Management

Sustainability management

Key sustainability by-laws 102-26

Standard/initiative	NORNICKEL
Safety	Health and Safety Strategy* Occupational Health and Safety Policy MMC Norilsk Nickel’s Social and Working Conditions Standard Corporate health and safety standards
Environment	Environmental Policy* Biodiversity Policy* Environmental Impact Assessment Policy* Renewable Energy Sources Policy*
Society	Business Ethics Code* Human Rights Policy* Freedom of Association Policy* Indigenous Rights Policy* Local Community Relations Policy* Equal Opportunities Programme* Working Conditions Policy* Anti-Corruption Policy* Quality Policy* Information Policy Regulation* Charity Regulation Policy Regarding Support for Small and Medium Enterprises*

* Approved by the Board of Directors.

Responsible investment

In recent years, the sustainable development agenda has been gaining ground, with an increasing number of investors and asset managers focusing on responsible investment. In 2017, the Company held around 20 target meetings with investors concerning environmental protection, social responsibility and corporate governance (ESG). Most questions from the investors related to harmful emissions, environmental projects, use of renewable energy sources, respect for the rights of employees and indigenous minorities in the regions of operation, etc.

ESG Strategy is a new section on Nornickel’s corporate website https://www.nornickel.com/ investors/esg/ aimed to provide investors with key information on environmental management, social policy and corporate governance. The section features a databook with historical data on over 150 ESG indicators starting from 2010.

Corporate governance

The Company continuously improves its corporate governance framework to enhance efficiency and ensure compliance with the best global practices. The Company follows recommendations set out in the Corporate Governance Code approved by the Bank of Russia.

The key by-laws on corporate governance are available on MMC Norilsk Nickel’s website https://www.nornickel.com/ in the Investors sections1:

Regulations on the General Meeting of Shareholders of MMC Norilsk Nickel;
Regulations on the Board of Directors of MMC Norilsk Nickel; Code of Conduct and Ethics for Members of Board of Directors of MMC Norilsk Nickel;
Professional Development Policy for Members of Board of Directors of MMC Norilsk Nickel;
Performance Evaluation Policy for Board of Directors of MMC Norilsk Nickel;
Policy on Development and Approval of Vote Recommendations on Candidates Nominated to the Board of Directors of MMC Norilsk Nickel;
Remuneration Policy for Members of the Board of Directors at MMC Norilsk Nickel;
Regulations on the Management Board of MMC Norilsk Nickel;
Regulations on the Committees of the Board of Directors of MMC Norilsk Nickel, and others. 102-27 102-28 102-35 102-36

Pursuant to MMC Norilsk Nickel’s Charter, its governance bodies are:

the General Meeting of Shareholders, the Company’s supreme governance body;
the Board of Directors, which is in charge of overseeing the Company’s business, with the exception of matters that fall within the scope of the General Meeting of Shareholders, as specified in the Federal Law On Joint Stock Companies and the Company’s Charter;
the Management Board and the President that represent the collegial and sole executive bodies of the Company, respectively, and manage its daily operations. 102-21

The following committees of the Board of Directors continued their work in the reporting period: Audit and Sustainable Development Committee, Strategy Committee, Budget Committee, and the Corporate Governance, Nomination and Remuneration Committee.

In overseeing the Company’s management, financial and business affairs, the Board of Directors may instruct the managers on individual matters and monitor implementation of resolutions and tasks. Authorised executives are vested with powers and responsibilities to address economic, environmental and social issues and may delegate their powers to other employees based on their competences and functions. 102-19 102-29 102-31 102-33 102-34

The Board of Directors meets as and when required, but at least once every six weeks. In 2017, the Board of Directors met on a quarterly basis to review the Company’s financial results, strategy implementation progress, the management’s HSE reports, and operational performance reports. In 2017, the Board of Directors of MMC Norilsk Nickel considered 199 matters, including 96 deal approvals, 79 corporate governance matters, 9 economic and financial matters, 4 social and environmental matters, and 11 other matters.

The President and the Management Board are the sole and collegial executive bodies of the Company, respectively. In the reporting period, the position of the Company’s sole executive body, the President, was held by Vladimir Potanin. He also performed the functions of the Chairman of the Company’s Management Board. As of end of 2017, Vladimir Potanin has held the position of the President (CEO before 2015) for 5 years and 13 days. AR-2017

¹ https//:www.nornickel.com/investors/disclosure/corporate-documents/.

Committees of the Board of Directors	Number of members	Chairman		Members		Number of meetings
Committees of the Board of Directors	Number of members	Independent	Non-executive	Independent	Non-executive	Number of meetings
Audit and Sustainable Development Committee	5	+	+	60%	40%	15
Strategy Committee	5		+	60%	40%	10
Budget Committee	5		+	40%	60%	5
Corporate Governance, Nomination and Remuneration Committee	5	+	+	60%	40%	10

Operational sustainability management

The management and executive bodies of MMC Norilsk Nickel and the Group companies are in charge of developing and implementing the policy for various aspects of the Group’s sustainable development, within the scope of their functions and in accordance with the legislation and internal regulations¹.

All executive efforts are coordinated by the Management Board, the President and the following executive committees: the Budget Committee under the Management Board, the Charity Committee, the Health, Safety and Environment Committee, the Investment Committee, the Corporate Governance, Nomination and Remuneration Committee, and the Tender Committee.

The Company has put in place the Corporate Integrated Quality and Environmental Management System (CIMS). 102-35 102-36 102-37

Company	Compliance of the management system with international standards	External audits in 2017	Certification body	Certification area
MMC Norilsk Nickel	ISO 9001:2015, ISO 14001:2015	Recertification audit	Bureau Veritas Certification (BVC)	Production, project management, storage, delivery, including by sea, and sales (nickel, copper, cobalt, precious materials, sulphur, selenium, tellurium)
Kola MMC	ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007	Surveillance audit	Bureau Veritas Certification (BVC)	Mining and processing of ore, production of nickel, copper, cobalt, their compounds, precious metal concentrates, sulphuric acid
Gipronickel Institute	ISO 9001:2015	Second surveillance audit	Societe Generale de Surveillance (SGS)	R&D, design, engineering and environmental activities, project management in mining, concentration and smelting; development of standards for non-ferrous metal industry products and their inspection methods; development of reference standards for the composition of non-ferrous metal industry products
Norilsk Nickel Harjavalta	ISO 9001:2008, ISO 14001:2004 OHSAS 18001:2007	Surveillance audit	DQS GmbH (DQS&UL)	Manufacturing of nickel and cobalt products

Remuneration

Remuneration payable to members of the governance bodies

The Board of Directors’ annual remuneration is set out in the Remuneration Policy for Members of the Board of Directors approved by the Annual General Meeting of Shareholders on 6 June 2014 and available on the Company’s corporate website¹.

As per the Remuneration Policy, the Company pays the following remuneration to non-executive directors:

base remuneration of USD 120,000 for the Board membership;
additional remuneration of USD 50,000 for membership in a committee of the Board of Directors;
additional remuneration of USD 150,000 for chairing a committee of the Board of Directors;
reimbursement of expenses incurred by directors in discharge of their duties.

The Annual General Meeting of Shareholders for 2017 established remuneration for the Chairman of the Board of Directors, an independent director, in the amount of USD 1,000,000 per year, paid in equal instalments on a quarterly basis in roubles at the exchange rate of the Bank of Russia on the last business day of the reporting quarter².

According to the Company’s Charter, decisions on remuneration and reimbursement amounts payable to the members of the Company’s Management Board are reserved to the Board of Directors. The Company does not engage external consultants on remuneration matters. Remuneration of the Management Board members is linked to the Company’s performance, including financial and non-financial metrics. 103-3

Remuneration amounts payable to the members of the Management Board and to the President are set forth in their employment contracts approved by the Board of Directors.

The dismissal policy for top executives does not differ from the one in place for other employees.

The total amount of remuneration paid to the members of governance bodies in 2017, including salaries, bonuses, remuneration for membership in the governance body, and reimbursement of expenses, was RUB 5.3 bn (USD 90.1 mln)³

¹ https://www.nornickel.com/files/en/corporate_documents/constituent_documents/REMUNERATION-POLICY-for-MEMBERS-OF-BOARD-OF-DIRECTORS-.pdf.
² This amount is after taxes that are withheld in accordance with the applicable Russian law.
³ The amount of remuneration is different from the 2017 consolidated IFRS financial statements as it excludes non-cash remuneration (insurance and VHI payments, and annual remuneration liabilities as at 31 December 2017). The remuneration paid to the members of governance bodies in 2017 under IFRS totalled USD 103 mln (RUB 6.0 bn).

Employee performance management system

Performance management
Since 2014, the Company has been running the Employee Performance Management System based on a variety of key performance indicators (KPIs) covering occupational safety, operating efficiency and capital management. The assessment results are used to reward the workforce. The participants can send their feedback to the Company via a dedicated form. 103-3 404-3

In 2017, the KPI-based assessment covered 4,326 employees from the Head Office, branches and Group companies.

