PhosAgro
Annual Report 2019

Plain-text annual report

NATURE AND AGRICULTURE: FLOURISHING TOGETHER 9 1 0 2 t r o p e r d e t a r g e t n I 102-1 102-5 102-45 102-56 ABOUT THIS REPORT The 2019 integrated Annual Report of PJSC PhosAgro (the Company, PhosAgro) provides insight into the performance of parent company PhosAgro and its subsidiaries (jointly referred to as “PhosAgro Group” or the “Group”). The key subsidiaries of the Group and PhosAgro’s stake in these subsidiaries are presented in the Company’s 2019 IFRS consolidated financial statements. The report highlights how we integrate ESG principles into everything we do. In the reporting year, the Company approved sustainable development as a key strategic priority. The Board of Directors established a dedicated committee to strengthen PhosAgro’s leadership in both sustainability and corporate governance. To ensure compliance with the materiality principle and comparability with historical data, the Sustainability Report section discloses data on Apatit, including its branches and standalone business units, only. The disclosure does not include information on other companies that are part of the group to which Apatit and PhosAgro belong. The report was pre-approved by PhosAgro’s Board of Directors on 20 February 2020 (Minutes dated 21 February 2020) and the Annual General Shareholders’ Meeting on _______________ (Minutes dated _______________). JSC KPMG audited the financial statements, whilу JSC Deloitte and Touche CIS provided limited assurance in relation to the sustainability data. Chief Executive Officer and Chairman of the Management Board 3 2 CONTENTS ABOUT THIS REPORT 2 COMPANY PROFILE 4 Our key advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Our business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Our performance highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Case study navigator on UN SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 STRATEGIC REPORT 20 Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 CEO’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Business environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Sustainable growth opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Fertilizer Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Strategy 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 BUSINESS REVIEW 62 Operational review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SUSTAINABILITY REPORT 76 Management approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Environmental review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Health and safety review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 People development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Social investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Stakeholder engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Supply chain and procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 CORPORATE GOVERNANCE 154 Corporate governance framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Executive Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Corporate controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 SHAREHOLDER AND INVESTOR INFORMATION MANAGEMENT RESPONSIBILITY STATEMENT 188 193 STATEMENTS FINANCIAL 194 KPMG Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 ADDITIONAL INFORMATION 240 GRI Content Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 Independent assurance report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 Appendix 1. Appendix 2. Report on Compliance with the Principles and Recommendations of the Corporate Governance Code The information regarding interested-party transactions made by the Company in 2019 Annual Report | 20195 4 PHOSAGRO IS THE LARGEST SUPPLIER OF MINERAL FERTILIZERS IN THE RUSSIAN MARKET The Group’s principal activity is the production of phosphate rock and mineral fertilizers at plants located in the cities of Kirovsk (Murmansk Region), Cherepovets (Vologda Region), Balakovo (Saratov Region) and Volkhov (Leningrad Region) and their distribution in Russia and abroad . Our parent company, PJSC PhosAgro, was incorporated in October 2001 . The Group’s operations are primarily located in Russia and as such are exposed to the Russian domestic economy and financial markets. With the benefits of our production chain, we are able to switch up to 50% of our phosphate production from DAP/MAP to NPK, depending on the market situation. Relying on a flexible sales model, PhosAgro readily meets demand for environmentally friendly and safe fertilizers from farmers around the world . 102-2 E L I F O R P Y N A P M O C Company profileAnnual Report | 2019 COMPANY PROFILE 39,552,663 (30.55%) Other shareholders OWNERSHIP STRUCTURE (Number of shares) PHOSAGRO’S CREDIT RATINGS Standard & Poor’s Moody’s BBB- Outlook: Stable Affirmation date: 21 February 202 0 Baa3 Outlook: Stable Assignment date: 28 January 2018 32,176,662 (24.85%) Adorabella Limited1 24,359,900 (18.81%) Chlodwig Enterprises Limited1 27,174,815 (20.98%) Vladimir Litvinenko 6,235,960 (4.82%) Evgeniya Guryeva1 1 . 48 .47% — the shares of Evgeniya Guryeva, and shares of Adorabella Limited and Chlodwig Enterprises Limited which were transferred to trusts where the economic beneficiaries are Andrey Guryev and members of his family 7 6 Fitch BBB- Outlook: Stable Assignment date: 9 February 2018 SHARES Ticker PHOR PhosAgro’s shares and global depositary receipts (GDRs) are traded on the Moscow Exchange and the London Stock Exchange, respectively. The Company’s GDRs have been included in the MSCI Russia (weight: 0.61%) and MSCI Emerging Markets indexes. BONDS Borrower: PJSC PhosAgro Issuer: PhosAgro Bond Funding Limited Settlement date: 3 May 2017 Principal outstanding, USD: 500,000,000 Guarantors: Apatit, PhosAgro-Cherepovets Borrower: PJSC PhosAgro Issuer: PhosAgro Bond Funding Limited Settlement date: 24 January 2018 Principal outstanding, USD: 500,000,000 Guarantors: Apatit Company profileAnnual Report | 2019OUR KEY ADVANTAGES 102-2 102-4 102-6 PhosAgro operates mining and processing assets and boasts its own logistics infrastructure, including two port terminals, along with Russia’s biggest distribution network for mineral fertilizers and feed phosphates. It runs Russia’s only Scientific Research Institute for Fertilizers and Insectofungicides (NIUIF). 67 regions across Russia, supplies to over 100 countries POLAND GERMANY FRANCE SWITZERLAND SERBIA KIROVSK VOLKHOV CHEREPOVETS LITHUANIA MOSCOW NIZHNY NOVGOROD OREL KURSK TAMBOV LIPETSK BELGOROD BALAKOVO ROSTOV-ON-DON KRASNODAR STAVROPOL CYPRUS Summer Schools on Green Chemistry A joint project with the IUPAC to support scholars from emerging economies. In 2019, PhosAgro and the University of Dar es Salaam (Tanzania) held sessions for participants from over 40 countries. International research to improve the efficiency of mineral fertilizers Collaboration with universities: University of Milan, Adam Mickiewicz University in Poznań, Wageningen University & Research, and Rothamsted Research. The research outcomes are shared with farmers from Brazil, Serbia, Poland, Lithuania, Latvia, Estonia, Russia, France, Germany, Italy and other countries. PhosAgro has its own sales offices in Germany, France, Switzerland, Serbia, Poland, Lithuania, Cyprus, Brazil, Argentina and Singapore. 9 8 UNIQUE RESOURCE BASE A unique resource base with a mine life of around 60 years Lowest content of cadmium (below 1 mg / kg P2O5) and other heavy metals as compared to apatite deposits elsewhere Closest peers by the lowest cadmium content (mg Cd / kg P2O5) >60 >60 >60 40-60 >60 >60 <1 PhosAgro (10 mtpa) <20 <20 <2 <5 Foskor (2.0 mtpa) Kropz (1.5 mtpa) <1 >60 The initial limitations on the supply of fertilizers with a cadmium content above 60 mg/kg (adopted by the EU Regulation on 21 May 2019, effective from 2022) are estimated to impact 12–15% of the European imports, with further limitations to 40 mg/kg (possible in 2029) affecting as much as 20–30%. High-grade phosphate rock with a P2O5 content of 39% or higher Self-sufficiency in major inputs: 100% in phosphate rock, 90% in ammonia and 90% in sulphuric acid One of the highest gross margins in the phosphate segment EBITDA margin, % PhosAgro Closest peers 9 15 10 30 32 25 27 25 31 23 20 20 20 50 OUR GLOBAL OPERATIONS PhosAgro is the largest supplier of DAP/MAP and NPK fertilizers in Russia, with a developed domestic sales network and trading offices in all key export markets. It enjoys a strong market position in the premium European market and relies on a netback-driven sales model with a global presence. MANAGEMENT COMPANIES PhosAgro (Moscow) PhosAgro-Region (Moscow) MINING, PHOSPHATE ROCK PROCESSING AND PRODUCTION OPERATIONS Apatit (Cherepovets) and its branches in: • Balakovo • Volkhov • Kirovsk R&D NIUIF (Cherepovets) DISTRIBUTION PhosAgro-Belgorod (Belgorod) PhosAgro-Don (Rostov-on-Don) PhosAgro-Kuban (Krasnodar) PhosAgro-Kursk (Kursk) PhosAgro-Lipetsk (Lipetsk) PhosAgro-Orel (Orel) PhosAgro-Stavropol (Stavropol) PhosAgro-Volga (Nizhny Novgorod) PhosAgro-SeveroZapad (Cherepovets) PhosAgro-Tambov (Tambov) Trading House PhosAgro (Cherepovets) Phosint Trading Limited (Cyprus) Phosint Limited (Cyprus) Phosagro Asia Pte Ltd (Singapore) PhosAgro Trading SA (Switzerland) PhosAgro Logistics SA (Switzerland) Phosagro Polska Sp.z o.o. (Poland) Phosagro Deutschland GmbH (Germany) Phosagro France SAS (France) PhosAgro Balkans DOO (Serbia) UAB PhosAgro Baltic (Lithuania) SINGAPORE 2018 2019 Company profileAnnual Report | 2019HIGH QUALITY STANDARDS The Group’s production facilities have ISO 9001:2015, ISO 14001:2015, OHSAS 18001, and GMP+ certifications that attest to the high quality of our products and management efficiency throughout their life cycle. Products exported to EU customers have been registered pursuant to Regulation (EC) No. 1907/2006 concerning the Registration, Evaluation and Authorisation of Chemicals (REACH). PhosAgro successfully passed a certification audit for compliance with the IFA (International Fertilizer Association) Protect and Sustain standard conducted by SGS, the world’s leading inspection, verification, testing and certification company. The Company’s processing facilities meet the standards of the best available techniques. NEW AMMONIA FACILITY A new ammonia facility with a capacity of 760 ktpa and a granulated urea production unit of 500 ktpa were launched in 2018. The new facilities meet the best available techniques criteria laid out in the Russian Reference Document ITS 2-2015 “Production of Ammonia, Mineral Fertilizers and Inorganic Acids”. Ammonia is produced using an air-cooled process media technology, which minimises water consumption, significantly reducing discharges from the circulation cooling system. State-of-the-art technology of air pre- heating before primary reforming means lower natural gas consumption and air emissions, including greenhouse gases. The new technology for granulated urea production involves the processing of carbon dioxide associated with the conversion of natural gas as part of ammonia production. This makes natural gas a complex feedstock, with hydrogen and carbon used in ammonia and urea production, respectively. Deeper processing of mineral feedstock results in lower carbon dioxide emissions. 11 10 SMART FERTILIZERS The Company works to make sustainable agriculture a reality by enhancing fertilizer production methods, improving properties and developing new grades of fertilizers, as well as taking part in a number of international initiatives: 1 2 3 4 5 Moving from single products to integrated mineral plant nutrition solutions, which combine several types of fertilizers, including bioadditives, in certain dosages that meet specific soil and climate conditions and crop yield targets. The nutrition systems are tested at numerous field trial stations featuring different soil and climate conditions in cooperation with the leading agricultural education and research institutions. Samoilov Scientific Research Institute for Fertilizers and Insectofungicides is part of PhosAgro Group. It develops new fertilizer production technologies and formulas with prolonged effect, as well as slow- and controlled-release fertilizers that can release nutrients at particular phases in line with plant demand. Opening the Innovation Centre in 2019 to identify promising development areas and attract external partners such as educational and research organisations, accelerators and innovation parks. The Centre focuses on the projects to produce special purpose fertilizers, biostimulants and growth improving additives. Developing the Soil Doctor Testing Kit to be distributed in the countries participating in the programme (5,000 farmers). Supporting the Global Soil Laboratories Networks (GLOSOLAN) by developing research capacities and strengthening the Regional Soil Laboratories Networks (RESOLAN). Introducing quality and safety controls across key regional soil laboratories with a focus on fertilizer quality and safety. WELL-BALANCED CORPORATE GOVERNANCE Transparent ownership structure with over 30% of shares in free float. Seven (70%) independent non-executive directors on the Board of Directors. Six Board committees meeting on a regular basis with five of them chaired by independent directors. In 2019, PhosAgro’s Board of Directors established a Sustainable Development Committee at the initiative of Andrey Guryev, CEO, unanimously approving Irina Bokova, an independent director, as the head of the committee. As the Director-General of UNESCO (2009–2017), she participated in the development of the UN Agenda for Sustainable Development, so her highest level of expertise will be a valuable asset helping PhosAgro meet its strategic goals. Company profileAnnual Report | 2019UPSTREAM BENEFICIATION Company profile 13 12 Average P2O5 content 14.77% Harmful impurities (the lowest compared to apatite deposits elsewhere) < 1 mg Cd / kg P2O5 Apatite-nepheline ore extracted +7.9% 38.1 mln t Recovery rate for phosphate rock 91.6% Production of phosphate rock (P2O5 content over 39%) 10.5 mln t +3.9 Nepheline concentrate produced 1.2 mln t +22% ORE RESERVES Reserves (caterories A + B + C1) of high-quality apatite- nepheline ore from igneous rock deposits 1,899 mln t Reserves life (at current extraction rates) >50 years 102-7 103 OUR BUSINESS MODEL PhosAgro is a vertically integrated Russian company with assets spanning the entire phosphate-based and nitogen fertilizer production chain, from mining to sales. Self-sufficient in premium quality phosphate rock containing almost no harmful impurities, the Company is uniquely positioned to produce some of the world’s finest and purest mineral fertilizers. The Group has two strategic business units (segments). PHOSPHATE SEGMENT The segment focuses mainly on the production and distribution of ammophos, diammonium phosphate, sodium tripolyphosphate and other phosphate-based and complex fertilizers at the sites located in Cherepovets, Balakovo and Volkhov, and production and distribution of phosphate rock extracted from the apatite-nepheline ore mined and processed in Kirovsk . NITROGEN SEGMENT The segment engages mainly in the production and distribution of ammonia, ammonium nitrate and urea at the site located in Cherepovets . PROCUREMENT Cost of annual potash consumption Cost of annual sulphur consumption Cost of annual natural gas consumption 13.7 RUB bln 8.1 RUB bln 12.6 RUB bln S E L A S D N A N O I T U B I R T S I D 3.2 +10.0% 2.8 +4.2% M A E R T S N W O D PHOSPHATE-BASED PRODUCTS Phosphate rock 70.5% intra-group sales Phosphate-based fertilizers Production volume 7.3 mln t 0.6 +53.6% 0.2 −10.4% 0.4 +3.3% 0.1 +38.9% DAP/MAP NPK NPS APP MCP PKS 3.2 +6.9% 2.8 −1.0% NITROGEN-BASED PRODUCTS Ammonium nitrate (AN) 0.6 mln t Urea 1.7 mln t Ammonia 1.9 mln t +6.3% +5.9% +3.4% Gross profit margin 45% 11.3% domestic sales 18.0% export sales Sales volume 7.3 mln t +45.4% 0.6 −5.3% 0.2 0.4 +8.7% 0.08 +6.9% Nepheline concentrate 1.2 mln t Phosphate rock 3.3 mln t 0.5 mln t 1.7 mln t +21.0% +9.9% −14.9% +5.7% OTHER PRODUCTS 0.2 mln t +1.8% REVENUE 248.1 Total RUB bln Domestic market Overseas market 66.0 201.2 RUB bln 135.2 6.8 31.1 37.9 RUB bln 7.9 1.1 9.0 RUB bln S R E D L O H E K A T S INVESTMENT AND FINANCE COMMUNITY Dividends 24.9 RUB bln REGIONAL AND MUNICIPAL AUTHORITIES Regional and municipal budgets 13.6 RUB bln EMPLOYEES Social benefits package 94.3 RUB thousand Average salary 87.2 RUB thousand Training expenses per employee 21.7 RUB thousand COMMUNITY Investment in regional development and charity programmes 2.9 RUB bln BUSINESS PARTNERS Procurement 90.2 RUB bln Local procurement 18.7 RUB bln 102-7 102-13 OUR PERFORMANCE HIGHLIGHTS FINANCIAL HIGHLIGHTS The lowest leverage among global and domestic peers. One of the lowest DAP cash-cost producers globally and in the first quartile for urea production. Net debt/EBITDA ratio Global MAP/DAP prices vs current production costs 2019 2018 3,7x 1,7х 1,8х 3,0x 0 2 1 PhosAgro Industry average 3 4 B O F , т / D S U 600 400 200 0 310+ 290 195 0 5 10 15 20 35 DAP/MAP production, mt 25 30 40 45 50 55 RUB mln Revenue Sales profit Net profit Net profit, excl. FX effects EBITDA DAP, FOB Tampa 2013 2019 PhosAgro 2017 2018 2019 181,351 233,312 248,125 35,989 25,331 21,190 50,796 53,997 22,135 41,748 74,908 51,651 49,408 37,062 75,582 OPERATING HIGHLIGHTS Strict cost control and operational efficiency improvements to drive lower costs going forward through the following initiatives: −1.3 RUB bln < CAPEX 2020 Reducing in-house logistics costs Streamlining the Company’s spending on repairs and maintenance Assessing the impact of rescheduled facility commissioning on performance indicators +1.63% −50 thousand tons Increasing phosphate rock output by stabilising key equipment utilisation rates Reducing end-to- end phosphate rock losses in the production of mineral fertilizers Reducing unscheduled equipment downtime in the production of mineral fertilizers Стратегический отчет 17 16 ENVIRONMENT Material investments into environmental programmes +9.4% 9.1 RUB bln Unit emissions 0.888 kg/t Unit effluents −22% 4.7 m3/t −15% Share of recycled hazard class 1–4 waste 34.5% +7.7% STAFF (Apatit, including its branches and standalone business units, only) Average headcount 10,882 Turnover 7.3% Engagement 57% LTIFR (per 1 mln hours worked) 0.75 REGIONS Expenditures on charitable and social projects 1.5 RUB bln One of the largest taxpayers in the regions of our operation (taxes paid in 2019) 13.6 RUB bln 102-13 CASE STUDY NAVIGATOR ON UN SDGs The Sustainable Development Committee of PhosAgro’s Board of Directors has evaluated the Company’s progress in achieving UN SDGs Page 84 Page 86 Page 88 Page 85 Page 87 Page 89 The Sustainable Development Committee assessed the Company’s performance on 10 out of 17 UN SDGs, which are the key drivers for ensuring environmental responsibility and preserving the planet for future generations . As a producer of safe and pure fertilizers with no harmful impurities, PhosAgro plays an important role in protecting consumer food safety, good health and well-being (SDG 3), and maintaining responsible production and consumption (SDG 12). Apart from its domestic market, PhosAgro supplies essential crop nutrients to farmers in more than 100 countries around the world, contributing to global food security and addressing the world hunger challenge (SDG 2). Our environmentally friendly fertilizers cause no harm to soils and prevent them from being degraded, which is one of the key obstacles to fighting hunger as 52% of farm soils are facing moderate or severe degradation . Moreover, PhosAgro became the first Russian company chosen by the Food and Agriculture Organisation of the United Nations (FAO) to run a global initiative for soil protection . We use a zero discharge production system at our facilities, which ensures that no waste water is discharged into natural bodies of water (SDG 6). The Company also strives to maximise recycling and the use of by-products (SDG 12). As a result of regular investment in R&D, production expansion and upgrade GREEN CLUB In 2019, PhosAgro spearheaded the creation of Green Club, an independent association of producers and suppliers of eco-friendly products that will be sold under the Green One national brand. The initiative will cover all parts of the agricultural and food production chain, including mineral fertilizer and crop protection segments, agricultural production and food industry and national retailers, and will be joined by the heads of the Standardisation Committee on Organic Agricultural Products, Feedstock and Food, the RSPP Agricultural Commission, industry associations and unions. During the Green Club meeting, its participants from the agrochemical industry, agricultural holdings, retail chains, unions and associations discussed the promotion of the Green One label both in Russia and globally. The Green One brand will establish a legal and regulatory framework for Russian agricultural, food, agrochemicals, pesticides and animal feed producers to highlight environmental advantages of their products and communicate them to consumers. The initiative will foster the use of high quality mineral fertilizers to produce sustainable agricultural products without additional costs. As part of this effort, PhosAgro initiated and all members of the Russian Association of Fertilizer Producers supported the adoption of ecolabels for Russian-made mineral fertilizers, first in kind in Russia. Environmentally safe Russian-made phosphate-based fertilizers, along with a variety of agricultural products, will be included in the national branded segment of products with improved environmental characteristics. The initiative contemplates potential harmonisation of Russian regulations with the global green regulations, including certification and labelling of Russian products based on modern European and international standards. The registered owner of the ecolabel logo is the Russian Association of Fertilizer Producers. Page 90 Page 92 Page 91 Page 93 in line with the best available techniques (RUB 180 bln over the past five years) and allocation of RUB 2.5 bln annually to back educational, healthcare, sports, youth and social programmes across its footprint, PhosAgro ensures decent working conditions and economic growth (SDG 8), supporting sustainable cities and communities (SDG 11) and quality education (SDG 4). Together with UNESCO and IUPAC, PhosAgro has initiated and run the Green Chemistry for Life grant programme for young scientists working in the field of chemistry. The programme supports innovation (SDG 9) and helps build partnerships to foster sustainable development (SDG 17). Finally, our key priorities include restoring and promoting sustainable use of terrestrial ecosystems (SDG 15). To this end, PhosAgro takes global-scale action, implementing a joint project on sustainable soil management with FAO and supporting its Global Soil Partnership . 102-12 102-13 GLOBAL RESEARCH AND EDUCATIONAL INITIATIVES Task 2.A Task 4.4 PhosAgro carries out joint agricultural research with leading Russian and foreign educational and research institutions (University of Milan, Adam Mickiewicz University in Poznań, Wageningen University and Rothamsted Research) to study the properties of mineral fertilizers and ways to make their use more efficient in order to produce enough healthy food for the planet’s growing population, preserve soil fertility and purity, boost yields and ensure stable agricultural production in a high-risk farming environment. The research results are used to provide recommendations for the efficient and safe application of mineral fertilizers. The Company shares them with farmers in Brazil, Serbia, Poland, Lithuania, Latvia, Estonia, Russia, France, Germany, Italy and other countries as part of joint meetings, presentations, demonstrations at local field days, exhibitions and international conferences on preservation of soil fertility, and through publications in industry and trade media and reports. The Company has built strong partnerships with mining universities in St Petersburg, Yekaterinburg, Magnitogorsk and Apatity, and chemistry universities in Ivanovo and Cherepovets based on bilateral agreements on internships, scholarships for the best students, and the High-Potential Graduates programme. As part of the PhosAgro College initiative, we provide targeted funding to technical colleges to enhance their research base (new equipment, educational programmes, VR capabilities, building renovations), establish incentives for teachers and students, offer career guidance to school students and promote enrollment in the Murmansk Arctic State University in Kirovsk and the Cherepovets College of Chemistry and Technology. Task 4.B In cooperation with the International Union of Pure and Applied Chemistry (IUPAC), PhosAgro supports the participation of young scientists from developing economies in Summer Schools on Green Chemistry. In 2018, 80 young scholars and 20 world-class teachers from 40 countries took part in the IUPAC Summer School at Ca’ Foscari University of Venice. In the same year, the Company provided scholarships to 15 young researches from developing economies. The project held its second Summer School on Green Chemistry on 12–19 May 2019 at the University of Dar es Salaam in Tanzania. Part of the Company’s contribution was used to fund grants to talented young scientists from Africa. Task 17.16 On 6 February 2019, PhosAgro joined the Global Compact Network Russia. Since January 2019, the Company has been taking part in the two platforms promoting responsible business and eliminating issues that arise when implementing the global goals – Business Reporting on the SDGs and Health is Everyone’s Business. In September 2019, PhosAgro was included in the LEAD, a group of Global Compact participants that have achieved the best results in corporate social responsibility. In order to support young scientists doing research in line with the 12 Princliples of Green Chemistry, PhosAgro implements the Green Chemistry for Life project in cooperation with UNESCO and IUPAC. The Company is also an active member of the Safer Phosphates alliance, whose mission is to share knowledge and address concerns about heavy metals that are present in some phosphate-based fertilizers. 19 18 PhosAgro’s international initiatives and programmes Company profileAnnual Report | 201921 20 GREEN BRAND OF RUSSIAN FERTILIZERS The exceptional purity of Russian fertilizers is the cornerstone on which the green brand is being built, ensuring environmental safety all the way through the value chain, from the feedstock and technologies used by Russian manufacturers to produce mineral fertilizers and application techniques to the sale of food products to end consumers. T R O P E R C I G E T A R T S Annual report | 2019Strategic report CHAIRMAN’S STATEMENT to supply everything from protective equipment, medical supplies, testing kits and other essentials to the communities where it operates . By acting early and decisively, I am hopeful that PhosAgro management has taken important steps that will minimise the potential impact of COVID-19 on its operations . In parallel to taking care of key stakeholders in local communities, PhosAgro is cooperating with Russian and international organisations, including the Russian Union of Industrialists and Entrepreneurs, the Russian Fertilizer Producer Association and the International Fertilizer Association to help ensure a coordinated response across Russian and global industry . This kind of cooperation is key to keeping supply chains running, especially for the crop nutrients that are essential to support continued food production worldwide . The Board and I commend the actions taken by the entire PhosAgro team in response to this situation, and we hope that the benefits will be felt by all of the company’s stakeholders . DEAR SHAREHOLDERS, PHOSAGRO’S RESPONSE TO COVID-19 NEW STRATEGIC PRIORITIES I am happy to announce that, in 2019, we reached a new chapter in the historical development of our Company . We approved our new strategy to 2025, which sets the course to further strengthen PhosAgro’s position as an industry leader in both operational and financial terms, and from the point of view of non-financial activities . Furthermore, the past year saw us celebrate record numbers across a range of indicators and make important changes at the level of the Board of Directions and corporate governance framework . In addition, we made a major contribution to food safety and human health around the globe . After the end of the reporting period, the COVID-19 virus has become a global pandemic that is still developing as I write this letter . I want to commend the rapid response and leadership of PhosAgro’s management in this situation . PhosAgro was one of the first companies in Russia to start introducing measures to combat the spread of the virus among its employees, and the Company has moved heaven and earth The strategy to 2025, approved by the Board in spring of 2019, seeks to further consolidate PhosAgro’s position as a producer of ecologically friendly, phosphate-based fertilizers boasting some of the lowest cash costs in the industry, as well as to step up the Company’s production capacities, and ensure the long-term sustainability of the Company’s business processes across the entire world . Both the Board of Directors and I are convinced that this strategy will fuel PhosAgro’s future growth. We believe it will create significant value for our shareholders, as well as other stakeholders, from employees to farmers using our fertilizers . 23 22 102-14 The strategy to 2025 assumes that the expansion of the production capacities, including production of fertilizers and feed phosphates, will grow by around a quarter, in comparison with 2018, reaching 11 .7 mt . The Company will continue to increase sales of fertilizers in the strategic Russian market, reaching 3 .7 mt . In Europe, sales will rise from 1 .9 mt in 2018 to 3 .1 mt in 2025 driven by Phosagro’s competitive strengths of environmentally safe fertilizers in the context of EU’s tightening cadmium regulations on fertilizers . Investments in capacity maintenance, development and upgrades will total nearly USD 3 bn by 2025 . The investments in our three key projects alone are expected to result in an EBITDA growth of approximately USD 200 m, boost FCF, and further increase our self-sufficiency in feedstock. CORPORATE GOVERNANCE IMPROVEMENTS PhosAgro’s corporate governance improvement strategy seeks to ensure that the interests of all our key stakeholders are represented . Since it became a public company, PhosAgro has adhered to high corporate governance and information transparency standards . The Company always ensures that the majority of directors on the Board are independent, Annual report | 2019Strategic report25 24 and, in the reporting year, we have taken a number of important steps to continue this policy. These changes have affected me personally, as I was elected to the position of the Chairman . It is a great honour for me to be elected to this position of responsibility, and I am proud to build on the work already done by the Board, and keep the pace set by my predecessor, Sven Ombudstvedt . The creation of the Sustainable Development Committee, headed by Irina Bokova, former Director- General of UNESCO, has been another important decision . In view of the Company’s role in supporting food security and its general commitments, this decision is both appropriate and timely . assessment . In the reporting year, we further analysed the extent to which the Company has implemented the recommendations of the UK Corporate Governance Code approved by the Financial Reporting Council in July 2018 . This analysis allowed the Board to conclude that, the Company’s current corporate governance structure fully meets the Company’s today’s needs and secures our shareholders’ capability to exercise their rights . The Company successfully completed its large-scale investment cycle and has reaped the rewards: record high operational and financial result once again indicate the effectiveness of the management team’s decisions . The Company also gained the opportunity to provide a high return on investment for PhosAgro investors . In Autumn 2019, the Board approved a new dividend policy, which, in line with best practices, takes into account the Company’s investment needs for future growth and pays attention to existing social and charitable commitments in the regions it operates in, and on the whole . In 2019, PhosAgro continued to streamline its corporate structure . In particular, Apatit was restructured by merging it with Metachem and PhosAgro-Trans . The Volkhov branch of Apatit was established at Metachem’s site and subdivisions of PhosAgro-Trans became part of the logistical units of Apatit . These transformations are aimed at further improving management efficiency and optimising business processes, thereby strengthening PhosAgro’s competitive position as a vertically integrated company . In addition, the management of Apatit, the Company’s largest subsidiary, has been optimised . Its management board has been dissolved, and it has improved transparency and reduced the time it takes to make important operational decisions . The Company’s commitment to best corporate governance practices is also demonstrated by the fact that the Board of Directors annually assesses compliance with the principles set out in the Corporate Governance Code by the Bank of Russia on 10 April 2014 . For more information on the implementation of these principles in 2019, see Appendix No . 1 of this report . It was reviewed and approved by the Board of Directors as a standalone report . For the criteria of corporate governance quality, which for some reason were not met or not fully met, the Board made a separate FOCUS ON SUSTAINABLE DEVELOPMENT The past year has been a confirmation of the increasingly careful attention consumers and state bodies from countries all across the world pay to the quality and safety of food products . PhosAgro’s products are used in more than 100 countries . For us, joining the UN Global Compact and taking the decision to actively contribute to the achievement of the 10 UN Sustainable Development Goals was therefore a logical step . Cadmium regulation is an important issue regarding the quality and safety of food products . During discussions in 2019, a number of strategic decisions were made in this area . The EU resolved to restrict the amount of cadmium in phosphate fertilizers continent-wide . This move was supported by the UN, which recommends that all countries follow the EU’s example . The policy will come into force in 2022 . These initiatives will stimulate mineral fertilizer producers from countries, where phosphate ore is low- quality and not eco-friendly, to use the feedstock purification technology. People both in the EU, and in the world as a whole will benefit from these restrictions . The high quality apatite-nepheline ore we use in fertilizer production will definitely help PhosAgro occupy an increasingly prominent position in the global market . The Company continued to tighten its partnerships with several international organisations, such as UNESCO, IUPAC and FAO . We have made progress on many joint programmes and projects, such as Green Chemistry for Life, a global soil partnership with the FAO . Another example is the sustainable soil management project IUPAC Summer School on Green Chemistry . These projects will be the cornerstone for future generations to make significant contributions to solving the most pressing global issues – food security, healthy lifestyles and people’s well-being . Last but not least, PhosAgro has become one of the main drivers behind the creation of the Green Standard . This initiative is expected to stimulate the production of eco-friendly Russian crops . The Company plans to make the Green Standard the universally recognised global standard . The Green Standard puts Russia at the forefront of a growing global movement advocating for eco-friendly food and global agricultural security to achieve the UN Sustainable Development Goals . As Chairman of the Board, I can say that we are very proud of the Company’s performance and its potential to create value for all of our stakeholders in the coming years . I believe that our results in 2019 prove that we are on the right track, and that our successful teamwork will help deliver impressive results going forward . Following a detailed review of the Company’s business and its financial position, taking into account the Company’s Strategy to 2025, the inherent risks in the industry and the steps taken by the Company to manage these risks, the Board of Directors has every reason to believe that the Company will, without any reservations, be able to continue its operations and meet all its obligations as they become due until at least 2025 . Xavier R. Rolet Chairman of the Board of Directors Annual report | 2019Strategic reportCEO’S STATEMENT 27 26 102-14 DEAR SHAREHOLDERS, PhosAgro is on track with its steady growth, unlocking its potential developed during our last investment cycle, and continuously improves production efficiency across all of its facilities . Vertical integration allows for a high level of self-sufficiency in terms of our key feedstock . As a result, PhosAgro has secured its status as one of the worldwide industry leaders . This has made us feel comfortable and confident during a period when many industry players were struggling to cope with low fertilizer prices on the global market . 2019 saw exceptional results across several areas: sustainable development, corporate governance, advances in strategic initiatives, solid operational and financial results . This impressive progress has allowed PhosAgro to pay dividends of RUB 24 .9 bn . SUSTAINABLE DEVELOPMENT: OUR STRATEGIC PRIORITY As worldwide attention is increasingly focused on the quality of food products, overall health of the planet, joint efforts to solve global challenges, and endeavours to bring about a sustainable future, the Company’s approach to the sustainability principles is becoming more consistent and structured . In this regard, 2019 was, without exaggeration, a breakthrough year for PhosAgro. The Company not only strengthened its expertise in this field, but also made significant progress towards solving global challenges and creating prosperity for future generations . At the beginning of the year, the Company approved its strategy to 2025, focusing on sustainable development as a key priority . Long-term goals are aligned with the strategy and harmonised with the interests of a wide range of stakeholders concerning HSE and community-related matters . The Board of Directors established the Sustainable Development Committee . This Committee will be chaired by Irina Bokova, the former Director-General of UNESCO . The appointment of a leader boasting such experience and expertise will help build up the Company’s sustainability and corporate governance capabilities . As one of the world’s leading mineral fertilizer producers, we recognise our responsibility to contribute to solving the most pressing issues facing both current and future generations, such as global food security . The logical next step for us was to join the UN Global Compact and contribute to the achievement of the 10 UN Sustainable Development Goals . In recent years, the Company has made consistent efforts to put the issue of environmental pollution by heavy metals, in particular cadmium, on the global agenda, and we succeeded . Last year, we achieved an important milestone – regulation of mineral fertilizers containing a high level of cadmium or other harmful impurities . In May 2019, the EU resolved to restrict the amount of cadmium in phosphate fertilizers continent- wide . This historic move was supported by the UN, which recommends that all countries follow the EU’s example . The policy will come into force in 2022 . The long-term consequences of this decision will echo throughout the world, and represent a considerable contribution to ensuring the health of current and future generations . PhosAgro, whose products meet the strictest ecological safety requirements, welcomes these decisions . The Company will continue to improve its product offering and share knowledge and experience with partners from other countries, who are involved in the global food production chain and committed to the sustainable and holistic development of our world . In addition, the Company is one of the key players developing and promoting the Green Standard in Russia . Eco-friendly agricultural products, which will include organic crops, food and mineral fertilizers, will subsequently be exported to international markets, providing high-quality food to the whole world . RECORD HIGH OPERATIONAL AND FINANCIAL RESULTS Driven by the strategy to 2020, the Company has consistently demonstrated record operational results in the challenging market environment . These results translate into strong financial performance and growing dividends for our shareholders . In terms of production, we have hit all of our targets: we increased output, cut costs and made further progress in improving our self-sufficiency in key raw materials . In 2019, fertilizer output stood at more than 9 .5 mt, precisely in line with the Company’s guidance. This a record figure for the Company. Our flexible sales policy helped us increase shipments to our core markets in 2019 . Sales in the Russia and the CIS rose by over 10%, exceeding 3 mt, while in Europe they expanded by 28% to over 2 .6 mt . As a result, these markets accounted for more than 32% and 28% of our supplies, respectively . Company revenue grew by 6 .3%, totalling USD 3 .8 bn . EBITDA rose by 0 .9% to reach USD 1 .2 bln with an impressive EBITDA margin of 30 .5% . The robust production capacity enabled by the strategy to 2020 allows the Company to generate sustainable and high cash flow. This gives us the ability to invest in development projects, reduce debt and pay generous dividends to shareholders . In the past year, the Annual General Meeting approved a new dividend policy, allocating more than 75% of FCF to dividends . This step enhances the investment case of PhosAgro, resulting in a more diverse portfolio of investors and facilitating future market cap growth . Over the past year, we have also taken steps to strengthen the Company’s financial position, with net debt to EBITDA ratio decreasing to 1.7x by the end of the year . The revision of PhosAgro’s credit rating outlook to ‘stable’ is an important confirmation of the Company’s impressive performance. Currently, the Company has investment-grade credit ratings from the three rating agencies, with the stable outlook . Annual report | 2019Strategic report29 28 VERTICAL INTEGRATION AND LOW PRODUCTION COSTS OUTLOOK It is already obvious that 2020 will be a stress test for individual industries and the global economy as a whole . In these turbulent times, we need to engage in a dialogue, creating joint efforts to find effective solutions to these global challenges . Trading relationships and entrepreneurship have intertwined our world more than ever . Leading Russian companies, particularly PhosAgro, have the necessary capabilities, expertise and experience to bring about a more holistic and sustainable world . I would like to extend my gratitude to all of our stakeholders, first of all, employees and contractors, who have contributed to delivering both the 2025 strategy targets, and the impressive 2019 results . I am convinced that we will go from strength to strength over the coming year . Andrey A. Guryev, Chief Executive Officer and Chairman of the Management Board. Vertical integration is one of the most important competitive advantages we possess . The Company, as one of the leading global low- cost fertilizer producers, continues to explore new ways to leverage its strengths . Over the reporting year, we managed to increase the output of key raw materials and semi-finished products. Alongside this, we managed to improve self- sufficiency in key feedstock, bringing it to almost 90% for sulphuric acid and ammonia . Today, few of the industry’s global players can boast the same level of vertical integration as PhosAgro . Despite the challenging market environment, where market prices for some mineral fertilizers were approaching productions costs, the Company continued to stick to its targets and plans . We successfully completed our previous large-scale investment cycle in 2019: we put on stream three major projects to increase our self-sufficiency in feedstock. These facilities were launched at the Cherepovets site . The 135 ktpa nitric acid plant became operational in the Q4 2019 . By the end of 2020, we will be able to see a 25% growth in this type of feedstock . The next facility to be launched, a 300 ktpa new ammonium sulphate production line, will also contribute to our self-sufficiency. Previously, the Company had purchased all feedstock on the market . These new facilities meet 60% of our needs for this raw material . We can now feel comfortable in the market and reduce the purchasing price of the remaining volume . The third project, a 1 .1 mt sulphuric acid production line, is intended to replace the volumes currently purchased from third parties. We also increased our self-sufficiency in nitric acid and benefited from additional energy and environmental effects, as we use steam from this facility . COVID-19: THE IMPACT OF THE CORONAVIRUS PANDEMIC ON THE GLOBAL FERTILIZER INDUSTRY On 11 March 2020, the WHO announced the outbreak of coronavirus disease (COVID-19) a pandemic. The COVID-19 pandemic leads to increased uncertainty in most countries: market demand is extremely volatile due to a slowdown in business activity, while quarantine at ports of fertilizer loading and discharge and border closures are disrupting supply chains . Fertilizer producer shares fell by 20–50% y-o-y as investors flee to less volatile assets . Economists are reviewing economic growth forecasts, and most of them expect a downturn and in some cases even a global recession, including in the US, in 2020 . Fertilizer demand was resilient at the start of the pandemic, but there are many risks to factor in as uncertainties keep mounting, which will have an adverse impact in the short run . In many countries, fertilizers are on the list of strategic commodities, whose supplies are prioritised during the quarantine period . It helps maintain an overall balanced fertilizer market . The situation is changing daily and it is impossible to predict what comes next, even in the short term . In this turbulent environment, the Company closely monitors changes in the fertilizer and related markets for agricultural products, feedstock, energy, freight, etc . to make sure that all optimal response scenarios have been taken into account . Annual report | 2019Strategic reportBUSINESS ENVIRONMENT 31 30 TIGHTER ENVIRONMENTAL REGULATIONS IN EU 23 May 2019 June 2019 The EU announced more stringent requirements for cadmium and other hazardous metals in mineral fertilizers . Starting 2022, the EU bans phosphate fertilizers with a cadmium content above 60 mg/kg and enables green labelling of low-cadmium fertilizers (below 20 mg/ kg) . As part of this initiative, the French Agency for Food, Environmental and Occupational Health & Safety (ANSES) recommended limiting cadmium content in fertilizers to 20 mg/kg of P2O5 at the national level . The Food and Agriculture Organization of the United Nations (FAO) has adopted the International Code of Conduct for the Sustainable Use of Fertilizers designed to enhance food safety, eliminate hunger and encourage the production and use of pure fertilizers . It recommends that governments around the world enact legislation restricting the sale and application of fertilizers containing heavy metals and other contaminants . The Code calls on governments and fertilizer producers to use clear labelling of fertilizers that should include information on contaminants (including heavy metals) and potential environmental and health impacts . On top of that, the Code highlights the issue of insufficient fertilizer application, which reduces plant nutrients in the soil, damages soil and affects potential yields. The Code brings to the global level efforts to create a regulatory framework ensuring agriculture safety and promoting its sustainable development, mitigating risks to human health and negative impact on the environment, and increasing food security . RUSSIA’S REVISED FOOD SECURITY DOCTRINE ENVIRONMENTALLY FRIENDLY PRODUCTS GAIN MOMENTUM IN RUSSIA 21 January 2020 20 February 2019 Russia’s President Vladimir Putin approved the country’s revised Food Security Doctrine . In addition to securing food independence, and accessibility and affordability of high-quality foods to every citizen nationwide, from now on increasing food exports will be among the doctrine’s targets . Besides, the doctrine provides for boosting the yield of key crops and fertility of agricultural land, sustainable use of farm soils and for promoting land reclamation . Competitive pricing is yet another factor to place Russian eco-friendly agricultural products at the centre of the global consumer market . According to Russia’s Ministry of Agriculture, the share of crops to be supplied under the Green One national brand will account for 10–15% of all agricultural exports by 2024 . Russia’s President Vladimir Putin instructed the government to create a protected domestic brand of environmentally friendly, green products . The green label will bring together organic farmers along with producers of organic food and green fertilizers, provide a global competitive advantage for Russian manufacturers, consolidate the country’s position in lifting trade barriers and help develop a niche of best-in-class green products . The initiative contemplates potential harmonisation of Russian regulations with the global green regulations, including certification and labelling of Russian products based on modern European and international standards . Annual report | 2019Strategic reportSUSTAINABLE GROWTH OPPORTUNITIES 33 32 LOW-COST POSITION PhosAgro’s environmentally friendly fertilizers give the Russian agriculture a unique competitive edge: low-cost of end products and exceptional safety . The environmental safety of Russian fertilizers is the cornerstone on which the green brand will be build, making it possible to control the safety of green products all the way through the value chain, from the feedstock used by Russian manufacturers to produce mineral fertilizers and animal feed additives to the sale of food products to end consumers . AGRICULTURE DIGITALISATION PhosAgro and one of Russia’s leading developers of agricultural solutions, entered into a cooperation agreement to design and implement digital solutions for farmers . The agreement seeks to create and deploy an integrated digital system, where a farmer has access to all tools for crop monitoring and management throughout the season, from crop planning to analysing agronomic efficiency of technologies based on the season’s results . BEST AVAILABLE TECHNIQUES (BAT) In 2019, the Federal Agency on Technical Regulating and Metrology (Rosstandart) approved a reference document for best available techniques «Production of Ammonia, Mineral Fertilizers and Inorganic Acids . 