About this report
The purpose of this integrated
report is to inform the reader
about all material issues that have
the potential to impact our business,
and to help the reader understand
how this influences our strategy, our
operations, our financial performance,
the long-term sustainability of our
business and the value we seek to
create for our stakeholders. In this
report, we seek to answer the eight
questions that integrated reporting
is meant to address:
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What does the organisation do
and what are the circumstances
under which it operates?
How does the organisation’s
governance structure support
its ability to create value for
stakeholders in the short,
medium and long-term?
What is the organisation’s
business model?
What are the specific risks and
opportunities which affect the
organisation’s ability to create
value for stakeholders in the short,
medium and long-term?
What are the company’s key strategic
goals and how does it intend to
achieve them?
To what extent has the organisation
achieved its strategic objectives for
the period and what was the effect
on the value of the company for
stakeholders?
What are the key challenges and
uncertainties that the organisation
is likely to encounter in pursuing its
strategy and what are the potential
implications for the business model
and future performance?
How does the organisation
determine which matters are
worth including in the integrated
report and how are such matters
quantified or evaluated?
Determining our material issues
Information within this report has been
compiled after conducting a process
to determine and assess PhosAgro’s
material financial and non-financial
issues. We did this by running both
internal and external surveys supervised
by senior management. Clearly matters
for inclusion in the report are also
determined by its scope and relate
to the businesses over which the
organisation has operational control.
Survey process
Internally, we surveyed the heads
of our structural divisions and
our key production facilities.
Externally, we surveyed analysts
and investors, representatives of
federal and regional mass media,
municipal and regional authorities,
trade union leaders and employees
at our production facilities.
Regional media were also examined
to determine matters that are
important to the people living in
the areas where the Company has
an operational presence.
Timing
The last survey process was
conducted in 2014, and we intend
to conduct similar surveys regularly
in the future to ensure that our
understanding of the key material
issues is kept up to date and that we
meet our stakeholders’ expectations
concerning the management and
operation of our businesses.
Last year, we published our first
integrated report, and this year we
have tried hard to identify what could
be improved and better reported.
We have set a high bar for ourselves:
we continue to work within the
framework of the GRI G4 standard
for sustainability reporting. This process
involves not only evolving how we report
externally, but also adapting the way
in which we evaluate our business
internally in order to ensure that we
consider the full spectrum of issues
as part of our decision-making process.
Our goal with this integrated report is to
explain our business model and strategy,
how we cooperate with our stakeholders,
how we manage material issues and key
risks and what our key achievements
were in 2015.
Corporate responsibility
Our best-quality resource base
is one of the keys to our success.
PhosAgro’s long-term strategy is
aimed at further increasing internal
processing of our own phosphate rock,
as well as maintaining our industry-
leading low cash cost position.
In addition, in order to secure the
long-term sustainability of our business
model and our operations in Russia,
we take a broader view of our interaction
with stakeholders and the material
issues that could affect our business.
With this report, we want to shed more
light on the extent to which we invest
in human capital, health and safety,
and the local communities in the regions
where we operate. We provide more
details on how our governance systems
have been adapted to address business
conduct issues, what we are doing to
diminish our impact on the environment
and how we maintain relationships with
our key stakeholders.
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As a vertically integrated
business, we process our
apatite-nepheline ore at our
own production sites into
over 33 grades of fertilizers
and other end products;
we sell fertilizers through
our own distribution and
sales network in Russia,
as well as with the help
of our own sales offices
in priority markets like
Latin America, Europe
and Asia. Our own logistics
operations, including a
fleet of railcars and a port
in Ust-Luga, also help us
maintain our sustainable
low cash-cost advantage.
Additional information
Shareholder information
Glossary
Names of legal entities
used in this report
Contacts
132
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137
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PhosAgro is a Russia-based company and
one of the world’s leading phosphate-based
fertilizer producers, with a sustainable cost
advantage compared to other producers
globally. Our unique, high-quality phosphate
raw material from the Apatit mine and
beneficiation plant on the Kola Peninsula
in north-west Russia helps us to remain one
of the lowest cash-cost producers globally.
This raw material, called apatite-nepheline
ore, contains almost no cadmium and other
harmful elements, making it safer to use in
the manufacture of mineral fertilizers that
will be used around the world, at a time
when the safety of the food supply chain
is becoming increasingly important.
Contents
Strategic report
Year at a glance
Chairman’s statement
Meeting our customers’
requirements
Where we operate
Market overview
Chief Executive
Officer’s statement
Business model
Our assets
What makes us different
Strategy
Operational review
Financial review
Environment review
Health and safety review
People review
Community
investment review
Business conduct review
Stakeholder engagement
Managing our risk
2
4
6
7
10
14
18
20
22
24
30
34
40
46
48
54
58
60
66
Corporate governance
Board of Directors
Corporate governance
Management responsibility
statement
Financials
Auditors’ report
Consolidated statement
of profit or loss and other
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
74
76
90
92
93
94
95
96
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Our vision
Our purpose
We want to bring ready
crop nutrient solutions
to the farmers from over
100 countries around the
world who are our end
customers, helping them
to meet increasing global
demand for food by growing
superior-quality crops.
Our strategy until 2020 calls
for investments in upstream,
downstream, logistics and
sales operations, all with the
goal of improving our ability
to efficiently provide the
best mineral fertilizers to
farmers nearly anywhere
in the world.
These investments build value for our
shareholders by enabling us to increase
our internal use of apatite-nepheline ore
for value-added end products, to achieve
sustainable cost savings with more efficient
technologies or vertical integration of
key parts of the value chain, which
ultimately enables farmers to grow crops
more efficiently and to provide better
quality food to all of us.
We help the world feed
itself by producing mineral
fertilizers that increase
the output, quality and
heartiness of crops.
By 2050, the global
population is expected
to expand to 9.6 billion
people, which implies a 60%
increase in demand for soft
commodities just to feed
the increased population.
Other factors, such as
changing diets and
alternative uses for soft
commodities like ethanol
fuels, add to this already
impressive growth
in demand.
We believe that, by implementing our
strategy aimed at strengthening our core
sustainable advantages, we will build
a business that best serves the local
communities where we work and the
farmers all over the world who use our
products, as well as our investors and
other stakeholders.
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As a vertically integrated
business, we process our
apatite-nepheline ore at our
own production sites into
over 33 grades of fertilizers
and other end products;
we sell fertilizers through
our own distribution and
sales network in Russia,
as well as with the help
of our own sales offices
in priority markets like
Latin America, Europe
and Asia. Our own logistics
operations, including a
fleet of railcars and a port
in Ust-Luga, also help us
maintain our sustainable
low cash-cost advantage.
Additional information
Shareholder information
Glossary
Names of legal entities
used in this report
Contacts
132
134
137
138
PhosAgro is a Russia-based company and
one of the world’s leading phosphate-based
fertilizer producers, with a sustainable cost
advantage compared to other producers
globally. Our unique, high-quality phosphate
raw material from the Apatit mine and
beneficiation plant on the Kola Peninsula
in north-west Russia helps us to remain one
of the lowest cash-cost producers globally.
This raw material, called apatite-nepheline
ore, contains almost no cadmium and other
harmful elements, making it safer to use in
the manufacture of mineral fertilizers that
will be used around the world, at a time
when the safety of the food supply chain
is becoming increasingly important.
Contents
Strategic report
Year at a glance
Chairman’s statement
Meeting our customers’
requirements
Where we operate
Market overview
Chief Executive
Officer’s statement
Business model
Our assets
What makes us different
Strategy
Operational review
Financial review
Environment review
Health and safety review
People review
Community
investment review
Business conduct review
Stakeholder engagement
Managing our risk
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4
6
7
10
14
18
20
22
24
30
34
40
46
48
54
58
60
66
Corporate governance
Board of Directors
Corporate governance
Management responsibility
statement
Financials
Auditors’ report
Consolidated statement
of profit or loss and other
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
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76
90
92
93
94
95
96
97
Year at a glance
Financial highlights
In 2015 the Company delivered
record financial results: revenue was
RUB 189.7 billion, while EBITDA more
than doubled, reaching RUB 82.5 billion.
Backed by solid cash flows, this strong
performance helped PhosAgro maintain
its investment-grade credit rating
from Standard & Poors while making
RUB 42.6 billion in capital expenditure
and paying out RUB 18.1 billion in
dividends to shareholders.
Corporate responsibility highlights
We continue to invest in improving
the efficiency of our operations,
as well as in maintaining leading
workplace health and safety solutions.
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Operating highlights
•
Commissioned Main Shaft No 2 at
the Kirov Mine at Apatit, enabling us to
make significant efficiency improvements
and to replace old capacities that are
being wound down. This will increase the
annual capacity of the Kirov mine from
13.0 million tonnes to 16.5 million tonnes
•
•
In cooperation with UC Rusal, we
commissioned an aluminium fluoride
production plant in Cherepovets with
an annual capacity of 43,000 tonnes.
The aluminium fluoride will be used
as feedstock at UC Rusal plants
Launched the PKS-100 line at Metachem.
This entirely new 100 kt/year production
capacity will produce phosphate-potash
fertilizers that contain sulphur, which is a
unique nutrient combination designed for
farmers in our priority markets like Brazil
•
Launched Smart Bulk Terminal in the
Ust-Luga port, which will give us sustainable
cost savings on port and rail charges.
Revenue,
RUB bln
2015
2014
2013
2012
2011
Dividend payout ratio*,
%
2015
2014
2013
2012
2011
EBITDA margin,
%
2015
2014
2013
2012
2011
123.1
104.6
105.3
100.5
189.7
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52
43
43
43
44
23
31
33
35
* dividends accrued for a given year
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EBITDA,
RUB bln
2015
2014
2013
2012
2011
23.9
37.6
34.9
35.4
Cash flow from operating activities,
RUB bln
2015
2014
2013
2012
2011
17.9
27.5
25.5
32.4
Net debt/EBITDA
82.5
63.3
Downstream sales volumes,
kt
Emissions into the air per unit of production,
kg/t
2015
2014
2013
2012
2011
6,749
6,221
6,056
5,338
4,951
2015
2014
2013
2012
2011
1.83
1.86
2.00
1.93
2.13
Phosphate-based fertilizers, MCP and STPP sales
volumes, kt
Lost time injury frequency rate (LTIFR),
per 200,000 hours worked
2015
2014
2013
2012
2011
5,384
4,837
4,794
4,243
4,062
2015
2014
2013
2012
Upstream sales volumes of apatite-nepheline ore
products, kt
0.15
0.18
0.21
0.2
2015
2014
2013
2012
2011 0.4
0.8
1.3
1.8
2.5
2015
2014
2013
2012
2011
2,917
3,329
Nitrogen fertilizers sales volumes,
kt
3,912
4,583
4,149
1,365
1,385
1,262
1,095
889
2015
2014
2013
2012
2011
PhosAgro Integrated Report 2015
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATIONCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Chairman’s statement
We delivered flawless performance
on our strategic goals in 2015
Our stakeholders
are already
benefitting from
the implementation
of our long-term vision
aimed at being the
lowest-cost producer
of high-quality crop
nutrients that help
farmers around the
globe to feed the world.
Sven Ombudstvedt
Chairman of the
Board of Directors
Key milestones 2015
An impressive
start to the
implementation
of our new
strategy to 2020
Agro-Cherepovets,
PhosAgro AG and
Nordic Rus Holding
merged into
PhosAgro-Cherepovets
Sustainable cost
savings from
further integration
of logistics into our
business model
Launched PKS-100
(Metachem) in
February and
the Main Shaft No2
at the Kirov mine
(Apatit) in August
2015 strategic performance overview
The PhosAgro team delivered on several
strategic fronts in 2015:
To meet the goal of providing farmers
with the ready crop solutions they need,
PhosAgro launched PKS-100, a new
100 kt per year fertilizer production capacity,
in February. In addition, the Company
continued to expand its portfolio of NPK
fertilizers to include new grades containing
not only secondary nutrients like sulphur,
but also micro-nutrients like zinc and boron.
Further streamlining of the corporate
structure was launched and completed
during the year, with Agro-Cherepovets,
PhosAgro AG and Nordic Rus Holding all
being merged into PhosAgro-Cherepovets
With the completion of the new Smart Bulk
Terminal at the Ust-Luga port in June,
through which PhosAgro shipped more
than 20% of its export goods in 2015,
the Company has secured sustainable
cost savings by further integrating
logistics into its business model.
Shipped >20% of 2015
export volumes through
Smart Bulk Terminal
following launch in June
In August, PhosAgro officially commissioned
Main Shaft No 2 at Apatit’s Kirov mine.
This will increase the Kirov mine’s capacity
with underground mining, which enjoys
significantly lower cost per tonne than open
pit mining.
The Board considers this to be an impressive
start to implementing the sustainable, value-
adding initiatives laid out in the new strategy
that was presented in November 2014.
Implementation of strategy
to 2020 on track
Corporate governance developments
The Board of Directors continuously seeks
ways to refine or improve PhosAgro’s
corporate governance systems. In 2015,
we oversaw important initiatives like the
expansion of the Company’s new risk
management function, new anti-corruption
policies and practices, including a new
conflict-of-interest policy implemented
at the Company’s subsidiaries, JSC
PhosAgro-Cherepovets, JSC Apatit and
CJSC Metachem. This has helped to further
strengthen the Company’s internal systems,
which I am confident will contribute to
building value for our stakeholders in the
long term.
The Board’s key priorities remain:
Being well-informed: we are able to make
well-informed decisions by having access
to up-to-date information on financial and
operating performance across the Group.
The Board also makes regular visits to
production sites and our newest Director,
Jim Rogers, visited Apatit in November
2015. Members of the Board also regularly
interact with PhosAgro’s management team,
maintaining dialogue on all material issues
facing the company.
Independence: maintaining representation
from independent members of the Board
helps to ensure that the interests of
all stakeholders in the Company are
represented and have a fair share of voice
at Board meetings. In 2015, three of the
Board’s eight members were independent.
Experience: the makeup of the Board
of Directors represents the right mix
of experience to help us properly guide
PhosAgro’s strategic development
in the interests of all stakeholders.
Our backgrounds range from work in
other global chemical and fertilizer
companies to soft commodities trading
to audit and internal controls. As a large
Russian business, our Board also has
individuals with significant experience
and expertise that is specifically Russia-
focused, which ensures that we maintain
a proper commitment to our domestic
operating environment.
Diversity: the Board of Directors has a
diverse set of backgrounds, and we also hail
from all over the world: Russia, Norway, the
United Kingdom and the United States. This
diversity of experience and world view helps
us take a more comprehensive approach
to the decision-making process, and to
better understand our many international
stakeholders, which include customers,
shareholders, lenders, suppliers and other
business partners.
Constant focus on improvement: throughout
2015, the Board oversaw implementation of
several important initiatives for PhosAgro’s
corporate governance. Two of the most
important are the anti-corruption policy
introduced at the Company’s subsidiaries,
JSC PhosAgro-Cherepovets, JSC Apatit
and CJSC Metachem adopted in April 2015
and the Board-level Risk Management
Committee in September 2014. We go into
both of these in greater detail later in this
report.
Introduced new
anti-corruption and
conflict of interest
policies and practices
Corporate responsibility
We look at corporate responsibility from the
standpoint of many different stakeholders.
As a manufacturer of crop nutrients, we
strive to provide farmers with the crop
nutrients that are just right for them and that
are free of any dangerous contaminants that
could find their way into the food we put on
our plates.
For our local communities and domestic
market, PhosAgro is a large and stable
business that invests in building a modern
and globally competitive business. As we
grow, we create jobs for highly qualified
specialists, and we are constantly investing
to ensure that schools, technical colleges
and universities in Russia can help to give
their students a competitive education that
will help them be successful in our company.
We maintain stringent health and safety
practices, and invest in new initiatives to
ensure that we are providing the people who
work at our production facilities the best
available practices in this area.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Chairman’s statement
continued
Looking ahead
In 2015, PhosAgro showed its ability to
outperform global peers even in the face of
challenging market, economic and political
environments. The Company delivered
excellent operational and financial results,
while at the same time implementing a
large-scale investment programme that
will benefit our stakeholders for many
years into the future.
Already in 2015, we began to see concrete,
measurable results from implementation
of a new strategy until 2020, with more
tangible benefits to come this year and next,
when major new capacity additions are
due to launch. This has all been done while
continuing to pay out healthy dividends and
maintaining an investment-grade credit
rating from Standard & Poor’s.
PhosAgro is unquestionably delivering value
to its stakeholders, and I am extremely
optimistic about the outlook to 2020, which
will see the Company move closer to its
customers with higher volumes and a wider
selection of crop nutrient solutions that will
help farmers safely produce more food.
We are also implementing and refining
a variety of business conduct policies and
practices to ensure that PhosAgro and its
suppliers are doing business in an ethical
and honest way.
Our responsibility for managing our
environmental impact is also key: as we
invest in new capacities and modernisations,
we constantly aim to implement technologies
that are more efficient and that reduce
our environmental footprint relative to
production volumes.
For our investors and shareholders,
we are building a business that benefits
from sustainable low cash-cost
advantages thanks to our unique assets.
Our investments and our strategy are
aimed at enhancing this advantage by
increasing the size of the business in a way
that enables us to capture a greater share
of our competitive advantages through
increasing scale while enhancing our
vertical integration.
When we produced our first integrated report
last year, we conducted a number of surveys
among key stakeholders in order to identify
the material issues related to our activities
that affect them. The contents of the 2014
integrated report were guided by this input,
and this year’s report aims to make further
refinements based on our inaugural effort.
Sven Ombudstvedt
Chairman of the Board of Directors
“ We will see the Company move
closer to its customers with
higher volumes and a wider
selection of crop nutrient
solutions that will help farmers
safely produce more food.”
Meeting our customers’ requirements
Our strategic focus is on getting closer to our
end customers and responding to farmers’ needs
in order to create value for all of our stakeholders.
What does this mean in practice?
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Upstream
Investing in efficient mining
operations that enable us to
provide the world’s purest
phosphate rock, with virtually
no heavy metals or other
dangerous impurities, for
processing into mineral
fertilizers.
Downstream
Building new capacities and
making upgrades to existing
capacities to make our
fertilizer production more
efficient and more flexible,
as well as expanding the range
of fertilizer grades we offer to
customers around the globe.
This means that we can offer
solutions for an ever-wider
range of crops and soil types
including macro-elements like
sulphur and micro-nutrients
such as boron or zinc.
Logistics
Investing in efficiency and
flexibility so that we can
ensure the reliable and timely
delivery of our crop nutrients
to customers in a wide range
of volumes, ranging from
big-bags to shipping
containers to bulk freight.
Sales
Investing in local sales
infrastructure in priority
markets, bringing us closer to
our customers so that we can
better understand their needs
and better communicate
the solutions we offer them.
Sponsoring research to
help our customers identify
opportunities to improve crop
output and safety with the help
of PhosAgro fertilizers.
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Who are our
customers?
Our customers are farmers in over 100 countries
from around the world. In 2015 major markets
for PhosAgro were Russia (1.6 million tonnes),
Europe (1.2 million tonnes), Latin America
(1.5 million tonnes), South and South-East Asia
(0.9 million tonnes).
With 33 grades of phosphate-based and nitrogen
fertilizers, we can offer the best nutrient
solutions to farmers nearly anywhere in the
world regardless of what they grow.
Due to the exceptionally low levels of harmful
elements like cadmium in our phosphate rock,
our fertilizers are also chosen for growing crops
used in the production of products like baby food
that must meet extremely stringent health and
safety standards.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Why are
fertilizers
important to
the world?
There are several fundamental factors driving
demand for mineral fertilizers, but it all boils
down to one simple statement: we help feed
the world. Mineral fertilizers are used by
crop-growers all around the world, and are
a critical element to ensuring global food
security due to:
–
3
–
4
Changing diets: as economies develop,
people’s diets change and more meat
is consumed; meat production requires
higher levels of grain input, creating even
further stress on global food supplies
Emerging technologies: technologies like
bio-ethanol are also changing the demand
landscape for agricultural products, often
using food resources that previously had
been available for human consumption
–
1
–
2
Rising populations: as more people inhabit
the Earth, food production must rise to
meet growing demand
Shrinking arable land: arable land per
capita is shrinking, meaning every hectare
of land must be used more efficiently and
must produce more food
2
3
As intensive farming increases to meet this
demand, high-quality and pure fertilizers like
those produced by PhosAgro, which are free
from harmful contaminants and heavy metals,
are vital to feeding the world.
1
4
How do we create
value for our
customers?
We believe that one of the keys to creating value for our customers
is understanding their needs, and understanding what their crops
need in order to grow better.
By adapting our assortment of fertilizer grades and introducing new
nutrient mixes, we are responding to demand from around the world
and ensuring that we are able to provide the right solutions to improve
crop quality and output for customers. We are also engaging specialist
research institutes like the International Plant Nutrition Institute (IPNI)
and leading European research institutes to test the effects of various
nutrient mixes on specific crops and soil types. In 2015, we looked at
how our PKS fertilizers affect soybean crops in Russia.
We also believe that the low levels of cadmium, arsenic, lead and
other dangerous impurities in the basic raw material we mine at
the beginning of the process creates value every step of the way.
Some producers of baby food, which must meet the most stringent
safety requirements, have already chosen PhosAgro fertilizers.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Building a
fertilizer leader
and constantly
seeking value
We already have a unique resource
base that gives us a natural competitive
advantage due to the superior quality of the
phosphate raw materials we use to make
fertilizers. We believe that we can also
create value by moving closer to farmers,
and we have set this as one of our key
strategic priorities for the coming years.
We identified priority markets by looking
for geographies with large agricultural
markets and a structural deficit of
phosphate nutrients (Asia, Europe and
Latin America), and we have opened new
sales offices in these regions.
With local representatives working for
PhosAgro, we have improved our ability
to speak directly with our customers,
and we better understand their needs.
It also helps us to better identify ways that
our products can help them.
Strategic initiatives like this help to
enhance our natural competitive advantage
by enabling us to capture value further
into the supply chain, and to explain the
unique quality of our products to our
end customers.
Case study:
PKS
fertilizers
for soybean
crops in
Russia
PhosAgro launched a new 100 kt/year line
in February 2015 that produces complex
PKS (phosphate-potash-sulphur) fertilizers.
Sulphur-containing fertilizers are especially
important for soybeans, and we wanted to
show Russian farmers how our crop nutrient
solutions could help them.
We worked with IPNI to conduct research
in the Belgorod region in Russia: their
aim was to find the optimal crop nutrient
mix for soybean production in Russia’s
Black Earth belt.
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PhosAgro Integrated Report 2015
PhosAgro Integrated Report 2015
7
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION What is the outcome?
The results speak for themselves!
Yield from Lantsetnaya soy, cwt/h
(Belgorod region, Krasnoyaruzhskiy district,
Krasnoyaruzhskaya grain company)
Nutrient
mix
Average
Additional
result
Control (no fertilizer)
N18
N18P78
N18P78K60
N18P80K80S20
N9P39
N9P39K60
N9P40K60S10
HCP0.5
25.7
25.7
26.2
26.2
26.5
26.2
26.1
26.4
0.5
–
0
0.5
0.5
0.8
0.5
0.4
0.7
In 2015, we conducted tests on soybean crops
in Russia to measure the effects of our new
sulphur-containing PKS fertilizers produced
by the PKS-100 line launched at Metachem.
The results, presented in brief here, showed
that our fertilizers helped produce significantly
improved crop output.
We are sharing these findings with our
customers, helping them to understand how
selecting the best crop nutrient solutions can
improve the productivity of their crops.
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PhosAgro Integrated Report 2015
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Looking ahead:
testing the safety and
quality of our fertilizers
At the beginning of 2016, PhosAgro signed agreements
with the University of Milan, one of the leading scientific
research institutes in Europe, to conduct extensive
research that will assess the impact on the quality
of crops and soil of using almost entirely cadmium,
arsenic and lead-free fertilizers produced by PhosAgro.
Similar agreements are expected to be signed with
Wageningen University in the Netherlands and the
University of Sassari in Italy. The tests will be run in
different geographical locations, as well as for different
types of crops, and will include a direct comparison with
the types of fertilizers traditionally used in each
selected location.
Infographics to supply illustration
with English text
6
PhosAgro Integrated Report 2015
PhosAgro Integrated Report 2015
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Delivering more
for farmers
across the world
Apatit currently produces more of
the impurity-free phosphate rock
than we can process into phosphate-
based fertilizers through our existing
downstream capacities. We aim
to increase our ability to deliver
PhosAgro’s high-quality crop nutrient
solutions to farmers around the world
by expanding production capacity,
flexibility and efficiency.
At the same time, we want to make
sure that farmers around the world
understand, to the greatest extent
possible, the benefits of using our
fertilizers, and not just because we
offer the right nutrient mix to make
each hectare produce more food. We
also want to demonstrate to farmers,
regulators and even food consumers
that PhosAgro’s phosphate-based
fertilizers are safer for long-term
use, especially in intensive farming
situations.
PhosAgro is helping to feed the world
and to make your food supply safer and
more secure.
Where we operate
A global reach
Priority export markets
Under our strategy to 2020, we have
identified our priority export markets
as Europe, Latin America and Asia. We
chose these geographies because of the
significant demand from agricultural
producers for crop nutrients, combined
with a structural shortage of domestic
phosphate resources. With our flexible
production and sales models, PhosAgro is
able to provide high-quality, ready solutions
for farmers growing a wide range of crops
in each of these regions.
We aim to increase sales volumes in our
priority export markets by opening our
own trading offices: in Zug (Switzerland),
Sao Paulo (Brazil), Warsaw (Poland) and
Singapore. These offices bring us closer to
our end customers and enable us to better
understand the needs and characteristics
of local markets. We believe this approach
enables us to create greater value for
the farmers who use our products, and
for other stakeholders who benefit from
PhosAgro increasing its sales volumes.
Domestic market
Russia is our home market, and historically
has been the source of around 30% of our
revenue. While the country enjoys a large
surplus of phosphate resources, we have
created value by investing in a domestic
sales network that includes storage and
packaging facilities, as well as delivery
services directly to end customers. By
investing significant resources into building
a modern domestic fertilizer sales network
we have become Russia’s largest supplier
of crop nutrients, with a market share of
17% in 2015.
Phosphate fertilizer production/
consumption balance in Russia – DAP/
MAP/TSP, mln t P2O5
Phosphate fertilizer production/
consumption balance in Asia – DAP/MAP/
TSP, mln t P2O5
Production
Consumption
1.8
0.3
Production
Consumption
2.3
7.4
Phosphate fertilizer production/
consumption balance in Europe – DAP/
MAP/TSP, mln t P2O5
Phosphate fertilizer production/
consumption balance in Latin America –
DAP/MAP/TSP, mln t P2O5
Production
Consumption
0.7
1.8
Production
Consumption
1.1
4.2
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PhosAgro Integrated Report 2015
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PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Where we operate continued
A global reach
We are one of the
lowest-cost producers of
phosphate-based fertilizers
in the world, with flexible
production and sales models.
Domestic sales
Sales volumes in our domestic market
were stable at 1.6 million tonnes in 2015,
the same level as 2014.
Export sales
Sales to our first-priority export
market, Europe, increased by 400 kt
year-on-year to 1.2 milion tonnes in 2015.
Latin American demand was lower in 2015,
primarily due to weak economic performance
in Brazil, with total volumes declining from
2.1 million tonnes in 2014 to 1.5 million tonnes
in 2015. Our sales to Asia increased by
600 kt year-on-year in 2015, reaching 900 kt
on the back of India’s return to the phosphate
fertilizer import market.
International sales offices
Zug
Warsaw
Sao Paulo
Singapore
Distribution Centres in Russia
PhosAgro-Orel
PhosAgro-Kursk
PhosAgro-Lipetsk
PhosAgro-Belgorod
PhosAgro-Belgorod (branch in Voronezh)
PhosAgro-Tambov
PhosAgro-Kuban (Krasnodar)
PhosAgro-Don (Rostov-on-Don)
PhosAgro-Stavropol
PhosAgro-Volga (Nizhny Novgorod)
PhosAgro-Volga (branch in Saransk)
PhosAgro-Volga (branch in Kazan)
PhosAgro-SeveroZapad
8
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Market overview
Overview of the
fertilizer market
in 2015
According to the International
Fertilizer Industry Association
(IFA), global demand for mineral
fertilizers in 2015 was virtually
unchanged from 2014 levels,
totalling 182.6 million tonnes of
nutrients (182.8 million tonnes
in 2014).
The decrease in consumption
in Latin America was
compensated by stronger
demand in the counties
of South Asia.
The slowdown in global economic growth
and uncertainty about near-term development,
exchange-rate volatility in relation to the US
dollar in both developed (Europe, Canada)
and developing (Russia, Latin America, Asia)
countries alike, and the weakening of global
market conditions for soft commodities
contributed to stagnation in global demand
for fertilizers in 2015.
Global trade in fertilizers amounted to
approximately 52 million tonnes of nutrients
in 2015, which was 5% lower than in 2014.
When broken down by nutrient groups,
DAP exports increased by 15% year-on-year,
while trade volumes in potash and nitrogen
fertilizers decreased by 6% and 4%
year-on-year, respectively.
World fertilizer production capacity increased
by 5.3 million tonnes of nutrients, or 2% year-
on-year, predominantly due to the launch of
new nitrogen capacities (ammonia, urea).
On average, production capacity utilisation
for fertilizers in 2015 was 78%.
Phosphate-based fertilizers
According to the IFA’s preliminary assessment,
the global consumption of phosphate-based
fertilizers (including NPK) in 2015 was 40.6
million tonnes of P205, down by 0.2 million
tonnes year-on-year. A decline in consumption
of phosphate-based fertilizers in Latin America
was compensated by stronger demand in
the countries of South Asia (India, Paristan,
Bagladesh). In other regions, consumption
volumes remained stable at 2014 levels.
According to the IFA estimates, worldwide
production of the main types of phosphate-
based fertilizers (DAP/MAP/TSP, which account
for three-quarters of global consumption of
phosphate-based fertilizers) was 67 million
tonnes in 2015, up 3% year-on-year. The
production of DAP increased by 7% year-on-
year, reaching 35.2 million tonnes, primarily
due to increased production in China, Saudi
Arabia and Russia. The production of MAP and
its derivatives increased by 2% year-on-year to
26.4 million tonnes because of the expansion
of production in China, Morocco and the USA.
The production of TSP fertilizers decreased
by 15% year-on-year to 5.2 million tonnes.
According to assessments by the consulting
firm CRU, global trade in DAP/MAP/TSP
fertilizers increased by 4% year-on-year in
2015 to 27.7 million tonnes. This was due to a
15% year-on-year increase in the trade of DAP
to 16.5 million tonnes. Trade volumes in MAP
and TSP, on the contrary, decreased in 2015
to 7.9 million tonnes (-9% year-on-year)
and 1.5 million tonnes (-7% year-on-year),
respectively.
The increase in DAP trade volumes was due
primarily to the resumption of active demand
from India. Extremely low carry-over stocks
from the previous season and an improvement
in the country’s economic situation contributed
to the early resumption of demand and active
import purchases during the main season in
May-August. As a result, according to
the Fertilizer Association of India (FAI),
the volume of phosphate fertilizer imports
(DAP/NP/NPK) in 2015 increased by 65%
year-on-year and amounted to 6.4 million
tonnes. The considerable increase in activity
in the Indian market absorbed a major part
of growing Chinese exports and helped
maintain global prices at a stable level
during the first half of 2015.
Imports of phosphate fertilizers in India,
mln t
Imports of phosphate fertilizers in Brazil,
mln t
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
0
2
4
6
8
10
0
1
2
3
4
5
6
7
NP/NPK
DAP
The decrease in global trade volumes for
MAP in 2015 was the result of a significant
reduction in import demand on the part
of Brazil, a key market for this product.
The main reasons for the decrease were
the dramatic increase in borrowing costs
for farmers, weak prices in global soft
commodities markets and the worsening
of the macroeconomic situation. According
to the Customs Service of Brazil, the volume
of phosphate-based fertilizer (DAP/MAP/NP/
NPK/TSP) imports decreased in 2015 by
26% year-on-year to 5.1 million tonnes.
Imports of MAP decreased by 24% year-on-
year, totalling 2.3 million tonnes, compared
to a record level of 3.0 million tonnes in 2014.
TSP
NP/NPK
DAP
MAP
Further liberalisation of fertilizer exports in
China, such as the introduction of low export
duties on DAP/MAP (RMB100/t) instead of
the previously applicable seasonal high-duty
window (up to 15%), contributed to a significant
increase in exports. Based on information from
China Fertilizer Market Weekly, China’s exports
of DAP/MAP in 2015 increased by 49% year-
on-year, reaching 10.8 million tonnes (although
the overall P2O5 content in products exported
by China, especially MAP, remains lower than
international standards and below that of
PhosAgro products). The bulk of this export
growth (primarily DAP) was absorbed
by the Indian market, but an increase in
Chinese exports to other geographies,
especially the North and South American
markets, contributed to tougher competition
between major players in world markets and
put pressure on prices.
10
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Market overview continued
Exports of DAP/MAP from China,
mln t
DAP price developments,
USD/t, FOB Tampa
Ammonia price developments,
USD/t, FOB Yuzhniy
Exports of urea from China,
mln t
Urea price developments,
USD/t, FOB Baltics
Potash price developments,
USD/t, FOB Baltics
2015
2014
2013
2012
2011
0
2
4
6
8
10
12
530
510
490
470
450
430
410
390
370
650
600
550
500
450
400
350
300
250
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
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J
l
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J
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u
A
p
e
S
t
c
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v
o
N
c
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D
n
a
J
b
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F
r
a
M
r
p
A
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n
u
J
l
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J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
2015
2014
2013
2012
2011
0
2
4
6
8
10
12
14
16
380
360
340
320
300
280
260
240
220
200
300
290
280
270
260
n
a
J
b
e
F
r
a
M
r
p
A
y
a
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l
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J
g
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p
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S
t
c
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v
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N
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e
D
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
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J
l
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J
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u
A
p
e
S
t
c
O
v
o
N
c
e
D
MAP
DAP
2015
2014
2015
2014
2015
2014
2015
2014
The average price of DAP in 2015 was
USD 459/t, FOB Tampa, while for MAP it was
USD 458/t, FOB Baltics, in comparison with
USD 472/t and USD 469/t in 2014, respectively.
Prices were stable in 1Q 2015 through 3Q 2015,
staying between USD 460/t and USD 490/t, FOB
Tampa, due to active demand from European
and American markets in combination with the
resumption of imports in India. In Q4 2015, the
market came under downward pressure as a
results of the end of seasonal demand in India
and Brazil combined with the off-season for
markets in the USA and Western Europe.
Phosphate rock
The volume of global production of phosphate
rock was 198.2 million tonnes in 2015, which
was slightly more (+1%) than in 2014. Lower
output in North Africa (including Morocco
and Tunisia) and Syria was compensated
by growth in other countries of the Middle
East (Jordan, Saudi Arabia), as well as by a
production increase in Russia. The average
nutrient content in the rock remains at around
30.5% P2O5, which is below the standard
39% content for PhosAgro concentrate.
Global trade in phosphate rock decreased
in 2015 by 2.4% year-on-year to 28.4 million
tonnes due to, among other things, a decrease
in exports from Morocco, Egypt and Syria. The
average export price for phosphate rock in
2015 was USD 125/t, FOB Morocco (with P205
content of 32%), against USD 116/t in 2014.
Ammonia
According to IFA estimates, the volume of
global ammonia production increased by 2%
year-on-year to 173.4 million tonnes in 2014.
Higher production in China, as well as in other
Asian countries and the USA, was offset by a
decrease in Ukraine, Egypt and a number of
Latin American countries.
About 55% of ammonia produced is used
in the manufacture of urea, and approximately
6% is used in the production of DAP/MAP.
Global trade volumes of ammonia in 2015
decreased by 4% year-on-year, reaching
17.7 million tonnes, as a result of a decrease
in import demand on the part of the USA,
as well as a number of Asian markets.
The most significant export declines were
in Egypt, Venezuela, Saudi Arabia and Russia.
The decrease in world trade in ammonia
was accompanied by a downward trend in
world prices for commercial ammonia,
which intensified especially in Q4 2015 due
to the worsening of conditions in related
markets (phosphate fertilizers, manufactured
chemical products). The average price in 2015
was USD 389/t, FOB Yuzhniy, compared to
USD 495/t, FOB Yuzhniy in 2014.
Nitrogen fertilizers
According to the IFA estimates, global
consumption of nitrogen fertilizers in 2015
remained at 2014 levels, amounting to
110.1 million tonnes of nutrient (nitrogen),
and no significant changes were noted at
the regional level. Urea has traditionally been
the main type of nitrogen fertilizer, accounting
for about 60% of the total volume of nitrogen
fertilizer consumption.
Global urea production was estimated at
about 170 million tonnes in 2015, up by
2% year-on-year. Average production capacity
utilisation was 76%.
Production volumes increased in West
and South Asia, China and Algeria. Political
instability affected urea production in Ukraine.
In Egypt, it was impacted by disruptions
in natural gas supplies. In both of these
countries, urea production volumes fell by
25% year-on-year in 2015.
The volume of world trade in urea, according
to IFA estimates, remained virtually unchanged
in 2015, amounting to 47.3 million tonnes
(47.5 million tonnes in 2014). Noteworthy were
the steady domination of Chinese exports,
a reduction of imports from Ukraine to Russia,
and the appearance of Algerian production
in markets.
Exports from China made up 30% of total
urea exports in 2015. Although export volumes
demonstrated strong growth over the first nine
months, by the end of 2015 Chinese exports
remained at over 13 million tonnes, the same
as in 2014.
The total volume of exports from other regions
of the world remained at approximately the
same level. The increase in supply from the
Middle East (Qatar, Saudi Arabia and Oman)
was offset by a decrease in exports from
Russia and Ukraine. There was a marked
increase in supplies from Algeria, Libya and
Turkey. The demand for urea imports remained
weak despite declining prices. However, the
devaluation of the national currencies in key
import markets in relation to the dollar and
consistently low prices for soft commodities
had a perceptible impact. Import volumes
increased in several key markets like India
and the USA, while they remained unchanged
in Western Europe and Australia. A substantial
decrease in urea imports was noted in Brazil
and Bangladesh.
With stagnating world trade and unchanged
export volumes from China, prices for urea
mainly declined in 2015. The slight increase in
prices in Q2 2015 was the result of a decrease
in export availability for Chinese production
due to seasonal demand in China’s domestic
market. The average price of urea in 2015
was USD 267/t, FOB Baltics, compared to
USD 311, FOB Baltics in 2014.
Potash fertilizers
According to IFA estimates, the volume of
global consumption of potash fertilizers in 2015
remained at 2014 levels, totalling 31.9 million
tonnes of K2O. The increase in consumption in
South Asia and China was offset by a decrease
in North and South America.