The key production sites are implementing an automated SAP HCM-based assessment system.

In 2017, the system was launched at Medvezhy Ruchey, Nornickel – Shared Services Centre, NORMETIMPEX and Bystrinsky Transport Division of MMC Norilsk Nickel. On top of that, 2017 saw the roll-out of the Talent Pool and Performance Assessment automated management subsystems at Polar Division, Kola MMC, Pechengastroy and GRK Bystrinskoye. The assessment results are used to reward the workforce.

In 2018, we will continue rolling out the system.

Competency management
In 2017, the Company continued developing a corporate competency model and assessment tools. Built around values and management competencies, the updated model is used to assess candidates at the recruitment stage, evaluate employee performance and potential, and add them to talent pool.

In 2017, Nornickel analysed assessment results and benchmarked its employee potential against SHL Russia’s database that contained information on 32 Russian and global metals and mining companies.

Competency assessment in 2017

Competencies	Participants	Outcome
Assessment of potential, current performance and development prospects of middle and top managers	Managers from a number of the Group’s key operations	81 managers listed as those with a high career growth potential
A 360-degree competency review using an updated model	159 unit heads from the Head Office	Development activities, tools and methods selected for the participants
Assessment of professional competencies for managers in the Power and Mechanics functional units	250 managers	Areas for personal and professional development identified

Employees covered by assessment in Russia, FTEs

Indicator	Blue-collar employees	White-collar employees	Management	Group total
Competency assessment
Male	132	4	635	771
Female	7	2	107	116
Total	139	6	742	887
KPI-based assessment
Male	0	203	2,926	3,129
Female	0	325	872	1,197
Total	0	528	3,798	4,326

Assessment of the Group companies' employees in Russia, % of average headcount

Indicator	Blue-collar employees	White-collar employees	Management	Group total
Competency assessment
Share of employees covered by competency assessment	0.3%	0.05%	6.9%	1.1%
Share of male employees covered by competency assessment	0.3%	0.1%	7.7%	1.4%
Share of female employees covered by competency assessment	0.02%	0.03%	1.3%	0.5%
KPI-based assessment
Share of employees covered by KPI-based assessment	0	4.1%	35.3%	5.5%
Share of male employees covered by KPI-based assessment	0	3.5%	35.7%	5.5%
Share of female employees covered by KPI-based assessment	0	4.6%	34.1%	5.6%

In 2018, the Company plans to build a competency model and develop a methodology to assess competencies of line managers at mining operations. Other plans include organising training for the Head Office’s managers based on their individual development plans and for managers of the Power and Mechanics units involving Russia’s leading universities and institutions. The Company will also provide for a more extensive use of the corporate online library by the employees covered by competency assessment.

Risk management framework

The Company continuously manages its risks in all business areas and at all governance levels. Strategic risks are the responsibility of the Company’s Board of Directors and senior management, which also manages key operational risks, and other significant operational risks are managed by heads of business units and subunits. Initiatives related to implementing and improving the corporate risk management framework (CRMF) are spearheaded by the Company’s Vice President and Head of Internal Controls and Risk Management, and the Risk Management Service. The latter submits its quarterly reports to the Board of Directors’ Audit and Sustainable Development Committee for review. 102-30

The Company’s approach to risk management is outlined in its Corporate Risk Management Policy, Corporate Risk Management Framework Regulations, Risk Management Regulations, and other by-laws.

The risk management framework relies on the principles and requirements of Russian and international laws and professional standards, including the Corporate Governance Code recommended by the Bank of Russia, ISO 31000 (Risk Management) and COSO ERM (Enterprise Risk Management – Integrated Framework).

Nornickel’s key sustainability risks include:

workplace injury risk;
information security risk;
technical and production risk;
compliance risk;
risks related to changes in legislation and law enforcement practices;
risk of power blackouts at production and social facilities in the Norilsk Industrial District (NID);
social risk;
risk of insufficient water resources;
soil thawing risk. 102-15

Risks are managed consistently to reduce and maintain exposure at or below levels approved by the Board of Directors.

To manage production risks that have major impact on production, the Company develops and approves business continuity plans setting out:

interaction procedure for business units in case of emergency;
production support or resumption plan;
rehabilitation or reconstruction plan for affected assets.

In 2018, key initiatives aimed at improving the CRMF will include:

continued integration of risk management practices into strategic, budget and investment planning, setting KPIs for the management and assessing their achievement;
deployment of risk management automation tools;
improvement of technical and production risk management, broadening of the analysis perimeter by assessing the production risk impact on human health and safety, and environment;
introduction of quantitative assessment methods and modelling to analyse technical and production risks and risks associated with investment projects.

Insurance

Insurance is one of the most important tools for managing risks and finances and protecting the assets of the Company and its shareholders against any unforeseen losses related to its operations, including due to external hazards.

Nornickel has centralised its insurance function to consistently implement uniform policies and standards supporting a comprehensive approach to managing insurance policies and fully covering every risk at all times. The Company annually approves a comprehensive insurance programme that defines key parameters by insurance type and key project.

We have implemented a corporate insurance programme that covers assets, equipment failures and business interruptions across the Group. Our corporate insurance policies are issued by major Russian insurers in cooperation with an international broker. This helps the Company make sure that its risks are underwritten by highly reputable international re-insurers.

The same principles of centralisation apply to the Group's freight, construction and installation, aircraft and ship insurance arrangements. The Group, as well as its directors and officers, carry business and third-party liability insurance.

To optimise terms of coverage and better manage covered risks, we follow the best mining industry practices.