1 2 3 unit energy consumption and low unit emissions . The production process for crystalline ammonium sulphate at Apatit (Cherepovets) is unique to Russia . Ammonia emissions are in line with the BAT technological indicators and on a par with other ammonium sulphate technologies implemented in Russia . ACID NEUTRALISATION WITH CALCIUM CARBONATE Volkhov branch of Apatit employs a complex fertilizer production method which is unique to Russia . The process involves neutralising a mixture of phosphoric and sulphuric acids with calcium carbonate, mixing the neutralised pulp with a nitrogen-containing component (for NPKS fertilizers) and potassium chloride with subsequent granulation and drying in DDG, classification of dried granules, and conditioning and cleaning of waste gases . Harmful emissions meet the BAT technological requirements: ammonia (NH3) – 2 .6 kg/t, nitrogen dioxide (NO2) – 0 .6 kg/t . STRIPPING IN CO2 FLOW Urea produced from liquid ammonia and gaseous carbon dioxide using CO2 stripping technology from Stamicarbon (Netherlands) . Unreacted NH3 and CO2 are extracted from the synthesis melt and condensed at high pressure, yielding low-pressure steam suitable for utilisation . Unreacted substances are removed at high pressure by blowing CO2 . The technology reduces water content in the reused components, which improves synthesis conditions and energy efficiency. The technology at Apatit is in line with the BAT indicators for pollutant emissions . HTAS TECHNOLOGY PhosAgro launched an HTAS-based ammonia facility with a capacity of up to 760 kt of NH3 per year at its Apatit site (Cherepovets) in 2017 . Ammonia production from natural gas derives from the catalytic steam reforming and steam/ air reforming processes that include a syngas purification and treatment unit, with ammonia synthesised at a pressure of 128 .7÷190 ATG in the synthesis loop . HTAS technology performs better than the industry average by resource and energy consumption, as well as by pollutant emission per unit . The minimum resource and energy consumption for HTAS, in terms of 1 t of products are: natural gas – 955 nm3 (avg . – 1,050 nm3), electricity – 20 kWh (avg . – 59 kWh) . DCDA TECHNOLOGY Volkhov, Balakovo and Cherepovets branches of Apatit operate low- and high-capacity Double Contact Double Absorption (DCDA) sulphuric acid systems to minimise harmful emissions into the atmosphere . Emissions from sulphuric acid production at PhosAgro’s facilities are in line with the levels associated with best available techniques: SO2 – 1 .67 to 3 .3 kg / t 100% H2SO4, sulphuric acid – 0 .15 kg / t 100% H2SO4 . REACTION CRYSTALLISATION METHOD Crystalline ammonium sulphate is produced by neutralising sulphuric acid with gaseous ammonia and crystallising ammonium sulphate from the resulting solution in a vacuum crystalliser . This technology boasts high capacity per unit based on a modern highly automated and manageable toolkit, as well as reduced Annual report | 2019Strategic reportFERTILIZER MARKET OVERVIEW NUTIRIENT DEMAND DRIVERS THE GLOBAL ECONOMY Rising international trade barriers and uncertainty about further trade war escalation and geo- political risks were a key reason for the global manufacturing downturn that prevailed in 2019 . Economic growth is likely to stabilise in mid- 2020, but the overall economic picture is worse than had been expected at the start of the year . The latest IMF forecast in October 2019 projected annual GDP growth of 3 .0% higher year-on-year, a 0 .3% downwards revision from its April 2019 forecast . Emerging and advanced economies saw a slowing of economic growth in 2019 . Political uncertainty in large emerging markets – in particular, Argentina, Iran, Turkey, and Venezuela – drove significant distress, which weighed on growth. In India election uncertainty combined with acute funding problems in the non-bank financial sector, constrained lending to the real economy and growth . The retaliatory trade conflict between the US and China has not had much of an impact on headline growth rates of the two economies, because they have protected their economies with domestic policy easing . Instead, the trade war has adversely affected the export reliant economies of Europe. Energy prices declined to an average of US$61 .78/bb in 2019 as record- high crude oil production in the US outweighed the impact of OPEC supply cuts . OPEC agreed some of these cuts, but involuntary cuts have played a significant role too, including US sanctions on Iran, civil unrest in Venezuela and war in Libya . Supply disruptions in Saudi Arabia, following attacks on key refining sites in September, only briefly supported a 10% increase in crude oil prices . Weaker demand prospects have also continued to weigh on energy demand - coal and natural gas prices declined through the year due to weaker demand prospects . Performance of selected currencies of major phosphate importers, DAP/MAP imports in 2019 (prov.) −18% TURKEY MEXICO 0% THAILAND 0.4 0.5 0.7 4% 0.8 0.9 0.9 1.1 1.4 BANGLADESH −1% VIETNAM −1% ARGENTINA CANADA −3% PAKISTAN BRAZIL −8% INDIA −4% −71% −24% DAP/MAP imports, million tonnes product Currency performance vs US$, % 4.6 5.7 Note: # reflects country’s position against rest of the world; Data: CRU; IMF; Turkish Central Bank; Float Rates. 35 34 Policy-makers responded to the slowdown in global economic growth with additional stimulus . Most notable is the extent of monetary policy easing throughout the world, which worked to ease borrowing conditions and bolster confidence. Some of the recent cuts will continue to drive the stabilisation of growth in 2020 . AGRICULTURAL MARKETS Unprecedented weather conditions and African Swine Fever (ASF) added to the intensifying US-China trade conflict to impact agricultural commodities in 2019 . Nonetheless, as of its latest report in November 2019, the International Grains Council (IGC) increased its global grains production estimate for 2019/2020 to 2,157 million tonnes to reflect marginal year- on-year growth . The year began with record-high stock:use ratios across multiple crops (e .g . rice; soybean; wheat), resulting from weak global demand due to trade barriers and a positive crop outlook . These factors combined to apply downwards pressure on crop prices . Favourable growing conditions in South America and a record winter crop in Europe – following a very dry 2018/19 season – further pressured crop prices . The wettest spring season on record and resulting planting delays for corn and soybean crops in the US offered temporary price relief. Local currency depreciation (e .g . Brazil; Argentina) maintained export competitiveness and despite premiums into China, the Africa Swine Flu epidemic resulted in the culling of 55% of Chinese hog herds and tempered Brazilian soybean production . Global soybean production declined by 6% year-on-year to 341 million tonnes, whilst demand for substitute meats (e .g . broiler feed; layer feed; aquaculture feed) only partially offset the impact of ASF on animal feed grains . Further declines in soybean production failed to materialize, as the intensification of hog production across China partially offset the extensive culling of smallholder herds that use less compound feed . US farmers planted more corn in response to low spring new-crop soybean:corn price ratios, though further unfavourable weather towards the harvest hampered production . Despite a 23% year-on-year growth in corn yields across South America, further bad weather towards the harvest reduced US output . A 21 million tonne decline in Chinese corn production – basis government policy to substitute soybean import demand with additional domestic production – tightened the corn market further and supported prices in 2019, contributing to a 2% year-on-year decline in global corn production of 1 .103 billion tonnes . Conversely, global wheat production increased by nearly 4% year-on-year to 762 million tonnes . Wheat prices remained under pressure for much of 2019 as large producers – notably China and India – accumulated inventories that combined, might carry into 2020 as the largest in history . Selected Global wheat and grains production, mt Wheat 761.8 733 761.6 Maize 1,091.4 1,131 1,102.8 Barley Soybean Rice 144.4 140.5 155.5 340.9 359.5 341.2 494.2 500.6 500.4 Recovery from prolonged hot/dry conditions in Europe/CIS supported yields Unprecedented weather reduced harvested corn area by 8.1% year-on-year in the US In addition to cuts in the US-China soybean production – basis trade conflict – ASF reduced Chinese demand tempered Brazilian output 17/18 18/19 19/20 Annual report | 2019Strategic reportHIGH LEVEL NUTRIENT DEMAND REVIEW Preliminary International Fertilizer Association (IFA) figures, published in November 2019, estimate combined nitrogen (N), phosphate (P) and potassium (K) fertilizer demand at 190 .5 million tonnes nutrient for the 2018/19 season. This reflects 0.9% year-on-year growth in fertilizer nutrient demand – N demand by 0 .6%, P2O5 demand 1 .4% and K2O demand by 0 .9% – reversing a two-year consecutive decline in fertilizer nutrient demand globally . Local currency depreciation for agricultural exporters in Latin America and Russia, an election year in India where farmer votes weigh heavily on politics, and a recovery in European markets were major demand drivers. Combined, these factors offset reduced demand in China – where government continues to support improved fertilizer efficiency – and the US, where persistent adverse weather condition hampered consecutive sowing/ harvest seasons . N, P and K fertilizer demand developments, mt (global demand) 09/10 97.0 16/17 106.4 17/18 106.5 18/19 107.1 IFA estimates that fertilizer demand reversed a two-year consecutive decline to reflect year-on-year growth across the macro-nutrients in 2018/19 42.4 28.2 46.3 45.3 46.0 37.4 37.0 37.4 Data: IFA N P2O5 K2O HIGH LEVEL NUTRIENT SUPPLY REVIEW Growth in combined fertilizer and industrial demand for macronutrients (N, P and K) supported a 1 .2% year-on-year increase in 2019 production at 254 million tonnes nutrient . Fertilizer demand accounted for 183 million tonnes nutrient in 2019 equivalent to 78% of global macronutrient output, marginally lower (−0.3%) than in 2018. Mixed supply trends categorized major fertilizer raw materials . Ammonia production increased by 2 .1% year-on-year, with increased output from Russia, the US, Indonesia, and China . Following a year of negative growth in 2018, rock phosphate supply remained flat year-on-year at 207 million tonnes . Potash production declined by 5% year-on-year, totalling 40 .9 million tonnes K2O, following two-consecutive years of growth . Urea production increased by 2 .4% year-on- year to 176 million tonnes . Continued supply growth from Russia, the United States and across south/south-eastern Asia largely supported operating rates averaging 85% globally . Despite tightening environmental restrictions that mostly contributed to three consecutive years of declining output in China, domestic urea supply recovered . Processed phosphates (i .e . DAP/MAP/NPS/TSP) production increased to 74 million tonnes product (35 .6 million tonnes P2O5), mostly driven by growth in MAP output and a 9% year-on-year recovery in DAP production, notably from the ramping up of new low-cost supply in Morocco and Saudi Arabia . Muriate of Potash (MOP) production declined by 6% year-on-year to 65 million tonnes product, following two consecutive years of growth and weak demand fundamentals, driven by reduced imports demand and consequently lower export-focused supply . FOCUS ON PHOSPHATE FERTILIZER MARKETS IN 2019 Phosphate Fertilizer supply Global phosphate nutrient demand was marginally lower (0 .2%) at 46.2 million tonnes P2O5 in 2019 . Supply growth slowed to 0 .4% year-on- year to 49 .3 million tonnes P2O5 over the same period . Phosphates production across North America continued its chronic decline, in 2019 by around 16% lower year-on-year to an estimated 11.6 million tonnes (DAP/MAP/NPS). The idling of Plant City (United States) and the closure of Redwater (Canada) resulted in larger and competitive traded volumes from suppliers that hoped to benefit from premiums into North America . However, low demand, basis from erratic weather and resulting skipped applications and logistical constraints, pushed 37 36 inventories higher and pressured the market . By year-end, further supply curtailments – this time in Faustina (United States) – were necessary to attempt to balance the market to halt price declines approaching 2020 . Morocco and China also contributed to such production curtailments over this period . Following some of the highest DAP imports in recent history in 2018, DAP imports to India declined by 9% year-on-year to an estimated 5 .7 million tonnes . These volumes, comfortably above 2017 levels, combined with a 31% year- on-year increase in domestic DAP production at 3 .4 million tonnes, pushed inventories to nearly 7 .0 million tonnes by August 2019 . Competitive DAP pricing in particular supported very attractive margins for retailers, but low phosphoric acid prices also encouraged domestic supply and (less so, but still) healthy margins . Despite issues from 2018 passing into early 2019, commercial operating rates in Saudi Arabia steadily ramped up through the year, supporting a 36% year-on-year growth in production to an estimated 4 .6 million tonnes (DAP/ MAP). India remained the largest sink for traded Saudi phosphates, reflected in a 20% year-on-year increase in exports at 2 .4 million tonnes . However, a low-cost position supported exports into deep-sea markets like the United States (from 90,000 tonnes to 230,000 tonnes) and Brazil, (from 650,000 tonnes to 900,000 tonnes) respectively . Reduced DAP exports to India and lower MAP exports to Latin America – during continued decline in domestic demand, set up a difficult year for Chinese producers . Nonetheless, the domestic spring season proceeded better than previous expectations – in part aided by improved logistical reach owing to efficient implementation of new railways/roads to reduce traffic and improve delivery times of commodities. Inventory build and a switch towards greater NP production in place of declining DAP sales resulted in Chinese phosphates production flat year-on-year at an estimated 12.6 million tonnes (DAP/MAP/NPS). Despite implementing regular cuts through the year, most of which were never fully implemented, the consolidation of Kailin and Wengfu in the 6+2 producer group did result in more discipline towards the end of the year . Phosphate fertilizer production growth – index, 2010 = 100 P2O5 demand growth – regional index, 2010 = 100 DAP MAP NP NPK TSP 108 104 102 129 127 130 118 124 120 128 135 124 111 108 104 2017 2018 2019 NORTH AMERICA LATIN AMERICA EUROPE & CENTRAL ASIA SOUTHERN ASIA EASTERN/- SOUTH- EASTERN ASIA RoW 118 122 103 133 134 124 140 119 127 92 103 92 102 102 101 146 125 125 2017 2018 2019 Data: Fertecon. Annual report | 2019Strategic reportPhosphate Fertilizer demand and pricing, January 3rd 2020 = 100 the strong premiums DAP fob Tampa enjoyed over all other benchmarks in 2018 as it fell from its highest levels of USD418/t in January down to USD268/t by year-end . 100 90 80 70 60 50 40 The state of the US market resulted in re-directed trade flows to Latin America, in particular Brazil, where MAP imports increased by 14% to almost 4 .3 million tonnes product . Declining prices on MAP from highs of USD436/t cfr Brazil in January and high crop pricing – particularly on soybean, driven by the escalating US-China trade conflict – supported attractive fertilizer affordability in Brazil. A three-year high in MAP affordability for Brazilian farmers was insufficient to balance for declining demand in the rest of Latin America, where total P2O5 demand declined by 8% year-on-year to an estimated 6 .8 million tonnes . During a period of widespread political instability – resulting in depreciating currencies and higher crop input costs – drought and low cash-crop prices reduced demand in much of Latin America . Considering this and structural oversupply, MAP cfr Brazil prices touched lows of USD280/t by year-end . 03.01.2019 30.05.2019 19.12.2019 Brazil – barter ratio, #60kg soybean bags per tonne MAP DAP cfr INDIA MAP cfr BRAZIL DAP/MAP fob barge NOLA DAP fca GHENT Data: Argus, CRU Fertilizer Week, Fertecon, ICIS, Infofert, Profercy European markets already showed signs of weakness towards the end of 2018 and this trend continued – though muted – into early 2019, demonstrated through hesitance from traders booking volumes for spring application . Poor harvests, regulatory changes (notably in Germany) and logistical constraints all combined to pressure prices, but volumes continued moving, even though in increasingly smaller quantities . Annual P2O5 demand recorded a marginal year-on- year decline of 1% to an estimated 3 .9 million tonnes and it was competition for market share by suppliers already facing oversupply in other markets . Erratic weather during both spring and autumn application periods significantly reduced phosphate demand in North America, particularly the United States where P2O5 demand declined by an estimated 18% year-on- year to just below 4 .4 million tonnes . Skipped application, whether because of delayed fieldwork or restricted logistics opportunities, and competitive import line-ups resulted in an oversupplied market . This eroded 25 20 15 10 01.01.2017 01.05.2018 01.12.2019 BARTER RATIO PARANAGUA BASIS AFFORDABLE 21 BAGS Data: AgroLink, Argus, CRU Fertilizer Week, Fertecon, ICIS, Profercy Inventory build across southern Asia, reaching nearly 7 .0 million tonnes DAP in India during August, pressured prices from highs of USD414/t cfr India year beginning down to USD296/t cfr India by year-end . Whilst demand did not deplete stock positions across Pakistan much, an excellent monsoon season supported DAP inventory liquidation of almost 3 .0Mt DAP across India from August through December . This during a period where import line-ups continued building and domestic production ramped up as phosphoric acid prices declined for a fourth consecutive quarter and supported very good margins for DAP retailers . However, in switching to DAP production for margin capture, NPK production fell considerably and resultantly across the year total P2O5 demand in India declined by around 9% year-on-year to 6 .4 million tonnes . 39 38 India – selected phosphate imports, P2O5 share 2010 1,831 2017 2,237 2018 2,475 2019 1,996 2,547 2,338 2,329 2,450 2,127 2,932 1,774 3,603 ROCK MGA DAP Data: Fertecon, IFA. Elsewhere in Asia, the spring ploughing season in China performed better than expected, though still down on previous years . Generally, domestic demand continues to soften as government policy to reduce fertilizer application growth persists and farmers implement more efficient fertilizer application techniques . Whilst the easing of NPK export tariffs provided some relief to domestic suppliers, this market accounted for most of the 2% year-on-year decline in Chinese P2O5 demand estimated at 12 .3 million tonnes . Following four consecutive years of P2O5 demand growth in Africa, an NPK import ban in Nigeria and drought in Southern Africa resulted in reduced NPK and MAP demand respectively . Resultantly, P2O5 demand declined by 13% year- on-year to an estimated 1 .6 million tonnes . DAP/MAP – raw material price developments, index (100 = January 3rd 2019) 120 100 80 60 40 20 03.01.2019 30.05.2019 19.12.2019 AMMONIA fob BLACK SEA PHOSPHORIC ACID cfr INDIA PHOSPHATE ROCK fob MOROCCO 68-72% BPL SULPHUR fob MIDDLE EAST Data: CRU Fertilizer Week. Phosphate rock market Review Marketable rock phosphate production remained flat year-on-year at an estimated 207 million tonnes in 2019 . Generally, the ramping up of low-cost integrated downstream capacity across mostly the Middle East and North Africa balanced for lower demand from a combination of downstream capacity closures and curtailments, which weighed more heavily on traded rock phosphate volumes . There were also reductions in production from China (due to declining downstream demand and high inventory carryover), the United States (due to downstream idling) and Morocco (due to trade flow redirection). The traded market, however, declined by 3%year-on-year to an estimated 30 million tonnes, as increased availability from previously less prevalent participants (e .g . Syria; Togo; Jordan – for diverse reasons) failed to offset increased captive consumption from large exporters to drive downstream sales . Given no significant availability restriction, rock phosphate prices typically follow phosphoric acid and fertilizer prices with some delay . This precisely occurred in Q1 as prices averaged USD90/t fob Morocco (69-72% BPL) basis, marginally higher quarter-on-quarter and unaffected by softer downstream prices. The fact that even the idling of beneficiation operations at three mines in Brazil from late Q1 – for tailings dam safety procedures following the Vale Brumadinho disaster in February 2019 – resulted in no price reaction demonstrated how oversupply in downstream markets could substitute in the form of imports instead . It was only in Q3, by when mines in Brazil were operating at commercial utilisation rates once again, that rock phosphate prices finally corrected downwards to USD79/t fob Morocco (69-72% BPL) basis . This decline also reflected how much protection rock phosphate prices had received in the form of demand from SSP producers with exposure to significant weakness in sulphur markets provided price support . The idling of downstream capacity in the United States during Q4 – and other production curtailments in Morocco and China, as well as continued declines in downstream phosphate prices – further pressured rock phosphate pricing approaching 2020 . Annual report | 2019Strategic reportRock Phosphate – global production & trade, mt 2010 2017 2018 2019 2019 2019 30 31 32 28 30 31 177 176 177 172 171 163 Trade Production Latent capacity 88 86 79 88 83 55 OTHER FERTILIZERS Urea Urea demand increased by 0 .5% year-on- year to an estimated 171 .2 million tonnes . Nonetheless, prices came under increasing pressure through the year as demand growth slowed and production increased, basis increased urea production cost cuts owing to natural gas surplus . Rather than supporting the market, US sanctions were deflationary as Iranian exports continue to sell at a large discount . A recovery that began in mid-2017 and lifted urea prices to USD334/t fob Middle East in October 2018 ran out of steam in early 2019 as poor growing condition across the US Midwest hampered early spring demand . An early Indian tender announcement in January offered temporary price support, but an underwhelming 515,000 tonne award resulted in more price pressure . Demand elsewhere was piecemeal, during a period where dry condition across much of the larger European economies – and tightening restrictions on nitrogen use efficiency – that slowed buying . Furthermore, newly commissioned capacity – in Turkmenistan and Azerbaijan – entered the market in Q1 . Despite seasonal demand increments through Q2 – notably the ramping up of Indian import demand ahead of the rabi season, but also spot demand across Latin America – macroeconomic headwinds and deflationary energy markets, amid continued oversupply in natural gas markets, combined to significantly reduce production costs at the margin. Chinese exports initially pulled back, but RMB devaluation – owing mostly to the escalating US-China trade conflict – and cheaper coal amid an easing of environmental policy restrictions supported a recovery in Chinese urea production and almost doubled year-on-year by year-end exports . Most of the growth in Chinese exports were directed to India, where imports increased significantly to 8.8 million tonnes. Sustained low gas prices on EU hubs through the summer months revitalized marginal Black Sea production, in particular from Ukraine where exports – previously absent – reached 120-150,000 tonnes per month by Q4. Sanctions barely affected Iranian export volumes, which were roughly flat year-on-year, but prices came under pressure owing to discounts of up to USD60/t – notably in Brazil and Turkey (Mediterranean) . 41 40 the Baltic Sea held over the Black Sea . Low phosphate prices resulted in ammoniated phosphate production curtailments in key ammonia import markets such as the United States, Morocco and China . Furthermore, poor weather in both direct application seasons further restricted demand in the United States, lowering ammonia imports by 14% year-on-year in 2019 . United States ammonia imports declined for a fourth consecutive year, which, along with difficulties in securing gas contracts, contributed to the closure of 285ktpa of capacity in Trinidad . Potash IFA estimates a 6% year-on-year decline in global MOP deliveries for 2019 at around 65Mt after two consecutive years of growth and resulting high- carryover . Demand was robust throughout much of H1 2019 - demonstrated by largely flat pricing, despite weaker crop fundamentals - before a marked slowdown during H2 2019, which accelerated spot price declines . Despite the belated settlement of the Indian supply contract in October - agreed only USD10/t lower at USD280/t cfr - the conspicuous absence of a Chinese contract left the market without a price floor approaching the close of the year . Resultantly, spot prices continued falling across key import markets . With record high MOP port inventories in China, and little sign of an impending agreement, most major producers implemented voluntary production cuts in H2 2019, removing potentially as much as 3Mt of planned output . The one positive story throughout 2019 was the Brazilian market where high soybean exports encouraged strong MOP consumption . However, with suppliers increasingly competing for volumes, coupled with a weakening local currency, by the end of 2019 Brazilian import prices had wiped out all gains made the prior year . New supply from Russian producer EuroChem also became more prominent in 2019, compounding the intensified competition that placed more downwards pressure to pricing already falling due to the absence of signed Chinese contract volumes . Ammonia IFA estimates a 0 .6% year-on-year increase in global ammonia demand at 144 .8Mt for 2019, as new supply added further pressure to a market already stressed by poor United States demand . Resultantly, the balance moved further into surplus, at around 11 .1Mt . Price declines prevailed through most of the first three quarters of 2019, as global benchmarks reflected a supply surplus. This resulted in average annual prices declining by USD60-65/t across both west and east of Suez benchmarks . Advanced maintenance programs across the Middle East and North Africa, due to low pricing, halted price declines from July-August and prevented many marginal Russian producers touching the floor. Increased competition to capture European gas demand between United States LNG suppliers and Russian pipeline exports pushed the TTF gas price down to a record low of USD3 .10/MMBtu in September . These lower energy prices across most markets prevented a repeat of 2018 plant shutdowns . Despite a 15% year-on-year decrease in the Chinese anthracite coal price in 2019, the incentive to import ammonia remained strong . The arbitrage opportunity to import ammonia over domestic supply in coastal areas averaged USD150/t in 2019, which supported imports exceeding 1 .0Mt in 2019, with port storage infrastructure becoming one of the main bottlenecks to even higher imports . The commissioning of new merchant capacity at EuroChem’s Kingisepp plant in Russia slightly shifted trade dynamics . More exports originated from lower-cost Baltic exporters and eroded the historical premium in fob prices, which Annual report | 2019Strategic reportГодовой отчет | 2019 43 42 Priority focus areas STRATEGY 2025 103 2019 was a record-breaking year for our upstream, midstream and downstream businesses, in which we met all the targets of the Strategy to 2020 ahead of the schedule. This outstanding performance was largely driven by the production processes upgrade harnessing the best available techniques (BAT). Since 2013, our output has added more than 60%, rising from 5.9 mt to 9.5 mt of fertilizers and feed phosphate and strengthening our foothold in the domestic and international markets. In March 2019, the Company approved its Strategy to 2025. By 2025 OUR TOP PRIORITY IS EFFECTIVE PRODUCTION GROWTH DRIVEN BY NATURAL, ORGANIC CAPACITY EXPANSION. 5 2 0 2 Y G E T A R T S Digitalisation The new strategy assumes the development of digital technologies in agriculture to boost crop yields and quality in the near term . Under the new five-year plan, the Company intends to further enhance its competitive strengths remaining the world’s leading supplier of environmentally friendly phosphate fertilizers for farmers, while also expanding its involvement in programmes designed to protect human health and the environment, ensure food security and combat soil degradation as a way to show an example of a harmonious approach to strategic development . Sales in Russia and Europe The Marketing Strategy to 2025 further strengthens PhosAgro’s foothold in the Russian market, and also in the premium export markets . Compared to 2018, by 2025 fertilizer sales in Russia and in Europe may grow 1 .5 and 1 .6 times, respectively . The share of exports will be maintained at a level of at least 90%, in no small part thanks to the efforts of ten foreign trading companies opened in all key sales regions . Environmental safety An additional competitive advantage that PhosAgro will leverage to increase its share in priority sales markets and offer market premium will be the environmental safety of its phosphate fertilizers for people and soils, as the EU looks all set to tighten regulations for fertilizers with a high content of cadmium and other heavy metals . Starting this year, PhosAgro’s fertilizers will be marketed under an ecolabel in line with the EU regulations . In addition, along with a variety of agricultural products, they will be included in a country branded segment of products with improved environmental characteristics . The Company leaves open the possibility of foreign regulators removing the import duties and customs factors that are currently being applied to pure fertilizers . The Argentinian and Brazilian authorities have already exempted Russian environmentally friendly phosphate fertilizers from import duties . Under this scenario, the Company could potentially earn up to USD 100 mln depending on the prevailing market conditions . Balanced dividend policy Without compromising its investment programmes designed to ensure a stable cash flow in the future, the Company will continue to pay attractive dividends and stay focused on charitable and social programmes to build a pool of highly skilled engineers and promote initiatives in the realm of education, corporate housing, healthcare, youth policy and sports support, along with production ecology and research . STRATEGY TO 2025 KEY PRIORITIES In the new strategic cycle we plan to build new high-tech production facilities and boost fertilizer output by more than a quarter (27.5%) vs 2018. This can only be achieved through long-term investments in both capacity expansion and infrastructure development projects. The new strategy lays significant emphasis on the construction of a new predominantly export-focused plant with a capacity of 840 kt in the Leningrad Region, as well as the upgrade of production facilities in the Saratov Region to enable manufacturing of NPK(S) fertilizers and increase total fertilizer and feed phosphate output from 2.3 mt in 2019 to 3.4 mt in 2024, while also considerably boosting the share of domestic supplies (from 34% to 60%). +1.1mt to the Russian and CIS marketsFertilizer output+27.5%New production facility in the Volkhov branch840 ktpaTotal production of fertilizers and feed phosphates by the Balakovo branch3.3mtStrategic report Key targets STRATEGY TO 2025: KEY TARGETS Fertilizer and feed phosphate production, mln t Phosphate rock production, mln t 2018 9.0 2019E 9.5 Target for 2025 11.7 Key markets, mln t Russia&CIS 2018 2.6 2019E 2.9 2025E 3.7 + 30% growth + 5% CAGR 2018 7.1 2019E 7.3 Target for 2025 8.4 3.0 3.2 10.1 10.5 + 10% growth 2.6 11.1 Internal consumption Sales to 3rd parties Europe 2018 2.0 2019E 2.7 2025E 3.1 N&S America 2018 3.1 2019E 2.5 2025E 3.5 OPERATIONAL AND BUSINESS EFFICIENCY1 Comfort level ND/EBITDA CapEx/EBITDA ratio below 1.0-1.5x 0.5 p.a. Expected effect on EBITDA1 USD from investment projects 200+ mln 1 . Subject to macro condition changes Source: PhosAgro 5 2 0 2 Y G E T A R T S 45 44 PRODUCTION GROWTH Expanding fertilizer and feed phosphate capacities by 25% to 11.7 mt by 2025, primarily by launching new capacities at Balakovo Branch of Apatit (+1.2 mtpa). Forecast increase in fertilizer (excluding feed phosphates) production by 2025, by production site, mt Branches 2018 2019 2025 Key drivers Expected production growth Volkhov 0.17 0.19 0.84 0.72 • Reducing current NPK production: –100 kt; Balakovo 1.75 1.91 2.91 1.16 • Engaging in NPK production for domestic sales (favourable logistics): • New MAP capacities, including low-nitrogen grades (for Latin America): +800 kt; • Engaging in water soluble MAP (key component of water soluble NPK) production: +43 kt. Cherepovets 6.69 7.04 7.31 +1,400 kt; • Engaging in the production of NPS, including grades containing elemental sulphur: +300 kt; • Reducing standard MAP production: –900 kt; • Production of granulated ammonium sulphate: 360 kt; 0.62 • New ammonium sulphate capacities (the main feedstock to produce NPK/NPS – for internal use) +300 kt; • Debottlenecking NP/NPK/NPS capacity: +500 kt; • Ramping up ammonium nitrate capacity: +140 kt. Total 8.61 9.15 11.11 2.50 Forecast increase in fertilizer (excluding feed phosphates) production by 2025, by product type, mt Product 2018 2019 2025 Key drivers Expected production growth AS 0.00 0.00 0.36 0.36 • New capacities at Apatit in Cherepovets (+300 kt) – AN Urea APP NPS, PKS 0.53 1.59 0.20 0.42 0.57 1.68 0.19 0.74 0.67 1.59 0.21 0.69 feedstock for NPK/NPS • New capacities to produce a premium granulated product at the Balakovo Branch of Apatit +360 kt 0.14 • Ramping up ammonium nitrate capacity (Cherepovets): +140 kt. 0,00 0.01 0.27 • Engaging in the production of NPS, including grades containing elemental sulphur (Balakovo): +300 kt; NPK 2.87 2.84 4.29 1.41 • Engaging in NPK production for domestic sales (Balakovo, favourable logistics): +1,400 kt; DAP/MAP 2.98 3.20 3.30 0.32 • New MAP capacities, including low-nitrogen grades (Volkhov, for Latin America): +800 kt; • Reducing standard MAP production (Balakovo): –900 kt; • Debottlenecking NP/NPK/NPS capacities (Cherepovets): +500 kt. Total 8.61 9.15 11.11 2.50 Annual report | 2019Strategic report PROJECTS IN THE PIPELINE OF STRATEGY TO 2025 To boost production, the Company has launched a large-scale investment programme. The investments will focus on efficient and flexible hi-tech facilities based on the best available techniques, including the advanced solutions offered by Samoilov Scientific Research Institute for Fertilizers and Insectofungicides (NIUIF), one of the world’s leading specialised R&D centres, as well as a variety of other digital and innovative solutions. The green light will only be given to projects with an IRR of above 20%. Targets by key assets Volkhov branch development Balakovo branch development Launch MAP production mainly for export markets Launch NPK(S) production mainly for the domestic and European markets 2021 2022 +840 kt of fertilizers +1,100 kt of fertilizers Cherepovets site development GOALS Increase nitrogen fertilizer output, launch manufacturing of semi- finished products to ensure food security DEADLINE 2019–2020 KEY TARGETS +1,100 kt of sulphuric acid +150 kt of ammonium nitrate +300 kt of ammonium sulphate +2.3 mt of additional rail infrastructure capacity CAPEX, USD MLN USD 389 430 EBITDA impact per year, USD mln 60+ 90+ WACC, % 11 NPV, USD mln 265 IRR, % 20+ 11 173 20 240 50+ 11 143 20 PROJECTS IN THE PIPELINE 5 2 0 2 Y G E T A R T S 47 46 POTENTIAL PROJECTS CURRENTLY UNDER EFFICIENCY EVALUATION may get a go-ahead as early as 2022 subject to their high IRR (20%+), compliance with the BAT and sustainability criteria along with the debt/ EBITDA target, and a comfortable net debt / EBITDA covenant headroom: Ramp-up of ammonium production Production of purified phosphoric acid (PPA) as the key feedstock for further processing into environmentally safe phosphates Proprietary facility to manufacture potassium and sodium salts using the internally produced nepheline concentrate The investments in the three key projects alone are expected to bring about an EBITDA increase of no less than USD 200 mln, boost FCF, and ensure a consistently high level of self-sufficiency in feedstock for growing production volumes. The net debt / EBITDA ratio will be maintained at a comfortable level of 1.0–1.5x. CAPEX breakdown1, USD mln Projects to support existing capacity Investment projects 2019E 210 2020E 220 2021E 250 2022-25 p.a. ~250 364 335 280 ~100 574 555 530 Source: PhosAgro Cost of running investment projects in 2022–2025: Potential projects under review that match the Company’s investing principles: IRR 20%+; significant business model fit; ESG compliance; best available techniques; comfortable covenants; target CAPEX to revenue ratio. CAPEX Cost of running investment projects in 2019–2025: USD 1,1 bln Cost of supporting existing capacity in 2019–2025: USD 1,7 bln Effect from the three key investment projects2: > USD 200+ mln Project IRR: >20% (WACC – 11%) 1 . CAPEX is calculated at the exchange rate of RUB 65 per USD . 2 . Subject to adjustment in case of changes in the macroeconomic environment . Annual report | 2019Strategic report Key targets 102-6 5 2 0 2 Y G E T A R T S INCREASING SALES IN PRIORITY MARKETS PhosAgro’s strategic goal is to increase sales in its strategic markets: to 3.7 mt in Russia and CIS, to 3.5 mt in North and South America, and to 3.1 mt in Europe by 2025, by strengthening its position as a producer of fertilizers with minimum heavy metal impurities amid toughening of the EU cadmium regulations. 3.7 (32%) 2.6 (30%) Sales breakdown, mln t 3.1 (26%) 2.0 (22%) 25 0 2 018 2 3.5 (30%) 3.1 36% N&S America Europe Russia & CIS Other Data: Argus, Fertecon, CRU/FW, PhosAgro 1. Only DAP/MAP, NPK(S), Urea and AN 1.2 (13%) 1.4 (12%) 49 48 increase product offering from 39 fertilizer grades in 2018 to 50 by 2025, including new highly effective grades with bioadditives. To deliver on this goal, the Company plans to: expand its network of regional sales offices, set up new partnerships, and promote its products, including through “green” labelling, which has been allowed under the new EU rules 1 2Premium to Indian netback prices, USD/t, FOB, Baltic 2013 80 40 Phosphate-based fertilizer sales margin by region 0 2013 2016 2019 Europe L. America Sales growth in North and South America to 3.5mt. The cumulative effect from the Marketing Strategy to 2025 is estimated at 125 USD mln per year1 (net of special and innovative fertilizers) 2014 2015 2016 2017 2018 2019 DAP, W. Europe, fob, netback MAP, Brazil, fob, netback DAP, fob, Nola (USA), netback DAP India, fob, netback 1 . effect based on McKinsey estimates Annual report | 2019Strategic report Increasing sales Key targets DOMESTIC MARKET INTERNATIONAL MARKETS INCREASING THE SHARE OF INNOVATIVE PRODUCTS 51 50 Retain the current market share in phosphate and complex fertilizers, increase sales in the nitrogen segment Enter the related products segment (CPA, seeds, feed additives), if the pilot is successful Develop the service model and distribute agricultural equipment, if the pilot is successful Potential effect of developing the service model on EBITDA: USD 40–150 mln per year1 Identify priority markets based on the Company’s potential competitive advantages, market liquidity, and netbacks Maintain direct sales at no less than 90% Ensure considerable growth in Eastern Europe and the Balkans. Achieve slight increase in sales in the Western European market (France, Germany). Open new offices, lease warehouses, engage in proactive agricultural marketing Grow sales in Latin America in line with the market growth, consider options of diversifying distribution channels in Brazil, establish partnerships with local distributors, launch agricultural sites, lease warehouses Ensure presence in the spot markets in North America, Africa, and Asia Potential effect on EBITDA – USD 85 mln per year1 Flexibility of production lines enables the Company to switch between all types of fertilizers quickly and cost efficiently, and to fully meet demand for the highest-margin complex fertilizer grades. Change in the product structure of the premium segment, kt 2019 2,197 377 198 3,475 3,205 9,452 2025 2,620 472 210 4,967 3,303 11,572 N-based MCP APP NPK, NPS, PKS DAP MAP Phosphate fertilizer margins, 2019 Increase the share of special and innovative fertilizers (UAN with micronutrients, urea with inhibitor, tailored complex and water-soluble fertilizers) Launched the Research and Innovations Centre with legal form and operational model finalised Explore the biostimulants segment, create pipeline of ideas for further consideration Roadmap for the strategy to increase sales: the Russian and CIS market EXPAND IN-HOUSE STORAGE AND LOGISTICS CAPACITIES Increase the number of fertilizer storage facilities to 40 Improve the warehouse technology infrastructure (capex of over RUB 2 bln) through 2022 BOOST SALES OF LIQUID FERTILIZERS Expand storage capacity for liquid fertilizers Provide agronomic services for liquid fertilizer customers INCREASE SALES OF THIRD-PARTY AND ASSOCIATED PRODUCTS Create associated product lines for fertilizer buyers (seeds, CPAs, bioadditives, etc.) Build compaction facilities ENSURE DIGITALISATION OF SALES AND CUSTOMER SERVICES Implement RFID technology for big bag tagging Develop e-services for customers >650 kt Storage capacity 500 kt sold Precision farming Liquid fertiliser storage capacity 62 kt 3.7mt 1,000 2,000 3,000 4,000 5,000 6,000 P-fertilizers sales, kt NPS NPK DAP MAP 1 . effect based on McKinsey estimates DEVELOP AGRONOMIC SUPPORT AND CONSULTING SERVICES Promote sales of high-performance and high-margin fertilizer grades Arable land coverage >100 k ha. 5 2 0 2 Y G E T A R T S Annual report | 2019Strategic report Key targets BOOSTING LOGISTICS EFFICIENCY The Company plans to focus on expanding the capacity of its own rail infrastructure, growing and upgrading the railcar fleet to reduce transport costs, developing the port infrastructure, and streamlining the distribution of commodity flows between ports. 53 52 Logistics development milestones 2019 2020 2021 2022 Completion of rolling stock acquisition Development of river transport (the 2025 shipment target of 1,000 ktpa with an effect of RUB 80 mln per year) Revamp of the Kriolit station with connection to the October Railway’s Nelazskoye station Start of end-product transshipment at the Vistino and Lavna terminals Construction of a track at the Volkhovstroy II station of the October Railway Development of rail infrastructure at the Balakovo Branch of Apatit Goods turnover, mtpa 30 28 26 24 22 20 24.0 2017 +10% 25.1 26.0 EXPANDING RAILCAR FLEET An increase in the share of in-house mineral hoppers will help the Company substantially cut the share of third-party rolling stock and reduce operating transport costs associated with delivery (use of third-party cars is 40% more expensive than operation of in-house rolling stock). 2018 2019 +4,237 5 2 0 2 Y G E T A R T S Captive railcar fleet structure, ‘000 units Hopper car1, ‘000 units 2017 3.4 2018 3.8 3.2 2.9 5.6 6.2 12.2 12.2 2017 2.2 12.9 12.9 2018 2.4 3.1 2.8 2.8 3.4 8.1 8.6 2019 5.9 3.0 5.8 14.7 2019 4.4 2.4 2.8 9.5 Own railcars Leasing 3rd parties Own railcars Leasing 3rd parties 1 . Calculated based on 70 t per cargo . Source: PhosAgro 2019 saw the successful completion of a move to merge the Group’s production and logistics assets into one legal entity – JSC Apatit. These organisational changes are designed to improve the Company’s overall efficiency and business process management. 6,224 8,861 10,461 2018 2019 2021 with the total number of tank cars for molten sulphur reaching 520units Mineral hoppers 1,500 Gondola cars 530 PhosAgro and United Wagon Company signed a contract to supply 56 additional tank cars for molten sulphur Tank cars 607 Gondola cars 250 Mineral hoppers 1,000 Tank cars 350 2019 2020 2021 2022 The main reason behind the purchase of tanks for liquid sulphur is the necessity to guarantee continuity and safety of these indispensable feedstock supplies and optimise associated transportation costs . Cost-cutting was also the main rationale behind the decision to buy gondola cars, as they offer significant benefits for transport operations within a distance of 500 km and streamline deliveries to the Baltic states . Annual report | 2019Strategic report Key targets DEVELOPING RAIL INFRASTRUCTURE DEVELOPING PORT INFRASTRUCTURE Once completed, the initiatives included in the port strategy will provide Apatit with access to transshipment capacities up until 2030 and help significantly reduce selling expenses associated with the transportation of export supplies: 55 54 Maximum rail infrastructure throughput mtpa Apatit 14.3 +2.3 16.6 Revamp of the Kriolit station with connection to the October Railway’s Nelazskoye station Project costs: 2.47 RUB bln Volkhov Branch 1.6 +2.4 4.0 Construction of a track at the Volkhovstroy II station of the October Railway Project costs: 2.9 RUB bln Balakovo Branch 6.0 +4.0 10.0 Development of rail infrastructure at the Balakovo Branch of Apatit Project costs: 385 RUB mln 2019 2020 2021 2022 2023 2024 2025 5 2 0 2 Y G E T A R T S 1 2 3 Memoranda of cooperation signed with the future port terminals of Vistino and Lavna A long-term contract (up to 2022) signed with the European Sulphur Terminal (EST) to transship 2 mtpa of fertilizers Increase in transshipment volumes at the Kotka terminal to 1.5 mtpa from 2023 2023 The cumulative six- year economic effect (from 2023 to 2028) from the redistribution of cargo flows to the terminals of Vistino and Lavna is estimated USD 150 mln. 150USD mln 2028 Ust-Luga Murmansk PhosAgro and Ultramar, a Russian freight forwarder shipping mineral fertilizers in containers, signed a long-term contract on the transshipment of PhosAgro’s mineral fertilizers through a new terminal at Ust-Luga. The transshipment of PhosAgro’s products through the Ultramar terminal is scheduled to begin in the second half of 2020. PhosAgro signed a memorandum of cooperation with Infotech Baltika concerning the construction of a specialised marine terminal for the transshipment of mineral fertilizers and apatite concentrate at the seaport of Murmansk. The ability of the terminal, which is currently under construction, to receive large Panamax- class vessels will improve the economic efficiency of sea transportation through the northern territories, while the proximity of the terminal to the Company’s production assets will streamline the railway logistics for transshipments. The new port capacities will handle approximately 3.5 mtpa of fertilizers. Annual report | 2019Strategic report Key targets SUSTAINABILITY PROGRAMMES ENVIRONMENTAL PROGRAMME GOALS TO 2025 PERSONNEL DEVELOPMENT PROGRAMME GOALS TO 2025 HEALTH AND SAFETY GOALS TO 2025 57 56 The Company is a member of the Safer Phosphates alliance, which seeks to address the issues of environmental contamination by heavy metals. 