IFA estimates the world production volume
of potash fertilizers at 61.2 million tonnes of
potassium chloride in 2015, down 4% year-
on-year. The average production utilisation
capacity in 2015 was 74%.
Production volumes increased in Canada,
China and Jordan, while decreases were seen
in Israel, Latin America, Russia and the USA.
The top five largest producing countries
of potash fertilizers were Canada, Russia,
Belarus, China and Germany, which accounted
for 84% of worldwide production volumes.
Global sales in the first half of 2015 decreased
by only 2% year-on-year. However, subsequent
market volatility and the devaluation of a
number of currencies led to a slowdown in
world trade. As a result, by the end of 2015,
global export volumes had decreased by
6% year-on-year to 47.2 million tonnes of
potassium chloride in comparison with
50.4 million tonnes the year before, which
was 76% of the total sales volume. The most
noticeable decrease in imports was seen in
Brazil, the USA and several South-east Asian
markets, while an increase in imports was
noted in China. Weak conditions in world
markets during the second half of the year
contributed to a decline in prices. Average
prices for potassium chloride, FOB Baltics,
decreased from a high of USD 290-298 in May-
June to USD 265/t and even lower by the end
of the year.
12
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Chief Executive Officer’s statement
We made significant progress in 2015
across key aspects of our business
PhosAgro delivered
strong operating and
financial performance
in 2015, with capacity
utilization at near
100% and EBITDA
margin reaching an
impressive 43%.
Andrey A. Guryev
Chief Executive Officer and
Chairman of the Management Board
Key milestones 2015
+10%
Total fertilizer production
volume growth,
year-on-year
14
Direct access to the
priority markets:
new sales offices in
Sao Paulo (Brazil),
Zug (Switzerland)
and Warsaw (Poland)
Sustainable low
cash-cost position
among global peers
+9%
Increase in fertilizer
sales volumes,
year-on-year
Strategic performance
Since the presentation of our new strategy
in November 2014, we have already delivered
tangible results that are creating value
for our investors and other stakeholders.
Some of the highest-impact projects are
due to be commissioned in 2017 and I am
pleased to report that these remain on track.
Our updated strategy focussed on several
key areas, all of which saw significant
progress in 2015:
Updated sales strategy: We believe that
one of the best ways to create value for
our stakeholders over the long term is to
move closer to our end customers and to
focus on increasing sales in priority markets.
Outside of our home markets of Russia
and the CIS, we identified priority markets
based on geographies with large agricultural
sectors where there is a structural deficit
of P2O5: Latin America, Europe and Asia.
In 2015, we opened new sales offices in
Sao Paulo, Brazil, in Latin America, as well
as in Zug, Switzerland, and Warsaw, Poland,
in Europe. These new offices will build on
the successful experience we had in Asia,
where we opened a sales office in 2013.
With our own representatives on the ground
in these key markets, we are better able
to maintain dialogue directly with our end
customers, while having local legal entities
makes it more convenient to do business
with clients in these regions.
Our new offices will build on
the successful experience
we had in Asia, where we
opened a sales office in 2013
Increasing production capacity and
self-sufficiency: One of the key ways for
PhosAgro to create value over the long
term is to increase internal processing
of the phosphate rock we produce at Apatit.
In 2015, we successfully implemented
several measures to achieve this: our
subsidiary Metachem launched the PKS-100
production line in February 2015, enabling
us to expand our portfolio of fertilizer grades
with sulphur-containing products that are
vital for certain crops and soil types.
We have also invested in removing
bottlenecks and modernising existing
production capacities, which enabled us
to increase our total production of fertilizers
and feed phosphates in 2015 by 10% to
6.8 million tonnes.
Longer-term, we are building a base from
which to significantly ramp up our production
volumes of value-added crop nutrients,
starting with construction of a new
760 kt/year ammonia plant. This will
make us fully self-sufficient in ammonia,
even after we launch a new 500 kt/year
granulated urea line. All of these projects are
on track to launch on schedule. In addition
to new capacities, we also plan to continue
debottlenecking activities at existing assets,
with the goal of achieving further increases
in overall fertilizer production in 2016 by 5%.
At the Kirov Mine, we will
achieve significant cost
savings on every tonne of
apatite-nepheline ore that
we extract
Increasing operating efficiency: We achieved
both of our strategic targets for 2015 in this
area, with the launch of the Ust-Luga port
terminal in June and the commissioning
of Main Shaft No 2 at the Kirov Mine in
August. We shipped more than 20% of our
exports through the Smart Bulk Terminal in
Ust-Luga in 2015, helping us to save on port
charges and rail freight costs compared
to other Baltic ports. At the Kirov Mine, we
will achieve significant cost savings on every
tonne of apatite-nepheline ore that we extract
from underground mines as opposed to open
pit mining.
The sustainable cost reductions from
these two projects, coupled with ongoing
investments in new technologies and
modernisations, have helped PhosAgro
to secure its position as the world’s lowest
cash-cost producer of phosphate-based
fertilizers.
Consolidation: While we achieved the
main goals of consolidating 100% ownership
in all of our production facilities in 2014,
PhosAgro has continued its efforts to
streamline its corporate structure to
increase transparency and weed out
inefficiencies. To this end, we merged
Nordic Rus Holding, Agro-Cherepovets and
PhosAgro AG into PhosAgro-Cherepovets in
2015. Further consolidation of subsidiaries
is also under consideration by management
and the Board of Directors.
Bringing the best crop nutrient
solutions to our customers
Our strategic focus on moving closer to
our customers is already yielding results.
We are constantly developing and launching
new fertilizer grades in response to demand
from our customers. In total, we now offer
33 fertilizer grades, up from 28 in early
2015, to customers from over 100 countries
worldwide.
Later in the year, we opened sales offices
in Sao Paulo, Zug and Warsaw, each of
which gives us direct access to priority
markets and helps us respond faster to
changes in demand. We now have our own
sales offices in all three priority export
markets of Europe, Latin America and Asia,
which together accounted for 59% of our
export sales in 2015.
Another top-priority area that we are focused
on is quality. The apatite-nepheline ore that
PhosAgro mines and uses to produce its
phosphate-based fertilizers is some of the
purest in the world. It has extremely low
levels of lead, cadmium and other harmful
elements compared to nearly any other
phosphate material in the world, which
enables us to produce fertilizers that are
some of the safest for farmers to use on
crops intended for human consumption.
This is particularly important in areas where
intensive farming means that large amounts
of crop nutrients are regularly being applied
to the soil. Impurity-free fertilizers will help
famers prevent dangerous elements making
their way into the food supply.
Our strategic focus on moving
closer to our customers is
already yielding results
15
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Chief Executive Officer’s statement continued
Operating performance
We achieved an impressive 10% year-on-year
increase in fertilizer production volumes in
2015, and total fertilizer sales increased by
9% year-on-year. Production of phosphate-
based fertilizers and feed phosphates
increased by 12% year-on-year to 5.4 million
tonnes, while production of nitrogen-based
fertilizers increased by 4% year-on-year
to 1.4 million tonnes.
By investing in the modernisation of
production facilities and other cost-cutting
initiatives, we managed to increase our
annual fertilizer production capacity to
a record 7 million tonnes. This was all
achieved against the backdrop of a tough
global operating environment, in which some
higher-cost producers were forced to curtail
production, especially in the fourth quarter.
Financial performance
We delivered strong financial results in 2015,
with revenue increasing by 54% year-on-
year to RUB 189.7 billion on the back of
the 9% increase in fertilizer sales volumes
and higher rouble-denominated prices for
the phosphate-based fertilizers we sell.
Export sales, which are foreign currency-
denominated, accounted for 73% of our
consolidated revenue in 2015.
At the same time, PhosAgro’s continued
focus on improving efficiency and cutting
costs, including through headcount
optimisation, helped keep costs growth
well behind the rate of revenue expansion
and CPI levels. In 2015, cost of sales rose
by 23% year-on-year to RUB 83.1 billion.
The significant depreciation of the Russian
rouble had an impact on PhosAgro in 2015,
as we saw costs decrease compared to
primarily US dollar-based income from
fertilizer export sales.
We delivered very impressive profitability
in 2015: the gross profit margin was 56%
(vs. 45% in 2014), operating profit margin hit
39% (vs. 24% in 2014), and our EBITDA margin
was 43% (vs. 31% in 2014). While continued
rouble depreciation once again caused a
large foreign exchange loss (RUB 22.2 billion),
we earned a profit of RUB 36.4 billion for
2015, delivering a 19% profit margin.
Looking briefly at our balance sheet,
we continued to have predominantly
USD-denominated debt, as a natural hedge
against our USD-denominated export sales.
Net debt at the end of the year was RUB
105.2 billion, and our net debt/EBITDA ratio
was a very comfortable 1.28.
Corporate Responsibility
We aim to be a responsible partner for
all of our stakeholders, from customers
to suppliers to employees and the local
communities where we operate. In 2015,
we made important progress in several areas
of our corporate responsibility practices, and
this remains a priority for us going forward.
We have paid significant attention
to business conduct in recent years,
introducing new policies that govern
areas like how we deal with conflicts of
interest, insider information and corruption.
In 2015, we introduced anti-corruption
training for employees, and we introduced
anti-corruption language to all contracts,
including existing ones.
We continue to work on minimising our
impact on the environment, investing in
new and efficient technologies that use less
resources and emit less greenhouse gas.
We monitor our environmental performance
very closely, and we recently launched a
new programme together with UNESCO
and IUPAC aimed at supporting scientific
research to find new applications for
phosphogypsum, a by-product of
phosphate-based fertilizer production.
In 2015, we introduced
anti-corruption training
for employees, and we
introduced anti-corruption
language to all contracts,
including existing ones
Our investments in new and efficient
production capacities are also important
to the local communities where we operate,
and we always engage in dialogue with
local residents and authorities when new
projects are planned. These investments
will ultimately create jobs and bring new
tax revenues to local budgets, but we
aim to invest much more into our local
communities, starting from the early stages.
PhosAgro supports sports and healthy
lifestyles for school-age children, as well
as school programmes to encourage the
study of chemistry and other sciences.
At the college and university level, we provide
scholarships and professional career tracks,
as well as direct investments in vocational
colleges in the regions where we work.
Programmes like these support our
long-term sustainability by helping to
ensure we are able to hire qualified workers
at our production sites. For our employees,
we strive to apply leading-edge workplace
health and safety techniques, and following
a workplace safety pilot project we launched
in 2014 with DuPont Sustainable Solutions,
we applied these practices across all of our
production sites in 2015. We also aim to give
our employees fulfilling career opportunities
through professional training and career
track programmes–many of our factory
heads and mid-level managers have
spent most, if not all, of their careers
at PhosAgro subsidiaries.
I would like to thank all of our stakeholders
for their continued interest in, and support
for, our company, and I would especially like
to thank all of our employees, who once again
helped PhosAgro deliver impressive strategic,
operating and financial results in 2015.
Andrey A. Guryev
Chief Executive Officer and
Chairman of the Management Board
Market environment
The global fertilizer market was stable
throughout most of 2015, with overall
demand for crop nutrients nearly unchanged
vs. 2014.
Average export prices for DAP and MAP
in 2015 were somewhat weaker in 2015,
at USD 459/t FOB Tampa and USD 458/t
FOB Baltics vs. USD472/t and USD 469/t in
2014, respectively. Seasonal demand in
US and European markets at the beginning
of the year, combined with stable demand
for DAP/NPK from India, helped maintain
stable prices for DAP/MAP in the range of
USD 460-480/t FOB Tampa, until the
end of Q3 2015. Moving into low season,
by the end of the year DAP prices went
below USD 400/t FOB Tampa.
We expect to see further
strong demand from our
domestic Russian market,
gradually recovering
demand from Brazil and
stable consumption in India
Overall demand for PhosAgro fertilizers in
our priority domestic market remained stable
in 2015, partially thanks to our investments
in developing our domestic logistics and
sales networks. We took significant market
share from other producers during the year,
which we believe puts us in a strong position
to capitalise on the significant potential that
Russia’s agricultural products market holds
in the coming years.
Outlook
Looking ahead, demand for
phosphate-based fertilizers is due to rise,
according to IFA forecasts. Prices declined
at the end of 2015 and in early 2016, which
has caused a number of higher cash-cost
producers to curtail capacities. This has
particularly affected Chinese producers,
which exported record volumes in 2015,
but are no longer able to operate profitably
in the current environment.
On the demand side, India returned to the
market last year, as we expected, after
several years of under-application of
phosphate nutrients. If weather conditions
are favourable, we expect to see stable
demand from India in the year ahead,
which will support global price levels.
We expect demand in Latin America,
which is another priority market for us,
to gradually recover as loan recources in
Brazil become more accessible, soy acreage
continues to expand and phosphate-based
fertilizers carry-over stocks decreased
due to lower imports in 2015.
In addition to Brazil, Argentina is another
area for potential growth, with the recent
changes in the country’s economic policy
stimulating farmers to significantly expand
production.
In the current environment, PhosAgro is
among the best-placed to continue to deliver
value for its stakeholders. We are among
the lowest cash-cost producers globally,
with a wide range of high-quality fertilizers
and a flexible sales model that enables
us to supply farmers around the world
with the crop nutrient solutions they need
to maximise output. This also means we
can continue to deliver solid financial
performance and fulfil our promises to
shareholders while continuing to invest
in PhosAgro’s long-term growth.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Business model
Vertical integration throughout
the phosphate-based fertilizer
value chain
PhosAgro benefits from its vertically integrated business model. Upstream, we control
a large, high-quality resource base that contains almost no impurities. Our downstream
fertilizer production assets enjoy domestic access to other key inputs like gas and sulphur.
Combined, these make PhosAgro the lowest cash-cost producer of phosphate-based
fertilizers with significant potential to create extra value for stakeholders by investing
in new and efficient downstream facilities. Further integration into logistics, distribution
and sales, including opening trade offices in priority markets, has helped us to achieve
sustainable cost savings through the entire value chain, securing our position as
the world’s lowest cash-cost producer of phosphate-based fertilizers.
Our sustainable
low-cost position
among global producers of
phosphate-based fertilizers
is supported by our unique
domestic access to all key
inputs. In addition, we control
the production of the
majority of these inputs.
1
Natural resources and capital
We own a unique and exceptionally
high-quality phosphate resource: the ore
we mine and process at Apatit contains
both phosphorus and nepheline as well
as some of the lowest levels of heavy
metals and other harmful elements
associated with sedimentary rock.
2
Upstream mining and processing
We have significantly expanded
our underground mining operations,
and are investing in a number of
other projects to enhance workplace
health and safety as well as efficiency
at Apatit. Our constant focus on
modernising our beneficiation
equipment helps us to achieve a
more-than 94% recovery ratio for
phosphate rock.
3
Downstream fertilizers,
feed & industrial phosphates
We produce 33 grades of fertilizers,
including grades containing secondary
(sulphur) and micro nutrients like zinc
and boron at our three downstream
production sites in Russia. Thanks
to the quality of our phosphate rock
and ongoing investments in efficiency,
PhosAgro is among the lowest
cash-cost producers of phosphate-
based fertilizers in the world.
18
Downstream fertilizers,
feed and industrial
phosphates
Distribution and sales
Moving closer to our customers
Natural resources
and capital
Upstream mining and
beneficiation
Logistics
4
Distribution & sales
In our domestic market we have
fully integrated distribution and sales
operations, which has helped us to
become the leading supplier of crop
nutrients in Russia and maintain
sales volumes even in the current
challenging environment. For export
sales we have moved closer to
customers in our priority markets
by opening sales offices in Brazil,
Europe and Asia.
5
Logistics
In-house logistics infrastructure
helps us achieve sustainable cost
savings and secure more reliable
operations. We manage our own fleet
of 6,500 railcars in Russia, and in
2015 we shipped 20% of our export
volumes through our Smart Bulk
Terminal at the Ust-Luga port after
commissioning it in June 2015.
6
Value created
We seek to create value for all of
our stakeholders, including the
consumers of food grown with the
help of PhosAgro crop nutrients,
which benefit from the lowest levels of
cadmium and other harmful elements
thanks to the exceptionally pure raw
materials we use from the very start.
Value created
19
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Our assets
Developing our assets to build long-term
value and market leadership
Investing
One of the main focuses of our strategy
until 2020 is the development of our assets
through investments into new capacities
that use the newest, most efficient
production technologies. In addition to
cost savings, these new facilities are more
environmentally friendly, with lower carbon
dioxide emissions, which will diminish the
negative impact on the climate per unit
of production.
In August 2015, we secured significant
savings in our upstream operations with the
launch of underground mining at Main Shaft
No 2. At PhosAgro-Cherepovets, we are
building Russia’s largest and most energy-
efficient ammonia line, due online in 2017.
Several other projects, large and small,
are also under way to secure our position
as the world’s lowest cash-cost producer
of high-quality phosphate-based fertilizers.
Consolidating
With the main phase of consolidation
completed in 2014, we sought out further
optimisations to our corporate structure in
2015 and undertook the merger of PhosAgro
AG, Agro-Cherepovets and Nordic Rus
Holdings into PhosAgro-Cherepovets.
Expanding vertical integration
By stretching our vertical integration
further through the value chain towards
our end customers, we are able to secure
sustainable, value-adding cost savings
for our shareholders. In 2015, we officially
launched our Smart Bulk Terminal at
the Ust-Luga Port, which handled more
than 20%, or 1 million tonnes, of our export
volumes in 2015 helping us to save on port
charges and rail freight costs compared to
other ports on the Baltic Sea.
Further afield, we set up a sales office
in Sao Paulo, Brazil, to cover PhosAgro’s
priority Latin American markets. In Europe,
where we see significant opportunity for
our exceptionally pure phosphate-based
fertilizers, we opened offices in Zug,
Switzerland and Warsaw, Poland. With the
help of these offices, we will be able to
maintain more regular and timely dialogue
with our customers. This will ultimately
build value for our customers, as we will be
able to respond more quickly to their needs,
and for shareholders by increasing sales
volumes in key markets.
Corporate structure as of 31 December 2015
OJSC PhosAgro (holding company)
Apatite-nepheline ore
mining and beneficiation
Phosphate based
fertilizers and feed
phosphate
Ammonia and
nitrogen-based
fertilizers
JSC Apatit
100%
JSC PhosAgro-Cherepovets 100%
Distribution
Logistics
Engineering and R&D
PhosAgro-Region
LLC (storage and
distribution)
99.99%
PhosAgro – Trans
LLC
(transportation)
100%
OJSC NIUIF
(research and
development)
94.41%
CJSC Agro-Cherepovets
100%
(merged with PhosAgro-
Cherepovets in 2015)
Phosagro Asia
Pte Ltd (distribution)
100%
Smart Bulk Terminal
LLC (loading)
70%
CJSC Mining and
Chemical Engineering
100%
Balakovo branch
of JSC Apatit
100%
CJSC Metachem
100%
Phosint Trading Ltd
(distribution)
100%
PhosAgro Trading SA
97.6%
(trading company based
in Zug)
Upstream capacities
Downstream capacities
Distribution and sales
Logistics
Apatit
• Mining of apatite-nepheline ore
• Production of phosphate rock
• Production of nepheline concentrate
PhosAgro-Cherepovets
Production of phosphate-based fertilizers,
nitrogen fertilizers, sulphuric and
phosphoric acids and ammonia.
Balakovo branch of Apatit
Production of phosphate-based
fertilizers, feed phosphate, sulphuric
and phosphoric acid.
Phosphate rock
7.9 mln t
Nepheline
concentrate
1.7 mln t
MAP/DAP/NPK
MCP
1.4 mln t
270 kt
MAP/DAP/NPK
3.5 mln t
Urea
980 kt
Ammonia
1,190 kt
APP
140 kt
AN
450 kt
Metachem (Volkhov)
Production of PKS, SOP, STPP,
sulphuric and phosphoric acid.
STPP
130 kt
PKS
100 kt
SOP
80 kt
PhosAgro-Region
Russia’s largest distributor of fertilizers,
with 10 distribution centres and three
branches in close proximity to Russia’s
major agricultural regions.
PhosAgro trading
With sales offices in Zug (Switzerland),
Warsaw (Poland), Singapore (Asia) and San
Paulo (Brazil) we are extending our vertical
integration into priority export markets.
PhosAgro-Trans
Handles domestic freight rail operations,
with over 6,500 railcars (primarily mineral
hoppers) in operation.
Smart Bulk Terminal
Construction and operation of a container
and bulk terminal in Ust-Luga with a
capacity of 2 million tonnes/year.
Distribution centres
in Russia
International
trading offices
10
4
Railcars
6,500
Own shipment
terminal capacity
2 mln t
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
What makes us different
Our low cash-cost base and a
premium-quality end product
set us apart from our peers
Value for our stakeholders
With mining assets that will last for more
than 70 years, we are in the phosphate-
based fertilizer business for the long term.
This means that we have to take a long-
term view not only of how we develop our
production assets, logistics operations and
sales network. Our business also depends
on creating value in all of our relationships
with a full range of stakeholders, from our
employees to investors and shareholders.
We invest in the communities where
we operate in coordination with local
governments and administrations, as well
as trade unions and educational institutions.
By helping these communities develop, we
are addressing a whole range of issues that
could affect our business in the long term,
from the supply of healthy and qualified
personnel to work at our plants to ensuring
we are recognised by residents and officials
for making a positive impact.
We invest in the communities
where we operate in
coordination with local
governments
We are the world’s largest producer of high-grade
phosphate rock and Europe’s largest producer of
phosphate-based fertilizers. We control a premium
phosphate resource that contains almost no dangerous
impurities, and we leverage this exceptional asset
through our vertically integrated, flexible fertilizer
production capacities to deliver a wide range of
tailored crop nutrients to farmers in Russia and across
the globe. Our sustainable low-cost advantage sets
us apart from our peers and offers our stakeholders
unique value that other phosphate-based fertilizer
producers cannot offer.
Quality resource
base with low
impurities
Wide range of
fertilizers guides
Vertical
integration
VALUE FOR OUR
STAKEHOLDERS
In-house R&D
Flexible
production
and sales
Customer focus
Low impurities equals
safer food supplies
We use our own high-quality raw materials
from igneous phosphate ore (phosphate
rock with high phosphate content and
low levels of dangerous impurities).
Companies that use high-quality phosphate
rock benefit from lower processing costs
for the manufacture of end products,
which enables them to achieve higher
profits on mineral fertilizer sales.
We also believe that national regulators
and farmers in Europe and other intensive
farming regions will be increasingly
concerned with issues related to the quality
and purity of crop nutrients used to produce
food products–concerns over cadmium and
other soil pollutants are on the rise.
Customer focus
We aim to build value through further
integration of our sales and distribution
operations. To achieve this, we have
opened our own sales offices in priority
export markets, while also investing in
our domestic distribution network.
Growing range of superior
quality fertilizers
PhosAgro’s in-house R&D enables us to
develop and start production of new fertilizer
grades quickly, in order to deliver the crop
nutrient solutions our customers need.
We currently produce 33 grades of
fertilizers including those containing
secondary (sulphur) and micro nutrients
(zinc and boron).
The superior quality of our phosphate-based
fertilizers comes from the exceptionally
pure phosphate raw material we use,
which contains extremely low levels of
dangerous impurities.
Vertical integration
We are one of the most vertically integrated
companies in our industry, starting with high
levels of self-sufficiency in key feedstocks
and reaching all the way through to sales
and distribution to our end customers.
Taken together, this gives us the lowest
cash cost in the industry. For more
information on our vertical integration,
see ‘Our Business Model’ on pages 18–19.
Flexible production and sales
We have flexible production and sales
models that enable us to focus on producing
exactly what our customers require, and
to sell what we have produced nearly
anywhere in the world in order to achieve a
fair netback price for PhosAgro. PhosAgro’s
flexible production lines are capable of
switching between production of DAP,
MAP and complex NPK or NPS fertilizers
less than two shifts, meaning we can react
quickly to changing demand and maintain
high-capacity utilisation rates. This is
further enhanced by a flexible sales model,
which enables us to sell our product nearly
anywhere in the world at competitive prices
and in volumes ranging from 500–1,000
kg big-bags for domestic shipments to
20–40-tonne containers and entire bulk
ships for export.
In-house R&D
Our research and development employees
are highly skilled and support and facilitate
decision-making related to our investments
in construction by developing feasibility
studies, supervising construction and
designing projects.
World’s premium phosphate resource base
Location1
PhosAgro
Morocco
World phosphate rock reserves, bln t
2.05
50
USA
1.4
Jordan
1.5
China
3.7
Tunisia
0.1
Igneous
Sedimentary
Sedimentary
Sedimentary
Sedimentary
Sedimentary
Ore type
AL2O3 content
13.0-14.0% High
Very low
Minor Element Ratio (MER)2
0.02-0.04
0.02-0.04
Cadmium content3
Level of radioactivity
Hazardous metals content
Less than 0.1
15-40
Very low
Very low
Moderate
Moderate
Very low
0.05-0.1
9-38
Very low
0.02-0.03
5-6
Very low
Low to moderate
More than 0.05
2
0.05
40
Moderate to high
Low to moderate
Low to moderate
Moderate
Moderate to high
Low
Low to moderate
Low to moderate
Source: Fertecon, IMC, USGS 2011.
1 Primary global DAP/MAP producing regions.
2 Average Minor Element Ratio (MER) greater than 0.1 not sustainable for production of high-quality DAP.
3 Average cadmium content in ppm.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Strategy
Our key strategic priorities
Creating a platform
for growth through
2020 and beyond
Our strategy to 2020 is aimed at creating value
for stakeholders by building on PhosAgro’s inherent
strengths: ownership of unique high-quality apatite-
nepheline resources containing almost no impurities,
vertical integration, and domestic access to key inputs
for fertilizer manufacturing such as gas and sulphur.
On top of that, we aim to extend our vertical integration
further through the supply chain by integrating logistics
and expanding our on-the-ground sales presence
(sales offices) in priority markets.
2015 summary
After introducing our new strategy at the
end of 2014, we began delivering tangible,
value-creating results already in 2015:
•
•
•
•
Opened three new sales offices to bring
us closer to farmers in our priority
European markets (Zug, Switzerland,
Warsaw, Poland) and Latin American
markets (Sao Paulo, Brazil)
Launched our Smart Bulk Terminal
at the Ust-Luga port
Commissioned Main Shaft No 2 at the
Kirov mine, significantly expanding the
scale of our lower-cost underground
mining operations
Launched a new sulphur-containing
phosphate-based fertilizer production
line (PKS-100) at Metachem, introducing
new complex fertilizers with secondary
and micronutrients zinc and boron
•
•
•
•
Launched a series of tests in cooperation
with the International Plant Nutrition
Institute to assess the impact on soy
yields of applying sulphur-containing
PKS fertilizers. The first stage of tests
demonstrated a good response to PKS
resulting in higher yields
Streamlined our corporate structure
by merging Agro-Cherepovets,
Nordic Rus Holding and PhosAgro AG
into PhosAgro-Cherepovets
Increased fertilizer production volumes
by 10% year-on-year thanks to
investments in removing bottlenecks
and modernisation of existing lines
Implemented a new workplace health
and safety policy piloted in 2014 across
all production facilities
1 Direct access to premium markets
Sales presence on the ground
Our long-term strategic focus is on
bringing our crop nutrient solutions closer
to our customers in priority markets by
establishing our own presence in these
markets. With sales offices covering Europe,
Latin America and Asia now open, we will be
able to speak directly with our customers
about what they actually require, react
faster to changes in demand by introducing
new grades of fertilizers, including those
that contain macro (sulphur) and micro
(boron and zinc) nutrients, gain a better
understanding of the local markets, and be
able to provide customers with information
about the unique qualities of fertilizers
made from our phosphate rock. On top
of that, we are considering new offices
in France and Germany.
Marketing our pure, cadmium-free fertilizers
At the beginning of 2016, PhosAgro signed
agreements with leading agricultural
universities in Europe (Wageningen in the
Netherlands and the University of Milan
and University of Sassari in Italy) to conduct
extensive research that will assess the
impact on the quality and safety of crops
and soil from using cadmium-free fertilizers
produced by PhosAgro. The tests will be run
in different geographical locations, as well
as for different types of crops, and will include
a direct comparison with the traditional types
of fertilizers used in each selected location.
2 Production capacity growth
and enhanced self-sufficiency
As the world’s lowest cash-cost producer
with a best-in-class phosphate resource
base, we see significant opportunity to
expand our production of value-added
fertilizers in order to both meet growing
global demand and take market share from
higher-cost producers. We are investing in
production of other key inputs like ammonia,
which will enable us to significantly
increase production volumes and further
decrease cash costs (per tonne) for all
of our fertilizers.
Production capacity growth
and enhanced self-sufficiency
Direct access to
premium markets
Increased
operating efficiency
Consolidation
3 Increased operating efficiency
Upstream: We aim to increase
•
underground mining up to 80% of total
apatite-nepheline ore extraction at Apatit
in 2016 following the launch of Main Shaft
No 2 at the Kirov mine, which increased
extraction capacity to 14 million tonnes of
ore per year, with subsequent increases
to 16-17 million tonnes of ore per year
planned. This will support further declines
in per-unit costs thanks to cash costs for
underground mining being lower than
costs for open-pit production.
Upstream: In 2016, we will continue
modernising our ANOF-3 beneficiation
plant, which will result in lower production
costs and increased overall beneficiation
capacity (to 9 million tonnes of phosphate
rock per year).
•
•
•
Downstream: The new ammonia
and granulated urea capacities
are at the heart of our downstream
efficiency drive–we are using
the latest technologies available for
these projects, ensuring that they
are efficient and help minimise
environmental impact by reducing
carbon dioxide emissions even as
overall production volumes increase.
Logistics: With the launch of our Smart
Bulk Terminal at the Ust-Luga port near
St Petersburg, we have further improved
our netback earnings through vertical
integration into port logistics.
4 Consolidation
Streamlining our corporate structure
helps increase transparency and
simplifies corporate governance
systems within PhosAgro, which
can contribute to cost reductions
by eliminating duplicate functions
across subsidiaries.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Strategy continued
1 Direct access to priority markets
2 Production capacity growth and greater self-sufficiency
Opportunity
Why this is our priority
Opportunity
Why this is our priority
Increasing the share of sales to
premium markets and those where
PhosAgro has traditionally worked
Russia, Europe, Latin America and
Asia were identified as priority regions/
premium markets for exports based on:
• The geographic proximity of European
customers to our main production facilities
located in the European part of Russia
European customers are potentially
sensitive to impurities such as
cadmium, giving us an advantage
over other phosphate-based fertilizer
producers
P2O5 nutrient deficit forecast to increase
•
•
The main drivers of growth for the
key domestic market include such
fundamental factors as proximity to end
consumers, geographic diversification
of sales channels, and the significant
potential for growth in consumption of
phosphate-based fertilizers. Moreover,
PhosAgro’s complex, vertically integrated
structure enable it to achieve maximum
efficiency throughout the entire
production and sales chain, all the
way to sales to end consumers.
Removing bottlenecks in existing
capacities, as well as building new
downstream capacities to produce
ammonia in order to ensure
self-sufficiency while increasing
fertilizer production volumes and
maintaining vertical integration
Ammonia is a key input that we require
to expand our fertilizer output while
maintaining self-sufficiency, which has
driven our decisions to construct a
760 kt/year ammonia plant
With these key inputs secured, we will
be able to expand downstream end
products’ production capacities to achieve
a 13% increase from where we are today
in total fertilizer capacity in 2020 through
modernisation of existing capacities and
new construction of:
•
•
500 kt/year of granulated urea capacity
(new capacity)
up to 400 kt/year of MAP/DAP/
NPK production (modernisation and
removing bottlenecks)
What we did in 2015
What we aim to do in 2016
Where we want to be in 2020
What we did in 2015
What we aim to do in 2016
Where we want to be in 2020
•
•
•
•
Opened sales offices in Zug (Switzerland),
Sao Paulo (Brazil) and Warsaw (Poland)
Increased the sale of fertilizers and
MCP to Europe by 34% year-on-year
to 1.2 million tonnes
Our overall sales volumes to Asia
(including India) and Oceania more
than tripled to 0.9 million tonnes
In 2015, Europe and Asia, together
with Oceania, contributed 19% and
14%, respectively, to our overall sales
breakdown
•
•
•
More active direct marketing of
our pure, high-quality fertilizers
Enter into agreements with leading
agriculture universities in Europe to
research the effect on both crop yields
and soil quality from using fertilizers
with negligible cadmium content and
containing secondary (sulphur) and
micro (zinc and boron) nutrients
Leverage international sales offices
launched in 2015 to better understand
farmers’ needs in priority markets in
order to fine-tune our crop nutrient
offerings and achieve premium prices.
In addition to existing offices, we are
considering establishing new ones in
France and Germany
•
•
We believe that our ability to deliver
farmers ready crop nutrient solutions from
our wide portfolio of products, combined
with the high quality and low heavy metals
content of our fertilizers, will help us
increase sales in our priority markets.
Another important priority is expansion
of the Company’s product line to
include premium granulated urea
(capacity of up to 500 kt/year), primarily for
export to Europe. This will happen after the
commissioning of the new ammonia and
urea capacities at PhosAgro-Cherepovets.
•
•
Removing bottlenecks, which involves
relatively negligible costs (compared to
new greenfield or brownfield projects),
enabled us to increase our overall
phosphate-based fertilizer production
by more than 12% year-on-year to
5.4 million tonnes
The number of grades of NPK(S) reached
22, while NPK(S) fertilizers contributed
to almost 43% of total phosphate-based
fertilizer production
• Continued construction of:
— a new 760 kt/year ammonia plant
— a new 500 kt/year granulated urea line
•
•
•
•
Implementation of our key investment
project: construction of Ammonia Unit
No 3 at PhosAgro-Cherepovets is on track
Continue construction of 500 kt/year
granulated urea line
Increase phosphate-based fertilizer
production by up to an additional 5%
year-on-year on the back of the removal
of bottlenecks completed in 2015
Updates to existing strategy to develop
a strategy for the development of
PhosAgro assets through 2025
•
•
•
•
Launch new 760 kt/year
ammonia plant to achieve 100%
self-sufficiency into ammonia
Launch of new 500 kt/year granulated urea
line at PhosAgro-Cherepovets in 2017
Increase production of nitrogen fertilizers
and modernisation of MAP/DAP/NPK
production lines, bringing total sales
of end products over 8 million tonnes/year
– an increase of 25% from 2014
Nitrogen segment to see more than
40% increase in production capacity
Related risks
Related risks
Strategic risks
Ineffective strategic planning
Operational, regulatory, reputational
and financial risks
Strategic risks
Ineffective strategic planning
(including lower-than-expected demand
on target markets and as a result lower sales)
Operational, regulatory, reputational
and financial risks
For more information on risks, please see pages 66–73
For more information on risks, please see pages 66–73
26
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Strategy continued
3 Increase operating efficiency
4 Consolidation
Opportunity
Why this is our priority
Further strengthen our sustainable
low-cost position through
modernisation of existing fleet,
optimisations, and reducing
logistics costs
The key to our competitive advantage
is maintaining low production costs
In order to reduce production costs
throughout the cycle, we are focusing on
reducing costs at all stages of production
and logistics
Opportunity
Why this is our priority
Reduce duplicate functions
and increase transparency
Consolidating and streamlining
our corporate structure to increase
management efficiency and enhance
intragroup cash management
What we did in 2015
What we aim to do in 2016
Where we want to be in 2020
What we did in 2015
What we aim to do in 2016
Where we want to be in 2020
•
•
•
Launched Main Shaft No 2 at the Kirov
mine, expanding the scale of our lower-
cost underground mining operations to
70% in 2015 vs. 64% in 2014.
Launched the Smart Bulk Terminal at
the Ust-Luga port, and shipped more
than 20% of our total export volumes for
the year through the terminal – helping
us to save on port charges and rail freight
costs compared to other Baltic ports
We initiated a project to modernise
Beneficiation Plant No 3, which will further
cut phosphate rock production costs
•
•
•
Continue monitoring costs, with the
aim of containing the growth of fixed
costs within the inflation level
The full impact from the launch of Main
Shaft No 2 at the Kirov Mine to be seen
in 2016
Continue modernisation of Beneficiation
Plant No 3
•
•
•
With the launch of new ammonia and
granulated urea units in Cherepovets
in 2017, we aim to reduce costs by
becoming fully self-sufficient in
ammonia (purchased ammonia
accounted for 10% of 2015 CoGS)
Reduce mining cash costs by increasing
share of underground mining up to 80%
Achieve sustainable cost savings by
shipping up to 2 million tonnes/year
of fertilizer export volumes through
the Ust-Luga port
•
•
Further simplified corporate structure
by completing merger of subsidiaries
Nordic Rus Holding, Agro-Cherepovets and
PhosAgro AG into PhosAgro-Cherepovets
as well as consolidating Phosint Limited
Operating management staff was
relocated to Cherepovets
•
Review additional opportunities to
streamline corporate structure
•
Further changes to corporate structure
may be linked to the long-term strategy
currently under development
Related risks
Related risks
Strategic risks
Ineffective strategic planning
Operational, regulatory, reputational
and financial risks
Strategic risks
Ineffective strategic planning
Operational, regulatory, reputational
and financial risks
For more information on risks, please see pages 66–73
For more information on risks, please see pages 66–73
28
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Operational review
Increasing production
capacity while maintaining
utilisation rates
Upstream
Capacity by product
Phosphate rock sales in 2015, kt
Production and sales volumes – Apatit mine and beneficiation plant
Resource category classification
Phosphate rock
7.9 mln t
Nepheline
concentrate
1.7 mln t
Total phosphate rock sales
Intragroup sales
7,770
5,808
1,962 External sales
Domestic
873
Export
1,089
We managed to increase sales
of phosphate-based fertilizers
by 12% year-on-year thanks
to low-cost investments in
removing bottlenecks, enabling
us to further expand our
internal use of phosphate rock
for processing into high-quality,
value-added fertilizers.
In cooperation with UC
Rusal, we commissioned an
aluminium fluoride production
plant in Cherepovets with a
total annual capacity of 43,000
tonnes. The aluminium fluoride
will be used as feedstock at
UC Rusal plants.
Mikhail Rybnikov
Chief Operating Officer
Phosphate segment
The upstream operations in our phosphate
segment take place at Apatit, which mines
apatite-nepheline ore that is processed into
phosphate rock and nepheline concentrate.
The downstream operations in our
phosphate segment take place at PhosAgro-
Cherepovets, the Balakovo branch of Apatit
(formerly Balakovo Mineral Fertilizers)
and Metachem. PhosAgro-Cherepovets
and the Balakovo branch of Apatit produce
phosphate-based fertilizers, and the
Balakovo branch of Apatit also produces
feed phosphate (MCP). Metachem produces
PKS, industrial phosphates such as sodium
tripolyphosphate (STPP) and the fertilizer
sulphate of potash (SOP).