Key sustainability risks, risk factors and mitigants

Risk type	Description	Key risk factors	Mitigants
Workplace injury risk	Failure to comply with the Group’s health and safety rules may result in threats to the employee's health and life, temporary suspension of operations, and property damage.	Unsatisfactory organisation and control of work safety	Pursuant to the Occupational Health and Safety Policy approved by the Company's Board of Directors, the Company undertakes to: ensure continued control over compliance with the health and safety requirements; improve the working conditions for employees of the Company and its contractors deployed at the Company's production facilities, including by implementing new technologies and labour saving solutions, and enhancing industrial safety at production facilities; provide staff with certified state-of-the-art personal protective equipment; carry out preventive and therapeutic interventions to reduce the potential impact of hazardous and dangerous production factors; regularly train and instruct employees and assess their health and safety performance, and conduct corporate workshops, including by deploying special simulator units; enhance methodological support for health and safety functions, including through the development and implementation of corporate health and safety standards; improve the risk assessment and management framework at the Group companies and production facilities as part of the Risk Control project; analyse the competencies of line managers at the Company’s production facilities, develop health and safety training programmes and arrange relevant training sessions; provide training for managers under the programme to determine root causes of accidents using the best international practices (“Tree of Causes and Hazards”, 5-why, etc.); provide information about the circumstances and causes of an accident to all employees of the Company, conduct ad hoc instruction sessions; introduce a framework to manage technical, technological, organisational and HR changes.
Information security risk	Potential cyber crimes may result in an unauthorised transfer, modification or destruction of information assets, disruption or lower efficiency of IT services, business, technological and production processes of the Company.	Growing external threats; unfair competition; rapid development of IT infrastructure and automation of production and business processes; employee and third party wrongdoing.	To manage this risk, the Company undertakes to: develop the Information Security Strategy and Programme, define units’ roles and responsibilities in information security at a corporate level; draft information security rules and regulations; comply with Russian laws and regulatory requirements with respect to personal data and trade secret protection, insider information, and critical information infrastructure; categorise information assets and assess information security risks; raise awareness in information security; use technical means to ensure information security of assets; manage access to information assets and information security incidents; ensure information security of the process control system; monitor threats to information security and use technical protection means, including vulnerability analysis, penetration testing, cryptographic protection of communication channels, controlled access to removable media, protection from confidential data leakages, mobile device management; set up and certify the Information Security Management System.
Technical and production risk	Technical, production, or natural phenomena, which, once materialised, could have a negative impact on the implementation of the production programme and cause technical incidents or reimbursable damage to third parties and the environment.	Harsh weather and climatic conditions, including low temperatures, storm winds, snow load; unscheduled stoppages of key equipment; release of explosive gases and flooding of mines; collapse of buildings and structures; infrastructure breakdowns.	To manage this risk, the Company undertakes to: properly and safely operate its assets in line with the requirements of the technical documentation, rules and regulations as prescribed by local laws; introduce ranking criteria and determine the criticality of key industrial assets; timely replace its fixed assets to achieve production safety targets; implement automated systems to control equipment's process flows; improve the maintenance and repair system; train and educate its employees both locally, on site, and centrally, through its corporate training centres; consistently identify and assess technical and production risks in line with the organisational and technical action plan to mitigate such risks; develop the technical and production risk management system, including by engaging independent experts to assess the system efficiency and completeness of data; engage, on an annual basis, independent surveyors to analyse the Company's exposure to disruptions in the production and logistics chain and assess related risks. In 2017, key technical and production risks were insured as part of the property and business interruption (downtime) insurance programme, with emphasis laid on the best risk management practices in the mining and metals industry; the programme aims to protect the assets of the Company and its shareholders against any catastrophic risks. In addition, the Company insured production assets at its facilities that make up the key production chain.
Compliance risk	Adverse consequences arising from the Company’s non-compliance with the applicable regulations, instructions, rules, standards or codes of conduct.	Сhanges in legislation and law enforcement practices; discrepancies in rules and regulations; considerable powers and a high degree of discretion exercised by regulatory authorities; potential violation of legal requirements by the Group’s business units and companies.	To manage this risk, the Company undertakes to: make sure that it complies with the applicable laws; defend its interests during surveillance inspections or in administrative offence cases; use pre-trial and trial remedies to defend its interests; include conditions defending its interests in the contracts signed by the Company; implement anti-corruption, anti-money laundering and counter-terrorist financing initiatives; take actions to prevent unauthorised use of insider information and market manipulation; ensure timely and reliable information disclosures as required by the applicable Russian and international laws. In addition to ongoing measures, the following documents were developed and approved in 2017: the Norilsk Nickel Group's Legal Support Policy; the Norilsk Nickel Group's Antitrust Compliance Policy (formalising interactions to ensure legal protection of the Norilsk Nickel Group's interests); Regulations on Interaction of MMC Norilsk Nickel's Business Units and Officers to Prevent Unlawful Use of Insider Information in Compliance with the Market Abuse Regulation of the European Parliament and of the Council No. 596/2014; amended version of MMC Norilsk Nickel's Information Policy Regulations (aligned with the applicable Russian and international information disclosure laws).
Risks related to changes in legislation and law enforcement practices	Adverse consequences for the Company due to changes in legislation and law enforcement practices	Unstable legal environment; complicated geopolitical situation; significant budget deficit (government agencies and authorities seeking to boost revenues).	To manage this risk, the Company undertakes to: continuously monitor changes in legislation and law enforcement practices in all business areas; perform legal due diligence of draft regulations and amendments; participate in discussions of draft regulations, both publicly and as part of the expert groups; engage its employees in relevant professional and specialist training programmes, corporate workshops, and conferences; cooperate with government agencies to ensure that new laws and regulations take into account the Company’s interests.
Risk of power blackouts at production and social facilities in the NID	The failure of key equipment at the generating facilities of fuel and energy companies and transmission networks may result in power, heat and water shortage at key production facilities of the Company's Polar Division and other business units in the NID.	Isolation of the NID's power system from the national grid (Unified Energy System of Russia); harsh weather and climatic conditions, including low temperatures, storm winds, snow load; length of power, heat and gas transmission lines; wear and tear of key production equipment and infrastructure.	To manage this risk, the Company undertakes to: operate and maintain generating and mining assets as required by the technical documentation, industry rules, regulations, and laws; timely construct and launch fuel and energy facilities; timely upgrade (replace) TPP and HPP power units' equipment; timely replace transmission towers; timely upgrade and renovate trunk gas and condensate pipelines and gas distribution networks.
Social risk	Escalating tensions among the workforce due to the deterioration of social and economic conditions in the Company's regions of operation	Headcount optimisation; rejection of the Company’s values by some employees and third parties; limited ability to perform annual salary indexation; dissemination of false and inaccurate information about the Company’s plans and operations among the Group’s employees; lower spending on social programmes and charity.	To manage this risk, the Company undertakes to: strictly abide by the collective bargaining agreements made between the Group companies and employees; actively interact with regional and local authorities, and civil society institutions; fulfil its social obligations under public-private partnership agreements; implement the World of New Opportunities charity programme aimed at supporting and promoting regional public initiatives; implement the Norilsk Upgrade project to introduce innovative solutions for sustainable social and economic development of the region; implement monitoring across the Group's operations; conduct opinion polls among Norilsk's communities to learn more about their living standards, employment, migration trends and general social sentiment, and identify major challenges; implement social projects and programmes aimed at supporting employees and their families, as well as the Company’s former employees; coordinate, over the year, the joint efforts of various project participants and promptly address any issues arising during the reconstruction of Norilsk Airport's runway, at the meetings of the task force involving the representatives of the Norilsk Administration, regional and federal authorities, Norilsk Airport and NordStar Airlines; provide treatment at Chinese health resorts during winter (programme geography expansion) to compensate for fewer summer packages due to runway reconstruction at Norilsk Airport; engage in dialogues with stakeholders and conduct opinion polls while preparing public CSR reports.
Risk of insufficient water resources	Drinking water shortages and limited power production in the Norilsk Municipality	Abnormal drought; insufficient water level in water bodies (water reservoir, Norilskaya River); failure to achieve necessary water pressure at HPP turbines.	To manage this risk, the Company undertakes to: supervise a hydrological monitoring system to forecast water level in rivers and water bodies in the Norilsk Municipality territory, including a set of measures introduced jointly with Srednesibirsk Hydrometeorology and Environmental Monitoring Administration to classify and analyse hydrological data; cooperate with Roshydromet to set up permanent hydrological and meteorological monitoring stations and improve the accuracy of water level forecasts in the Norilsk Municipality territory; dredge the Norilskaya river and reduce energy consumption at the production facilities, should the risk materialise.
Soil thawing risk	Loss of bearing capacity of pile foundations, deformation of buildings and structures leading to their destruction	Active man-made impact on the Norilsk Industrial District's permafrost soils over the last decades; thawing of soils, ice bands and lenses; increased depth of seasonal thawing.	To manage this risk, the Company undertakes to: routinely monitor the condition of foundation beds for buildings and structures built on permafrost; run geodetic control of changes in buildings’ positions; monitor soil temperature at buildings’ foundations; monitor the facilities’ compliance with operational requirements for crawlspaces; develop recommendations and corrective action plans to ensure safe operating conditions for buildings and structures; minimise thermal impact of newly constructed liquid waste ponds on permafrost soils at foundations by using cutting-edge design solutions.

Corporate security

Development and implementation of comprehensive corporate security measures across the Group falls under the remit of the Corporate Security Unit, acting in line with the Russian laws, applicable international regulations, internal standards and guidelines.

The corporate security system is structured and managed based on a number of targeted programmes to ensure economic, corporate, information, facility and transportation security along with transparency in procurement and contractor selection.

Nornickel is actively engaged in public-private partnerships to maintain high security levels and enhance social stability at its facilities in the regions of operation.

In 2017, Moscow State Institute of International Relations (MGIMO) opened Russia’s first corporate security department sponsored by Nornickel. The department will provide training in economic, corporate, information, facility and internal security and promote international cooperation in that field.

Information technologies

The Group's information technologies are designed to facilitate corporate strategic tasks by:

creating a shared information environment ensuring high quality, transparency and availability of data;
providing a required level of automation to deliver key strategic initiatives;
building efficient business relationships;
balancing IT expenses and performance of the Company.

The Group is currently implementing a Programme of IT Initiatives for Business Units, Technology Breakthrough Programme and a Group-wide project to align the processes of Nornickel companies.

Bringing high-speed internet connection to Norilsk came as a landmark IT event of 2017.

This project did not only provide access to the high-speed internet for the Group, but also served to raise living standards in the Norilsk Industrial District and improve the quality of state services provided under the existing government-sponsored initiatives, including the Portal of State Services, E-Government, Internet Connection for Every School, etc.

In 2017, the Company put into commercial operation a corporate data warehouse (CDW) which helps prepare IFRS consolidated financial statements while several business units are transiting to the new SAP ERP and SAP Business Objects Disclosure Management (SAP DM) systems. The CDW enables the Company to effectively manage the final stage of the financial close, with automation improving the quality of data transfer by reducing the number of manual inputs, optimising the collection and validation of consolidated financial data, and accelerating the entire process.

The next stage of the Group-wide project to align the processes of Nornickel companies involves the roll-out of a single corporate process template across the Group's operations and business units and related capability building.

Economic efficiency

Nornickel’s strategy focuses on generating long-term shareholder value and ensuring sustainable development. Economic efficiency is essential for the Company to meet its strategic goals and deliver on its commitments to shareholders, employees, local communities and other stakeholders. 103-2

In 2017, Nornickel’s CAPEX went up by 17% to USD 2 bn. The Company completed several major projects, that boosted the output of all the key metals from own feedstock by 7–15% compared to 2016. Talnakh Concentrator reached its target operating rates after the upgrade; the processing capacities at Nadezhda Metallurgical Plant were ramped up, and the refining facilities at Kola MMC were expanded. One of Russia’s largest mining projects over the last decades, Bystrinsky GOK in the Trans-Baikal Territory, moved to the pre-commissioning phase. The Company also continued to invest in advanced information technologies.