5 2 0 2 Y G E T A R T S 1 2 3 4 Reducing unit pollutant emissions by 5% (to 0.996 kg/t for end and semi-finished products) Reducing unit GHG emissions by 10% (to 142 kg of СО2 equivalent per tonne of end and semi-finished products) Reducing unit effluents by 20% (to 4.8 m3/t for end and semi-finished products) Increasing the share of recycled and decontaminated hazard class 1–4 waste to 40% 1 2 Raising employee satisfaction and loyalty to 65% Increasing the average annual number of training hours per employee by 50% annually of incidents by 10% workplace injuries by 1Reducing 2Reducing the number 3 Improving health and safety management system and culture 10% each year Annual report | 2019Strategic report RISKS AFFECTING THE STRATEGY STRATEGY 2025 59 58 Description Management Risks Description Management Risks 1. Strategic planning Risks 102-11 2. Social 3. HR Risk associated with the adoption of an incorrect strategic decision and ensuing 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 strategic objectives Risk of an adverse social environment in the regions of operation PhosAgro has successfully implemented all key projects under its Strategy to 2020, with the Board of Directors approving a strategy to 2025 in March 2019 to identify key growth areas. The Company actively monitors both internal and external factors that could impact the strategy. PhosAgro also takes a systematic approach to assessing the potential costs and benefits of new strategic projects to facilitate and improve the decision-making process. In 2019, the Company approved a resource development programme to 2035. With its commitment to the principles of partnership and cooperation between private business and the government, the Company runs a number of social programmes on a voluntary basis. Social projects are designed, among other things, to support local authorities in promoting sports and culture, and enhancing the public utilities and opportunities for growth in the cities where the Company operates. Sustainable development in the regions of operation is one of the key goals the Company pursues in its community activities. Developments and decisions related to the hiring, development and retention of employees PhosAgro runs independent and joint programmes seeking to attract young talents, including those from other regions, develop employee skills and enhance motivation as a way to improve retention and productivity. In 2019, the first graduates of PhosAgro Classes completed higher education and started to work for the Company. 4. Production Technical/ industrial disruptors of production processes 5. Health and safety Risks associated with injuries, occupational illnesses, accidents and incidents at hazardous production facilities, and non-compliance with statutory requirements in the realm of health and safety PhosAgro seeks to ensure uninterrupted operation of machinery and reduce unscheduled equipment downtime. To that end, the Company invests in the construction and upgrade of equipment and carries out preventative maintenance and major overhauls by relying on backup equipment and a reserve pool of components, accessories and spare parts. The Company’s insurance programme covers the risk of production disruptions. PhosAgro enforces health and safety in workplaces in line with applicable laws and best global practices. To that end, the Company trains staff in health and safety and regularly checks their knowledge, promotes safety culture, and makes sure that all contractors adhere to the health and safety standards. In addition, safety audits and inspections ensure compliance with applicable regulations and OHSAS 18001 requirements. Tasks and measures to reduce the corresponding risks in various Company’s activities are defined in the strategy in the field of industrial safety and labor protection. 5 2 0 2 Y G E T A R T S 6. Environment Risks of potential environmental damage resulting from the Company's operations 7. Project 8. Business processes and systems 9. Tax Risks associated with delays and budget overruns in construction and upgrade projects, along with failure to deliver project efficiency targets Inefficiency or disruption of the Company’s business processes, including risks related to counterparties and supply chain Potential claims lodged by tax authorities in response to the Company’s failure to correctly file tax returns or pay taxes in due time PhosAgro conducts regular analysis and assessment of its impact on the environment. The environmental impact is mitigated through the upgrade of treatment and warehousing facilities and the implementation of energy efficiency programmes. The Company partners with the UNESCO and the International Union of Pure and Applied Chemistry (IUPAC) to provide research grants as part of the Green Chemistry for Life project seeking to protect the environment and human health through energy efficient processes and environmentally friendly technologies based on innovative solutions. PhosAgro’s investment projects harness the best available techniques to reduce unit feedstock and energy costs while also cutting unit emissions of regulated substances. The Company discloses its environmental impact mitigation goals and performance in line with applicable laws and as part of the Carbon Disclosure Project (since 2019). PhosAgro strives to adhere to approved project budgets and schedules and to take a unified implementation approach leveraging a variety of project management tools. All projects go through a multi-step review and approval process. For large-scale and strategically important projects, dedicated project management offices are set up. The Company regularly monitors progress against project budgets and deadlines. PhosAgro seeks to maximise efficiency of all its business processes and systems. Business process efficiency reviews are conducted on a regular basis to identify potential bottlenecks and develop and implement efficiency improvement initiatives. The Company strives to minimise the risk of disruptions in supplies of key raw materials to its production facilities. To that end, PhosAgro uses multi-stage tender procedures and enters into long-term contracts with its most reliable suppliers. The Company also monitors its IT infrastructure on an ongoing basis and carries out a number of initiatives to mitigate risks associated with business process disruptions caused by technological factors or cyberattacks. PhosAgro complies with tax laws of the countries where it operates. The Company tracks all changes (including the planned ones) in tax laws, analyses the law enforcement practices, and seeks clarifications from the government on taxes. In addition, law and accountancy firms are engaged to advise on the administration of applicable tax laws. Annual report | 2019Strategic report 61 60 Risks 15. Credit 16. Currency 17. Commodity Description Management Financial losses caused by the failure of buyers, commercial contractors and other financial counterparties to fulfil their financial obligations to the Company in full and on time Financial losses arising from unfavourable changes in FX with respect to the Company’s base currency Losses associated with unfavourable changes in the market prices for mineral fertilizers and other products or a hike in prices for key feedstock and equipment sourced by the Company PhosAgro has approved policies on managing credit risks to institutionalise a number of credit risk mitigation techniques, including deliveries against full or partial prepayments with full or partial insurance of credit risks, use of letters of credit, and factoring (securitisation) of accounts receivable. Providing advance payments to suppliers and contractors is only considered after the counterparties have proved their reliability or after they have offered adequate bank guarantees for advance payments that exceed approved internal limits. The Company partners with banks, financial organisations and insurance companies that boast a high level of financial stability and meet the criteria set out in the Company’s treasury policy. PhosAgro monitors all covenants under the existing loan agreements on an ongoing basis. In the context of oil price volatility and fluctuations of the rouble exchange rate against major international currencies, the Company seeks to align the currency breakdown of its debt financing with the FX structure of its sales. As of now, most of PhosAgro’s debt is denominated in US dollars as a natural hedge against predominantly USD-denominated sales. The Company carefully tracks analyst forecasts and factors that may influence the rouble exchange rate against major currencies. If need be, PhosAgro can hedge its FX positions either fully or partially. In the context of heightened price volatility in the core product markets, PhosAgro takes consistent steps to optimise its sales structure in terms of the fertilizer grade offering and regional sales focus as a way to maximise the Company’s margins. PhosAgro also continues to increase the share of sales to end consumers, improve production efficiency and offer its customers add-on services such as packaging, blending and storage. PhosAgro has offices in Buenos Aires (Argentina), Belgrade (Serbia), Hamburg (Germany), Bayonne (France), Zug (Switzerland), Limassol (Cyprus), Vilnius (Lithuania), Warsaw (Poland), São Paulo (Brazil) and Singapore. With a foothold firmly established in the priority export markets, the Company can respond more quickly to changes in the market demand and customer needs. To reduce its feedstock and equipment expenses, PhosAgro invites multiple suppliers to take part in tenders, enters into long-term supply contracts and develops lasting relationships with its suppliers. Risks Description Management 10. Information security 11. Economic security 12. Regulatory 13. Corruption 14. Reputation Losses incurred on the Company’s property and assets as a result of unauthorised access to its information systems or disclosure of confidential data Losses incurred on the Company’s property and assets as a result of economic crimes committed by employees or third parties, including fraud and theft Untimely receipt/ extension of licences; legislative changes that might bring about higher cost of doing business, restrictive policies by regulators, weaker equity story of the Company and/ or transformation of the competitive landscape Losses resulting from non-compliance or inadequate compliance with applicable anti- corruption laws by the Company or its employees (penalties levied against the Company by state authorities and other damages) Damage caused to the Company’s business reputation as a result of unauthorised disclosure of information about the Company’s operations, financial results, senior management, etc. in the mass media or employees’ neglect of business ethics PhosAgro implements a number of initiatives to prevent unauthorised access to its information systems and disclosure of confidential data. A wide variety of technical and software solutions, including those based on encryption, are used to control access to information resources and systems. Access rights are granted to specific user groups. There is a clear definition of what constitutes confidential information and how it should be handled. The Company undertakes regular audits to ensure strict compliance with the Company’s confidentiality policy. The Company takes steps to prevent potential damage to its property and assets as a result of economic law infringements, including by introducing access authorisations to the Company’s administrative and production facilities, clearly differentiating between responsibilities as part of contract or transaction execution, vetting counterparties before signing a contract, and putting in place a dedicated hotline. Moreover, additional checks are undertaken by a variety of the Company’s functions. PhosAgro is in full compliance with applicable laws. To make sure it gets timely updates on potential legislative changes, the Company closely tracks initiatives of legislators, the government and regulators, and takes part in discussing of such initiatives and drafting relevant recommendations in partnership with professional associations. The Company prepares and submits documents in due time to receive or extend licences required for its business. PhosAgro makes sure its facilities and partners fully comply with applicable anti-corruption laws. To that end, it provides training in combating corruption and administrating the anti-corruption law, and promotes zero tolerance towards corruption among the Company’s employees and partners. Among other things, the Company has approved the Anti-Fraud and Anti-Corruption Policy, the Code of Ethics, and the Regulations on Conflict of Interest. Starting from 2019, the Company’s counterparties are obliged to declare their compliance with anti-corruption laws. The Company is a member of the Anti-Corruption Charter of Russian Business. In its operations, PhosAgro demonstrates commitment to transparency by disclosing all relevant material facts and circumstances. The Company has adopted an information policy and a media engagement policy. Information about the Company is available on its website and in the mass media. PhosAgro provides comments in response to media enquiries and regularly monitors coverage in both Russian and international media. To protect its business reputation, the Company has approved the Code of Ethics setting out unified rules for PhosAgro’s employees based on the principles of integrity, good judgement, fair play and partnership and designed to support the Company’s success. Risks 5 2 0 2 Y G E T A R T S Annual report | 2019Strategic report 63 62 HITTING ANOTHER RECORD In 2019, we saw our performance improve not only in terms of numbers, but in terms of quality too . Apart from boosting production, reducing costs, increasing self-sufficiency in all feedstock, and bringing down transportation costs, we made a number of qualitative advances by expanding our product range and, most importantly, achieving a higher recovery rate . W E I V E R S S E N I S U B Annual report | 2019Business review OPERATIONAL REVIEW In 2019, PhosAgro continued its steady growth, delivering record high operating results on the back of previous investment cycle projects. With stable demand in our key markets, the Company was able to increase output across its production facilities, while a balanced approach to maintenance works helped offset the seasonality in end-product shipments. As a result, PhosAgro’s fertilizer production hit a record high of 9.5 mt, fully meeting our target. Mikhail Rybnikov First Deputy CEO of PhosAgro Fertilizer production, kt 2019 9,522 2018 8,975 2017 8,338 2016 7,399 2015 6,750 2014 5,998 In 2019, fertilizer output increased by 6 .1% vs a year ago . By moving some of the overhauls and renovations to the low-demand season for fertilizers, we managed to significantly ramp up production across our facilities . The modernisation of some sites in Cherepovets and Balakovo, completed in late 2018, also contributed to the output growth . The rise in fertilizer production was supported by output growth in feedstock, including phosphate rock, ammonia, sulphuric and phosphoric acids . This helped us maintain self- sufficiency in key raw materials and secure a cost advantage for higher competitiveness in global markets . PhosAgro has been consistently increasing fertilizer output since it hit 6 mt in 2014 . Over the six years, the Company has increased production by an impressive 59% . Today, PhosAgro manufactures more than 50 grades 65 64 of mineral fertilizers for different soils and climates. PhosAgro’s business is based on high-performing assets . In Apatity, PhosAgro develops deposits of apatite-nepheline ore, unique for its high nutrient content and low content of potentially hazardous heavy metals, such as cadmium . Through investment in mining efficiency we steadily reduced our development and manufacturing costs, while the Company’s vertically-integrated structure ensured that our fertilizers had no heavy metals or other harmful impurities . Our flexible sales policy helped us increase shipments to our priority markets in 2019 . Sales in the Russian and CIS market rose by over 10%, exceeding 3 mt, while in Europe they expanded by 28% to over 2 .6 mt . As a result, these markets accounted for more than 32% and 28% of shipments, respectively . In total, sales in 2019 grew by 7 .1% . Overall, we were able to boost production, reduce costs, increase self- sufficiency in all feedstocks (ammonia, sulphuric acid, and ammonium sulphate), and bring down transportation costs . Beyond improving these essential quantitative indicators, we also registered major qualitative achievements by expanding our product range and, most importantly, boosting nutrient recovery . In 2020, we plan to continue strengthening our position as a leading low-cost producer through our key investment projects . Leveraging the best available techniques to increase operational efficiency and reduce production costs remains our priority . 6.1% increase in fertilizer production in 2019 compared to 2018 7.1% increase in fertilizer and feed phosphate sales in 2019 compared to 2018 >50 fertilizer grades produced by the Group 58.7% increase in fertilizer production since 2014 Annual report | 2019Business reviewPHOSPHATE SEGMENT – UPSTREAM (SDGS 3 AND 12) Apatit’s Kirovsk Branch mines, beneficiates and processes apatite-nepheline ore into phosphate rock and nepheline concentrate . Phosphate rock is processed by Apatit in Cherepovets and its branches in Balakovo and Volkhov . Apatit manufactures both phosphate and nitrogen fertilizers . In addition to phosphate-based fertilizers, its Balakovo branch makes feed monocalcium phosphate (MCP), while the Volkhov branch specialises in such complex fertilizer grades as PKS, NPKS and NPK, and industrial phosphates, including sodium tripolyphosphate (STPP) . Upstream In 2019, Apatit’s Kirovsk branch mined 38 .05 mt of apatite-nepheline ore and produced 10 .51 mt of phosphate rock, representing an increase of 4 .4%,or 0 .44 mt, on the previous year and a record high for the past 25 years . Internal phosphate rock consumption was at 69%, or 7 .3 mt, vs 71%, or 7 .1 mt, in 2018, while sales to customers in Russia and abroad accounted for 15% and 16%, respectively, vs 11% and 18% a year ago . Outlook 4.4% increase in phosphate rock production in 2019 compared to 2018 10.5 mt of phosphate rock produced in 2019 We expect a number of major investment projects to help us achieve consistent cost reduction in the upstream segment . These embrace efforts to re-equip the main shaft No. 1 and implement an in-pit crushing and conveying (IPCC) system at the Vostochny mine . We will continue to optimise processing volumes and improve the quality of our low-cost phosphate rock, expecting to increase its output from the current 10 .5 mt to over 11 mt . 20.5% increase in nepheline concentrate production in 2019 compared to 2018 67 66 Production volume, kt 2018 986 2019 1,188 +20.5% Sales volume, kt 2018 982 2019 1,190 +21.0% Nepheline concentrate 10,067 10,507 +4.4% 2,946 3,256 +9.9% Phosphate rock PhosAgro ore reserves as of 1 January 2020 Deposit Kukisvumchorr Yukspor Apatitovy Cirque Rasvumchorr Plateau Koashva Njorkpahk Yolitovy otrog TOTAL Balance reserves, kt (А + В + С1) Average P2O5 content 377,662 473,361 96,756 310,454 587,667 55,599 134 1,898,633 14.18% 14.06% 14.03% 13.05% 16.88% 13.46% 19.40% 14.77% The introduction of remote drilling at PhosAgro’s underground mines in the Murmansk Region has brought about a 20% boost in rig efficiency due to shorter downtime between the shifts and significant improvement of occupational safety during the underground works. Remote underground drilling is the future of mining. An operator can manage several drilling rigs from an above-ground control centre. PhosAgro currently owns ten such rigs, with more to come in the future. Licences Mining licence Kirovsky mine Vostochny mine Kukisvumchorr and Yukspor deposits Koashva deposit Njorkpahk deposit Rasvumchorrsky mine Apatitovy Cirque and Rasvumchorr Plateau deposits Tsentralny mine Rasvumchorr Plateau deposit Geological survey, exploration and mining licenses Plot Plateau Iyolitovy otrog deposit 31 December 2025 31 December 2038 31 December 2063 1 January 2024 31 December 2020 14 December 2040 1 February 2024 Annual report | 2019Business reviewPHOSPHATE SEGMENT – DOWNSTREAM (SDG 3, 12) Performance In 2019, PhosAgro’s output of phosphate-based fertilizers was up by 6 .1% y-o-y to 7 .3 mt . The growth was due to several factors . First, the completion of investment projects to modernise key production capacities in Cherepovets and Balakovo helped to boost the output of basic semi-finished products (sulphuric and phosphoric acid) and mineral fertilizers. Second, efforts to reduce the number of major overhauls and eliminate downtime, resulted in a significant increase in working time. Finally, production flexibility post modernisation helped expand the fertilizer range, among other things by adding less concentrated grades, and switch from one grade to another with virtually no downtime . Sales of phosphate-based fertilizers went up by 9 .4% y-o-y to 7 .3 mt . The European market showed the strongest growth (+28 .6%), with shipments to the CIS and Russia steadily trending upward, as well (+16 .1% and +13 .9%, respectively) . 6.1% increase in production of phosphate-based fertilizers compared to 2018 9.4% increase in sales of phosphate- based fertilizers compared to 2018 The approved production plan for 2020 7.3 mt 69 68 Phosphate-based fertilizer and MCP production, kt 2018 2,995 2019 3,202.9 +6.9% 2,799 2,770.4 −1.0% 419 216 356 643.8 193.4 367.7 67 93 6,852 7,271 +53.6% −10.4% +3.3% +38.9% +6.1% Phosphate-based fertilizer and MCP sales, kt 2,664.4 2,775.7 +4.2% NPK 423.5 209.4 347.2 77.6 6,634.7 616 198.4 377.4 +45.4% −5.3% +8.7% 82.9 +6.9% NPS APP MCP PKS 7,255 +9.4% Total 2018 2,912.6 2019 3,204.6 +10% DAP/MAP Outlook We continue with our efforts to increase fertilizer production and enhance self-sufficiency in key feedstock to ensure sustainable growth and strengthen our cost leadership among global peers. We expect to benefit from the completion of several major investment projects that will allow us to increase self-sufficiency in key inputs and achieve sustainable cost savings in our upstream operations . These include a 135 kt nitric acid plant, a 300 kt ammonium sulphate plant, and a 1 .1 mt sulphuric acid production line, intended to replace the volumes currently purchased from third parties . As part of this effort, we plan to achieve a 100% self-sufficiency in phosphate rock, an 80% self- sufficiency in ammonia, and a 91% self-sufficiency in sulphuric acid . In 2019, we launched a project to build a modern facility for making phosphate-based fertilizers, and a power plant at Apatit’s Volkhov branch. Due in 2023, it will be financed from both the Company’s own resources and borrowed funds and is estimated to cost around RUB 27 bn. The project includes construction of an 800 ktpa sulphuric acid facility, a facility to produce over 840 ktpa of mineral fertilizers, including more than 40 ktpa of water-soluble MAP, liquid ammonia and end-product warehouses, and a 25 MW combined heat and power plant. In addition, wet-process phosphoric acid units will be upgraded to reach a capacity of 500 ktpa. According to PhosAgro’s CEO Andrey Guryev, this initiative is a key element of PhosAgro Group’s Strategy to 2025. Essentially, it involves building a new complex that will boost the Group’s phosphate rock processing capacity by 1 mtpa (the Volkhov branch currently can process 300 ktpa) and increase the output of phosphate-based fertilizers – a high-margin category thanks to the branch’s logistic strengths. This investment project is set to embrace best available technologies, as well as solutions developed by major Russian and global companies and institutes, including the NIUIF, Russia’s only and one of Europe’s leading agrochemical research institutes. Construction and installation will be performed by Russian contractors. Annual report | 2019Business reviewNITROGEN SEGMENT (SDGS 3 AND 12) 71 70 DISTRIBUTION AND SALES Our sales strategy for a period until 2020 focused on transitioning to direct sales . This task has been successfully accomplished . Currently, 90% of all products are sold under direct sales contracts through our own distribution network . This is an impressive result, especially compared with 2013, when only about half of all products were sold directly . Over these years, we have opened offices in various countries worldwide. PhosAgro has established presence on almost every continent and will continue to increase its sales in the target markets – Russia, Europe, and North and South America . We also focus on reducing our logistic and transportation costs . We rely on our distribution network operator PhosAgro- Region to supply fertilizers to agricultural regions across Russia, but what’s more, it now runs the industry’s first tracking system for mineral fertilizers to reduce customer’s expenses, with an online agronomic support service also in the pipeline. Digital technology makes the Company more efficient and offers useful tools for greater flexibility and competitiveness. Our nitrogen segment is represented by Apatit, a producer specialising in ammonia, ammonium nitrate, and both granulated and prilled urea . Production of nitrogen-based fertilizers grew by 6.0% to Nitrogen-based fertilizer production, kt Performance and outlook Our production growth plans also cover the nitrogen segment . In late 2019, we launched a new nitric acid line in Cherepovets, which will allow us to use our ammonium nitrate capacities more efficiently and ramp up production of nitrogen-based fertilizers by 4% to over 2,340 kt in 2020 . 2.3 mt 2018 1,590 2019 1,684.1 +5.9% Nitrogen-based fertilizer sales, kt Sales of nitrogen-based fertilizers increased by 0.1% to 2.2 mt 2018 1,600.3 2019 1,690.9 +5.7% Urea 533 566.4 +6.3% 595.3 506.4 −14.9% Ammonium nitrate 2,123 2,250.5 +6.0% 2,195.6 2,197.3 +0.1% Total Annual report | 2019Business reviewFINANCIAL PERFORMANCE In 2019, PhosAgro confirmed its status as one of the world’s most efficient producers of phosphate-based fertilizers. Despite the unfavourable pricing environment, our key financial indicators are on a steady growth path with revenue up by 6.3% y-o-y to RUB 248 bln and cost of sales adding 9.9% y-o-y to reach RUB 136 bln. EBITDA margin remains at a robust 30.5%. Alexander Sharabaiko, Deputy CEO for Finance and International Projects 2019 was a challenging year for the fertilizer market . Prices for our products came under pressure throughout the year due to adverse weather conditions in key sales markets, as well as increased global supply amid stable demand . As a result, prices for phosphate-based fertilizers reached near-record lows at the end of the year . Despite the challenging pricing environment, PhosAgro was able to increase sales volumes and revenue by 7 .1% and 6 .3% y-o-y, respectively . Our strong revenue growth was driven by a balanced approach to investment and maintenance, high levels of self- sufficiency in key inputs, a flexible sales policy and the exceptional quality of our own ore . As a result, the Company’s EBITDA exceeded RUB 75 bln in 2019, with an EBITDA margin of 30 .5% . Free cash flow increased by almost 40% y-o-y to more than RUB 28 bln . Strong financial performance meant PhosAgro was able not only to fully self-finance its annual capex programme but also to improve debt ratios . At the end of 2019, net debt stood at RUB 132 bln, while the net debt/EBITDA ratio improved to 1 .7x (compared with 1 .8x at the end of 2018) . Our excellent financial performance and comfortable debt level enabled us to pay out respectable dividends . Based on 2019 results, the Company will pay out dividends of RUB 24 .9 bln, which corresponds to 88% of its free cash flow for the year. Since the beginning of 2020, we have seen a considerable recovery in prices for phosphate-based fertilizers amid the approaching spring season, production cutbacks announced by a number of major players and the relative accessibility of fertilizers . There is also a risk of reduced fertilizer supply from China . The recovery in prices, combined with an anticipated increase in demand in markets where the Company has strong positions (Russia, Eastern Europe and Latin America) position us well to expect increased sales volumes while maintaining high levels of profitability. In 2019, PhosAgro’s revenue went up by 6 .3% y-o-y to RUB 248 .1 bln, mainly driven by a 7 .0% increase in fertilizer sales y-o-y . However, revenue growth was slowed by phosphate-based fertilizer price correction that continued throughout the year . During the year, fertilizers were mainly exported to regions with the best pricing environment compared to the North American market, where prolonged adverse weather conditions led to an increase in fertilizer stockpiles . As at the end of 2019, PhosAgro increased deliveries to the Russian and CIS markets (up 11% y-o-y), as well as the European market (up 28% y-o-y) . This growth was strongly supported by a well-developed distribution system and a favourable pricing balance between agricultural products and fertilizers . 73 72 Revenue breakdown by key products, RUB mln Item DAP/MAP NPK(S) Phosphate rock Nitrogen fertilizers 2018 2019 Change y-o-y, % 77.9 60.9 22.1 37.0 77.9 68.4 25.8 37.9 0.1 12.3 16.7 2.3 FY 2019 financial and operational highlights, RUB mln or % Gross profit in 2019 increased by 2.4% y-o-y and amounted to RUB 111 .9 bln (USD 1 .7 bln), with a gross profit margin of 45%, down from 47% in 2018. Gross profit and gross profit margin in the phosphate-based and nitrogen fertilizer segments changed as follows: • Gross profit for phosphate-based fertilizers increased by 2 .4% to RUB 90 .2 bln (USD 1 .4 bln), while the gross profit margin decreased to 45% (from 47% in 2018) as global prices dropped to a 13-year minimum in 4Q 2019 . • Gross profit for the nitrogen segment grew by 3 .4% and stood at RUB 21 .3 bln (USD 329 mln), with a gross profit margin of 56%, unchanged y-o-y . EBITDA for FY 2019 increased by 0 .9% y-o-y to RUB 75 .6 bln (USD 1 .2 bln) . EBITDA growth for the year was weaker due to record low prices in 4Q 2019, resulting in a 39 .7% y-o-y decrease in EBITDA for 4Q 2019 to RUB 11 .2 bln (USD 176 mln) . Despite this, EBITDA margin for FY 2019 remained a robust 30 .5% . Net profit adjusted for non-cash FX items for 2019 declined by 11 .2% y-o-y to RUB 37 .1 bln (USD 573 mln). Revenue EBITDA EBITDA margin Net profit Adjusted net profit In 2019, net operating cash flow increased by 19 .9% to RUB 71 .6 bln (USD 1 .1 bln), partly due to more efficient management of working capital. Net debt ND/LTM EBITDA Sales, kt Capital expenditure in 2019 amounted to RUB 36 .0 bln (USD 555 mln), excluding capitalised repairs, which corresponds to 48% of EBITDA for the reporting period . Phosphate-based fertilizers Nitrogen fertilizers Total sales 2018 2019 Change y-o-y, % 233,312 248,125 74,908 75,582 32.1 22,135 41,748 30.5 49,408 37,062 31 December 2018 31 December 2019 6.3 0.9 123.2 −11.2 135,330 131,583 −2.8 1.81х 2018 6,636 2,203 8,839 1.74х 2019 7,258 2,197 9,455 Change y-o-y, % 9.4 −0.3 7.0 Annual report | 2019Business reviewStrong financial performance meant PhosAgro was able not only to fully self-finance its annual capex programme but also to improve debt ratios. • a 33.7% y-o-y increase in potash costs to RUB 13.7 bln (USD 211 mln) mainly due to higher purchase prices for potassium compared to the previous year; • a 4 .4% y-o-y increase in natural gas expenses to RUB 12 .6 bln (USD 195 mln) as a result of 3 .7% y-o-y growth in ammonia production and higher sales of nitrogen fertilizers; • an 18 .6% y-o-y rise in costs for ammonium sulphate to RUB 3 .6 bln (USD 55 mln) mainly due to an increase in the production of fertilizer grades containing sulphate; • a reduction in costs for sulphur and sulphuric acid limited the increase in raw materials expenses . These costs decreased by 14 .2% y-o-y to RUB 9 .2 bln (USD 142 mln) mainly due to lower prices for sulphur and sulphuric acid . Electricity costs rose by 13 .3% y-o-y and stood at RUB 6 .2 bln (USD 196 mln) mainly due to a nationwide programme to modernise the electricity industry (CDA 2), which led to a 15 .0% y-o-y increase in the purchase price . Administrative expenses for 2019 went up by 15 .5% y-o-y and amounted to RUB 16 .5 bln (USD 255 mln), driven mainly by a 17 .6% increase in expenses for salaries and social contributions to RUB 9 .3 bln (USD 144 mln) . In 2019, selling expenses showed a 9 .3% y-o-y growth and stood at RUB 38.1 bln (USD 589 mln). The main factors behind the growth were: • a 10 .4% y-o-y increase in expenses on Russian Railways services and operators’ fees to RUB 11 .4 bln (USD 177 mln) on the back of an overall sales growth and higher railway tariffs; • a 2 .9% y-o-y increase in freight, port and stevedoring expenses to RUB 18.3 bln (USD 283 mln), mainly due to higher freight tariffs; • a 36 .4% y-o-y increase in spending on customs duties to RUB 1 .9 bln (USD 29 mln) reflecting changes in the delivery terms to the European market . The net debt/EBITDA ratio improved from 1 .8x to 1.7x as at 31 December 2019, reflecting EBITDA growth and the appreciation of the rouble against the US dollar in 2019 . As at 31 December 2019, net debt amounted to RUB 131 .6 bln (USD 2 .1 bln) . In 2019, cost of sales went up by 9 .9% y-o-y to RUB 136 .2 bln (USD 2 .1 bln), mainly due to rising potash prices, as well as an accelerated increase in phosphate rock and fertilizer production . Other contributors included one-off payroll and electricity expenses . Costs for materials and services in 2019 rose by 10 .5% y-o-y and amounted to RUB 41 .2 bln (USD 637 mln) as a result of: • a 12 .6% increase in the cost of phosphate rock transportation to RUB 8.6 bln (USD 133 mln) as a result of higher production volumes and a 4% rise in railway tariffs; • a 6 .7% y-o-y increase in repair expenses to RUB 10.1 bln (USD 156 mln) driven by cost inflation during the year and expansion of production capacities following the completion of the Company’s long-term investment programme at the end of 2018; • a 39 .8% y-o-y increase in drilling and blasting expenses to RUB 2 .3 bln (USD 36 mln) due to accelerated mine development . In 2019, costs for raw materials went up by 7 .3% y-o-y to RUB 43 .2 bln (USD 667 mln) driven by: 75.6 RUB bln EBITDA 28.3 RUB bln Free cash flow 36 RUB bln capex in 2019 Cost of sales, RUB mln Depreciation and amortisation Materials and services • Phosphate rock transportation • Repair expenses • Drilling and blasting • Other Raw materials • Ammonia • Sulphur and sulphuric acid • Potassium chloride • Natural gas • Ammonium sulphate Salaries and social contributions Electricity Fuel Products for resale Total 2018 18,936 37,306 7,671 9,485 1,662 18,488 40,226 4,195 10,682 10,238 12,096 3,015 11,760 5,474 4,019 6,287 2019 21,368 41,221 8,641 10,119 2,323 20,138 43,155 4,095 9,165 13,691 12,627 3,577 12,744 6,204 4,849 6,683 124,008 136,224 Direct economic value generated and distributed, RUB mln Item Stakeholder Direct economic value generated Revenue from sales Revenue from other sales Revenue from financial investments Revenue from sale of assets Economic value distributed Operating expenses, including: Wide range of stakeholders Suppliers and contractors Wages and other payments to employees Employees Social expenses Payments to providers of capital Shareholders and creditors Payments to shareholders Payments to creditors Tax expenses and other payments to government Government Including income tax expense Economic value retained 20181 233,759 223,982 9 330 447 0 −206,785 −175,846 −21,924 −2,139 −13,598 −5,385 −11,956 −8,487 26,974 75 74 Change, % 12.8 10.5 12.6 6.7 39.8 8.9 7.3 −2.4 −14.2 33.7 4.4 18.6 8.4 13.3 20.7 6.3 9.9 2019 249,583 239,130 8,995 1,458 0 −243,077 −194,090 −24,706 −2,807 −32,244 −4,635 −12,108 −9,724 6,506 201-1 1 . The 2018 numbers in this table differ from those disclosed in the same table in the 2018 Report due to the adjustments made to both 2018 accounts and calculation methods . Annual report | 2019Business review77 76 PHOSAGRO’S STRATEGY BUILDS UPON SUSTAINABILITY PRINCIPLES AS ONE OF ITS KEY ELEMENTS The Company’s commitment to sustainability principles is one of the key elements of its Strategy to 2025 . The application of these principles at the Board of Directors level is overseen by a dedicated committee headed by independent director Irina Bokova . To deliver long-term benefits to all stakeholders, we strive to maximise the value we create not only from the commercial, but also from the environmental and social perspectives . We are a responsible producer of mineral fertilizers used in more than 100 countries across the globe . All of our efforts are geared to creating a long-term positive effect on communities . Alongside our corporate values, including our concern for the environment and careful use of natural resources, fair competition, dialogue, compliance, stewardship and effectiveness, the 10 Sustainable Development Goals that the Company supports help inform our sustainability policies . These values are supported and agreed by the management and implemented across the Group . T R O P E R Y T I L I B A N A T S U S I Annual report | 2019 Material topics identified by stakeholders in a survey on the materiality of various aspects of the Company’s operations 79 78 102-44 102-46 102-47 MANAGEMENT APPROACH Board of Directors Sustainable Development Committee (established in 2019)1 Chief Executive Officer Sustainable Development department Functional units (Environment, Health and Safety, HR, Energy, Anti-Corruption) 102-53 102-42 MATERIAL TOPICS The Company takes feedback from stakeholders on the completeness, objectivity and materiality of the information disclosed in its sustainability reports into careful consideration . Any questions or recommendations can be emailed to ir@phosagro .ru . In 2019, PhosAgro’s working group on sustainable development conducted a benchmark analysis and made a list of material topics . After a multi- stage selection process and many rounds of discussions with stakeholders, the Board of Directors aproved the final materiality matrix. To facilitate dialogue and ensure that information is transparent and clearly communicated to all stakeholders and to select material topics to be disclosed in non-financial reports, the Company took steps to identify its key stakeholders based on its economic, environmental and social impacts . The representatives of each of the five groups of key stakeholders (employees and trade unions; shareholders; investors; government authorities, local communities) received requests to identify those aspects of the Company’s operations that are most important to them . Their response and assessment conducted by the working group helped identify the most important aspects used as a basis for the materiality matrix . Topic ECONOMIC PERFORMANCE Direct economic value generated and distributed Financial implications and other risks and opportunities due to climate change Defined benefit plan obligations and other retirement plans Financial assistance received from government MARKET PRESENCE Ratios of standard entry level wage by gender compared to local minimum wage Proportion of senior management hired from the local community INDIRECT ECONOMIC IMPACTS Infrastructure investments and services supported Significant indirect economic impacts PROCUREMENT PRACTICES Proportion of spending on local suppliers ANTI-CORRUPTION Operations assessed for risks related to corruption Communication and training about anti-corruption policies and procedures Confirmed incidents of corruption and actions taken ENERGY Energy consumption within the organisation Energy consumption outside of the organisation Energy intensity Reduction of energy consumption Materiality matrix 302 202 404 205 402 410 415 412 401 403 306 303 305 203 307 204 413 417 304 Indicator 201 Economic performance 202 Market presence 203 204 Indirect economic impacts Procurement practices 205 Anti-corruption 302 Energy 303 Water and effluents 304 305 306 307 401 402 Biodiversity Emissions Effluents and waste Environmental compliance Employment Labour/management relations 403 Occupational health and safety 404 410 Training and education Security practices 412 Human rights assessment 413 415 Local communities Public policy 417 Marketing and labelling 1 . In 2019, PhosAgro’s Board of Directors established a Sustainable Development Committee as was proposed by CEO Andrey Guryev 201 Reductions in energy requirements of products and services WATER AND EFFLUENTS Interactions with water as a shared resource Management of water discharge related impacts Water withdrawal Water discharge Water consumption BIODIVERSITY Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas Significant impacts of activities, products, and services on biodiversity Habitats protected or restored IUCN Red List species and national conservation list species with habitats in areas affected by operations EMISSIONS Direct GHG emissions Energy indirect GHG emissions Other indirect GHG emissions GHG emissions intensity Reduction of GHG emissions Emissions of ozone-depleting substances Nitrogen oxides (NOX), sulphur oxides (SOX), and other significant air emissions Not important Important Very important 1 4 2 3 5 4 6 2 5 3 2 2 1 1 1 1 2 4 2 2 3 1 2 4 INTERNAL SCORINGKEY STAKEHOLDER OPINION102030405060708090102030405060708090Annual report | 2019Sustainability report      Topic EFFLUENTS AND WASTE Water discharge by quality and destination Waste by type and disposal method Significant spills Transport of hazardous waste Water bodies affected by water discharges and/or runoff ENVIRONMENTAL COMPLIANCE Non-compliance with environmental laws and regulations EMPLOYMENT New employee hires and employee turnover Benefits provided to full-time employees that are not provided to temporary or part-time employees Parental leave LABOUR/MANAGEMENT RELATIONS Minimum notice periods regarding operational changes OCCUPATIONAL HEALTH AND SAFETY Occupational health and safety management system Hazard identification, risk assessment, and incident investigation Occupational health services Worker participation, consultation, and communication on occupational health and safety Worker training on occupational health and safety Promotion of worker health Prevention and mitigation of occupational health and safety impacts directly linked by business relationships Workers covered by an occupational health and safety management system Work-related injuries Work-related ill health TRAINING AND EDUCATION Average hours of training per year per employee Programmes for upgrading employee skills and transition assistance programmes Percentage of employees receiving regular performance and career development reviews SECURITY PRACTICES Security personnel trained in human rights policies or procedures HUMAN RIGHTS ASSESSMENT Operations that have been subject to human rights reviews or impact assessments Employee training on human rights policies or procedures Significant investment agreements and contracts that include human rights clauses or that underwent human rights screening LOCAL COMMUNITIES Operations with local community engagement, impact assessments, and development programmes Operations with significant actual and potential negative impacts on local communities PUBLIC POLICY Political contributions MARKETING AND LABELLING Requirements for product and service information and labelling Incidents of non-compliance concerning product and service information and labelling Incidents of non-compliance concerning marketing communications Not important Important Very important LETTER FROM IRINA BOKOVA, CHAIR OF THE BOARD OF DIRECTORS’ SUSTAINABLE DEVELOPMENT COMMITTEE 81 80 102-14 1 1 1 2 2 4 1 1 4 4 5 5 3 2 3 4 5 3 4 3 2 4 2 2 1 4 1 3 Taking global responsibility is an absolute necessity for any global company . It is not just a buzzword . And it is more than just a statement for us, as these principles are part and parcel of our development strategy and current business activities . We have demonstrated our commitment by establishing the Board of Directors’ Sustainable Development Committee, which I have the honour to chair . We are analysing the UN Sustainable Development Goals (SDGs) and are set to monitor their implementation going forward . It is obvious that SDGs are global in nature and are relevant to all countries, people, institutions, companies, etc . It is also clear that they receive attention from investors and consumers of our products, as people want to enjoy a clean environment and expect companies to supply safe foods and products . PhosAgro is fully aware of this and strongly supports the sustainability principles, also as an active member of the UN Global Compact, the international initiative to promote socially responsible and sustainable policies in business . Out of 17 SDGs, we have selected ten and work to support their achievement, while also focusing on 21 targets set by these goals . PhosAgro’s inclusion in the list of 36 Global Compact LEAD companies, coupled with increased investments from ESG funds, attest to efficient SDG integration into the Company’s operations and to the transparency of our sustainability disclosures . The way we treat ESG principles is becoming increasingly consistent and structured, as this topic is of interest not only to our investors, who need to understand our strategy and aspirations, but also to a wide range of other stakeholders . PhosAgro is a global-scale company and a worldwide supplier. Joining efforts with our partners, we strive to achieve these goals . OUR SUSTAINABILITY PRIORITIES 1 2 3 4 5 Sustained growth to ensure high productivity and efficiency in every single aspect of our operations Maintaining strict health and safety requirements, and attaining zero injuries through a world-class safety culture Mitigating environmental impact associated with the Company’s production activities Contributing to the UN Sustainable Development Goals Maintaining reliable partnerships with local communities across the Company’s footprint and promoting dialogue with all stakeholders, taking their interests into account in decision- making processes Annual report | 2019Sustainability report          83 82 102-16 FOCUS AREAS Economic Environmental Social • Paying taxes and other charges to regional and federal governments • Offering economic opportunities for local suppliers and encouraging the development of local partners • Maintaining financial sustainability at all times • Managing business in accordance with legal requirements and business integrity principles • Reducing waste, emissions and pollutant discharges and resource usage on a per- unit basis by investing in new and more efficient technologies • Assisting regional and local authorities in creating modern social infrastructure across our footprint • Developing and implementing projects • Complying with social responsibility for children and youth principles and maintaining a meaningful dialogue with local stakeholders about our environmental impact • Preserving natural eco-systems and nature sites across the Company’s geographies, ensuring sustainable use of natural resources, and implementing programmes to restore environmental capacity. • Supporting vulnerable groups • Ensuring stable employment and creating a safe working environment • Creating opportunities for full-fledged work, training and becoming part of a professional team • Protecting human rights CORPORATE DOCUMENTS GOVERNING SUSTAINABLE DEVELOPMENT-RELATED ACTIVITIES PhosAgro has a wide range of internal standards and policies, which govern its approach to sustainable development management and provide the necessary governance to ensure the Company’s sustainable development . Health, safety and environment HR and economic stability • Quality, environmental and industrial safety policy • Environmental safety policy • Quality management system standard concerning production and consumption waste management • Occupational health and safety management system certificate OHSAS 18001 • Quality management system certificates ISO 9001 and 14001 • Hotline regulations • Code of Ethics • Anti-fraud and anti-corruption policy • Personnel management policy • Modern Slavery Act Transparency statement Stakeholder and local community engagement • Charity policy • Government relations policy • Procurement Policy Annual report | 2019Sustainability report102-12 102-13 CONTRIBUTION TO THE SDGS As a supplier of essential crop nutrients to farmers in more than 100 countries around the world, PhosAgro plays an important role in supporting global food security. Contributing to the UN Sustainable Development Goals in several areas, we recognise the importance of all 17 SDGs and focus on ten of them. For more detailed information about the projects, see page 142 in the Stakeholder Engagement section and the Sustainability section on the Company’s official website. Zero Hunger TARGETS 1. By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters and that progressively improve land and soil quality . 