Highlights
•
•
•
Phosphate-based fertilizer production up
12.2% year-on-year to 5.4 million tonnes
Phosphate-based fertilizer sales up
12.0% year-on-year to 5.3 million tonnes
Internal use of the Company’s own
phosphate rock increased to 74.8% of
total sales volume
Phosphate-based fertilizer
production up 12.2%
year-on-year to 5.4 million
tonnes thanks to production
optimisation
Upstream
We extracted 27.2 million tonnes of
apatite-nepheline ore in 2015, compared to
26.1 million in 2014. We produced 7.9 million
tonnes of phosphate rock, up from
7.5 million tonnes in 2014.
Intra-Group sales of phosphate rock
amounted to 74.8% (5,808 kt) of our total
phosphate rock sales in 2015, compared to
68.5% (5,191 kt) in 2014. This was primarily
due to the 12.2% year-on-year increase
in our own phosphate-based fertilizer
production in 2015.
Category A: the deposit is known in
detail; boundaries of the deposit have
been outlined by trenching, drilling
or underground workings. The quality
and properties of the ore are known in
sufficient detail to ensure the reliability
of the projected exploitation.
Category B: the deposit has been explored
but is only known in fair detail; boundaries
of the deposit have been outlined by
trenching, drilling or underground
workings. The quality and properties of
the ore are known in sufficient detail to
ensure the basic reliability of the projected
exploitation.
Category C1: the deposit has been
estimated by a sparse grid of trenches,
drill holes or underground workings.
The quality and properties of the deposit
are known tentatively by analogy with
known deposits of the same type and the
general conditions for exploitation are
tentatively known. This category includes
resources peripheral to the boundaries
of Categories A and B and also reserves
allocated in complex deposits in which
the ore distribution cannot be reliably
determined even by a very dense grid.
Production volumes, kt
2015
2014
Sales volume1, kt
2015
2014
Change
y-o-y, %
Change
y-o-y, %
Phosphate rock
7,853.3
Nepheline concentrate
951.9
7,500.5
940.3
4.7%
1.2%
1,962.4
2,392.4
(18.0%)
954.6
936.4
1.9%
1 Not including intra-Group sales.
We sold 11.2% of the phosphate rock we
produced to domestic external customers
and 14.0% to international customers,
compared with 11.0% and 20.6%,
respectively, in 2015. Prayon (Belgium)
and Yara (Norway) accounted for most of
the exports. The year-on-year decline in
phosphate rock sales volumes was primarily
due to greater internal use.
Nepheline concentrate production and
sales increased by 1.2% and 1.9% year-on-
year, respectively, in 2015. We sell all of our
nepheline concentrate to Basel Cement
Pikalevo, which slightly increased its
nepheline concentrate processing in 2015.
PhosAgro’s Apatit mine and beneficiation
plant holds five mining licences and one
exploration licence, which allow it to conduct
exploration and mining activities at six
apatite-nepheline ore mines, and to conduct
exploration activities at one deposit.
Mining licenses
Kirov mine (Kukisvumchorr
and Yukspor deposits)
Vostochniy mine (Koashva deposit)
License
expiration
date
31.12.2025
31.12.2017
Vostochniy mine (Njorkpahk deposit)
31.12.2016
Rasvumchorrskiy mine (Apatitovy Cirque
and Plateau Rasvumchorr deposits)
01.01.2024
PhosAgro’s ore resources
as of 1 January 2016
Tsentralniy mine
(Plateau Rasvumchorr deposit)
31.12.2017
Date
granted
Exploration license
Illitoviy otrog deposit
07.02.2014
Deposit
Kukisvumchorr
Yukspor
Apatitovy Cirque
Plateau Rasvumchorr
Koashva
Njorkpahk
Iyolitovy otrog
Total
Resources,
000 t
(Categories
A+B+C1)
Average
P2O5
content
%
407,134
515,292
107,918
325,168
595,550
59,957
1,754
14.24
14.17
14.24
13.01
16.88
13.30
14.14
2,012,773
14.78
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Operational review
continued
Production and sales volumes – Apatit mine and beneficiation plant
Production volume, kt
2015
2014
2,643.2
1,922.6
272.8
109.6
272.2
95.9
36.7
2,366.7
1,725.2
248.4
89.7
252.1
58.5
29.7
Change
y-o-y, %
11.7%
11.4%
9.8%
22.2%
8.0%
63.9%
23.6%
Sales volume, kt
2015
2014
2,639.2
1,878.5
2,364.1
1,680.4
265.3
104.5
257.7
89.8
35.8
250.0
89.9
250.3
45.5
27.5
Change
y-o-y, %
11.6%
11.8%
6.1%
16.2%
3.0%
97.4%
30.2%
DAP/MAP
NPK
NPS
APP
MCP
PKS
SOP
Downstream
Phosphate segment capacity by product
DAP/MAP vs NPK/NPS sales, kt
DAP/MAP 2015
DAP/MAP 2014
2,639.2
2,364.1
NPK/NPS 2015
NPK/NPS 2014
2,143.8
1,930.4
Production and sales volumes of SOP
decreased by 23.6% and 30.2%, respectively,
in 2015 to 36.7 kt and 35.8 kt.
Due to our production flexibility and
cash-cost leadership, we were also able
to maintain near-100% capacity utilisation
throughout 2015, even as we increased MAP/
DAP/NPK/NPS production capacity by 8.9%
year-on-year to 4.9 million tonnes and MCP
production capacity by 8.0% year-on-year
to 270 kt.
Outlook
•
•
PhosAgro will continue to focus on
strategic goals of optimising costs
in upstream operations
We are intensifying production activities
at our Cherepovets site. In 2015,
we managed to increase the production
capacity of existing lines by 10%.
MAP/DAP/NPK/NPS
Feed phosphate
4.9 mln t
APP
140 kt
270 kt
PKS
100 kt
Phosphoric acid
STTP
2.1 mln t
130 kt
Phosphate segment
We increased our production and sales
of phosphate-based fertilizers by 12.2%
and 12.0% year-on-year, respectively.
Our ability to quickly switch between
production of MAP/DAP and NPK/NPS
fertilizers and to our competitive position
as a low-cost producer (we are positioned
at the low end of the cash-cost curve) helped
us to increase production and sales of MAP/
DAP by 11.7% and 11.6% year-on-year,
respectively, in 2015.
Production of NPK fertilizers increased by
11.4% to 1.9 million tonnes, while sales rose
by 11.8%, also reaching 1.9 million tonnes
in 2015. NPS production and sales increased
by 9.8% and 6.1% (to 273 kt and 265 kt),
respectively.
Our PKS fertilizer production line with
a capacity of 100 kt per year was officially
launched in February 2015. Production
and sales of fertilizers from this line during
the year amounted to 95.9 kt and 89.8 kt,
respectively.
In-house R&D – Playing a Key Role in
PhosAgro’s Growth
Our research and development employees
are highly skilled and support and
facilitate decision-making related to our
investments in construction by developing
feasibility studies, supervising construction
and designing projects.
In 2015, for example, NIUIF developed
technical solutions that will enable
Metachem to expand the grades of
the NPKS fertilizers it can produce,
including those containing microelements.
At PhosAgro-Cherepovets, the Institute
helped develop new production methods
for expanding the grades of MAP and NPS
that the site can produce.
The scientific institute is also working on
new methods to improve the safety of our
phosphogypsum storage by neutralising
some of the dangerous elements contained
in this material.
The Y. Samoylov Scientific and
Research Institute for Fertilizers and
Insectofungicides (NIUIF) is the only
research institute in Russia specialising
in research and development in
phosphate-based processing technologies
and the production of phosphoric
and sulphuric acid, phosphorus and
nitrogenous mineral fertilizers and
complex mineral fertilizers, including
fertilizers with micronutrients.
Mining and Chemical Engineering
develops feasibility studies, supervises
construction and design projects to
support and facilitate decision-making
relating to our investments in construction
and modernisation of production facilities,
and also provides us with general
engineering support.
Nitrogen segment capacity by product
Production and sales volumes – Apatit mine and beneficiation plant
Ammonia
Urea
1,190 kt
980 kt
AN
450 kt
Production volumes, kt
2015
2014
Sales volume, kt
2015
2014
Change
y-o-y, %
Change
y-o-y, %
Urea
NP
AN
978.1
0.0
455.3
966.0
120.5
291.4
1.3%
949.4
1 016.6
(6.6%)
(100.0%)
0.0
56.2%
416.0
120.3
247.6
(100.0%)
68.0%
Nitrogen segment
Our nitrogen segment includes the assets
of PhosAgro-Cherepovets, which produces
ammonia, ammonium nitrate, ammonium
nitrate-based fertilizers and urea, and
Agro-Cherepovets, which produces urea
from the ammonia produced by PhosAgro-
Cherepovets. Agro-Cherepovets was merged
into PhosAgro-Cherepovets in 2015.
Highlights
•
Nitrogen fertilizer production increased
4.0% year-on-year to 1.4 million tonnes
Nitrogen fertilizer sales were stable at
1.4 million tonnes
Construction of a new 760 kt/year
ammonia plant remains on track
for commissioning in 2017
Financing secured for a new 500 kt
granulated urea plant.
•
•
•
Performance
Overall sales volumes of nitrogen fertilizers
were stable year-on-year in 2015.
Urea production increased by 1.3% year-on-
year to 978.1 kt in 2015, while sales declined
by 6.6% year-on-year to 949.4 kt.
The ammonia we produce is used internally
for the production of phosphate-based
and nitrogen fertilizers. In 2015, ammonia
production decreased by 5.8% compared to
2014 as a result of scheduled maintenance.
Our self-sufficiency in ammonia decreased
from 81.8% in 2014 to 72.4% in 2015.
In 2015, 67.1% of our urea exports were
attributed to long-term urea sales contracts
with Trammo AG (Switzerland), which we
signed for the period from July 2013 to June
2015 (in 2015, this contract was extended
through September 2016), and with Ameropa
AG (Switzerland) for the period from October
2014 through September 2015). The majority
of our remaining urea sales were on the spot
market or based on short-term quarterly
sales contracts. We believe that this balance
ensures a significant degree of stability in
our urea sales volumes and prices, while at
the same time enabling us to benefit from
the flexibility that spot sales provide.
In 2015, production and sales of ammonium
nitrate (AN) and ammonium nitrate-based
fertilizers (NP) increased by 10.5% and
13.1%, respectively.
Outlook
•
New ammonia plant due to come online
in 2017, adding 760 kt of annual capacity
and increasing self-sufficiency to over
100%
New 500 kt/year urea plant due to come
online in 2017.
•
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financial review
Key operational indicators sales volumes, kt
Increasing revenue by
enhancing production flexibility
Statement of comprehensive income
Revenue
During 2015, PhosAgro’s revenue and sales
volumes benefited significantly from the
Company’s strategy of enhancing production
flexibility and ongoing debottlenecking
activities: total fertilizer production and sales
volumes grew by 10% and 9%, respectively,
year-on-year. Revenue in 2015 grew by 54%
year-on-year to RUB 189.7 billion, supported
by respective 52% and 50% increases
in average export revenue per tonne
of fertilizer for DAP/MAP and NPK,
denominated in roubles.
In 2015 export sales accounted for 73%
of our consolidated revenue, compared
to 71% in 2014.
Gross profit, operating profit, EBITDA
and profit for the period
Gross profit in 2015 increased by 92%
year-on-year to RUB 106.7 billion,
from RUB 55.7 billion in 2014, which resulted
in significant gross margin expansion of
11 p.p., from 45% in 2014 to 56% in 2015.
Operating profit for the period was
RUB 73.3 billion, a year-on-year increase
of 148% from RUB 29.6 billion in 2014.
Operating profit margin rose by 15 p.p.
from 24% in 2014 to 39% in 2015.
EBITDA was RUB 82.5 billion in 2015,
up by 119% year-on-year from RUB 37.6
billion in 2014. This strong result supported
an increase in the EBITDA margin of
12 p.p. from 31% in 2014 to 43% in 2015.
Revenue structure by regions, %
Revenue structure by products, %
6
1
5
4
3
1 Russia
2
Europe
3 North and Latin America
4
5
6 CIS
Asia
Africa
2
27%
25%
23%
13%
6%
6%
3
3
1
2
1 Phosphate-based products
2 Nitrogen fertilizers
3 Other
88%
11%
1%
Key financial performance indicators, RUB mln
2015
2014
Revenue
Cost of sales
Gross Profit
Gross profit margin
Operating profit
Opertaing profit margin
Loss/Profit for the year
Loss/Profit margin
EBITDA
EBITDA margin
Net Debt
Net Debt/EBITDA ratio
189,732
83,064
106,668
56%
73,331
39%
36,436
19%
82,464
43%
105,165
1.28
123,124
67,467
55,657
45%
29,596
24%
-13,395
-11%
37,609
31%
93,137
2.48
Change
y-o-y, %
54%
23%
92%
11 p.p.
148%
15 p.p.
n/m
n/m
119%
12 p.p.
13%
Phosphate-based products
Nitrogen-based fertilizers
Apatit mine and beneficiation plant
Other products
Revenue structure by region, RUB mln
North and Latin America
Europe
Africa
Asia
CIS
Russia
Total
Segment revenue structure, RUB mln
Phosphate-based products
Nitrogen fertilizers
Other operations
Total
The significant depreciation of the rouble as
of 31 December 2015 (RUB 72.88 per USD)
compared to 31 December 2014 (RUB 56.26
per USD) resulted in a foreign exchange
loss of RUB 22.2 billion in 2015; in 2014 the
foreign exchange loss was RUB 33.5 billion.
Despite recording a foreign exchange loss
for the second year in a row, PhosAgro’s net
profit in 2015 amounted to RUB 36.4 billion,
compared to a net loss of RUB 13.4 billion
in 2014.
Basic and diluted earnings per share
came to RUB 281 for 2015, compared
to loss per share of RUB 105 in 2014.
Statement of financial position
Gross debt at 31 December 2015 amounted
to RUB 134.5 billion, compared to RUB 123.8
billion at 31 December 2014. Cash and cash
equivalents totalled at RUB 29.3 billion at
31 December 2015 (vs. RUB 30.7 billion on
31 December 2014). This brought net debt
to RUB 105.2 billion at 31 December 2015,
up from RUB 93.1 billion on 31 December
2014. Most of the PhosAgro’s debt is
denominated in USD as a natural hedge
against primarily USD-denominated sales.
The further rouble devaluation in 2015 was
the primary reason behind the growth in the
company’s Gross Deb reported in roubles.
2015
2014
5,384
1,365
2,917
103
4,837
1,385
3,329
221
2015
2014
44,430
47,303
12,475
23,909
10,740
50,875
189,732
39,477
25,491
8,799
6,193
6,882
36,282
123,124
2015
2014
167,430
21,574
728
189,732
105,832
16,626
666
123,124
Change
y-o-y, %
11%
-1%
-12%
-53%
Change
y-o-y, %
13%
86%
42%
286%
56%
40%
54%
Change
y-o-y, %
58%
30%
9%
54%
While net debt increased, strong EBITDA
performance for 2015 helped bring the
Company’s net debt to EBITDA ratio down
to 1.28 as of 31 December 2015, from 2.48
as of 31 December 2014.
•
Phosphate-based products segment
Phosphate-based products segment
revenue grew by 58% year-on-year
and totalled RUB 167.4 billion in 2015.
PhosAgro increased production and sales
of phosphate-based fertilizers and MCP by
12% year-on-year in 2015. Sales volumes for
phosphate rock and nepheline concentrate
in 2015 decreased by 12% year-on-year.
The phosphate-based products segment’s
gross profit for 2015 increased by 104%
year-on-year to RUB 97.1 billion, resulting
in a gross profit margin of 58%, compared to
a 45% margin 2014, which was the result of
higher sales in rouble terms.
•
2015 Phosphate-based fertilizers
market conditions
•
The average price for DAP in 2015 was
USD 459/t FOB Tampa, representing a
slight 3% year-on-year decrease from
USD 472/t in 2014.
Overall demand for P2O5-based products
in 2015 was characterised by two main
factors: strong recovery in imports of
P2O5 products (DAP, MAP, NPK) into
India. After almost three years of gradual
decline, India’s imports of phosphate-
based products grew 65% year-on-year
to 6.4 million tonnes in 2015. However,
this recovery was offset by a decline
in imports into Brazil caused by sharp
increase in borrowing rates to farmers.
The overall import of phosphate-based
products into Brazil dropped by 26%
year-on-year to 5.1 million tonnes,
while imports of MAP dropped by 24%
year-on-year to 2.3 million tonnes,
compared to the historical high of
3.0 million tonnes seen in 2014.
On the supply side the most notable
shift is attributed to China: the further
liberalisation of the fertilizer export
regime resulted in a flat RMB 100/t export
duty throughout the year (vs. seasonal
duties in 2014 that reached 15% of the
price). As a result, the overall export of
DAP/MAP products from China increased
by 49% year-on-year to 10.8 million
tonnes in 2015.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financial review
continued
•
The global trade of phosphate rock
in 2015 dropped by 2.4% year-on-year
to 28.4 million tonnes thanks to lower
export from Morocco, Egypt and Syria.
The average export price for phosphate
rock (32% P2O5) stood at USD 125/t FOB
Morocco, a year-on-year increase
of 8% vs. USD 116/t in 2014.
The growth in fertilizer sales volumes
was primarily due to favourable market
conditions and higher demand, which
enabled the Company to substantially
increase sales of MAP, DAP and NPK
to Europe and India.
•
•
•
DAP/MAP fertilizers: Revenue from
DAP/MAP sales was up 72% year-on-
year, from RUB 42.7 billion in 2014 to
RUB 73.4 billion in 2015, reflecting the
overall 13% year-on-year growth in sales
volumes and 53% year-on-year rise in
DAP/MAP average revenue per tonne
denominated in roubles.
NPK fertilizers: Revenue from NPK
sales was up from RUB 23.4 billion in
2014 to RUB 38.9 billion in 2015, an
increase of 66% year-on-year, reflecting
the overall 12% year-on-year growth in
sales volumes and the 49% year-on-year
rise in NPK average revenue per tonne
denominated in roubles.
Phosphate rock: revenue from phosphate
rock sales rose by 33% year-on-year to
RUB 19.2 billion in 2015. Revenue per
tonne in rouble terms increased
by 62%. Sales volumes decreased
by 18% year-on-year due to higher
internal consumption of phosphate
rock by PhosAgro’s own downstream
production sites.
Phosphate-based products segment, RUB mln
Result
Revenue
Cost of goods sold
Gross Profit
Gross Profit margin
2015
2014
Change y-o-y, %
167,430
-70,344
97,086
58%
105,832
-58,156
47,676
45%
58%
21%
104%
13 p.p.
Revenue and sales volumes for principal phosphate-based products
Item
Revenue, RUB mln
Sales Volume, kt
2015
2014
Change y-o-y, %
2015
2014
Change y-o-y, %
Phosphate rock
DAP/MAP
NPK/NPS
MCP
19,155
73,362
45,769
7,749
14,393
42,654
27,770
5,262
33%
72%
65%
47%
1,962
2,625
2,144
258
2,392
2,330
1,930
250
-18%
13%
11%
3%
Phosphate-based segment revenue by region, RUB mln
Region
2015
2014
Change y-o-y, %
North and Latin America
Europe
Africa
Asia
CIS
Russia
Total
33,623
43,692
9,057
23,782
10,719
46,557
167,430
30,026
23,732
6,326
6,191
6,877
32,680
105,832
12%
84%
43%
284%
56%
42%
58%
Phosphate based fertilizers market, USD
Phosphate-based segment revenue
by region, %
Average DAP price FOB Tampa
2015
2014
459
472
6
1
5
Average phosphate rock price FOB Morocco
2015
2014
125
116
4
0
100
200
300
400
500
USD
3
1 Russia
Europe
2
3 North and Latin America
4
5
6 CIS
Asia
Africa
2
28%
26%
20%
14%
6%
6%
Nitrogen fertilizers segment
Nitrogen segment revenue increased by
30% year-on-year to RUB 21.6 billion in 2015,
from RUB 16.6 billion in 2014. Production
volumes of nitrogen fertilizers increased
by 4% in 2015. Sales volumes remained
almost unchanged.
Nitrogen segment gross profit for 2015
increased by 20% year-on-year to
RUB 9.5 billion, mainly as a result of
significant revenue growth caused by
the devaluation of the rouble against the
US dollar. A 74% year-on-year increase in
purchase volumes of ammonia as a result
of higher fertilizer production balanced the
rapid growth in gross profit, which meant
that the gross margin for 2015 was 44%,
compared with 48% in 2014.
•
2015 Nitrogen fertilizer market conditions
The average price for Urea in 2015 stood
•
at USD 267/t FOB Baltic, representing a
14% year-on-year decrease from USD
311/t FOB Baltic in 2014.
Global demand for nitrogen fertilizer
was relatively stable in 2015, and
is estimated by IFA at 110.1 million
tonnes (in N nutrient). Urea traditionally
accounts for around 60% of total
nitrogen-based fertilizer sales volumes.
Chinese urea exports accounted for
30% of global urea exports in 2015,
and stood at 13 million tonnes,
unchanged from 2014.
•
Nitrogen products segment, RUB mln
Results
Revenue
Intersegment
Cost of goods sold
Gross Profit
Gross Profit margin
2015
21,574
–
-12,063
9,511
44%
2014
16,626
8
-8,720
7,914
48%
Change y-o-y, %
30%
–
38%
20%
-4 p.p.
Revenue and sales volumes for nitrogen fertilizers
Item
Urea
AN
Revenue, RUB mln
Sales Volume, kt
2015
2014
Change y-o-y, %
2015
2014
Change y-o-y, %
16,101
12,250
31%
5,358
2,499
114%
949
416
1,017
248
-7%
68%
Nitrogen Segment Revenue by region, RUB mln
Region
North and Latin America
Europe
Africa
Asia
CIS
Russia
Total
2015
10,807
3,611
3,418
126
22
3,590
21,574
2014
9,451
1,759
2,474
1
5
2,936
16,626
Change y-o-y, %
14%
105%
38%
n/m
340%
22%
30%
Nitrogen segment revenue by region, %
Average urea price FOB Baltic, USD
Export revenue from urea was 32% higher
year-on-year, up from RUB 11.9 billion in
2014 to RUB 15.7 billion in 2015, due to
a 41% year-on-year increase in revenue
per tonne, balanced by a decrease in
sales volumes of 6%. Total revenue from
ammonium nitrate (AN) rose by 114%
year-on-year, from RUB 2.5 billion in 2014,
to RUB 5.4 billion in 2015, due to 28% growth
in revenue per tonne and a 68% increase
in sales volumes.
4
3
1
2015
2014
267
311
240
250
260
270
280 290
300
310
320
2
1 North and Latin America
2
Europe
3 Russia
Africa
4
50%
17%
17%
16%
36
37
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financial review
continued
Cost of sales
PhosAgro’s cost of sales in 2015 increased
by 23% year-on-year to RUB 83.1 billion,
while overall fertilizer sales volumes
increased by 9% year-on-year. This cost of
sales performance was primarily due to the
following factors:
An increase of RUB 2.5 billion, or 12%,
year-on-year in the cost of materials
and services due primarily to 10%
growth in fertilizer production volumes
and inflation.
A year-on-year increase in personnel
costs of RUB 0.4 billion, or 4%,
primarily due to indexation of payroll.
An 85% year-on-year increase in
expenditure on sulphur and sulphuric
acid to RUB 8.4 billion in 2015. This
was driven by a 6% increase in volumes
consumed due to higher production of
phosphate-based fertilizers, mainly MAP/
DAP and NPK, and by 75% growth in
rouble-denominated purchase prices.
A year-on-year increase in
expenditure on purchased ammonia
to RUB 8.2 billion or by 139%, due to
74% higher purchase volumes and a
37% rise in rouble-denominated prices,
year-on-year.
Expenditure on potash rose 93%
year-on-year to RUB 7.6 billion in 2015.
This was mainly due to a 68% rise in
rouble-denominated potash purchase
prices and 15% growth in potash
purchase volumes as a result of an
11% increase in NPK production.
Expenditures on natural gas did not
change significantly, due to a decline
in consumption of gas by 4% balanced
by a 4% increase in average purchase
prices. Natural gas is required primarily
for the production of ammonia.
The decline in volume of gas consumed
was due to PhosAgro’s 6% year-on-year
decline in ammonia production as a
result of planned maintenance to the
ammonia unit.
•
•
•
•
•
•
38
•
•
Russian Railways infrastructure cost
and operators’ fees increased by 11%
to RUB 6.1 billion. This was mainly due
to a 10% year-on-year increase in
railway tariffs on internal transportation
for the domestic market, and by 23%
year-on-year for exports.
Growth of 46% year-on-year in materials
and services to RUB 2.4 billion in 2015
due to an increase in multi-mode
shipment volumes to end consumers
in export markets.
Statement of cash flows
Cash flow from operating activities
The net cash flow from operation increased
by more than 130% year-on-year, from
RUB 27.5 billion in 2014 to RUB 63.3
billion in 2015. This was caused primarily
by favourable market conditions coupled
with further rouble devaluation during the
reporting period.
Cash used in investing activities
Net cash used in investing activities in 2015
grew 56% year-on-year to RUB 31.5 billion,
primarily due to higher capital spending
on the construction of PhosAgro’s new
ammonia plant and investments in main
ore shaft No2 at Apatit’s Kirov mine.
Cash used in financing activities
Net cash used in financing activities
was RUB 37.4 billion in 2015, compared
to positive cash flow from financing of
RUB 8.4 billion in 2014, primarily due
to RUB 15.7 billion net cash spent on the
debt outflow and a more than three-fold
increase in dividends payments.
•
•
•
Despite the increase in phosphate rock
production, fuel consumption remained
almost on the same level of RUB 2.9 bln
in 2015. The increase in phosphate rock
production volumes was made possible
by higher volumes of underground
mining of apatite-nepheline ore,
where primarily electricity is used.
Spending on ammonium sulphate grew
159% year-on-year to RUB 2.2 billion.
Rouble-denominated purchase prices
rose by 78% year-on-year, while higher
production of NPK with high nitrogen
content led to growth in consumption
of ammonium sulphate by 45%
year-on-year.
Heating energy expenses declined by
38% year-on-year in 2015 and amounted
to RUB 0.7 billion. Heating energy
purchase volumes declined by 32% as
a result of changes to the conditions
of the contract with the city of Kirovsk,
as a result of which the city began direct
purchases of heating energy from local
suppliers.
Selling, general and
administrative expenses
Administrative expenses rose by 32%
year-on-year to RUB 12.2 billion in 2015,
primarily due to:
•
•
An increase in professional services
by 81%, or RUB 0.9 billion, year-on-
year, related to strategic development
projects.
A year-on-year rise in personnel
expenses by RUB 1.5 billion, or 29%,
mainly due to the implementation of the
new management KPI incentive system,
which led to increased bonuses to key
management tied to EBITDA growth
and selective salary indexation.
Selling expenses rose by 37% year-on-
year to RUB 17.8 billion in 2015. This was
primarily due to the following changes:
•
A 60% increase in freight, port and
stevedoring expenses to RUB 8.4 billion
in 2015, mainly due to growth in CFR
shipments, leading to higher freight
costs and port charges, denominated
in USD.
Cost of sales, %
Cost of sales
10 11 12
1
9
8
7
6
5
4
3
1 Materials and services
Salaries and social contributions
2
Sulphur and sulphuric acid
3
4
Ammonia
5 Depreciation
6 Potash
7 Natural gas
8 Chemical fertilizers and
other products for resale
Electricity
9
10 Fuel
11 Ammonium sulphate
12 Heating energy
Item
Materials and services
Salaries and social contributions
Sulphur and sulphuric acid
2
Ammonia
Depreciation
Potash
Natural gas
Chemical fertilizers and
other products for resale
Electricity
Fuel
Ammonium sulphate
Heating energy
Other items
Change in stocks of works in
progress and finished goods
Total
Cash flow statement, RUB mln
27%
12%
10%
10%
10%
9%
9%
5%
5%
3%
3%
1%
% of cost
of sales
Change
y-o-y, %
2015
RUB mln
22,905
10,155
8,385
8,190
8,057
7,559
7,484
4,091
3,927
2,865
2,176
718
23
% of cost
of sales
27%
12%
10%
10%
10%
9%
9%
5%
5%
3%
3%
1%
–
2014
RUB mln
20,398
9,754
4,522
3,423
7,198
3,915
7,505
2,932
3,650
2,791
839
1,161
14
30%
15%
7%
5%
11%
6%
11%
4%
5%
4%
1%
2%
–
-3,471
83,064
-4%
100%
-635
67,467
-1%
100%
12%
4%
85%
139%
12%
93%
–
40%
8%
3%
159%
-38%
64%
447%
23%
Capital expenditure
Cash spent on capex in 2015 amounted
to RUB 42.6 billion. Capital expenditure
focused on ore extraction capacity
development in Apatit, construction
of the new 760 kt/year ammonia plant
at PhosAgro-Cherepovets.
2015
2014
Cash flow from operating activities
Cash flow used in investing activities
Cash flow used in/from financing activities (net of dividends paid)
Dividends paid to shareholders
Net change in cash and cash equivalents
Capital expenditure*, RUB mln
63,261
-31,463
-19,243
-18,130
-5,575
Phosphate-based products/mining and beneficiation
Phosphate-based products/fertilizers production
Nitrogen fertilizers
Other
Total
2015
2014
10,471
7,442
25,025
1,255
44,193
6,984
5,834
4,352
1,405
18,575
* capital expenditure, which consists of additions to property, plant and equipment
27,509
-20,210
14,138
-5,737
15,700
Change
y-o-y, %
50%
28%
475%
-11%
138%
39
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Environment review
Managing our environmental
performance and investing in
new technologies
We are investing in new technologies
to make our production activities more
efficient and reduce the environmental
impact of each tonne of fertilizer that
PhosAgro produces.
Environment strategy
Effective management of the Company’s
environmental footprint is a key factor in
PhosAgro’s ability to meet its goal of being
a long-term sustainable business and in
balancing its obligations to all stakeholders.
In addition to internal guidelines, PhosAgro
adheres to Russian regulatory requirements,
and is guided by EU environmental protection
directives and international agreements,
including the Basel Convention and the
Helsinki Convention.
We have in place environmental management
practices that ensure our compliance with
applicable regulations, and that help to
reduce the impact of our operations on the
environment. We also invest in advanced
technologies and high-quality production
processes to make the most efficient use
possible of finite natural resources.
We continually invest in new
technologies and processes
that reduce our use of energy
and finite resources
Our environmental strategy focuses on the
following key areas:
•
Reducing our waste production, emissions
and discharges of pollutants and resource
usage on a per-unit basis by investing in
new, more efficient technologies;
Ensuring that we act as a conscientious
neighbour and maintain a constructive
dialogue with local stakeholders about
our environmental impact;
Implementing energy-efficiency and
energy-saving programmes at all our
enterprises.
•
•
Policy highlights
PhosAgro maintains a policy framework and
related management systems procedures to
address business conduct matters. Highlights
of the organisation’s policy framework are
recorded below.
•
We continually monitor and try to
understand our environmental impacts;
We aim to comply with all applicable
Russian and international legislation
and standards;
We continually invest in new technologies
and processes that reduce our use of
energy and finite resources;
We look to reduce, process or recycle
the waste we produce wherever possible;
We embed a culture of respect for the
environment and communities in which
we operate.
•
•
•
•
Systems highlights
Management and reporting
PhosAgro’s environmental affairs are
overseen by the chief ecologist based at
PhosAgro-Cherepovets, who is supported
by environmental control and resource use
divisions at each of our production sites.
These divisions are responsible for undertaking
activities related to environmental protection,
ensuring compliance with regulatory
requirements and reporting on these issues.
Employees of these divisions provide support
to production site management when they
engage with local stakeholders.
PhosAgro management receives weekly
updates on all ongoing environmental issues,
and monthly reports are produced for
the Chairman of the Health, Safety
and Environment Committee of the Board
of Directors. On a quarterly basis.
Management and the Board receive regular
updates on any expenses or payments the
Company has paid for its environmental
impact. On annual and semi-annual basis,
the Board of Directors receives updates on
PhosAgro’s environmental protection initiatives
and current environmental performance.
40
41
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Environment review continued
Legislative and administrative framework
In general, Russian environmental law
meets international standards, and utilises
the following main pieces of legislation:
the Environmental Protection Law, the
Russian Federation Water Code, the Law
on Industrial Waste and Consumption,
the Law on Protection of Atmospheric Air
and the Environmental Expert Review Law.
These pieces of legislation require
environmental impact assessments
prior to the implementation of a project that
may have an impact on natural resources.
No construction or operation is permitted
until the Company is in receipt of a positive
report from the State Environmental Expert
Review (an essential precondition for financing
and implementation).
Regional legislation supports and expands
on these federal laws and regulations.
Russia is also a signatory to most of the major
international environmental conventions and
treaties, which, in the event of conflict with
Russian law, take precedence, as dictated by
the Constitution of the Russian Federation and
the Federal Law on Environmental Protection.
In general, any activity in Russia that may
have an adverse impact on the environment
is subject to:
•
•
•
•
•
the issuance of permits or licences
(including for water use; subsoil use,
for example, in mining; and forest use;
air emissions; disposal and recycling of
waste; and the operation of hazardous
industrial facilities);
the establishment of limits with respect
to the amount of environmental impact;
payment for negative environmental
impact (emissions and waste disposal);
payment of a fine for negative impact;
liability in the event of a violation up to
and including criminal prosecution.
None of PhosAgro’s enterprises use ozone-
depleting substances in the production
process. A small amount of carbon
tetrachloride (not more than 250 kg/year) is
used for some laboratory testing processes.
We do not undertake cross-border hazardous
waste transportation and our production sites
are not situated in protected areas. Hence,
there are no significant restrictions on our
operations. We also comply with IFC standards.
Permits and certificates
The Company’s production sites hold all
necessary licenses and permits related
to environmental protection.
In addition to observing Russian environmental
law, we adhere to international standards
relevant to our business to guide our approach,
for example, the Balakovo branch of Apatit is
the first Russian enterprise to be certified as
compliant with the European GMP+ quality
control standard for feed materials.
We also undertake regular internal and
external audits to assess our compliance and
obtain certification, together with exposure
assessments, international format safety
data sheets, and recommendations for safe
handling that are developed in compliance
with the requirements of European Regulation
No 1272/2008 on classification, labelling and
packaging and No 1907/2006 concerning
the Registration, Evaluation, Authorisation
and Restriction of Chemicals (REACH) in the
development of exposure scenarios.
ISO and OHSAS certificates held by PhosAgro enterprises:
ISO 9001
OHSAS 18001
ISO 14001
Apatit
PhosAgro-Cherepovets
Balakovsky subsidiary of Apatit
–
Since 2004
Since 2005
–
Since 2008
–
–
Since 2006
Since 2009
Emissions and air quality
In 2015, consolidated atmospheric emissions
by PhosAgro’s production subsidiaries
increased by 1.1 kt, or 4%, year-on-year to
28.9 kt. The increase in emissions was due to a
6% year-on-year increase in production output
by PhosAgro-Cherepovets, as well as the
merger of Agro-Cherepovets into PhosAgro-
Cherepovets. At the same time, Metachem
decreased its emissions by 34% year-on-year,
and Apatit achieved a 5% year-on-year decline.
Atmospheric emissions per unit of
production remained virtually unchanged,
at 1.83 kg/t in 2015.
Water use
PhosAgro’s subsidiaries try to implement
the latest available technologies when
using water in the production process,
maximising use in cycles to reduce
wastewater volumes. The Balakovo branch
of Apatit, for example, uses a closed cycle
process that produces no wastewater–
something that is not used anywhere else
in Russia or its neighbouring countries.
Apatit and PhosAgro-Cherepovets are
responsible for the majority of PhosAgro’s
water withdrawal, accounting for 66.5%
and 25% of the total, respectively. In addition,
Apatit provides drinking water for Kirovsk
and Apatity. The largest volume of waste
water discharges, 94.9%, comes from Apatit.
In 2015, PhosAgro’s total consumption
from surface water sources increased
by 5.7% year-on-year to 85.1 million m3.
Water consumption per unit of production
has declined by 23.3% over the last three years,
and was 5.38 m3 per tonne.
Water discharges by PhosAgro’s production
sites slightly increased and amounted to
188.1 million m3.
Environmental impact of the Company’s production sites in 2015
Emissions
into the
atmosphere,
kt
Water
withdrawal,
mln m3
Water
discharges,
mln m3
Solid
waste,
mln t
Apatit
PhosAgro-Cherepovets
Balakovo branch of Apatit
Metachem
Total
11.7
11.8
4.5
0.9
28.9
53.9
21.1
6.9
3.2
85.1
178.6
8.4
0
1.1
188.10
77.88
4.8
3.26
0.0024
85.94
Solid
waste
re-used/
recycled,
mln t
20.37
2.46
0.016
0.0019
22.84
Emissions into the atmosphere
Emissions of pollutants
into the atmosphere, kt
Per unit emissions of pollutants
into the atmosphere
(kg/t of production output)
Water withdrawal
Total water withdrawal
(mln m3)
Per unit water withdrawal
(m3/t of production output)
Reuse/recycling of solid waste
2015
2014
2013
2012
2011
28.90
27.80
29.90
28.40
30.0
1.83
1.86
2.0
1,93
2.13
2015
2014
2013
2012
2011
85.1
5.38
80.5
103.5
75.20
80.0
5.39
6.92
5.13
5.68
2015
2014
2013
2012
2011
Total volume of solid waste
reused/recycled, kt
22,851.80
2,249.90
2,236.10
5,637.90
4,730.10
Ratio of reused/recycled waste, %
26.20
2.83
2.16
4.81
3.97
42
43
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Environment review continued
Natural gas and fuel oil
In 2015, PhosAgro’s natural gas consumption
decreased 4% year-on-year to 1,820 million m3,
while fuel oil consumption declined 6.6%
year-on-year to 137 kt.
Apatit is our only consumer of fuel oil.
The decrease in fuel oil consumption was
a result of optimisation of the heating supply
to Apatit’s Vostochniy mine. This included
the construction of a modular boiler and the
construction of a second modular boiler in
the village of Koashva. This enabled the
Company to shut down an old fuel oil boiler
at the Vostochniy mine. Further improvements
were achieved thanks to the removal of certain
infrastructure from the Tsentralniy mine and
the shutting down of that mine’s fuel oil boiler.