Nornickel’s consolidated revenue increased by 11% reaching USD 9.1 bn, driven by growth in production volumes and recovery of the non-ferrous and platinum group metals prices. EBITDA came in at USD 4 bn, while EBITDA margin stood at 44%, which is one of the highest levels in the global metals and mining industry.

The Company honoured its commitments, providing timely and full payments to the budgets of all levels. Tax and non-tax payments¹ to budgets at various levels totalled RUB 100.3 bn, increasing by 9.6% y-o-y.

To maintain its industry-leading position, the Company runs programmes seeking to improve efficiency, optimise cost and increase labour productivity. AR-2017

The Company’s stable financial position is confirmed by investment grade ratings from Moody’s, S&P Global and Fitch.

Financial highlights

Indicator	2013	2014	2015	2016	2017
Revenue, RUB bn	366.2	456.0	506.1	548.6	536.8
Gross profit, RUB bn	159.0	238.0	277.0	270.8	268.6
EBITDA, RUB bn	133.6	218.2	247.3	257.3	236.4
EBITDA margin, %	37	48	50	47	44
Net profit, RUB bn	23.5	93.4	104.0	167.4	127.4
Dividends paid, RUB bn	98.4	159.9	154.2	86.7	176.2
Assets, RUB bn	614.7	739.8	974.5	998.3	958.3
Total CAPEX², RUB bn	63.4	49.9	103.3	113.6	116.7

Direct economic value generated and distributed³ 201-1

Indicator, RUB bn	2013	2014	2015	2016	2017
1. Direct economic value generated	367.8	470.8	521.2	554.9	541.0
2. Economic value distributed, including:	414.4	464.9	554.2	512.7	519.0
Operating expenses	169.5	162.0	175.7	194.6	194.1
Community investments and charity⁴	3.6	2.7	7.0	7.4	17.7
Payroll and other employee remuneration and benefits	87.3	87.4	104.5	114.2	120.4
Payments to providers of capital (interest, dividends)	108.3	165.2	222.0	133.4	128.6
Gross tax payments	45.7	47.6	45.0	63.1	58.3
3. Economic value retained (1–2)	-46.5	5.9	-32.9	42.2	22.0

Direct economic value generated and distributed

No.	Indicator, RUB bn	Total for 2017
1	Direct economic value generated, including:	541.0
1.1	revenue from metal sales	494.1
1.2	revenue from other sales	42.6
1.3	gain (loss) from investment activities	4.5
1.4	gain (loss) from disposal of subsidiaries and assets available for sale	0.8
1.5	reclassification of currency translation reserve on disposed assets identified as available for sale, through profit or loss	0.0
1.6	changes in the bad debt provision	1.1
2	Economic value distributed, including:	519.0
2.1	Operating expenses, including:	194.1
2.1.1	cost of metals sold	231.4
2.1.2	cost of other items sold	36.8
2.1.3	selling expenses	4.4
2.1.4	administrative expenses	44.3
2.1.5	impairment of non-financial assets	13.2
2.1.6	other operating expenses	21.0
2.1.7	changes in the provision for the impairment of VAT refund	0.0
2.1.8	changes in the bad debt provision	1.1
2.1.9	expenses related to the production capacity reconfiguration programme	(0.2)
2.2	Community investments and charity	17.7
2.3	Payroll and other employee remuneration and benefits, including:	120.4
2.3.1	payroll recognised as cost of metals sold	80.3
2.3.2	payroll recognised as cost of other items sold	11.4
2.3.3.	payroll recognised as selling expenses	0.8
2.3.4.	payroll recognised as administrative expenses	27.9
2.4	Payments to providers of capital (interest, dividends), including:	128.6
2.4.1	dividends	106.1
2.4.2	interest expense on borrowings net of capitalised costs	22.5
2.5	Gross tax payments, including:	58.3
2.5.1	mineral extraction tax and other levies (recognised as cost of goods sold)	12.9
2.5.2	export duties (recognised as selling expenses and cost of other items sold)	0.6
2.5.3	taxes, excl. mineral extraction and income taxes (recognised as administrative expenses)	4.6
2.5.4	current income tax expense	40.2
3	Economic value retained	22.0

In 2017, Group companies paid RUB 40.7 m in fines to budgets of various levels. There was a total of 375 improvement notices issued by regulatory authorities (compared to 400 orders in 2016 and 608 orders in 2015), including 18 for environmental impact, 61 for non-compliance with labour, health and safety laws, and 296 on other grounds. 307-1 419-1 103-2

Indicator	Number of non-financial sanctions	Number of fines paid	Amount of fines paid, RUB '000
Total fines and non-financial sanctions	375	309	40 728,94
Environmental laws and regulations	18	21	1 115.00
Anti-competitive behaviour and breach of antitrust laws	1	0	0.00
Non-compliance with labour laws	36	20	1,379.00
Non-compliance with health and safety laws	26	33	2,951.00
Non-compliance with consumer protection laws, including with respect to product information and labelling	2	4	50.00
Non-compliance with marketing (advertising) regulations	0	0	0.00
Non-compliance with regulations on the impact of products and services on health and safety	5	5	40.00
Failure to timely comply with the improvement notices issued by regulatory authorities	18	41	10,750.00
Non-compliance with fire safety requirements	35	4	595.00
Breach of sanitary and epidemiological laws unrelated to product requirements	9	12	310.00
Breach of capital construction laws	31	36	4,970.00
Breach of industrial safety laws	127	33	10,710.00
Breach of transportation security laws	22	9	706.00
Other grounds	45	91	7,152.94

¹ Includes all taxes paid, net of VAT and dividend income tax, as well as insurance payments and customs duties.
² Includes costs paid in Russia for new construction projects, expansion, retrofit or upgrade of existing facilities, acquisition of machinery and equipment, R&D and other expenses, as well as housing and amenity construction.
³ Calculated on an accrual basis under the IFRS. The Company used its in-house calculation methodology developed in line with GRI Guidelines.
⁴ Excluding CAPEX.

Dividend policy

The Company remains among industry leaders in terms of dividend yield.

The decision to pay dividends is made by the General Meeting of Shareholders based on recommendations of the Board of Directors. Under the Company’s dividend policy, in determining the recommended dividend amount, the Board of Directors seeks to make sure that annual dividends on the Company’s shares account for at least 30% of the Group’s consolidated EBITDA.

Dividend payout, RUB bn

Stakeholder engagement

Stakeholders and interaction mechanisms

MMC Norilsk Nickel’s key stakeholders are employees, shareholders, investors, business partners, national and local government authorities, local communities, Russian and international non-profit organisations. Nornickel identifies stakeholders based on the extent to which they interact, share interests and communicate with the Company. 102-40 102-42 102-43

Stakeholder engagement principles and procedures are set out in the Business Ethics Code that the Company approved in 2012¹.

The Transparency Policy of MMC Norilsk Nickel aims to provide stakeholders with complete and accurate information about the Company’s activities and ensure proper feedback.

Dialogue with shareholders and investors

The authorised capital of MMC Norilsk Nickel is made up of 158,245,476 ordinary shares with an aggregate market value of USD 29.7 bn as at 31 December 2017. The Company’s ordinary shares are traded mostly on the Moscow Exchange, while ADRs are traded in the electronic trading system of OTC markets of the London Stock Exchange. 102-5 102-10

In 2017, there were no changes in the shareholding structure. As at the end of 2017, the Company’s major shareholders were Olderfrey Holdings Ltd (30.41%), UС Rusal Plс (27.82%) and Crispian Investments Ltd (4.24%), while the remaining shares were free float owned by institutional and private investors from Russia, Europe, Asia, USA, and elsewhere.

MMC Norilsk Nickel takes great care in engaging with its shareholders and investors and provides equal access to significant information in accordance with the Russian laws and best international practices.

In 2017, the Investor Relations Department kept diversifying the shareholder base and attracting new shareholders, organising 387 meetings with institutional investors and an Investor Day in London followed by a road show in Europe and the US.

¹ As at the end of 2017, the work was ongoing to update the Business Ethics Code in line with the Company’s strategic goals.