2. Increase investment, including through enhanced international cooperation, in rural infrastructure, agricultural research and extension services, technology development and plant and livestock gene banks in order to enhance agricultural productive capacity in developing countries, in particular least developed countries . MEASURES BEING TAKEN BY THE COMPANY 1. The Samoilov Scientific Research Institute for Fertilizers and Insectofungicides (part of PhosAgro Group) and PhosAgro’s in-house Innovation Centre implement projects aimed at improving the efficiency of mineral fertilizers produced by the Company, and reducing the environmental impact of both their production and use . 2. PhosAgro carries out joint agricultural research with leading Russian and foreign educational and research institutions to study the properties of mineral fertilizers and ways to make their use more efficient in order to produce enough healthy food for the planet’s growing population, preserve soil fertility and purity, boost yields and ensure stable agricultural production in a high-risk farming environment . PROGRESS IN 2019 1. We are implementing a two-step dihydrate-hemihydrate process for the production of wet-process phosphoric acid at our facilities, and a technology for integrated treatment of by-products . The Company has also launched the production of PKS and NPKS fertilizers . 2. We completed all the trials scheduled for 2019 in partnership with leading research institutions such as SGS, DLG Group, ABS Foundation, MT Foundation, Agricola 2000, and other organisations in Europe and Latin America . More than 80 trials were conducted on 14 popular crops . 3. In 2019, PhosAgro successfully held 15 field days across Russia, Poland, and France . 85 84 Ensure healthy lives and promote well-being for all at all ages TARGETS 1. Achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all . 2. By 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination . MEASURES BEING TAKEN BY THE COMPANY 1. PhosAgro supports the Bakulev National Medical Research Centre of Cardiovascular Surgery by investing in research on diagnosing and treating cardiovascular diseases, and advanced unplanned surgery . The Company runs the Health and Leisure and Improvement of Working Conditions social programmes for its employees . Our another large-scale social initiative is the Educated and Healthy Children of Russia (DROZD) project . As part of our partnership with local and regional administrations, we provide funding to healthcare facilities across our footprint . 2. PhosAgro is also a member of the Safer Phosphates alliance, whose mission is to share knowledge and address concerns about heavy metals that are present in some phosphate-based fertilizers . PROGRESS IN 2019 1. As part of the DROZD Village programme, a new gym has been opened in Kormezhka village, Balakovsky District, Saratov Region . The project was jointly funded by PhosAgro (RUB 300,000) and the local government (RUB 250,000) . In 2019, the number of children attending DROZD courses increased by 10 .5% to 5,861 . 2. We updated the design of the Company’s website for the Safer Phosphates programme, improved navigation and optimised messaging . The website content was updated to reflect the recent developments in connection with the ongoing debates around cadmium in the European Union . It now includes information from the partners of the Safer Phosphates programme and regular updates available via social media . Annual report | 2019Sustainability report87 86 Quality Education Clean Water and Sanitation TARGETS MEASURES BEING TAKEN BY THE COMPANY TARGETS MEASURES BEING TAKEN BY THE COMPANY 1. By 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education leading to relevant and effective learning outcomes. 2. By 2030, substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship . 3. By 2020, substantially expand globally the number of scholarships for enrolment in higher education, including vocational training and information and communications technology, technical, engineering and scientific programmes, in developed countries and other developing countries . 1. We implement the PhosAgro Schools project aimed at providing school students with career guidance, expanding their knowledge, sharing experience and enhancing the quality of education . 2. The Company has built strong partnerships with Russia’s key mining universities based on bilateral agreements on internships, scholarships for the best students, and the High-Potential Graduates programme . As part of the PhosAgro College initiative, we provide targeted funding to technical colleges to enhance their research base, supply them with necessary equipment, establish incentives for teachers and students, and offer career guidance. 3. In cooperation with the International Union of Pure and Applied Chemistry (IUPAC), PhosAgro supports the participation of young scientists from developing economies in Summer Schools on Green Chemistry . PROGRESS IN 2019 1. PhosAgro Classes Fest in Sochi brought together 140 students from specialised classes created by PhosAgro in communities where it operates . A special playground was installed in Kindergarten No . 70 in Balakovo to help children learn road safety rules . 2. From the inception of PhosAgro Classes to the end of 2019, the total spend on refurbishment, repair, installation of new computer hardware and laboratory equipment in the schools of Cherepovets, Balakovo, Kirovsk and Volkhov exceeded RUB 410 mln . 3. In 2019, the second Summer School on Green Chemistry was held at the University of Dar es Salaam in Tanzania . Part of the Company’s contribution was used to fund grants for talented young scientists from Africa . 1. By 2030, improve water quality by reducing pollution, eliminating dumping and minimising release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally . 2. By 2020, protect and restore water-related ecosystems, including mountains, forests, wetlands, rivers, aquifers and lakes . 1. PhosAgro Group takes part in the Rehabilitation of the Volga River national project . The Volkhov Branch of Apatit has implemented a closed-loop wastewater treatment system at its facilities to prevent the discharge of effluents into the Volkhov River . The Kirovsk Branch of Apatit takes active measures under the programme to reduce discharge and improve wastewater quality . 2. The Company supports the release of juvenile fish species into water bodies and tree planting initiatives . PROGRESS IN 2019 1. As part of the production upgrade, PhosAgro approved the initiative aimed at optimising water use by Apatit in Cherepovets . The programme looks to ensure efficient water use from surface water sources and reduce waste water discharge . 2. 150,000 fingerlings of sterlet, salmon, carp and silver carp were released into rivers and water reservoirs in 2019 as part of the programme for the reproduction of aquatic bioresources . Annual report | 2019Sustainability report89 88 Decent Work and Economic Growth TARGETS 1. Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors . 2. Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalisation and growth of micro-, small- and medium-sized enterprises, including through access to financial services. 3. By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products . and staff training, as well as running efficiency improvement programmes and streamlining business processes . Every year from 2013 to 2019, we increased our labour productivity by some 18% . 2. Apatit (Cherepovets) expects that production development investment projects implemented at its Kirovsk, Volkhov and Balakovo branches will create more than 500 new jobs for highly qualified employees by 2025. It also carries out a number of social programmes focused on healthcare, improvement of working environment, housing and social benefits to ensure decent working conditions . 3. The Company supports the Bolshoi Vudyavr project and the upgrade of the Khibini Airport, which will be a new growth area for the economies of the Apatity and Kirovsk regions . By making investments in the ski resort, we support small and medium-sized service, trade and hotel businesses in the region . MEASURES BEING TAKEN BY THE COMPANY PROGRESS IN 2019 1. Being a leader in terms of labour productivity growth, the Company strives to push it even further by introducing new technologies 1. In 2013–2019 our labour productivity increased by an impressive 160% at PhosAgro’s Kirovsk production site and by 170% at other Group’s assets 2. In 2019, 100 new jobs were created at Apatit’s Vostochny mine, including self-propelled machine operators, truck drivers, and support staff. 3. In 2019, the Company invested over RUB 800 mln in the Khibini Airport and Tirvas Sanatorium infrastructure. In five years, the aggregate tourist flow has seen a more than 300% rise, exceeding 175,000 people in 2019. Industry, Innovation and Infrastructure TARGETS MEASURES BEING TAKEN BY THE COMPANY 1. By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities . 2. Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 mln people and public and private research and development spending . 1. PhosAgro has successfully implemented its Strategy 2020, the largest investment programme in the Group’s history, resulting in 1 .5x production expansion and reaching an output of up to 9 .5 mln t of fertilizers and feed phosphates over the past five years. All the new facilities fully comply with the most stringent environmental laws and regulations in both Russia and Europe . 2. The Samoilov Scientific Research Institute for Fertilizers and Insectofungicides (NIUIF), Russia’s only and one of Europe’s leading agrochemical research institutes, is part of PhosAgro Group . We support research aiming to develop green chemistry technologies, including those related to crop nutrients production . PROGRESS IN 2019 1.PhosAgro, together with the Saratov National Research University, showcased the results of successful application of phosphogypsum in road construction over many years during the 5th Innovations in Road Construction International Forum in Sochi . 2. In 2019, we partnered with UNESCO to run the International Year of the Periodic Table of Chemical Elements . We also supported the All-Russian Mendeleev Chemical Students Competition and the Mendeleev Congress on General and Applied Chemistry. The Company organised field conferences at the trial station of AgroGard’s Orel branch, and also held field days. Annual report | 2019Sustainability report91 90 Sustainable Cities and Communities Responsible Consumption and Production TARGETS By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums . MEASURES BEING TAKEN BY THE COMPANY We ensure comfortable living environment for our employees and their families, as well as for the rest of local population across our footprint, investing in housing construction and social infrastructure development . We are supporting a project for the development of Bolshoi Vudyavr Ski Resort and the upgrade of the Khibini Airport in Kirovsk and Apatity . As part of our cooperation with the Murmansk Region Administration and in accordance with the partnership agreement for 2017–2019, PhosAgro provides co-funding totalling RUB 700 mln for social infrastructure projects and events . PROGRESS IN 2019 A multi-storey residential building in Kirovsk and several buildings in Cherepovets were constructed under the corporate housing programme . In Volkhov and Balakovo, the Company’s employees are offered subsidised mortgage loans . The number of apartments provided to the employees as part of the corporate housing programme has exceeded 2,500 by 2019 . TARGETS 1. By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order to minimise their adverse impacts on human health and the environment . 2. By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse . 3. Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle . MEASURES BEING TAKEN BY THE COMPANY 1. NIUIF (part of the Group) is developing a technology for the integrated treatment to recycle waste from wet-process phosphoric acid production into ammonium sulphate . As part of the Green Chemistry for Life, a project implemented jointly with UNESCO, PhosAgro launched a grant programme to support research on phosphogypsum processing . 2. We allocate substantial funds to projects aiming to prevent generation of waste or recycle it in an efficient manner. 3. We employ production technologies that help preserve non-renewable resources . PhosAgro possesses power generation facilities of its own with a total capacity of 210 MW, covering more than 40% of the Group’s energy needs . PROGRESS IN 2019 1. In partnership with UNESCO and the International Union of Pure and Applied Chemistry (IUPAC), the Company provided grants to young experts engaged in research and development in green chemistry . One of the grants, which was awarded for the third time, aims to support research in phosphogypsum recycling and reuse . 2. In 2019, we continued the re-equipment of aluminium fluoride production to use all the fluorine extracted as a result of phosphate rock processing and reduce the amount of solid waste . We have launched a multi-purpose waste management facility as part of Ecoprom project at our site in Kirovsk . 3. The Group has completed a large-scale investment project, a cutting edge granulated urea and ammonia production unit in Cherepovets, Vologda Region, an example of energy efficiency and sustainable use of natural resources . Annual report | 2019Sustainability report 93 92 Life on Land TARGETS 1. By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world . 2. Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species . MEASURES BEING TAKEN BY THE COMPANY TARGETS MEASURES BEING TAKEN BY THE COMPANY Partnerships for the Goals 1. The Company and the Food and Agriculture Organisation of the United Nations (FAO) are jointly running an initiative to promote efficient soil management solutions . Under the initiative, Regional Soil Laboratories Networks (RESOLAN) are created and consolidated into Global Soil Laboratories Networks (GLOSOLAN) across Latin America, Asia, Africa, and Middle East . PhosAgro plays a key role in the project as the Group is developing a unified global framework to promote technology and know-how in sustainable land use and agriculture . 2. PhosAgro Group takes part in a programme for studying and protecting the Amur tiger population . PROGRESS IN 2019 1. The Development of Sustainable Soil Management project was launched in January 2019. Its first stage is focused on designing the Soil Doctor Testing Kit to be distributed in the countries participating in the programme (5,000 farmers) . 2. The Company spent RUB 10 mln on projects under the cooperation agreement for studying and protecting the Amur tiger population . Enhance the global partnership for sustainable development, complemented by multi- stakeholder partnerships that mobilise and share knowledge, expertise, technology and financial resources, to support the achievement of the sustainable development goals in all countries, in particular developing countries . Together with UNESCO and IUPAC, PhosAgro has initiated and run the Green Chemistry for Life grant programme for young scientists doing research in line with the 12 Principles of Green Chemistry . Safer phosphates is an initiative established by PhosAgro in partnership with other fertilizer producers to share knowledge and address concerns about heavy metals that are present in some phosphate-based fertilizers . As an active member of the International Fertilizer Association (IFA), PhosAgro contributes to many of its projects . PROGRESS IN 2019 On 6 February 2019, PhosAgro joined the Global Compact Network Russia . Since January 2019, the Company has been taking part in the two platforms promoting responsible business and eliminating issues that arise when implementing the global goals – Business Reporting on the SDGs and Health is Everyone’s Business . In September 2019, PhosAgro was included in the LEAD, a group of Global Compact participants that have achieved the best results in corporate social responsibility . Annual report | 2019Sustainability report 102-12 KEY EVENTS In September 2019, PhosAgro was listed among 30 UN Global Compact LEAD companies. The Global Compact is the UN’s largest initiative to encourage private companies worldwide to adopt sustainable and socially responsible policies. PhosAgro joined in as an active participant of this international initiative in November 2018. Over the last 15 years, the Global Compact brought together over 10,000 businesses from 170 countries. Inclusion in the LEAD group serves as a recognition of our outstanding achievements in corporate social responsibility and highlights our strong commitment to these principles. 95 94 PhosAgro joined the European Sustainable Phosphorus Platform (ESPP). We are the first fertilizer company with production sites outside the European Union to join ESPP. This is a logical step towards integrating PhosAgro into the international community. It offers an opportunity to share knowledge and technology, collaborate in addressing pressing issues facing humanity, and build a constructive dialogue with regulators and national governments, which is of particular importance against the backdrop of the world community’s increasing attention to food safety and human health. PhosAgro Group and UNESCO agreed to extend their cooperation on the Green Chemistry for Life programme until 2022. This is a perfect example of an international initiative to support young chemists. The programme runs in 93 countries worldwide and covers almost all continents. Annual report | 2019Sustainability report97 96 ENVIRONMENTAL REVIEW GOALS TO 2025 Reduction of unit GHG emissions (to 142 kg of СО2 equivalent per tonne) by 10% Reduction of unit effluents (to 4.8 m3 per tonne of products) by 20% Reduction of unit pollutant emissions (to 0.996 kg per tonne of products) by 5% Increase in the share of recycled and decontaminated hazard class 1–4 waste to 40% GLOBAL SUSTAINABLE DEVELOPMENT GOALS Annual report | 2019Sustainability reportMANAGEMENT APPROACH Effective environmental management is a key factor that impacts PhosAgro’s ability to meet its strategic goal of becoming a socially responsible business. PhosAgro strives to develop its extensive resource base and produce fertilizers in a safe and eco-friendly manner, thus contributing to the sustainable agricultural development worldwide . We have put in place environmental management practices that ensure our compliance with applicable regulations and help us reduce the impact of our operations on the environment . Committed to continuous improvement in this area . 99 98 PhosAgro signed an agreement with the Russian Ministry of Natural Resources and Environment, Federal Service for Supervision over Natural Resources Management and the Vologda region government to run a Clean Air nationwide initiative as part of the Environment national project. KEY FOCUS AREAS OF THE ENVIRONMENTAL STRATEGY 1 . Reduce environmental impact 2 . Preserve natural eco-systems 3 . Continue improving environmental management ENVIRONMENTAL OBLIGATIONS 1 . Minimise environmental risks at all stages of investment projects and along the production chain 2 . Use the best available techniques and environmental monitoring solutions in the regions of operation 3 . Take steps to prevent climate change and save resources 4 . Comply with environmental laws 5 . Hold all partners in the supply chain responsible for their environmental impact 6 . Raise the staff environmental awareness 7 . Preserve biodiversity, natural landscapes and habitats across the Company’s footprint ENVIRONMENTAL COMPLIANCE PhosAgro complies with environmental laws . All our facilities that have an adverse environmental impact are included in dedicated state registers, with relevant categories assigned to them . We have all necessary permits in place for every facility . 103 8 . When developing new sites, take measures to reduce the area disturbed as a result of operating and other activities, protect wildlife migration routes, freshwater ecosystems and spawning streams 9 . Make sure no activities take place in specially protected natural areas or conservation areas, traditional territories of indigenous peoples, natural world heritage sites, and wetlands of international importance (the Ramsar List) 10 . Communicate and foster dialogue with all stakeholders involved in environmental protection, stage public discussions of design documents for future facilities Annual report | 2019Sustainability report101 100 MANAGEMENT AND REPORTING Apatit’s management system embraces key management levels and all production stages, from development to product release . It also standardises requirements for production management, which influences the quality and competitiveness of products, environmental safety, etc . By implementing a consistent approach in line with international environmental standards, the subsidiary contributes greatly to its own and the Company’s environmental performance and sustainable development . Treating the enterprise’s operations as a set of processes can optimise internal and external interactions and boost its efficiency. Compliance with environmental standards is achieved by continuously monitoring the quality of raw materials, preventing critical excesses at all stages of production, constantly measuring production parameters, monitoring and automating the process and conducting express analysis of the operating environment . We systemically monitor, measure and evaluate our environmental performance, while also assessing the efforts to prevent repeated and potential inconsistencies . This helps us identify and control environmental issues, determine risks and opportunities, develop and implement risk management and response initiatives . The journey of phosphate-based fertilizers, our main product, begins at the mines of Apatit’s Kirovsk branch on the Kola Peninsula where we extract unique apatite-nepheline ore containing almost no harmful impurities . This high-quality raw material is a key input for our downstream production sites, which make some of the world’s purest and safest phosphate-based fertilizers that farmers use to grow the food that ends up on our plates . Technological processes involved in producing ammonia, mineral fertilizers and inorganic acids and those used in the production of mineral fertilizers correspond to the best available techniques used in the Russian Federation and can reduce any adverse impact on the environment, cut down water consumption and improve both energy and resource efficiency. At all stages of production, we take the following steps to measure the environmental impact: monitoring of atmospheric emissions at the source, monitoring of the air near sanitary protection zones, monitoring of waste-water discharge into bodies of water, monitoring and keeping records on areas used to store production and consumption wastes for all of the Company’s assets, including the activities of contractors . Monitoring is carried out on the basis of dedicated programmes in effect at every one of the Company’s production assets . The results are submitted to the local bodies for state environmental monitoring (Rosprirodnadzor) in the regions where the Company operates . In case of deviations from the norms, the Company develops corrective measures . The monitoring results serve as a basis in making investment decisions and financial planning for initiatives aimed at reducing the impact of production operations. They also help assess the achieved effects. The Company has also introduced environmental safety requirements for contractors and suppliers of services, making them available at all of its tender sites . The distribution of responsibility and authority within the environmental management system is governed by regulatory documents, including internal standards, regulations on structural units, job descriptions, production SOPs, etc . These documents set requirements for various operations and workplace safety . PhosAgro’s management receives weekly updates on all ongoing environmental issues, with quarterly reports also submitted to the Chairman of the Environmental, Health and Safety Committee of the Board of Directors . The Board of Directors receives quarterly updates on any expenses or payments made to compensate for environmental impact . In addition, the directors review annual and semi-annual reports on environmental protection initiatives and environmental performance . 103-2 ENVIRONMENTAL MANAGEMENT The Company’s Board of Directors defines the Company’s environmental policy and sets strategic goals to ensure environmental protection and reduce the negative impact of its operations . General management, organisation and coordination of efforts to continuously enhance environmental management are the responsibility of Apatit’s Department of Ecology and Environmental Management . To honour its commitment to the ongoing environmental improvement, the Company has established dedicated monitoring and management functions at its subsidiaries and their branches, and designated officers in charge locally . Production units, which have the greatest environmental impact, have introduced a procedure for identifying and assessing risks and opportunities . Based on the results, we develop measures to bring risks pertaining to significant environmental aspects to an acceptable level . Managers and experts responsible for making operational and other decisions that may adversely affect the environment take a specially designed training course in environmental safety . Only specially trained employees are cleared to handle class 1–4 waste . We continuously monitor the impact of our operations to ensure compliance with applicable environmental standards . This helps us identify and control environmental issues, determine risks and opportunities, develop and implement risk management and response initiatives . Environmental risk management is subject to regular assessment by the Board of Directors . The assessment serves as a basis for updating risk factors and their descriptions, and for developing new policies and initiatives . To confirm its compliance with ISO 14001 and IFA Protect and Sustain standard, the environmental management framework undergoes scheduled independent audits . The facilities have also put in place a procedure to manage internal audits . Every year, they develop internal audit programmes taking into account the environmental significance of the reviewed processes, changes affecting the facility and previous audit outcomes . The audits provide input data for the management to analyse environmental management efficiency. Improvement areas are identified through monitoring, measurement, review and assessment of environmental indicators and the performance of obligations, environmental management audits and management analysis . As part of improvements, including measures to manage and close gaps, we take the required corrective actions based on the relevant operating procedures . Spending on environmental protection, RUB mln Total Operating costs of environmental protection (form 4-OS) Investments in fixed assets aimed at environmental protection and sustainable use of natural resources (form 18-KS) Environmental impact payments Environmental fines and damages Investments in fixed assets aimed at environmental protection (excluded from Form 18-KS) 2017 5,089.6 3,578.7 1,312.6 149.5 0.5 48.4 2018 8,210.0 4,587.7 986.3 2019 9,059.5 4,351.9 4,221.9 156.3 165.3 0.6 0.79/2.12 2,479.1 317.5 The reporting year saw an increase in environmental spending driven by growing investments in fixed assets aimed at environmental protection. An emergency caused damage to a water body, which was compensated on a voluntary basis. Environmental impact payments, RUB mln 2.902 2018 2019 156.342 165.277 Waste Aquatic environment Atmosphere Limit Over-limit Standard permissible discharge Temporarily permitted discharge Over-limit Maximum permissible emissions Temporarily permitted emissions over-limit payments Share of over- limit in total payments 2018 140.615 1.326 1.225 9.066 0.836 2.534 0.000 0.740 2.902 (1.86% share of over-limit in total payments) 2019 157.88 0 1.644 3.286 0 2.467 0.000 0.000 0.000 (no over-limit payments) Annual report | 2019Sustainability report 103 102 PERMITS AND CERTIFICATES The Company’s production sites hold all necessary licences and permits related to environmental protection . We pass audits in accordance with ISO 9001:2015, ISO 14001:2015, OHSAS 18001, and GMP+ to ascertain the efficiency of our product life- cycle management . We also undertake regular internal and external audits to assess our compliance and obtain certification. Every year, we successfully confirm our adherence to international standards. When developing exposure scenarios, we assess risks and prepare internationally accepted safety data sheets and recommendations in accordance with Regulation (EC) No. 1272/2008 on classification, labelling and packaging of substances and mixtures, and Regulation (EC) No . 1907/2006 concerning the registration, evaluation, authorisation and restriction of chemicals (REACH) . LEGISLATIVE AND ADMINISTRATIVE FRAMEWORK None of PhosAgro’s enterprises use ozone- depleting substances in the production process . A small amount (not more than 250 kg/year) of carbon tetrachloride (CCl 4) is used in laboratory testing . 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. ENVIRONMENTALLY RESPONSIBLE PROCUREMENT POLICY As a socially and environmentally responsible business, PhosAgro Group checks its potential suppliers for compliance with relevant requirements . The Company takes the following steps to make sure all sourced inputs and materials are eco-friendly: Incoming quality control The list of industrial and technical products subject to incoming control is made on a daily basis . All supplies undergo quality testing . If needed, the Company may request third-party centres to perform sample testing within their scope of certification. Contractor and supplier compliance • Requests for safety data sheets, technical quality control reports, certificates of quality management compliance with ISO 9001:2011 (ISO 9001:2008, EAEU technical regulations, MSDS) to assure product quality • Requirements to employ materials and equipment compliant with Russian quality standards (rules and regulations), certified by manufacturers and permitted for use in Russia • Requirements to comply with applicable regulations on freight storage and transport by road and rail Additional checks The Company’s experts perform additional checks and assessments of potential suppliers if required for a specific tender. They may include a request to confirm the availability of production capacities and technologies, staff qualifications, licences, certificates, including ISO ones, and technical audit reports . An executive responsible for environmental management recommends an appropriate solution with regard to environmental safety . In 2019, the Company conducted random audits of suppliers, while also being checked, as a supplier, by third parties for compliance with social responsibility and environmental standards. In 2020, we will publish a formalised list of social and environmental indicators, which along with financial ones will serve as supplier eligibility criteria. Annual report | 2019Sustainability report105 104 103 2019 HIGHLIGHTS EMISSIONS INTO THE ATMOSPHERE PhosAgro’s emissions management system seeks to comply with national air pollution regulations, ensure air quality in sanitary protection areas near production sites, and upgrade the Company’s capacities using the best available techniques . PhosAgro’s strategic goal is to achieve a 5% reduction in pollutant emissions per tonne by 2025 . To deliver on this target, in November 2019, the Board of Directors’ Sustainable Development Committee approved a list of initiatives designed to contribue to achieving the objective . In particular, the Company: 1 . implements environmental programmes under the nationwide Clean Air initiative in line with the Comprehensive Plan to Reduce Pollutant Emissions in Cherepovets approved by the Deputy Prime Minister of Russia on 28 December 2018; 1 .1 . upgrades the SK-600/3 sulphuric acid facility to decrease sulphur dioxide emissions by 0 .892 kt, with RUB 315,177,000 spent in 2019 and RUB 2,710,719,000 for the entire project implementation period; 1 .2 . deploys new tailing gas pre-heating equipment for the UKL-7 plants to reduce atmospheric emissions by 0 .105 kt, with RUB 9,417,000 spent in 2019 . 2 . upgrades equipment at the Volkhov branch to reduce pollutant emissions, including absorption system upgrade at the second site, and introduction of absorption acidification systems at three sites of the mineral fertilizer production unit . 3 . takes measures to prevent dust emissions from tailings at the Kirovsk branch . Pollutant emissions, kg/t1 2017 1.131 2018 1.048 2019 0.888 Emissions of NOx, SOx and other major pollutants, t Kirovsk branch of Apatit 2017 5,512.8 2,192.9 732,8 2,402.5 245,6 0,1 2018 5,752.8 3,326.0 792,1 1,760.1 24,5 0,1 2019 3,734.1 3,458.3 477,6 1,534.8 16,1 0,1 Balakovo branch of Apatit 2017 451,0 4,156.7 858,3 742,5 2,6 344,2 542,2 2018 410,7 4,115.2 836,6 737,7 2,6 337,9 509,8 2019 410,8 4,293,7 782,8 724,1 2,6 339,9 448,5 Volkhov branch of Apatit 2017 639,7 202,8 150,0 362,1 0 0,01 56,7 2018 622,0 155,0 65,0 323,0 0 3,0 48,0 2019 610,4 161,7 73,3 149,8 0 3,4 163,9 Apatit 2017 1,334.4 4,886.0 855,0 2,684.6 1,0 125,7 3001,2 2018 1,043.3 3,764.4 1,221.8 2,980.1 145,2 5,4 3241,9 2019 1,356.3 3,297.4 1,476.3 2,309.2 37,8 2,8 3009,1 11,086.7 11,656.1 9,221,1 7,097.5 6,950.4 7,002.4 1,411.5 1,216.5 1,162.5 12,887.8 12,402.2 11,488.9 The Group takes part in the nationwide Clean Air initiative, which aims to drastically reduce air pollution in major industrial cities. Total 2017 7,938.0 2018 7,828.5 11,438.5 11,361.1 2,596.1 6,191.7 3,6 715,5 3,600.2 2,915.6 5,801.2 147,8 371,3 3,799.8 2019 6,111.7 11,211.1 2,809.9 4,717.9 40,4 362,3 3,621.5 305-7 32,483.6 32,225.2 28,874.8 Solids Sulphur dioxide Carbon monoxide Nitrogen oxides (NOX as NO2) Hydrocarbons(w/o VOCs) Volatile organic compounds (VOCs) Other gaseous and liquid pollutants 1 . Tonnes of finished and semi-finished products In 2019, gross pollutant emissions, including NOx and SO2, were down across the Group . The reduction was due to the measures implemented by the Company and the favourable weather conditions . Annual report | 2019Sustainability report103 305-1 305-4 GREENHOUSE GASES The Group is committed to tackling greenhouse gas emissions and climate change . . GHG emissions1, kg/t2 2015 125.34 2016 141.47 2017 145.95 2018 157.97 2019 143.27 PhosAgro’s strategic goal in this area was approved by the Sustainable Development Committee of the Board of Directors in November 2019 and envisioned achieving the level of 142 kg of CO2 equivalent per tonne of finished and semi-finished products by 2025. To deliver on this objective the Company is implementing a number of projects • elaborates a low carbon transition strategy and plan; • develops an action plan for the low carbon transition strategy; • defines GHG emission targets; • conducts climate change scenario analysis; • works out a plan for engagement with members of the value chain and the engagement assessment framework . The deadline is set for Q3 2020 . PhosAgro takes part in the Carbon Disclosure Project (CDP) to reduce greenhouse gas emissions. The Company received a C score for its first submission to CDP made in July 2019. Greenhouse gas emissions Apatit Total GHG emissions, t 2017 3,354,121 2018 3,995,830 2019 3,746,069 Balakovo branch of Apatit Volkhov branch of Apatit Kirovsk branch of Apatit 164,299 103,538 569,194 157,886 118,396 583,144 152,632 121,325 636,303 GHG emissions per unit of output, kg/t2 2017 272.432 2018 295.235 2019 261.915 30.718 183.86 28.427 181.497 25.650 197.368 54.244 53.042 54.702 Total 4,191,152 4,855,256 4,656,329 145.948 157.973 143.272 1 . Greenhouse gas emissions are given in СО2 equivalent . The calculation includes the following list of gases: СО2, СН4, NO2 . 2 . Tonnes of finished and semi-finished products 1 . Tonnes of finished and semi-finished products Total Kirovsk branch Balakovo branch Volkhov branch Cherepovets 107 106 Share of recycled and decontaminated hazard class 1–4 waste, % 103 2017 26.3 2018 26.8 2019 34.5 We place major emphasis on safe operation of tailings, which are special hydraulic structures and equipment for storage and disposal of mineral processing wastes . Based on the safety requirements for hydraulic structures approved by the Federal Service for Environmental, Technological and Nuclear Oversight (Rostekhnadzor) in 2018, the Company’s tailings have the highest safety level . This means that they fully meet the design requirements and applicable rules and regulations . The state of structures and foundations corresponds to the requirements . The tailings are operated in accordance with existing industrial safety laws and regulations as well as instructions of supervisory bodies . WASTE Waste management is an integral part of PhosAgro’s comprehensive environmental management system . Our strategic goal to 2025 is to increase the share of recycled and decontaminated hazard class 1–4 waste to 40% . To achieve the targets, the Company is implementing a number of initiatives approved in November 2019 by the Board of Directors' Sustainable Development Committee: 1 . upgrading the aluminium fluoride plant at the Cherepovets site to ensure the use of all the fluorine extracted as part of phosphate rock processing; reduce lime consumption in treating effluents; and decrease the amount of solid waste generation with RUB 9,761,000 spent in 2019; 2 . at the Kirovsk branch, we have launched waste disposal and decontamination facilities, including the UDT-1 thermal treatment facility and the thermal waste decontamination unit with high-temperature burning of exhaust gases; the project will contribute to elimination of waste disposal sites and make possible the recycling of all kinds of waste (tires, railway sleepers, and timber) belonging to PhosAgro and other companies in the region . Waste generation, kg/t1 Total Kirovsk branch Balakovo branch Volkhov branch Cherepovets 2013 4.566 10.845 0.828 0.005 0.454 2014 3.456 8.333 0.869 0.005 0.462 2015 3.578 8.881 0.725 0.004 0.470 2016 3.653 8.950 0.881 0.004 0.483 Waste generation (hazard class 1–4), kg/t1 2017 3.152 7.615 0.898 0.004 0.472 2017 8.871 0.308 2018 3.225 8.042 0.884 0.005 0.428 2018 5.779 0.632 2019 3.466 8.710 0.894 0.002 0.421  2019 6.113 0.635 2013 2014 159.467 169.423 3.684 2.991 2015 6.970 0.896 2016 10.978 0.458 828.231 868.426 24.579 29.498 28.951 22.239 19.495 1.382 10.205 1.631 7.791 0.881 4.763 0.616 12.203 0.925 7.810 0.913 3.441 2.187 5.168 Annual report | 2019Sustainability reportWaste, t WATER Waste water discharge, m3/t1 303-4 109 108 Reused Landfilled Third party Third-party recycled Third-party decontaminated Third-party landfilled Third-party stored Third-party processed Kirovsk branch of Apatit 2017 2018 2019 29,633,656.5 50,252,148.4 21,274,068 67,117,451 19,656,977 81,635,022.6 21,526.6 16,933.2 15,665.9 Balakovo branch of Apatit 22,312 4,780,492.2 11,649.7 2017 2018 2019 6,099 4,898,612.7 16,580.3 5,302,285.7 Volkhov branch of Apatit 2017 2018 2019 Apatit 2017 2018 2019 Total 2017 2018 2019 – – – – – – 3,013,524.1 2,778,641.4 2,970,411.4 2,767,144.9 3,195,192.6 2,856,356.6 32,669,492.5 57,811,281.9 24,250,578.5 74,783,208.5 22,868,749.9 89,793,664.9 306-2 9,879.1 4,720.5 1,490.1 115.5 43.9 18,469.3 12,984.1 17,266.3 53,135.8 39,911.9 37,696.5 340.1 9.8 165.9 1.7 26.4 4.5 0.3 0.4 0.3 457.2 39.6 100.6 799.3 76.2 271.4 2,606.7 5,279.8 4,197.1 222.3 372 257 652.9 603.7 1,345 134.4 – 125.7 3,616.3 6,255.5 5,924.8 – – – – – – – – 0.7 – – 0.7 0 – – – 1,381.5 2,906.1 – 1,998.9 – – – – – 3,380.5 2,906.1 Production growth has resulted in increased waste disposal . Waste generation by hazard class, t Total I class II class III class IV class V class Kirovsk branch of Apatit 2018 2019 88,413,741.67 101,313,438.09 Balakovo branch of Apatit 2018 2019 4,909,840.64 5,321,693.716 Volkhov branch of Apatit 2018 2019 2,718.53 1,389.20 Apatit in Cherepovets 2018 2019 Total 2018 2019 5,798,521.75 6,020,722.293 99,124,822.59 112,657,243.30 0.24 0.494 2.074 2.091 0.425 0.3 4.741 4.751 7.48 7.636 0 9.039 0.048 0.555 0 0 1.252 1.17 1.3 10.764 237.414 334.52 38.027 8.453 0 0 981.185 1,595.652 1,256.626 1,938.625 6,710.49 88,406,793.53 7,047.985 101,306,046.05 123,472.40 4,786,328.10 116,008.999 5,205,673.618 594.9 1,345 2,123.20 43.90 45,581.40 72,323.84 5,751,953.20 5,946,796.88 176,359.19 98,947,198.03 196,725.824 112,458,560.4 Our waste water management approach is focused on maximum reuse of water through closed-loop water recycling system and proper treatment of effluents discharged into water bodies in addition to continuous monitoring of water bodies in the regions of operation and aquatic life recovery . The Company’s strategic goal is to reduce waste water discharge per tonne of output by 20% compared to 2018 . To deliver on our targets, PhosAgro implements a variety of programmes approved by the Board of Directors› Sustainable Development Committee in November 2019, including: 1 . the Optimisation of Water Use by Apatit in Cherepovets During Production Upgrade in 2020–2025 – a targeted programme with RUB 176 m in funding for phase 1 only; 2 . the Discharge Reduction and Effluent Quality Improvement at the Kirovsk Branch of Apatit in 2019–2020 – a targeted programme which includes construction of a chemicals dosing facility to treat effluents from the ANBP-2 tailings . 2017 7.476 Pollutant discharge, kg/t2 2016 1.3 2017 1.0 2018 6.039 2018 0.8 2019 4.684 2019 0.614 Treated effluents (reused in the production cycle), mln m3 103 303-1 TOTAL Kirovsk branch of Apatit Balakovo branch of Apatit Volkhov branch of Apatit Apatit (Cherepovets site) Water consumption, ths m3 TOTAL Kirovsk branch of Apatit Balakovo branch of Apatit Volkhov branch of Apatit Apatit (Cherepovets site) 1 . Excluding supplies to third parties 2 . Tonnes of finished and semi-finished products 2018 221.98 202.83 9.36 1.62 8.16 2018 34,510 9,864 7,632 1,936 15,078 2019 238.87 219.52 9.52 1.07 8.77 2019 33,763 5,563 8,256 2,168 17,776 303-5 The Company’s strategic goal is to reduce waste water discharge per tonne of output by 20% from 2018 to 2025 to achieve 4.8 m3 per tonne of finished and semi-finished products. The relevant steps towards this goal were approved by the Sustainable Development Committee of the Board of Directors in November 2019. Annual report | 2019Sustainability reportPhosAgro supports aquatic life recovery . 