Selling and Distribution Expenses

Selling and distribution expenses decreased 32% (or USD 36 million) to USD 75 million due to the cancellation of PGM export duties in September 2016 as part of Russian Federation’s WTO membership terms (USD 60 million cost reduction), which was partly negatively offset by increase of transportation expenses primarily due to increase of semi-product sales.

USD million	2017	2016	Change,%
Transportation expenses	38	23	65%
Staff costs	13	13	0%
Marketing expenses	14	7	100%
Export duties	1	61	(98%)
Other	9	7	29%
Total	75	111	(32%)

General and Administrative Expenses

USD million	2017	2016	Change,%
Staff costs	478	376	27%
Taxes other than mineral extraction tax and income tax	79	58	36%
Third party services	72	55	31%
Depreciation and amortisation	32	20	60%
Rent expenses	25	19	32%
Transportation expenses	8	6	33%
Other	65	47	38%
Total	759	581	31%

• In 2017, general and administrative expenses increased by 31% (or USD 178 million) to USD 759 million. Rouble appreciation contributed to USD 71 million cost increase. General and administrative expenses increased in real terms due to the following:
• USD 38 million – increase in staff costs mainly due to salaries indexation;
• USD 30 million – increase of costs, resulting from the automatization of production processes and roll out of new IT systems, including USD 17 million of staff costs;
• USD 20 million –higher property tax and amortisation charges.

Other Net Operating Expenses

USD million	2017	2016	Change,%
Social expenses	303	111	173%
Change in allowance for doubtful debts	19	14	36%
Change in allowaOce for obsolete and slow-moving inventory	11	(2)	n.a.
Change in provision for reconfiguration of production facilities	(4)	(33)	(88%)
Other	33	(6)	n.a.
Total	362	84	4x

In 2017, other net operating expenses increased by USD 278 million to USD 362 million owing to one-off social expenses including an estimated provisional cost of long-term social agreement with the government of Zabaikalsky Krai and expenses attributed to the development of skiing resort in Sochi.

Other increase of other net operating expenses was primarily driven by change in allowances for doubtful debts, obsolete and slow-moving inventory and other current assets in line with annual stock counts as well as reversal of provision for reconfiguration of production facilities in 2016.

Finance Costs

USD million	2017	2016	Change,%
Interest expense on borrowings net of amounts capitalized	386	403	(4%)
Unwinding of discount on provisions and payables	133	46	189%
Other	16	4	4x
Total	535	453	18%

Increase in finance costs by 18% y-o-y to USD 535 million was mainly driven by increase of Unwinding of discount on provisions and payables.

In 2017, the Company reduced the average cost of debt to the level of 4.6% as of year-end 2017 from 5.1% as of year-end 2016 due to the consistent implementation of financial policy targets that enabled to partially offset the multiple increase of base rates (Libor) in the current period.

Major factors of the decrease of the average cost of debt:

• Reduction of funding cost of more expensive Rouble denominated debt in credit portfolio by its substitution by Dollar denominated debt in 1H2017, together with the reduction of interest rate of the bilateral Rouble denominated credit line in the amount of RUB 60 billion in October 2017.
• Partial refinancing of more expensive bilateral credit lines by proceeds of 5-year syndicated facility in the amount of USD 2.5 billion under which Nornickel has achieved one of the lowest interest rates of Libor 1M+1.50% per annum available for Russian corporates on international syndicated market since 2008 for the transactions of such size and term. In addition, Nornickel managed to reduce interest rates under the rest Dollar denominated bilateral credit lines within the Group’s portfolio.
• In July 2017, the Company reached an agreement with PJSC Sberbank to reduce interest rate under GRK Bystrinskoye LLC project financing by issuing guarantee on behalf of PJSC MMC Norilsk Nickel to secure performance obligations of GRK Bystrinskoye LLC.

Income Tax Expense

In 2017 income tax expense decreased by 3% to USD 719 million driven mostly by the decrease of taxable profit, partly offset by Russian rouble appreciation against US Dollar in 2017.

The effective income tax rate in 2017 of 25.3% was above the Russian statutory tax rate of 20%, which was primarily driven by non-deductible social expenses, as well as an increase in provisions for impairment of property, plant and equipment.

USD million	2017	2016	Change,%
Current income tax expense	686	686	0%
Deferred tax expense	35	59	(41%)
Total	721	745	(3%)

USD million	2017	2016	Change,%
Russian Federation	672	679	(1%)
Finland	8	5	60%
Rest of the world	6	2	3x
Total	686	686	0%