Stakeholders	Key interests of stakeholders	Interaction mechanisms	Key interaction events in 2017
Personnel
Employees of the Company	Social benefits and guarantees Favourable working conditions Decent salaries Company’s stability as an employer	Joint commissions, committees and working groups Discussions with trade unions and labour councils Offices for operating, social and labour matters Opinion polls Corporate media, booklets, information screens and boards Corporate intranet portals	Leadership is Responsibility corporate forum Extending the existing collective agreements for some of the Group’s key facilities and signing new ones
Shareholders and investors
Shareholders and investors Investment banks (brokers) Analytical and rating agencies	Capitalisation growth Dividend payments Transparency of information	Meetings (including one-on-one meetings) and conference calls Phone calls Emails Site visits	Strategy Day on 20 November 2017 in London Conference calls and a road show following the disclosure of IFRS financial statements
Business partners
Suppliers and contractors Customers	Development of tender-based procurement Corruption prevention Product quality Terms of delivery Contract support Sustainable growth of sales markets	Customer satisfaction monitoring Query and claim management Meetings, conferences, fairs, exhibitions Consumption and market growth prospects analysis Tender-based procurement Corporate Trust Service Joint workshops	Participation in the SFCHINA 2017 industry exhibition Polar Division, Kola MMC and Norilsk Nickel Harjavalta assessment for compliance with the TfS (Together for Sustainability) initiative Signing memoranda of cooperation for major investment projects with leading industrial companies in the Krasnoyarsk Territory
Federal authorities
Russian Federation Council Russian State Duma Russian Government Federal ministries, agencies and services Russian Trilateral Commission on the Regulation of Social and Labour Relations	Regulatory improvement in different areas Environmental impact regulation Support for domestic producers Stability in taxes Social stability support across the Company’s geographies	Working and expert groups, commissions and committees Public events Permits and licenses Intergovernmental commissions	Honouring commitments as part of the Year of Environment in Russia
Regional government authorities and local communities
Regional government authorities Local authorities Territorial offices of federal government agencies State-run educational institutions in the Company’s regions of operation Local communities and civil society organisations across the Company’s footprint	Stability in taxes Environmental protection Social stability support across the Company’s geographies Support for domestic producers	Working and expert groups, commissions, committees and councils Cooperation agreements Development plans for the Company’s regions of operation Corporate and partnership programmes and projects Forums, conferences, fairs, and round table discussions Joint inspections, drills and training exercise	Signing of the social and economic partnership agreement between MMC Norilsk Nickel and the Government of the Trans-Baikal Territory Launch of Bystrinsky GOK Bringing high-speed internet connection to Norilsk
Russian and international non-profit organisations
Business associations Industry unions Non-profit organisations Russian and international sports organisations	Information exchange Removal of administrative barriers Support for domestic producers Stability in taxes Environmental protection and industrial ecology	Joint projects Events (meetings, round table discussions, conferences and competitions) Membership in governing bodies and committees Opinions, proposals, requests	Nornickel’s reelection as chair of the IPA Security Committee for the fifth time Reelection of Nornickel’s Head of Marketing as chair of the International Nickel Institute Initiating the development of the Information Security Charter for Critical Industrial Facilities

Dialogue with employees

Social partnership framework

Nornickel’s companies run a social partnership framework aimed at reconciling interests of employees and employers on matters pertaining to the regulation of social and labour relations. The Company performs its obligations in compliance with the Labour Code of the Russian Federation, collective bargaining agreements, and joint resolutions. It has put in place the Freedom of Association Policy approved by the Board of Directors. 102-41 103-2 103-3

In regulating labour relations, employee interests are represented by social and labour councils and trade union organisations. The Company has also set up collective decision-making bodies representing the employer, employees and trade unions, including collective bargaining commissions, labour dispute commissions, social benefits commissions/committees, social insurance commissions, health and safety commissions/committees, social and labour relations committees, etc.

Trade Union of MMC Norilsk Nickel Employees, an interregional public organisation that includes territorial trade unions and trade unions of the Group companies, represents the Group’s employee interests on a national level. The trade unions of transport and logistics divisions are members of the Yenisey Basin Trade Union of Water Transport Workers (Krasnoyarsk, Russia).

All Group’s major facilities located in the Norilsk Industrial District and Murmansk Region have put in place social and labour councils that represent the employees who are not trade union members.

The Group companies have signed 17 collective bargaining agreements covering 80% of the Group’s average headcount. As at the end of 2017, 10.9% of the Group’s total headcount were members of trade unions, while 82% had joined social and labour councils.

The absence of strikes and lockouts involving the Company’s employees highlights the effectiveness of interactions and Nornickel’s social policy, in general.

Queries by topic in 2017, %
102-42 102-44

Employee engagement survey

In 2017, the Norilsk Nickel Group launched a series of activities to manage employee engagement. The engagement programme is underway to monitor changes in corporate culture and assess its positive influence on operating results.

Nornickel runs a corporate employee engagement survey named “Let Everyone Be Heard. What Do You Think?». In 2017, it involved more than 73,000 employees from 32 Company units.

The comprehensive survey measures employee satisfaction with their employment conditions based on 23 criteria and identifies the percentage of engaged employees who:

would recommend the Company as an employer to their friends and family;
seek to improve their performance and production processes and make improvement proposals;
see their future with the Company.

The Company plans to run a series of initiatives to increase employee engagement and motivate staff to boost their performance.

Offices for operating, social and labour relations

Handling of queries and complaints is key to the transparent and effective dialogue with employees and local communities. In addition to the Corporate Trust Service, the Company launched offices for operating, social and labour relations back in 2003. They are primarily tasked with response to employee queries, control of their processing, and prompt resolving of conflicts. On a monthly basis, the offices monitor the staff’s social status. In 2017, the Group’s units in the Norilsk Industrial District ran 24 offices that received over 54,000 queries and requests mostly from employees (77%), former employees (22%) and local communities (1%).

Dialogue with authorities, communities and non-profit organisations 103-2

The Norilsk Nickel Group’s guiding principles in cooperating with government bodies, local authorities and non-profit organisations are strict compliance with Russian laws, regional and municipal regulations and the social responsibility principle, collaboration, and mutual respect of interests.

In 2017, MMC Norilsk Nickel approved the Local Community Relations Policy aimed at maintaining a favourable social climate and comfortable living environment across the Company’s footprint.

Following the information transparency principle, Nornickel initiated an open dialogue with local authorities to build constructive and effective cooperation. In December 2017, Elena Bezdenezhnykh, Vice President / State Secretary, Head of Government Relations at MMC Norilsk Nickel, spoke in front of the Legislative Assembly of the Krasnoyarsk Territory for the third time, presenting the Company’s preliminary results for 2017 and plans for 2018. This year, we expect to roll out this initiative into other regions of operation¹.

The Company is represented in 23 committees, commissions, expert and working groups established by governmental bodies in association with the business community, thus supporting socially important projects. Representatives of the Company take part in parliamentary sessions and round table discussions organised by the Federation Council and State Duma of the Federal Assembly of the Russian Federation, Government of the Russian Federation, Russian Union of Industrialists and Entrepreneurs, Chamber of Commerce and Industry of the Russian Federation, Association of Managers interregional public organisation, etc.

In 2017, six Nornickel’s companies joined the Transport Security Association.

By participating in expert and working groups, commissions and public councils established by regional and local authorities, the Company expresses its interests and gets involved in solving social and economic issues across its geographies.

Nornickel is an active participant of conferences, forums and business events on a variety of topics involving policymakers and government officials, and drafts hands-on proposals to optimise and develop the legal framework.

Over the past year, the Company backed the following international and domestic conferences and forums: International Forum “The Arctic: Territory of Dialogue” (Arkhangelsk, Russia, official partner), Krasnoyarsk Economic Forum (Krasnoyarsk, Russia, general partner), Nevsky International Ecological Congress (St Petersburg, Russia, partner), St Petersburg International Economic Forum (St Petersburg, partner), Eastern Economic Forum (Vladivostok, Russia, business programme partner), ECOTECH International Exhibition and Forum (Moscow, Russia, official partner), and Murmansk International Business Week (Murmansk, Russia, partner).

Also, the Company took part in organising celebrations of the 350th anniversary of Dudinka and the 80th anniversary of Monchegorsk.

Cooperation agreements

In 2017, Nornickel signed a number of agreements with regional and local authorities as well as major Russian companies. The agreements covered a wide range of social and economic issues, including infrastructure projects.

The Company is represented in 23 committees, commissions, expert and working groups established by governmental bodies in association with the business community, thus supporting socially important projects. Representatives of the Company take part in parliamentary sessions and round table discussions organised by the Federation Council and State Duma of the Federal Assembly of the Russian Federation, Government of the Russian Federation, Russian Union of Industrialists and Entrepreneurs, Chamber of Commerce and Industry of the Russian Federation, Association of Managers interregional public organisation, etc.

In 2017, six Nornickel’s companies joined the Transport Security Association.

By participating in expert and working groups, commissions and public councils established by regional and local authorities, the Company expresses its interests and gets involved in solving social and economic issues across its geographies.

Nornickel is an active participant of conferences, forums and business events on a variety of topics involving policymakers and government officials, and drafts hands-on proposals to optimise and develop the legal framework.

Over the past year, the Company backed the following international and domestic conferences and forums: International Forum “The Arctic: Territory of Dialogue” (Arkhangelsk, Russia, official partner), Krasnoyarsk Economic Forum (Krasnoyarsk, Russia, general partner), Nevsky International Ecological Congress (St Petersburg, Russia, partner), St Petersburg International Economic Forum (St Petersburg, partner), Eastern Economic Forum (Vladivostok, Russia, business programme partner), ECOTECH International Exhibition and Forum (Moscow, Russia, official partner), and Murmansk International Business Week (Murmansk, Russia, partner).

Also, the Company took part in organising celebrations of the 350th anniversary of Dudinka and the 80th anniversary of Monchegorsk.