303-2 Number of fish released into water bodies in the regions of operation as part of environmental protection initiatives in 2019 Total water discharge by source and by site, ths m3 Indicator Kirovsk Branch of Apatit Apatit (Cherepovets) Balakovo Branch of Apatit Volkhov Branch of Apatit Total 111 110 303-4 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 Cherepovets site Balakovo branch of Apatit Kirovsk branch of Apatit Water discharge into surface waters Aquatic life species Juvenile carp Juvenile carp Juvenile silver carp Quantity 6,500 30,000 25,000 Water body Gorky Reservoir Volgograd Reservoir Sterlet yearling 84,353 Sukhona River Juvenile Atlantic salmon (2 yrs) 2,130 Umba River Water discharge in 2019, mln m3 Waste water discharge Discharged without treatment (% of total water discharge) Kirovsk branch of Apatit 137.4 2.6 Balakovo branch of Apatit Volkhov branch of Apatit Apatit Total 0 0 0 0 14.8 0 152.2 2 303-3 Total water withdrawal by source, ths m3 Indicator Kirovsk Branch of Apatit Apatit (Cherepovets) Balakovo Branch of Apatit Volkhov Branch of Apatit Total 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 Surface water Total water withdrawal from surface sources, including: 144,920 111,106 22,110 24,291 7,201 7,619 2,069 2,163 176,300 145,179 process water 28,741 27,596 19,387 21,161 7,201 7,619 1,861 1,940 57,191 58,315 drinking water (internal use) drinking water (for supplies to third parties) mining water drainage water rainwater Ground water Water withdrawal from ground-water sources: 0 0 0 0 111,213 79,933 4,965 3,577 935 498 0 0 885 466 0 0 0 0 1,290 1,779 0 0 0 0 0 0 0 0 0 0 0 0 0 0 208 0 0 935 498 885 466 0 111,213 79,933 0 223 4,965 1,498 3,577 2,002 2,196 1964 0 0 742 879 0 0 2,938 2,842 Water received from third party suppliers Total water received from third party suppliers, including: process water received from suppliers water from municipal supply (internal use) water from municipal supply (for supplies to third parties) waste water from other waste- water discharge systems 37,129 32,334 7,661 9,572 18,367 19,016 7,125 8,530 9,263 7,824 457 560 0 0 9,500 5,494 23 56 34 448 0 0 0 0 0 0 0 0 0 0 138 177 44,927 42,082 0 0 25,491 27,546 138 177 9,857 8,560 0 0 0 0 23 34 9,556 5,943 Total water discharge into surface waters: mining water drainage water waste water from other waste- water discharge systems Supplies to third parties Total water supplies to third parties: waste water to the public water discharge system (after use) waste water to the public water discharge system (unused) water supplies to third parties from surface sources water supplies to third parties from municipal sources 171,787 137,386 13,694 14,837 111,213 79933 4,965 9,500 3577 5,494 0 0 0 0 0 0 0 0 0 0 0 0 0 0 141 0 0 0 0 0 0 0 185,621 152,223 111,213 79,933 4,965 9,500 3,577 5,494 2,595 2,455 999 1,251 312 242 129 171 4,035 4,118 2,595 2,455 422 302 312 242 129 171 3,458 3,170 0 0 0 0 0 0 56 448 498 466 23 34 0 0 0 0 0 0 0 0 0 0 0 0 56 448 498 466 23 34 TOTAL 174,382 139,841 14,692 16,087 312 242 270 171 189,656 156,341 ENERGY EFFICIENCY To compensate for the energy intensive nature of our business, at PhosAgro we are constantly seeking ways to improve productivity and use resources more efficiently. Crucial to this effort is gaining a thorough understanding of how we consume energy . To this end, the Company focuses its work in the following key areas: • • expanding our own power-generation increasing energy efficiency; • capacities; recycling waste to generate heat by using exhaust gases from gas turbines to produce steam; • optimising energy use from different sources . In 2019, PhosAgro’s production facilities were 40.2% self-sufficient in electricity. We continued our work to increase efficiency across the Group’s production sites. PhosAgro energy consumption in 2019 Electricity, ths kWh Natural gas, mln m3 Liquefied natural gas, t Heat energy, ths Gcal Fuel, ths tons Diesel, ths tons Total cost, RUB bln Total consumption own generation purchased Consumption per tonne of output 3,735 1,500 2,235 0.115 2,704 3,135 0.083 0.096 11,331 10,924 407 0.349 154 47 0.005 0.001 103 302-1 306-1 302-1 302-3 TOTAL 184,246 145,404 29,770 33,863 7,944 8,498 2,206 2,339 224,166 190,104 Cost, RUB bln 10.286 12.058 0.091 10.74 2.54 2.100 37.810 Annual report | 2019Sustainability reportPhosAgro energy consumption in 20181 KEY EVENTS IN 2019 113 112 Electricity, ths kWh Natural gas, mln m3 Liquefied natural gas, t Heat energy, ths Gcal Fuel, ths tons Diesel, ths tons Total cost, RUB bln Total consumption Own generation Purchased Consumption per tonne of output 3,651 1,485 2,166 0.119 2,667 2,705 0.087 0.088 10,968 10,580 388 0.357 148 40 0.005 0.001 Cost, RUB bln 8.919 11.470 0.076 10.00 2.20 1.769 34.436 302-4 REDUCTION IN ELECTRICITY CONSUMPTION Our programmes Facility. Project Effect Project costs Project Deadlines Kirovsk Upgrade of the lighting system to LED at ANBP-3 of Apatit’s Kirovsk Branch The project helped achieve a 0.505 MW reduction in electric capacity used for industrial lighting at ANBP-3 of Apatit’s Kirovsk Branch compared to 2018, which accounts for around 0.3% of total consumption. Cherepovets Launch of SK 3300 sulphuric acid production plant Balakovo. Kirovsk Construction of a 100 kW solar power station Volkhov Construction of a thermal power station with a 34 MW high-efficiency electric turbine and a water treatment system at Apatit’s Volkhov Branch The new SK 3300 plant produces enough process steam to ensure full generating capacity utilisation at Apatit’s thermal power station, which, in turn, leads to lower natural gas consumption by its boilers. The solar power station pilot running at two production sites of the holding company is geared towards assessing the potential of renewable solar energy and the viability of a further scale-up. The utilisation by the thermal power station at Apatit’s Volkhov Branch of the process steam that is a by-product of the sulphuric acid production plant will help solve the problem of supplying all of the site’s consumers with low-grade steam and significantly reduce the need for the purchase of electricity from third-party power distribution companies. RUB 0.082 bln RUB 10.5 bln RUB 0.01 bln RUB 3 bln Q4 2019 Q1 2020 Q3 2020 Q2 2021 PhosAgro joined the Carbon Disclosure Project (CDP), an international initiative to reduce greenhouse gas emissions. A report on PhosAgro’s climate change initiatives in 2019 drafted and submitted via’s CDP’s online response system. "C" score received. Work started to draft the Company’s GHG reduction strategy to 2020 and 2030 along with the regulations on monitoring GHG emissions, and the GHG reduction action plan. PhosAgro backed the landmark EU decision to put a cap on phosphate fertilizers with high cadmium content from 2022 and introduce voluntary "Low Cd Content" labelling for fertilizers with a cadmium content of less than 20 mg/kg. We also supported the initiative by the Food and Agriculture Organization of the United Nations (FAO) to enshrine in the International Code of Conduct for the Sustainable Use of Fertilizers recommendations to governments worldwide to introduce restrictions on fertilizers with a high content of toxic impurities. KEY PROJECTS Environmental impact reduction UPGRADE OF THE SK-600/3 SULPHURIC ACID PLANT AT APATIT (CHEREPOVETS) IN 2018–2019 as part of the nationwide Clean Air initiative . Environmental effect: Sulphur dioxide emissions from source 0614 down by 39.49%, or 892 t compared with 2017 Investments in the project totalled 2.7 RUB bln. SO2 emissions, kg/t before upgrade after upgrade level set in the Best Available Technique guidelines (ITS2-2015) 1.540 0.785 2.615 1 . The heat and electricity data provided in the Company’s 2018 annual report may differ from those disclosed in this table because the Company harmonised calculation methods for power consumption across all its production assets in the reporting year . Annual report | 2019Sustainability report115 114 403 HEALTH AND SAFETY REVIEW GOALS TO 2025 reduce workplace injuries by 10% annually reduce the number of incidents by 10% annually improve the health and safety management system and culture GLOBAL SUSTAINABLE DEVELOPMENT GOALS TARGETED PROGRAMMES TO ACHIEVE OUR STRATEGIC GOALS Improving safety of working at heights Use of LOTO system Improving gas safety Improving transport safety Identifying and managing production process risks Developing gas and mine rescue, fire-fighting and prevention activities Annual report | 2019Sustainability report103 403-6 INTEGRATED HSE MANAGEMENT SYSTEM We view the life and health of our people as our top priority. As part of our commitment, we focus on creating a safe and healthy working environment for our employees, contractors and suppliers. We also make it an essential component of our sustainability strategy. MANAGEMENT APPROACH We place a great emphasis on making our health and safety system compliant with applicable laws and the highest international standards . We carefully monitor and seek to implement the best practices in this area . On top of that, we are consistently improving our safety culture, employee responsibility and awareness, hazard identification procedures and danger prevention measures by putting managers at all levels in charge and applying the most advanced health and safety techniques . Our mission is to continuously identify and reduce health and safety threats to our employees, contractors and visitors to the Company’s sites . Our aim is to completely eliminate fatalities, take a leading position in terms of key health and safety indicators, and achieve the highest standards in this domain . In 2019, we continued to enhance our health and safety performance to help the Company fulfil its strategy. We define relevant goals and objectives, both strategic and operational, based on huge volumes of data derived from internal and external audits, inspections, incident investigations, and employee feedback . We have adopted a Health and Safety Strategy, which defines key focus areas and initiatives to reduce the risks associated with various operations . The Strategy focuses on the following key areas: reduce workplace injuries (by 10% annually) • reduce the number of incidents (by 10% annually) • improve the health and safety management system and culture . • To achieve these goals, we run the following targeted programmes: • Improving the safety of working at heights (theoretical course, drills in the Vysota (Height) training centre and with mobile simulators) • Use of the LOTO system (auxiliary safety equipment) • • • • Developing gas and mine rescue, fire-fighting and prevention activities. Improving gas safety Improving transport safety Identifying and managing production process risks Health and safety management principles Fortifying health and safety is one of our key priorities and an essential component of our sustainability strategy . Without healthy, motivated and engaged employees working in safe conditions, we would not be able to move forward and develop our operations, introduce innovations and build strong relationships with local communities and stakeholders . This is why we are fully committed to creating a safe and healthy working environment and improving our health and safety practices . internal investigations of all incidents; At PhosAgro, we use management techniques that proved to be effective in many companies . These include: • • prequalification of contractors to assess their level of compliance; • health and safety training for employees; • PPE matrices . Apatit employees enjoy additional healthcare benefits, including access to gyms and swimming pools located both on-site and in town . At its facilities, the company organises various sports activities, such as futsal, volleyball, etc ., and offers its personnel health resort treatment. As part of healthcare initiatives, staff canteens provide nutrition according to Diet No . 10 targeting patients with cardiovascular diseases . The company uses corporate media, information stands, lectures and brochures to distribute information on all its initiatives . 117 116 Health and safety management system We pay special attention to making our health and safety system compliant with applicable laws and the highest international standards . To this end, we have introduced a multi-tier health and safety (OHS) management system involving managers of all levels . Following the introduction of a public scrutiny mechanism in 2019, OHS management now involves dedicated officers and employees of all business units . Our executives together with blue- and white- collar staff take OHS training as required by the national laws, as well as additional safety training . The Company has introduced a system of audits and inspections to ensure compliance with statutory requirements and corporate standards . Apatit, our largest enterprise, is certified for compliance with OHSAS 18001. 403-1 403-8 An integral part of our OHS management system is the Health and Safety Committee, which makes it possible for operational and non-operational managers and employees to take part in relevant activities . In its work, the Committee relies on the principles of social partnership . Its members interact with the Company’s executive body responsible for health and safety, state supervisory bodies overseeing compliance with Russian health and safety laws, other government’s watchdogs, and the Company’s trade union . 1 Health and safety management system Organisational unit Key responsibilities Board of Directors Environmental, Health and Safety Committee Management Board Management • Sets strategic priorities and policies • Holds management accountable for health and safety monitoring 403-3 and performance • Receives quarterly reports on health and safety performance • Defines and oversees the health and safety policy • Reviews all on-site incidents involving people and machinery on a weekly basis • Supervises OHS management functions across the Group’s companies to implement OHS policies and strategies • Collects data and prepares OHS reports for the Management Board OHS Department and the Health and Safety Committee Operations Heads of production sites Operational OHS staff Local OHS management functions • Cooperates with external consultants to implement the best practices of OHS management • Conducts audits and inspections at the Company’s sites • Oversee OHS policies and strategies at respective production sites • Develop and implement response measures following internal and external audits and accident investigations • Monitor the site’s compliance with OHS regulations and corporate standards • Develop targeted programmes, conduct training and stage • initiatives Interact with relevant regulatory authorities on behalf of the site and facilitate inspections • Conduct internal inspections and audits and present analytical reports to the local management 1 . For more information on PhosAgro’s OHS system, see Apatit’s Industrial Safety Policy Statement and Quality, Environmental and OHS Policy . Annual report | 2019Sustainability report403-2 The Company’s operations are regulated by the Russian health and safety laws, as well as: • health and safety SOPs at the facility (shop) level; • production SOPs; • worker health and safety instructions; • corporate standards; • process regulations; • accident management action plans, etc . To improve OHS efficiency, automate and streamline the relevant processes, we have successfully introduced Safety and Instructions (Shift Assignments) management systems . In line with statutory requirements, the Company is subject to external audits by Russian regulatory authorities, including Federal Service for the Supervision of Environment, Technology and Nuclear Management (Rostekhnadzor), State Labour Inspectorate, Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor), and the Ministry for Civil Defense, Emergencies and Elimination of Consequences of Natural Disasters (EMERCOM) . We may also engage consulting companies to conduct additional external audits, or organise them as part of a special assessment of workplace conditions . We also run internal audits conducted by our OHS Department, managers and employees exercising production H&S control . The results of all internal and external assessments and audits are recorded in the Safety and Instructions (Shift Assignments) management systems and serve as the basis for analysis, gap identification and elimination monitoring . The Company has a procedure in which information about incidents is transmitted from eyewitnesses to the supervisors in charge and from those supervisors to the dispatcher of the respective enterprise . Next, the company manager transmits information on the established list using text messages and phone calls . Industrial accidents and incidents are then investigated in accordance with legislative requirements and procedures for conducting internal investigations in order to determine the root causes. The Company encourages its staff to disclose information on the potential sources of danger to employee health and life . 403-7 Performance monitoring and measurement are key prerequisites for achieving sustainable long-term results in line with our OHS strategy . By introducing Safety and Instructions (Shift Assignments) management systems, we achieved the following goals and objectives: GOALS • • Cut down administrative expenses related to the safety of employees Improve the manageability of employees and equipment safety and equipment • Obtain reliable and complete information about the safety of employees and equipment OBJECTIVES • Centralised health and safety (industrial and fire safety) management • Faster collection, processing and analysis of employee and equipment safety data • Real-time reporting across the Group, including reports to government authorities • 24/7 access to information about every employee and site Risks We perform risk assessment and identify material risks using our own methodology. Following hazard identification and risk assessment, the unit’s OHS officer compiles a list of local occupational risks, which is then used as a basis for the Company’s list of material occupational risks . Risk assessment takes into account the following aspects: • degree of personnel exposure; • • • compliance with the applicable regulatory and other OHS requirements . impact on personnel; frequency of occurrence; The list of material occupational risks is available on our intranet site . We update the lists of hazards and risks to factor in new inputs . Emergency response procedures At our sites, we have introduced the following emergency response and prevention measures compliant with the Russian laws: • accident management action plans for all hazardous industrial facilities • in line with the Russian regulatory requirements; training sessions, test alerts for different scenarios, and emergency response exercises, with EMERCOM and other services also taking part; • Apatit’s programme for developing gas and mine rescue fire-fighting and prevention activities for 2019–2021 (approved and ongoing) . 119 118 Road traffic safety In 2019, we carried on with our efforts to ensure safety of passenger and cargo transportation, focusing, among other things, on bus transportation of our employees . 403-4 403-5 403-8 The steps taken include: • GPS and GLONASS speed detection; • monitoring compliance with safety rules for passenger pick-up / drop-off • at Apatit and its branches; introducing speed limits and installing speed cameras at the most dangerous sections of the bus routes . On top of that, we pay due attention to the safety of passenger transportation on-site . • We introduced uniform parking rules at Apatit and its branches to prevent vehicle reversing accidents . • The use of safety belts is mandatory for drivers and passengers when on-site . • Road safety regulations are now part of the introductory safety briefing for our employees and contractors . • We organised a training session on safe bus driving for drivers involved in employee transportation . Health and safety training programmes PhosAgro Education Centre organises OHS training, including industrial safety pre- certification sessions, and drills in the Vysota training centre, to develop employee hands-on knowledge and skills . All our employees, from managers to blue-collar staff, receive health and safety briefing and training as required by the Russian laws . On top of that, we offer a number of additional in-house courses. job permits for electrical works, Additional (thematic) training courses: • safe operation of conveyors, • • safe detection and elimination of misfires in the pit face of the Vostochny mine, • signals used in underground blasting, • briefing methodology, and others. To improve the OHS training and remind employees about workplace safety, PhosAgro Education Centre developed animated videos on the following topics: • movement of heavy-duty dump trucks along service roads of the Vostochny mine in adverse winter conditions; re-railing a derailed locomotive or railcar; response to misfires in the pit faces; • • • safe operation of conveyors; • moving around the site; • cargo handling; • safe behaviour in the vicinity of mine vehicles with various technical, design and operational characteristics . 197 employees attended workshops and hands-on training sessions in 2019 Annual report | 2019Sustainability report403-9 2019 HIGHLIGHTS1 Accidents Kirovsk branch of Apatit Apatit Balakovo branch of Apatit Volkhov branch of Apatit KEY PROJECTS Apatit’s programme for the development of gas and mine rescue, fire-fighting and prevention activities for 2019–2021 121 120 2015 2016 2017 2018 2019 8 8 2 2 5 Apatit and its branches 2015 10 2016 2017 2018 2019 8 5 4 9 2 1 1 1 1 3 4 1 2 1 2 4 1 1 3 1 1 1 1 1 1 1 minor injuries major injuries fatalities LTIFR per 1 million hours in 2019 LTIFR Apatit Kirovsk branch of Apatit Balakovo branch of Apatit Volkhov branch of Apatit 0.56 1.12 0.48 0 Lost time injury frequency rate (LTIFR per 1 million working hours) in 2019 Total: Apatit Kirovsk branch of Apatit Balakovo branch of Apatit Volkhov branch of Apatit 0.75 In 2019, 50% of accidents involving employees were due to falling from height or getting injured while moving . The total number of man-hours used in LTIFR calculation is 18,567,299 .61 and does not include the man-hours worked by contractor employees . Starting 2020, the Company plans to broaden the reporting scope and calculate LTIFR for contractor employees as well . KEY EVENTS In February 2019, Cherepovets hosted a health and safety conference for the Company’s managers and OHS officers to discuss relevant initiatives. PhosAgro delegation took part in the Russian Health and Safety Week, an international event to discuss and present the latest occupational health and safety trends, development prospects, and workplace healthcare initiatives. The event’s organiser was the Russian Ministry of Labour and Social Protection. The reporting year saw a public scrutiny system come into action. It involves OHS and employees of units and contractors. The system envisages the following measures: • implementation of an emergency notification system for hazardous situations and the actions of the Company's and contractors' employees; • engagement of all employees in safety management; • creating a safe working environment. 1 . Based on the data on Apatit in-house staff (including standalone business units) and its branches The program focuses on: • improving training facilities and equipment of gas/mine rescue and fire- fighting units; • enhancing the quality of hands-on training for young hires; • ensuring compliance with gas, mine and fire rescue regulations and personnel training; re-equipping gas/mine rescue and fire-fighting units. • The programme’s budget is 236.95 mln RUB Achievements of 2019: • Relevant units’ headcount increased. – Branches’ fire and gas rescue squads are fully staffed • Special equipment and machinery purchased – Avtospectr Mobicom 2811DB – 02 emergency vehicles – Lada Largus vehicle – GAZ emergency vehicle – KAMAZ ATs 4.0-40 fire truck – MSA Auer GmbH AirMaXX breathing apparatuses – A fire-fighting and rescue simulator unparalleled in Russia. – The simulator is designed for drilling basic gas rescue and gas hazardous operations along with some other types of emergency activities, including search, rescue and fire extinguishing ones, operations in a confined space and at height, and the evacuation of the injured by specially equipped rescue teams as part of emergency response • Renovation of the gas rescue building completed at the Volkhov branch • Personnel training carried out – 103 employees (100% of the required number) passed certification to perform emergency rescue operations, including: – fire-fighting and emergency response supervision – 30 employees – search and rescue operations – 31 employees – fire-fighting rescue operations – 31 employees – gas rescue operations – 72 employees In 2019, the spending amounted to 123.93 mln RUB Annual report | 2019Sustainability report123 122 PEOPLE DEVELOPMENT GOALS TO 2025: Raising employee satisfaction and loyalty to 65% Increasing average annual training hours per employee by 50% GLOBAL SUSTAINABLE DEVELOPMENT GOALS: WE SEEK TO DELIVER ON OUR TARGETS BY RUNNING THE FOLLOWING PROGRAMMES: Implementing a remedial action plan based on employee survey results Developing and implementing e-learning modules on blue- collar jobs, occupational safety, and managerial skills Developing and implementing online training courses on personal competencies Developing a system of corporate libraries, guidelines, and knowledge management at large Annual report | 2019Sustainability report125 124 Recruitment Our innovative recruitment process relies on the continuous monitoring of the labour market in Russia and beyond for skilled staff and efficient managers with experience at leading global companies, determined to excel in their roles and be one step ahead of the curve . PhosAgro seeks to attract skilled staff and efficient managers and provide opportunities to fully unlock their potential . We believe in the value of enduring relationships and reward long serving employees’ loyalty and commitment, while also looking to attract and recruit young talent . Our talent attraction and recruitment priorities: • We cooperate with schools across our footprint to create a favourable environment for improving educational standards and providing targeted career guidance to final-year students. • We cooperate with technical colleges in our regions of operation to create a pipeline of skilled employees with relevant competencies who are competitive in the labour market, understand related professions, and have what it takes to pursue career opportunities . • We cooperate with universities to fill the most relevant jobs by attracting and retaining talented graduates . If two or more candidates qualify for a job, we are more likely to pick the one who is either: • a young talented professional (a programme for attracting, mentoring and training high-potential university graduates); or • an employee included in our Talent Pool (a programme for those looking to develop professional and managerial competencies for career growth) . Employee loyalty and satisfaction index, % Average annual training hours per employee (excluding paid educational leave hours) 80 70 60 50 40 30 20 10 0 123 65 160 140 120 100 80 60 40 20 0 2013 2014 2015 2016 2017 2018 2019 2025 (Goal) 2014 2015 2016 2017 2018 2019 2025 (Goal) 103 INTEGRATED HR MANAGEMENT FRAMEWORK Our HR management principles As part of our employee value proposition, we offer: • a chance to work for one of the world’s largest companies; • competitive and fair pay; • professional and creative growth opportunities; • a selection of training and retraining programmes; • a discrimination-free working environment; • a range of social benefits, and employee support and health programmes; • a compelling employer brand; • a comprehensive incentive programme aligned with the Company’s goals; • a framework for assessing each employee’s individual contributions; • a fair and robust framework for assessing people development; • equitable remuneration and performance rewards . In keeping with our commitment to generally accepted ethical business standards, we pay special attention to developing, implementing and overseeing employee social security programmes . PhosAgro relies on talented, professional, and committed employees sharing our corporate values. They are the backbone of our success. In November 2019, the Board of Directors approved a new version of the Company’s Personnel Management Policy, introducing additional guarantees to protect human rights, ensure zero discrimination, and prevent child and forced labour . It also approved a transparency statement under the UK Modern Slavery Act . We believe that a robust performance management system that covers all levels – from individual employees to the Company as a whole – is key to PhosAgro’s continued growth in line with its goals and vision . > 5,000 employees received additional human rights and corporate ethics training in 2019, which is set to continue in 2020 Annual report | 2019Sustainability reportNon-discrimination policy and human rights PhosAgro is committed to respecting employees’ human rights as required by the ILO Declaration on Fundamental Principles and Rights at Work, including zero discrimination, not using child or forced labour, respecting their right to exercise freedom of association and collective bargaining, and creating a safe and favourable working environment for its and its subcontractors’ employees . PhosAgro appreciates and encourages diversity among its employees. We maintain our commitment to an equal opportunities policy and do not tolerate any discrimination or privacy violations in respect of our employees. Our goal is to keep our working environment free from restrictions based on nationality, gender, age, faith or other grounds as required by the applicable laws . Any decisions regarding promotion, hiring, remuneration or benefits are based solely on the employee’s qualifications, performance, skills and experience . We expect our employees to treat their colleagues and everybody else, including customers, suppliers and other stakeholders, with due professionalism, respect and fairness . We consider unacceptable any restriction of employee rights or freedoms, whether at workplace or in any other job-related environment . Open communication channels Access to multiple communication and feedback channels within the Company allows our employees to resolve employment and other job- related issues . Some of the formats are Q&As in the corporate newspaper, and town-hall meetings for staff and management. Any employee or other stakeholder can use PhosAgro’s whistle-blower hotline to report human rights violations or discrimination of any nature or to communicate any other issues or concerns related to employer- employee relationships . Code of Ethics PhosAgro adopted a Code of Ethics in 2014 and updated it in 2018 . It applies to all employees and is the Company’s primary document for promoting its corporate culture . The Code clearly outlines all basic requirements for Company employees and establishes rules and regulations for individual and collective behaviour within the Company . It covers all professional and business relationships, both at PhosAgro and with business partners and other external parties . Commitment to these principles consolidates the values of our Company to ensure that all our employees take pride in their work and are keen to communicate with colleagues, feel comfortable in a team and can grow both professionally and personally . They help PhosAgro to avoid unjustified risks, maintain long-term business growth, strengthen our position in the Russian and foreign markets, and increase the Company’s value . 127 126 2019 HIGHLIGHTS1 HR metrics In 2019, the Company’s headcount (at Apatit and its branches) averaged 10,882 . Most PhosAgro employees work on a full-time (99 .93%) and permanent (94 .18%) basis . Company's headcount by region, people1 Saratov region 1,178 Murmansk region 5,023 Company’s average headcount for 2019 Average overall headcount of PhosAgro companies 17,484 people2 10,882 Moscow region 95 Leningrad region 817 102-7 102-8 Vologda region 3,769 Employees by gender and age, %1 Employees by category, %1 Men Women Men Women Below 25 Below 25 25–34 25–34 35–44 35–44 45–55 45–55 Above 55 Above 55 Men 3.1 22.3 21.6 12.5 3.1 Employees by education, %1 Secondary Higher Higher (unfinished) Secondary vocational Basic vocational Women 1.9 11 13.3 9.2 2.1 13.1 49.0 0.4 17.0 20.6 Blue-collar workers White-collar workers Executives Men 40.8 11.5 10.3 Women 17.4 17.0 3.1 Key personnel turnover indicators, people1 401-1 2017 1,985 2018 1,720 2019 2,274 1,791 1,699 Turnover 5.6% 6.0% 1,610 7.3% New hires Leavers 1 . To ensure compliance with the materiality principle and comparability with historical data, the data is disclosed only on Apatit, including its branches and standalone business units . The disclosure does not include information on other companies that are part of the group to which Apatit and PhosAgro belong . Starting with the 2020 reports, the scope of disclosure will cover all of PhosAgro Group employees . 2 . Employees of all companies that are part of the group to which Apatit and PhosAgro belong . Annual report | 2019Sustainability reportAverage monthly pay, RUB 2013 44,979 2014 50,296 2015 61,495 2016 74,888 2017 76,526 2018 80,672 2019 87,191 129 128 PEOPLE DEVELOPMENT Incentives and rewards Our robust system of rewards is aligned with the Company’s performance and motivates all employees to improve their performance in order to achieve our business goals . It ensures: • decent pay; • implementation of incentive programmes using a transparent system of KPIs to calculate managerial rewards; implementation of incentive programmes for blue-collar target delivery; • 202-1 • availability of financial and non-financial rewards; • better quality of life and more creative opportunities for employees along with development of urban communities across the Company’s footprint, • availability of benefits for certain employee categories; • adherence to global best practices on benefit packages . Ratios between the standard entry-level wage and the established minimum wage in the Company’s primary regions of operation, including gender differentiation Region Saratov region Murmansk region Moscow region Leningrad region Vologda region Men 1.84 1.31 4.31 2.13 1.90 Women 1.82 1.21 3.36 2.23 1.59 202-2 103 Staff and senior management (N–N-2) hired from the local community1 at locations of significant operations as at 31 December 2019, % Share of staff hired from the local community in total headcount Share of senior management hired from the local community in total headcount 94.5 87.5 89.0 91.8 96.8 92.9 Vologda region Leningrad region Moscow region Murmansk region Saratov region Average 57.1 33.3 92.3 57.1 44.4 58.5 The Company’s key (significant) regions of operation are the Murmansk, Vologda, Leningrad and Saratov regions . Our aim is to work in line with their interests . As a major contributor to the local economies and one of the largest taxpayers in these regions, PhosAgro makes a significant impact on their social development, while also helping to preserve their environment . Social benefits Our sustainable development is closely linked to improving the well-being of our employees . The Group's social policy is implemented through targeted programmes and seeks to enhance individual and team motivation, while also providing our people with a competitive social package . Our major social programmes: Health and Leisure The programme aims to strengthen our people’s health, prevent occupational diseases, ensure a full rehabilitation and boost performance through healthy nutrition, recreation and fitness. 401-2 Improvement of Working Conditions The programme aims to enhance labour productivity and operating culture, increase safety, optimise workplaces and streamline the approach to arranging working and amenity areas . Corporate Housing Programme The programme aims to improve living conditions of employees to attract and retain skilled talent and incentivise them to better their performance . Social Benefits The programme aims to ensure sustainable labour relations and social security and covers employee incentives and financial aid. Social expenses, RUB mln Financial aid to employees 48.29 41.35 41.83 Recreation, rehabilitation, health resort treatment and VHI 389.9 Improvement of working conditions 364.84 371.86 326.61 Corporate housing programme 76.52 68.02 100.26 Other social benefits and guarantees 231.303 238.162 Corporate and cultural events 152.014 150.776 121.554 385.76 134.47 259.2 1 . Employees hired from local communities are those whose registration address matches the region where the company (branch, standalone business unit) of their employment is located . 2019 budget 2019 actual 2020 budget Support of the trade union (special purpose funding and bonuses) 163.616 164.169 171.308 Annual report | 2019Sustainability report201-3 Coverage of defined benefit pension plan obligations, RUB mln Current value of employee benefit obligations (private benefit coverage for newly retiring employees) Retirement-related obligations (other than employee benefit obligations) Actual pension payments, 2019 Vologda region Leningrad region Murmansk region Saratov region Total • Payment of retirement benefits • Merit benefit plans • Financial aid to retired former employees • Payment of retirement benefits • Merit benefit plans • Financial aid to retired former employees • Payment of retirement benefits • Merit benefit plans • Financial aid to retired former employees • Payment of retirement benefits • Merit benefit plans • Financial aid to retired former employees • Payment of retirement benefits • Merit benefit plans • Financial aid to retired former employees 10.95 16.57 17.68 0.71 0 2.41 32.53 0 30.80 0.81 0 2.17 45.00 16.57 53.06 Total 45.20 2.98 63.33 2.98 114.49 401-3 Return to work and retention rates of employees who took parental leave, by gender, people Number of employees on maternity leave and parental leave as at 31 December 2019 Number of employees on maternity leave and parental leave between 1 January 2019 and 31 December 2019 Number of employees who returned to work after maternity leave and parental leave between 1 January 2019 and 31 December 2019 men women men women men women 0 5 0 0 1 22 143 2 32 189 0 6 0 0 1 41 191 4 44 263 0 0 0 0 0 14 45 2 11 64 Saratov region Murmansk region Moscow region Leningrad region Vologda region 131 130 We use our PhosAgro Education Centre to help our staff prepare for both external (legislative/regulatory) and internal (related to optimisation, changes to production or business processes) changes . The Centre helps run our long- term HR initiatives, such as PhosAgro Classes, High-Potential Graduates and the Talent Pool programme, and it holds competitions for professional skills . 404-2 PhosAgro relies on its Talent Pool initiative as a means of identifying talented staff with the potential to expand their roles and step into senior positions, and it provides additional training to help them achieve these goals . The programme includes management training courses on personal and business skills such as decision-making, leadership and delegation, conflict management, project management, communication skills and staff mentoring . In 2019, we started building a talent pool for senior executive roles and launched comprehensive training programmes in partnership with Skolkovo Moscow School of Management and International Management Institute LINK (the UK’s Open University) . The programmes help current and future managers expand their thinking, learn about new tools and approaches and put the best fitting ones into practice. More than 60 heads of business units completed the training course, including classroom modules, self-study using a variety of materials, and project-based learning under the mentorship of experienced business coaches . >60 managers improved their professional skills in 2019 by completing courses in Russia’s leading business schools Our focus on training and developing our people also helps us hedge against a potential shortage of talent at all levels. Our corporate training framework relies on the following principles: • clear alignment with the Company’s strategy; • assessing and prioritising actual training needs of various staff categories; • planning, coordination, quality and efficiency • audit; introducing the most advanced and efficient tools from an economic and methodological perspective; • developing new formats; • using an individual approach to young talent; • proactively identifying and developing new leaders to succeed current ones . Retraining and development We rely on a talent pipeline of staff with the potential to take on leadership and/ or more technically challenging roles to ensure PhosAgro’s long-term viability . Our focus on training and developing our people also helps us hedge against a potential shortage of talent in the future . One aspect of this that we prioritise is including schools, universities and our own staff programmes in our recruitment and training initiatives . 103 Training and evaluation We seek to attract skilled staff and efficient managers and provide opportunities to fully unlock their potential . Our focus on training and developing our people also helps us hedge against a potential shortage of talent at all levels . We are introducing the best educational and development practices, creating professional competency models, expanding online and distance learning opportunities and automating the entire HR management cycle to support PhosAgro’s transformation into a completely new self-learning organisation . We strive to develop our internal communications, and make our training and assessment services as friendly and accessible as possible . There is a talent pool programme in place to encourage our people to grow professionally . We rely on a talent pipeline of staff with the potential to take on leadership and/or more technically challenging roles to ensure PhosAgro’s long-term viability . Number of attendances of professional training courses 2017 397 1,360 2,910 5,133 9,800 2018 487 1,469 1,309 3,548 6,813 2019 552 2,393 2,771 8,769 Volkhov branch Balakovo branch Kirovsk branch Apatit 14,485 Annual report | 2019Sustainability report404-1 Total number of training hours 2017 2018 2019 (excl. educational leave) Average training hours per employee in 2019 (excl. educational leave) 2019 (incl. educational leave) Average training hours per employee in 2019 (incl. educational leave) Volkhov branch of Apatit Balakovo branch of Apatit 29,753 82,558 30,145 81,399 Kirovsk branch of Apatit 425,829 313,125 Apatit Total 425,829 367,138 963,969 791,807 1,004,014 41,533 92,531 365,680 504,270 53.02 78.52 72.82 129.36 92.26 50,445 108,443 414,104 566,134 1,139,126 64.40 92.03 82.46 145.23 104.68 Training expenses, RUB Training expenses 2017 153,389,970 2018 170 ,505,002 2019 236,089,189 2019 272,898,951 including educational leaves Training expenses per employee 2017 14,604 2018 16,064 2019 21,695 2019 25,078 including educational leaves Personnel evaluation To assess HR management and make efficient decisions, we continuously monitor relevant metrics and analyse the structure of staff costs, labour productivity, along with the performance of social, training and other programmes . 404-3 Employees evaluated in 2019, people Kirovsk branch of Apatit Apatit Balakovo branch of Apatit Volkhov branch of Apatit Men 212 89 16 317 Executives White-collar workers Blue-collar workers Total by gender Total Evaluated personnel, % Women Men Women Men Women Men Women 10 23 3 36 52 64 18 134 3 43 6 52 4 2 6 353 7,03 186 4,77 0 6 0,51 10 17 11 38 1 10 1 12 50 6,38 133 132 KEY PROJECTS (SDG 4) Investing in future talent PhosAgro Classes and PhosAgro Schools Launched in 2013, PhosAgro Classes are part of the Company’s education and training programme to build a future talent pipeline by supporting young people in their journey through school and university education to employment . The project covers 10th and 11th graders in five schools across the Company’s footprint and offers them advanced programmes in physics, chemistry, mathematics and computer science . On top of that, the PhosAgro Classes curriculum includes economics, management, ethics, leadership, career planning and other disciplines . The project is run under social and economic partnership agreements between PhosAgro and local authorities, with similar arrangements made with participating schools: • Vologda region: in Cherepovets, the project partners are Secondary School No . 10, which offers advanced programmes in all relevant subject areas, and Education Centre No . 29; • Leningrad region: in Volkhov, the project partner is School No . 1; • Saratov region: in Balakovo, the project partner is Secondary School No . 25; • Murmansk region: in Kirovsk, the project partner • is Secondary School No . 5; in Apatity, the project partner is Secondary School No . 15 . During the first stage, we improved the facilities and equipment available at the schools covered by the project . This included newly launched subject- specific classrooms equipped with interactive whiteboards, multimedia devices, tablets and other tools, along with cutting-edge lab equipment and other advanced IT technology now available to students and teachers . Since 2013, the Company has invested over RUB 400 mln in PhosAgro Classes, including RUB 250 mln spent on renovations and equipment . The benefits of PhosAgro Classes include a comprehensive career guidance programme, an opportunity to learn from teachers with advanced qualifications, and guest lectures by university academics. The course also features subject-specific festivals and workshops, university tours, and site visits to production facilities . In 2018, taking the success of PhosAgro Classes further, we expanded the project scope to include all grades in the supported schools, not just final-year students, launching PhosAgro Schools. They provide career- related learning as early as in primary school and rely on greater funding from PhosAgro, with PhosAgro Classes still enjoying popularity among both students and parents as one of our key educational and career guidance projects . In December 2019, Balakovo-based Secondary School No . 25 saw the opening of an R&D lab launched as part of the PhosAgro Sсhools project . The lab provides career exploration opportunities in the fields related to PhosAgro’s operations, while using R&D to excite the students’ interest in engineering and technical professions . It uses the STEAM education model to integrate science, technology, engineering, arts and mathematics as part of interdisciplinary learning . Its classrooms provide a learning space for students doing research in chemistry, mathematics, technology, robotics, computer science, modelling and design . Students at PhosAgro Schools take part in the Career Guidance programme led by PhosAgro experts, who support their research and development efforts in the fields relevant to the Company’s operations. Annual report | 2019Sustainability report 2019 highlights 2019 was a milestone year for our educational programme, with the first graduates of PhosAgro Classes since their launch in 2013 getting their university degrees and joining the Group . In September 2019, a total of nine former PhosAgro Classes students joined the Group as employees, including five in Cherepovets, two in Balakovo and one in Volkhov and Kirovsk each . All of them will pursue engineering careers, having demonstrated a high level of qualification from their first days on the job . We expect to hire 27, 40 and 45 former PhosAgro Classes students in 2020, 2021 and 2022 respectively . 125 of 126 PhosAgro Classes 2019 graduates have been admitted to higher educational institutions, with the St Petersburg Mining University enjoying the most popularity among them (26 graduates) . Technical courses were selected by 98 graduates, with 38 of them to study disciplines relevant to PhosAgro . Since 2015, a total of 575 graduates of PhosAgro Classes have been enrolled in higher educational institutions, with technical careers gaining more traction among them every year . In September 2019, 130 new students started their 10th grade programme at PhosAgro Classes, marking the seventh admission round since the project launch . . Collaboration with technical colleges Since 2013, as part of its focus on nurturing talent from secondary schools to employment, PhosAgro has partnered with technical colleges across its footprint, including: • Kirovsk branch of the Murmansk Arctic State In 2019, the first graduates of PhoAgro Classes joined the Group. PhosAgro also supports a regional Training Centre at the Cherepovets College of Chemistry and Technology that offers express programmes in chemistry and associated fields to nurture talent for most in-demand jobs. Collaboration with universities We maintain strong relationships with universities as part of our commitment to improving access to quality education and supporting academic research . Ivanovo State University of Chemistry and Technology; To this end, PhosAgro has signed agreements with the following higher educational institutions:: • St Petersburg Mining University; • Lomonosov Moscow State University; • • Cherepovets State University; • Mendeleev University of Chemical Technology of Russia; • St Petersburg State Institute of Technology; • Murmansk Arctic State University; • other regional universities . As part of collaboration with universities, PhosAgro: • sponsors advanced training for graduates of PhosAgro Classes in the fields relevant to PhosAgro (subject to their commitment to future employment at the Company); • offers scholarships to the most talented students (based on exam results); invites students to see the industry in practice at one of the Group’s many • companies; University (Kirovsk, Murmansk region); • offers students a job in one of the Company’s popular specialisations after • Cherepovets College of Chemistry they graduate . . and Technology (Cherepovets, Vologda region) . These joint efforts cover: • setting up testing grounds and labs for students to acquire hands-on experience using real equipment; internship programmes at PhosAgro’s facilities with highly-qualified mentors; • • undergraduate and graduate thesis research; • sports, educational and research initiatives, competitions, Olympiads . High-Potential Graduates We build upon the foundation laid by PhosAgro Classes and PhosAgro Schools by partnering with universities through our High-Potential Graduates programme as an avenue to better reach university students interested in working at PhosAgro. We offer programme recruits a competitive salary, as well as relocation and housing support, and we assign them a mentor upon their arrival at the Company . The programme’s key tasks are to build a talent pool for key positions within the Company and to identify career paths for young talented professionals to prepare future executives . 