Solid waste
2015
2014
2013
2012
2011
Total volume of solid waste, mln t
85.9
78.2
103.20
117.03
119.08
Total volume of solid waste,
excluding overburden, mln t
Per unit volume of solid waste,
excluding overburden,
t/t of production output
27.75
26.51
26.53
25.43
27.13
1.75
1.77
1.77
1.73
1.92
Waste
As PhosAgro continually modernises its
production facilities, one of our goals is
to reduce the volume of waste produced,
including through recycling. We also aim
to reduce the danger the waste we produce
poses for the environment. At our production
facilities, some types of waste are used as
raw materials in the production process.
One of the key areas where we are working on
recycling of solid waste is in the development
of new technologies for reprocessing of
phosphogypsum.
In 2015, 42 kt of phosphogypsum from the
Balakovo branch of Apatit was used for
construction of a 7-kilometre section of road
near the facility and around the Balakovo
district of the Saratov region. AO Apatit 18.8
million tonnes of overburden from surface
mining for road construction.
In 2015, the total volume of waste produced
was 85.9 million tonnes. Approximately
90.6% of this volume was produced by Apatit.
The 6% year-on-year increase in production
volumes was the primary driver behind
this increase in waste, created per unit
of production was almost unchanged.
The majority of solid waste (up to 70%)
consists of rocks and overburden from Apatit.
Energy efficiency
As a group, PhosAgro’s production subsidiaries
were 38.3% self-reliant in electricity and
heating energy during 2015. This includes
the use of heat generated in the sulphuric
acid production process. We also continue
to implement energy-saving and energy-
efficiency programmes.
PhosAgro’s production
subsidiaries were 38.3%
self-reliant in electricity and
heating energy during 2015
Electricity
PhosAgro’s total electricity consumption
in 2015 was 3,260 million kWh. PhosAgro-
Cherepovets and the Balakovo branch of Apatit
have their own generating capacities on-site,
and in 2015 they supplied 83.3% and 78.2%
of their own electricity needs, respectively.
Electricity consumption
2015
2014
2013
2012
2011
2010
Total electricity consumption,
million kWh
Electricity consumption per unit
of production, kWh/t
3,260
3,126
3,158
3,089
2,957
3,043
206
210
211
211
210
215
Case study
PhosAgro, together with UNESCO and the
International Union of Pure and Applied
Chemistry, launched the Green Chemistry for
Life programme in 2013. With USD 1.4 million
in financing from PhosAgro, this programme
offers research grants of up to USD 30,000
to young scientists for innovative research
projects that adhere to the 12 principles of
green chemistry.
In addition to aiming to harness the talents
of young scientists for the advancement of
green chemistry, Green Chemistry for Life
aims to raise awareness among decision-
and policy-makers, industrial companies and
the general public about the promise that
green chemistry holds for helping business
to develop in an environmentally sound way.
In March 2016, a special nomination was
launched, to research on innovative new
ways to process or recycle phosphogypsum
and other by-products of the fertilizer
production process.
12 Principles of Green Chemistry:
1
2
3
4
5
6
Prevention of waste to avoid treating
or cleaning up waste after it has been
created;
Atom economy through new synthetic
methods designed to maximise the
incorporation of all materials used in
the process into the final product;
Less hazardous chemical syntheses
designed to use and generate substances
that possess little or no toxicity to human
health or the environment;
Design of safer chemicals able to carry
out the desired function while minimising
their toxicity;
Avoiding wherever possible or minimising
the use of auxiliary substances (e.g.
solvents, separation agents and others),
and introducing safer solvents and
auxiliaries that are innocuous when they
have to be used;
Design for energy efficiency of chemical
processes to minimise their environmental
and economic impacts and, if possible,
to introduce synthetic methods to be
conducted at ambient temperature and
pressure;
7
8
Promotion of the use of renewable
raw materials or feedstock instead
of depleting ones whenever technically
and economically practicable;
Reduce derivatives through minimising
or avoiding the use of blocking groups,
protection/deprotection, and temporary
modification of physical/chemical
processes that require additional reagents
and can generate waste;
9 Catalytic reagents as selective as possible;
10 Design for degradation of chemical
products at the end of their function into
innocuous degradation products that do
not persist in the environment;
11 The development of analytical
methodologies needed to allow
real-time analysis for pollution prevention,
in-process monitoring and control prior
to the formation of hazardous substances;
12 Inherently safer chemistry for accident
prevention substances and the form of a
substance used in a chemical process to
be chosen to minimise the potential for
chemical accidents, including releases,
explosions and fires.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Health and safety review
Implementing best
practices in workplace
health and safety
We have established unified
policies and governance systems
across our production facilities.
Our priority is to provide safe
and healthy workplaces for
our employees, and to keep
our employees updated on
the latest rules, regulations
and best practices.
Health and safety strategy
With large-scale mining and chemical
processing operations, health and safety
are critical elements to the success of our
business. Our health and safety strategy
focuses on three key areas: accident
prevention and occupational health.
PhosAgro’s management is committed to the
health and safety of its employees because
promoting their well-being and a culture
of health and safety helps to ensure the
sustainability of our business. We aim to learn
from incidents when they occur by conducting
a thorough investigation and sharing
information as needed with production lines
or an entire site.
Policy highlights
•
We have established and maintain the
required level of workplace health and
safety, whereby the risk of injuries or death,
or accidents at hazardous production
sites is minimised and reflects the latest
scientific, industrial and community
standards
We seek to constantly create and develop
a unified corporate culture concerning
workplace health and safety among the
employees of our production sites
We provide for adherence to all legal
and regulatory requirements in the area
of workplace health and safety by all
employees, regardless of their position
in the Company
We aim to improve the efficiency of
workplace health and safety monitoring
at our production sites with the help of
modern information system, technical
diagnostics and remote monitoring
•
•
•
System highlights
We create a clear culture that embraces
personal, team and company-wide
responsibility for health, safety and care for
fellow employees. In addition to adherence
to federal legal requirements for workplace
safety, PhosAgro’s management has
introduced additional measures to improve
our workplace health and safety practices
based on international best practices.
Workplace injuries and fatalities
Minor injuries
Serious injuries
Fatalities
2015
2014
2013
2012
10
4
0
15
3
5
29
5
2
32
9
–
LTIFR (per 1 million hours)
0.73
0.92
1.03
1.01
Governance and oversight
•
Oversight begins at the Board of Directors
level, with the Environmental, Health and
Safety Committee chaired by Igor Antoshin.
Management receives weekly reports on
workplace health and safety performance
across the Company, and receives detailed
information about incidents if and when
they happen.
At the executive management level, we aim
to create a culture of safety whereby each
person embraces responsibility for his or
her own safety, as well as that of others.
Each of our subsidiaries has a workplace
health and safety service, or dedicated
specialists, responsible for ensuring
that proper workplace health and safety
measures are in place and followed.
Their responsibilities include monitoring
adherence to safety requirements, incident
investigations, working to disseminate any
learning from near misses or incidents
causing an injury or fatality and working
to mitigate any identified risks.
We operate a whistle-blower hotline, and
we strongly encourage employees to report
to management any concerns regarding
possible violations or potentially dangerous
situations at our production sites, as well
as any issues related to health and safety.
Unified standards:
•
As part of the integration and streamlining
of PhosAgro’s production assets, we
have been introducing new, unified safety
standards and practices across all of our
subsidiaries. These new standards are
based on internationally recognised best
practices, and are being implemented
together with some of the best external
experts available.
Currently, our PhosAgro-Cherepovets
production site has OHSAS 18001:2007
certification for its occupational health
and safety management systems.
•
•
•
•
•
Training
•
Training and instruction on hazard
mitigation and safe work practices,
including fire safety and other topics
relevant to a given production site in
accordance with legal requirements,
are provided to all new employees.
In 2015, our upstream subsidiary Apatit
conducted workplace safety training
for two groups of managers at the site,
with 34 people receiving eight hours
of training.
In 2016, the Company plans to conduct
35 such training programmes for
groups of 12-15 people.
•
•
Our performance
The significant efforts undertaken by the entire
PhosAgro team to ensure workplace health
and safety produced tangible results in 2015.
The LTIFR rate declined by 20% year-on-year,
and we had no fatalities or serious injuries
leading to permanent injuries during the year.
Workplace injuries and fatalities
Our goal for 2016 is to have another year
without fatalities, and to reduce the LTIFR rate
by another 10% year-on-year. We will continue
implementing the measures developed
together with DuPont Sustainable Solutions
in 2014, and we are also in the process of
establishing a unified HSE policy for all of
PhosAgro’s production sites in line with
our strategy of streamlining and optimising
business processes across our operations.
Case study
In 2014, we worked with DuPont Sustainable
Solutions to implement leading-edge
safety management practices and tools.
This ‘Improving the effectiveness of
workplace health & safety management’
project was implemented at all of
PhosAgro’s production sites.
Our cooperation with DuPont Sustainable
Solutions led to the introduction of the
following initiatives in our HSE practices:
• Behavioural safety audits
•
Internal investigations of every accident
recorded by the Company, including
mandatory investigation of micro-
traumas and minor incidents, and the
implementation of a methodology
aimed at identifying the root cause
of every incident
•
•
•
•
‘Golden rules’ for workplace health
and safety. The golden rules of safety
aim to protect the life and well-being
of employees, lower injury rates, ensure
adherence to legal requirements and
maintain a healthy environment
Qualification ratings of contractors prior
to participation in tenders, and ongoing
cooperation with contractors while they
are working on Company territory
Training of all factory personnel
on safety principles
Development of matrices for skills
and tools for individual protection
After introducing these new practices in
2015, we have seen a positive impact on our
workplace health and safety performance,
as discussed above.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
People review
Our people are vital
in helping us deliver
on our strategy
We aim to offer our
employees rewarding
careers and opportunities to
advance within the company.
We offer regular training,
run a staff reserve programme
and use a transparent
system of KPIs to determine
additional remuneration.
Headcount, average per year
Upstream
Downstream
Other
2015
7,375
8,136
2,009
2014
8,708
8,904
2,021
2013
11,307
10,226
1,735
•
•
Strategy highlights
We view the 17,520 people who work for us
as one of the keys to our success, and they
play a vital role in helping us deliver on our
strategy to create value for our shareholders,
our communities and our customers. In order
to recruit and retain the right people to achieve
this, we have focussed on the following areas:
Phosphate-based fertilizer production up
•
12.2% year-on-year to 5.4 million tonnes.
Being an employer of choice in the regions
where we are present.
Rewarding good performance using
KPIs to determine remuneration.
Ensuring continuity with a staff reserve
system that helps identify and prepare
future leaders.
Offering fair and competitive salary
and benefits packages.
Ensuring our employees learn the skills
they need to do their jobs today and in
the future with training programmes.
Preparing future generations of PhosAgro
employees by supporting educational
initiatives from primary school to university.
Ensuring that our headcount reflects the
real needs of our business and gives us the
flexibility we need to remain competitive
against our global peers.
•
•
•
•
•
System highlights
Executive remuneration
At the top level, the KPI system we introduced
in 2014 has set uniform standards linking top
executive remuneration to a number of factors,
including health and safety performance at the
management company and subsidiary levels.
We plan to complete implementation of the
KPI system across all PhosAgro companies
in 2016.
Policy highlights
We have successfully streamlined and
consolidated the structure of our business,
as discussed earlier in this report. In parallel,
we have introduced new policies to integrate
and centralise company management,
including making how we deal with personnel
consistent across the entire business.
Our policies are aimed at achieving the
following key goals:
•
Compliance with relevant local and
national employment regulations,
frameworks, guidelines, globally applicable
standards and best practice at all times.
Support for the fundamental principles
in the International Labour Organization
Declaration on fundamental principles and
rights at work. We do not discriminate on
the basis of gender, colour, religion, sexual
orientation or disability. We ensure that
employment with us is freely chosen.
We prohibit the use of forced and child
labour throughout our operations and
supply chain.
Ensure that our human resources policies
are adopted and adhered to by our
contractors and suppliers.
Provide the training necessary to ensure
that our employees have the skills they
need to do their jobs, and to support career
advancement within the Company.
Invest in education to help produce future
generations of PhosAgro employees that
possess the right skills to help us succeed.
Provide fair and transparent remuneration
and benefits that motivate our employees
to achieve PhosAgro’s strategic goals.
•
•
•
•
•
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Management development
Our management development programmes
train groups of 14-16 people on topics like:
•
Human resources management: planning,
setting goals, organisation and oversight
• Results-oriented thinking
• Leadership
• Decision-making
• Effective communication
•
• Organisations and oversight
• Mentoring
Influence and relationship-building
People review continued
Employee benefits
In addition to competitive wages, we aim
to ensure that our employees benefit from
good on-site working conditions, high-quality
food at factory canteens, as well as access
to corporate medical, rest and recreation
programmes for employees and members
of their families. PhosAgro also provides
private pension plans, housing programmes,
access to corporate sport facilities and the
opportunity to participate in regular sporting
and cultural events.
Communication and feedback
When employment-related or other issues
arise, we maintain numerous channels
for communication, including Q&As in the
corporate newspaper, town hall meetings for
staff and management and an anonymous
whistle-blower hotline. This variety of formats
gives employees a range of anonymity when
deciding how to raise an issue.
We also maintain a corporate intranet, which is
used for internal messaging, announcements,
planning and informational resources.
Training and development
Our long-term success depends on
creating a pipeline of talented individuals
who are capable of moving into leadership
and/or more technically challenging roles.
Ensuring we develop our people also limits
the risk of a shortage of talent, particularly
in regions where the availability of suitably
skilled people can be limited. We are taking
steps to integrate recruitment and training
to encompass schools, universities and
our own staff programmes.
PhosAgro Classes
At the school level, we encourage the study
of applied sciences, including chemistry
through the PhosAgro Classes programme.
PhosAgro invests RUB 19 million every year
into supporting this programme.
High-Potential Graduates
At the university level, we recruit students
based on recommendations from our
partner universities through the
High-Potential Graduates programme.
Each one of the High-Potential Graduates
is offered a competitive salary, relocation
and housing support, and is assigned
a mentor at PhosAgro.
Workplace training
PhosAgro’s Professional Training and
Development Centre works with Company
personnel to help them prepare for changes,
both external (legislative/regulatory) and
internal (related to optimisation, changes
to production or business processes).
As part of its ongoing activities, the Centre
participates in PhosAgro’s long-term HR
projects, like PhosAgro Classes, “High-
Potential Graduates” and the Staff Reserve
programme, as well as competitions for
professional skills and young managers.
Staff Reserve
Our Staff Reserve programme helps PhosAgro
to identify and provide additional training for
talented employees capable of both expanding
their roles and stepping into more senior
positions. Management training programmes
cover a wide range of business skills, including
decision-making, leadership and delegation,
conflict management, project management,
communication skills and staff mentoring.
Equal opportunity
Equal opportunity is important because it
contributes to PhosAgro’s position as an
employer of choice. Our approach to equal
opportunity is quite straightforward: we aim
to appoint the best person for a given job,
regardless of gender, sexual orientation,
religion, ethnicity or race. We also comply
fully with Russian federal and regional laws
governing a business’s obligations to society
and its employees. This includes a ban on child
or forced labour, the right to exercise freedom
of association and collective bargaining.
Developing our human resources
Career classes in schools
•
•
Preparatory course PhosAgro classes
(grades 10 –11)
Programme ‘DROZD’
(Pre–school, school, Technical Colleges:
from 4 to 18 years of age)
Vocational education support
Secondary education
‘Phosagro Classes’ Programme
Participating colleges:
• Khibinsk Technical College
• Apatity Polytechnic College
•
Cherepovets College of Chemistry
and Technology
• Balakovo Polytechnic College
• Volkhov Aluminium College
• Volkhov Polytechnic College
Participating colleges:
• Kirovsk
• Apatity
• Cherepovets
• Balakovo
• Volkhov
High-Potential Graduates
Programme
Technical institutes and specialised
universities
Apprenticeships
Internships
Employment with PhosAgro Enterprises
PhosAgro Staff Reserve
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION People review continued
How we measure success
Our human resources management strategy
has long-term targets to 2020, aimed at
securing further the vertical integration of our
recruiting and training process. Some of the
ways we do this are described below:
Training and development
PhosAgro Classes
In 2015, we had 246 students enrolled in
PhosAgro Classes, selected for their strong
achievements and interest in studying
chemistry, physics, mathematics and computer
science. In 2015, 120 students from five
schools completed the programme, and
50% of them went on to join technical degree
programmes with a potential career track.
Another 20% were accepted into universities
on sponsored placement programmes.
We aim to continue having 125 students
participate annually in the PhosAgro Classes
programme in five schools in five cities.
We hope that by 2020 we will be able to
recruit over 50% of these students.
High-Potential Graduates
We hired 47 recent graduates under
this programme in 2015, bringing to
149 the total number of graduates to join
PhosAgro since its beginning (2012-2015).
Today, 131 of the graduates are still
with PhosAgro, pursuing careers in
areas like mineralogy, geology, hydraulic
engineering, chemistry, rail transport,
open pit and underground mining, and
environmental protection.
As of December 2015, 43% of the participants
in the High-Potential Graduates programme
still working with PhosAgro had been
promoted and/or entered the Staff Reserve,
and 82% had successfully completed individual
projects they were given upon hiring.
Workplace training
Apatit
Balakovo branch of Apatit
Metachem
PhosAgro-Cherepovets
Total
Training hours in 2015
Staff Reserve
High-Potential
Graduates
200
128
280
288
896
384
56
232
272
944
Subsidiary
Current Managers
Staff Reserve
Current Managers
Staff Reserve
2015 participants
2014 participants
Apatit
PhosAgro-Cherepovets
Balakovo Branch of Apatit
Metachem
Total
48
129
50
6*
233
172
235
83
10*
500
102
97
97
49
345
83
174
64
39
360
* At Metachem the number of employees declined year-on-year due to the use of coaching as the
main development tool. Selected participants received 6 months of training.
Workplace training
In 2015, 233 employees in management
positions and 500 members of the Staff
Reserve, from floor managers to line
managers (area managers, shift managers,
senior engineers, engineers), participated in
training courses to help develop management
competencies. Total training hours for our
Staff Reserve programme amounted to
896 in 2015, while an additional 944 hours
of training was provided for the Young
Talented Professionals programme.
Partnership with CCCT
In 2016, we launched a programme called
‘selection, training and recruitment of
graduates of the Cherepovets College of
Chemistry and Technology (“CCCT”) for
positions at PhosAgro-Cherepovets and
companies it manages’. The main goal of
this programme is to establish and develop a
system for cooperation on hiring of graduates
from the CCCT, helping them adapt to the
labour market, including through work at
PhosAgro companies, including PhosAgro-
Cherepovets. Candidates are monitored from
the very beginning of their studies on a range
of parameters including internship experience,
academic progress and social activity.
This year, we aim to hire 30% of graduates
with relevant degrees.
Staff Reserve
In 2015, the Staff Reserve review process
involved 584 employees. PhosAgro invested
a total of RUB 74 million into the personal
and professional development of its employees,
of which RUB 12 million was devoted to special
programmes for current and future leaders
from PhosAgro’s Staff Reserve.
Number of Number of
employees
employees
added
added
to staff
to staff
reserve
reserve
in 2014
in 2015
Subsidiary
Apatit
PhosAgro-Cherepovets
215
157*
Balakovo Branch of Apatit
160
Metachem
PhosAgro AG
Total
52
–
584
147
39
99
12
43
340
* Numbers for PhosAgro’s Cherepovets subsidiaries
include only production staff: staffing committees
for non-production positions following the merger
will take place in June 2016.
This includes employees that passed the
review as candidates for management
positions and were added to the Staff Reserve.
Employees identified as candidates for management positions following review
Subsidiary
Apatit
PhosAgro-Cherepovets
Balakovo Branch of Apatit
Metachem
Total
2015
Number of
employees
36
48*
77
22
183
%
17
31*
48
42
31
2014
Number of
employees
68
18
5
8
99
%
46
90
36
67
52
* Numbers for PhosAgro’s Cherepovets subsidiaries include only production staff: staffing committees
for non-production positions following the merger will take place in June 2016.
Headcount, average per year
Upstream division
Downstream division
Storage and distribution
Logistics
Engineering units
Other
Total
Headcount optimisation
In line with our strategy for streamlining the
business, we continued with the outsourcing
of non-core services and re-engineering
of business processes in 2015, which
was combined with the expansion of job
responsibilities and consolidation of service
functions at the group-wide level.
2015
7,375
8,136
611
89
346
963
2014
2013
8,708
8,904
532
75
425
989
11,307
10,226
443
85
461
746
17,520
19,633
23,268
Average headcount in upstream production
decreased by 15% from 8,708 in 2014
to 7,375 in 2015. The average headcount
in downstream production decreased
by 9% from 8,904 in 2014 to 8,136 in 2015.
The overall effect on productivity, measured
in tonnes of output per capita, has been
significant: upstream productivity increased
23% year-on-year to 1,189 tonnes per capita,
while downstream productivity increased
21% year-on-year to 850 tonnes per capita.
Employee productivity, tonnes/person
2015
2014
2013
Upstream
1,189
Downstream 850
969
705
766
592
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Community investment review
Supporting the long-term sustainable
development of communities in the
regions where we operate
We take an active
role in supporting
the development of
the regions where
we operate, investing
in priority areas like
education, sports, healthy
lifestyles, and culture.
Social investments
Our social policy is an integral part of
PhosAgro’s comprehensive development
strategy. PhosAgro’s social projects aim
to provide for safe and comfortable working
conditions, professional education, solving
housing issues, improving the quality of life
of our employees and their families, material
support for veterans and pensioners, as well
as the socio-economic development of the
regions where the Company operates.
We pay special attention to developing local
initiatives, working in partnership with a broad
range of stakeholders, including government
bodies, social institutions and active citizens.
In order to support the sustainable socio-
economic development of the regions where
we work, PhosAgro has established a practice
of signing socio-economic partnership
agreements with the governments of the
regions where we operate: Saratov, Vologda,
Leningrad and Murmansk.
The priority areas of our social activities have
been determined as: education, sports and
health lifestyle, infrastructure development,
medicine, health care and culture:
•
Support for education: PhosAgro
has developed and is successfully
implementing a unique, multi-level
programme to support education, which
has been developed by the Company’s own
specialists. This programme is different
from others because it consolidates
external and internal social projects
within a unified framework: children start
participating at pre-school age, and the
programme covers all successive levels
up to higher education, with the potential
for participants to be employed at
PhosAgro after graduation.
For children and youth, the programmes
we implement are Educated and Healthy
Children of Russia (DROZD), PhosAgro
Classes, New Horizons and Talented Young
Specialists.
•
•
With the goal of improving the quality
of education in areas that are required
at PhosAgro and other modern chemicals
industry businesses, PhosAgro also works
with professional and higher education
institutions.
Creating conditions for employment:
we aim to help support former
employees by developing programmes
to support small business. In the city
of Kirovsk, for example, our subsidiary
Apatit is implementing a public-private
partnership with the Murmansk region
Ministry of Industrial and Entrepreneurial
Development and Kirovsk municipal
authorities. This unique agreement covers
the programmes Khibinsky Start and Kind
Work, which aim to create an atmosphere
conducive to conducting business, helping
to reduce tensions in the local labour
market and support local small business.
This is a new form of support for first-time
businessmen who had previously worked
at the factory. The programme provides
grants to help new business get off the
ground, with a clear application and review
procedure for potential participants.
Cooperating with partners: PhosAgro
and Severstal have signed an agreement
on strategic partnership that identifies
areas for cooperation between the
companies in regions of shared presence.
The goal of this agreement is to cooperate
on implementation of activities that aim
to develop the socio-economic potential
of the Vologda, Murmansk, Leningrad and
Saratov regions. Areas for cooperation
include developing and implementing
corporate social responsibility
programmes, environmental protection,
best practice sharing on investment
projects, as well as in areas like
purchasing of raw materials, goods
and services, as well as rail and air
transport logistics.
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Community investment review continued
Supporting education
System highlights
Implementation of social programmes
at PhosAgro is the responsibility of the
Government Relations, Information
Policy, Human Resources and Social
Policy Directorates in accordance with
their respective authority. Social projects
implemented by PhosAgro are coordinated
on the federal, regional and municipal levels,
as is the reporting on these projects.
In 2015 the Company’s subsidiary, JSC
PhosAgro-Cherepovets, approved a charitable
giving policy, regulations on documentation
for charitable assistance and rules for
providing charitable assistance.
We develop every social programmed
through an active dialogue with stakeholders
that will be affected by the programme.
This dialogue takes place with input from
negotiations with unions, meetings with local
authorities as well as through work with
educational and cultural centres.
•
•
We seek to ensure that residents are
informed about planned changes at our
production facilities that may affect them,
and have an opportunity to voice concerns
or ask questions before a new project is
launched.
As we build new facilities and expand our
existing production capacities and build
new facilities, we are guided by Russian
legislative and regulatory requirements,
as well best global practices in the area
of minimising our impact on society and
the environment. One of the ways we
engage with local communities in this
context is through public hearings.
With the goal of ensuring efficient
implementation of the PhosAgro Classes
and the DROZD programmes we have
signed agreements with the municipal
administrations of Kirovsk and Apatity in the
Murmansk region, Balakovo in the Saratov
region, Volkhov in the Leningrad region and
Cherepovets in the Vologda region.
In order to monitor the health of children and
youth in all the cities where DROZD operates
we have established health monitoring offices.
The results of this monitoring make it possible
to analyse and adjust the training process in
individual classes or in the educational centre.
Improving the quality of life of the residents
of the regions where we operate is possible
thanks to a comprehensive approach to
implementing social programmes while
minimising our impact on the environment
(see Environmental review on pages 40-45).
Plans for 2016 and beyond
We seek to conduct our production and
social activities in a way that creates the
conditions for current and future generations
to support and contribute to PhosAgro’s
success. In the coming 3-5 years we will
also be investing in a number of new capacity
expansions that involve construction of new
facilities or replacement of old equipment.
We will also be further streamlining the
structure of our business to reduce the
number of legal entities we have within the
group. Both of these processes will require
considerable work with local governments,
communities and employees to ensure that
all stakeholders are properly informed of
our plans, understand how they may be
affected by these changes, and have an
opportunity to provide feedback or raise
issues throughout the process.
Mutually beneficial cooperation
with local authorities
•
We will comply with relevant national
and local regulations, frameworks,
guidelines, globally applicable standards
and best practice.
We aim to adhere to corporate social
responsibility principles at all times and
address any grievances or complaints
about our operations promptly and
effectively.
We seek to hold our community
investments to the same strict standards
of governance and control that we do
for investments into our own production
operations.
•
•
56
Initiative
DROZD
Target group
Description
Pre-school,
school, technical
colleges
(age 4 to 18)
PhosAgro initiated DROZD over a decade ago to promote education and health lifestyles
for children. The organisation operates five regional sport and education centres in:
Cherepovets, Volkhov, Kirovsk, Apatity and Balakovo. The goal of the movement is to
establish effective systems to combat youth alcoholism, neglect, drug abuse and other
negative influences on children. Over 3,200 children participate in DROZD on a regular
basis, and at least 5,000 children are involved in various DROZD activities every year.
We have contributed over RUB 187 million to the scheme since 2013.
Spent in 2015
Spent in 2014
RUB 79 mln
RUB 57 mln
PhosAgro
Classes
Grades 10-11
PhosAgro classes operate in five cities: Balakovo, Volkhov, Kirovsk, Apatity and
Cherepovets. This programme provides targeted support for mathematics, computer
science, physics and chemistry. In the last year the number of students participating
in the PhosAgro Classes programme doubled to 250.
RUB 109 mln
RUB 17 mln
Vocational
colleges
Universities
Scholarships
and grants
High-Potential
Graduates
Programme
Students
We work with five colleges in the cities where we operate to support their vocational
education programmes, including investing in refurbishing classrooms and laboratories
and buying equipment.
RUB 35 mln
RUB 26 mln
Professional
education and
research
PhosAgro partners with the Cherepovets State University to develop new models
of professional education, and have helped with the creation of a new department:
Inorganic Material and Fertilizer Technologies.
RUB 160 mln
RUB 71 mln
With the St. Petersburg State University of Mines we have cooperated closely
on developing PhosAgro’s new strategy, new technologies, as well as conducting
scientific research for PhosAgro’s subsidiaries and professional training for students
planning to work at PhosAgro, and providing charitable support to develop the
universities’ infrastructure.
University students
We provide scholarships and grants to university students working on chemistry
or other degrees that provide skills needed at PhosAgro’s production sites.
RUB 7 mln
RUB 6 mln
Recent university
graduates
The High-Potential Graduates Programme is designed for recent graduates interested
in a career at PhosAgro. We work with them to establish individual development plans
and give them specific projects to lead, helping to set their careers on a fast track to
more senior positions.
RUB 9 mln
RUB 5 mln
Case studies: Green Chemistry for Life
In 2015 the United Nations Education and
Science Organisation (UNESCO) gave grants to
leading chemistry researchers as part of a joint
programme with PhosAgro and the International
Union of Pure and Applied Chemistry (IUPAC).
The grants were given to support research in the
area of green chemistry, with priority given to
projects that aim to help process waste products.
The event took place as part of the UN General
Secretary’s Scientific Advisory Board and the
UNESCO Congress of Chairs.
The Green Chemistry for Life Programme
was launched on 29 March 2013 at the
UNESCO headquarters in Paris. The goal of
the partnership s to support young scientists
working on green chemistry projects in order
to protect the environment and human health,
to develop energy-efficient processes and to
invent environmentally safe technologies with
the help of innovative ideas.
Murmansk region
•
Renovated the Kirovsk town clock tower.
The tower is part of the Apatit museum and
exhibition centre, and an exhibition about
movement from the earth’s core to the upper
atmosphere was opened in the seven-story tower.
Approximately RUB 400 million was spent on
financing education, sports and other parts
of the Kirovsk-Apatit local infrastructure.
•
•
•
•
•
•
•
The Company continued its investments into
the Bolshoi Vudyavr ski area included opening
of a covered rope tow for children and a new
practice slope. In the year since the new ski area
facilities were launched, use of the facilities has
increased by over 30%. This project highlights
how a public-private partnership has helped to
diversify the economy of a one-industry town.
Tax breaks were granted to the Kanatnaya
Doroga (chairlift) company for investments
in a project to build a new chairlift on the
Aikyaivechorr mountain.
A new paediatric day-patient facility and a
sport medicine office were opened at the Apatit
municipal clinic as part of the DROZD programme
with support from Apatit and PhosAgro.
The Khibinsky Centre for Business Development
programme
• The renovation of the Khibiny airport.
Vologda region
•
Tax breaks for investments in new
high-tech production facilities for ammonia,
granulated urea and ammonium sulphate
at PhosAgro-Cherepovets.
Agreement with the Vologda region to implement
projects to develop the fields of biotechnology
and agriculture in the Vologda region
Three-way agreement between PhosAgro,
Severstal and the city of Cherepovets to
develop hockey and volleyball sporting
competitions in the city.
Saratov region
•
•
•
•
Agreement with Saratov region government
aimed at supporting a sustainable social
and economic climate in the region, including
support for education, sports, culture and
other priority areas. In 2015, PhosAgro nearly
doubled its charitable giving in the region
to RUB 182.9 million.
Renovation of a sports facility at Balakovo
Secondary School #25, supported by the
Balakovo Branch of Apatit.
Saratov State University and the Balakovo
Branch of Apatit signed a cooperation agreement
whereby the university, with financial support
from the Company, would develop research
projects related to finding applications for
phosphogypsum currently stored as waste.
A programme to build road using waste
materials from the chemicals production
process. Phosphogypsum, which was previously
stored in a dump, is now being used for road
surface construction. The project began with
the repair of a 600-metre section of road and
continued construction of a 7 km section of
the Balakovo-Ershov road, both with the
application of phosphogypsum.
Leningrad region
•
•
PhosAgro opened the local branch of DROZD
at Volkhov School #1
Signed an additional agreement to the
agreement dates 22 May 2014 to provide
government support for investment activities
in the Leningrad region.
57
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Business conduct review
The Company aims to
conduct its business
responsibly at all times
Policy highlights
PhosAgro maintains a policy framework
and related management procedures
to address business conduct matters.
Highlights of the organisation’s policy
framework can be found below.
•
•
•
•
PhosAgro has a Government Relations
Policy that prescribes that the company’s
relationships with the government should
be legal and ethical, and based on fairness
and partnership. It also states that its
activities with the government should only
relate to specific strategic or operational
matters.
PhosAgro has a Conflicts of Interest Policy
that establishes rules for identifying where
a conflict may exist.
PhosAgro has an Anti-corruption Policy.
This states that the company’s directors
and senior management should set
high standards for the remainder of the
business in this area. It commits the entire
company to a zero-tolerance approach to
corruption.
PhosAgro has a Code of Ethics. This
addresses the company’s relationships
with a variety of material stakeholders,
including its employees, shareholders,
government, NGOs, customers, suppliers
and other business partners. It commits
the organisation to conducting its affairs
with its stakeholders in a fair and proper
manner.
In 2015, the Internal Audit
service conducted 12 audits
and one consultation for
management
•
•
•
In 2015 PhosAgro-Cherepovets has
established a Commission for Adherence
to the Code of Ethics and Regulating
Conflicts of Interest. The Commission,
whose members are appointed by the
Chief Executive Officer, is tasked with
identifying potential conflicts of interest
and assisting with their resolution,
implementing behaviour standards,
creating an environment where employees
can work honestly and effectively, ensuring
that the Code of Ethics and the Conflicts
of Interest Policy are adhered to.
In accordance with Russian law, the
Company has established a Commission
for Adherence to the Code of Ethics
and Regulating Conflicts of Interest.
The Commission, whose members are
appointed by the Chief Executive Officer,
is tasked with identifying potential
conflicts of interest and assisting with
their resolution, implementing behaviour
standards, creating an environment
where employees can work honestly and
effectively, ensuring that the Code of Ethics
and the Conflicts of Interest Policy are
adhered to.
Activities in 2015
•
In 2015, the Internal Audit service
conducted 12 audits and one consultation
for management. The audits looked at
areas like the purchasing of services,
analysis of financial and operating
performance and business processes,
inventory management, investments,
cash management and compliance.
•
•
PhosAgro has a Charity Policy. This
commits the company to supporting
sustainable development in the regions
where it operates. The Company has
established the following principles
for charitable giving: must address
a clear need and be used for clear
purposes, use of funds is closely
monitored, transparency and disclosure
of information. The Company does
not engage in charitable giving to
representatives of the Government,
to political parties or movements,
or to commercial organisations.
It also establishes key areas of activity,
including education, sport, health and
well-being and vulnerable members
of society such as older people.
PhosAgro does not participate in political
activities or provide financial support to
political organisations.
Systems highlights
•
The Company has a whistle-blowing
procedure that includes the provision of a
telephone hotline. Information is provided
for all employees about the purpose of
the hotline, the circumstances under
which it should be used (for example,
to confidentially report matters such
as theft, corruption, reputational risks,
conflicts of interest, legal violations
and environmental, health and safety
incidents). The company’s Chief Executive
Officer is responsible for the allocation
of internal resources to document the
matters reported in this manner.
All employees are regularly trained and
tested on corruption avoidance through
an established company-wide presentation
procedure. The aim of this exercise is to
build an understanding of the importance
of this area and a culture of corruption
avoidance throughout the business.
58
59
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Stakeholder engagement
Long-term relationships with our stakeholders are key
to long-term value. PhosAgro engages with the various
groups that are affected by our business, or that can
impact our business, in order to ensure the sustainability
of the Company. Through effective, strategic engagement,
we are able to understand and respond to our stakeholders’
evolving expectations.
Stakeholders
Investment and
finance community
Regional governments
& local communities
Why we engage
How we engage
2015 engagement activities
How we create value
• Explain and gain support for the
Company’s development strategy
• Educate new investors about the
company with the goal of supporting
liquidity and share price
• Improving the culture and quality
of corporate governance
• Build the long-term value of the
Company
• Maximise accessibility to capital
markets
• Apply knowledge gained from dialogue
to improve the running of the business
• Promoting the socio-economic
development of regions
• Maintaining an awareness and
understanding of evolving government
policies or proposed regulatory changes
that could impact our business
• Addressing community needs and
addressing social or environmental
concerns
• Support the health and well-being
of the communities where we operate
• To ensure that we are a good neighbour
• We deliver on our updated dividend
policy, which increased the portion
of net income to be paid out to
shareholders
• We are successfully implementing
PhosAgro’s growth strategy through
2020
• We stick to our conservative
financial policy and maintain an
investment-grade credit rating from
Standard & Poor’s
• Roadshows
• Investor conferences
• One-on-one meetings with investors
• Capital Markets Day
• Results and operating conference calls
• Regulatory press releases
• On-going engagement with analysts
• AGM and formal reporting
• Corporate website
• Site visits to production facilities for
analysts and investors
• Provision of a dedicated in house team
and the support of knowledgeable
professional advisory services
• Three independent non-executive
directors on the Board of Directors
ensure that the interests of public
shareholders are represented
•
•
•
•
•
•
Conducted nine roadshows with Company
management in key financial market
centres: London, Paris, Zurich, Geneva,
Stockholm, Copenhagen, Helsinki,
New York, Boston, Hong Kong, Singapore,
Tokyo, etc.
Organised site visits to mining facilities
(surface and underground) and the
beneficiation plant at Apatit for institutional
investors and sell-side analysts (more than
35 participants)
Organised visits to nitrogen and phosphate
production facilities, as well as the
construction site of the new ammonia plant
at PhosAgro-Cherepovets for analysts of
CRU, an independent analytical agency
Organised four conference calls and
webcasts for analysts and investors to
discuss the Company’s financial and
operational results.