Cooperation agreements

In 2017, Nornickel signed a number of agreements with regional and local authorities as well as major Russian companies. The agreements covered a wide range of social and economic issues, including infrastructure projects.

¹ On 26 January 2018 and 14 February 2018, Elena Bezdenezhnykh spoke at the extended meeting of the Murmansk Region Governor’s Economic Council and the extended meeting of the Legislative Assembly Council of the Trans-Baikal Territory.

Partners	Subject of agreement
Government of the Trans-Baikal Territory	Social and economic cooperation agreement under which the Company shall provide at least RUB 3.29 bn to finance social projects of the regional and local authorities until 2027 Cooperation agreement to develop the Relict Oaks State Reserve of regional significance
Administration of the Taimyrsky Dolgano-Nenetsky Municipal District (Krasnoyarsk Territory), Yenisey United Bank	Cooperation agreement to construct, purchase, upgrade and develop infrastructure and housing (Comfortable Taimyr project)
Governor of the Krasnoyarsk Territory	Cooperation agreement to develop education in metals and mining across the Krasnoyarsk Territory
Government of the Murmansk Region	Cooperation agreement as part of the Year of Environment and the Year of Specially Protected Natural Areas
Krasnoyarsk Administration	Cooperation agreement to improve the urban environment and territories near the entertainment park Bobrovy Log, the venue of the 29th Winter Universiade 2019
Ministry of Sports of the Krasnoyarsk Territory, Siberian Federal University	Cooperation agreement to develop regional sports and fitness and build a unique golf field in Krasnoyarsk

Relocation programme

Since 2011, the Company has been contributing to a long-term targeted federal programme to relocate people living in Norilsk and Dudinka to other Russian regions with favourable climate conditions.

The programme envisages relocation, over the span of 10 years, of over 11,000 families. The Company participates in the programme as a benefactor, with its donation totalling RUB 8.3 bn. Since the launch of the programme, the Company has contributed a total of RUB 6,161 bn to the Krasnoyarsk Territory budget, including RUB 0.83 bn in 2017.

During 2011–2017, 6,515 families purchased apartments and moved to regions with favourable climate conditions¹.

¹ As at December 2017.

Cooperation with law enforcement authorities

In 2017, the Company used public-private partnership schemes to implement projects in cooperation with:

the Federal Security Service of the Russian Federation on anti-terrorism and anti-sabotage security of the Group's critical infrastructures (fuel and energy utilities, transport infrastructure, etc.);
the Ministry of Internal Affairs of the Russian Federation to prevent stealing of products and materials containing precious and non-ferrous metals, maintain security at public events and take drug prevention and awareness measures;
the Federal Customs Service of Russia to prevent cross-border smuggling of metal-bearing materials;
the Ministry of the Russian Federation for Civil Defence, Emergencies and Elimination of Consequences of Natural Disasters (EMERCOM) to drill emergency responses and disaster relief operations;
the Federal Security Service and the Ministry of Defence of the Russian Federation to organise multi-service tactical training sessions on the Taimyr Peninsula.

Nornickel representatives participate in public and advisory boards of the Ministry of Internal Affairs, Investigative Committee, Federal Security Service, and the Transport Prosecutor's Office across the regions of operation.

The Company provides various types of support for non-profit veteran organisations of law enforcement and security agencies. On top of that, Nornickel provides patronage assistance to the General V. F. Margelov Nizhny Novgorod cadet corps in the Volga Federal District.

Over the year, the Company took part in 5 drills and 168 training sessions organised by the Federal Security Service, Ministry of Internal Affairs and EMERCOM in the Arctic region.

Environmental dialogue

Measures for reducing MMC Norilsk Nickel’s environmental footprint are constantly on the agenda of the Company and stakeholders. All internal and public events feature environmental discussions.

In 2017, Nornickel took part in the initiatives timed to the Year of Environment and the Year of Specially Protected Natural Areas in Russia, and continued interaction with its stakeholders in traditional ways:

signing a cooperation agreement with the Government of the Murmansk Region under which the Company shall provide funds for the arrangement of nature trails, continuous supervision and control in the nature park of the Rybachy and Sredny Peninsulas;
signing a cooperation agreement with the Government of the Trans-Baikal Territory to develop the Relict Oaks State Reserve in the Gazimuro-Zavodsky District;
continued cooperation with the World Wildlife Fund, Bellona Environmental Rights Centre, Environmental Chamber of Russia, All-Russian Society of Nature Conservation and other environmental institutions;
support to six international and domestic conferences and forums held in Arkhangelsk, St Petersburg, Vladivostok and Moscow to discuss environmental protection issues;
signing of the Environmental Charter of the Krasnoyarsk Territory;
hosting the Environmental Protection and Industrial Activity in the North conference in Krasnoyarsk. The event was attended by representatives of federal and regional authorities, major Siberian financial and industrial groups, scientific and environmental communities;
staging the Environmental Problems in the Metals Industry corporate workshop traditionally held in Moscow;
arranging visits of representatives of federal and regional authorities in October (Monchegorsk) and July (Norilsk) to showcase the Company’s environmental achievements in the regions of operation;
continued participation in the events of the Norwegian-Russian Intergovernmental Commission for Economic, Industrial and Scientific and Technical Cooperation, Joint Norwegian-Russian Environmental Commission, and Barents Euro-Arctic Council, with meetings taking place in Oslo (Norway), Nickel and Kirovsk (Murmansk Region, Russia); support to Russia-Norway Cross-Border Cooperation Days held in Nickel;
joining the Zero Negative Environmental Impact nationwide campaign by Kola MMC, with the smelting section of the PGM Concentrator idling for the entire day shift on 2 December 2017;
continued focus on support to nature reserves and biodiversity conservation in the regions of operation.

Dialogue in public non-financial reporting 102-43 102-46

Each year starting from 2003, the Company has been engaging in dialogues with stakeholders and organising opinion polls while drafting sustainability reports. Since 2014, these dialogues have been staged as part of the We Are the City! social technologies forum. Apart from the sustainability report, the meeting agenda features issues related to assessing the Company’s compliance with global initiatives, queries from local communities, government agencies and experts. Dialogues held while preparing the 2017 public non-financial report helped identify the UN Sustainable Development Goals and targets most relevant for the Company and the region.

According to an independent assessment report for the World of New Opportunities charitable programme, “hundreds of representatives from the regions of operation and dozens of experts take part in We Are the City! forums aimed at identifying current and prospective enthusiasts and creating an environment for them to get together and establish ties between themselves and invited experts, businesses and government agency representatives”.

Supply chain management

Supply chain is a set of interrelated resources and processes leveraged by Nornickel to create value all the way from obtaining goods, materials and services to delivering end products to the consumers. Supply chain management at Nornickel seeks to ensure continuous operation of the Group’s companies, high product quality and reliability of shipments to customers.

Supply

The importance of supply management within the Company depends on the impact it has on:

achievement of the Company’s strategic goals. The supply function plays a crucial role in the Company’s programme to enhance efficiency and cut costs.
occupational health and safety. The quality of sourced products and timely supplies have a material impact on occupational health and are directly linked to the workplace safety.
environment. An environmental impact is exerted throughout the life cycle of sourced products (manufacturing, transportation, storage, use and disposal) and is directly linked to demand planning, inventory management and logistics.
financial performance of the Group companies across the footprint. The Company is a major consumer of products ranging from construction materials to foods. As Nornickel is the only or key customer for many local businesses, partnership with the Group does not only give suppliers an opportunity to ensure seamless operation of their enterprises but also provides incentives for further growth.

The supply management function is designed to fully cater to the Company’s resource needs in a timely and efficient manner securing seamless operation of all production units and negotiating the best available procurement terms.

Nornickel employees are members of the Association of Procurement Directors, a professional association for the development of corporate procurement practices, and the Public Council of the Competitive Procurement Leaders Awards. Both organisations were established to shape, nurture and promote high professional standards in the realm of procurement activities.

The Company pays close attention to fostering ties with reliable domestic suppliers and contractors. Foreign suppliers are mainly engaged for delivering unique equipment or systems that do not have Russian equivalents. As at the end of 2017, the Company had 513 domestic and 37 foreign suppliers. 102-9

Requirements planning and supply management

Material requirements are determined based on production plans and the needs of other business lines. At the planning stage, the Company defines health, safety and environment, as well as other mandatory and optional product and supplier requirements, including availability of certificates, permits, and licences. Based on the stated requirements, a procurement plan is developed to strike a balance between the material needs and required resources.

The resources leveraged to meet the material needs include the Company's inventories and products purchased as per the procurement plan. The Company uses an inventory management model with no shortages taking into account the geography of its production assets and potential losses arising from delays in supplies. Inventory levels are determined based on the planned requirements, delivery times, projected delays, the number of defective items and variations of the average consumption volumes.