135 134 57 people recruited by PhosAgro in 2019 through the High-Potential Graduates programme. In 2019, PhosAgro recruited 57 young specialists through the High-Potential Graduates programme . This brought to 341 the total number of graduates who have joined the Company through this programme since its inception in 2012 . A total of 250 of these employees are still with PhosAgro today, pursuing careers in mineralogy, geology, hydraulic engineering, chemistry, thermal energy and electricity production, rail transport, open-pit and underground mining, and mine surveying . Of the programme participants still employed at PhosAgro as at December 2019, a total of 18% had received promotions and/or had been included in our talent pool . Many of them had successfully completed the projects assigned to them upon recruitment . INTERNATIONAL PROJECTS Collaboration with the International Union of Pure and Applied Chemistry (IUPAC): Summer Schools on Green Chemistry Since 2018, PhosAgro has been a general partner of IUPAC’s Summer Schools on Green Chemistry providing scholarships to young researches from developing economies . Over the course of two years, our total spending to support this project exceeded USD 30,000 . The second PhosAgro-supported Summer School on Green Chemistry operated in May 2019 at the University of Dar es Salaam in Tanzania as part of the International Year of the Periodic Table . The Company contributed more than USD 10,000 to the school’s scholarship fund . The 2019 Summer School drew a broad audience of young scholars from emerging and transition economies . Of the 50 grant winners, 35 represented African countries . The third IUPAC Summer School on Green Chemistry to be supported by PhosAgro is scheduled to open in July 2020 and will follow up on the outcomes of a symposium called Chemistry Addressing the UN-17 Sustainable Development Goals and held during the IUPAC Congress in July 2019 . PHOSAGRO WON TWO PRIZES AT THE 2019 AWARDS FOR RUSSIAN LEADERS IN CORPORATE PHILANTHROPY ADVANCING SUSTAINABLE DEVELOPMENT Two of the Group’s projects – PhosAgro Schools and Summer Schools on Green Chemistry – were honoured at the 2019 Awards for Russian Leaders in Corporate Philanthropy Advancing Sustainable Development. The Awards are organised by the Donors Forum (a coalition of major grantmakers in Russia), the global audit and advisory services provider PwC, and the business newspaper Vedomosti to recognise the best charitable programmes and to promote corporate philanthropy in the business community and the broader society. The PhosAgro Schools project won a second prize for the Best Corporate Social Investment Programme Targeted at Local Communities in Line With the Business Strategy and Sustainability Agenda – a category supported by the Russian Union of Industrialists and Entrepreneurs, while the Summer Schools on Green Chemistry won a third prize for the Best Partnership Programme Advancing Sustainable Development. Overall, the Group ranked 22nd on the list of 40 Russian Leaders in Corporate Philanthropy, with a total of 65 major companies competing for the Awards in 2019. “We are confident about the success of PhosAgro Schools and Summer Schools on Green Chemistry and are happy that the experts have appreciated them highly,” said Siroj Loikov, Deputy CEO of PhosAgro. “PhosAgro Schools successfully address the shortage of qualified workforce to operate state-of-the-art facilities, while Summer Schools promote Green Chemistry and support young scientists from around the world.” Annual report | 2019Sustainability report103 413 SOCIAL INVESTMENT We seek to help the regions where we operate to achieve sustainable growth, and contribute to the development of local communities through our value chain, employment opportunities, infrastructure improvements and social investment programmes. To achieve our goal, we have outlined three key focus areas: • Collaborating with regional and local government authorities to create modern social infrastructure (by providing new equipment to healthcare facilities, assisting in utilities development, building new and renovating existing sports and recreation facilities, etc .) across our geographies • Developing and implementing projects for children and young people with a focus on education, career guidance, technology and engineering teaching, extra-curriculum education, cultural heritage and healthy lifestyle for local communities, while also encouraging diverse and sustainable local economies . Through our work, we have a significant impact on the development of local communities and society at large . Therefore, we must recognise that we have a duty to mitigate any negative impact and to support sustainable growth and development . Through the proactive and strategic involvement of stakeholders and communities, we can achieve a level of development that serves the interests of our local communities . The Company carries out charitable activities based on public benefit priorities and opportunities to partner with regional and local government authorities, local communities and non-governmental organisations, educational institutions and other stakeholders . The Company’s charitable activities are carried out in line with its bylaws, the Federal Law On Charitable Activities and Charitable Organisations, and the Federal Law on Advertising . Applicable Company bylaws: • Codes of Ethics of Apatit and PhosAgro; • Codes of Ethics of all companies managed by Apatit; • Policies on Charitable Activities of PhosAgro, Apatit and the companies managed by Apatit; • Rules for the Provision of Charitable Assistance by Apatit and the Companies Managed by Apatit; • Providing support to vulnerable groups in terms of access to healthcare services, development opportunities and the aid they need • Regulations on Business Unit Interaction and Document Execution for the Provision of Charitable Assistance by Apatit and the Companies Managed by Apatit . MANAGEMENT APPROACH Our operations make a meaningful contribution to the national economy and local communities where we operate . PhosAgro's goal is to understand and manage the impact that we make and to create sustainable benefits 137 136 MANAGEMENT FRAMEWORK FOR CHARITABLE ACTIVITIES Group level Management Board and CEO Deputy CEO Office for External Communications Company level Government Relations Department, Information Policy Department, HR and Social Policy Department (responsible for community investments of the Group companies) Within the limits of the charity and sponsorship budgets of the Group companies Social Development Departments of the Group companies Commissions for Social Issues and Charity at the Group companies Within the limits of funds allocated to the CEOs of the Group companies • The Management Board reviews and approves the company's annual charity budget and adjusts it as necessary • The CEO decides on the necessity and appropriateness of the Company’s participation in individual charity projects and programmes, prepares relevant materials for the Management Board, and supervises work on the company’s draft annual charity budget • Leadership and coordination of activities related to charity, sponsorship and community investment • Coordination of community projects and programmes • Raising the need for developing new bylaws • Administering all information on ongoing projects • Arranging public hearings and opinion surveys • Process management, etc. • Coordination of counterparty relations • Project and programme management • Proposals to revise projects and programmes • Administrative support through the project management system: – contract approval – transfer of funds – verification of beneficiary reports • Review of new applications • Project paperwork and document verification, proposals concerning the provision of support within the limits of funds allocated to the Group companies Annual report | 2019Sustainability reportThe budget for charitable projects is set annually as part of the overall budgeting process and is approved by the Company’s Management Board . In line with the Company’s Policy on Charitable Activities, the main criteria for selecting projects are as follows: • a project should aim to provide support to particular population groups, community organisations or charitable foundations; • a project should not contradict the principles or requirements of the Company’s policies or other bylaws; • a project should not constitute a disguised payment for any service, act, omission, connivance, patronage, empowerment or provision of other unlawful benefits provided to the Company and/or its partners . New projects are considered by the Company’s Management Board in accordance with the procedure established by internal regulations . PRIORITY AREAS FOR SOCIAL PROJECTS By identifying priority areas, the Company is able to ensure that its funding will have maximum impact and benefit. • Providing social support and protection, such as financial support to low- income households; social integration of the unemployed, people with disabilities, and other persons • Promoting the patriotic, spiritual and moral upbringing of children and adolescents • Supporting activities to prevent illness, protect public health, and promote health and physiological wellbeing • Ensuring protection and conservation of buildings, sites and territories of historical, religious, cultural or environmental significance, including burial sites • Promoting activities in the fields of education, science, culture, art and spiritual growth • Promoting volunteering COMMUNITY INVESTMENT PROGRAMMES The majority of programmes are run in partnership with regional and local authorities as the government is the most reliable partner . Some projects are implemented through independent non-profit organisations set up by government authorities and the Company . Every year, the Management Board reviews the results of charitable activities and decides on whether or not to continue supporting a programme or a project . At present, the planning horizon for charitable activities spans from one to two years . Each programme or project is overseen by a responsible manager assigned by internal regulations of the Group companies as all the Group’s programmes are rolled out across the regions of our operation . The following activities are carried out to evaluate the efficiency of programmes and projects: • opinion surveys among external professional experts (beneficiaries and representatives of the civil society and government bodies, including local authorities); internal opinion surveys among the Company’s executives of various levels and employees; • • evaluation of programmes and projects by managers in terms of their benefit and impact on the beneficiaries; • public hearings in the cities where the Company operates; • annual review of the results of charitable activities at a meeting of the Company’s Management Board . New projects may be proposed for consideration in the following way: • upon proposal of the Company experts with a view to creating favourable conditions in the cities where the Company operates (qualified personnel training, support for veterans’ organisations, development of green spaces, animal conservation, etc .); following public hearings; • • based on agreements with regional and local government authorities; • based on social surveys; • following successful meetings between Company executives and representatives of community organisations . Funding for new projects is subject to approval by the Management Board . The availability of partners (regional and local government authorities, non-profit organisations, etc.) plays an essential role in decision-making . The Company has set up its own office for external communications which is in charge of charitable activities administration . OUR KEY SOCIAL PROGRAMMES1 Educated and Healthy Children of Russia (DROZD) Since 2003, PhosAgro has been successfully implementing DROZD, a unique multi-level educational support programme . It is distinctive in its integration of social projects within a single programme that covers all levels of education, from preschool to higher professional education, with the possibility of subsequent employment in the Company . Our Favourite Cities The mission of Our Favourite Cities programme implemented by PhosAgro since 2003 is to improve the quality of urban environment and promote sustainable development of the cities where we operate, including Kirovsk, Cherepovets, Balakovo, and Volkhov . To this end, PhosAgro has partnered with regional and local authorities, charitable foundations and non-governmental organisations and established its own non-profit organisations . Use of funds: • Highways, bus stops, power grids • The Khibiny Airport • Landscaping, conservation of monuments and architecture • Constructing an ice stadium • Clinics (purchase of equipment and apartments) • Tirvas Sanatorium • TV and LLC Teleset • Holding and supporting city-wide holidays • Competitions for city residents Targeted assistance Since 2003, we have been providing targeted assistance to vulnerable population groups . commissions for social issues and charity have been set up across the Group companies to consider new applications . The Group also partners with In the Name of Good charity foundation (Vologda Region), providing financial support for disabled children who need urgent treatment . 139 138 203-1 203-2 413-1 68 permanent clubs in place kids study for free 5,681 >650 events across our geographies 9 students joined national youth sports teams Cherepovets • Harmony recreation and cultural centre, with some Kirovsk 400 pensioners as regular visitors • Annual aid to four non-governmental foundations • In the Name of Good charity foundation – treatment and rehabilitation funding, equipment purchase • Kukisvumchorr, Koashva, and Rodnik volunteer centres for pensioners and disabled people. Each centre hosted over 20 events involving 1,200 people in 2019 • Assistance to Great Patriotic War veterans and equal- status persons, children of war and home front workers (apartment renovations, holiday congratulations and gifts) • Annual aid to three non-governmental foundations Balakovo • Annual aid to three non-governmental foundations Funds are also allocated to the CEOs of the Group companies to provide assistance to organisations of veterans and disabled people on an ad-hoc basis. 1 . For more information on social projects, please visit www .phosagro .ru . Annual report | 2019Sustainability report141 140 Spiritual revival PhosAgro has been providing charitable assistance in building and rebuilding orthodox holy sites both in Russia and abroad, while also pursuing projects fostering long-standing cultural and spiritual values . The Company has also revived a pre-revolutionary tradition of building on-site churches . Cherepovets • Mineral fertilizers are shipped to three churches on an annual basis • Seven churches receive assistance in repairing, and purchasing equipment • Assistance in maintaining three on-site churches Kirovsk • Three on-site churches have been opened and consecrated at the following sites: – Rasvumchorrsky mine, St Andrew church – Vostochny mine, St Nicholas church – ANBP No. 3, Great-Martyr and Unmercenary Healer Pantaleon church Balakovo • Church of the Life-Giving Trinity – restoration of the Old Testament Trinity historical mosaics • Construction of a gas boiler house in the Sunday School of this church Volkhov • The Church of St Andrew was constructed and consecrated Bi-annually pilgrimages to visit the relics of St Nicholas in the Basilica of St Nicholas in Bari (Italy), dedicated to St Nicholas Day (120 people a year). Structure of community, charity and infrastructure investment, RUB mln Total community, charity and infrastructure investment 2,114.1 2,781.21 including investment in community infrastructure spending on community needs, charitable and social projects 931.8 1,343.2 1,182.3 1,438.0 1 . Excluding the value of the Cherepovets Chemical and Technical College facilities handed over to the local authorities, as well as PhosAgro-Region’s expenses Promotion of sports Since 2012, PhosAgro has been supporting non- profit organisations, which promote sports, tourism and healthy lifestyles . Names of the sports organisations: • Russian Olympians Foundation • Russian Cross-Country Skiing Federation • Moscow and Russian Rhythmic Gymnastics Federations • Russian Chess Federation • Partnership with World Chess Events Ltd . • Russian Swimming Federation • Avtodor Basketball Club • Proton Volleyball Club • Turbina speedway team • Severyanka Volleyball Club • Unifight 2.9 bln RUB Total community investment and charitable giving in 2019 This amount includes a one-time component of the value of the Cherepovets Chemical and Technical College facilities handed over to the local authorities, as well as PhosAgro-Region’s expenses Connecting generations Since 2015, PhosAgro has been renovating and upgrading its on-site museums to transform them into cultural and educational centres featuring the latest technology . The Company also implements projects to repair and refurbish monuments, war memorials and surrounding areas . 2019 HIGHLIGHTS Total community investment and charitable giving in 2019, % 50 16 14 10 7 1 1 1 Social development in the regions Education and school renovations Sports Spiritual revival Nation-wide and international projects Veterans' Foundation Membership fees Donations PhosAgro's museum facilities are not just tourist attractions, but also educational hubs in the cities and districts across our geographies . SPENDING BREAKDOWN All schools in our regions of operation hold classes at the Green Planet interactive educational centre and Apatit and PhosAgro- Volkhov museum and exhibition centres, where visitors of all ages can learn about the production of the Group’s fertilizers . The core intention behind these centres is to foster environmental responsibility, spread interest in natural sciences, provide career guidance to young people, and promote the chemical industry . Each month, up to 6,000 people visit the Group’s museum and exhibition centre Apatit, with the total number of visitors in 2019 reaching 50,728. In 2019, the Cherepovets museum and exhibition centre received the national Best Practices in Children’s Tourism Development award. Annual report | 2019Sustainability report102–40 STAKEHOLDER ENGAGEMENT One of the key aspects of the Company’s responsible business conduct is interaction with stakeholders that is based on a systemic approach, joint efforts and a balance of interests. It is our ability to understand and adapt to our stakeholders evolving needs and expectations that enables us to create a strong and sustainable company. 143 142 INVESTMENT AND FINANCE COMMUNITY Why we interact To facilitate an understanding of the long-term sustainability and potential value of PhosAgro To update investors on PhosAgro’s strategic priorities and progress we have made To provide market participants with concrete indicators of progress, such as operational, financial and non-financial results To attract a wider pool of investors to improve liquidity, share price and borrowing costs To increase our access to a variety of capital market instruments To provide transparency on how our corporate governance systems work To generate new ideas through a dialogue with investors To clarify the Company’s contribution to the UN Sustainable Development Goals How we interact Roadshows One-on-one meetings with investors Investor conferences Conference calls on financial results Perception studies Ongoing engagement with analysts Regulatory press releases AGM and formal reporting Corporate website A dedicated in-house investor relations team The interests of our shareholders are represented by seven independent non-executive directors on the Board of Directors Key activities in 2019 The Investor Day and presentation of the Strategy to 2025 were held in London Fifteen investment conferences were attended and four non- deal roadshows with Company management conducted in key financial market centres (London, New York, Chicago, Frankfurt, Stockholm) Four conference calls and webcasts for analysts and investors were organised in order to discuss the Company’s financial results More than 240 group and one-on- one meetings were held with investors and analysts 115 publications were made in line with Russian disclosure regulations via the Interfax Corporate Disclosure Centre More than 40 press releases were distributed via the UK regulatory news service 102–42 102–43 102–44 Management approach Working in complex markets and geographies around the world and establishing relationships on regional, national and international levels, our activities are heavily regulated . The constantly evolving nature of both international regulations and national legislation may affect our business . Thus, we work hard to build relationships with people at all government levels in the countries where we operate and ensure that we comply with all applicable regulatory requirements . We collaborate with a variety of external stakeholders in order to manage risks related to our work and to remain competitive . These partnerships enable us to create mutually beneficial opportunities. In our engagement with our stakeholders, we strive to be constructive, honest and principled . We establish links with only those organisations and educational institutions that share our values and are actively involved in domains such as food security, sustainable agriculture and health . >240 meetings held with investors and analysts Annual report | 2019Sustainability reportREGIONAL GOVERNMENTS AND LOCAL COMMUNITIES Why we interact How we interact To ensure that we act as a good neighbour We implement environmental programmes To support the sustainable socio-economic welfare of the regions in which we operate We implement cooperation agreements with regional governments based on regional development needs To address community needs, including social or environmental concerns To promote the health and well-being of the communities where we operate To maintain an ongoing dialogue around government policies or potential regulatory changes that could affect our business To improve social infrastructure and implement partnerships with regional authorities We support social and sporting organisations We sponsor PhosAgro Classes and PhosAgro Schools to promote advanced chemistry education for schoolchildren We offer university scholarships and organise recruitment programmes aimed at encouraging children to study chemistry We implement the Healthy and Educated Children of Russia programme We encourage the development of sport in the regions where we operate We organise recreational activities for workers and their families Our employees are provided with free medical treatment, and we also fund medical infrastructure for residents of the regions in which we operate We encourage the development of cultural and spiritual awareness among the younger generation, educating them about Russia’s history and traditions We run programmes to protect the socio-economic rights of veterans, and providing material assistance to World War II veterans and members of their families Cooperation agreements signed with the governments of the Saratov, Leningrad, and Vologda regions 145 144 Key activities in 2019 Holding environmental events in the regions of operation, including community cleanups, Golden Fish and Clean Coast campaigns, and others . Supporting local professional sports clubs including Proton- Saratov volleyball club, Avtodor basketball club, Turbina speedway club, etc Signing cooperation agreements between PhosAgro and the governments of the Saratov, Leningrad, and Vologda regions Refurbishing mass graves of soldiers and civilians who died during the Great Patriotic War in Mistolovo village (Leningrad Region) and the city of Volkhov Presenting gifts and financial assistance and arranging festivities for veterans of the Great Patriotic War, former company workers, on the occasion of the 9 May Victory Day Holding a tree planting event at Balakovo’s Alley of Glory to celebrate the 75th anniversary of victory in WWII, sponsoring Sunday schools in Balakovo Opening Apatit Arena – a sports and fitness centre in Kirovsk . The projects was completed with support from the Murmansk Region government under a social and economic partnership agreement between the Murmansk Region government and PhosAgro Signing the cooperation agreement between the Russian Ministry of Natural Resources and Environment, the Federal Service for Supervision of Natural Resources, the Government of the Vologda Region and PhosAgro as part of the efforts under the Comprehensive Plan to Reduce Pollutant Emissions in Cherepovets Providing scholarships to students studying at universities specialised in chemistry Offering guaranteed employment for students with degrees in chemical production Hiring participants of the High Potential Graduates programme and the first graduates of PhosAgro Сlasses Opening an R&D lab at Balakovo’s Secondary School No . 25 as part of the school ongoing renovation Launching an interactive library at PhosAgro School No . 1 Holding events to mark the Chemist’s Day across the Company’s footprint Hosting the Growth Energy: Apatit – 90! (Apatity city), PhosAgro’s social programmes festival Holding the Khibiny sports festival (Kirovsk–Apatity), supporting the Khibiny Spring national skiing competition, sponsoring the White Rook national chess tournament Annual report | 2019Sustainability reportINTERNATIONAL ORGANISATIONS EMPLOYEES AND TRADE UNIONS How we interact Key activities in 2019 Why we interact How we interact Why we interact To address community needs, including social or environmental concerns To discuss the most important issues from experts’ point of view To develop a common strategy and tactics and to unite in the effort to overcome global challenges To review performance To identify priority issues and areas of focus for current and future periods PhosAgro was assigned Global Compact LEAD status Active participation in the work of global, national and regional organisations and industry associations Implementation of common programmes Support of major national, regional, and international initiatives promoting sustainable development goals Davos 2019 World Economic Forum PhosAgro is a permanent fixture in the forum (Metals&Mining panel) International Year of the Periodic Table (IYPT 2019): PhosAgro was the official partner of the International Year of the Periodic Table 2019 and the main sponsor of the IYPT 2019 opening ceremony at UNESCO headquarters • We supported scientific conferences, thematic exhibitions, and competitions for young scientists: the IYPT 2019 launching ceremony in Russia • at the Russian Academy of Sciences; the 29th Mendeleev Workshop and Conference for young researchers held at the Ivanovo State University of Chemistry and Technology; the 47th IUPAC World Chemistry Congress; the 21st Mendeleev Congress on General and Applied Chemistry . • • Sustainable soil management project implemented jointly with FAO: The Regional Soil Laboratory Network (RESOLAN) for Africa (AFRILAB) was launched in Nairobi (Kenya) and hosted a technical seminar for representatives from national labs . Green Chemistry for Life, a joint programme by PhosAgro, UNESCO and IUPAC Young scientists received research grants for green chemistry innovations at the sixth awards ceremony at UNESCO Headquarters, which was timed to coincide with the World Science Day for Peace and Development . IUPAC Summer School on Green Chemistry PhosAgro is the school’s official partner in Africa. The second Summer School on Green Chemistry was held at the University of Dar es Salaam in Tanzania . United Nations Global Compact The UN named PhosAgro as a Global Compact LEAD company for its commitment to corporate social responsibility and sustainable development . International Fertilizer Association (IFA) PhosAgro was awarded the Gold Medal as Industry Stewardship Champion at the 2019 IFA Strategic Forum in Versailles . 147 146 Key activities in 2019 Standing commission in place for collective bargaining Charity festivals and social projects in the cities hosting our production sites 102-41 Annual tenders to select social service providers Corporate Sports Games (Spartakiads) Dad, Mum and I – a Sporty Family contests to promote healthy living Programme to improve social and working conditions under the auspices of social services and trade unions Z .I .M .A . corporate youth winter festival Annual events to mark the Day of Older Persons Paid health resort tours for employees of pre-retirement age and working pensioners in line with the new requirements of the pension legislation To promote a corporate culture that is aligned with PhosAgro’s strategic goals To ensure employee satisfaction and motivation To guarantee appropriate social welfare for our current and retired employees To maintain an open dialogue with trade unions and employees To use human resources responsibly and effectively To provide our employees with the opportunity for professional advancement We negotiate collective agreements with trade unions that cover issues such as working conditions and compensation for employees at each of our production enterprises (usually for a three-year period, covering 100% of the employees of Apatit, its branches and standalone business units)) We involve trade unions in the development of PhosAgro’s workplace health and safety programmes We collaborate extensively with trade unions on cultural and sporting events, workplace health and safety committees, on the nomination of workplace health and safety representatives, and on our health and safety workshops We implement employee development programmes, including our Talent Pool Programme We conduct employee surveys, make presentations and bulletin boards, and run an intranet site and corporate newspaper We hold meetings with general directors of production sites and management responsible for social and HR issues together with trade union representatives Surveys to assess the quality of children’s summer vacations, health resort rehabilitation, dietary and medical meals, and children’s New Year’s gifts . We have a whistle-blower hotline, email addresses for complaints and telephone hotlines for inquiries and social issues and also for reporting violations Monthly information sessions for employees and other employee communications A regular dialogue is maintained with employees, trade unions and the management Annual report | 2019Sustainability report BUSINESS PARTNERS: CUSTOMERS BUSINESS PARTNERS: SUPPLIERS AND CONTRACTORS Why we interact How we interact To provide agricultural producers with high-quality mineral fertilizers at competitive prices To preserve the health of future generations and soil fertility by using environmentally friendly mineral fertilizers To establish business partnerships built on mutual trust and respect To ensure a shared understanding of obligations and expectations from the partnership To ensure sustainable growth of sales markets To increase crop yields in Russia and abroad by developing complex nutrition systems and efficient farming practices To promote the responsible and rational use of mineral fertilizers, i .e . green agriculture Continuous communication with customers – farmers, distributors and business partners, including those in related areas – in both the domestic and international markets Development of in-house agronomic service Partnerships with research institutes Development of new solutions to meet market needs Membership in industry organisations such as the International Fertilizer Association and the Russian Association of Fertilizer Producers, and hosting joint events with them Key activities in 2019 Participation in industry exhibitions, holding events for customers in Russia and abroad, including eight Russian and six international exhibitions; four Field Days at the company’s field trial stations, two Field Days abroad; and two agricultural conferences Start of ecolabel design for Russian-made mineral fertilizers, first in kind in Russia PhosAgro’s new product concept: 39 fertilizer grades grouped into five product categories based on form, type, ingredients and purpose Development of Russia’s first pilot online platform to purchase mineral fertilizers (to be fully launched and expanded in 2020) Advertising portfolio expansion New presentation materials for clients, including a brochure describing trial results for various nutrition systems and a booklet with fertilizer samples Why we interact How we interact To optimise procurement procedures with emphasis on greater efficiency and transparency To create a level playing field for all prospective contractors through uniform requirements and fair bid evaluation . To establish long-term relationships with suppliers Participation in conferences and exhibitions, holding meetings and negotiations Procurement announcements Compliance with the Company’s Code of Ethics 149 148 Key activities in 2019 Implementation of a project to improve efficiency of procurement. Development and launch of the Online Tender Committee . Launching a single sign-on solution for checking inventories Revision of supplier social responsibility clause to include prohibition of forced labour and modern slavery Drafting a procurement plan for the current year and placing it an online bidding platform Participation in the Technology and Equipment for Sulphuric Acid Manufacturing international conference and exhibition Learning the principles of equipment layout at production facilities, including various approaches and reporting Implementing a project to review and update procurement by-laws Improved efficiency of procurement Ecolabels for mineral fertilizers – the first ever in Russia Annual report | 2019Sustainability reportSUPPLY CHAIN AND PROCUREMENT 103 102-9 Procurement PhosAgro places special emphasis on making its procurement activities transparent and ensuring fair competition and equal conditions for all suppliers of equipment, materials and services . We seek to build strong, trustful and mutually beneficial relationships with our partners in compliance with the applicable laws, regulations, industry standards, contractual and other obligations . Procurement principles As set out in the relevant policy of Apatit, the Company’s procurement activities rely on the following principles: • Be legitimate, competitive, and transparent • Factor in the requirements for specifications, quality, customer service, delivery terms, reliability, eco-friendliness and total cost of ownership, along with legal and social matters pertaining to the equipment and materials sourced • Use the best-fitting, sustainable business solutions • Protect the Company’s reputation • Comply with the Company’s existing procedures and best practices Committed to fighting corruption, PhosAgro adheres to the Anti-Corruption Charter of the Russian Business. We are making reasonable efforts to minimise risks of doing business with partners that might be involved in fraud and/or corruption . In furtherance of our Anti-Corruption Policy, we establish and maintain business relationships with companies that operate in a bona fide manner, care about their own reputation, show commitment to high ethical standards, combat corruption, and take part in joint anti-corruption initiatives in accordance with article 13 .3 of the Federal Law On Combating Corruption . In line with the Company's approved Code of Ethics published at www . phosagro .com, the Company may refuse to cooperate with suppliers or business partners discriminating their own or subcontractors’ employees or using forced labour . SUPPLY CHAIN Supply chain represents a set of interconnected processes covering all stages of value creation, from procurement to product delivery . At PhosAgro, supply chain management aims to ensure smooth operation of all facilities, high product quality, and seamless shipments to customers . 151 150 REQUEST PLANNING Arranging and holding a request campaign Analysing the product/service required and selecting the supply source Cancelling or adjusting requests and orders TYPES OF PRODUCTS/SERVICES REQUIRED PROCUREMENT Market activities / category strategy Selecting the procurement method Pre-bid arrangements Bidding Agreement and specification DRAFT AGREEMENT SUPPORT Signing the agreement and specification Prepayment planning Delivery monitoring Ensuring timely arrival Requesting/ replacing original documents Pre-complaint resolution Arranging for the replace- ment of defective items Complaint management Payment planning and control DELIVERY TO WAREHOUSE WAREHOUSES AND INVENTORIES Analysing inventory movement and structure Monitoring timely receipt and write off Inventory Committees Inventory Management Committees IMPROVEMENT OF INVENTORY TURNOVER CONTROL Monitoring operational indicators Monitoring compliance with SLA and NSD BI reporting Bidding support Corrective action plan Annual report | 2019Sustainability report153 152 Foreign vs domestic contracts in 2019 Company Apatit Balakovo branch of Apatit Volkhov branch of Apatit Kirovsk branch of Apatit Total Foreign 1,925.1 255.2 218.6 1,421.7 3,820.6 Domestic 50,047.7 10,960.9 5,413.6 19,958.5 86,380.7 total 51,972.8 11,216.1 5,632.2 21,380.2 90,201.3 Procurement methods Corporate procurement is a competitive process, with a dedicated commission put in charge of organising tenders for equipment, materials, petroleum products and services . For this purpose, the Group uses an online bidding platform, which meets all applicable requirements set by the Russian laws . We arrange for and hold tenders with a view to achieving a greater procurement efficiency and transparency, creating a level playing field for all prospective contractors, setting uniform requirements, and ensuring fair bid evaluation . Service tenders in 2019 Tenders in 2019 Corporate and other services No. of tenders Amount, RUB mln Transportation, incl. rail No. of tenders Maintenance and repairs No. of tenders Amount, RUB mln Capital construction TOTAL Amount, RUB mln No. of tenders Amount, RUB mln No. of tenders Apatit 47 473.0 22 1,208.0 63 3,201.0 85 13,132.0 217 Balakovo branch of Apatit Volkhov branch of Apatit Kirovsk branch of Apatit 4 63.0 9 83.0 47 485.0 78 775.0 138 2 97.0 5 122.0 39 227.6 51 5,768.0 97 6,214.6 Amount, RUB mln 18,014.0 1,406.0 204-1 Procurement from local businesses1 in 2019, RUB mln Company Apatit Balakovo branch of Apatit Volkhov branch of Apatit Kirovsk branch of Apatit Total Other suppliers Local suppliers 37,101.5 10,049.8 4,393.6 19,950.4 71,495.5 14,871.3 1,166.3 1,238.5 1,429.8 18,705.8 SME procurement in 2019, RUB mln Company Apatit Balakovo branch of Apatit Volkhov branch of Apatit Kirovsk branch of Apatit Total SME procurement, RUB mln Other suppliers total 19,783.2 3,120.3 1,715.6 8,094.3 32,713.4 32,189.6 8,095.7 3,916.6 13,285.9 57,487.9 51,972.8 11,216.1 5,632.2 21,380.2 90,201.3 1 . Local businesses – organisations and individuals that are registered in the same constituent entity of the Russian Federation (significant location of operation) as the production facility that is the recipient of the procurement. The Company’s significant locations of operation are Murmansk, Vologda, Leningrad and Saratov regions. 20 112.0 8 197.0 106 1,796.0 160 3,218.0 294 5,323.0 total 51,972.8 11,216.1 5,632.2 21,380.2 90,201.3 Annual report | 2019Sustainability report155 154 154 LEADERSHIP IN SUSTAINABLE DEVELOPMENT MANAGEMENT In February 2019, PhosAgro joined the Global Compact Network Russia . In pursuance of its mission, the Company has been contributing to two platforms: Business Reporting on the SDGs and Health is Everyone’s Business . In September 2019, PhosAgro was included in Global Compact LEAD, a group of around 30 global corporations that have achieved the best results in corporate social responsibility . E C N A N R E V O G E T A R O P R O С Annual report | 2019Сorporate governance CORPORATE GOVERNANCE FRAMEWORK 102-16 102-18 PhosAgro is a public company, whose shares are included in Moscow Exchange’s Level 1 quotation list, and whose depositary receipts are traded on the London Stock Exchange. The listing of securities on Russian and foreign stock exchanges imposes stricter requirements to corporate governance. The Company’s corporate governance framework relies on the principles and recommendations set forth in the Bank of Russia’s Corporate Governance Code, other relevant requirements of the regulator (Bank of Russia), the Listing Rules of the Moscow and London stock exchanges, and the Global Reporting Initiative (GRI) disclosure standards . The Company is constantly developing its corporate governance framework to improve its internal efficiency and external competitiveness, which includes improved perception of corporate governance practices by stakeholders . One of the criteria to assess corporate governance maturity is the degree to which it complies with the recommendations of the Bank of Russia’s Corporate Governance Code . The Company sees its commitment to the highest corporate governance standards as key to building a transparent, responsible and trustworthy governance framework to ensure further growth and sustainable financial strength. PhosAgro’s corporate governance principles, structure, practices and procedures are set forth in its Charter and other bylaws of the Company. CORPORATE GOVERNANCE STRUCTURE General Shareholders’ Meeting Board of Directors Review Committee Board of Directors committees: • Audit • Remuneration and Human Resources • Strategy • Environmental, Health and Safety • Risk Management • Sustainable Development Management Board Chief Executive Officer Corporate Secretary Internal Audit Department Legal and Corporate Governance Department 157 156 OUR PRINCIPLES Accountability The Board of Directors is accountable to PhosAgro’s shareholders for formulating and implementing the Company’s long-term strategy, setting control points for, and the assessment of, management performance . Executive bodies report to the Board of Directors and the General Shareholders’ Meeting . Equality PhosAgro’s corporate governance framework is designed to ensure equitable treatment and protect the rights of all shareholders . The Board of Directors provides timely support to every shareholder should their rights be violated . The Company prevents any discrimination on the basis of gender, colour or religion . We strive to give equal opportunities to every employee . At PhosAgro we believe that professionalism, sustainably strong performance and adherence to corporate values are the necessary and sufficient conditions that guarantee promotion and career advancement . Transparency PhosAgro ensures a reliable and adequate disclosure of, and free access, to the information relating to its operations, such as financial updates, social and environmental indicators, ownership structure and corporate governance . Responsibility The Company’s material decisions affect a wide range of stakeholders including its employees and their families, local residents, shareholders, investors, government agencies and non-governmental organisations . We respect the rights and interests of the above stakeholders and are strongly committed to protecting them to the fullest possible extent . We also keep looking for ways to foster communication and collaboration with all stakeholders . https://phosagro.ru/upload/iblock/ c0d/c0d09d91657a2a4cca4b50c5 5db795de.pdf https://phosagro.ru/upload/iblock/ 64d/64d8bd7a93664921b15c 71d630372238.pdf GENERAL SHAREHOLDERS’ MEETING The General Shareholders’ Meeting is the Company’s highest governing body . The meetings are convened by the Board of Directors at least once a year . The Annual General Meeting takes place between 1 March and 30 June. For more information, see the Regulation on the General Shareholders’ Meeting . In May 2019, the Annual General Shareholders’ Meeting was held in the form of joint presence to elect a new Board of Directors and Review Committee, determine the Board of Directors’ remuneration, distribute the 2018 profit, including dividend payouts, and resolve on other matters within the its remit . The reporting year also saw three extraordinary General Shareholders’ Meetings whose main agenda item was a vote on interim dividends . RESPECT FOR SHAREHOLDERS’ RIGHTS One of the Company’s priorities is strict compliance with corporate laws, the regulator’s recommendations and best practices for minority shareholders’ protection . We acknowledge the shareholder right to prepare for a meeting in advance. To this effect, we provide timely and unimpeded access to meeting details and materials, both for the previous and upcoming meetings, at the General Shareholders’ Meeting section of the corporate website . We also give our shareholders an opportunity to email their questions to the executive bodies and the Board of Directors to the dedicated addresses available in the Corporate Secretary and the General Shareholders’ Meeting sections of the corporate website: ks@phosagro . ru and osa@phosagro.ru (for questions on the General Shareholders’ Meeting) . The materials comprise a meeting notice indicating contact phone numbers and the place where the meeting materials are available for review . Starting from 2019, the annual meeting materials also specify the person who put forward an agenda item or a candidate to the Board of Directors . Besides, if the general meeting is to discuss net profit distribution, the materials must include rationale for the proposed distribution and the Board of Directors opinion on whether the proposal complies with the dividend policy and reflects the Company’s current financial standing . In line with the best practices, the Company provides the shareholders authorised by law with access to the list of persons entitled to participate in the general meeting at any time, from the preparation of the list to the end of the meeting . Annual report | 2019Сorporate governance159 158 CHAIRMAN OF THE BOARD OF DIRECTORS ROLE OF INDEPENDENT DIRECTORS In May 2019, Sven Ombudstvedt stepped down as Chairman of the Board of Directors, a role he had held since 2011. Mr Ombudstvedt contributed greatly to the Company’s development, working tirelessly to drive the Company forward and deliver its strategy to 2020 . Under his leadership, the Company was able to upgrade its production capacities and make them more efficient and environmentally friendly. Sven Ombudstvedt’s top priority as the Chairman of the Board of Directors was to ensure full compliance with the Board’s key operating principles, including accountability, transparency, responsibility and equality. It is thanks to his efforts that the Company has integrated sustainability principles and goals into its strategy and day-to-day operations . He passed his chairman’s baton to Xavier Rolet, former CEO of the London Stock Exchange Group . Prior to his appointment Xavier Rolet had chaired the Risk Management Committee of the Board of Directors . Committed to the Company’s values, Xavier Rolet sets great store by improvements made by his predecessor . In his new role, he is going to focus on organic growth, diligent implementation of the investment programme, continued sustainable development and innovations, which are key to adding value to the Company . Board of Directors: period of service % Board of Directors: key competencies % <3 years 4–7 years >7 years 50 30 20 Strategy Finance and audit Chemistry and mining engineering 19 19 19 Environment, health and safety 15 Human resources Risk management Law and corporate governance 11 11 7 Starting from 2011, when the Company established the Board of Directors, the number of independent directors and their authority have been steadily growing . Independent directors make a valuable contribution to the Board’s decision-making as their opinions rely solely on professional skills and expertise, as well as a comprehensive study of the matter . Their position is unbiased, independent and free from the influence of other members of the Board and the Company`s management, and they are primarily focused on improving the Company`s performance . At present, seven of the ten directors are independent, which is well above the average in Russia (38% according to Spenser Stuart research in 2019) and at par with the best global practices . Independent directors chair five of the six Board committees . They are world-class experts with unique competencies and a track-record in investment and management of major businesses, financial and research organisations and government agencies . They are equipped with a full set of knowledge and skills needed to propel the Company and its Board of Directors forward and foster dialogue with stakeholders at various levels . Board of Directors nominees and members are assessed against the independence criteria set out in the Regulation on the Board of Directors and the Moscow Exchanges rules . The assessment is performed twice a year by the Remuneration and Human Resources Committee . In 2019, the Board of Directors’ special resolution recognised the independence of two directors, Sven Ombudstvedt and Marcus Rhodes, even though they met the formal criterion of being affiliated with the Company (an 8-year tenure on the Board of Directors) . BOARD OF DIRECTORS In 2019, the Board of Directors held 8 meetings and reviewed 70 matters. https://phosagro.ru/upload/ iblock/954/9546a6b923a72 288a37e74c18853a30f.pdf Full name Year of birth Board of Directors Audit Committee Strategy Committee Remuneration and Human Resources Committee Risk Management Committee Environmental, Health and Safety Committee Sustainable Development Committee Key competences Strategy Finance and audit Chemistry and mining engineering Environment, health and safety Human resources Law and corporate governance Risk management Irina Bokova Andrey A. Guryev Andrey G. Guryev Sven Ombudstvedt1 Natalia Pashkevich James Rogers Marcus Rhodes Mikhail Rybnikov1 Xavier Rolet Andrey Sharonov 1952 8/8 1982 8/8 1960 8/8 2/2 2/2 4/4 2/2 √ √ 3/4 2/3 √ √ √ √ √ √ √ 1966 1939 1942 1961 8/8 5/5 2/2 2/4 √ √ √ 8/8 2/3 √ √ 8/8 5/5 8/8 5/5 4/4 √ √ √ √ √ √ 1964 7/8 4/5 3/4 2/2 √ √ √ 1975 8/8 2/2 2/4 3/3 2/2 √ √ √ √ 1959 7/8 4/4 √ √ √ √ √ 1 Sven Ombudstvedt became member and Chairman of the Risk Management Committee on 24 May 2019 . Mikhail Rybnikov was member of the Risk Management Committee until 