Disclosure of 62 press releases via UK
a regulatory news service
233 Russian Federation mandatory
information disclosures via the corporate
information disclosure centre and Interfax
• 26 investment conferences and forums
• Developing cooperation agreements
with regional governments based on
what is most appropriate to the region
• Meetings with government and
community representatives
• Supporting local social and sporting
organisations
• Sponsoring PhosAgro classes to
support chemistry education for school-
aged children
• Investing in universities and technical
colleges that grant degrees that could
lead to careers in PhosAgro
• Introducing University scholarship and
recruitment programmes aimed at
encouraging chemistry
• Organised and conducted public
hearings in the Kormezhnskiy and
Bykovo-Otrogskiy districts regarding
construction of an ammonia pipeline
• Held meetings with the Saratov
region Government and Saratov State
University regarding cooperation on
development of technology to use
phosphogypsum for road construction
• Joint implementation of a project to
renovate the Tirvas sport and leisure
complex
• Conducted regular tours of Apatit
production sites for community
representative from Kirovsk, Apatity and
Murmansk
• We contribute to the sustainability and
well-being of the communities where
we operate, helping to ensure we have
a healthy and well-educated workforce
at our production facilities
• We pay taxes into local (and federal)
budgets
• Through cooperation with local
governments on programmes aimed at
improving housing, public utilities and
municipal services, we help to improve
the comfort and quality life
of community residents
60
61
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Stakeholder engagement continued
Stakeholders
Employees &
trade unions
Farmers
Why we engage
How we engage
2015 engagement activities
How we create value
• Creating conditions for the
professional growth and social
well-being of employees
• Improvement in employee motivation
• Responsible approach to use
of human resources
• Social support for current
and retired employees
• Establishing an effective
corporate culture
• Maintaining productive relationships
with trade unions and employees
• Responsible and effective use
of manpower
• Retain and develop an effective
employee team
• Ensuring that we are able to provide
ready and relevant solutions to the
end consumers of our products
• Providing the most efficient and
effective mix of nutrients based
on the crop, soil and other factors
• Producing phosphate-based crop
nutrients from exceptionally pure
raw materials, reducing the risk
of dangerous contaminants entering
the food chain, especially in areas
of intensive farming
•
•
•
•
•
•
•
•
•
• We provide fulfilling careers that reward,
engage, recognise, motivate and develop
our people
• We deliver training and leadership
programmes to help employees to
meet their personal career goals
• We engage in fair employment
practices that meet the needs
of employees while enabling the
Company to develop profitably
For more information, see the
“people review” section of this report
Participation of trade unions in developing
PhosAgro’s workplace health & safety
programmes including surveying
compliance with safety instructions
Collective agreements reached following
negotiations with representative trade
unions incorporating conditions and
compensation for employees (usually
of three-year terms, entered into with
each of our production entities)
Ongoing engagement with trade
unions, including joint working groups,
negotiations and meetings
Collaboration with trade unions to create
sporting and cultural programmes and
joint participation in workplace health
& safety committees, nomination of
workplace health & safety representatives
and annual participation in workplace
health & safety workshops
Employee development programmes,
including our Staff Reserve Programme
Employee surveys, presentations, bulletin
boards, intranet
Meetings with general directors of
production sites and management
responsible for social and HR issues
together with trade union representatives,
and questions asked though corporate
newspapers
Whistle-blower hotline: dedicated email
addresses for complaints, telephone
hotlines for inquiries about social issues,
reporting violations
• Weekly engagement with
representatives of the primary trade
union organisations. Participation in
labour dispute committees
• Adoption of local regulations and
workplace health & safety promotions
• Trade unions, with the support of
PhosAgro, arrange the following
events annually:
— PhosAgro Stars Festival
— Company-wide sporting competitions
— Professional skills competitions
(including in welding, lathe turning,
and electrical work)
• General directors and management
responsible for HR and social issues at
production facilities, together with trade
unions, regularly meet in person with
employees; every corporate newspaper
provides contact information for
feedback, and in the event of violation
of Company rules employees are
encouraged to call dedicated hotline
numbers
• The union chairmen from all of
PhosAgro’s production sites participated
in the Congress of the Russian Chemical
Workers Union, where all of the union
organisations at PhosAgro facilities
are represented by the Minudobreniya
association
In our domestic market: through feedback
from our distribution network, which
works directly with Russian farmers and
agricultural holdings
International markets:
•
— Establishing own trading operations
in priority markets, bringing us closer
to farmers
— Membership in industry organisations like
the International Plant Nutrient Institute
and the International Fertilizer Association
•
PhosAgro enters into agreements with
leading scientific research institutes in Europe
(Wageningen in the Netherlands, and the
University of Milan and University of Sassari
in Italy) to conduct extensive research that will
assess the impact on the quality of crops and
soil of using almost entirely cadmium-free
fertilizers produced by PhosAgro. The tests
will be run in different geographical locations,
as well as for different types of crops, and
will include a direct comparison with the
traditional types of fertilizers used in each
selected location.
• Launched new grades of PKS,
as well as NPK and NPS fertilizers
containing micro-elements
(boron and zinc)
• We opened new sales offices in Zug
(Switzerland), Warsaw (Poland) and
Sao Paulo (Brazil), to enhance
our ability to work directly with
farmers in our priority export markets
• Cooperating with IPNI to develop
recommendations for application
of phosphate-based and complex
fertilizers for soy, wheat, corn and sugar
beets in order to provide farmers with
recommendations in accordance with
4R Nutrient Stewardship principles
• Distribution of marketing materials,
cooperation with key clients and end
customers
• Our strategy to 2020 aimed
at bringing us closer to farmers
• We offer customers 33 fertilizer grades
after introducing two new PKS grades
and one new NPS grade in 2015.
We continue investing in further
enhancing our product offering
• Our fertilizers have some of the
lowest levels of impurities due
to the exceptionally high quality
of our phosphate rock, meaning
it is more effective
• We provide information about the
positive effects of phosphate-based
fertilizers on crop output and their
important role in global food security
62
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Stakeholder engagement continued
Stakeholders
The general
public and media
Why we engage
How we engage
2015 engagement activities
How we create value
• Enhance and protect the Company’s
image and business reputation
• Secure support for Company initiatives
in the production of mineral fertilizers,
mining and support in improving global
food security
• Support in resolving production
and social issues
•
•
•
•
Interaction with experts and public
organisation
Media engagement including regular
meetings and briefings with journalists,
access to senior management, site tours
for press and press releases.
Attendance at public hearings
Company plant tours, exhibitions
and congresses
• Corporate website, social media
• We protect the reputation of our
company and making sure the public
is informed about our activities
•
•
•
•
•
•
•
•
•
Published four weekly newspapers at production
sites and monthly corporate newspaper
PhosAgro and its subsidiaries published aver
170 press releases
Over 20,000 mentions of PhosAgro in domestic
and international media
PhosAgro’s CEO conducted regular meetings
and interviews with Russian and foreign
journalists, providing expert comments on
important Company and industry events to
leading publications including the Financial Times,
Bloomberg, Reuters, Wall Street Journal, Forbes,
Rossiya-24, Vedomosti, Kommersant, Interfax
The CEO held press conferences part of various
domestic and international events, including the
St. Petersburg International Economic Forum,
the World Economic Forum in Davos, the VIII
Russo-German Natural Resources Forum, the
Brazil-Russia Business Forum, VTB’s Russia
Calling! Investor Conference, and the signing
ceremony for a loan agreement with UniCredit
Bank Czech Republic and Slovakia; also as part
of the launch of the modernised aluminium
fluoride production facility together with
UC RUSAL, and to mark the signing of
social-economic partnership agreements with
the heads of regions where PhosAgro is present.
Protected the Company’s reputation and informed
the public about its ongoing activities
Participated in 10 international and regional
industry conferences
Maintained membership in Russian and
international professional associations
Organised grant ceremony for young talented
scientists as part of the PhosAgro/UNESCO/IUPAC
Green Chemistry for Life programme
Business partners
• Creating a business relationship built
on trust and respect. Mutual
understanding of obligations and
expectations of the relationship
• Consumer health
• Understanding and contribution to
major issues affecting the fertilizer
and mining industries
• Contracts and agreements
• Conferences
• Joint submissions on issues affecting
our industry
• Support for international applied
research and sustainability projects
• Negotiations with consumers,
publications and distribution of
advertising materials
• Membership in industry associations
•
•
•
•
•
•
•
•
The PR division also organised information support
for the following events:
•
Commissioning of the new ammonia storage
facilities at the Balakovo branch of Apatit
Commissioning of the PKS-100 fertilizer capacity
at Metachem in Volkhov
Commissioning of the Smart Bulk Terminal
in Ust-Luga
Commissioning of Main Shaft №2 at Apatit’s
Kirov mine
Launch of the modernised aluminium fluoride
production facility together with UC RUSAL
Attended 15 international and local
industry conferences (4 IFA, 3 CRU,
4 FMB Argus, 2 IPNI, 2 other) and local
industry conferences
Participated in domestic and international
professional associations
Hosted a conference to award the first
grants given out under the PhosAgro /
UNESCO / IUPAC ‘Green Chemistry
for Life’ programme sponsored by
PhosAgro to support promising projects
by young chemists
In cooperation with UC Rusal,
we commissioned an aluminium
fluoride production plant in Cherepovets
with a total annual capacity of 43,000
tonnes. The aluminium fluoride will be
used as feedstock at UC Rusal plants
• We are a reliable partner and a
sought-after client within our industry
• We work with our peers to ensure
that the industry’s voice is properly
represented around the world
• We support scientific research to help
develop “green chemistry” technologies,
including in the field of crop nutrients
• Under their long-term cooperation
agreement, PhosAgro and UC RUSAL
signed contracts to increase the
production of aluminium fluoride and
raw materials for UC RUSAL’s factories
64
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Managing our risk
In 2015, PhosAgro ensured effective functioning of its
risk management system by identifying and assessing
risks in a timely manner and developing and implementing
measures to manage those risks. Senior management
devoted significant attention to managing key risks that
have a high impact and a high probability.
In 2015, the Company reassessed its risks.
As a result of the reassessment, key risks
were identified (updated), and a risk passport
was formulated for each one. The map and
passports were reviewed by the Board’s Risk
Management Committee.
Throughout 2016, PhosAgro plans to monitor
the measures it has in place to manage key
risks, and inform the Board of the results of
this monitoring, as well as carry out at least
one reassessment of risks with the aim of
updating key risks where necessary.
No significant changes were made to
the Company’s corporate governance
overall resulting from changes to the risk
management system in 2015. The Risk
Management Committee coordinates
issues related to risk management on
behalf of the Board of Directors, and
the Risk Management Department
coordinates risk management on behalf
of Company management. The Director of
the Risk Management Department reports
operationally to the CEO and functionally to
the chair of the Board’s Risk Management
Committee.
The risks that may impact the Company
outlined in this annual report do not
constitute an exhaustive list. The report
aims only to identify the key risks.
Risk Management System
Risk Management Committee
• Regularly reviews risk management system and policies
• Provides recommendations to the Board on changes and improvements to the risk
management system
2
8
3
4
5
7.1
1
6
7.2
15
10
13
14
2
Strategic risks
1
Risk of inadequate strategic
planning
Social and human resources
Board of Directors
• Overall responsibility for management of financial and non-financial risks
• Establishes and monitors performance of risk management systems
• Holds management accountable for implementation of risk management system
Audit Committee
• Oversight responsibility for the finance function
• Provides recommendations to the Board on changes and improvements to the
financial risk management system
Internal audit department
• Regular assessment of the Company’s internal control and risk management systems
• Oversight of compliance of PhosAgro’s financial and economic operations with
Russian legislation and the Company’s Charter
• Development of recommendations on strategic changes to the risk management
Risk management department
• Facilitating work across the Company’s divisions to identify and assess risks as well
as develop programmes to manage and address risks
• Provision of PhosAgro employees with methodological and consultative support on
issues related to risk management
• Organisation of risk management
Management
• Implementation of, and adherence to, risk management policies
• Monitoring and management of risks relevant to job function
• Risk identification and reporting
• Operational risk management
h
g
H
i
t
c
a
p
m
I
i
m
u
d
e
M
w
o
L
9
11
12
Production risks
3
4
Risks in the production process
Risks related to occupational health
and industrial safety
Environmental risks
5
Operational risks
Planning
6
7.1 Risks of inefficiency and
infringement of business
processes (key risk)
7.2 Taxation risks (key risk)
8
Risks in the field of information
security
Risks in the area of economic
security
9
Regulatory risks
10 Compliance with legal and
regulatory requirements
11 Corruption
Reputational risks
12 Reputational risks
Financial risks
13 Credit risks
14 Currency risks
15 Marketable goods
66
67
Low
Medium
Probability
High
Please see the full description of
each risk in the table on pages 68–73
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Managing our risk continued
Risk description
Methods for minismising risk
Risk level
Impact
Risk description
Methods for minismising risk
Risk level
Impact
Strategic risks
1
Risk of inadequate
strategic planning
(key risk)
Risk of inadequate strategic planning
associated with the adoption of an
incorrect strategic decision and
associated management decisions,
resulting from an erroneous
assessment of internal and external
factors that have an impact on the
Company’s prospects for development
and its ability to achieve its strategic
objectives.
2
Social and human
resources risks (key risk)
Social and human resources risks
are those associated with the
hiring, development and retention
of employees, as well as risks in
relations with local communities and
the risk of adverse social situations in
regions of operation.
Production risks
3
Production risks
(key risk)
Risks in the production process
are negative events of a technical-
industrial nature or naturally
occurring events that lead to
disruptions in the production process:
downtime of production equipment,
outages, incidents and accidents
at production sites and production
infrastructure facilities, failure to
meet planned production volumes.
4
Workplace health and
safety risks (key risk)
Workplace health and safety risks
are related to injury, occupational
illnesses, accidents and incidents
at hazardous production facilities,
as well as risks associated with
discrepancies between the workplace
health and safety elements of the
risk management system and legal
requirements.
PhosAgro is developing on a system to monitor internal
and external factors that may have an impact on the key results
of its strategy until 2020 and the strategy until 2025 that is currently
under development. This allows the Company to respond to changes
in a timely manner and take them into account when making decisions.
PhosAgro also carries out analysis comparing best industry practices
to the practices it employs, or plans to employ, to assess costs and
benefits in order to facilitate optimal decision-making.
Loss of competitive advantages
associated with the level of
technological development of
production and the constraints
of external infrastructure
Failure to reach the target values
of key strategic indicators
PhosAgro carries out independent and joint programmes aimed
at attracting talented young specialists, developing employees’
professional competencies, increasing employee motivation to
ensure long-term retention. These programmes include regular
training and skills development for staff, conducting an assessment
of staff loyalty, cooperation programmes with institutions of higher
learning, programmes to support the health of employees, etc.
Discrepancies between the
number of staff members
and their qualifications and
the Company’s needs
PhosAgro aims to operate all types of equipment without breakdowns
or unplanned stoppages, and to take steps to limit the length of
unplanned stoppages when they do occur. With this aim in mind, the
Company schedules preventative maintenance of equipment and
major overhauls, while using back-up equipment and creating a
reserve of components, accessories and spare parts. A programme
to boost the quality and reliability of repair work carried out by
suppliers is in place. Insurance covers the Company’s dangerous
production facilities and property.
PhosAgro ensures workplace health and safety in compliance
with relevant legislation and global best practices in this area.
To this end, the Company carries out training for staff and checks
their knowledge related to workplace health and safety, promotes
a culture of safety, ensures all contractors adhere to workplace
health and safety standards, carries out safety audits and inspections
to ensure compliance with guidelines both for Company divisions
and for suppliers for which the Company has put the OHSAS 18001
system in place.
Accidents and incidents at
production facilities, the loss of
production output, setbacks in
economic indicators, damage to
or loss of equipment
Accidents and incidents at facilities
related to energy infrastructure
Occupational injuries, complete or
partial loss of the capacity to work
Production risks continued
5
Environmental risks
(key risk)
Environmental risks cover the
occurrence of potential damage
to the environment as a result
of the Company’s activities.
Operational risks
6
Planning risks (key risk)
Planning risks are related to
exceeding planned budgets and
timelines for the completion of
new construction and modernization
projects, as well as the failure to
achieve efficiency targets related
to projects.
PhosAgro regularly assesses and analyses its impact on the
environment. In an effort to limit its environmental impact, the
Company is modernising its clean-up and storage system and
is putting energy-efficiency programmes in place. The Company
partners with UNESCO and the International Union of Pure and
Applied Chemistry (IUPAC) to provide grants for research in the field
of green chemistry with the aim of protecting the environment and
human health, creating energy-efficient processes and implementing
ecological safety technologies on the basis of innovative ideas.
Non-compliance with established
regulations regarding the impact
on various components of the
environment
PhosAgro aims to carry out its projects (the key projects are the
construction of new Ammonia and granulated Urea plants) in line
with planned budgets and timelines. Uniform approaches to project
implementation and management are employed. Projects undergo
a multi-step review and approval process. Project offices are
established for particularly large and important projects. Contracts
can be made with a fixed (hard) price. Regular monitoring to ensure
compliance with project timelines and budgets is carried out.
For our key ammonia and granulated urea projects we have secured
financing from international banks supported by export credit
agencies from the countries supplying the technology. For the
ammonia plant we received a USD 440.6 million syndicated loan from
JBIC with insurance cover from the Nippon Export and Investment
Insurance. As part the loan agreement, PhosAgro undertook an
independent environmental audit of the impact of the new capacity
that we planned to build. For the granulated urea unit, we secured a
EUR 73.4 million loan from UniCredit with insurance cover from the
Czech Republic Export Guarantee and Insurance Corporation.
Exceeding planned budgets
and timelines for the
implementation of projects
involving capital construction and
modernisation of existing facilities
Poor implementation or
work tasks
7.1
Risks of inefficiency and
infringement of busines
(key risk)
PhosAgro seeks to support the efficient functioning of all of the
Company’s business processes. To achieve this, the efficiency of
business processes is regularly evaluated, bottlenecks are identified,
and measures to improve efficiency or eliminate bottlenecks are
developed and implemented.
Risks associated with inefficiency
or the intentional or unintentional
infringement of the Company’s
business processes, including
counterparty risk related to
supply chain.
We also seek to minimise risk in our supply chain by choosing
supplier through competitive tender processes. PhosAgro seeks to
establish long-term relationships with reliable suppliers by signing
long-term supply contracts.
Late deliveries of feedstock, raw
materials, equipment and spare
parts from third parties.
Interruption of production lines
and lower production volumes.
Interruptions to deliveries of
finished goods due to limited
capacity of railway infrastructure
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Managing our risk continued
Managing our risk continued
Risk description
Methods for minismising risk
Risk level
Impact
Risk description
Methods for minismising risk
Risk level
Impact
Operational risks continued
7.2
Taxation risks (key risk)
Taxation risks are related to potential
claims by tax authorities that the
Company has not correctly filed its tax
return or made payment on time.
PhosAgro complies with tax legislation in the countries where it
operates. Tax legislation, including planned changes, is monitored;
law enforcement practices are analysed; clarifications are sought
from government bodies regarding tax assessments; law firms,
accountancies and tax authorities are consulted on questions related
to double taxation and various tax-related laws.
Financial (penalties), administrative
and criminal consequences as a
result of violations uncovered
by the tax authorities
Regulatory risks
10
Compliance with
legal and regulatory
requirements (key risk)
Compliance with legal and regulatory
requirements cover the risk of timely
receipt/extension of licenses and
risks from changes in legislation that
could lead to an increase in the cost
of doing business, the implementation
of restrictive measures by regulatory
bodies, a reduction in investment
appeal and/or changes in the
competitive environment.
The Company ensures full compliance in its activities with applicable
legislation. In order to ensure that it receives information about
potential legislative changes in a timely manner, the Company closely
tracks initiatives at a government and regulatory level, and takes
part in discussions of initiatives and preparation of recommendations
through professional associations. The Company acts in a timely
manner in preparing and submitting documents to receive or prolong
the necessary licenses needed to carry out its business.
Non-compliance on the
part of the Company with
the requirements for
licensed activities
The publication of legal acts by
federal and regional authorities
of the Russian Federation that
provide new burdens and
restrictions for the Company
8
Information security risks
(key risk)
Risks in the field of information
security are risks associated with
losses caused to Company property
and assets by means of unauthorised
access to its information systems
or by the disclosure of confidential
information.
The Company carries out various measures aimed at preventing
unauthorised access to information systems as well as disclosure of
confidential information. Different technical and software solutions
are used to control access to information resources and systems;
access rights to information are regulated according to different user
groups; there is a clear definition of what constitutes confidential
information and how it should be handled; and periodic audits
are carried out to ensure strict compliance with the Company’s
confidentiality policy.
Distribution of confidential
information
9
Risks to economic
security
Economic security risks are related to
losses caused to Company property
and assets as a result of legal
violations in the economic sphere
committed by employees or third
parties, including fraud and theft.
The Company takes measures aimed at preventing potential
damage to its property and assets as a result of legal violations in
the economic sphere. A system controlling access to the company’s
administrative and production facilities is in place; a clear division of
responsibility is established when it comes to concluding contracts
or transactions; checks are carried out on all counterparties
before contracts are executed; and a “hotline” is created to enable
the Company to receive feedback from employees. And additional
oversight checks are carried out by various departments within the
Company.
The loss of an enterprise’s
property as a result of illegal
actions, including fraud and theft
11
Corruption risks
Corruption risks associated with
losses resulting from penalties
levied against the Company by state
authorities as a result of non-
compliance or inadequate compliance
on the part of the Company or its
employees with the requirements of
applicable anti-corruption legislation.
The Company ensures compliance of its activities with the
requirements of relevant anti-corruption legislation. It conducts
training focused on combatting corruption and on how to apply anti-
corruption legislation in practice, and a principle of zero tolerance is
communicated to all employees and counterparties with respect to
corruption, and they are warned that they will be held accountable
for any violation of anti-corruption legislation. In 2015 the Company’s
subsidiary, JSC PhosAgro-Cherepovets, became a member of the
Anti-Corruption Charter of Russian Business.
The performance of corrupt acts
by the employees or contractors
of Company enterprises
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Managing our risk continued
Managing our risk continued
Risk description
Methods for minismising risk
Risk level
Impact
Risk description
Methods for minismising risk
Risk level
Impact
Reputational risks
12
Reputational risks
Reputational risks cover damage to
the Company’s business reputation
as a result of unauthorised disclosure
in the media of information about
the Company’s operations, financial
results, upper management etc.
The Company is transparent and discloses all material facts and
developments, while also having adopted an information policy and
media engagement policy. The Company publishes information about
its business on its website and in the media, provides comments
in response to media enquiries and regularly monitors all relevant
coverage in both Russian and international media.
Financial risks
13
Credit risks (key risk)
Credit risks resulting in potential
financial losses caused by the failure
of commercial contractors, suppliers,
banks, insurance companies, clearing
centres or other financial contractors
to fulfil their financial obligations to
the Company completely and on time.
The Company employs different methods of managing and
reducing credit risk, including by completing deliveries after
full or partial pre-payments, with full or partial insurance of
credit risk and by using letters of credit. Delivery without
pre-payment and insurance is only permitted for long-established
clients. Providing advance payments to suppliers and contractors
is only considered after the counterparties have been tested
for reliability, and also after the provision of bank guarantees in
the event that the sum of the advance payment exceeds established
internal limits. The Company works with banks and insurance
companies with a high level of financial stability, and that meet
the criteria set out by the Company’s treasury policy.
To mitigate credit default risks the Company runs three internal
policies that provide enough flexibility in the cash management:
a) the total amount of the capital spending should not exceed
50% of forecasted EBITDA (earnings before taxes, interest,
depreciation and amortization) b) the company aims to keep
the leverage at the appropriate level with Net Debt/EBITDA at
below 1 c) flexible dividends policy that keeps the dividends payout
in the range of 30-50%.
The Company monitors all covenants applicable to existing loans on
a regular basis.
The unauthorised disclosure of
information to the media about
the Company’s operations
by unauthorised and/or
unidentified representatives
of the Company (leaks)
Public statements and actions
on the part of third parties
(individuals or organisations)
concerning the Company that
denigrate the Company’s
business reputation in order
to have a negative impact
on its operations
Failure by clients to pay
for delivered goods
Late payments by clients
for delivered goods
Inability to repay debt upon maturity
Financial risks continued
14
Currency risks (key risk)
Currency risks resulting in
potential financial losses caused by
unfavourable changes in exchange
rates with respect to the Company’s
base currency.
In the current environment of volatility with respect to the oil price
and the fluctuations in the rouble exchange rate against major
currencies, the Company aims to align the currency structure of
the debt financing in line with the currency structure of the main
sales. Most of the Company’s debt is denominated in US dollars
as a natural hedge against primarily USD-denominated sales.
The Company carefully tracks analyst forecasts and factors that
can influence the rouble exchange rate against major currencies.
Where needed, the Company is able to use full or partial hedging
instruments against its currency positions.
15
Marketable-goods risks
Marketable-goods risks cover
possible losses associated with
unfavourable changes in the market
prices for mineral fertilizers and
other products, as well as increases
in the price of the main raw materials
and equipment that the Company
purchases.
In the current environment of reduced prices for its core products,
the Company is continually optimising its sales structure according
to fertilizer brands and regional sales focus in order to maximise
margins, while also increasing the share of fertilizer sales to end
users, increasing production efficiency and providing add-on services
to customers such as packaging, blending and storage.
In 2015 the company added 3 new trade offices (in Zug, Switzerland,
Warsaw, Poland, and Sao Paulo, Brazil) to the existing office
in Singapore. With 4 offices are on the ground, the Company is
presented in all three priority export markers – Europe, Latin
America and Asia. Moreover, the company currently considers new
offices in France and Germany.
In order to reduce the cost of raw materials and equipment,
the Company conducts tenders among multiple suppliers,
conducts long-term supply contracts and develops lasting
relationships with its suppliers.
Debt levels as reported in
our main operating currency
could increase as a result of
unfavourable fx rate changes
Losses from derivative
financial instruments
Realised and unrealised
losses from revaluation
of fx-denominated debt
Decrease in cash flow in
our main operating currency
The critical impact on the cost
of production of one or more
raw materials, cost increases
and worsening financial results
The loss of revenue as a result
of the poor choice of a product
with low marginality
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Board of Directors
The Board of Directors
consists of a diverse
group of professionals
with experience in audit,
chemicals, investing and
financial markets.
We have the right mix of
knowledge of Russia and
international business
to help PhosAgro succeed
in all of its priority areas.
Audit Committee
Strategy Committee
The Remuneration and
Human Resources Committee
The Environmental,
Health and Safety Committee
The Risk Management
Committee
Board of Directors structure, %
Board of Directors
professional experience, %
1
1
3
2
4
2
3
Executive directors
Independent directors
1
2
3 Non-executive directors
38%
38%
24%
Sales
1
2 Capital Markets
Finance and audit
3
4 Chemical industry
12%
25%
25%
38%
Andrey G. Guryev
Non-Executive Director
Sven Ombudstvedt
Independent Director
Marcus Rhodes
Independent Director
Year appointed to Board: 2013
Year appointed to Board: 2011
Year appointed to Board: 2011
Committee appointments:
Committee appointments:
Committee appointments:
Recent roles:
2006-present: Vice President of the Russian Union
of Chemical Sector Businesses and Organisations,
a non-profit organisation 2001-2013: Member of
the Federation Council
Education:
Graduated from G.V. Plekhanov St. Petersburg
State Mining Institute and the Lenin State
Central Institute of Physical Culture
Shares in PhosAgro:
Mr Andrey G. Guryev owns no shares in PhosAgro.
According to information available to the Company,
the ownership of companies holding 45.46% of
PhosAgro’s authorised capital, namely Adorabella
Limited, Chlodwig Enterprises Limited, Fornido
Holding Limited, Dubhe Holdings Limited,
Miles Ahead Management Limited, Owl Nebula
Enterprises Limited, is held in trusts, the economic
beneficiaries of which are Andrey G. Guryev and
members of his family. Andrey G. Guryev’s wife
owns shares representing 4.82% of PhosAgro’s
authorised capital.
Recent roles:
2010-present: Chief Executive Officer, Norske
Skogindustrier ASA
2008-2009: Senior Vice President, SCD SAS
2006-2008: Chief Financial Officer and Head of
Strategy, Yara International ASA
Education:
Master of Science degree in International
Management from the Thunderbird School of
Global Management (USA).
Bachelor of Science degree in Business
Administration from Pacific Lutheran University
(USA).
Shares in PhosAgro:
Mr. Ombudstvedt owns 4,000 Global Depositary
Receipts (“GDRs” – 3 GDRs = 1 ordinary share)
for PhosAgro shares, which represents 0.001%
of the company’s authorised capital.
Recent roles:
2002-2008: Audit Partner, Ernst & Young
1998-2002: Audit Partner, Arthur Andersen
Education:
Graduate degree in Economics from the
University of Loughborough (UK). Qualified
Chartered Accountant, member of the Institute
of Chartered Accountants in England & Wales
(ICAEW) and member of the Non-Executive Director
Group of the ICAEW.
Shares in PhosAgro:
Mr. Rhodes owns 2,500 Global Depositary
Receipts (“GDRs” – 3 GDRs = 1 ordinary share),
which represents 0.0006% of the Company’s
authorised capital.
Membership of the Board of Directors in
other organisations:
Member of the Boards of Directors of Rosinter
Restaurants Holding, Cherkizovo Group, QIWI
and Zoltav.
Andrey A. Guryev
Executive Director
Igor Antoshin
Executive Director
Ivan Rodionov
Non-executive Director
Roman Osipov
Executive Director
James Rogers
Independent Director
Year appointed to Board: 2013
Year appointed to Board: 2006
Year appointed to Board: 2004
Year appointed to Board: 2012
Year appointed to Board: 2014
Committee appointments:
Committee appointments:
Committee appointments:
Committee appointments:
Committee appointments:
Recent roles:
2013-present: CEO of PhosAgro
2011-2013: Deputy CEO for Sales and Logistics
of PhosAgro AG
2011-2013: Deputy CEO of PhosAgro
Education:
Bachelor’s degree in Economics from the
University of Greenwich (UK). Graduated from the
Russian Academy of National Economy under the
Government of the Russian Federation. PhD in
Economics.
Shares in PhosAgro:
Mr Andrey A. Guryev owns no shares in PhosAgro.
According to information available to the Company,
the ownership of companies holding 45.46% of
PhosAgro’s authorised capital, namely Adorabella
Limited, Chlodwig Enterprises Limited, Fornido
Holding Limited, Dubhe Holdings Limited, Miles
Ahead Management Limited, and Owl Nebula
Enterprises Limited, is held in trusts, the economic
beneficiaries of which are Andrey G. Guryev and
members of his family.
Recent roles:
2013-present: Adviser to the CEO of PhosAgro
2009-2013: CEO of PhosAgro Engineering Centre
2006-2009: CEO of PhosAgro
Education:
Graduate degree in Economics from the G.V.
Plekhanov St. Petersburg State Mining University
Shares in PhosAgro:
Mr Antoshin owns shares equivalent to
1.92% of the Company’s authorised capital.
Based on information available to the Company,
Mr Antoshin holds the right to indirectly control
100% of the voting shares of Vindemiatrix
Trading Limited, Carranita Holdings Limited
and Dubberson Holdings Limited, which together
hold shares equivalent to 12.66% of PhosAgro’s
authorised capital.
Recent roles:
2003-present: Professor, Higher School of
Economics
2006-2014: Professor, Russian State University
for the Humanities
2004-2006: Managing Director, AIG-Interros RCF
Adviser
1997-2006: Managing Director, AIG Brunswick
Capital Management
Education:
Graduate degree in Economics from the
Lomonosov Moscow State University (Russia).
Shares in PhosAgro:
Mr. Rodionov owns shares equivalent to 0.003%
of the Company’s authorised capital.
Recent roles:
2013-present: Business Development Director
of PhosAgro
2012-2013: Adviser to the CEO of PhosAgro
2012-2013: Deputy CEO for Business Development
of PhosAgro AG
2009-2012: Chief Financial Officer of PhosAgro AG
Education:
Graduate degree from the D.F. Ustinov Baltic State
Technical University.
Master of Science degree from the LETILovanium
International School of Management (now the
International School of Management).
Shares in PhosAgro:
Mr. Osipov owns no shares in PhosAgro.
According to information available to the Company,
Mr. Osipov’s wife owns shares equal to 0.000077%
of PhosAgro’s authorised capital.
Recent roles:
Jim Rogers is a legendary investor and founder of
the Quantum Fund, a globalinvestment partnership.
He is an author, financial commentator, adventurer,
and successful international investor, and currently
holds Directorships and advisory positions at a
dozen companies and investment funds around
the world.
Education:
BA from Yale University, BA/MA from Balliol
College, Oxford University
Shares in PhosAgro:
Jim Rogers owns 25,000 Global Depositary
Receipts (“GDRs” – 3 GDRs = 1 ordinary share)
for PhosAgro shares, which represents 0.0064%
of the Company’s authorised capital.
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Monitoring our strategy
implementation
Members of the Board of Directors visited Apatit in September 2015
together with investors and other stakeholders in order to see first-hand
the new facilities and systems that Apatit is implementing to increase
efficiency and safety.
The past year was an important one for our recently formed Risk Management
Committee. While the Committee continued to provide recommendations
on implementation of the Company’s new risk management practice, it also
considered important issues that arose during the year related to currency
volatility, potential export tariffs and taxation. I am pleased to say that the
Company’s risk management systems helped to successfully navigate these
challenging issues.
We also maintained a solid focus on the long-term development of PhosAgro
as a global leader in its industry. The Board of Directors and the Strategy
Committee recently launched a strategic update to develop PhosAgro’s
development strategy through 2025. This next phase of our strategic
development will focus on maximising our low cash-cost advantage
and expanding our market share in priority markets where we can provide
farmers with high-quality, ready crop nutrient solutions.
I would like to thank the Board and PhosAgro’s management for the hard work
that was put into building a responsible, sustainable business in 2015, and all
of PhosAgro’s stakeholders for your continued engagement with the Company.
In 2015, the Board of Directors
monitored PhosAgro’s
successful implementation
of its strategic goals, including
the opening of a new port
terminal in Ust-Luga and the
commissioning of Main Shaft
No 2 at Apatit.
Sven Ombudstvedt
Chairman of the Board of Directors
Accountability
Equality
PhosAgro’s corporate governance
system is designed to protect shareholders’
rights and ensure equal treatment of
all shareholders.
The Board of Directors is accountable
to PhosAgro’s General Meeting of
shareholders, and is responsible for:
•
•
Formulation of the Company’s strategy
Establishing and maintaining systems
that enable it to monitor PhosAgro’s
performance
Holding management accountable
for successful implementation
of the Company’s strategy.
•
Our corporate governance principles
Responsibility
Transparency
PhosAgro values the rights of all
stakeholders, and aims to cooperate with
a wide range of individuals and institutions
to find ways to ensure the Company’s
financial stability and its successful,
sustainable development.
We strive to ensure the appropriate
disclosure of reliable information on all
significant issues related to our operations,
including financial status, social and
environmental performance, operating
results and ownership.
How governance works at PhosAgro
Our Shareholders’ Meeting is the principal
forum through which the Company’s
shareholders take decisions on the most
significant issues affecting our business.
These include approving financial statements
and amending the Company’s Charter and
other internal documents. The Board of
Directors provides overall guidance to the
Company except in areas that are the remit
of the Shareholders’ Meeting. It sets targets
and oversees their implementation by the
Management Board and Chief Executive
Officer. The Management Board and the
Chief Executive Officer manage the Company’s
day-to-day operations and implement the
strategy approved by the Board of Directors.
The General Shareholders’ Meeting
The General Shareholders’ Meeting is the
Company’s highest governing body, and is
convened by the Board of Directors at least
once a year. The Annual General Meeting
is held between 1 March and 30 June each
year. Extraordinary General Meetings may
be convened by the Board of Directors on
its own initiative or at the request of the
Review Committee, the external auditor
or a shareholder owning individually or
together with other shareholders at least
10% of the issued voting shares. The General
Shareholders’ Meeting has the exclusive
authority to take decisions on a number of
matters, including:
•
•
•
•
the implementation of strategy
amendments and additions to the
Company’s Charter, or adoption
of a new version of the Charter
the reorganisation or liquidation
of the Company
election and removal of members
of the Board of Directors
increases or reductions in the
Company’s authorised capital
•
• approval of the Company’s external auditor
approval of the Company’s annual reports
•
and financial statements
distribution of profits, including payment
of dividends
payment of remuneration to the
members of the Board of Directors
and the Review Committee
•
Voting at a General Shareholders’ Meeting
is generally based on the principle of one vote
per ordinary share, with the exception of the
election of the Board of Directors, which is
done by cumulative voting. According to the
Law on Joint Stock Companies, the quorum
requirement for a General Shareholders’
Meeting is that shareholders (or their
representatives) accounting for more than 50%
of the issued voting shares must be present.
The General Shareholders’ Meeting may be
held in the form of a meeting or by absentee
ballot. All shareholders entitled to participate
in a General Shareholders’ Meeting are notified
of the Meeting by a notice sent by post or in
person no less than 30 days prior to an Annual
Meeting, or 20 days prior to an Extraordinary
Meeting. The list of persons entitled to
participate in a General Shareholders’
Meeting is compiled on the basis of data in the
Company’s register of shareholders as of the
date established by the Board of Directors.
General Shareholders’ Meetings are usually
held in Russia (Moscow).
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Corporate governance continued
Our Board of Directors has been chaired
by an independent director since 2011.
It operates in accordance with the Law
on Joint Stock Companies, the Company’s
Charter, the Bank of Russia’s recommended
Corporate Governance Code, guidelines
of the UK Corporate Governance Code
and generally accepted good practice in
corporate governance.
Key activities undertaken by the
Board of Directors in 2015 included:
•
monitoring progress on implementation
of PhosAgro’s strategy until 2020
• approval of a new dividend policy
•
•
recommending dividend payments
evaluation of the performance of
the CEO and other members of the
management team
monitoring implementation of the
2015 budget and strategic plans, and
considering a new budget for 2016 based
on the Company’s operational needs and
strategic priorities
•
Other issues that the Board considered
included:
•
election of the Chairman and Deputy
Chairman of the Board
approval of the Board Committees
and Committee members
approval of the Management Board
members
review of significant aspects of the
performance of PhosAgro’s subsidiaries
review of progress on implementation
of HSE practices
review of the Company’s IFRS financial
reports
Quarterly evaluation of the Company’s
financial and operational performance
review of the performance of the
independent auditor and determining
the auditor’s remuneration
•
•
•
•
•
•
•
• approval of related-party transactions
•
review IT strategy
As of 31 December 2015, the Board of
Directors consisted of eight members, three
of whom were independent non-executive
directors (INEDs). While formally the number
of INEDs on the Board of Directors is three,
a fourth Director, Ivan Rodionov, was until
recently also considered independent.
Mr Rodionov lost his status as an INED on
PhosAgro’s Board of Directors in 2014 due
to Moscow Exchange listing rules under which
an individual who has served for more than
seven years on a Board of Directors may no
longer be considered independent.
The number of directors and the membership
of the Board of Directors are determined
by the General Shareholders’ Meeting, with
the term of appointment being until the next
Annual General Shareholders’ Meeting is
held. When choosing Board members, it is of
paramount importance that the Company find
the right balance between professional skills
and experience, independence and industry
knowledge.
According to PhosAgro’s bylaws, current
Russian Federation legislation, the UK
Corporate Governance Code and the
requirements of the UK Financial Conduct
Authority, the criteria of independence for
members of the Board of Directors include
that an independent director:
•
•
•
•
•
cannot have had any relationship with
the Company for a period of five years
prior to appointment to the Board
cannot have any relationship with a
company where any of the Company’s
officials is a member of the other
company’s Board Committee for Human
Resources and Remuneration
cannot be related by family to any senior
manager of the Company or the Chief
Executive Officer
cannot be a representative of Russian
federal, regional or municipal authorities
cannot be a senior manager in any
of PhosAgro’s subsidiaries and/or
hold more than 3% of the Company’s
authorised capital
When choosing Board
members the Company find
the right balance between
professional skills and
experience, independence
and industry knowledge
The Board of Directors constantly aims to
improve its effectiveness and to comply with
the recommendations of the Bank of Russia
regarding corporate governance, as well as
internationally recognised good practice in
corporate governance. The members of the
Board of Directors are elected at the Annual
General Shareholders’ Meeting by cumulative
voting. In 2015, the Board of Directors held
nine meetings, one of which was carried out
by absentee ballot.