Accurate planning and availability of stock are key to uninterrupted operations at Nornickel. At the same time, the Company needs to focus on optimising inventory to minimise its working capital. Idle inventory, if any, is assessed based on production needs. Depending on the assessment results, the Company decides whether it is going to be:

used in production as and when needed;
sold;
written off and disposed of.

A wide range of IT systems are used for the purposes of requirements planning and inventory management.

Supplier selection

A supplier needs to be selected when there is no effective supply contract in place. The Company's supplier selection process is formalised and relies on the following key principles:

equitable treatment of suppliers competing to land the procurement contract;
development of objective and measurable criteria to assess the suppliers' offering;
division of procurement functions and responsibilities by roles;
a multi-step process of procurement decision-making.

Compliance with the above supplier selection criteria maximises the Company's benefits by helping to reasonably choose the best available offer.
Currently, the Company pursues the following procurement management goals:

developing standardised procurement approaches and processes;
ensuring procurement automation;
strengthening competition, including by admitting small and medium-sized businesses to the Company's procurement tenders;
developing supplier feedback channels;
preventing corruption and other abuses.

Procurement process

The Company's procurement activities are based on the formalised procedures and policies and are in full compliance with federal laws on procurement of goods, works and services by different categories of legal entities. The relevant regulations include Federal Law No. 223-FZ of 18 July 2011, Business Ethics Code of MMC Norilsk Nickel, the Company's Anti-Corruption Policy, Regulation on the Product Procurement Procedure for MMC Norilsk Nickel, and other by-laws of the Company.

The Company develops procurement policies for select materials and supplies that establish binding principles and approaches to procurement in specific product groups.

Procurement activities can be either centralised or organised individually by the Head Office, branches or Group enterprises. Depending on the expected purchase price, procurement can be organised either as a bidding procedure (tender), simple procurement, or simplified procurement. Procurement procedures may involve collective procurement bodies, such as the Tender Committee, tender commissions of the Head Office, procurement and tender commissions of the Group companies. The Company's Department for the Management of Tenders and Supply Process Methodology oversaw tenders by the Group companies and branches in Russia to purchase services worth over RUB 300 mln.

Stronger competition and procurement automation

The Company widely uses independent bidding platforms, such as Fabrikant.ru or B2B-Centre. In addition, to handle its centralised procurement activities Nornickel uses SAP SRM, an automated system for supplier relationship management. These solutions help improve the transparency of supplier selection and enhance the competitive environment as part of the procurement procedures.
MMC Norilsk Nickel pays close attention to developing relations with Russian suppliers and contractors, as they ensure the Company’s ability to meet its strategic targets. International suppliers are mainly engaged for delivering unique equipment or systems that do not currently have Russian equivalents.

Supplier feedback channels

To maintain an ongoing dialogue with suppliers, the Company's website has a dedicated Suppliers page, which provides key information on the Group's procurement principles and procedures and planned material requirements. The page also features announcements and invitations to participate in the Company's tenders.

In 2018, the Company plans to stage a supplier conference to keep its suppliers up to speed on Nornickel's procurement procedures and their role in the Group's production programme, but also to collect feedback on suppliers' experience working with MMC Norilsk Nickel.

Preventing corruption and other abuses

Before signing a contract, the Corporate Security evaluates the business reputation, reliability and solvency of potential counterparties with a view to mitigating potential risks.

To prevent procurement procedure abuses:

the procurement process relies on the role allocation principle (procurement owner, customer and organiser of the tender procedure acting on behalf of collective bodies);
business or technical and business proposals of qualified suppliers are compared based on objective and measurable criteria approved prior to the request of proposals stage;
the results of the qualification-based selection and the winner are approved by the collective procurement body comprising representatives from various functions of the Company.
On top of that, the Company has developed a standard anti-corruption clause to be included in contracts with counterparties.

Product quality and supply reliability

The Norilsk Nickel Group has achieved utmost efficiency in its production operations to provide the volumes, quality, and product range¹ that meet the needs of society while also fully complying with all applicable laws and HSE requirements.

Environmental and quality-related goals and objectives are in line with the Company’s strategic goals and are formulated in the management’s resolutions based on annual Corporate Integrated Management System performance reviews. To achieve the goals and objectives, the Company develops plans and programmes and then implements them, monitors the status of target parameters, and assesses performance.

In 2017, Nornickel’s management systems successfully passed an independent recertification audit, while the systems of Kola MMC, Gipronickel Institute and Norilsk Nickel Harjavalta were subjected to surveillance audits. A total of 182 employees (14 in the Head Office and 168 in the Group companies) underwent training in quality management.

Saleable products offered by MMC Norilsk Nickel’s Polar Division include copper cathodes, technical selenium (powder), platinum group metal concentrates (powder), crude silver (powder), commercial lump sulphur and copper-nickel converter matte (bars). M00k copper cathodes are certified in the GOST R certification system for compliance with the applicable product regulations and are registered on the London Metal Exchange under the NORILSK brand. 102-2

Kola MMC’s products (electrolytic nickel, carbonyl nickel powder, carbonyl nickel pellets, electrolytic copper, electrolytic cobalt, cobalt concentrate, precious metal concentrates, and sulphuric acid) do not require mandatory certification and are not certified against Russian regulatory standards. Products are labelled in accordance with the GOST and TU requirements. At the same time, Kola MMC’s cathode nickel brands of SEVERONICKEL COMBINE H-1Y and SEVERONICKEL COMBINE H-1 are registered on the London Metal Exchange and Shanghai Futures Exchange.

In terms of sustainable development, the prospective application areas for Nornickel metals include lithium-ion batteries, electric engines for vehicles, hydrogen fuel cells and healthcare.

The Company's production processes comply with the applicable technological safety requirements as confirmed by holding 63 government licences.

Information on the consumer properties of each product (including any associated hazards or lack thereof) is provided in the relevant specifications and contractual documentation. Compliance with the applicable requirements is ensured through the product quality assurance procedures involving the issuance of all statutory documents.

Labelling requirements to inform the consumers of potential health effects and hazards are set out in the relevant specifications. All the documents are issued by authorised bodies in line with the applicable regulations of the Russian Federation.

Production units of Polar Division and Kola MMC assess the quality of all relevant product categories and make related disclosures as required by the applicable regulations. The impact on consumers' health and the environment is assessed for all categories of saleable goods and some semi-finished products, with 21 Information Cards for Potentially Hazardous Chemical and Biological Substances having been completed so far. To eliminate risks during transportation of saleable goods 34 Product Safety Certificates have been issued, including four REACH-compliant certificates.

The Company's goods are labelled to keep the consumers and carriers informed about key properties of the products (including those destined for exports). The labelling rules are set out in product-specific regulations and take into account the GOST 4192-96 (Labelling) requirements and contractual obligations. To ensure compliance with Regulation (EC) No. 1272/2008 on Classification, Labelling and Packaging of Substances and Mixtures, Nornickel ordered protective labels to be developed for tellurium and updated the existing protective labels for technical selenium.

¹ The Company’s products, when used as intended, fall in the category of those that change their properties almost completely: nickel is used in alloys; copper is mostly used in construction and manufacturing of electric and electronic devices; platinum and palladium as chemical compounds are mainly used in autocatalysts; and nickel salts are used in a variety of industries.

Saleable products offered by Norilsk Nickel Harjavalta Oy include nickel cathodes, nickel briquettes, nickel powder, nickel salts and cobalt sulphate. Nickel brands of NORILSK NICKEL HARJAVALTA CATHODES and NORILSK NICKEL HARJAVALTA BRIQUETTES are registered on the London Metal Exchange.

In 2017, the Company faced no major fines for a failure to comply with product supply rules and requirements.

2017 saw successful completion of the first performance assessment audit held at Polar Division, Kola MMC and Norilsk Nickel Harjavalta Oy to certify compliance with the Together for Sustainability targets. The TfS initiative seeks to leverage best global practices to develop environmental, health, safety, workplace, human rights, management and corporate governance requirements for members of the TfS partnership and their suppliers.

Sales policy
In sales, the Company focuses on building long-term strategic relationships with key market players. The Company’s customer base includes around 400 clients (mostly industrial consumers). Nornickel sells its products on all key markets, with its footprint spanning 34 countries as at the end of 2017. 102-4 102-6

Customer satisfaction monitoring
Consumers of the Company’s key products are surveyed to assess their satisfaction on an annual basis, while buyers of sulphuric acid are asked to complete relevant questionnaires once in three years. Compliance with contractual obligations is audited and analysed on an ongoing basis.

The main criterion for customer satisfaction is maintaining or exceeding the target satisfaction level at 2.5 points (out of 3 points). Key customer satisfaction surveys must cover at least 50% of the Company’s total product sales.

According to the 2017 survey, the customer satisfaction level stood at 2.58 points.

In 2017, the Company received 39 complaints and grievances about its product or service quality and achieved out of court settlement for all of them by meeting the demands of consumers (14 complaints were deemed unfounded), with remedial action plans developed to address all well-grounded grievances.