24 May 2019 . Annual report | 2019Сorporate governanceONBOARDING OF NEWLY ELECTED DIRECTORS Despite the fact that there were no changes in the Board composition in 2019, the Remuneration and Human Resources Committee updated the Onboarding Programme for New Board Members . This is done annually to provide them with an effective tool to gain an insight into the Company’s operations . As part of the onboarding programme, newly appointed directors visit the Company’s production sites and meet with functional managers . In August 2019, for example, the members elected to the Board of Directors in 2018 visited PhosAgro sites in Kirovsk and Apatity (Murmansk region) where, apart from learning about the Company’s key asset, they took part in the celebrations of the Miner’s Day . PROFESSIONAL DEVELOPMENT AND TRAINING OF THE BOARD OF DIRECTORS The Company views commitment to continuous professional growth as a cornerstone of good corporate governance . By expanding their knowledge and skills, directors add value to the Board of Directors and the Company on the whole . An annual performance assessment highlights the need for the qualification upgrade and training of the Board members, with a focus on the following areas: • • • current legislative and stock exchange industry trends in Russia and abroad; risk management; requirements; • Board operation trends in Russia and abroad . The assessment held in 2019 identified another focus area for the Board of Directors, which is cyberrisks and cybersecurity . To meet this need, the Company engaged one of most reputable companies in this domain to conduct a training workshop for the Board of Directors and the top management in May 2019 . On top of that, the Board of Directors regularly receives newsletters from the Company, including quarterly newsletters on corporate governance and weekly updates on the developments in the chemical and related industries . COMPOSITION OF THE BOARD OF DIRECTORS An external assessment of the Board’s performance and an annual self- assessment show that its composition is fully balanced . In 2019, there were no changes in the Board of Directors composition. However, there were significant changes to its committees in May 2019, with a new Sustainable Development Committee set up by the Board of Directors . These measures gave a significant boost to the Board of Directors’ performance . Board of Directors: independence % Board of Directors: place of residence % Independent Executive Non-executive 70 20 10 Russia Europe USA Board of Directors: gender split % Board of Directors: age % Men Women 80 20 50–60 60+ 40–50 Under 40 50 40 10 50 30 10 10 161 160 Department for International Trade (London) Member of the Committee of Expert Advisors BOARD OF DIRECTORS Information on Members of the Board of Directors РОЛЕ XAVIER ROLET КСАВЬЕ РОБЕРТ CHAIRMAN Title Independent director 2017 – 2019 Year of election 2018 Equity interest / Stake of ordinary shares None Date of birth 12 November 1959 Education KEDGE Business School (France) Master’s degree in Management Science and Finance Columbia Business School (USA) MBA in International Finance Institute for Higher National Defence Studies (IHEDN) (France) Post-graduate degree 1994 – 1996 Credit Suisse Managing Director 1997 – 2000 Dresdner Kleinwort Managing Director 2000 – 2007 Lehman Brothers (New York and London) Senior Executive 2007 – 2009 Banque Lehman Brothers S.A. (France) CEO 2009 – 2017 London Stock Exchange Group (LSEG) CEO 2011 – Present Columbia Business School Member of the Board of Overseers 2018 – 02/2019 Verseon Non-executive director 2018 – 2019 2018 – Present PhosAgro Chairman of the Risk Management Committee Shanghai Institute of Finance for the Real Economy — SIFRE Expert Advisor 2019 – 2020 CQS Management Ltd. CEO 2019 – Present PhosAgro • Chairman of the Board 2019 – Present of Directors • Member of the Risk Management Committee Public Investment Fund – Saudi Stock Exchange (Tadawul) Member of the Board of Directors 2013 – 2017 HM Treasury Member of the Financial Services Trade and Investment Board 2014 European Securities and Markets Authority (ESMA) Member of the Securities and Markets Stakeholder Group 2014 – 2017 Bank of England Governor’s Financial Services Forum 2017 – 2018 London Stock Exchange Group (LSEG) Advisor KEY COMPETENCIES: • Strategy • Finance and audit • Risk management • Law and corporate governance • Chemistry and mining engineering Annual report | 2019Сorporate governance163 162 ANDREY A. GURYEV Title Executive director Year of election 2013 Equity interest / Stake of ordinary shares None Date of birth 7 March 1982 Education University of Greenwich (UK) Bachelor’s degree in Economics Academy of National Economy under the Government of the Russian Federation PhD in Economics 2011 – 2013 PhosAgro AG Deputy CEO for Sales and Logistics 2011 – Present Moscow Rhythmic Gymnastics Federation President 2012 – Present Andrey Guryev Charitable Foundation Chairman of the Management Board 2012 – 2014 Investment Trading Bank Member of the Board of Directors 2012 – Present PhosAgro-Region Member of the Management Board 2013 – Present PhosAgro Member of the Board of Directors 2013 – Present PhosAgro • CEO • Chairman of the Management Board • Member of the Strategy Committee • Member of the Environmental, Health and Safety Committee • Member of the Risk Management Committee 2014 – 2016 PhosAgro-Cherepovets Member of the Management Board 2014 – Present Russian Chess Federation Member of the Board of Trustees 2015 – Present Russian Olympians Foundation • Member of the Council of Trustees 2015 – Present Russian Union of Industrialists and Entrepreneurs Member of the Management Board 2016 – Present Russian Association of Fertilizer Producers President 2016 – Present Russian Rhythmic Gymnastics Federation • Chairman of the Board of Trustees • Vice President 2016 – Present International Fertilizer Association (IFA) Member of the Board of Directors 2016 – Present Miners of Russia non- commercial partnership Deputy Chairman of the Supreme Mining Council 2019 – Present Russian Union of Industrialists and Entrepreneurs Member of the Management Board Bureau KEY COMPETENCIES: • Strategy • Finance and audit • Chemistry and mining engineering • Environment, health and safety ANDREY G. GURYEV DEPUTY CHAIRMAN Title Non-executive director 2001 – 2013 Year of election 2013 Equity interest / Stake of ordinary shares None Date of birth 24 March 1960 Education Plekhanov St Petersburg State Mining Institute (Technical University) Degree in Economics and Management of Mining and Exploration Enterprises Central State Institute for Physical Education 2006 – Present Russian Chemists Union Vice President Federation Council of the Federal Assembly of the Russian Federation Member of the Federation Council of the Russian Federation 2013 – Present PhosAgro • Deputy Chairman of the Board of Directors • Member of the Strategy Committee AgroGard-Finance Member of the Board of Directors AgroGard-Finance Chairman of the Board of Directors 06/2017 – 06/2018 06/2018 – Present KEY COMPETENCIES: • Strategy • Chemistry and mining engineering • Human resources Annual report | 2019Сorporate governance165 164 MIKHAIL RYBNIKOV Title First Deputy CEO Year of election 2016 Equity interest / Stake of ordinary shares 0.0258% Date of birth 30 November 1975 Education Lomonosov Moscow State University Master’s degree in Economics 2011 – 2013 PhosAgro-Region Member of the Management Board 2012 – 2015 PhosAgro AG • CEO • Chairman of the Management Board 2012 – 2017 PhosAgro-Cherepovets CEO 2013 2013 Moscow Exchange Member of the Board of Directors Apatit Member of the Board of Directors 2013 – 2016 PhosAgro-Cherepovets Member of the Board of Directors 2013 – Present PhosAgro • Member of the Management Board • Chairman of the Environmental, Health and Safety Committee • Member of the Strategy Committee • Member of the Sustainable Development Committee 2015 – 2017 PhosAgro-Cherepovets Chairman of the Management Board 2016 – Present PhosAgro Member of the Board of Directors 2016 – Present PhosAgro-Region Member of the Management Board 2017 – 2018 2018 – 2019 Apatit • CEO • Chairman of the Management Board Apatit Member of the Management Board 2018 – Present Samoilov Scientific Research Institute for Fertilizers and Insectofungicides Member of the Board of Directors 2018 – Present PhosAgro First Deputy CEO 2019 – Present Apatit Advisor to the CEO (part-time) SVEN OMBUDSTVEDT Title Independent director Year of election Equity interest / Stake of ordinary shares 2011 None Date of birth Education 2008 – 2011 2010 – 2013 2010 – 2017 2011 – 2019 2011 – Present 2017 2017 – 2019 2017 – Present 2019 – Present 27 July 1966 Pacific Lutheran University (USA) Bachelor’s degree Thunderbird School of Global Management Master’s degree in International Management Saferoad AS Member of the Board of Directors Western Bulk Member of the Board of Directors Norske Skogindustrier ASA CEO PhosAgro Chairman of the Board of Directors PhosAgro • Member of the Audit Committee • Chairman of the Strategy Committee • Chairman of the Risk Management Committee Norske Skogindustrier ASA Special Advisor Norske Skog AS Chairman of the Board of Directors Norske Skog Norway AS Member of the Board of Directors Norske Skog ASA CEO IRINA BOKOVA Title Year of election Equity interest / Stake of ordinary shares Date of birth Education 1989 – 1989 1995 – 1997 1991 – 1992 2002 – 2005 2005 – 2009 2009 – 2017 2018 – Present 2018 – Present Independent director 2018 None 12 July 1952 Moscow State Institute of International Relations (Russia) International Relations John F. Kennedy School of Government at Harvard University (USA) Leadership and Economic Development University of Maryland School of Public Affairs (USA) Ford Foundation Fellow Ministry of Foreign Affairs of the Republic of Bulgaria • Secretary of the Council of Ministers of Bulgaria for European Integration • Deputy Minister of Foreign Affairs of the Republic of Bulgaria National Assembly of the Republic of Bulgaria Member of the National Assembly UNESCO • Ambassador of Bulgaria to France and Monaco • Permanent Delegate of Bulgaria UNESCO Director-General Ban Ki-moon Centre for Global Citizens Member of the Board of Directors PhosAgro • Member of the Board of Directors • Member of the Remuneration and Human Resources Committee • Chair of the Sustainable Development Committee 2018 – Present International Automobile Federation Member of the Board of Directors KEY COMPETENCIES: • Strategy • Finance and audit • Chemistry and mining engineering • Environment, health and safety KEY COMPETENCIES: • Strategy • Finance and audit • Chemistry and mining engineering KEY COMPETENCIES: • Environment, health and safety • Human resources Annual report | 2019Сorporate governance167 166 MARCUS RHODES NATALIA PASHKEVICH Title Independent director Title Independent director Year of election 2017 Equity interest / Stake of ordinary shares None Date of birth 5 November 1939 Education Leningrad Mining Institute PhD in Economics, professor 1999 – Present St. Petersburg Mining University First Vice Rector 2017 – Present PhosAgro • Member of the Board of Directors • Member of the Environmental, Health and Safety Committee KEY COMPETENCIES: • Chemistry and mining engineering • Human resources Year of election 2011 Equity interest / Stake of ordinary shares 0.000644% Date of birth 31 May 1961 Education Loughborough University Bachelor’s degree in Economics and History of Economics Institute of Chartered Accountants in England and Wales Qualified as chartered accountant, member 2008 – 2015 Rosinter Restaurants Holding Member of the Board of Directors 2008 – 2016 Cherkizovo Group Member of the Board of Directors 2008 – 2015 Tethys Petroleum Limited Member of the Board of Directors 2011 – Present PhosAgro • Member of the Board of Directors • Chairman of the Audit Committee 2014 – Present QIWI Group (QIWI plc) Member of the Board of Directors 2014 – 2017 Zoltav Resources Inc. Member of the Board of Directors 2017 – Present SIA Enterprises Limited Honorary treasurer 08/2018 – 2019 Rustranscom Plc Non-executive director KEY COMPETENCIES: • Law and corporate governance • Risk management JAMES ROGERS Title Year of election Equity interest / Stake of ordinary shares Date of birth Education Independent director 2014 0.0064% 19 October 1942 Yale University (USA) Bachelor’s degree 1986 – Present 1988 – Present 1990 – Present 2007 – Present 2007 – Present 2012 – 2019 2012 – Present 06/2013 – 06/2014 2014 – Present 2014 – 2019 2015 – 2016 2016 – Present 2016 – Present 03/2016 – 04/2018 08/2017 – Present 01/2018 – 2019 09/2018 – 2019 Balliol College, University of Oxford (UK) Bachelor’s / master’s degree in Philosophy, Politics and Economics Virtus Total Return Fund Inc. Director Virtus Global Dividend & Income Fund Inc. Director Beeland Interests Inc. Director Beeland Enterprises Inc. Director Beeland Holdings Pte Ltd. Director Spanish Mountain Gold Limited Director Geo Energy Resources Limited Non-executive director Fab Universal Corp Independent director PhosAgro • Member of the Board of Directors • Chairman of the Remuneration and Human Resources Committee • Member of the Audit Committee Sinofortune Financial Holdings Limited Non-executive director TLV Holding Limited Advisor Duff & Phelps Select Energy MLP Fund Inc. Director Virtus Global Multi-Sector Income Fund Trustee Crusader Resources Limited Non-executive director AgroGard-Finance Independent director Ocean Capital Advisors LLC Director Quantum Digital Asset Management Pte Ltd Member of the Board of Directors 11/2018 – Present 12/2018 – Present 2006 – 2015 Sirius International Insurance Group, Ltd Member of the Board of Directors Ananti Inc Director CQS Cayman Limited Partnership Advisor 2011 – Present Forbes & Manhattan Advisor AgroGard-Finance Member of the Board of Directors 06/2017 – 06/2018 2012 – Present Santiago Gold Fund 2013 – 01/2018 Advisor Laguna Bay Pastoral Company Pty Ltd Advisor Genagro Limited Advisor Latitude Technologies Limited Senior Advisor Agritrade Resources Ltd Advisor 02/2014 – Present 07/2015 – 01/2017 04/2017 – Present 08/2017 – 08/2018 Global Blockchain 10/2017 Technologies Corp – Advisor 10/2018 2019 – Present Spanish Mountain Gold Limited Advisor ITF Corporation Advisor 2019 – Present Nanomedics Co. Ltd External director KEY COMPETENCIES: • Finance and audit • Human resources • Risk management • Law and corporate governance Annual report | 2019Сorporate governance169 168 168 D&O LIABILITY INSURANCE Directors and officers liability for damage caused to third parties by their duties is insured by SOGAZ (contract No. 18 DO 0028 in effect from 1 June 2018 to 31 May 2019, contract No. 19 DO 0020 in effect from 1 June 2019 to 31 May 2020) and is covered up to USD 75 mln (in rouble equivalent) and extended by USD 2 mln for independent directors . Apart from directors liability, the above contracts include the liability of the Company’s officers. (since 2012). BOARD OF DIRECTORS REPORT According to Section 172 “Duty to promote the success of the company” of the UK Companies Act 2006, PhosAgro’s Board of Directors acts in good faith to promote the success of the Company for the benefit of all shareholders of PJSC PhosAgro, taking into account possible long-term consequences of its decisions for the society and the environment, as well as the interests of the Company’s employees and other stakeholders . For the members of PhosAgro’s Board of Directors, these standards mean that the Company’s stakeholders should be interacted with responsibly and that their interests should be respected to the maximum extent possible . In 2019, under the guidance of the Board of Directors’ Sustainable Development Committee, stakeholders were identified and surveyed in order to define aspects of the Company’s activities that were significant to them . These aspects have since been given maximum attention, both in terms of information disclosure and intensifying work in the relevant areas . For detailed information on interaction with key stakeholders, recognition and consideration of their interests, see the Stakeholders section of this annual report . The opinion of our employees is essential for us, which is reflected, in particular, in one of our strategic objectives – increasing the loyalty and satisfaction of our staff. Analysis of employee satisfaction and loyalty surveys is reviewed annually by the Remuneration and Human Resources Committee of PhosAgro’s Board of Directors . Analysis of hotline complaints and respective management response is reviewed by the Audit Committee of PhosAgro’s Board of Directors on a quarterly basis . The said committees are composed solely of independent directors . Although at the moment we do not apply such practices as appointing directors from among the employees or appointing a non-executive director responsible for interaction with employees for considering their standpoint when managing the Company, we consider it effective and are actively involved in a dialogue on all major management issues with the trade union organisation (Minudobreniya Association), which has historically been an equal partner for the Company’s management and an authorised representative of employees in collective bargaining, review and resolution of labour disputes . In addition, heads of each production site of the Company regularly (at least twice a year) visit all business units and hold meetings with employees, at which they inform the staff about the Company’s performance, implemented measures, and plans for production and social development . A key component of such meetings is face-to-face conversation between managers and teams . Everyone has an opportunity to ask questions or make a proposal aimed at improving the technology and personnel working conditions . Based on employees’ suggestions and comments, an action plan for improving organisational and technological processes is then developed and implemented . New strategy In March 2019, the Board of Directors approved PhosAgro’s Strategy to 2025 taking into account recommendations of the Strategy Committee issued in late 2018 – early 2019. As part of the approval, it determined the metrics subject to monitoring, as well as the frequency and the procedure for such monitoring . This resolution formalised the management duty to submit, twice a year, strategy progress reports to be pre-reviewed by the Strategy Committee and finally reviewed by the Board of Directors. Sustainability management In 2019, the Board of Directors placed a special emphasis on sustainability management, which was, first and foremost, incorporated into the Company’s Strategy to 2025 as a standalone section defining goals and initiatives in this domain . The Board of Directors also approved the updated Personnel Management Policy and transparency statement in accordance with the UK Modern Slavery Act 2015, along with the amended Environmental Policy . The said documents were developed by the Company’s management based on the analysis of local corporate documents and procedures needed to ensure PhosAgro’s compliance with the applicable EU laws on human rights in supply chains . Moreover, all Board meetings held following the setup of the Sustainable Development Committee included reports from its chairman on the results and plans in this area . Strengthened role of committees In 2019, the Board of Directors also focused on a more in-depth review of matters at committee meetings, followed by chairman reports to the Board summarising key statements, conclusions and proposals . As a result, the reporting year saw an improvement in the quality of materials provided to the Board of Directors in the form of chairman reports . New dividend policy An important milestone in the Board of Director’s work was the approval of the new dividend policy aimed at boosting the Company’s investment appeal . Corporate governance assessment and development In March 2019, the Board of Directors reviewed the report on the corporate governance quality taking into account MSCI and Sustainalytics ratings and the previous year’s self-assessment of compliance with the Corporate Governance Code approved by the Bank of Russia on 21 March 2014. Noting a high level of such compliance, the Board of Directors also analysed the governance quality criteria, which for certain reasons were not met fully or partially, and agreed on an improvement plan . The early 2019 self-assessment and the subsequent recommendations of the Remuneration and Human Resources Committee were also subject ANDREY SHARONOV Title Independent director Year of election 2017 Equity interest / Stake of ordinary shares None Date of birth 11 February 1964 Education Ufa Aviation Institute Aviation Instrument Making Russian Academy of Public Administration under the President of the Russian Federation Law 2010 – 2013 Government of Moscow Deputy Mayor for Economic Policy 2014 – 2019 NOVATEK Member of the Board of Directors 2015 – 2018 VTB Bank Member of the Supervisory Council 2015 – 2017 Rosgeologia Member of the Board of Directors 2015 – 2016 Moscow Exchange Member of the Supervisory Board 2016 – Present Moscow School of Management SKOLKOVO President 2011 – 2014 National Research University Higher School of Economics Member of the Supervisory Council 2017 – Present PhosAgro • Member of the Board 2011 – Present National Research University Higher School of Economics Professor (part-time) at School of Finance of the Faculty of Economic Sciences 2011 – 2015 Bank of Moscow Member of the Board of Directors 2013 – 2016 Moscow School of Management SKOLKOVO Rector 2013 – 2016 MC Eko-Sistema Chairman of the Board of Directors 2014 – 2015 ALROSA Member of the Supervisory Board 2014 – Present MC NefteTransService Chairman of the Board of Directors 2014 – Present Sovcomflot Member of the Board of Directors 2016 – Present SKOLKOVO Endowment Fund Head 2016 – Present Present Association for the Development of Moscow School of Management SKOLKOVO Executive director of Directors • Member of the Audit Committee • Member of the Remuneration and Human Resources Committee • Member of the Sustainable Development Committee 2018 – Present Medicina Chairman of the Board of Directors 2019 - Present En+ Group • Independent director KEY COMPETENCIES: • Finance and audit • Law and corporate governance • Human resources Сorporate governanceAnnual report | 2019to review by the Board of Directors in the reporting year . The self-assessment was held in the form of a directors’ survey based on PwC’s methodology approved by the Board of Directors in 2017 . February 2020 saw KPMG conduct an external assessment of the Company’s Board of Directors . The independent consultant recognised the Board’s high efficiency and a strong engagement of its members . KPMG also highlighted a balanced split between executive and independent directors and confirmed that they have the required skills, competencies and expertise . In terms of independence and the presence of foreign directors, PhosAgro is almost on a par with foreign industry leaders and ahead of the Russian players . The current Board’s composition is fully in line with the Company’s needs, which contributes to well-reasoned decision-making . The efficiency of the Board’s key functions was also highly rated by the independent consultant . The Board of Directors discusses a wide range of matters to ensure the effective governance of the Company’s operations . Stakeholder engagement In 2019, the Board of Directors strengthened its dialogue with stakeholders . In addition to the participation in the Annual General Shareholders’ Meeting and the visit to the sites in Kirovsk and Apatity, the Board’s independent directors took part in the Investor Day held in September in London . As part of it, they presented PhosAgro’s new strategy and dividend policy to the investment community . Miscellaneous Apart from the above matters, the Board of Directors reviewed the Company’s amended budget for 2019 and the 2020 budget and approved the Internal Audit Department’s report for 2019 and the 2020 plan . On a quarterly basis, it also discussed a number of other matters such as the approval of the Company’s reports, the progress against the 2019 budget and the results of risk monitoring . Where necessary, the Board of Directors considered matters relating to the approval of significant transactions and interested-party transactions, convening of general shareholders’ meetings and other matters within its remit under the Charter . In 2019, the Board of Directors continued to foster cooperation with the Company’s functional units by reviewing reports and issuing recommendation for such functions as procurement, project management, IT and global projects . On top of that, it reviewed and provided opinion on the external assessment of the internal audit, risk management and internal control functions . 171 170 BOARD COMMITTEES The committees of the Board of Directors are advisory and consultative bodies made of the current Board members with relevant experience and expertise in committees’ specific focus areas. The committees can also involve external experts and consultants in their work . The committees’ key role is to preview 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 the full and accurate information . To achieve this, committee members maintain a regular dialogue with the management, the Company’s external auditor and other advisors on the issues that fall within their remit . REMUNERATION AND HUMAN RESOURCES COMMITTEE James Rogers independent director, Chairman of the Remuneration and Human Resources Committee Having been reshuffled before the very end of 2018, the Committee expanded its remit in 2019 . In addition to our customary responsibilities (assessment of professional skills, independence and engagement of prospective and existing members of the Board of Directors, evaluation of staff motivation programmes, best practice guidance and analysis for performance appraisal of the Board of Directors and N to N-2 managers), we drew our focus toward more comprehensive staff training as well as employee loyalty and engagement assessment . It goes without saying that businesses operating in the era of digitalisation and artificial intelligence are faced with new standards for staff training. HR priorities are now shifting from skills training to creating a development-focused environment . It is clear that employee development programmes must expand and evolve to keep up with modern times . Without doubt, every company should prioritise employee satisfaction . That is why the Company’s 2025 Strategy sets out two targets which fall within the scope of our Committee: the number of training hours and the creation of an integrated employee loyalty index . Both when initially assessing nominations to the bi-annual Board of Directors and subsequently when finalising its composition, our Committee decides which reasons should disqualify members from serving on it . The introduction of external independent directors (Xavier Rolet from CQS Management Ltd ., Sven Ombudstvedt from Norske Skog, Jim Rogers from Beeland Interests Inc . (among others), A. Sharonov from Moscow School of Management SKOLKOVO, N. Pashkevich from St Petersburg Mining University) did not affect the members’ performance of their duties as directors in the reporting year, and actually allowed for the greatest possible contribution of these experts to the Company’s growth . In 2020, we intend to do our best to successfully address these challenges . Annual report | 2019Сorporate governanceAUDIT COMMITTEE Marcus Rhodes independent director, Chairman of the Audit Committee 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 for the Board of Directors;  recommending the Company’s external auditor to the Board of Directors and maintaining an ongoing relationship with the external auditor;  • • providing support to the Internal Audit function and analysing the quarterly results of their work; • ensuring compliance with applicable legislation and relevant standards of business conduct . According to the Regulations on the Company’s Audit Committee, the Audit Committee shall consist of no fewer than three current members of the Board of Directors and shall be chaired by an independent director . Since 2018, the Committee has included four independent directors . In 2019, the Committee focused on: • Reviewing IFRS consolidated financial statements for integrity and transparency, as well as analysing the Company’s financial performance, including reasons for changes when compared with the results of previous periods and approved budgets . • Analysing the Group’s financial reporting processes . In 2019, the Group completed technically challenging projects, including the roll-out of a new consolidation system based on Oracle Hyperion Financial Management . This was integrated with three accounting systems (Oracle E-Business Suite, SAP B1 and 1C) used by consolidated companies of various jurisdictions, profiles and sizes. With the successful completion of these projects, the Group managed to reduce the time required to prepare its annual accounts (the Board of Directors meeting regarding 2019 results was held on 20 February 2020) by a month . • Recommending the Company’s external auditors to the Board of Directors and maintaining an ongoing relationship with them . When choosing an auditor, we take into account the following factors in addition to its fees . First, the team of auditors shall possess the relevant personal qualifications and be suitably experienced to ensure the audit is performed in due time and to the highest of standards . Second, we assess the auditor’s independence based on a number of factors including the scope of the non-audit services rendered by the auditor . Any KPMG proposal for rendering a non-audit service is subject to an internal review by KPMG. If the audit leader confirms that there is no threat to auditor independence, the proposal is forwarded to the Company’s Audit Committee for review and approval . The Committee only agrees to engage the auditor if the scope of the non-audit services is not so substantial as to challenge the objectivity and independence of the auditor . When assessing the auditor’s independence, the Committee also looks at whether the auditor has internal procedures in place to control the objectivity and professional ethics of its staff. This includes the requirement for the routine rotation of the audit leader, the auditor’s training in this area, and the use of specialised software to carry out relevant reviews . Third, we strive to maintain a balance between the benefits of long-term cooperation and the need for a fresh perspective on the Company’s accounts and the report preparation processes . Finally, when assessing the possibility of continuing cooperation with the external auditor, the Committee assesses the auditor’s performance from the previous period . The Committee draws on its face-to-face meetings, which are attended by the audit manager and the audit leader, when assessing the performance of the external auditor . There are 4 to 5 of such meetings every year . In addition, each meeting is preceded by a meeting of the audit 173 172 team and the Audit Committee Chair, which focuses, amongst other things, on the quality of interaction with the Company employees responsible for providing data for the audit . • Supporting the internal audit function, approving annual action plans for the Internal Audit Department, and monitoring its performance on a quarterly basis . The Committee reviews risk-based audit plans and submits them for approval by the Board of Directors . It should be noted that all core business processes will be audited given the results achieved by the Internal Audit Department in 2019 and its plans for 2020 . • Providing control over the Company’s compliance with legal and regulatory requirements, business ethics and customs . In particular, the Committee reviewed an external analysis of the Company’s internal control and audit functions in 2019 . In addition, the Committee performed reviews of the Company’s compliance with the Russian Central Bank Corporate Governance Code, as well as with UK Corporate governance code . Both reviews were positive . Importantly, we also focus on ensuring the required quality and completeness of information disclosure . To ensure this, we reviewed and approved quarterly press releases on the Group’s performance prior to their publication, at each of our quarterly meetings . SUSTAINABLE DEVELOPMENT COMMITTEE Irina Bokova independent director, Chair of the Sustainable Development Committee In May 2019, PhosAgro’s Board of Directors set up a Sustainable Development Committee to ensure that in doing its business the Company adheres to the highest standards of accountability, integrity and transparency . We also aim to help the Company maintain a balanced strategic approach to ESG reporting and activities . At its two meetings in 2019, the Committee approved the list of the UN Sustainable Development Goals and the relevant targets along with the Company’s initiatives to pursue them, the respective timelines and budgets . Under the Committee’s supervision, the Company introduced a number of metrics and relevant measurable targets to 2025 linked to management KPIs . The Committee steered the Company activities to promote the global sustainable development agenda in 2019. Specifically, as a sponsor and partner of the International Year of the Periodic Table, PhosAgro actively contributed to the events held under its auspices . In May 2019, we launched the Regional Soil Laboratory Network (RESOLAN) for Africa (AFRILAB) development project, in November, the Company joined the European Sustainable Phosphorus Platform (ESPP), and in December 2019, the Group became the founding member of the Green Club, an independent association of producers and suppliers of eco-friendly products . We are pleased to note that our efforts have been recognised internationally. In September, the UN named PhosAgro as a Global Compact LEAD company for its commitment to corporate social responsibility and sustainable development, in November, the Company was awarded the Gold Medal as Industry Stewardship Champion by the IFA (International Fertilizer Association), in December, we became the winner in two categories at the 2019 Awards for Russian Leaders in Corporate Philanthropy Advancing Sustainable Development, organised by the Russian Donors Forum, PwC and the Vedomosti newspaper . In 2020, we will continue our efforts to strengthen the Company’s sustainability framework by integrating the UN Sustainable Development Goals and the relevant targets into its strategy and day-to-day operations . Going forward, the Committee’s area of responsibility will include PhosAgro’s numerous educational and charitable projects, both domestic and international, cooperation with global organisations, as well as supervision and monitoring of approved social and environmental initiatives . Annual report | 2019Сorporate governanceRISK MANAGEMENT COMMITTEE STRATEGY COMMITTEE ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE 175 174 Sven Ombudstvedt independent director, Chairman of the Risk Management Committee, Chairman of the Strategy Committee Mikhail Rybnikov member of the Management Board, Chairman of the Environmental, Health and Safety Committee Xavier Rolet’s association with the Company helped its risk management activities to gain traction . In 2019, the Committee moved beyond general risk assessment and monitoring to scrutinise specific risks and perform an in-depth analysis. The Committee held four meetings in 2019 focusing on: • Results of monitoring the management of key corporate risks (quarterly) . • Results of a reassessment of the Company’s key risks and updating its risk map for 2019 . • Evaluation of the Company’s risk management and internal control system . • Management of key specific corporate risks (new or critical) . These include cybersecurity and sustainable development risks . I note with satisfaction that the Company’s risk management and internal control system was highly appraised following an external assessment in 2019 . We intend to keep this positive momentum going into 2020 . From late 2018 through early 2019, the Committee, in cooperation with the Company’s management, was actively developing our 2025 Strategy . For the first time ever, we mapped our strategic goals against inherent risks and the UN Sustainable Development Goals. Our efforts were rewarded in March 2019 when the Board of Directors approved and adopted the document . The Board of Directors also established targets and procedures to monitor performance vs . the approved Strategy, which falls within the remit of our Committee . On top of that, the Committee held two meetings where it reviewed the progress made towards meeting Strategy 2020 goals, analysed actual performance vs. 2016 targets and recommended that the Board of Directors declare Strategy 2020 goals as achieved . The Committee also reviewed a progress report covering priority areas of the Company’s business in 2018 and approved such priorities for 2019 . The reporting year saw Natalia Pashkevich, First Vice Rector at St Petersburg Mining University and a world-renowned researcher, join our Committee . This helped us gain a fresh perspective on matters falling within the Committee’s remit, and come forward with new solutions . Traditionally, the Committee oversees three major workstreams: • health and safety; • environmental protection; • energy efficiency. As regards health and safety, the reporting year proved to be distressing for both the Committee and the Company in general since PhosAgro’s production sites recorded several accidents . This required immediate action from the management, which resulted in Apatit’s strategic health and safety programme for 2019–2021 reviewed and recommended by the Committee for approval as early as in the mid-year . The programme comprises a wide range of improvements in this domain . Greatly concerned over this matter, the Board of Directors has made it one of its priorities . As part of their commitment to improve the situation, the directors now start every meeting with a review of a health and safety report and progress on the relevant initiatives . In 2019, the Committee expanded the scope of its duties to review the effectiveness of programmes run by the Group’s companies to reduce pollutant emissions, discharges and waste generation . At the same time, we continued to monitor industrial emissions (effluents) for meeting the standards aligned with the best available practices . We also remained focused on regulatory compliance, reviewing, among others, draft laws, which are yet to be considered and approved . In the reporting year, due in no small part to our recommendations, the Company’s sites launched energy reliability programmes . The coming year will see the Company, for the first time in its history, generate energy from renewable sources . Annual report | 2019Сorporate governanceEXECUTIVE BODIES CORPORATE SECRETARY EXECUTIVE BODIES INFORMATION ON MEMBERS OF THE MANAGEMENT BOARD 177 176 In charge of PhosAgro’s day-to-day operations are two executive bodies accountable to the Board of Directors: • • the collegial body (Management Board) and the sole executive body (CEO) . In 2019, the Management Board held seven meetings and reviewed twelve items most of which were related to the budget discipline . In this period, there were two changes to its composition, • with Alexander Seleznev, a new Сhief of Staff for the CEO, joining the Management Board in March 2019, • and Alexander Gilgenberg leaving it in December 2019 due to his appointment as General Director of Apatit (PhosAgro’s subsidiary) . As at 31 December 2019, the Management Board was composed of: • Andrey Guryev, CEO; • Siroj Loikov, Deputy CEO; • Roman Osipov, Business Development Director; • Mikhail Rybnikov, First Deputy CEO; • Alexander Seleznev, Сhief of Staff for the CEO; • Alexei Sirotenko, Deputy CEO for Corporate and Legal Affairs; • Alexander Sharabaika, Deputy CEO for Finance and International Projects . The Corporate Secretary is responsible for day-to- day interactions with the shareholders, coordination of the Company’s efforts to protect shareholder rights and interests, and support to the Board of Directors to ensure its efficient performance. The Corporate Secretary is appointed by the Board of Directors . The operating procedures of the Corporate Secretary are governed by the Regulation on the Corporate Secretary approved by the Board of Directors . SERGEY SAMOSYUK CORPORATE SECRETARY Date of birth 1 October 1976 Education St Petersburg State University of Economics (former St Petersburg Academy of Engineering and Economics) Engineering and Economics St Petersburg University Law In 1996, Mr Samosyuk joined the financial department at Ammophos From 2003, he held leading finance positions at PhosAgro AG, Metachem and Mining and Chemical Engineering (MCE), and was a member of PhosAgro- Cherepovets review committee. In October 2014, he was appointed head of methodology and economic analysis at PhosAgro-Cherepovets. For the regulation on the Corporate Secretary, see the Company’s website at https://phosagro.ru/upload/iblock/516/ 5162b0971716ff98bd58f8590ea883a3.pdf ANDREY A. GURYEV Title Executive director, Chairman of the Management Board 2015 – Present Russian Union Equity interest / Stake of ordinary shares None Date of birth Education 7 March 1982 University of Greenwich (UK) Bachelor’s degree in Economics 2011 – 2013 2011 – Present 2012 – Present 2012 – 2014 2012 – Present 2013 – Present 2013 – Present 2014 – 2016 2014 – Present 2015 – Present Academy of National Economy under the Government of the Russian Federation PhD in Economics PhosAgro AG Deputy CEO for Sales and Logistics Moscow Rhythmic Gymnastics Federation President Andrey Guryev Charitable Foundation Chairman of the Management Board Investment Trading Bank Member of the Board of Directors PhosAgro-Region Member of the Management Board PhosAgro Member of the Board of Directors PhosAgro • CEO • Chairman of the Management Board • Member of the Strategy Committee • Member of the Environmental, Health and Safety Committee • Member of the Risk Management Committee PhosAgro-Cherepovets Member of the Management Board Russian Chess Federation Member of the Board of Trustees Russian Olympians Foundation • Member of the Council of Trustees of Industrialists and Entrepreneurs Member of the Management Board 2016 – Present Russian Association of Fertilizer Producers President 2016 – Present Russian Rhythmic Gymnastics Federation • Chairman of the Board of Trustees • Vice President 2016 – Present International Fertilizer Association (IFA) Member of the Board of Directors 2016 – Present Miners of Russia non- commercial partnership Deputy Chairman of the Supreme Mining Council 2019 – Present Russian Union of Industrialists and Entrepreneurs Member of the Management Board Bureau Annual report | 2019Сorporate governance179 178 SIROJ LOIKOV ROMAN OSIPOV MIKHAIL RYBNIKOV Equity interest / Stake of ordinary shares None Date of birth 9 September 1972 Education Tashkent State University of Economics International Economic Relations Nottingham University Business School (UK) Bachelor’s degree in Business Management 2011 – 2013 2013 – 2015 PhosAgro AG HR Director PhosAgro HR Director 2013 – 2015 PhosAgro AG Human Resources and Social Policy Director 2013 – Present PhosAgro Member of the Management Board 2013 – 2017 Izumrud Member of the Board of Directors 2014 – 2015 PhosAgro AG Member of the Management Board 2015 – 2018 PhosAgro Human Resources and Social Policy Director 2015 – 2018 Korporativnoe pitanie (Corporate Nutrition) Member of the Board of Directors 2015 – 2017 PhosAgro-Cherepovets • Human Resources and Social Policy Director • Member of the Management Board 2017 – 2018 Tirvas Member of the Board of Directors 2017 – 2018 2017 – 2018 2018 – 2019 Apatit Human Resources and Social Policy Director Apatit Member of the Management Board PhosAgro Deputy CEO for Human Resources (part-time) 2018 – Present PhosAgro Deputy CEO 2018 – Present Apatit Deputy CEO (part-time) Date of birth 4 November 1971 Date of birth 30 November 1975 Equity interest / Stake of ordinary shares None Equity interest / Stake of ordinary shares 0.0258% Education 2012 – 2015 2012 – 2013 Baltic State Technical University Master’s degree from the LETI-Lovanium International School of Management PhosAgro Member of the Board of Directors PhosAgro AG Member of the Management Board Education 2011 – 2013 2012 – 2015 Lomonosov Moscow State University Master’s degree in Economics PhosAgro-Region Member of the Management Board PhosAgro AG • CEO • Chairman of the Management Board 2013 – Present PhosAgro Business Development Director 2012 – 2017 PhosAgro-Cherepovets CEO 2013 – Present AgroGard-Finance Member of the Board of Directors 2014 – Present Giproruda Member of the Board of Directors 2017 – Present PhosAgro Member of the Management Board 2018 – 2019 Apatit Member of the Management Board 2018 – Present Apatit Advisor to the CEO (part-time) 2013 2013 2013 – 2016 2013 – Present Moscow Exchange Member of the Board of Directors Apatit Member of the Board of Directors PhosAgro-Cherepovets Member of the Board of Directors PhosAgro • Member of the Management Board • Chairman of the Environmental, Health and Safety Committee • Member of the Strategy Committee • Member of the Sustainable Development Committee 2015 – 2017 PhosAgro-Cherepovets Chairman of the Management Board 2016 – Present PhosAgro Member of the Board of Directors 2016 – Present PhosAgro-Region Member of the Management Board 2017 – 2018 Apatit • CEO • Chairman of the Management Board 2018 – 2019 Apatit Member of the Management Board 2018 – Present Samoilov Scientific Research Institute for Fertilizers and Insectofungicides Member of the Board of Directors 2018 – Present Apatit Advisor to the CEO (part-time) 2018 – Present PhosAgro First Deputy CEO Annual report | 2019Сorporate governance181 180 ALEXANDER SELEZNEV ALEXEI SIROTENKO ALEXANDER SHARABAIKO Date of birth 6 July 1984 Date of birth 3 January 1969 Equity interest / Stake of ordinary shares None Education Bauman Moscow State Technical University Information Security 2011 – 2014 2015 – 2019 2019 – Present VTB Capital Analyst PhosAgro Head of Investor Relations PhosAgro • Сhief of Staff for the CEO • Member of the Management Board Equity interest / Stake of ordinary shares None Education Lomonosov Moscow State University Jurisprudence 2007 – 2015 PhosAgro AG Member of the Management Board 2010 – Present PhosAgro Deputy CEO for Corporate and Legal Affairs 2011 – 2015 PhosAgro AG Legal Affairs Director 2013 – Present PhosAgro Member of the Management Board 2015 – 2017 PhosAgro-Cherepovets • Legal Affairs Director • Member of the Management Board 2017 – 2019 Apatit Member of the Management Board 2017 – Present Apatit Legal Affairs Director 2015 – Present PhosAgro-Region Member of the Management Board 2017 – 2018 PhosAgro Member of the Board of Directors 2017 – Present Apatit Advisor to the CEO (part-time) 2017 – 2019 Apatit Member of the Management Board 2018 – Present PhosAgro Member of the Management Board 2019 – Present PhosAgro Deputy CEO for Finance and International Projects Date of birth 25 February 1977 Equity interest / Stake of ordinary shares None Education Belarus State Economic University Finance and Credit Nottingham University Business School (UK) Bachelor’s degree in Finance 2012 – 2014 2013 – 2014 2013 – 2015 2013 – 2015 2013 – 2017 2014 – 2015 2014 – 2019 2015 – 2017 PhosAgro AG CFO PhosAgro CFO (part-time) PhosAgro AG Member of the Management Board Ekoprombank Member of the Supervisory Board PhosAgro Member of the Management Board PhosAgro AG Advisor to the CEO (part-time) PhosAgro CFO PhosAgro-Cherepovets • Advisor to the CEO (part-time) • Member of the Management Board 2014 – 2016 PhosAgro-Cherepovets Member of the Management Board Annual report | 2019Сorporate governanceCORPORATE CONTROLS In December 2018, the Board of Directors approved the Company’s Risk Management and Internal Control Policy and made relevant amendments to the Corporate Governance Code to segregate this function in the general management framework. The risk management and internal control framework represents a set of organisational measures, methods, practices and standards of corporate culture. It also embraces actions taken by the Company to strike the right balance between value growth, profitability and risks, support financial sustainability, and ensure efficient operations, protection of its assets, compliance with the laws, Charter and bylaws, along with timely and accurate reporting. For key roles and other relevant information, see the  Risk Management and Internal Control Policy. https://phosagro.ru/upload/iblock/c95/c95ee12 cfc97317372a98bd482c40808.pdf RISK MANAGEMENT AND INTERNAL CONTROLS The risk management and internal control framework comprises: Review Committee Audit Committee Board of Directors Risk Management Committees Executive bodies (Management Board and CEO) Internal Audit Department Other organisational units Risk Management and Internal Control Department 183 182 The Board of Directors defines the key principles of, and approaches to, risk management and internal controls, oversees the Company’s executive bodies, and performs other key functions . It has set up a Risk Management Committee to provide recommendations and proposals to the Board of Directors and other Company’s bodies on identifying material risks and developing relevant management tools and measures to enhance the risk management framework . The Audit Committee focuses on assessing and making proposal to improve the risk management and internal control efficiency. On top of that, its members supervise the preparation of accounting (financial) statements and the measures taken to prevent fraudulent behaviour of the Company’s employees or third parties . The Review Committee elected by the General Shareholders’ Meeting exercises control over the financial and business operations of the Company . The Company’s executive bodies establish and maintain an efficient risk management and internal control framework. To this effect, they set up a Risk Commission that monitors the status and effectiveness of risk management initiatives. The results serve as a basis for the relevant proposals issued by the Commission to executive bodies and the Board of Directors . Following the audits, the Internal Audit Department provides the Board of Directors and executive bodies with recommendations and reports, including, among other things, the assessment of the current status, reliability and efficiency of the corporate governance, risk management and internal control framework . The Company’s Risk Management and Internal Control Department is charged with the general supervision of risk management, including related activities and consolidated reporting to the Board of Directors and executive bodies . As part of their duties, heads of other organisational units are responsible for building, documenting, implementing, monitoring and developing the risk management and internal control framework in their respective functional areas . Besides, the framework requires the Company’s employees to identify and assess relevant risks and efficiently implement the controls and risk management initiatives. REVIEW COMMITTEE The General Shareholders’ Meeting held in May 2019 elected the following members to the Review Committee: • Ekaterina Viktorova; • Elena Kryuchkova; • Olga Lizunova . The Committee endorsed PhosAgro’s financial statements for 2019, with its report dated 18 February 2020 included in the materials for the Annual General Shareholders’ Meeting . INTERNAL AUDIT The Company’s Internal Audit Department (IAD) assists the Company’s top executives and the Board of Directors in improving the management of business processes and enhancing the internal control and risk management framework . In doing this, it uses a risk-oriented approach and works closely with the Risk Management, Internal Control and Economic Security Departments, and the Company management . AUDIT OF BUSINESS PROCESSES In 2019, the Internal Audit Department audited business processes related to project, repair and contractor operational safety management . The audit also covered IT of foreign offices and corporate governance. The audit plan for the calendar year is subject to review, discussion and approval by the Audit Committee and the Board of Directors . Audits are performed at the Group level, as well as at specific branches and subsidiaries. In addition, the Internal Audit Department monitors the effectiveness and efficiency of corrective actions taken by the management following the audit, and reports to the Board of Directors on a quarterly basis . The 2020 audit plan covers such areas as sales, IT, information security, finance and HR . Annual report | 2019Сorporate governanceEXTERNAL ASSESSMENT EXTERNAL AUDIT INSIDE INFORMATION ANTI-CORRUPTION 185 184 102-16 103 The Company has adopted an Inside Information Regulation compliant with Russian and EU laws . In accordance with its provisions, the Corporate Secretary’s office keeps a list of insiders, persons discharging managerial responsibilities (PDMR) and persons closely associated with them (PCA). The Regulation defines the scope of responsibilities for each insider group, which the Corporate Secretary’s office from time to time communicates to respective persons . First and foremost, these include the limitations on the use of inside information and trading in the Company’s securities . Depending on the group, an insider may be prohibited from such transactions or obliged to notify the Company or obtain its consent for such transactions . Every quarter, the Corporate Secretary’s office goes through the list of shareholders to identify transactions that may have been executed in breach of such limitations . The reporting year saw no violations of the Inside Information Regulation . The Company operates in strict compliance with generally accepted ethical business standards and is intolerant to anyone taking advantage of their official position contrary to public or national interests. PhosAgro takes consistent efforts to prevent corruption and to this end has developed and put in place Anti-Corruption Policy, Code of Ethics, Conflict of Interest Regulations, and Hotline Regulations . The Company’s anti-corruption policy is implemented in accordance with applicable anti-corruption laws and international conventions (including the United Nations Convention Against Corruption, the OECD Convention, Russian anti-corruption laws) . In accordance with the Anti- Corruption Policy, the members of the Company’s Board of Directors and senior management must comply with and lead by example setting the highest standards of behaviour and work ethic . The policy commits all employees to a zero-tolerance approach to corruption . Any law violation jeopardises successful development of business, that is why we try to minimise the risk of business relations with those potentially involved in corruption . To achieve this principle, we check counterparties for reliability and for having their own rules and procedures to prevent fraud and corruption, also looking at their willingness to comply with anti-corruption laws, have an anti- corruption clause incorporated in contracts, and work together to prevent fraud and corruption . PhosAgro’s Hotline is another important element of the Company’ anti-corruption system . Used to collect and process information, it allows employees and third parties to report fraud or signs of fraud, theft and corruption in the Company or its subsidiaries . In 2019, two cases of corruption were identified and prosecuted under the Russian Criminal Code as Commercial bribery and Fraud . The Company terminated employment of the offenders. 