Board Committees
The Committees of the Board of Directors
are advisory and consultative bodies. The
Board Committees are comprised of current
members of the Board of Directors who have
relevant experience and expertise in the area
of each Committee’s focus.
The Committees can also involve external
experts and consultants in their work.
The primary role of the Committees is the
preliminary consideration of the key issues
reserved for the Company’s Board of Directors.
The Committees are responsible for ensuring
that issues brought before the Board have
been subject to sufficient review in order to
ensure that the Directors are able to cast their
votes based on full and accurate information.
To achieve this, Committee members maintain
a regular dialogue with management, the
Company’s external auditor and other advisers
on the issues that fall within their remit.
Name
Sven Ombudstvedt
Marcus Rhodes
Ivan Rodionov
Igor Antoshin
Roman Osipov
Andrey G. Guryev
Andrey A. Guryev
James Rogers
Year of
Birth
1966
1961
1953
1963
1971
1960
1982
1942
Board
Audit Committee
Strategy Committee Remuneration
Environment,
Health and
and HR Committee
Risk Management
Committee
Held
Attended Held
Attended Held
Held
Attended Attended Held
Attended Held
Attended
9
9
9
9
9
9
9
9
9
9
9
9
7
7
8
9
4
4
4
4
4
3
3
3
3
3
3
3
3
3
3
3
3
3
4
4
3
3
3
3
3
3
3
3
3
3
2
2
2
2
2
2
List of transactions by members of the Board of Directors and Management Board
to purchase or sell PhosAgro shares in 2015
James Rogers
Type of transaction
Type of security
Number of securities
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Marcus Rhodes
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
2,000
3,000
2,000
2,000
816
1,184
1,000
Type of transaction
Type of security
Number of securities
Purchase
Purchase
Purchase
Global Depositary Receipts
Global Depositary Receipts
Global Depositary Receipts
1,000
750
750
Date of
transaction
23.01.2015
12.02.2015
10.03.2015
29.04.2015
05.05.2015
16.06.2015
24.09.2015
Date of
transaction
12.02.2015
02.06.2015
29.09.2015
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Corporate governance continued
Audit Committee
Strategy Committee
We continue to focus on
improving systems that
will speed up reporting.
Marcus Rhodes
Committee Chairman
The Audit Committee and the Company
continue to focus on optimising the internal
business processes involved in preparation
of PhosAgro’s financial reporting. We aim to
ensure accuracy and completeness, while
also speeding up the process of collecting
and verifying data. Looking ahead to 2016,
our aim is to continue moving PhosAgro’s
reporting dates closer to those of global
leaders in transparency and disclosure.
Activities in 2015
During the reporting period, the Audit
Committee held four meetings, in which
matters covering all priority areas of
the Company’s activity were considered.
Considerable focus was placed on improving
internal audit procedures. In 2015,
the Audit Committee focused on:
•
analysis of annual and interim IFRS
financial statements
developing recommendations for the
Board of Directors regarding its work
with the Internal Audit service
review of related-party transactions
development of recommendations
for the Board of Directors regarding
the appointment of the Company’s
independent auditor, and analysis of the
work done by the independent auditor
taken principal decision over
implementation of OeBS Oracle v.
12.0 and the consolidation system.
•
•
•
•
Committee members
As of 31 December 2015,
the Audit Committee comprised:
Marcus Rhodes
Committee Chairman, Independent
Non-executive, Director of the Board of Directors
Sven Ombudstvedt
Committee Member, Independent Non-executive,
Director of the Board of Directors
James Rogers
Committee Member, Independent Non-executive
Director of the Board of Directors.
Key areas
The Audit Committee supervises the Company’s
financial and accounting activities. It reviews and
evaluates the Company’s financial statements,
which are prepared by the Company and audited
by the Company’s external auditor. According to the
Statute of PhosAgro’s Audit Committee, the Audit
Committee shall consist of not fewer than three
current members of the Board of Directors, and
shall be chaired by an independent director.
The Committee is working
with management to
develop strategic plans
for the development of
PhosAgro’s production
assets through 2025.
Andrey A. Guryev
Committee Chairman
The Committee’s remit includes:
•
•
•
•
reviewing the IFRS financials for integrity
and transparency
analysis of financial reporting processes,
including carrying out regular reviews and
making recommendations
recommending the Company’s external auditor
to the Board of Directors and maintaining an
ongoing relationship with the external auditor
analysis and support of the internal audit
system and risk management procedures,
including the drafting of recommendations
for their improvement.
The Committee was pleased to note
successful implementation of all of
PhosAgro’s strategic goals for 2015, and
that the Company is on track to complete
key investment projects on schedule. We
are currently in the process of developing
PhosAgro’s development strategy
through 2025, which is aimed at further
strengthening the Company’s leading
position in the global phosphate-based
fertilizers industry.
Activities in 2015
In 2015, the Strategy Committee held
two meetings, where it focused on:
•
•
identifying key strategic activities for 2015
review of the Company’s 2014 integrated
report
review of the Committee’s work in 2014
establishing the Committee’s forward-
looking agenda for 2015
reviewing implementation of strategy
in 2014 and plans for 2015
investment and borrowing plans for
2014 and 2015
developing the Company’s development
strategy through 2025.
•
•
•
•
•
Committee members
As of 31 December 2015,
the Strategy Committee comprised:
Andrey A. Guryev
Committee Chairman,
Executive Director of the Board of Directors
Andrey A. Guryev
Committee Member,
Non-executive Director of the Board of Directors
Roman Osipov
Committee Member,
Executive Director of the Board of Directors.
Key areas
The Strategy Committee assists the Board of
Directors in the development of the Company’s
strategy and related processes, including
management of the Company’s assets and
the review of major innovation and investment
programmes and projects. The Committee and its
Chairman are appointed by the Board of Directors,
which ensures that issues within the remit of the
Committee are discussed and analysed thoroughly
from all strategic points of view.
The Committee’s remit includes:
•
Monitoring and updating the Company’s
mid-term and long-term strategy, and drafting
policy as required
Evaluation of the development of the
Company’s subsidiaries, including review
of their strategies
Making recommendations regarding the
Company’s M&A projects
Analysis and recommendations regarding
potential strategic partnerships
•
•
•
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The Remuneration and
Human Resources Committee
The Environmental,
Health and Safety Committee
We focused on optimising
PhosAgro’s organisational
structure and headcount,
as well as fine-tuning
management KPIs in 2015.
Jim Rogers
Committee Chairman
In 2015, we continued further
implementation of PhosAgro’s headcount
optimisation programme, which has been
one of the Committee’s main priorities
since 2012. We also focused on KPIs
during the year to ensure that PhosAgro’s
remuneration system is aligned with our
long-term strategic goals. Looking ahead to
2016, the Committee will remain focussed
on the two priority areas of finalising
the headcount optimisation and further
improving PhosAgro’s KPI system.
Activities in 2015
During the reporting period, the
Remuneration and Human Resources
Committee held four meetings. The main
issues considered by the Committee during
2015 were:
•
analysis of implementation of the
Company’s social programmes in 2014
and priority areas of social policy in 2015
evaluation of the performance of
the Chief Executive Officer and the
Management Board, recommendations
for the Board of Directors regarding their
reappointment
assessment of the headcount
optimisation programme at PhosAgro
and its subsidiaries
review of the Human Resources Policy for
PhosAgro and its subsidiaries
evaluation of the independence of
candidates for the Board of Directors
evaluation of the work of the Board of
Directors in 2015.
•
•
•
•
•
Committee members
As of 31 December 2015, the Remuneration
and Human Resources Committee comprised:
James Rogers
Committee Chairman, Independent
Non-executive Director of the Board of Directors
Sven Ombudstvedt
Committee Member, Committee Member,
Independent Non-executive Director of
the Board of Directors
Marcus Rhodes
Committee Member, Independent Non-executive
Director of the Board of Directors.
Key areas
The Remuneration and Human Resources
Committee’s Statute requires that the Committee’s
Chairman be an Independent Non-executive
Director on the Company’s Board of Directors,
and that the Chief Executive Officer cannot be a
member of the Committee.
The Committee’s remit includes:
•
the development of the Company’s policy
in relation to organising the activities and
motivation of the Board of Directors
the development of the Human Resources
Policy in relation to the Company’s senior
management, and the supervision of its
implementation.
•
We are working with
management to implement
unified HSE policies and
practices across the
Company’s production
sites.
Igor Antoshin
Committee Chairman
In 2015, we continued to roll out the
comprehensive workplace safety and
environmental management system
that was developed together with
DuPont Sustainable Solutions. We also
undertook an exercise to benchmark
our HSE performance against Russian
and global companies in order to identify
areas where we can improve. PhosAgro
remains committed to maintaining a
constructive dialogue with local authorities
regarding ways to decrease the Company’s
impact on the environment and improve
workplace health and safety. Finally,
we have prioritised understanding local
environmental and safety rules for the
transportation, storage and unloading of our
production in new markets in the Americas,
Europe and Asia.
Activities in 2015
During the reporting period, the
Environmental, Health and Safety Committee
held three meetings, at which the following
issues were covered:
•
proposed changes to the Committee
regulations in connection with new
requirements issued by the Moscow
Exchange and the Russian Federation
Corporate Governance Code
review of PhosAgro’s integrated report
for 2014
evaluation of the results of subsidiaries’
work on compliance with workplace
health and safety regulations for
hazardous production sites in 2014 and
for the first nine months of 2015
evaluation of the results of subsidiaries’
work on compliance with environmental
regulations in 2014 and for the first nine
months of 2015
evaluation of subsidiaries’ comprehensive
safety systems for handling hazardous
cargoes (storage, loading and
transportation)
review of proposed changes to Russian
Federation environmental protection
legislation and analysis of possible
effects for the Company.
•
•
•
•
•
Committee members
As of 31 December 2015, the Environmental,
Health and Safety Committee comprised:
Igor Antoshin
Committee Chairman, Executive Director
of the Board of Directors
Andrey A. Guryev
Committee Member, Executive Director
of the Board of Directors
Sven Ombudstvedt
Committee Member, Independent Non-executive
Director of the Board of Directors.
Key areas
The Environmental, Health and Safety Committee
was formed to oversee the Company’s activities
in the areas of environmental protection,
the efficient use of natural resources and energy,
and occupational health and safety for employees,
including the avoidance of industrial accidents,
and to advise the Board of Directors on such issues.
The Committee and its Chairman are appointed
by the Board of Directors. The Committee’s remit
includes:
•
the Company’s compliance with legal
and regulatory requirements relating to
environmental and health and safety issues
the Company’s development and enforcement
of policies, procedures and practices beneficial
to the protection of the environment and the
health and safety of employees, contractors,
customers and the public
the evaluation of the Company’s efficient use
of natural resources and energy, enforcement
of energy saving and resource conservation
activities within the Company, and providing
recommendations for further implementation
and improvement of these activities
the prevention of industrial accidents, including
plans, programmes and processes established
by the Company to evaluate, manage and
decrease risks of industrial accidents
the improvement of conditions related to the
health and safety of the Company’s employees,
and the enforcement of policies for decreasing
and eliminating occupational injuries.
•
•
•
•
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The Risk Management Committee
The Executive Body
In 2015, the Board of Director considered
risk management issues in connection
with volatility of the rouble, the Russian
Government’s taxation plans and sanctions
against Turkish construction companies.
In 2016, the Committee plans to continue
to develop and further improve its Risk
Management Policy, and to review our
risk analysis and risk tolerance in line
with the current market situation.
Activities in 2015
•
monitoring how PhosAgro’s key risks
are managed
• considering PhosAgro’s risk appetite
•
review of PhosAgro’s key risks and
updates to its risk map
providing recommendations to
management on risk management
policies and procedures
•
The Committee monitored
implementation of risk
management systems
across the enterprise,
and met several times to
analyse emerging risks
related to events that took
place during the year.
Ivan Rodionov
Committee Chairman
Committee members
As of 31 December 2015, the Remuneration
and Human Resources Committee comprised:
Ivan Rodionov
Committee Chairman, Non-executive Director
of the Board of Directors
Andrey A. Guryev
Committee Member, Executive Director
of the Board of Directors
Roman Osipov
Committee Member, Executive Director
of the Board of Directors
Key areas
The Risk Management Committee was created in
2014 with the goal of developing recommendations
and proposals for the Board of Directors and other
management bodies with regard to identification
and management of material risks for the
Company, as well as improvements to, and further
development of, the Company’s risk management
systems. The Committee is established by the
Board of Directors, which is also responsible
for appointing its members and chairman. The
Committee’s remit includes:
•
•
evaluation of the effectiveness of the
Company’s risk management system and
recommendations regarding improvements
preparation of recommendations for the
Company’s Board of Directors regarding:
– risk management methodology, determining
the Company’s most material risks
that require constant monitoring and
management, and recommendations
regarding improvements to the unified risk
management system
– determining the Company’s risk appetite
and its risk tolerance
– changes and additions to PhosAgro’s risk
management policy.
Management Board
As of 31 December 2015, the Management
Board consisted of:
Andrey A. Guryev
Chairman of the Management Board
Mikhail Rybnikov
Member of the Management Board
Siroj Loikov
Member of the Management Board
Alexander Sharabaiko
Member of the Management Board
Alexei Sirotenko
Member of the Management Board
The matters that are within the competence
of the Management Board are set out in the
Charter, and include:
•
•
•
•
•
•
review, revision and approval of PhosAgro’s
quarterly and annual budgets
development of PhosAgro’s capital
expenditure plans and strategy with
respect to any new business activities
approval of certain transactions related
to the disposal of securities and stakes
in other companies
arranging the preparation and provision
of reports to the Board of Directors
on PhosAgro’s financial and operating
performance.
approval of incentivisation and similar
documents that determine the
compensation and benefit policies
for PhosAgro employees
election and removal of the secretary of the
Management Board and his/ her powers.
During the reporting period, the Management
Board held three meetings, at which it reviewed:
the Company’s financial and operational
•
performance for 2014
• PhosAgro’s 2015 budget
•
the Company’s financial and operational
performance for the first six and nine
months of 2015
Senior management
The Management Board effectively represents
PhosAgro’s senior management. It oversees
the day-to-day operations of the Company and
implements the Company’s strategy.
The Chief Executive Officer
According to the Company’s Charter, the
Chief Executive Officer is appointed by the
Company’s Board of Directors for a period of
one year and may be dismissed by a decision
of the Board of Directors at any time. The
Company’s Corporate Governance Code
provides that the Chief Executive Officer shall
act in good faith and with due diligence to
further the interests of the Company and
its shareholders. All issues related to the
Company’s day-to-day operations are within
the authority and responsibility of the Chief
Executive Officer except for those matters
that are subject to ratification by the General
Shareholders’ Meeting, the Company’s Board
of Directors and/or the Management Board.
The Chief Executive Officer, together with
the Management Board, is responsible for
ensuring that the Company’s strategy and
the decisions of the General Shareholders’
Meeting and the Board of Directors are
implemented. In order to ensure efficient
corporate communications between the
Company’s Board of Directors and the Chief
Executive Officer, the Chief Executive Officer
submits regular quarterly reports to the Board.
Some of the matters for which the Chief
Executive Officer is responsible are:
•
deciding on all issues related to the
Company that do not fall within the
competence of the General Shareholders’
Meeting, the Board of Directors or the
Management Board
representing the Company before all
federal and local authorities, and in
meetings with organisations and entities
in Russia and abroad
hiring and dismissing Company personnel
carrying out all other activities and legal
steps required to be conducted on behalf
of the Company in accordance with the
Company’s Charter, decisions of the
Board of Directors and the General
Shareholders’ Meeting and/or in
accordance with current legislation.
•
•
•
Andrey A. Guryev was the Company’s
Chief Executive Officer throughout 2015.
For Mr Guryev’s biographical details,
please see the ‘Board of Directors’ section
of this report.
List of transactions by members of the Management Board to purchase or sell
PhosAgro shares in 2015
Mikhail Rybnikov
Type of transaction
Type of security
Number of securities
Date of
transaction
Purchase
Ordinary registered uncertified shares
with the state registration number
1-02-06556-А dated 14.02.2012.
31,110
15.05.2015
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Corporate governance continued
Board and senior management remuneration
Members of PhosAgro’s Board of Directors
may receive remuneration and be
compensated for expenses incurred in the
course of their duties in accordance with
decisions of the General Shareholders’
Meeting. According to the Company’s
Corporate Governance Code, the remuneration
of the Board of Directors shall be in line
with current market conditions and shall
be at a level that enables the Company to
attract, motivate and retain highly skilled
professionals to help drive the future growth
and performance of the business. At the same
time, the remuneration shall not exceed the
amount needed to achieve this.
In 2015, the total remuneration paid to the
Board of Directors of PhosAgro was USD
800.0 thousand, and RUB 6,349.9 thousand.
The amount of remuneration and additional
compensation paid to the Chief Executive
Officer of PhosAgro is regulated by a contract
between the Chief Executive Officer and
the Company, which is signed and approved
by the Company’s Board of Directors.
The total remuneration reflects the Chief
Executive Officer’s qualifications and takes
into account the particular contribution
of the Chief Executive Officer to the
Company’s financial results.
The remuneration paid by the Company to
the Chief Executive Officer and the four other
members of the Management Board (who
represent the Senior Management Team)
for their services to the Company during the
year ended 31 December 2015 was RUB 80.9
million in salary and additional compensation
(compared to RUB 41.1 million in 2014).
The remuneration of the Company’s senior
managers consists of base salary, which is
paid monthly, plus additional compensation,
paid quarterly and annually. Payment
of additional compensation is based
on achievement of the Company’s key
performance indicators, and on accomplishing
additional tasks and goals, as set by the Board
of Directors and Chief Executive Officer for the
reporting quarter or year. The key performance
indicators for each individual senior manager
are set by period, and mainly consist of
indicators for sustaining operational efficiency
as well as contributing to the achievement
of corporate growth and strategy.
Annual additional compensation is
calculated by adding percentages (as set
by the Board of Directors) of the Company’s
EBITDA for the reporting period.
Insider Information Policy
PhosAgro has a well-defined policy on insider
information in place that is one of the most
important factors in ensuring that the rights
and interests of our shareholders and investors
are respected. Our principles are outlined in
the Regulation on Insider Information, which
is available on our website. An insider is a
person who has the right to access insider
information as part of his or her job description
or in line with an internal Company document,
a contract with the Company or a law or
regulatory requirement. PhosAgro’s Internal
Audit Department, which reports to the Board
of Directors, is responsible for ensuring
compliance with current laws and regulations
on insider information.
We control insider activity by placing
restrictions on the use and circulation of
insider information. For example, insiders
may not pass on information available to
them to other individuals except in cases
expressly provided for in current legislation
and the Company’s documents. The Corporate
Secretary’s office maintains lists of insiders
and notifies insiders of their inclusion on these
lists. The office gathers data on possible or
actual disclosures of insider information
and brings them to the attention of the
Company’s Board of Directors. In the event
that the Company suffers a loss due to
a breach of the Insider Information Policy,
the insider is required to compensate the
Company for any damages.
Dividend Policy
PhosAgro’s Dividend Policy is based
on the following principles:
•
shareholders’ interests are to be balanced
between the payment of dividends
and reinvestment of profit into further
development
there is to be a transparent and predictable
dividend policy that is attractive to investors
the majority of profit is to be used for
reinvestment to support the Company’s
growth.
•
•
A decision on the payment of a dividend,
its timing and the exact amount of such
a payment is subject to approval of the
General Shareholders’ Meeting, based on
recommendations provided by the PhosAgro
Board of Directors. The Board of Directors’
recommendations depend primarily on
PhosAgro’s net profit under IFRS, while
other factors such as cash requirements and
financial position are also considered. While
formally the amount of dividend payments is
based on the Company’s net profits for the
first quarter, six months, nine months and/or
full year calculated under Russian Accounting
Standards (RAS), and payments are made in
relation to these specific periods, the Board
of Directors bases its dividend decisions on
the Company’s IFRS results. A decision on
the payment of an interim dividend is made
at the General Shareholders’ Meeting within
three months of the end of the relevant period.
If the dividends are approved by the General
Decisions regarding ex-dividend dates are
made based on the recommendations of the
Board of Directors.
The ex-dividend date must be set between
10 and 20 days from the date of the decision
to pay dividends. Dividends must be paid to
registered shareholders who are nominee
shareholders that are professional securities
traders or fund managers within 10 working
days from the ex-dividend date. Other
registered shareholders must be paid within
25 working days after the ex-dividend date.
Holders of PhosAgro GDRs are also entitled
to receive dividends in respect of shares
underlying the GDRs, subject to the terms
of their depositary agreements.
In determining the size of dividends to be
paid out, the Board of Directors will always
try to recommend dividend payments of
between 30% and 50% of the consolidated
profit for the year attributable to PhosAgro
shareholders calculated in accordance
with IFRS.
The Review Committee
The Review Committee may undertake
internal audit procedures either on its
own initiative, pursuant to a decision of
the General Shareholders’ Meeting or
the Board of Directors or at the request
of shareholders owning at least 10% of
the shares in the Company. The General
Shareholders’ Meeting elects the members
of the Review Committee for the period
until the next Annual General Shareholders’
Meeting. The Review Committee comprises
three members and is led by the Chairman
of the Review Committee. Members of
the Committee cannot be on the Company’s
Board of Directors at the same time, nor
can they hold positions in the Company’s
executive bodies.
Internal Audit Department
The Internal Audit Department is an
independent department within PhosAgro
that reports to the Audit Committee of the
Board of Directors. The department assists
the Company’s Board of Directors and the
management team to achieve PhosAgro’s
strategic objectives, increase the Company’s
value and improve its performance. It is
responsible for conducting internal audits to
provide independent and objective assessment
of risk management, corporate governance,
information systems and internal control of
PhosAgro and its subsidiaries. The department
uses international guidelines approved by the
Institute of Internal Auditors in its work, as well
as the recommendations of the Central Bank
of Russia’s Corporate Governance Code and
Moscow Exchange listing rules.
Internal control and audit
Internal control and audit are part of
PhosAgro’s corporate governance process.
They are incorporated into our ongoing
activities and are aimed at improving risk
management (for more information, see
‘Risk Management’ on pages 66-73), control
and corporate governance, so as to achieve
the following:
•
implementation of the Company’s
strategy and business plan
legal and regulatory compliance
•
• efficient operations
•
protection of the Company’s assets, cost-
effective and efficient use of its resources
timely identification and analysis of risks
planning and risk management, including
facilitating timely and appropriate
decisions to mitigate any risks the
Company faces
establishing and maintaining PhosAgro’s
good reputation in the business community
and among customers and investors
• effective reporting
•
reliability, accuracy and completeness
of financial and operational information
for accounting records, financial
statements and management data
up-to-date data for management reporting
and decision-making
timely external reporting on results
monitoring for compliance with current
legislation and internal policies, standards
and procedures
•
•
•
•
•
•
86
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Corporate governance continued
Internal control and audit
Internal
control body
Appointed by
Reports to
Functions
Review Committee
Audit Committee
of the Board of Directors
Board of Directors
Chief Executive Officer
Internal Audit Department
External Auditor
General Shareholders’
Meeting
Board of Directors
General Shareholders’
Meeting
Board of Directors
Board of Directors
General Shareholders’
Meeting
Board of Directors
Shareholders
Board of Directors
Functional: Audit Committee
Audit Committee
General Shareholders’
Meeting
Prepares a report on the
results of the Company’s
operations for the prior year
ahead of the Annual General
Shareholders’ Meeting, and
gives its opinion on whether the
Company’s financial statements
are true and accurate.
Conducts internal audit
procedures and ensures
compliance with Russian
Accounting Standards (RAS).
Monitors compliance with
current legislation, the Company
Charter and internal regulations.
•
•
•
Improves the efficiency and
quality of the work of the
Board of Directors in the area
of internal control.
Considers issues and provides
recommendations to the Board
of Directors in areas like:
•
•
Internal and external audits;
the accuracy and efficiency of
internal control procedures;
management accounting and
financial reporting;
risk management procedures
and systems;
how risks are reflected
in the Company’s reporting.
Supervises the Internal Audit
Department.
Determines how the internal
control system operates and
approves various actions and
policies relating to it.
Reports annually to the General
Shareholders’ Meeting on the
reliability and efficiency of
PhosAgro’s internal control
system.
Approves the appointment and
dismissal of the Director of
Internal Audit.
Functioning of PhosAgro’s
internal control system.
Implements internal control
procedures, and ensures that
they are put into practice.
Promptly informs the Board
of Directors of any significant
risks faced by the Company or
any major weaknesses in the
Company’s internal control
system.
Tells the Board what measures
have been or will be taken to
address issues and the results
of these actions.
Verifies the compliance,
in terms of accuracy and
completeness, of the
Company’s annual financial
statements with IFRS.
Inspects the Company’s
financial and commercial
operations and its internal
control systems.
Prepares a report that is
submitted to the Audit
Committee at least once a year.
In case of a disagreement
between the Company’s
management and the
independent auditor, the Audit
Committee oversees the
resolution of the disagreement.
JSC KPMG is currently
PhosAgro’s external auditor.
Provides an independent and
objective assessment of the
Company’s internal control and
risk management systems.
Analyses the efficiency of
corporate governance systems,
makes recommendations on
how to improve these systems.
Evaluates the efficiency and
effectiveness of business
processes, including the use
of resources.
Participates in the creation
and development of unified
elements of the control system
and corporate culture within
PhosAgro.
Participates in developing
universal elements for control
systems.
Develops recommendations on
strategic changes within the
Company related to improving
the internal control system, risk
management and corporate
governance.
88
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Management responsibility statement
Financials
Contents
The Company’s management hereby
confirms that, to the best of its knowledge:
a.
b.
The financial statements, prepared in
accordance with International Financial
Reporting Standards as issued by the
International Accounting Standards Board,
give a true and fair view of the assets,
liabilities, financial position and profit or
loss of the Company and the undertakings
included in the consolidation taken as
a whole;
The management report includes
a fair review of the development and
performance of the business and
the position of the Company and the
undertakings included in the consolidation
taken as a whole, together with a
description of the principal risks and
uncertainties that they face.
The consolidated financial statements
for the year ended 31 December 2015 were
approved by the Company’s management
on 22 March 2016.
Andrey A. Guryev
Chairman of the Management
Board and Chief Executive Officer
90
OJSC PhosAgro Annual Report for 2015
Preliminary approval granted by
the Board of Directors of OJSC PhosAgro
(minutes dated 25 March 2016)
Approved by the Annual General Meeting
of Shareholders of OJSC PhosAgro
(minutes dated 3 June 2016)
Andrey A. Guryev
Chairman of the Management
Board and Chief Executive Officer
Auditors’ Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
1 Background
2 Basis of preparation
3 Significant accounting policies
4 Determination of fair values
5 Prior year adjustments and reclassifications
6 Segment information
7 Revenues
8 Personnel costs
9 Cost of sales
10 Administrative expenses
11 Selling expenses
12 Other expenses, net
13 Finance income and finance costs
14 Income tax (expense)/benefit
15 Property, plant and equipment
16 Investments in associates
17 Deferred tax assets and liabilities
18 Other non-current assets
19 Other current investments
20 Inventories
21 Trade and other receivables
22 Cash and cash equivalents
23 Equity
24 Earnings/(loss) per share
25 Loans and borrowings
26 Defined benefit obligations
27 Leases
28 Trade and other payables
29 Financial risk management
30 Commitments
31 Contingencies
32 Related party transactions
33 Acqusition of subsidiaries
34 Significant subsidiaries
35 Events subsequent to the reporting date
92
93
94
95
96
97
97
97
98
105
105
106
108
108
109
109
109
110
110
111
112
113
114
115
116
116
117
117
118
119
119
121
122
123
123
128
128
128
130
131
131
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION Financials continued
Auditors’ Report
JSC “KPMG”
10 Presnenskaya Naberezhnaya
Moscow, Russia 123317
Telephone
Fax
Internet
+7 (495) 937 4477
+7 (495) 937 4400/99
www.kpmg.ru
We believe that the audit evidence we have
obtained is sufficient and appropriate to
express an opinion on the fair presentation of
these consolidated financial statements.
Opinion
In our opinion, the consolidated financial
statements present fairly, in all material
respects, the financial position of the Group
as at 31 December 2015, and its financial
performance and its cash flows for 2015
in accordance with International Financial
Reporting Standards.
I.V. Tokarev
Director, power of attorney dated 16 March
2015 No. 25/15
JSC “KPMG”
22 March 2016
Moscow, Russian Federation
To the Shareholders and Board of Directors
OJSC “PhosAgro”
We have audited the accompanying
consolidated financial statements of
OJSC “PhosAgro” (the “Company”) and its
subsidiaries (the “Group”), which comprise the
consolidated statement of financial position
as at 31 December 2015, and the consolidated
statements of profit or loss and other
comprehensive income, changes in equity and
cash flows for 2015, and notes, comprising a
summary of significant accounting policies and
other explanatory information.
Management’s Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation
and fair presentation of these consolidated
financial statements in accordance with
International Financial Reporting Standards,
and for such internal control as management
determines is necessary to enable the
preparation of consolidated financial
statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on
the fair presentation of these consolidated
financial statements based on our audit.
We conducted our audit in accordance with
Russian Federal Auditing Standards and
International Standards on Auditing. Those
standards require that we comply with ethical
requirements and plan and perform the audit
to obtain reasonable assurance about whether
the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts
and disclosures in the consolidated financial
statements. The procedures selected
depend on the auditor’s judgment, including
the assessment of the risks of material
misstatement of the consolidated financial
statements, whether due to fraud or error. In
making those risk assessments, the auditor
considers internal control relevant to the
entity’s preparation and fair presentation of the
consolidated financial statements in order to
design audit procedures that are appropriate
in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also
includes evaluating the appropriateness
of accounting policies used and the
reasonableness of accounting estimates
made by management, as well as evaluating
the overall presentation of the consolidated
financial statements.
Audited entity: OJSC “PhosAgro”
Registered by the State Registration Chamber with the Russian Ministry of Justice on 10 October 2001. Registration No. P–18009.16.
Entered in the Unified State Register of Legal Entities on 5 September 2002 by the Moscow Inter–Regional Tax Inspectorate No. 39 of the Ministry for Taxes and Duties of the Russian Federation, Registration No.
1027700190572, Certificate series 77 No. 005082819.
55/1 building 1, Leninsky prospekt, Moscow, Russian Federation, 119333 Independent auditor: JSC “KPMG”, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Registered by the Moscow Registration Chamber on 25 May 1992, Registration No. 011.585.
Entered in the Unified State Register of Legal Entities on 13 August 2002 by the Moscow Inter–Regional Tax Inspectorate No.39 of the Ministry for Taxes and Duties of the Russian Federation, Registration No.
1027700125628, Certificate series 77 No. 005721432.
Member of the Self–regulated organization of auditors “Audit Chamber of Russia” (Association). The Principal Registration Number of the Entry in the State Register of Auditors and Audit Organisations:
No.10301000804.
Consolidated Statement of Profit or Loss
and Other Comprehensive Income for 2015
Revenues
Cost of sales
Gross profit
Administrative expenses
Selling expenses
Taxes, other than income tax
Other expenses, net
Operating profit
Finance income
Finance costs
Foreign exchange loss, net
Share of loss of associates
Restructuring costs
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) for the year
Attributable to:
Non–controlling interests ^
Shareholders of the Parent
Other comprehensive income
Revaluation of available–for–sale securities
Actuarial gains and losses, net of tax
Foreign currency translation difference
Other comprehensive income for the year
Total comprehensive income/(loss) for the year
Attributable to:
Non–controlling interests ^
Shareholders of the Parent
Basic and diluted earnings/(loss) per share (in RUB)
^ non–controlling interests are the minority shareholders of the subsidiaries of OJSC “PhosAgro”
* comparative information has been represented, see note 5
The consolidated financial statements were approved on 22 March 2016:
Note
2015
RUB Million
2014*
RUB Million
7
9
10
11
12
13
13
29(b)
16
14
24
189,732
(83,064)
106,668
(12,184)
(17,751)
(1,994)
(1,408)
73,331
1,222
(6,093)
(22,178)
(59)
–
46,223
(9,787)
36,436
(6)
36,442
–
(4)
3,405
3,401
39,837
(6)
39,843
281
123,124
(67,467)
55,657
(9,217)
(12,963)
(1,983)
(1,898)
29,596
1,059
(11,610)
(33,545)
(756)
(173)
(15,429)
2,034
(13,395)
246
(13,641)
23
133
5,220
5,376
(8,019)
248
(8,267)
(105)
Chief executive officer
A.A. Guryev
Chief financial officer
A.F. Sharabaiko
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of,
the consolidated financial statements set out on pages 97 to 131.
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Financials continued
Consolidated Statement of Financial Position
as at 31 December 2015
Assets
Property, plant and equipment
Intangible assets
Investments in associates
Deferred tax assets
Other non–current assets
Non–current assets
Other current investments
Inventories
Current income tax receivable
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets
Equity
Share capital
Share premium
Retained earnings
Other reserves
Equity attributable to shareholders of the Parent
Equity attributable to non–controlling interests
Total equity
Liabilities
Loans and borrowings
Defined benefit obligations
Deferred tax liabilities
Non–current liabilities
Trade and other payables
Current income tax payable
Loans and borrowings
Derivative financial liabilities
Current liabilities
Total equity and liabilities
Note
31 December 2015
RUB Million
31 December 2014
RUB Million
15
16
17
18
19
20
21
22
23
25
26
17
28
25
120,952
566
810
5,901
10,246
138,475
4,902
17,814
453
25,511
29,347
78,027
216,502
372
7,494
43,460
8,659
59,985
213
60,198
105,565
424
3,677
109,666
17,011
491
28,947
189
46,638
216,502
86,086
572
12,975
4,249
8,935
112,817
1,656
12,527
2,975
18,993
30,687
66,838
179,655
372
7,494
22,708
5,258
35,832
149
35,981
93,002
453
2,118
95,573
15,321
620
30,822
1,338
48,101
179,655
The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of,
the consolidated financial statements set out on pages 97 to 131.
Consolidated Statement of Cash Flows for 2015
Cash flows from operating activities
Profit/(loss) before tax
Adjustments for:
Depreciation and amortisation
Loss on disposal of property, plant and equipment
Finance income
Finance costs
Share of loss of associates
Foreign exchange loss, net
Operating profit before changes in working capital and provisions
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash flows from operations before income taxes and interest paid
Income tax paid
Finance costs paid
Cash flows from operating activities
Cash flows from investing activities
Loans issued, net
Acquisition of intangible assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of investments
Finance income received
Cash of Phosint Group at the date of consolidation
Cash flows used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to shareholders of the Parent
Payment of finance lease liabilities
Payments for settlement of derivatives, net
Proceeds from contribution to charter capital of subsidiaries by non–controlling interests
Other payments
Acquisition of non–controlling interests
Cash flows (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rates fluctuations
Cash and cash equivalents at 31 December
Note
2015
RUB Million
2014
RUB Million
46,223
(15,429)
9, 10, 11
12
13
13
16
33
23
22
9,133
915
(1,222)
6,093
59
23,663
84,864
(5,287)
(6,116)
2,741
76,202
(7,488)
(5,453)
63,261
(151)
(118)
(42,550)
170
–
1,008
10,178
(31,463)
46,376
(62,041)
(18,130)
(1,905)
(1,590)
71
(154)
–
(37,373)
(5,575)
30,687
4,235
29,347
8,013
280
(1,059)
11,610
756
35,010
39,181
(100)
(7,191)
2,161
34,051
(3,847)
(2,695)
27,509
(907)
(160)
(20,549)
335
254
817
–
(20,210)
71,412
(43,145)
(5,737)
(1,015)
(5,921)
132
(247)
(7,078)
8,401
15,700
8,938
6,049
30,687
The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of,
the consolidated financial statements set out on pages 97 to 131.
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Financials continued
Consolidated Statement of Changes in Equity for 2015
Notes to the Consolidated Financial Statements for 2015
RUB Million
Share
capital
Share
premium
Retained
earnings
Attributable to shareholders of the Parent
Available–
for–sale
investments
revaluation
reserve
Actuarial
gains
and losses
recognised
in equity
Foreign
currency Attributable to
translation non–controlling
interests
reserve
Total
Balance at 1 January 2014
Total comprehensive income for the year
Loss for the year
Reclassification of non–controlling
interests reflected as liability
Actuarial gains and losses, net of tax
Foreign currency translation difference
Revaluation of available for sale investments
Transactions with owners
recognised directly in equity
Acquisition of non–controlling interest
in subsidiaries
Dividends to shareholders of the Parent
Additional contribution to
charter capital of subsidiaries
Other
Balance at 31 December 2014
Balance at 1 January 2015
Total comprehensive income for the year
Profit for the year
Actuarial gains and losses, net of tax
Foreign currency translation difference
Transactions with owners
recognised directly in equity
Dividends to shareholders of the Parent, note 23
Additional contribution to charter
capital of subsidiaries
Other
Balance at 31 December 2015
372
7,494
48,556
(23)
(443)
350
3,020
59,326
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
372
–
–
–
7,494
(13,641)
–
–
–
–
(13,641)
(3,633)
(8,327)
–
(247)
(12,207)
22,708
372
7,494
22,708
–
–
–
–
–
–
–
–
372
–
–
–
–
36,442
–
–
36,442
–
(15,540)
–
–
–
7,494
–
(150)
(15,690)
43,460
–
–
–
–
23
23
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131
–
–
131
–
–
–
–
–
(312)
–
246
(13,395)
–
–
5,220
–
5,220
–
–
–
–
–
5,570
(72)
2
–
–
176
(72)
133
5,220
23
(8,091)
(3,179)
–
132
–
(3,047)
149
(6,812)
(8,327)
132
(247)
(15,254)
35,981
(312)
5,570
149
35,981
–
(4)
–
(4)
–
–
–
–
(316)
–
–
3,405
3,405
(6)
–
–
(6)
36,436
(4)
3,405
39,837
–
(1)
(15,541)
–
–
–
8,975
71
–
70
213
71
(150)
(15,620)
60,198
The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of,
the consolidated financial statements set out on pages 97 to 131.
1 Background
(a) Organisation and operations
OJSC “PhosAgro” (the “Company” or the “Parent”) and its subsidiaries (together referred to as the “Group”) comprise Russian legal entities and
foreign trading subsidiaries. The Company was registered in October 2001. The Company’s location is Leninsky prospekt 55/1 building 1, Moscow,
Russian Federation.