Dialogue with business partners

In terms of both infrastructure and methodology, the Company makes a significant contribution to the promotion of responsible consumption in the segment of precious metals and metal-bearing products.

As a member of the International Nickel Institute, Nornickel participated in the development of a database to help the Institute assess the environmental footprint of nickel and NPI products.

In 2015–2016, Nornickel took part in the drafting of Russia’s informational and technical reference books on the best available technologies. Those books included Nickel and Cobalt Production, Copper Production, Production and Enrichment of Non-Ferrous Ores, Production and Enrichment of Iron Ores, Fuel Burning to Produce Energy at Large Plants, Mining Industry: General Processes and Methods, Production of Precious Metals, etc.

Nornickel is an active partner of the International Platinum Group Metals Association (IPA) and the United Nations Interregional Crime and Justice Research Institute (UNICRI) in their efforts to counter illicit trafficking of precious metals.

Under the auspices of the IPA, Nornickel joined forces with the UNICRI to launch a programme for investigating possible links between transnational organised crime and illicit trafficking of precious metals and look into ways and methods of eradicating the malpractices. The programme is based on UN ECOSOC Resolution No. 2013/38 adopted at the initiative of the Russian and South African Ministries of Foreign Affairs, and Nornickel.

During the Second South African–Russian Platinum Group Metals Conference staged in October 2017 by the Russian Ministry of Natural Resources and Environment, Nornickel proposed to set up a permanent body under the South African–Russian Intergovernmental Committee on Trade and Economic Cooperation to coordinate activities aimed at countering embezzlement and illicit trafficking of materials containing precious metals.

As a member of the International Information Security Research Consortium (IISRC), Nornickel can participate in crafting of the global information security agenda.

During an information security forum in Garmisch-Partenkirchen (Germany), Nornickel came up with an idea to draft an International Information Security Charter for Critical Industrial Facilities, which would represent a code of ethical conduct in the cyber environment. The initiative was approved by the forum participants and gained additional traction during the Cyber Stability: Approaches, Prospects, Challenges international conference held in Moscow in December 2017. In furtherance of the above initiatives, in October 2017, Nornickel sponsored the creation of Club of Information Security in Industry, a cross-industry association bringing together heads of information security divisions from Russia’s leading industrial companies

Nornickel is an active partner of the International Platinum Group Metals Association (IPA) and the United Nations Interregional Crime and Justice Research Institute (UNICRI) in their efforts to counter illicit trafficking of precious metals.

During an information security forum in Garmisch-Partenkirchen (Germany), Nornickel came up with an idea to draft an International Information Security Charter for Critical Industrial Facilities, which would represent a code of ethical conduct in the cyber environment. The initiative was approved by the forum participants and gained additional traction during the Cyber Stability: Approaches, Prospects, Challenges international conference held in Moscow in December 2017. In furtherance of the above initiatives, in October 2017, Nornickel sponsored the creation of Club of Information Security in Industry, a cross-industry association bringing together heads of information security divisions from Russia’s leading industrial companies.

R&D

R&D plays an important role in the implementation of Nornickel's strategy. The findings of R&D, technological development and feasibility studies help improve operating efficiency, upgrade the upstream project portfolio, and also develop and implement the Company's environmental programme.

The Group's main R&D facility is Gipronickel Institute, one of Russia's largest research and engineering centres for mining, metallurgy, concentration and processing of minerals. In addition to Gipronickel Institute, the Company engaged over 35 domestic and foreign research and engineering companies along with the Russian universities.

To improve the quality of decisions related to research and technology, the Company established an R&D Panel back in 2013.

Nornickel's Office for Chemical Forensic Analysis represents a standalone line of the Group's R&D activity. In 2017, the Office employees were the main driving force behind the significant expansion and update of the mining products databank. The databank contains information on nearly 400 products of Nornickel Group (based on 20,000 repeated samples), 120 products of other metals and mining companies, 4,500 minerals, and 3,000 metal alloys. The databank is designed as an intelligent information retrieval wizard rather than a standard set of unrelated certificates. It is a powerful software tool currently used for the identification of unknown substances not only by our Office for Chemical Forensic Analysis but also by a number of law enforcement laboratories.

Key metal sales in 2017 by region, %

Markets and production volumes^*

Market	2017		Short-term projections	Mid-term fundamentals	Long-term fundamentals	Company’s production volume in 2017
Market	Market description	Price evolution	Short-term projections	Mid-term fundamentals	Long-term fundamentals	Company’s production volume in 2017
Nickel market	Deficit	High volatility	Deficit			217,112 t
Palladium market	Deficit	Strong growth	Deficit			2,780 koz
Platinum market	Balanced	Decline	Balanced			670 koz
Refined copper market	Slight deficit	Strong growth	Balanced			401,083 t

^* For more details on the Company’s key metal markets, see the 2017 Annual Report. AR-2017

Transparency

Enhanced transparency and information availability are the key guiding principles of MMC Norilsk Nickel in all of its pursuits. In 2016, the Board of Directors approved Nornickel’s Information Policy Regulations, with the Company undertaking to provide its stakeholders with material information and go beyond the mandatory disclosure requirements of the Russian law.

The key principles underlying the Company’s information policy include regularity, timeliness, accessibility, reliability, completeness, balanced approach, impartiality and safety of information resources. The Company discloses information about its strategy and mission, policies, key events and operating results, while also publishing sustainability and annual reports.

The Company posts relevant data on its official website and corporate pages in social media. It also holds press conferences, briefings and conference calls. 2017 saw the launch of Nornickel’s updated corporate site (www.nornickel.com), which received positive response from the expert community. The Company has built close working relations with representatives of the mass media, including the leading business publications, news agencies and TV channels in Russia and all over the world.

An important focus area of 2017 was the continued enhancement of the Company’s social media presence through dedicated corporate pages to further underpin transparency and level off geographic differences in information sources by promoting equal opportunities and providing every online user with direct access to data on Nornickel.

In 2017, the media published a total of more than 96,000 pieces about the Company, including approximately 50 interviews with Nornickel’s executives. The coverage included production and financial releases about the Company, publications about its growth plans, social initiatives, environmental and local development projects. In 2017, coverage intensity increased by 49% for local media, 43% for the international press and 8.5% for the federal outlets.

Construction of a fibre optic communication line between Novy Urengoy and Norilsk was one of the reasons behind a stronger media focus on Norilsk and Nornickel. The launch of Bystrinsky GOK came as yet another highlight, as its sheer scale and timeline make it comparable to the grand construction projects of the industrialisation era. The project’s CAPEX exceeded RUB 90 bn. The facility boasts many unique characteristics: the state-of-the-art production technologies will help preserve the pristine nature of the Trans-Baikal Territory, while also enhancing the production base and creating new high-productivity jobs to improve the local investment climate and encourage long-term sustainable development of the region.

Nornickel’s charitable projects also remained in the media spotlight, with particular attention given to the Our Home and My Home (designed to provide support to the Company’s most valuable employees) and World of New Opportunities programmes. As regards sponsorship projects, most interest was shown for the Company’s collaboration with the Golden Mask Festival and a joint project with museums from nine Russian regions dubbed Conquering of the North: a Millennium of Success. In sports, the centre stage was taken by the Company’s sponsorship of the 2019 Winter Universiade in Krasnoyarsk, with Nornickel acting as the General Partner and working in close cooperation with the International University Sports Federation (FISU).

Sustainability management

Key sustainability by-laws 102-26

Responsible investment

Corporate governance

Governance structure 102-18 102-20

Operational sustainability management

Nornickel’s operational management 102-18 102-20

Remuneration

Remuneration payable to members of the governance bodies

Employee performance management system

Competency assessment in 2017

Employees covered by assessment in Russia, FTEs

Assessment of the Group companies' employees in Russia, % of average headcount

Risk management framework

Insurance

Key sustainability risks, risk factors and mitigants

Corporate security

Information technologies

Corporate security focus areas

Economic efficiency

Financial highlights

Direct economic value generated and distributed3 201-1

Direct economic value generated and distributed

Dividend policy

Stakeholder engagement

Stakeholders and interaction mechanisms

Dialogue with shareholders and investors

Dialogue with employees

Social partnership framework

Employee engagement survey

Offices for operating, social and labour relations

Dialogue with authorities, communities and non-profit organisations 103-2

Cooperation agreements

Cooperation agreements

Relocation programme

Cooperation with law enforcement authorities

Environmental dialogue

Dialogue in public non-financial reporting 102-43 102-46

Supply chain management

Supply

Requirements planning and supply management

Supplier selection

Procurement process

Stronger competition and procurement automation

Supplier feedback channels

Preventing corruption and other abuses

Control of non-financial factors in supplier relations 103-2

Product quality and supply reliability

Product quality and supply reliability

Corporate Integrated Management System (CIMS)

Dialogue with business partners

R&D

Markets and production volumes*

Transparency

Direct economic value generated and distributed³ 201-1

Markets and production volumes^*