3.10 1.16 1.21 4.07 1.11 9.17 2.18 5.41 3.23 6.40 4.31 1.39 3.26 1.30 8.34 1.38 2.22 3.25 5.29 4.33 1.37 2.24 1.27 2.288.329.354.36 2.42 Creating value / Annual report 2016 9 10 Chairman’s 2 Statement Dear Shareholders, I am pleased to report that 2016 was a year of RUSAL’s key priorities are described below: progress for the Company. During the period, RUSAL achieved robust earnings and contin- Priority 1 - Maintaining the Company’s ued to execute its growth strategy.