The Group’s principal activity is production of apatite concentrate and mineral fertilisers at plants located in the cities of Kirovsk (Murmansk region),
Cherepovets (Vologda region), Balakovo (Saratov region) and Volkhov (Leningrad region), and their distribution across the Russian Federation and
abroad.
The Company’s key shareholders are several Cyprus entities holding between 5% and 9.9% of the Company’s ordinary shares each. The majority
of the shares of the Company are ultimately owned by trusts, where the economic beneficiary is Mr. Andrey G. Guryev and his family members.
(b) Russian business environment
The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial conditions
of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development,
but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges
faced by entities operating in the Russian Federation. The consolidated financial statements reflect management’s assessment of the impact of
the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from
management’s assessment.
2 Basis of preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board and in accordance with the Federal Law No. 208 – FZ “On consolidated financial statements”.
(b) Basis of measurement
The consolidated financial statements are prepared on the historical cost basis except that investments available–for–sale and derivative financial
instruments are stated at fair value; property, plant and equipment was revalued to determine deemed cost as part of the adoption of IFRS as of
1 January 2005.
(c) Functional currency
The national currency of the Russian Federation is the Russian Rouble (“RUB”), which is the functional currency of the Parent and its subsidiaries,
except for foreign trading subsidiaries, where the functional currency is USD.
(d) Presentation currency
These consolidated financial statements are presented in RUB. All financial information has been rounded to the nearest million, except per share
amounts.
The translation from USD into RUB, where applicable, was performed as follows:
•
Assets and liabilities as at 31 December 2015 were translated at the closing exchange rate of RUB 72.8827 for USD 1 (31 December 2014:
RUB 56.2584 for USD 1);
Profit and loss items were separately translated at the average exchange rate for 2015 of RUB 60.9579 for USD 1. Taking into account significant
RUB volatility during the fourth quarter of 2014, profit and loss items were separately translated at the average exchange rate for the nine
months ended 30 September 2014 and for the three months ended 31 December 2014 of RUB 35.3878 and RUB 47.4243 for USD 1, respectively;
Equity items, which were recognised at the date of adoption of IFRS, 1 January 2005, were translated at the exchange rate of RUB 27.7487 for
USD 1. Equity items arising during the year are recognised at the exchange rate ruling at the date of transaction;
The resulting foreign exchange difference is recognised in other comprehensive income.
•
•
•
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
2 Basis of preparation (continued)
The translation from EUR into RUB, where applicable, was performed as follows:
•
Assets and liabilities as at 31 December 2015 were translated at the closing exchange rate of RUB 79.6972 for EUR 1 (31 December 2014:
RUB 68.3427 for EUR 1);
Profit and loss items were separately translated at the average exchange rate for 2015 of RUB 67.7767 for EUR 1. Taking into account significant
RUB volatility during the fourth quarter of 2014, profit and loss items were separately translated at the average exchange rate for the nine
months ended 30 September 2014 and for the three months ended 31 December 2014 of RUB 47.9894 and RUB 59.1997 for EUR 1, respectively;
Equity items, which were recognised at the date of adoption of IFRS, 1 January 2005, were translated at the exchange rate of RUB 37.8409 for
EUR 1. Equity items arising during the year are recognised at the exchange rate ruling at the date of transaction;
The resulting foreign exchange difference is recognised in other comprehensive income.
•
•
•
(e) Use of estimates and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected.
Information about critical assumptions and estimation uncertainties that have the most significant effect on the amounts recognised in the
consolidated financial statements is included in the following notes:
• note 17 – recognition of deferred tax assets: availability of future taxable profit against which carry–forward tax losses can be used;
•
note 19 – recognition of bad debt provision on promissory notes: uncertainties associated with the mutual court claims filed by the Group and the
bank.
3 Significant accounting policies (continued)
(v) Transactions eliminated on consolidation
Intra–group balances and transactions, and any unrealised gains arising from intra–group transactions, are eliminated in preparing the
consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled enterprises are eliminated
to the extent of the Group’s interest in the enterprise. Unrealised gains resulting from transactions with associates are eliminated against the
investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the
extent that there is no evidence of impairment.
(b) Foreign currencies
Transactions in foreign currencies are translated to RUB at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are translated to RUB at the foreign exchange rate ruling at that date. Non–
monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to RUB at the foreign exchange
rate ruling at the date of the transaction. Non–monetary assets and liabilities denominated in foreign currencies that are stated at fair value
are translated to RUB at the foreign exchange rate ruling at the dates the fair values were determined. Foreign exchange differences arising on
translation are recognised in the profit and loss.
(c) Property, plant and equipment
(i) Owned assets
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost of property, plant and equipment at
the date of transition to IFRS was determined by reference to its fair value at that date (“deemed cost”) as determined by an independent appraiser.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self–constructed assets includes the cost of
materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of
dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is
integral to the functionality of the related equipment is capitalised as part of that equipment.
3 Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items
of property, plant and equipment.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
(ii) Loss of control
Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non–controlling interests and the other
components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group
retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is
accounted for as an equity–accounted investee or as an available–for–sale financial asset depending on the level of influence retained.
(iii) Acquisitions and disposals of non–controlling interests
Any difference between the consideration paid to acquire a non–controlling interest, and the carrying amount of that non–controlling interest,
is recognised in equity.
Any difference between the consideration received from disposal of a portion of a Group’s interest in the subsidiary and the carrying amount of that
portion, including attributable goodwill, is recognised in equity.
(iv) Associates
Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operating policies. The
consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis,
from the date that significant influence effectively commences until the date that significant influence effectively ceases. When the Group’s share
of losses exceeds the Group’s interest in the associate, that interest is reduced to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred obligations in respect of the associate.
(ii) Leased assets
Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment
acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at
inception of the lease, less accumulated depreciation and impairment losses.
(iii) Subsequent expenditure
Expenses in connection with ordinary maintenance and repairs are recognized in the statement of income as they are incurred.
Expenses in connection with periodic maintenance on property, plant and equipment are recognized as assets and depreciation straight line basis
over the period until the next periodic maintenance, provided the criteria for capitalizing such items have been met.
Expenses incurred in connection with major replacements and renewals that materially extend the life of property, plant and equipment are
capitalized and depreciated on a systematic basis.
(iv) Depreciation
Depreciation is charged to the profit and loss on a straight–line basis over the estimated useful lives of the individual assets. Depreciation
commences on the month following the month of acquisition or, in respect of internally constructed assets, from the month following the month
an asset is completed and ready for use. Land is not depreciated.
The estimated useful lives as determined when adopting IFRS (1 January 2005) are as follows:
12 to 17 years;
• Buildings
4 to 15 years;
• Plant and equipment
3 to 6 years.
• Fixtures and fittings
Tangible fixed assets acquired after the date of adoption of IFRS, are depreciated over the following useful lives:
• Buildings
• Plant and equipment
• Fixtures and fittings
10 to 60 years;
5 to 35 years;
2 to 25 years.
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3 Significant accounting policies (continued)
(d) Intangible assets and negative goodwill
(i) Goodwill and negative goodwill
Adoption of IFRS
The Parent Company elected not to apply the requirements of IFRS 3 Business combinations to business combinations, which took place prior to the
date of adoption of IFRS. As a result, no goodwill was recognised at the date of adoption of IFRS.
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised
in the profit and loss as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved
products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to
complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the profit and loss as an expense as incurred. Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses.
(iii) Other intangible assets
Other intangible assets acquired by the Group are represented by Oracle software, which has finite useful life and is stated at cost less accumulated
amortisation and impairment losses.
(iv) Amortisation
Intangible assets, other than goodwill, are amortised on a straight–line basis over their estimated useful lives from the date the asset is available for
use. The estimated useful lives are 3 – 10 years.
(e) Investments
Non–derivative financial instruments
Non–derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents,
loans and borrowings, and trade and other payables.
Non–derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs. Subsequent to initial recognition non–derivative financial instruments are measured as described below.
Held–to–maturity investments: If the Group has the positive intent and ability to hold debt instruments to maturity, then they are classified as held–
to–maturity. Held–to–maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.
Available–for–sale financial assets: The Group’s investments in equity securities and certain debt securities are classified as available–for–sale
financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note
3(i)), and foreign exchange gains and losses on available–for–sale monetary items, are recognised directly in other comprehensive income. When an
investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to the profit and loss.
Other: Other non–derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
Investments in equity securities that are not quoted on a stock exchange and where fair value cannot be estimated on a reasonable basis by other
means are stated at cost less impairment losses.
Derivative financial instruments
The Group from time to time buys derivative financial instruments to manage its exposure to foreign currency risk. All derivatives are recognised on
the balance sheet at fair value. Derivatives are not designated as hedging instruments. Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently remeasured at their fair value with the changes in fair value recognised in profit and loss.
(f) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them
to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share
of overheads based on normal operating capacity.
3 Significant accounting policies (continued)
(g) Trade and other receivables
Trade and other receivables are stated at cost less impairment losses.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash
flows.
(i) Impairment
Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of
the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of
an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the
disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value
below its cost is objective evidence of impairment.
The Group considers evidence of impairment for receivables and held–to–maturity investment securities at both a specific asset and collective level.
All individually significant receivables and held–to–maturity investment securities are assessed for specific impairment. All individually significant
receivables and held–to–maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that
has been incurred but not yet identified. Receivables and held–to–maturity investment securities that are not individually significant are collectively
assessed for impairment by grouping together receivables and held–to–maturity investment securities with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss
incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to
be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and
the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss
and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the
discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit
or loss.
Impairment losses on available–for–sale investment securities are recognised by transferring the cumulative loss that has been recognised
in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from
other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and
amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions
attributable to time value are reflected as a component of interest income.
If, in a subsequent period, the fair value of an impaired available–for–sale debt security increases and the increase can be related objectively to an
event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal
recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available–for–sale equity security is recognised in
other comprehensive income.
Non–financial assets
The carrying amounts of the Group’s non–financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash–generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets
(the “cash–generating unit”).
An impairment loss is recognised if the carrying amount of an asset or its cash–generating unit exceeds its recoverable amount. Impairment losses
are recognised in the profit and loss. Impairment losses recognised in respect of cash–generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the units, if any, and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro
rata basis.
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Notes to the Consolidated Financial Statements for 2015
continued
3 Significant accounting policies (continued)
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at
each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(j) Share capital
(i) Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is deducted from
equity.
(ii) Dividends
Dividends are recognised as a liability in the period in which they are declared.
(k) Loans and borrowings
Loans and borrowings are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, loans and
borrowings are stated at amortised cost with any difference between initial value and redemption value being recognised in the profit and loss over
the period of the borrowings on an effective interest basis.
(l) Employee benefits
(i) Pension plans
The Group’s net obligation in respect of defined benefit post–employment plans, including pension plans, is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is
discounted to determine its present value, and the fair value of any plan assets, if any, is deducted. The discount rate is the yield at the reporting date
on government bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected
unit credit method.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in
the profit and loss on a straight line basis over the average period until the benefits become vested. To the extent the benefits vest immediately, the
expense is recognised immediately in the profit and loss.
All actuarial gains and losses are recognised in full as they arise in other comprehensive income.
(ii) Long–term service benefits other than pensions
The Group’s net obligation in respect of long–term service benefits, other than pension plans, is the amount of future benefits that employees
have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is
discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on government
bonds that have maturity dates approximating the terms of the Group’s obligations. All actuarial gains and losses are recognised in full as they arise
in other comprehensive income.
3 Significant accounting policies (continued)
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor
taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can
be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
(p) Revenues
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade
discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing
management involvement with the goods.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. Transfer may occur when the product is dispatched
from the Group companies’ warehouses (mainly for domestic dispatches) or upon loading the goods onto the relevant carrier or upon the delivery to
the destination point defined by the customer.
Where the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of
commission earned by the Group.
Revenue from services rendered is recognised in the profit and loss in proportion to the stage of completion of the transaction at the reporting date.
The stage of completion is assessed by reference to surveys of work performed.
(q) Finance income and costs
Finance income comprises interest income on funds invested (including available–for–sale financial assets), dividend income, gains on the disposal
of available–for–sale financial assets and changes in the fair value of financial assets at fair value through profit or loss, and foreign currency gains.
Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the
date that the Group’s right to receive payment is established.
Finance costs comprise interest expense on borrowings, foreign currency losses, changes in the fair value of financial assets at fair value through
profit or loss and impairment losses recognised on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction
or production of a qualifying asset are recognised in profit or loss using the effective interest method.
(iii) State pension fund
The Group makes contributions for the benefit of employees to Russia’s State pension fund. The contributions are expensed as incurred.
Foreign currency gains and losses are reported on a net basis.
(m) Provisions
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash
flows at a pre–tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
(n) Trade and other payables
Trade and other payables are stated at amortised cost.
(o) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit and loss except to the extent that it relates to
items recognised in other comprehensive income, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
(r) Overburden removal expenditure
In open pit apatit rock mining operations, it is necessary to remove the overburden and other waste in order to access the economically recoverable
resources.
Stripping costs incurred during the pre–production phase of the open pit mine are capitalised as the cost of the development of the mining property
and amortised over the life of the mine.
According to the Group’s approach to stripping, the ore which becomes accessible after the overburden removal is extracted within three months.
Therefore, the stripping ratio (volume of overburden removed over the volume of resources extracted) is expected to stay relatively constant over the
future periods and stripping costs incurred during the production phase of the open pit mine are recognised in the profit or loss as incurred.
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Notes to the Consolidated Financial Statements for 2015
continued
3 Significant accounting policies (continued)
(s) Other expenses
(i) Operating leases
Payments made under operating leases are recognised in the profit and loss on a straight–line basis over the term of the lease. Lease incentives
received are recognised in the profit and loss as an integral part of the total lease payments made.
(ii) Social expenditure
To the extent that the Group’s contributions to social programs benefit the community at large and are not restricted to the Group’s employees, they
are recognised in the profit and loss as incurred.
(t) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for
own shares held.
4 Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non–financial assets and
liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the methods described in 4(a) to 4(d). When
applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(a) Investments in equity and debt securities
The fair value of held–to–maturity investments and available–for–sale financial assets is determined by reference to their quoted bid price at the
reporting date. The fair value of held–to–maturity investments is determined for disclosure purposes only.
For non–quoted investments the fair value, if reliably measurable, is determined using valuation models.
(b) Derivative financial instruments
The Group’s derivative financial liabilities are represented by forward and targeted accrual redemption note (TARN) contracts to sell USD at a
predetermined USD/RUB exchange rates.
If the number of ordinary shares outstanding increases/(decreases) as a result of a share split/(reverse share split), the calculation of the EPS for all
periods presented is adjusted retrospectively.
Fair value of the derivative financial instruments is estimated in accordance with Level 2 of the fair value hierarchy based on Monte Carlo simulation
analysis at each reporting date.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share
options granted to employees.
(u) Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses,
including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results
are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which
discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable
basis. Unallocated items comprise mainly corporate assets, related head office expenses and Group’s associates.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than
goodwill.
(v) Adoption of new and revised standards and interpretations
No new standards and amendments became effective for the Group from 1 January 2015.
A Monte Carlo simulation is a method for iteratively evaluating a deterministic model based on one or more random (stochastic) variables as inputs.
The following inputs are used in determining the fair value of the Group’s derivative financial instruments using Monte Carlo simulation:
– USD/RUB spot rate;
– USD/RUB forward curve;
– USD/RUB volatility surface.
(c) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the
reporting date.
(d) Non–derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar
lease agreements.
5 Prior year adjustments and reclassifications
During the current year the Group made a decision to make certain reclassifications of expenses for the year ended 31 December 2014 on materials
and services, depreciation, and Russian Railways infrastructure tariff and operators’ fees between cost of sales, administrative expenses, selling
expenses and other expenses, net in order to align them with the current year’s presentation:
(w) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective as at 31 December 2015, and have not been applied
in preparing these consolidated financial statements:
•
IFRS 9 Financial Instruments is intended to replace IAS 39 Financial Instruments: Recognition and Measurement. Amended IFRS 7 Financial
Instruments: Disclosure requires additional disclosure on transition from IAS 39 to IFRS 9. The standard provides amended guidance on the
recognition and measurement of financial assets and liabilities. Effective for annual periods beginning on or after 1 January 2018 with earlier
application permitted.
IFRS 15 Revenue from contracts with customers outlines a single comprehensive model for entities to use in accounting for revenue from
contracts with customers. Effective for annual periods beginning on or after 1 January 2018 with earlier application permitted.
Amended IAS 16 Property, plant and equipment and IAS 38 Intangible assets clarify the use of a revenue–based depreciation or amortisation
method. Effective for annual periods beginning on or after 1 January 2016 with earlier application permitted.
Amended IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures address an acknowledged
inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the loss of control of a subsidiary that is
contributed to an associate or a joint venture. Effective for annual periods beginning on or after 1 January 2016 with earlier application
permitted.
IFRS 16 Leases outlines a single leesee accounting model and requires to bring most leases on–balance sheet. Effective for annual periods
beginning on or after 1 January 2019 with earlier application permitted.
•
•
•
•
Cost of sales
Administrative expenses
Selling expenses
Other expenses, net
As previously
presented
RUB Million
(68,821)
(9,081)
(11,646)
(1,997)
2014
Reclassifications
RUB Million
As adjusted
RUB Million
1,354
(136)
(1,317)
99
(67,467)
(9,217)
(12,963)
(1,898)
The Group is currently assessing the impact of these new and amended standards on the consolidated financial statements and plans to adopt
these pronouncements when they become effective.
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Notes to the Consolidated Financial Statements for 2015
continued
6 Segment information
The Group has two reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer
different products, and are managed separately because they require different technology and marketing strategies. The following summary
describes the operations in each of the Group’s reportable segments:
•
Phosphate–based products segment includes mainly production and distribution of ammophos, diammoniumphosphate, sodium
tripolyphosphate and other phosphate based and complex (NPK) fertilisers on the factories located in Cherepovets, Balakovo and Volkhov,
and production and distribution of apatite concentrate extracted from the apatite–nepheline ore, which is mined and processed in Kirovsk;
Nitrogen–based products segment includes mainly production and distribution of ammonia, ammonium nitrate and urea on the factory located
in Cherepovets.
•
Certain assets, revenue and expenses are not allocated to any particular segment and are, therefore, included in the “other operations” column.
None of these operations meet any of the quantitative thresholds for determining reportable segments.
Information regarding the results of each reportable segment is included below. Performance is measured based on gross profit, as included in
internal management reports that are reviewed by the Group’s CEO.
Management is currently in the process of reviewing and adjusting its internal reporting system based on merger of management accounting and
IFRS. As a result, presentation of the segment information has been amended from 1 January 2015. Comparative information has been adjusted to
conform to the current year’s presentation.
Segment information as at 31 December 2015 and for the year then ended is as follows:
RUB million
Segment revenue and profitability
Segment external revenues, thereof:
Export
Domestic
Inter–segment transfers
Cost of goods sold
Gross segment profit
Certain items of profit and loss
Amortisation and depreciation
Total non–current segment assets
Additions to non–current assets
Phosphate–based
products
Nitrogen–based
products
Other operations
Total
167,430
120,873
46,557
–
(70,344)
97,086
21,574
17,984
3,590
–
(12,063)
9,511
(7,022)
(1,890)
76,090
17,913
41,992
25,025
728
–
728
–
(657)
71
(221)
3,436
1,255
189,732
138,857
50,875
–
(83,064)
106,668
(9,133)
121,518
44,193
6 Segment information (continued)
Segment information of the Group as at 31 December 2014 and for the year then ended is as follows:
RUB million
Phosphate–based
products
Nitrogen–based
products
Other operations
Inter–segment
elimination
Segment revenue and profitability
Segment external revenues, thereof:
Export
Domestic
Inter–segment transfers
Cost of goods sold
Gross segment profit
Certain items of profit and loss
Amortisation and depreciation
Total non–current segment assets
Additions to non–current assets
The analysis of export revenue by regions is as follows:
105,832
73,152
32,680
–
(58,156)
47,676
16,626
13,690
2,936
8
(8,720)
7,914
(6,023)
(1,842)
66,498
12,818
18,214
4,352
666
–
666
–
(599)
67
(148)
1,946
1,405
–
–
–
(8)
8
–
–
–
–
Total
123,124
86,842
36,282
–
(67,467)
55,657
(8,013)
86,658
18,575
Europe
North and South America
India
Africa
CIS
Asia
2015
RUB million
2014
RUB million
47,303
44,430
18,185
12,475
10,740
5,724
138,857
25,491
39,477
2,672
8,799
6,882
3,521
86,842
106
107
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
7 Revenues
9 Cost of sales
Sales of chemical fertilisers
Sales of apatite concentrate
Sales of sodium tripolyphosphate
Sales of nepheline concentrate
Sales of ammonium
Other sales
2015
RUB million
2014
RUB million
154,312
19,155
5,803
737
115
9,610
189,732
94,983
14,393
4,713
660
760
7,615
123,124
During the current year the Group made a decision to make certain reclassifications of revenue for the year ended 31 December 2014 between sales
of chemical fertilisers and other sales in order to align them with the current year’s presentation:
Sales of chemical fertilisers
Other sales
8 Personnel costs
Cost of sales
Administrative expenses
Selling expenses
Restructuring costs
2014
As previously
presented
RUB Million
Reclassifications
RUB Million
As adjusted
RUB Million
98,164
4,434
(3,181)
3,181
94,983
7,615
2015
RUB million
2014
RUB million
(10,155)
(6,784)
(373)
–
(17,312)
(9,754)
(5,248)
(359)
(173)
(15,534)
Personnel costs include salaries and wages, termination benefits, social contributions and current pension service costs.
Materials and services
Salaries and social contributions
Sulphur and sulphuric acid
Ammonia
Depreciation
Potash
Natural gas
Chemical fertilisers and other products for resale
Electricity
Fuel
Ammonium sulphate
Heating energy
Other items
Change in stock of WIP and finished goods
10 Administrative expenses
Salaries and social contributions
Professional services
Depreciation and amortisation
Other
11 Selling expenses
Freight, port and stevedoring expenses
Russian Railways infrastructure tariff and operators’ fees
Materials and services
Depreciation
Salaries and social contributions
2015
RUB million
2014
RUB million
(22,905)
(10,155)
(8,385)
(8,190)
(8,057)
(7,559)
(7,484)
(4,091)
(3,927)
(2,865)
(2,176)
(718)
(23)
3,471
(83,064)
(20,398)
(9,754)
(4,522)
(3,423)
(7,198)
(3,915)
(7,505)
(2,932)
(3,650)
(2,791)
(839)
(1,161)
(14)
635
(67,467)
2015
RUB million
2014
RUB million
(6,784)
(2,003)
(606)
(2,791)
(12,184)
(5,248)
(1,107)
(567)
(2,295)
(9,217)
2015
RUB million
2014
RUB million
(8,425)
(6,099)
(2,384)
(470)
(373)
(17,751)
(5,252)
(5,471)
(1,633)
(248)
(359)
(12,963)
108
109
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
12 Other expenses, net
Social expenditures
Loss on disposal of property, plant and equipment
Increase in provision for bad debt
Fines and penalties received
Decrease/(increase) in provision for inventory obsolescence
Other income, net
13 Finance income and finance costs
Interest income
Unwind of discount of financial assets
Dividend income
Other finance income
Finance income
Interest expense
Loss from operations with derivative financial instruments
Bad debt provision on promissory notes
Bank fees
Other finance costs
Finance costs
Net finance costs
2015
RUB million
2014
RUB million
(1,821)
(915)
(41)
956
161
252
(1,408)
(1,259)
(280)
(339)
–
(48)
28
(1,898)
2015
RUB million
2014
RUB million
933
128
–
161
1,222
(5,198)
(310)
–
(277)
(308)
(6,093)
(4,871)
1,000
–
3
56
1,059
(2,577)
(7,338)
(1,424)
(168)
(103)
(11,610)
(10,551)
14 Income tax (expense)/benefit
The Company’s applicable corporate income tax rate is 20% (2014: 20%).
Current tax expense
Origination and reversal of temporary differences, including change in unrecognised assets
Reconciliation of effective tax rate:
Profit/(loss) before tax
Income tax at applicable tax rate
Reversal of income tax on intra–group dividends
Under provided in respect of prior years
Unrecognised tax asset on loss from associates
Correction of tax loss carry–forward
Non–deductible items
Effect of tax rates in foreign jurisdictions
2015
RUB million
46,223
(9,245)
399
(250)
(12)
–
(638)
(41)
(9,787)
%
100
(20)
1
(1)
–
–
(1)
–
(21)
2015
RUB million
2014
RUB million
(9,879)
92
(9,787)
2014
RUB million
(15,429)
3,086
–
(183)
(151)
(330)
(406)
18
2,034
(1,628)
3,662
2,034
%
100
(20)
–
1
1
2
3
–
(13)
110
111
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
15 Property, plant and equipment
RUB Million
Cost
At 1 January 2014
Additions
Transfers
Disposals
At 1 January 2015
Additions
Consolidation of Phosint Group
Transfers
Disposals
At 31 December 2015
Accumulated depreciation
At 1 January 2014
Depreciation charge
Disposals
At 1 January 2015
Depreciation charge
Disposals
At 31 December 2015
Net book value at 1 January 2014
Net book value at 1 January 2015
Net book value at 31 December 2015
(a) Security
Land and
buildings
Plant and
equipment
Fixtures and
fittings
Construction
in progress
Total
23,506
33
2,381
(257)
25,663
10
–
5,392
(244)
30,821
(5,489)
(1,163)
88
(6,564)
(1,434)
75
(7,923)
18,017
19,099
22,898
59,796
1,157
7,475
(1,367)
67,061
741
747
8,574
(2,411)
74,712
(28,308)
(5,899)
1,163
(33,044)
(6,778)
2,162
(37,660)
31,488
34,017
37,052
4,584
967
–
(178)
5,373
1,544
–
–
(168)
6,749
(3,000)
(740)
125
(3,615)
(777)
145
(4,247)
1,584
1,758
2,502
24,839
16,418
(9,856)
(189)
31,212
41,898
–
(13,966)
(644)
58,500
–
–
–
–
–
–
–
24,839
31,212
58,500
112,725
18,575
–
(1,991)
129,309
44,193
747
–
(3,467)
170,782
(36,797)
(7,802)
1,376
(43,223)
(8,989)
2,382
(49,830)
75,928
86,086
120,952
16 Investments in associates
The movement in the balance of investments in associates is as follows:
Balance at 1 January
Share in loss for the year
Consolidation of Phosint Limited, see note 33
Foreign currency translation difference
Share in revaluation gain on available–for–sale securities
Balance at 31 December
2015
RUB million
2014
RUB million
12,975
(59)
(14,047)
1,941
–
810
8,485
(756)
–
5,225
21
12,975
In November 2015, the Group obtained control over additional 46% in Phosint Limited, which has control ownership in PhosAsset GmbH and
PhosAgro Trading SA, see notes 33 and 34.
Carrying values of the Group’s investments in associates are as follows:
31 December 2015
RUB million
31 December 2014
RUB million
JSC Khibinskaya Teplovaya Kompaniya
LLC PHOSAGRO–UKRAINE
OJSC Giproruda
OJSC Soligalichskiy izvestkovyi kombinat
Phosint Group
Summary financial information for associates is as follows:
400
245
116
49
–
810
Properties with a carrying amount of RUB nil (31 December 2014: RUB 315 million) are pledged to secure loans and borrowings, see note 25.
2015
Total assets
RUB Million
Total liabilities
RUB Million
Net assets
RUB Million
Revenue
RUB Million
(b) Leasing
Plant and equipment with the carrying value of RUB 6,008 million (31 December 2014: RUB 5,737 million) is leased under various finance lease
agreements, see note 27(a).
JSC Khibinskaya Teplovaya Kompaniya
LLC PHOSAGRO–UKRAINE
OJSC Giproruda
OJSC Soligalichskiy izvestkovyi kombinat
2,550
1,398
884
242
5,074
(1,800)
(780)
(407)
(49)
(3,036)
750
618
477
193
2,038
545
5,959
130
555
7,189
2014
Total assets
RUB Million
Total liabilities
RUB Million
Net assets
RUB Million
Revenue
RUB Million
Phosint Group
JSC Khibinskaya Teplovaya Kompaniya
LLC PHOSAGRO–UKRAINE
OJSC Giproruda
OJSC Soligalichskiy izvestkovyi kombinat
13,077
2,767
400
451
225
16,920
(453)
(1,940)
(198)
(77)
(42)
(2,710)
12,624
827
202
374
183
14,210
55
560
2,142
249
546
3,552
112
113
400
111
93
47
12,324
12,975
(Loss)/profit
for the year
RUB Million
(77)
416
103
10
452
(Loss)/profit
for the year
RUB Million
(759)
(37)
48
59
29
(660)
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
17 Deferred tax assets and liabilities
(a) Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following items:
RUB Million
Property, plant and equipment
Other long–term assets
Current assets
Liabilities
Tax loss carry–forwards
Unrecognised deferred tax assets
Tax assets/(liabilities)
Set off of tax
Net tax assets/(liabilities)
Assets
2015
7
85
958
1,566
5,298
(21)
7,893
(1,992)
5,901
Liabilities
2015
(5,235)
(19)
(405)
(10)
–
–
(5,669)
1,992
(3,677)
Net
2015
(5,228)
66
553
1,556
5,298
(21)
2,224
–
2,224
Assets
2014
38
151
855
1,640
5,349
(25)
8,008
(3,759)
4,249
Liabilities
2014
(5,291)
(236)
(328)
(22)
–
–
(5,877)
3,759
(2,118)
Net
2014
(5,253)
(85)
527
1,618
5,349
(25)
2,131
–
2,131
The deferred tax assets on tax loss carry–forwards will expire in accordance with the below schedule:
4 years
5 years
6 years
7 years
8 years
9 years
10 years
31 December 2015
RUB million
31 December 2014
RUB million
167
–
71
208
720
2,569
1,563
5,298
–
167
–
71
208
720
4,183
5,349
Management has developed a tax strategy to utilise the tax losses above. In assessing the recoverability of the tax losses, the Group considered a
forecast of future taxable profits and the Group’s tax position. The forecast is reviewed at each reporting date to ensure that the related tax benefit
will be realised.
As at 31 December 2015, no deferred tax liability for taxable temporary differences of RUB 29,090 million has been recognised (31 December 2014:
no deferred tax asset for deductible temporary differences of RUB 8,618 million), either because the Parent can control the timing of reversal of the
temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future, or because the applicable tax rate
is expected to be 0%.
Advances issued for property, plant and equipment, at cost
Financial assets available–for–sale, at cost
Loans issued to related parties, at amortised cost
Loans issued to third parties, at amortised cost
Loans issued to employees, at amortised cost
Financial assets available–for–sale, at fair value
Finance lease receivable
Other long–term receivables
17 Deferred tax assets and liabilities (continued)
(b) Movement in temporary differences during the year
RUB million
31 December 2015
Recognised in
profit or loss
Recognised in other
comprehensive
income
1 January 2015
Property, plant and equipment
Other long–term assets
Current assets
Liabilities
Tax loss carry–forwards
Unrecognised deferred tax assets
Net tax assets/(liabilities)
RUB million
Property, plant and equipment
Other long–term assets
Current assets
Liabilities
Tax loss carry–forwards
Unrecognised deferred tax assets
Net tax assets/(liabilities)
18 Other non–current assets
(5,228)
66
553
1,556
5,298
(21)
2,224
25
151
26
(63)
(51)
4
92
–
–
–
1
–
–
1
(5,253)
(85)
527
1,618
5,349
(25)
2,131
31 December 2014
Recognised in
profit or loss
Recognised in other
comprehensive
income
1 January 2014
(5,253)
(85)
527
1,618
5,349
(25)
2,131
(622)
(128)
669
560
3,177
6
3,662
–
–
–
(33)
–
–
(33)
(4,631)
43
(142)
1,091
2,172
(31)
(1,498)
31 December 2015
RUB million
31 December 2014
RUB million
7,424
596
862
248
133
81
13
889
10,246
6,927
610
466
287
260
44
21
320
8,935
114
115
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
19 Other current investments
21 Trade and other receivables
Investments in debt securities, at amortised cost
Financial assets available–for–sale, at fair value
Loans issued to third parties, at amortised cost
Loans issued to employees, at amortised cost
Loans issued to associate, at amortised cost
Interest receivable
Loans issued to related parties, at amortised cost
Provision for doubtful accounts
31 December 2015
RUB million
31 December 2014
RUB million
5,671
1,636
183
114
68
27
–
(2,797)
4,902
2,531
–
96
63
–
383
7
(1,424)
1,656
As at 31 December 2015 and 31 December 2014 the Group held debt securities issued by entities affiliated to a bank, which at the end of 2014
went into a financial recovery procedure, monitored by the Russian Deposit Insurance Agency, finalised in June 2015. Taking into account the
uncertainties associated with the mutual court claims filed by the Group and the bank, the Group recognised a provision of 50% of the nominal
value of the debt securities in the amount of RUB 2,797 million (31 December 2014: RUB 1,424 million, including interest receivable in the amount
of RUB 159 million). Part of these debt securities was owned by Phosint Group prior to its consolidation (see note 33) with the total gross amount
of RUB 2,182 million as of 15 November 2015 (31 December 2014: RUB 1,843 million) and respective provision of RUB 1,091 million (31 December
2014: RUB 921 million).
20 Inventories
Raw materials and spare parts
Finished goods:
Chemical fertilisers
Apatite concentrate
Work–in–progress
Apatite–nepheline ore
Chemical fertilisers and other products
Other goods for resale
Chemical fertilisers for resale, purchased from the third parties
Provision for obsolescence
31 December 2015
RUB million
31 December 2014
RUB million
6,561
5,137
7,664
299
790
1,643
45
842
(30)
17,814
4,932
76
991
941
30
611
(191)
12,527
Trade accounts receivable
Taxes receivable
Advances issued
Other receivables
Deferred expenses
Receivables from employees
Finance lease receivable
Provision for doubtful accounts
The movements in provision for doubtful accounts are as follows:
Balance at 1 January
Foreign currency translation difference
Disposal of provision through trade receivables
Increase in provision for bad debt
Balance at 31 December
See note 29(c) for the analysis of overdue trade accounts receivable.
22 Cash and cash equivalents
Cash in bank
Call deposits
Petty cash
31 December 2015
RUB million
31 December 2014
RUB million
11,368
9,429
4,462
582
164
21
12
(527)
25,511
6,867
7,514
4,721
318
54
42
11
(534)
18,993
2015
RUB million
2014
RUB million
(534)
(91)
139
(41)
(527)
(322)
–
127
(339)
(534)
31 December 2015
RUB million
31 December 2014
RUB million
18,900
10,441
6
29,347
13,749
16,931
7
30,687
116
117
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
23 Equity
(a) Share capital
Number of shares unless otherwise stated
Shares on issue at 31 December 2015, RUB 2.5 par value
Shares authorised for additional issue at 31 December 2015, RUB 2.5 par value
Shares on issue at 31 December 2014, RUB 2.5 par value
Shares authorised for additional issue at 31 December 2014, RUB 2.5 par value
Ordinary shares
129,500,000
994,977,080
129,500,000
994,977,080
The historical amount of the share capital of RUB 311 million has been adjusted for the effect of hyperinflation to comply with IAS 29 “Financial
Reporting in Hyperinflationary economies”.
(b) Dividend policy
The Company expects to distribute cash dividends in the future and expects the amount of such dividends to be between 30 and 50 per cent of the
Group’s consolidated profit calculated in accordance with IFRS attributable to shareholders of OJSC “PhosAgro”, adjusted by unrealised foreign
exchange loss.
Whether the Company will pay dividends and the timing and exact amount of such dividends will be subject to the approval of the recommendation
made by the Board of Directors at the General Shareholders’ Meeting and will depend on a variety of factors, including the Company’s earnings,
cash requirements, financial condition and other factors deemed relevant by the Board of Directors in making their recommendation to the General
Shareholders’ Meeting.
(c) Dividends
In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of accumulated retained earnings as
recorded in the Company’s statutory financial statements prepared in accordance with Russian Accounting Principles. As at 31 December 2015,
the Company had cumulative retained earnings of RUB 31,857 million (31 December 2014: RUB 33,465 million).
In April 2015, the Board of Directors proposed to pay a dividend of RUB 15 per ordinary share. The total amount of proposed dividends was
RUB 1,943 million. In June 2015, the proposed dividend payout was approved by a meeting of shareholders.
In May 2015, the Board of Directors proposed to pay a dividend of RUB 48 per ordinary share. The total amount of proposed dividends was
RUB 6,216 million. In July 2015, the proposed dividend payout was approved by a meeting of shareholders.
In August 2015, the Board of Directors proposed to pay a dividend of RUB 57 per ordinary share. The total amount of proposed dividends was
RUB 7,382 million. In October 2015, the proposed dividend payout was approved by a meeting of shareholders.
In November 2015, the Board of Directors proposed to pay a dividend of RUB 63 per ordinary share. The total amount of proposed dividends was
RUB 8,159 million. In January 2016, the proposed dividend payout was approved by a meeting of shareholders.
(d) Other events subsequent to the reporting date
See note 35 for other significant events which took place after 31 December 2015.
24 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated based on the weighted average number of ordinary shares outstanding during the year after
adjustment for the share split and issuance of new shares, see note 23(a). Basic and diluted earnings/(loss) per share are the same, as there is no
effect of dilution.
Weighted average number of ordinary shares in issue
Profit/(loss) for the year attributable to shareholders of the Parent, RUB million
Basic and diluted earnings/(loss) per share, RUB
2015
RUB million
2014
RUB million
129,500,000
36,442
281
129,500,000
(13,641)
(105)
25 Loans and borrowings
This note provides information about the contractual terms of the Group’s loans and borrowings. For more information about the finance leases,
see note 27(a). For more information about the Group’s exposure to foreign currency risk, interest rate risk and liquidity risk, see note 29.
