Annual report 2015

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Annual report 2015

Four success factors



Metalloinvest is committed to the continuous implementation of best international corporate governance practices

Metalloinvest is committed to the continuous implementation of best international corporate governance practices

Risk management

The Company’s management pays special attention to the corporate risk management framework to ensure that it continues to increase efficiency and compliance with international best practices.

In order to identify, classify and assess potential risks and make effective management decisions, Metalloinvest has put in place a multi-level risk management framework covering the Board of Directors and functional managers of production operations and business units.

In 2015, the Audit Committee’s mandate was broadened to include not only financial risks, but also the entire range of corporate risks and internal controls1.

To ensure timely and accurate risk assessment, the Company continued to develop and implement the Corporate Risk Management Framework (CRMF) in 2015. Due to the CRMF, risk management processes will become an integral part of ongoing management, internal controls and audit, annual and strategic planning, and year-round performance assessments.

In 2015, the Company adopted the Corporate Risk Management Framework and Risk Management Procedure Standards, which establish a single approach and methodology to identify, assess and manage risks.

Estimated financial impact of key risks by category

Estimated financial impact of risks, %

In 2015, the Company’s corporate risk portfolio included some 100 items that Metalloinvest kept track of and updated regularly to reflect changes in the business environment.

In the reporting year, Metalloinvest began to upgrade its risk management system, seeking to further increase the sustainability of its business. Efficient risk management is a key focus area of the Company’s strategy.

Yuriy Gavrilov
Director for Strategy and Development

The Company’s key risks were identified based on a comprehensive assessment of the total financial impact with a focus on interdependencies and stress scenario modelling deliverables.

Key risks for Metalloinvest in 2015

The key corporate risks have had their outcomes mapped to ensure business continuity through the implementation of the respective risk management action plans.

Product pricing risks

Risk factors:

Fall in demand, excess supply.


Long-term technical upgrade with a focus on customers, sales market diversification, entry into new markets, monitoring of residual risks from diversification and FX, potential decline in procurement costs.

Credit risks

Risk factors:

Macroeconomic factors, delays in the repayment of loan interest and principal from one of the Group’s companies.


Respect of compliance regulations for loan documentation. Prevention of a breach of financial covenants.

FX risk

Risk factors:

Oil price fluctuations, global political instability, negative statistics, central bank policies.


Fixing of the exchange rate in the derivatives market, rebalancing of cash flows to minimise open positions in non-base currencies.

Political risk

Risk factors:

Breach of the Minsk Agreements, conflicts in the Middle East leading to the Company’s inclusion on sanctions lists, supply of products to sanctioned persons (including those added to sanctions lists after the signing of agreements).


Risk monitoring.
Business continuity plans.
A balanced funding policy with a focus on the Company’s internal development.

Operational risks

Risk factors:

Equipment obsolescence and depreciation, noncompliance with safety rules, low-quality and/or delayed repairs.


Metalloinvest comprehensively assesses how various risk factors affect production processes and output volumes. To prevent hazardous situations, Metalloinvest applies health, safety and environmental measures. In order to maintain its production equipment in satisfactory operating condition, Metalloinvest has put in place a centralised maintenance planning, management and delivery function, which is linked to the overall technical upgrade and production safety capex programme.
The Company also insures its production suspension risks as required by generally accepted industry practices. The insurance programme covering the Company’s production assets is administered in co-operation with A-rated reinsurance companies and a leading AAA–rated insurance company.

Loss of sales markets

Risk factors:

Foreign countries introducing restrictions or bans on transit or import of goods, trade wars.


Technical upgrade with a focus on customers, sales market diversification, entry into new markets. Monitoring of political risks (sanctions), which may have a negative impact.

Regulatory risks

Risk factors:

Current state of the national economy, human factor, decision-making errors, lobbying.


Risk monitoring.

Raw materials and supply procurement risks

Risk factors:

Macroeconomic factors.


Long-term fixed-price contracts.
Flexible trade policies, long-term partnerships with key suppliers.
Metalloinvest develops and implements action plans focusing on cost-cutting initiatives, technological improvements and optimisation of product flows, including through import substitution.

Corporate governance risks

Risk factors:

Overlapping functions, insufficient competencies, regulation gaps, high transaction costs.


Adoption and timely updates of a standard for organisational set-up. Development of a business process classifier.

Investment project implementation/efficiency risks

Risk factors:

Changes in the market environment during project implementation, primary planning (design) errors, illjudged contractor selection, macroeconomic changes.


Long-term fixed-price contracts, effective supplier and contractor selection processes, improvements in internal acceptance procedures, engagement of internal contractors, regular monitoring of the projects’ investment indicators. Improvements in project implementation planning and KPI assessments.

In addition to the key risks, Metalloinvest pays significant attention to other corporate risks and risks of controlled entities and subsidiaries. The company declares zero tolerance for risks associated with HSE violations, corruption and employee misconduct.

In 2015, Metalloinvest adopted a comprehensive Anti-Corruption Policy and, while drafting it, analysed the risks of non-compliance with international anticorruption laws. The Company is now looking into whether the applicable anti-corruption laws can be applied and complied with across the Group’s operations.

During 2015, a special emphasis was placed on building a risk management culture by:

  • understanding the risks and their potential financial and reputational consequences;
  • analysing the current state of the internal control framework;
  • identifying factors that could lead to a risk event;
  • developing and implementing appropriate risk management and (or) mitigation measures;
  • regularly reporting on changes in risks and progress in the implementation of risk management and/or mitigation measures.

To accurately assess the materiality of risks, develop response strategies and co-ordinate risk-related actions across divisions, the Company provides conditions for risk owners to interact in an effective way. In 2015, the regularly updated risk database had its population and administration processes automated, enabling all Company divisions to access relevant information in a timely manner. During the year, the divisions also used the feedback tool to analyse risk-related incidents, review internal audit reports and thus assess the adequacy and integrity of risk management action plans.

In order to raise managerial awareness of the CRMF, the Company developed with a training course for key executives to identify critical risks and their impact on the Company’s operations. From 2016, CRMF training will become part of a mandatory training programme for new hires.

In order to share expertise and make the Company’s views known, at the end of 2015, employees of Management Company Metalloinvest joined leading Russian risk management experts to collaborate in the «Russia» working subgroup, an exercise recently initiated by the ISO international task force to fully upgrade ISO 31000 Risk Management standard.

1Changes are to take effect in 2016.

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