Company \ Strategy

OMK is a dynamic modern company and one of the leaders in Russia's metallurgy industry

Vision

We strive to become the most efficient company in the Russian iron and steel industry manufacturing products for the pipe and metallurgical market. Our aim is to achieve a successfully balanced diversification and deep integration of our production and, thus, protect the Company from any declines in specific markets and process stages.

Mission

We contribute to the creation of environmentally safe global energy and transport communications and help our clients to provide high-quality passenger and cargo transportation services without any distance limitations.

Corporate Values

· Ensuring maximum return on equity capital;

· Respect for and trust in employees and partners;

· Support for innovations and continuous improvement of product quality;

· Observing a balance of interests of shareholders, top managers, and employees

Corporate Business Conduct Principles

Striving for leading positions in key markets;

Concentrating production and investments on a limited number of the most promising production sites;

Balanced diversification of production;

Vertical integration of OMK’s entities and new production units, increasing the share of controlled costs;

Introducing new technologies and equipment, continuous search for and implementation of more and more advanced process solutions;

Personnel development;

Enhancing transparency of the Company’s business;

Through successful development of our business, we contribute to the development of the areas included in our business coverage;

We are client-oriented and active in creating the demand for our products;

We build our relations with clients and partners on a long-term basis;

We make efforts to constantly enhance our operational efficiency

We pay special attention to the management of unit consumption and critical resources (labor, energy, and transport) in terms of their availability and costs.

Our decisions in terms of management of such resources are considered to be the measures toward enhancing competitiveness of the whole Group and its separate businesses. In this regard, we intend to lower risks and decrease the cost share in the next three years.

With regard to its personnel management, OMK will approve and consistently implement the principles for developing the internal policy for personnel selection, maintenance, and training. The Company’s objective is to double by 2012 its labor productivity in terms of profit per employee.

With regard to energy supply management, the Company is implementing the Program for Energy Saving and taking measures to satisfy its growing needs.

OMK is implementing the Program for Transport Risk Management and Logistical Optimization and creating the relevant infrastructure for a successful execution of the Company’s plan for increasing to increase the production in the Russian and foreign markets. For the implementation of the Company’s strategy, it is necessary to enhance the integration of the Group’s entities.

Main Stages of the Group Development Strategy

Accordingly, the goal of the OMK long-term strategy is to achieve leading positions in the key markets and in terms of operational efficiency through maximizing the share of controlled costs, among other things.

Large-Diameter Pipes

Based on the 2010 results, OMK accounted 24% of Russia’s total pipe production, including more than 42% for large-diameter pipes.

OMK’s leading positions are maintained through the availability of two modern lines for production of large-diameter welded pipes and lines for pipe coating. This enables the Company to produce a wide range of pipes of 508 mm to 1,420 mm in diameter and wall thicknesses of up to 48 mm, while the flexibility in terms of distributing orders among different mills makes it possible to maximize the profit on production. The quality of OMK’s products is as high as that of foreign manufacturers, which is evidenced by the Company’s successful bidding for the Sakhalin projects. In May 2006, OMK completed the delivery of conductor pipes (diameter: 726 mm; wall thickness: 38.1 mm) for the offshore production platforms of the Lunskoye and Piltun fields under the Sakhalin 2 project. The pipes were designed for harsh ice conditions in areas with the seismic activity as high as magnitude 9.

OMK plans to retain its leading positions in the LDP market, while developing together with the market, satisfying the growing demand, and developing new target markets in non-FSU countries. To this end, in 2006, a project related to the installation of the second molding press was launched. The press enabled OMK to increase in 2008 the capacity for production of 1,420-mm pipes up to 950 thousand tonnes a year.

In 2006, one of the key events for the Company was the decision to construct of the Mill 5000 metallurgical facilities with a production capacity of 1.2 million tonnes of sheets a year. It is planned to place the steelmaking facilities at Chusovoy Metallurgical Works and the rolling facilities in Vyksa in close proximity to the pipe production. This project will enable OMK to complete the construction of a vertical integrated chain and gain control over production costs, steel quality, and reduce the timeframe of LDP order execution.

The implementation of this project will be an important milestone in the development of the Company’s Pipe-Rolling Division and Steel Works Division, as the project requires a comprehensive reconstruction of CMW and will involve the Company’s key businesses.

One of the key events for the Company in 2007 was that it signed an agreement for supplying large-diameter pipes under the Nord Stream project in 2008–2009. In early 2007, to gain access to the bidding, OMK obtained the certificate confirming compliance of its production technology to DNV-OS-F101 for subsea pipeline systems and became Russia's and the CIS's first qualified producer of pipes according to that standard.

OMK’s main events in 2009 included the following:

In April, OMK signed an agreement for the delivery of large-diameter pipes for the construction of the OML 58 O.U.R. (Obite–Ubeta–Rumuji) main gas pipeline in Nigeria.

VSW shipped more than 200 thousand large-diameter pipes for the construction of the first link of the Nord Stream subsea gas pipeline. Under this project, VSW produced 5.5 thousand tonnes of large-diameter pipes with wall thickness of 41 mm.

In June, VSW shipped 200 thousand tonnes of large-diameter pipes for the transnational program for the construction of the Central Asia–China (CAC) main gas pipeline.

Small- and Medium-Diameter Pipes

The OMK strategy in the MDP market, given the increasingly bitter competition in 2010, is about clear-cut market segmentation, setting high priorities, focusing on pipe segments with enhanced characteristics, and preparedness for price competition under intensive competitive pressures. One of the Company's key opportunities in MDP markets, after the launch of the CRC project, is achieving synergy of its pipe and steel-coil businesses and gaining through profits in the entire coil and pipe production process.

Pipeline Fittings

OMK considers Trubodetal as a strategic investment in its new PF business, having prerequisites for integration into and synergy with its existing businesses.

One of the key areas of the PF business development is to create facilities for the production of T-shaped pipes designed for high pressures. This project will enable Trubodetal to become Russia's unique supplier of large-diameter T-shaped pipes designed for high pressures and is in line with the long-term market demand. ОМК also plans to implement a project for modernizing the manufacture of cold-formed products, which will make it possible to satisfy our clients’ needs in a more integrated manner.

The main directions for Trubodetal’s development and enhancement of its operational efficiency are as follows:

• to accelerate fulfillment of orders due to the reorganization of internal processes;

• to maintain key competitive advantages in the market and restrain competition through cooperation (alliances) with other market participants;

• to launch niche products — HFC elbows for DIN, PF up to 15 MPa;

• to create a system for market forecasting and market change forecasting for more efficient strategy development and implementation in the PF market.