RUB Million
Contractual interest rate
Year of maturity
31 December 2015
31 December 2014
Current loans and borrowings
Unsecured bank loans:
RUB–denominated
USD–denominated
USD–denominated
USD–denominated
Secured letters of credit:
USD–denominated
Unsecured letters of credit:
EUR–denominated
EUR–denominated
Unsecured loans from related parties:
RUB–denominated
Unsecured loans from associates:
USD–denominated
Unsecured loans from other companies:
USD–denominated
Finance lease liabilities:
USD–denominated
Interest payable:
RUB–denominated
USD–denominated
9.15%–15%
LIBOR(1M)+1.4%–3.35%
LIBOR(3M)+2.9%–3%
2.2%
EURIBOR(6M)+2.3%
EURIBOR(6M)+1.10%–1.15%
EURIBOR(12M)+1.10%–1.83%
9%–17%
2.25%
LIBOR(1M)+1.50%
3.8%–12.55% 1
1 Contractual interest rate on financial lease agreements consists of:
– interest rate and fees to a lessor
– insurance of property
– property tax (for lease agreements concluded since 2013 property tax is excluded from the interest rate)
6,500
11,783
3,644
–
–
317
2,982
29
–
438
2,351
3
900
28,947
9,011
13,627
4,220
928
124
–
775
46
242
–
1,294
8
547
30,822
118
119
PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION
Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
25 Loans and borrowings (continued)
26 Defined benefit obligations
RUB Million
Contractual interest rate
Year of maturity
31 December 2015
31 December 2014
Non–current loans and borrowings
Unsecured bank loans:
RUB–denominated
USD–denominated
USD–denominated
USD–denominated
Secured letters of credit:
EUR–denominated
Unsecured letters of credit:
EUR–denominated
EUR–denominated
EUR–denominated
Unsecured loans from other companies:
USD–denominated
Loan participation notes:
USD–denominated
Finance lease liabilities:
USD–denominated
12.65%–13.3%
LIBOR(1M)+2%–3.35%
LIBOR(6M)+1.05%
4.17%
EURIBOR(6M)+3.25%
EURIBOR(6M)+1.1%–1.15%
EURIBOR(12M)+1.1%–1.15%
1.79%
LIBOR(12M)+1.25%
4.204% 2
2020
2017–2019
2021
2027
2017
2017
2019
2018
2018
3.8%–12.55% 1
2017–2021
3,000
38,506
8,700
13,051
–
185
1,329
104
742
3,000
48,217
2,612
3,919
208
–
2,441
–
571
36,400
28,066
3,548
105,565
134,512
3,968
93,002
123,824
1 Contractual interest rate on financial lease agreements consists of:
– interest rate and fees to a lessor
– insurance of property
– property tax (for lease agreements concluded since 2013 property tax is excluded from the interest rate)
2 In February 2013, the Company’s SPV issued a USD 500 million 5–year Eurobond with a coupon rate of 4.204%, which is listed on the Irish Stock Exchange, with the fair value at
the reporting date of RUB 36,405 million (31 December 2014: RUB 23,800 million).
Pension obligations, long–term
Post–retirement obligations other than pensions
31 December 2015
RUB million
31 December 2014
RUB million
345
79
424
362
91
453
Defined benefit pension plans relate to three subsidiaries of the Group: JSC “Apatit”, JSC “PhosAgro–Cherepovets” and CJSC “Metachem”. The
plans stipulate payment of a fixed amount of monthly pension to all retired employees, who have a specified period of service in the entities. The
pension increases with the increase of the service period. The pension is paid over the remaining life of the pensioners. In addition, there is a defined
benefit plan other than the pension plan in JSC “Apatit”. This defined benefit plan stipulates payment of a lump sum to employees who have a
specified period of service in JSC “Apatit” upon their retirement. All defined benefit plans are unfunded. The movement in the present value of the
defined benefit obligations is as follows:
Defined benefit obligations at 1 January 2014
Benefits paid
Current service costs and interest
Past service credit
Actuarial gain in other comprehensive income
Defined benefit obligations at 1 January 2015
Benefits paid
Current service costs and interest
Past service credit
Actuarial loss in other comprehensive income ³
Defined benefit obligations at 31 December 2015
RUB million
971
(198)
100
(254)
(166)
453
(99)
72
(7)
5
424
3 The related deferred tax benefit of RUB 1 million (2014: deferred tax expense of RUB 33 million) is recognised in other comprehensive income, see note 17(b).
The key actuarial assumptions used in measurement of the defined benefit obligations are as follows:
Discount rate
Future pension increases
31 December 2015
31 December 2014
10%
5%
13%
6%
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
27 Leases
(a) Finance leases
LLC “PhosAgro–Trans”, a Group subsidiary, has entered into several agreements to lease 2,750 railway wagons. Other Group subsidiaries also have
entered into lease agreements in 2015 and 2014. At the end of the lease term, the ownership for the leased assets will be transferred to the lessee.
28 Trade and other payables
RUB Million
Less than one year
Between one and five years
More than five years
RUB Million
Less than one year
Between one and five years
More than five years
Minimum lease
payments
Interest
Principal
2015
2,760
3,857
135
6,752
2,351
3,416
132
5,899
409
441
3
853
2014
Minimum lease
payments
Interest
Principal
1,724
4,309
317
6,350
430
646
12
1,088
1,294
3,663
305
5,262
(b) Operating leases
During 2014–2015, LLC “PhosAgro–Trans”, a group subsidiary, entered into several operating lease agreements to rent railway wagons. The rent
payments for 2015, which are recorded in the cost of sales, amounted to RUB 278 million (2014: RUB 489 million).
The non–cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
31 December 2015
RUB million
31 December 2014
RUB million
62
168
230
174
214
388
Trade accounts payable
Advances received
Payable for property, plant and equipment
Taxes payable
Accruals
Payables to employees
Dividends payable
Other payables
31 December 2015
RUB million
31 December 2014
RUB million
4,763
3,901
3,282
2,617
1,394
873
–
181
17,011
3,902
2,599
1,891
2,362
1,178
735
2,590
64
15,321
29 Financial risk management
(a) Overview
In the normal course of its operations, the Group has exposure to market, credit and liquidity risks.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial
statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk
management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor
risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the
Group’s activities.
(b) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return.
Foreign currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional
currencies of Group entities. The currencies giving rise to this risk are primarily USD and EUR.
In respect of monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level
by buying or selling foreign currencies at spot rates when necessary to address short–term imbalances.
The Group uses from time to time derivative financial instruments in order to manage its exposure to currency risk. The Group implemented a
natural hedge approach (policy) aiming at reducing its exposure to foreign currency risk by means of borrowing in the same currencies in which
sales agreements are denominated.
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
29 Financial risk management (continued)
The Group has the following foreign–currency–denominated financial assets and liabilities:
RUB Million
Non–current assets
Non–current investments
Current assets
Receivables
Current investments
Cash and cash equivalents
Non–current liabilities
Loans and borrowings
Current liabilities
Payables
Loans and borrowings
31 December 2015
31 December 2014
USD denominated
EUR denominated
USD denominated
EUR denominated
862
1,403
5
7,538
–
1
–
298
440
2,094
1,425
23,087
(100,205)
(1,618)
(86,782)
(1,951)
(18,588)
(110,936)
(358)
(3,299)
(4,976)
(846)
(19,797)
(80,379)
–
1
–
1,212
(2,649)
(3,522)
(775)
(5,733)
Management estimate that a 10% strengthening/(weakening) of RUB against USD and EUR, based on the Group’s exposure as at the reporting
date would have increased/(decreased) the Group’s profit for the year by RUB 11,591 million, before any tax effect (2014: would have decreased/
(increased) the Group’s loss for the year by RUB 8,611 million). This analysis assumes that all other variables, in particular interest rates, remain
constant. The analysis is performed on the same basis for 2014.
In 2015, the Group incurred a significant foreign exchange loss, net in the amount of RUB 22,178 million (2014: RUB 33,545 million) resulting
primarily from foreign exchange differences on the Group’s portfolio of loans and borrowings.
Interest rate risk
Interest rate risk is the risk that changes in interest rates will adversely impact the financial results of the Group. Management does not have a
formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, at the time of raising new loans or
borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Group over
the expected period until maturity.
29 Financial risk management (continued)
The interest rate profile of the Group’s interest–bearing financial instruments is as follows:
Fixed rate instruments
Long–term loans issued, at amortised cost
Long–term loans issued to related parties, at amortised cost
Short–term promissory notes, net of provision
Finance lease receivable
Short–term deposits
Financial assets available–for–sale, at fair value
Short–term loans issued to related parties, at amortised cost
Short–term loans issued to associate, at amortised cost
Short–term loans issued, at amortised cost
Long–term borrowings
Short–term borrowings
Variable rate instruments
Long–term borrowings
Short–term borrowings
31 December 2015
RUB million
31 December 2014
RUB million
381
862
2,874
25
10,441
1,636
–
68
297
(56,103)
(8,880)
(48,399)
(49,462)
(19,164)
(68,626)
547
466
1,107
32
16,931
–
7
–
159
(38,953)
(11,521)
(31,225)
(54,049)
(18,746)
(72,795)
At 31 December 2015, a 1% increase/(decrease) in LIBOR/EURIBOR would have decreased/(increased) the Group’s profit or loss and equity by
RUB 686 million (31 December 2014: RUB 728 million).
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises from the Group’s receivables from customers, loans issued to related parties, current and non–current financial assets and cash and
cash equivalents.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual specific characteristics of each customer. The general characteristics of
the Group’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk.
Management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s
standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases
bank references. Purchase limits are established for each customer, which represent the maximum amount of outstanding receivables; these limits
are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment
basis.
The majority of the Group’s customers have been transacting with the Group for several years, and losses have occurred infrequently. In monitoring
customer credit risk, customers are grouped according to their credit characteristics. Trade and other receivables relate mainly to the Group’s
wholesale customers.
The Group does not require collateral in respect of trade and other receivables, except for new customers who are required to work on a prepayment
basis or present an acceptable bank guarantee or set up letter of credit with an acceptable bank.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and
investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective
loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss
allowance is determined based on historical data of payment statistics for similar financial assets.
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
29 Financial risk management (continued)
The analysis of overdue trade accounts receivable is as follows:
Not past due
Past due 0–90 days
Past due 91–180 days
Past due 181–365 days
More than one year
31 December 2015
RUB million
31 December 2014
RUB million
8,624
1,789
215
205
535
11,368
5,966
257
68
103
473
6,867
Current and non–current financial assets
The Group lends money to related parties, who have good credit standing. Based on the prior experience, management believes that there is no
significant credit risk in respect of related party loans.
As at 31 December 2015 and 31 December 2014 the Group held promissory notes issued by an entity affiliated to a bank, which at the end of 2014
went into a financial recovery procedure, monitored by the Russian Deposit Insurance Agency, finalised in June 2015. Taking into account the
uncertainties associated with the outcome of this procedure and mutual court claims filed by the Group and the bank, the Group recognised a
provision of 50% of the nominal value of the promissory notes in the amount of RUB 2,797 million (31 December 2014: RUB 1,424 million, including
interest receivable in the amount of RUB 159 million).
Guarantees
The Group considers that financial guarantee contracts entered into by the Group to guarantee the indebtedness of other parties are insurance
arrangements, and accounts for them as such. In this respect, the Group treats the guarantee contract as a contingent liability until such time as it
becomes probable that the Group will be required to make a payment under the guarantee.
The Group’s policy is to provide financial guarantees only to the subsidiaries or related parties.
(d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity
is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.
Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 30 days, including the
servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural
disasters. In addition, the Group maintains several lines of credit in various Russian and international banks.
29 Financial risk management (continued)
The table below illustrates the contractual maturities of financial liabilities, including interest payments:
RUB Million
Unsecured bank loans
Unsecured loans from other companies
Unsecured loans from related parties
Letters of credit
Interest payable
Secured finance leases
Loan participation notes
Trade and other payables
Financial guarantees issued for
associates and related parties
Carrying
value
Contractual
cash flows
85,184
1,180
29
4,917
903
5,899
36,400
9,620
95,401
1,221
34
4,980
903
6,752
39,758
9,620
1,795
145,927
1,795
160,464
31 December 2015
0–1 year
1–2 yrs
2–3 yrs
3–4 yrs
4–5 yrs
> 5 yrs
25,480
460
34
3,351
903
2,760
1,523
9,620
2
44,133
24,053
14
–
1,522
–
1,574
1,518
–
1
28,682
16,459
747
–
2
–
1,259
36,717
–
30
55,214
10,333
–
–
105
–
754
–
–
1,762
12,954
4,601
–
–
–
–
270
–
–
–
4,871
14,475
–
–
–
–
135
–
–
–
14,610
RUB Million
Carrying
value
Contractual
cash flows
0–1 year
1–2 yrs
2–3 yrs
3–4 yrs
4–5 yrs
> 5 yrs
31 December 2014
Unsecured bank loans
Unsecured loans from associates
Unsecured loans from other companies
Unsecured loans from related parties
Letters of credit
Interest payable
Secured finance leases
Loan participation notes
Trade and other payables
Financial guarantees issued for
associates and related parties
85,534
242
571
46
3,548
555
5,262
28,066
9,625
91,329
243
607
50
3,781
555
6,350
32,200
9,625
2,058
135,507
2,058
146,798
30,946
243
11
50
1,083
555
1,724
1,166
9,625
–
45,403
27,847
–
11
–
2,444
–
1,581
1,169
–
5
33,057
19,699
–
11
–
254
–
1,234
1,166
–
1
22,365
6,932
–
574
–
–
–
925
28,699
–
49
37,179
1,578
–
–
–
–
–
569
–
–
2,003
4,150
4,327
–
–
–
–
–
317
–
–
–
4,644
(e) Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development
of the business. The Board of Directors monitors the return on capital invested and the level of dividends to shareholders.
There were no changes in the Board’s approach to capital management during the year.
The Company and its subsidiaries are subject to externally imposed capital requirements including the statutory requirements of the country of their
domicile and the bank covenants.
(f) Fair values
Unless stated otherwise, management believes that the fair value of the Group’s financial assets and liabilities approximates their carrying amounts.
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
30 Commitments
The Group has entered into contracts to purchase plant and equipment for RUB 35,854 million (31 December 2014: RUB 28,766 million).
31 Contingencies
(a) Litigation
The Group has a number of small claims and litigations relating to regular business activities and small fiscal claims. Management believes that
none of these claims, individually or in aggregate, will have a material adverse impact on the Group.
(b) Taxation contingencies
The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation, official pronouncements
and court decisions, which are sometimes contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review
and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year generally
remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may
remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive and substance–based
position in their interpretation and enforcement of tax legislation.
These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management
believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements
and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these consolidated financial statements,
if the authorities were successful in enforcing their interpretations, could be significant.
(c) Environmental contingencies
The environmental legislation, currently effective in the Russian Federation, is relatively new and characterised by frequent changes, official
pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different authorities.
The Group is involved in chemical production, which is inherently exposed to significant environmental risks. The Group companies record
environmental obligations as they become probable and reliably measurable. The Group companies are parties to different litigations with
the Russian environmental authorities. The management believes that based on its interpretations of applicable Russian legislation, official
pronouncements and court decisions no provision is required for environmental obligations. However, the interpretations of the relevant authorities
could differ from management’s position and the effect on these consolidated financial statements, if the authorities were successful in enforcing
their interpretations, could be significant.
32 Related party transactions
(a) Transactions and balances with associates
(i) Transactions with associates
Sales of goods and services
Interest income
Purchases of goods and services
(ii) Balances with associates
Trade and other receivables
Short–term loans issued, at amortised cost
Trade and other payables
Short–term loans received
2015
RUB million
2014
RUB million
5,382
114
(492)
1,589
31
(225)
31 December 2015
RUB million
31 December 2014
RUB million
595
68
(22)
–
156
–
(19)
(242)
32 Related party transactions (continued)
(b) Transactions and balances with other related parties
(i) Transactions with other related parties
Sales of goods and services
Interest income
Purchases of goods and services
(ii) Balances with other related parties
Long–term loans issued, at amortised cost
Trade and other receivables
Short–term loans issued, at amortised cost
Trade and other payables
Short–term loans received
Dividends payable to shareholders of the Parent
2015
RUB million
2014
RUB million
965
36
(919)
340
4
(83)
31 December 2015
RUB million
31 December 2014
RUB million
862
5
–
(358)
(29)
–
466
81
7
(21)
(46)
(2,590)
(iii) Financial guarantees
The Group issued financial guarantees to banks on behalf of related parties amounting to RUB 134 million (31 December 2014: RUB 178 million).
(c) Key management remuneration
The remuneration of the Board of Directors and 13 members of key management personnel amounted to RUB 535 million (2014: RUB 394 million).
(iii) Financial guarantees
The Group issued financial guarantees to banks on behalf of associates amounting to RUB 1,661 million (31 December 2014: RUB 1,880 million).
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Financials continued
Notes to the Consolidated Financial Statements for 2015
continued
33 Acqusition of subsidiaries
Consolidation of Phosint Group
In November 2015, the Group increased the ownership share from 49% to 95% in PhosInt Limited which has control ownership in PhosAsset GmbH
and PhosAgro Trading SA. Phosint Limited acquired its own shares from the previous controlling shareholder for the nominal value of USD 400
thousand (RUB 27 million), which remained outstanding as at the reporting date. As a result, the Group decreased the investments in associates
by RUB 14,047 million. The financial effect of this transaction is an increase in retained earnings by RUB 28 million. As of the date of consolidation
Phosint Group held primarily machinery, USD–denominated equity and debt instruments, loans issued and cash.
Management believes that there is no material difference between the book value and the fair value of the net assets of the acquired companies.
The provisionally determined fair value of the identifiable assets and liabilities of PhosInt Group at the date of consolidation is as follows:
Property, plant and equipment
Investments in debt securities, at amortised cost
Financial assets available–for–sale, at fair value
Loans issued to third parties, at amortised cost
Trade and other receivables
Cash and cash equivalents
Loans and borrowings
Trade and other payables
Net identifiable assets and liabilities
Less consideration payable
Less fair value of the investment in associate at the date of consolidation
Result from consolidation
Cash and cash equivalents acquired
Net cash inflow
RUB million
747
1,154
1,528
145
960
10,178
(481)
(129)
14,102
(27)
(14,047)
28
10,178
10,178
34 Significant subsidiaries
Subsidiary
Apatit, JSC (including Balakovo branch)
PhosAgro–Cherepovets, JSC
Metachem, CJSC
NIUIF, OJSC
PhosAgro–Trans, LLC
PhosAgro–Region, LLC
PhosAgro–Belgorod, LLC
PhosAgro–Don, LLC
PhosAgro–Kuban, LLC
PhosAgro–Kursk, LLC
PhosAgro–Lipetsk, LLC
PhosAgro–Oryol, LLC
PhosAgro–Stavropol, LLC
PhosAgro–Volga, LLC
PhosAgro–SeveroZapad, LLC
PhosAgro–Tambov, LLC
Trading house PhosAgro, LLC
Phosint Trading Limited
Phosagro Asia Pte Ltd
Phosint Limited
PhosAgro Trading SA
Country of
incorporation
31 December 2015
Effective ownership
(rounded)
31 December 2014
Effective ownership
(rounded)
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Cyprus
Singapore
Cyprus
Switzerland
100%
100%
100%
94%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
95%
97.6%
100%
100%
100%
94%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
74%
35 Events subsequent to the reporting date
In February 2016, dividends in the amount of RUB 8,159 million, approved by a meeting of shareholders in January 2016, were fully paid to
shareholders.
In March 2016, the Board of Directors proposed paying a dividend of RUB 57 per ordinary share. The total amount of proposed dividends was
RUB 7,382 million.
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Additional information
Shareholder
information
Share capital
PhosAgro’s authorized capital as of
December 31 2015 is RUB 323,750,000,
consisting of 129,500,000 ordinary shares
with a par value of RUB 2.5 per share.
Stock exchanges
Phosagro’s shares are traded on the A1
quotation list of the Mocow Exchange under
the symbol PHOR (ISIN: RU000A0JRKT8).
Global Depositary receipts (three GDRs
represent one share) are traded on the
Main Market of the London Stock Exchange
under the symbol PHOR:
Regulation S GDRS
CUSIP Number: 71922G209
ISIN: US71922G2093
Common Code: 065008939
SEDOL: 0B62QPJ1
RIC: PHOSq.L
Rule 144A GDRS
CUSIP Number: 71922G100
ISIN: US71922G1004
Common Code: 065008939
SEDOL: 0B5N6Z48
RIC: GBB5N6Z48.L
Citigroup Global Markets
Deutschland AG acts as the depositary
for the Company’s GDR Programme.
Shareholding structure
Shareholder structure of PhosAgro as of 31 December 2015
Number of shares
Share, %
Dubhe Holdings Limited
Fornido Holding Limited
Adorabella Limited
Dubberson Holdings Limited
Owl Nebula Enterprises Limited
Miles Ahead Management Limited
Chlodwig Enterprises Limited
Carranita Holdings Limited
Vindemiatrix Trading Limited
Vladimir Litvinenko
Evgenia Guryeva
Igor Antoshin
Other shareholders
Total
12,317,370
12,157,625
9,361,435
8,639,705
9,271,395
8,037,357
7,722,380
4,028,519
3,726,814
18,823,850
6,235,960
2,489,540
26,688,050
129,500,000
9.51
9.39
7.23
6.67
7.16
6.21
5.96
3.11
2.88
14.54
4.82
1.92
20.61
100.00
Other ownership information as of 31 December 2015
Based on information available to the Company the shares of Fornido Holding Limited,
Dubhe Holdings Limited, Chlodwig Enterprises Limited, Adorabella Limited, Miles Ahead
Management Limited and Owl Nebula Enterprises Limited are ultimately held on trust where
the economic beneficiaries are Mr. Andrey Guryev and members of his family. Based on
information available to the Company Mr. Igor Antoshin has the right to indirectly control 100%
of the votes on the voting shares of Dubberson Holdings Limited, Carranita Holdings Limited,
and Vindemiatrix Trading Limited.
Dividends
Dividends accrued
Dividends for 3Q 2015.
Source: Unallocated net
income as of 31.12.2014
Dividends for 2Q 2015.
Source: Unallocated net
income as of 31.12.2014
Dividends for 1Q 2015.
Source: Unallocated net
income as of 31.12.2014
Final dividends for 2014.
Source: Unallocated net
income as of 31.12.2014
Date of
adoption
of decision on
dividend
payment
Record date
GDR (RUB)
(RUB, mln)
Record date
Amount of
dividend
per ordinary
share/
GDR (RUB)
Amount of
accrued
dividends
(RUB, mln)
15/01/2016
26/01/2016
63/21
8,158.5
06/10/2015
17/10/2015
57/19
7,381.5
14/07/2015
25/07/2015
48/16
6,216.0
08/06/2015
19/06/2015
15/5
1,942.5
Dividends accrued in 2015 were paid in full.
On 22 March 2016, PhosAgro’s Board of
Directors recommended a final 2015 dividend
of RUB 57 per share (RUB 19 per depositary
receipt), or RUB 7.4 bln in total. If approved
by the Annual General Meeting of
Shareholders (the “AGM”), this will bring
PhosAgro’s payout ratio to 52% of net profit
adjusted for the unrealised foreign exchange
loss, demonstrating our commitment to
the Company’s dividend policy and to upholding
the promises made to shareholders during
the IPO and SPO.
Dividend taxation
In 2015, PhosAgro acted as a tax agent
when it paid out dividends to the accounts
of organisations that own shares as listed
in the Russian share register. The Company
calculated and withheld tax on those dividends
and remitted the amount of tax to the relevant
authorities. Dividends paid out to shareholders
were net of the amount of the tax deducted.
The withholding tax rate depends on the status
of the shareholder, in accordance with the
information that the shareholder provides.
PhosAgro also took into account any double
taxation treaties and, where appropriate, made
tax payments in accordance with the provisions
of the relevant treaty.
Due to changes in Russian Federation law
relating to the payment of dividends that
came into effect on 1 January 2015, existing or
potential PhosAgro shareholders and holders
of the Company’s GDRs are advised to consult
their tax advisers for tax implications with
regards to dividend payments.
Information disclosure
PhosAgro strictly follows the requirements
imposed by Russian securities regulations,
as well as rules for the companies traded
on the LSE, in its information disclosure
and filings. The Company publicly discloses
all required information to shareholders
and investors in a timely manner through
authorised newswires and the corporate
website www.phosagro.com.
Share performance in 2015
PhosAgro GDR performance on the LSE
GDR price, USD/GDR
Trading volume, USD mln
16
14
12
10
8
6
4
2
0
50
40
30
20
10
0
5
1
n
a
J
5
1
b
e
F
5
1
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M
5
1
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A
5
1
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a
M
5
1
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u
J
5
1
l
u
J
5
1
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u
A
5
1
p
e
S
5
1
t
c
O
5
1
v
o
N
5
1
c
e
D
Trading volume, USD mn
GDR price, USD/GDR
Phosagro ordinary share performance on the Moscow Exchange
Ordinary share price, RUB/share
Trading volume, RUB mln
3,500
3,000
2,500
2,000
1,500
1,000
500
0
100
80
60
40
20
0
5
1
n
a
J
5
1
b
e
F
5
1
r
a
M
5
1
r
p
A
5
1
y
a
M
5
1
n
u
J
5
1
l
u
J
5
1
g
u
A
5
1
p
e
S
5
1
t
c
O
5
1
v
o
N
5
1
c
e
D
Trading volume, RUB mn
Ordinary share price, RUB/share
Market transactions (Source: Bloomberg)
LSE
(GDR, USD)
Moscow Exchange
(shares, RUB)
High
Low
Year–end price
Trading volume (million pcs.)
14.75
9.5
12.85
65.4
2,980
1,776
2,821
1.9
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Glossary
ABBREVATIONS
ABBREVATIONS
GDR or depositary receipt
Global Depositary Receipt
bln
Billion
km
Kilometres
kt
Thousand metric tonnes
mln
Million
mln t
Million tonnes
MW
Megawatt
RUB
Russian Rouble
t
Metric tonne = 1000 kg
ths
Thousand
CFR
Cost and Freight – an Incoterms rule.
CFR means that the seller must pay the
costs and freight to bring the goods to the port
of destination, including customs costs for
exporting the goods. The buyer pays to insure
the goods. Risk is transferred to the buyer once
the goods are loaded on the vessel. Maritime
transport only.
FOB
Free on Board – an Incoterms rule. The seller
must load the goods on board the vessel
nominated by the buyer; costs for delivery
of the goods on board the vessel are the
responsibility of the seller.
USD
United States dollars
Ammonia
A colourless combustible gas with the
chemical formula NH3. Ammonia is a
compound of nitrogen and hydrogen, and is
primarily used in the production of mineral
fertilizers and a wide variety of nitrogen–
containing organic and inorganic chemicals.
Ammonium nitrate or AN
A nitrogen fertilizer with a nitrogen content
of approximately 34%, produced by reacting
nitric acid (an intermediate chemical feedstock
produced from ammonia) with ammonia (AN).
NP
(Ammonium nitrate–based fertilizers)
Complex ammonium nitrate–based fertilizer
with phosphorus content. Liquid complex
fertilizers or APP Liquid phosphate– and
nitrogenbased fertilizer.
Apatite
A group of phosphate minerals (phosphate
ore), usually referring to hydroxylapatite,
fluorapatite, and chlorapatite with the chemical
formula Ca5(PO4)3(OH,F,Cl). Apatite is the
world’s major source of phosphorus, found as
variously coloured, glassy crystals, masses,
or nodules. The phosphorus content of apatite
is traditionally expressed as phosphorus
pentoxide (P2O5).
Apatite–nepheline ore
Ore containing minerals of apatite and
nepheline.
By–product
Material, other than the principal product,
that is generated as a consequence of an
industrial process.
Concentrate
Material that is the result of beneficiation of
an ore and which has a higher concentration
of mineral values than the mineral values
originally contained in the ore. Concentrates
are produced in beneficiation plants.
Crushing
A mechanical method of reducing the
size of rock.
Deposit
An area of reserves identified by surface
mapping, drilling or development.
Diammonium phosphate or DAP
A type of multi–nutrient fertilizer containing
nitrogen and phosphorous. Production of
DAP is based on the neutralisation of
phosphoric acid by ammonia with subsequent
drying and granulating.
Downstream
The processing of apatite concentrate,
natural gas, sulphur and potash into usable
products such as mineral fertilizer, industrial
and feed phosphates.
Drillhole
A circular hole made in rock, often in
conjunction with a core barrel, in order
to obtain a core sample.
EBITDA
Calculated as operating profit adjusted for
depreciation and amortisation.
Emission
Pollution discharged into the atmosphere
from smokestacks, other vents at commercial
or industrial facilities and from transportation
exhaust systems.
End product
Commercial product other than those used
internally to produce other types of commercial
products. For PhosAgro, end products
are phosphate–based fertilizers, nitrogen
fertilizers, feed and industrial phosphates,
and sulphate of potash.
Exploration
The search for minerals. Prospecting,
sampling, mapping, diamond drilling and other
work involved in the search for mineralisation.
Feed phosphates
Inorganic feed phosphates are a high
quality phosphorus source for animal feed.
Most inorganic feed phosphates are derived
from phosphate rock, which is chemically
treated to make phosphorus available for
animals in the form of quality feed phosphates.
The main inorganic feed phosphates are
calcium, magnesium, calcium–magnesium,
ammonium and sodium phosphates.
These phosphates are constant in
composition, low in impurities and considered
to be the best available sources of phosphorus
for animals. An adequate supply of inorganic
feed phosphates in animal feed is essential
for animals’ well–being.
Grade of mineral fertilizer
The relative quality or percentage content
of useful components.
Key performance indicator (KPI)
Performance indicators of a division (company)
that help the Company to evaluate the
implementation of plans and make decisions
regarding management remuneration.
K2O
Universal means of storage of potassium
(potash) in potassium-containing products.
MER or ‘minor element ratio’
The sum of the iron, aluminium and
magnesium content divided by the P2O5
content.
Monoammonium phosphate or MAP
A type of multi–nutrient fertilizer containing
nitrogen and phosphorous. Production of
MAP is based on the neutralisation of
phosphoric acid by ammonia with subsequent
drying and granulating. Monoammonium
phosphate is often used in the blending of
dry agricultural fertilizers.
Monocalcium phosphate or MCP
A type of feed phosphate with the highest
phosphorus digestibility and content.
Nepheline
A mineral containing aluminium oxide (Al2O3).
Netback price
Revenue net of costs associated with shipping
good from the production site to the buyer.
Nitrogen or N
One of the primary plant nutrients essential
for plant growth and a universal way of storing
nitrogen in nitrogen–containing products.
NPK
A multi–nutrient fertilizer containing nitrogen,
phosphorus and potassium.
NPS
A multi–nutrient fertilizer containing nitrogen,
phosphorous and sulphur.
Open–pit mine
A mine working or excavation that is open to
the surface and where material is not put back
into the mined out areas.
Phosphate rock
Phosphate rock (apatite concentrate or
phosphorus concentrate) is an imprecise term
that includes both unprocessed phosphorus–
containing ore and beneficiated concentrates.
Practically all production of phosphate
fertilizers is based on phosphate rocks
containing some form of the mineral apatite.
Phosphates
A salt or ester of phosphoric acid or a fertilizer
containing phosphorus compounds.
PKS
A multi–nutrient fertilizers containing
phosphorous, potassium and sulphur.
Potash or K
One of the primary plant nutrients essential
for plant growth.
Rare earth elements/resources
A group of 15 elements with atomic numbers
ranging from 57 to 71: lanthanum; cerium;
praseodymium; neodymium; promethium;
samarium; europium; gadolinium; terbium;
dysprosium; holmium; erbium; thulium;
ytterbium and lutetium.
Sedimentary
Formed by the deposition of solid fragmental
material that originates from the weathering
of rocks and is transported from a source to
a site of deposition.
Shaft
A mine–working (usually vertical) used to
transport miners, supplies, ore or capping.
Sulphate of potash or SOP
A non–chloride potash fertilizer.
Sulphuric acid
A strong sulphur–based inorganic mineral acid
with the chemical formula H2SO4.
Tailing
The fluid slurry that is left after treatment
and extraction of the economically extracted
mineral.
Phosphoric acid
Mineral (inorganic) acid having the chemical
formula H3PO4.
Trenches
Lines excavated to a pre–determined depth to
establish the geological structure of a deposit.
P2O5 (phosphoric pentoxide)
A term used to express the content of
phosphorus in a substance.
Phosphorous or P
One of the primary plant nutrients essential
for plant growth.
Urea
An organic compound of carbon, nitrogen,
oxygen and hydrogen. It is the most widely
used and highestconcentration nitrogen–based
fertilizer formed by reacting ammonia with
carbon dioxide at a high pressure.
Waste
Rock lacking sufficient grade and/or other
characteristics of ore to be economic.
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Glossary continued
Names of legal entities
used in this report
IFA
International Fertilizer Association, France.
ISO
International Organization for Standardization,
the world’s largest standards development
organisation. Between 1947 and the present
day, ISO has published more than 19,000
International Standards, ranging from
standards for activities such as agriculture and
construction, through mechanical engineering
and medical devices, to the newest information
technology developments.
LSE
London Stock Exchange.
Moscow Exchange
Russian stock exchanges, MICEX and RTS,
were merged into one entity MICEX–RTS in
December 2011 and rebranded as the Moscow
Exchange in May 2012.
Risk assessment
Qualitative and quantitative evaluation carried
out in an effort to define the risk posed to
human health or the environment by the
presence or potential presence and use of
specific pollutants.
Upstream
Extraction of solid, liquid and gaseous
resources from the earth using specialised
equipment.
Waste water
Spent or used water from individual homes,
communities, farms, or industries that
contains dissolved or suspended matter.
OTHER TERMS
Basel Convention
The Basel Convention on the Control of
Transboundary Movements of Hazardous
Wastes and their Disposal was adopted
on 22 March 1989 by the Conference of
Plenipotentiaries in Basel, Switzerland.
The overarching objective of the Basel
Convention is to protect human health and
the environment against the adverse effects
of hazardous wastes. Its scope of application
covers a wide range of wastes defined as
‘hazardous wastes’ based on their origin
and/or composition and their characteristics,
as well as two types of wastes defined as
‘other wastes’ – household waste and
incinerator ash.
The Department for Environment, Food and
Rural Affairs (Defra)
Defra is the government department
responsible for environmental protection,
food production and standards, agriculture,
fisheries and rural communities in the
United Kingdom.
The International Plant Nutrition Institute
(IPNI)
IPNI is a global organization with initiatives
addressing the world’s growing need for food,
fuel, fiber and feed.
Environmental assessment
A process where the breadth, depth, and type
of analysis depend on the proposed project.
EA evaluates a project’s potential
environmental risks and impacts in its
area of influence, and identifies ways to
improve project design and implementation
by preventing, minimising, mitigating, or
compensating for adverse environmental
impacts and by enhancing positive impacts.
FAO
Food and Agriculture Organization of the
United Nations.
Feasibility study
A comprehensive engineering estimate of all
costs, revenues, equipment requirements and
production levels likely to be achieved if a mine
is developed. The study is used to define the
technical and economic viability of a project
and to support the search for project financing.
Fertecon/Argus–FMB/CRU
Fertilizer Economic Market Analysis and
Consultancy, UK.
Group/Company/PhosAgro
Refers collectively to OJSC PhosAgro
and its subsidiaries.
Helsinki Convention
The Helsinki Convention was signed in 1974
by the then seven Baltic coastal states,
and made all the sources of pollution around
an entire sea subject to a single convention.
The 1974 Convention entered into force on
3 May 1980. A new convention was signed
in 1992 by all the states bordering on the
Baltic Sea, and the European Community
in light of political changes, and developments
in international environmental and maritime
law. After ratification the Convention entered
into force on 17 January 2000. The Convention
covers the whole of the Baltic Sea area,
including inland waters as well as the water
of the sea itself and the sea–bed. Measures
are also taken in the whole catchment area of
the Baltic Sea to reduce land–based pollution.
OJSC PhosAgro
PhosAgro
OJSC PhosAgro–Cherepovets/
JSC PhosAgro–Cherepovets
PhosAgro–Cherepovets
OJSC Apatit/JSC Apatit
Apatit
Balakovo branch of JSC Apatit/
Balakovo Branch of Apatit or BMF
CSJC Metachem
Metachem
OJSC NIUIF
NIUIF
PhosAgro–Trans LLC
PhosAgro–Trans
PhosAgro–Region LLC
PhosAgro–Region
Mining and Chemical Engineering LLC
Mining and Chemical Engineering or MCE
Smart Bulk Terminal LLC
Smart Bulk Terminal
Phosagro Asia Pte Ltd
Phosagro Asia
Phosint Trading Limited
Phosint Trading
The information on mineral resources presented in
this Report has been produced in accordance with
the Subsoil Law, the Orders of the Ministry of Natural
Resources and Environment of the Russian Federation
No. 40 “On the Adoption of a Classification System for
Mineral Reserves” dated 7 March 1997 and No. 278
“On the Adoption of a Classification System for Reserves
and Inferred Resources in Deposits of Solid Minerals”
dated 11 December 2011 and the Decree of the Ministry
of Natural Resources and Environment of the Russian
Federation No. 37–r “On the Adoption of Methodological
Guidelines for the Application of the lassification System
for Reserves and Inferred Resources in Deposits of
Solid Minerals” dated 5 June 2007.
The information in this Report relating to mineral
resources as at 1 January 2015 is based on information
compiled by the Geology Service Department of Apatit
and authorised by Mr. Sergey Glubokiy, Chief Geologist
of Apatit.
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Contacts
Investor Relations
Director for Corporate Finance
and Investor Relations
Irina Evstigneeva
Tel: +7 (495) 231–31–15
Email: ir@phosagro.ru
PhosAgro Legal Address
55/1, bldg. 1,
Leninsky Prospekt,
Moscow
119333, Russia
Tel: +7 495 232–96–89
Fax: +7 495 956–19–02
Depositary
Citigroup Global Markets
Deutschland AG
Frankfurter Welle
Reuterweg 16
60323 Frankfurt
Auditor
JSC KPMG
Naberezhnaya Tower Complex,
10 Presnenskaya Naberezhnaya
Moscow 123317, Russia
Tel: +7 495 937 4477
Fax: +7 495 937 4400/99
Web: www.kpmg.ru
Registrar
OJSC Reestr
3, bldg. 2, Zubovskaya Ploschad,
Moscow 119021, Russia
Tel: +7 495 617 01 01
Fax: +7 495 680 80 01
E–mail: reestr@aoreestr.ru
Web: www.aoreestr.ru
Contacts for employees
and potential employees
Head of Personnel evaluation
and development
Diana Sidelnikova
Tel: +7 (820) 259–31–13
Email: dsidelnikova@phosagro.ru
Contacts for media
Director of Information Policy
Andrey Podkopalov
Tel: +7 (495) 232–96–89, ext. 26–51
Head of Information Policy Division
Press Secretary
Timur Belov
Tel: +7 (495) 232–96–89, ext. 26–52
Email: pr@phosagro.ru
International PR Adviser
Sam VanDerlip
Mobile (UK): +44 7554 993 032
Tel (Russia): +7 (499) 918–31–34
Email: vanderlip@em-comms.com
Sustainability contacts
Alexander Karpukhin
Tel: +7 (495) 231–27–47, ext. 26–36
Email: akarpukhin@phosagro.ru
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PhosAgro Integrated Report 2015PhosAgro Integrated Report 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIALSADDITIONAL INFORMATION