205-3 In early 2019, PwC completed an external assessment of the IAD’s compliance with the International Standards for the Professional Practice of Internal Auditing, the Institute of Internal Auditors’ Code of Ethics and the Corporate Governance Code approved by the Bank of Russia . For the IAD, the results were overall positive . The Company is consistently working to improve its internal audit function according to the plan . Following the assessment, the internal audit methodology saw the following amendments: • annual audit plans take into account the outcomes of reviewing and assessing IT and information security risks; • each audit includes risk evaluation and control testing for information systems used by the audited processes . Going forward, the external assessment will take place thrice a year . RISK MANAGEMENT The Company is making a consistent effort to develop its risk management framework . In 2019, the Board of Directors reviewed the results of the independent risk management assessment, which showed good progress compared to 2016, including: full compliance with regulatory requirements; • risk management roll-out at production sites; • introduction of key risk indicators; • • risk appetite calculation and regular review; • organising training sessions to develop risk • management competencies; integrated approach to processing risk, control and internal audit data . The reporting year saw the Company’s production sites complete the first full-year cycle of risk management, including: • ongoing risk monitoring; • analysis of key risk indicators; • development of corrective actions; follow-up control and review . • In 2020, risk management initiatives will focus on the support and deeper integration of the existing elements into the Company’s processes and practices . For information on key risks and risk management, see the Strategic Report section . The Company›s auditor performs the audit of its financial and business operations in compliance with Russian laws and regulations and the agreement signed with the Company . The auditor is approved by the General Shareholders’ Meeting . In 2019, the Company engaged KPMG (10 Presnenskaya Embankment, Moscow, Russia) to audit its IFRS financial statements . The actual remuneration paid to the auditor for this service stood at RUB 34 .5 mln, net of VAT . In addition, KPMG was engaged in preparing the Company’s Eurobond issue and received RUB 14 mln for this service . Furthermore, during the reporting year, other agreements were signed with the auditor for non- audit services worth of RUB 1 .5 mln, net of VAT, as well as for non-audit services to be provided to the Company’s subsidiaries worth of RUB 10 .3 mln, net of VAT . In 2019, the Company engaged FBK (44/1 Myasnitskaya St., Bld. 2AB, Moscow, 101990, Russia) to audit its RAS accounting statements . The actual remuneration paid to the auditor for this engagement stood at RUB 590,000, net of VAT . For more information about the auditors, selection procedure and independence, see the Company’s quarterly reports and this report’s section discussing the Audit Committee’s activities. https://www.phosagro.ru/ori/phosagro/ ezhekvartalnye-otchety/ CONFLICTS OF INTEREST The Board of Directors pays special attention to resolving conflicts of interest, with independent directors playing a crucial role in their prevention . In late 2018, the Board of Directors approved the amended Conflict of Interest Regulation as part of the Company’s internal anti-corruption regulations . The Company’s Economic Security Department is responsible for identifying conflicts of interest and taking the required corrective actions. In its quarterly report, the IAD informs the Board’s Audit Committee of all complaints received via the hotline and relevant investigation results . The Regulation on the Board of Directors also contains provisions defining a conflict of interest and regulating the directors’ actions if any such conflict arises . Every year, at one of the Board’s in-person meetings, directors are notified of their duties in connection with potential conflicts of interest. In the reporting year, there were no conflicts of interests among the Board members and the top management . https://www.phosagro.ru/upload/docs/ about_conflict_of_interests.pdf Annual report | 2019Сorporate governanceREMUNERATION REPORT PRINCIPLES FOR REMUNERATION OF THE BOARD OF DIRECTORS When deciding on a Board composition, the General Shareholders’ Meeting approves the amount and the rules for determining and paying remuneration and compensation to its members. The remuneration offered by the Company to directors creates sufficient motivation for them to work effectively, allowing the Company to attract and retain competent and skilled professionals . At the same time, the Company avoids higher-than-necessary remuneration . During their term of office, directors receive remuneration and compensation for the expenses they incur while discharging their duties . Fixed (quarterly) remuneration is paid to independent Board members only . Additional (quarterly) remuneration is paid to the chairmen of Board committees who are independent directors and the non-employee directors of the Board of Directors. Remuneration is due within 20 days from the end of the reporting quarter . The Chairman of the Board of Directors who is an independent director receives fixed (quarterly) remuneration equivalent to USD 90,000 for a full quarter at the official exchange rate set by the Bank of Russia on the last day of the relevant quarter . Other independent directors are paid an equivalent of USD 45,000 for a full quarter at the official rate set by the Bank of Russia on the last day of the relevant quarter . Additional (quarterly) remuneration is payable to the chairmen of Board committees who are either independent directors or non-employee directors in an amount equivalent to USD 30,000 for a full quarter at the official exchange rate set by the Bank of Russia on the last day of the relevant quarter . If such independent or non-employee director chairs two or more committees, the additional (quarterly) remuneration is increased to USD 45,000 for a full quarter at the official exchange rate set by the Bank of Russia on the last day of the relevant quarter . The Company compensates directors for actual expenses incurred by them while performing their respective functions . The compensation is payable within 20 days of the month following the reporting month based on requests submitted by the Board members to PhosAgro’s sole executive body, with supporting documents attached . BOARD OF DIRECTORS REMUNERATION Members of PhosAgro’s Board of Directors may receive remuneration and compensation for the expenses incurred during their term of office if so resolved by the General Shareholders’ Meeting . According to the Company’s Corporate Governance Code, the Board remuneration shall be in line with current market trends and shall be sufficient to enable the Company to attract, motivate and retain highly skilled professionals to help drive the future growth and performance . At the same time, its size shall not exceed the amount needed to achieve this . 187 186 In 2019, the total remuneration paid to PhosAgro’s Board of Directors was RUB 109,762,000 (excluding reimbursed expenses). The amount of remuneration and additional compensation due to PhosAgro’s CEO is regulated by a contract between them and the Company, which is signed by the Chairman of the Board of Directors. The total remuneration reflects the CEO’s qualifications and their personal contribution to the Company’s financial results. MANAGEMENT BOARD REMUNERATION The remuneration paid to the CEO and six other Management Board members who represent the senior management team for their services to the Company during the year ended 31 December 2019 was RUB 451.2 mln (in 2018 – RUB 185.6 mln). The remuneration due to the Company’s senior executives consists of a monthly base salary plus additional compensation payable twice a year . Additional compensation is linked to achieving the Company’s key performance indicators (KPIs) and accomplishing additional tasks and objectives, as determined by the Board of Directors and the CEO for the reporting year or quarter . KPIs for each individual senior manager are set by period and mainly take into account metrics related to operational efficiency and individual contribution to the corporate growth and strategic performance . The Company calculates the additional annual compensation using EBITDA for the reporting period as resolved by the Board of Directors . Board of Directors remuneration, RUB Name Total Igor Antoshin Sven Ombudstvedt James Rogers Ivan Rodionov Marcus Rhodes Andrey Sharonov Xavier Rolet Irina Bokova 2017 65,472,631.92 4,749,761.34 19,376,953.47 16,147,461.81 6,458,984.49 16,147,461.81 2,592,009.00 — — 2018 2019 97,317,831.89 109,761,832.04 — 22,957,434.00 19,131,195.00 2,959,284.38 19,131,195.00 11,478,717.00 11,784,706.71 9,875,299.80 22,871,844.00 19,059,870.00 19,059,870.00 11,435,922.00 21,339,381.35 15,994,944.69 Сorporate governanceAnnual report | 2019189 188 OWNERSHIP STRUCTURE Based on information available to the Company, the shares of Chlodwig Enterprises Limited and Adorabella Limited were transferred to trusts where the economic beneficiaries are Andrey Guryev and members of his family . As at 31 December 2019, there were no shareholders in the Company with a stake of more than 5% beyond those already disclosed by the Company in this report . The Company is unaware of any shareholders that may gain or have gained control disproportionate to their share in the Company’s authorised capital, including by virtue of shareholder agreements . Adorabella Limited Chlodwig Enterprises Limited Vladimir Litvinenko Evgenia Guryeva Other shareholders Total: Number of shares 32,176,662 24,359,900 27,174,815 6,235,960 39,552,663 129,500,000 % of issued and outstanding shares 24.85 18.81 20.98 4.82 30.54 100.00 The current ownership structure is available on the Company’s website at https://phosagro.com/investors/capital/ SHAREHOLDER AND INVESTOR INFORMATION SHARE CAPITAL The authorised capital of PhosAgro (the “Company”) as at 31 December 2019 amounted to RUB 323,750,000 consisting of 129,500,000 ordinary shares with a par value of RUB 2 .5 per share . Global depositary receipts (three GDRs represent one share) are traded in 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 STOCK EXCHANGES PhosAgro’s shares are traded on the A1 quotation list of the Moscow Exchange under the ticker symbol PHOR (ISIN: RU000A0JRKT8) . 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 . Share/GDR performance 18 17 16 15 14 13 12 11 10 January February March April May June July August September October November December GDR price (LSE) Share price (MOEX) rebased to one GDR Annual report | 2019Сorporate governance INVESTOR RELATIONS At PhosAgro, we are committed to transparency and consistency, and maintain an ongoing dialogue with the investor community through a variety of communication channels and with involvement of the Company’s senior management and independent directors . • We keep the market abreast of the Company’s performance by publishing quarterly operational and financial results that are made available to investors via press releases, presentations, conference calls and webcasts . • On top of that, we take every opportunity to answer investors’ questions and gather feedback from market players by participating in industry and regional investment conferences . • Regular NDRs allow us to expand our investor base through meetings arranged outside of key financial market centres. • A well developed Eurobond programme helps reinforce the Company’s position in the public debt market while ensuring the lowest cost of funding . ANALYST COVERAGE PhosAgro is covered by analysts from leading Russian and international brokers: Company Aton Analyst Andrey Lobazov BCS Investment Bank Anastasia Egazaryan VTB Capital Goldman Sachs BMO Sberbank CIB BofA Alfa Bank Renaissance Capital Elena Sakhnova Nina Dergunova Joel Jackson Irina Lapshina Sashank Lanka Boris Krasnojenov Steven Friedman Phone +7 (495) 213 0337 +7 (495) 785 5336 +7 (495) 287 68 77 +7 (495) 645 4230 +1 (416) 359 4250 +7 (495) 258 05 11 +971 44 258 23 11 +7 (495) 795 36 12 +27 (11) 750 14 81 191 190 DEBT MANAGEMENT The conservative approach to leverage allows the Company to maintain its net debt/EBITDA within the range of 1–1 .5x . The decision on the currency of borrowings is based on the Company’s revenues, 70% of which is in foreign currency and the rest is strongly correlated with US Dollar exchange rate . When determining its borrowing requirements, the Company assesses the cost of borrowing from banks and public debt markets, the amount and maturity available while striving to ensure that this fits into the Group’s long-term debt reduction strategy . 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; the corporate website, and PhosAgro’s official disclosure page on the Interfax portal and at LSE webpage . The corporate website Official disclosure https://phosagro.com/ http://www.phosagro.ru/ori/ item4157.php PhosAgro’s official disclosure page on the Interfax portal http://www.e-disclosure.ru/portal/ company.aspx?id=573 LSE webpage https://www.londonstockexchange. com/exchange/prices-and- markets/stocks/exchange-insight/ company-news.html?fourWayKey= US71922G2093USUSDIOBE Annual report | 2019Сorporate governance193 192 MANAGEMENT RESPONSIBILITY STATEMENT The Company’ management hereby confirms that, to the best of its knowledge: 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 Company was guided by GRI standards, as well as the principles of the ISO 26000 and AA 1000 standards during the preparation of the integrated report . A draft of this integrated report was reviewed and pre-approved at a Board of Directors meeting on 20 February 2020 and reviewed and approved by the Annual General Shareholders’ Meeting . The consolidated financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 20 February 2020 . Andrey A. Guryev Chairman of the Management Board and Chief Executive Officer of PJSC PhosAgro DIVIDENDS AND DIVIDEND POLICY In accordance with PhosAgro’s dividend policy, the Board of Directors seeks to make sure that the amount of distributed dividends ranges from 50% to over 75% (subject to the Company’s leverage ratio) of the Company’s consolidated free cash flow for the respective year under IFRS. At the same time, the amount of declared dividends should not be lower than 50% of net profit for the year under IFRS . On 20 February 2020, PhosAgro’s Board of Directors recommended that the Annual General Shareholders’ Meeting approve dividends of RUB 18 per share (RUB 6 per depositary receipt), or RUB 2,331 billion in total . If approved by the Annual General Shareholders’ Meeting (AGM) on 22 May 2020, this will bring PhosAgro’s payout ratio to 67% of net profit after foreign exchange differences. For more information on our dividend policy, please visit https://www.phosagro.ru/ investors/capital/dividends/ Our dividend policy is available at https://www.phosagro.ru/upload/ iblock/747/7479a53e07de62- ea5397 d362769332d6.pdf Type and date of the General Shareholders’ Meeting where the relevant resolution on the declaration of dividends was adopted Reporting period for which (following the results of which) the declared dividends are (were) paid Declared dividends, total, RUB Declared dividends per ordinary share, RUB depositary receipt, RUB EGSM 24 January 2020 EGSM 4 October 2019 EGSM 24 June 2019 EGSM 24 May 2019 EGSM 22 January 2019 EGSM 1 October 2018 EGSM 6 July 2018 EGSM 30 May 2018 EGSM 26 February 2018 EGSM 2 October 2017 EGSM 5 July 2017 EGSM 30 May 2017 EGSM 16 January 2017 EGSM 3 October 2016 EGSM 29 July 2016 EGSM 31 May 2016 EGSM 15 January 2016 EGSM 6 October 2015 EGSM 14 July 2015 EGSM 8 June 2015 EGSM 31 December 2014 EGSM 16 September 2014 EGSM 13 June 2014 —1 — — — — — — — — — — 2016 — — — 2015 — — — 2014 9M 2014 6M 2014 — 1 Payments were made from undistributed profit for previous years 6,216,000,000 6,993,000,000 9,324,000,000 6,604,500,000 9,324,000,000 5,827,500,000 3,108,000,000 1,942,500,000 2,719,500,000 3,108,000,000 2,719,500,000 3,885,000,000 5,050,500,000 4,273,500,000 8,158,500,000 7,381,500,000 8,158,500,000 7,381,500,000 6,216,000,000 1,942,500,000 2,590,000,000 3,237,500,000 2,499,350,000 48.00 54.00 72.00 51.00 72.00 45.00 24.00 15.00 21.00 24.00 21.00 30.00 39.00 33.00 63.00 57.00 63.00 57.00 48.00 15.00 20.00 25.00 19.30 16.00 18.00 24.00 17.00 24.00 15.00 8.00 5.00 7.00 8.00 7.00 10.00 13.00 11.00 21.00 19.00 21.00 19.00 16.00 5.00 6.67 8.33 6.43 Annual report | 2019Сorporate governance102-56 L A I C N A N I F S T N E M E T A T S 195 194 Independent Auditors’ Report Valuation of deferred tax assets Please refer to the Note 19 in the consolidated financial statements. PJSC “PhosAgro” Independent Auditors’ Report Page 2 To the Shareholders and Board of Directors of PJSC “PhosAgro” Opinion We have audited the consolidated financial statements of PJSC “PhosAgro” (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2019, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the (Consolidated) Financial Statements section of our report. We are independent of the Group in accordance with the independence requirements that are relevant to our audit of the consolidated financial statements in the Russian Federation and with the International Code of Ethics for Professional Accountants (including International Independence Standards), and we have fulfilled our other ethical responsibilities in accordance with the requirements in the Russian Federation and the International Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Audited entity: PJSC “PhosAgro” Registration No. in the Unified State Register of Legal Entities 1027700190572. Moscow, Russia 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. Registration No. 1027700125628. in the Unified State Register of Legal Entities Member of the Self-regulatory Organization of Auditors Assosiation “Sodruzhestvo” (SRO AAS). The Principal Registration Number of the Entry in the Register of Auditors and Audit Organisations: No. 12006020351. How the matter was addressed in our audit Our audit procedures included the following: We tested the accuracy of the taxable profits forecast model used the likelihood of the recovery of deferred tax assets. to estimate the Group entities, the appropriateness of We evaluated management’s key assumptions and estimates used by management to allocate the profit between likelihood of generating sufficient future taxable profits to support the recognition of deferred to performance trends and dividend capacity of the Group subsidiaries. tax assets, reference in Using KPMG tax specialist, we considered the appropriateness of the application of relevant tax legislation by the Group, in relation to the utilisation of tax losses. The key audit matter The Group has recognised significant deferred tax assets in respect of tax losses. The recovery of the deferred tax assets depends on achieving sufficient taxable profits in the future. Future taxable profits to be used for utilisation of tax losses accumulated by the interest Company mainly income to be received by the Company on the loans issued to the Group subsidiaries less expenses of the Company. represent The assessment of the potential to utilise the tax losses is dependent on the forecast profitability of the Group subsidiaries, the amount of dividends to be distributed to the Company, expected foreign currency exchange and interest rates for loans. There is inherent uncertainty involved in forecasting timing and quantum of future taxable profits, which support the extent to which tax assets are recognised. Therefore, this is the key judgmental area our audit is concentrated on. Other Information Management is responsible for the other information. The other information comprises the information included in the Annual Report but does not include the consolidated financial statements and our auditors’ report thereon. The Annual Report is expected to be made available to us after the date of this auditors’ report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Annual report | 2019Appendices 197 196 PJSC “PhosAgro” Independent Auditors’ Report Page 3 Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, 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. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Annual report | 2019AppendicesConsolidated Statement of Profit or Loss and Other Comprehensive Income for 2019 Consolidated Statement of Financial Position as at 31 December 2019 Note 2019 RUB Million 2018 RUB Million Note 31 December 2019 RUB million 31 December 2018 RUB million 199 198 Revenues Cost of sales Gross profit Administrative expenses Selling expenses Taxes, other than income tax, net Other expenses, net Operating profit Finance income Finance costs Foreign exchange gain/(loss), net Profit before tax Income tax expense Profit for the year Attributable to: Non-controlling interests Shareholders of the Parent Other comprehensive (loss)/income Items that will never be reclassified to profit or loss Actuarial losses and gains Items that may be reclassified subsequently to profit or loss Foreign currency translation difference Other comprehensive (loss)/income for the year Total comprehensive income for the year Attributable to: Non-controlling interests Shareholders of the Parent Basic and diluted earnings per share (in RUB) 26 The consolidated financial statements were approved on 20 February 2020: 7 9 10 11 12 13 14 14 31(b) 15 248,125 (136,224) 111,901 (16,476) (38,121) (2,384) (3,269) 51,651 1,458 (4,271) 12,346 61,184 (11,776) 49,408 59 49,349 29 (133) (1,129) (1,262) 48,146 59 48,087 381 233,312 (124,008) 109,304 (14,271) (34,888) (3,469) (2,679) 53,997 447 (6,721) (19,613) 28,110 (5,975) 22,135 66 22,069 170 2,872 3,042 25,177 66 25,111 170 A.A. Guryev Chief executive officer A.F. Sharabaiko Deputy CEO for Finance and International Projects Assets Property, plant and equipment Advances issued for property, plant and equipment Right-of-use assets Catalysts Intangible assets Investments in associates Deferred tax assets Other non-current assets Non-current assets Other current investments Inventories Trade and other receivables Cash and cash equivalents Current assets Total assets Equity Share capital Share premium Retained earnings Actuarial losses Foreign currency translation reserve Equity attributable to shareholders of the Parent Equity attributable to non-controlling interests Total equity Liabilities Loans and borrowings Lease liabilities Defined benefit obligations Deferred tax liabilities Non-current liabilities Loans and borrowings Lease liabilities Trade and other payables Derivative financial liabilities Current liabilities Total equity and liabilities 16 17 18 19 20 21 22 23 24 25 27 28 29 19 27 28 30 199,459 13,006 6,891 2,376 1,567 519 8,214 1,636 233,668 251 29,405 31,061 8,236 68,953 302,621 372 7,494 111,054 (689) 7,236 125,467 170 125,637 96,736 4,701 857 10,278 112,572 36,839 1,543 26,030 - 64,412 302,621 186,231 6,759 - 2,574 1,786 506 8,995 1,843 208,694 313 31,710 36,186 9,320 77,529 286,223 372 7,494 93,951 (556) 8,365 109,626 195 109,821 122,877 376 630 9,023 132,906 20,679 718 21,473 626 43,496 286,223 1 . The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. The comparative information is restated on account of correction of errors . See Notes 2 (g) . 2 . Non-controlling interests are the minority shareholders of the subsidiaries of PJSC “PhosAgro” 1 . The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. The comparative information is restated on account of correction of errors . See Notes 2 (g) . Annual report | 2019Appendices Consolidated Statement of Cash Flows for 2019 Consolidated Statement of Changes in Equity for 2019 201 200 Note 2019 RUB million 2018 RUB million RUB Million Share capital Share premium Retained earnings Actuarial gains and losses Foreign currency translation reserve Attributable to non- controlling interests Total 372 7,494 85,480 (726) 5,493 129 98,242 Cash flows from operating activities Operating profit Adjustments for: Depreciation and amortisation Loss on disposal of property, plant and equipment and intangible assets Operating profit before changes in working capital and provisions Decrease/(increase) in inventories and catalysts Decrease 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 Acquisition of property, plant and equipment and intangible assets Loans issued, net Proceeds from disposal of property, plant and equipment Finance income received Acquisition of investments, net Other payments Cash flows used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid to shareholders of the Parent Dividends paid to non-controlling interests Leases paid Proceeds/(payments) from settlement of derivatives, net Cash flows used in financing activities Net 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 9, 10, 11 13 27 27 25 28 24 51,651 23,931 611 76,193 1,593 2,764 5,398 85,948 (10,550) (3,842) 71,556 (42,656) (84) 86 637 - (1,267) (43,284) 48,725 (42,698) (32,244) (84) (1,937) 112 (28,126) 146 9,320 (1,230) 8,236 53,997 20,911 586 75,494 (5,438) 324 655 71,035 (6,146) (5,210) 59,679 (38,416) (257) 19 307 (8) (814) (39,169) 83,874 (83,572) (13,598) - (1,285) (22) (14,603) 5,907 2,691 722 9,320 Balance at 1 January 2018 Total comprehensive income for the year Profit for the year Actuarial gains Foreign currency translation difference Transactions with owners recognised directly in equity Dividends to shareholders of the Parent Balance at 31 December 2018 Balance at 1 January 2019 Total comprehensive income for the year Profit for the year Actuarial losses Foreign currency translation difference Transactions with owners recognised directly in equity Dividends to shareholders of the Parent, note 25 - - - - - - 372 372 - - - - - - - - - - - - 7,494 22,069 - - 22,069 (13,598) (13,598) 93,951 - 170 - 170 - - - - 2,872 2,872 - - 66 22,135 - - 170 2,872 66 25,177 - - (13,598) (13,598) (556) 8,365 195 109,821 7,494 93,951 (556) 8,365 195 109,821 - - - - - - 49,349 - - - (133) - - - (1,129) 59 49,408 - - (133) (1,129) 49,349 (133) (1,129) 59 48,146 (32,246) (32,246) 111,054 - - - - (689) 7,236 (84) (32,330) (84) 170 (32,330) 125,637 Balance at 31 December 2019 372 7,494 Annual report | 2019Appendices 203 202 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR 2019 1. BACKGROUND (a) Organisation and operations PJSC “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, 119333 . 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 two Cyprus entities holding approximately 44% of the Company‘s ordinary shares in total . 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. Starting in 2014, the United States of America, the European Union and some other countries have imposed and expanded economic sanctions against a number of Russian individuals and legal entities . The imposition of the sanctions has led to increased economic uncertainty, including more volatile equity markets, a depreciation of the Russian rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. As a result, some Russian entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. The longer-term effects of the imposed and possible additional sanctions are difficult to determine. (c) Basis of measurement The consolidated financial statements are prepared on the historical cost basis except for the financial assets measured at fair value. (d) 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, EUR . (e) Presentation currency These consolidated financial statements are presented in RUB. All financial information presented in RUB 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 2019 were translated at the closing exchange rate of RUB 61.9057 for USD 1 (31 December 2018: RUB 69 .4706 for USD 1); • Profit and loss items were translated at the average exchange rate for 2019 of RUB 64.7362 for USD 1 (for 2018: RUB 62.7078 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. The translation from EUR into RUB, where applicable, was performed as follows: • Assets and liabilities as at 31 December 2019 were translated at the closing exchange rate of RUB 69.3406 for EUR 1 (31 December 2018: RUB 79 .4605 for EUR 1); • Profit and loss items were translated at the average exchange rate for 2019 of RUB 72.5021 for EUR 1 (for 2018: RUB 73.9546 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. (f) Use of estimates and judgments 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 . 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. 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 . The Group additionally prepares IFRS consolidated financial statements in the Russian language in accordance with the Federal Law No. 208-FZ On consolidated financial reporting. This is the first set of the Group’s annual financial statements where IFRS 16 Leases has been applied. The related changes to significant accounting policies are disclosed in the note 2 (g). (b) Going concern Note 31 to the consolidated financial statements includes the Group‘s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk. The Group has considerable financial resources together with long-standing relationships with a number of customers across different geographic areas. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully . The directors remain confident that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 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 3(c)(iii) – estimated useful lives of fixed assets; • note 19 – recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used; Annual report | 2019Appendices(g) Adoption of new and revised standards and interpretations 1As at 1 January 2019, the Group has initially adopted IFRS 16 Leases (as issued by the IASB in January 2016) . IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets . In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged . The impact of the adoption of IFRS 16 on the Group‘s consolidated financial statements is described below. The Group has applied IFRS 16 using a modified retrospective approach. The comparative information for 2018 has not been restated in accordance with provisions of IFRS 16 . Impact of the new definition of a lease The Group used the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease . Accordingly, the definition of a lease in accordance with IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease will continue to be applied to leases entered or modified before 1 January 2019. The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration . The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on or after 1 January 2019 (whether it is a lessor or a lessee in the lease contract) . When preparing for the initial application of IFRS 16, the Group carried out an implementation project. The project results presented that the new definition in IFRS 16 would not change significantly the scope of contracts that meet the definition of a lease for the Group.. Impact on Lessee Accounting Leases formerly recognised as operating leases under IAS 17 IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance- sheet. Before 1 January 2019 expenses on operating lease were reflected as rent expenses in cost of sales, administrative expenses and selling expenses, which were recognised on a straight-line basis during the lease period . For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use assets and the lease liability as at 1 January 2019 are determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date . Financial impact of initial application of IFRS 16 At the date of transition to IFRS 16 the Group recognised additional lease liabilities (short-term and long-term) in the amount of RUB 1,738 million with the corresponding increase in right-of-use assets . Previously the Group recognised lease liabilities in the amount of RUB 1,094 million with residual value of fixed assets in the amount of RUB 3,271 million as at 31 December 2018 because this lease contracts were classified as finance leases according to IAS 17. The amount of lease liabilities recognised was determined based on the present value of the remaining future minimum lease payments at the transition date . The Group used incremental borrowing rate in determining the present value of future payments . The weighted average incremental borrowing rate at 1 January 2019 was 9 .0% per annum . This discount rate was used for all the lease contracts concluded by the Group . When the Group is either required to acquire assets at the end of lease contracts or has a purchase option, which the Group is reasonably certain to exercise, such payments are also included in model when determining the present value of future payments . The majority of the Group’s leases of land plots have the periodic lease payment linked to cadastral value of a plot . Cadastral value as well as applicable rates are set and updated by governmental authorities, which do not represent a market index or rate . Hence, all the lease payments under such contracts are considered variable not dependent on index or rate and are recognised in profit or loss as they are incurred, which means the Group recognises no liability in respect of future lease payments and no corresponding right- of-use assets . As at 1 January 2019, the Group recognised additional right-of-use assets in the amount of RUB 1,738 million . According to terms fixed in the lease contracts, right-of-use assets were depreciated on a straight-line basis over the lease term within the range from 1 205 204 to 5 years . In cases when ownership of the underlying right-of-use asset is transferred to the Group, or the Group is reasonably certain to exercise a purchase option, then the depreciation period runs to the end of the useful life of the underlying right-of-use asset . Depreciation expenses were reflected in cost of sales, administrative expenses and selling expenses. Future minimum lease payments as at 31 December 2018 as disclosed in the consolidated financial statements for the year ended 31 December 2018: Operating leases Finance leases Impact of payments on land plots based on cadastral values and options to extend and cancel lease contracts Impact of discounting Lease liabilities recognised as at 1 January 2019 (note 28) Residual value of fixed assets under finance lease as at 31 December 2018 Finance lease liability as at 31 December 2018 Right-of-use assets recognised as at 1 January 2019 (note 17) Effect on retained earnings as at 1 January 2019 RUB million 2,469 1,158 3,627 (383) (412) 2,832 3,271 (1,094) 5,009 - Had the Group not applied IFRS 16 for 2019, it would have the following effect on the Group‘s consolidated statement of profit or loss and other comprehensive income for 2019 and consolidated statement of financial position as at 31 December 2019: Revenues Cost of sales Gross profit Administrative expenses Selling expenses Taxes, other than income tax, net Other expenses, net Operating profit Finance income Finance costs Foreign exchange gain, net Profit before tax Income tax expense Profit for the year Note 7 9 10 11 12 13 14 14 31(b) 15 as if IAS 17 still applied IFRS 16 adjustments 2019 as presented RUB million RUB million RUB million 248,125 (136,739) 111,386 (16,490) (38,121) (2,384) (3,269) 51,122 1,458 (4,059) 12,346 60,867 (11,712) 49,155 - 515 515 14 - - - 529 - (212) - 317 (64) 253 248,125 (136,224) 111,901 (16,476) (38,121) (2,384) (3,269) 51,651 1,458 (4,271) 12,346 61,184 (11,776) 49,408 Annual report | 2019AppendicesNote. 31 December 2019 as if IAS 17 still applied IFRS 16 adjustments 31 December 2019 as presented RUB million RUB million RUB million Assets Property, plant and equipment Advances issued for property, plant and equipment Right-of-use assets Catalysts Intangible assets Investments in associates Deferred tax assets Other non-current assets Non-current assets Other current investments Inventories Trade and other receivables Cash and cash equivalents Current assets Total assets Equity Share capital Share premium Retained earnings Foreign currency translation reserve Actuarial losses Equity attributable to shareholders of the Parent Equity attributable to non-controlling interests Total equity Liabilities Loans and borrowings Lease liabilities Defined benefit obligations Deferred tax liabilities Non-current liabilities Loans and borrowings Lease liabilities Trade and other payables Current liabilities Total equity and liabilities 16 17 18 19 20 21 22 23 24 25 27 28 29 19 27 28 30 199,488 13,006 - 2,376 1,567 519 8,214 1,636 226,806 251 29,405 31,460 8,236 69,352 296,158 372 7,494 110,801 7,236 (689) 125,214 170 125,384 96,736 1 857 10,214 107,808 36,839 1 26,126 62,966 296,158 (29) - 6,891 - - - - - 6,862 - - (399) - (399) 6,463 - - 253 - - 253 - 253 - 4,700 - 64 4,764 - 1,542 (96) 1,446 6,463 199,459 13,006 6,891 2,376 1,567 519 8,214 1,636 233,668 251 29,405 31,061 8,236 68,953 302,621 372 7,494 111,054 7,236 (689) 125,467 170 125,637 96,736 4,701 857 10,278 112,572 36,839 1,543 26,030 64,412 302,621 The Group has adopted amendments to IAS 23 Borrowing Costs issued by the International Accounting Standards Board as part of Annual Improvements to IFRS Standards 2015–2017 Cycle from 1 January 2019 and apply them to borrowing costs incurred on or after that date . The amendments clarify that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Therefore, the Group treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. Borrowings that were intended to specifically finance qualifying assets which are now ready for their intended use or sale – or any non-qualifying assets – the Group includes in its general pool . During 2019, the Group capitalised an additional amount of borrowing costs of RUB 260 million as a result of this revised approach . 207 206 (h) New standards and interpretations not yet adopted A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements. • Amendments to References to Conceptual Framework in IFRS Standards . • Definition of a Business (Amendments to IFRS 3). • Definition of Material (Amendments to IAS 1 and IAS 8). • IFRS 17 Insurance Contracts . 3.SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for the adoption of IFRS 16 from 1 January 2019 . (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 measured at FVOCI 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 . (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 . Annual report | 2019Appendices(b) Foreign currencies Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at the exchange rate ruling at the date of the transaction . Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate ruling at that date . Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the 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 at the exchange rate ruling at the dates the fair values were determined. Foreign exchange differences arising on translation are recognised in the profit or 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 . 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 . (ii) Subsequent expenditure Expenses in connection with ordinary maintenance and repairs are recognised in the statement of profit or loss as they are incurred. Expenses in connection with periodic maintenance on property, plant and equipment are recognised as assets and depreciated on a 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 capitalised and depreciated on a systematic basis . (iii) Depreciation Depreciation is charged to the profit or loss on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the month of acquisition or, in respect of internally constructed assets, from the month when 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: • Buildings 12 to 17 years; • Plant and equipment 4 to 15 years; • Fixtures and fittings 3 to 6 years. Tangible fixed assets acquired after the date of adoption of IFRS, are depreciated over the following useful lives: • Buildings 10 to 60 years; • Plant and equipment 5 to 35 years; • Fixtures and fittings 2 to 25 years. (d) Intangible assets (i) 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 or 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 209 208 labour and an appropriate proportion of overheads. Other development expenditure is recognised in the profit or loss as an expense as incurred . Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses . (ii) 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 . (iii) 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) Financial instruments 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 . The Group financial assets are classified in the following measurement categories based on the on the Group’s business model for managing the financial assets and the contractual terms of the cash flows: financial assets at amortised cost; financial assets at fair value (either through other comprehensive income or profit or loss). Financial assets at amortised cost. Financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through profit or loss (“FVTPL”): • • the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding . The financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any gains or losses arising from derecognition are recognised directly in profit or loss. Financial assets at fair value through other comprehensive income (“FVOCI”). Financial assets are classified and measured at fair value through other comprehensive income if they meet both of the following conditions and are not designated as at FVTPL: • they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding . • These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Financial assets at fair value through profit or loss (“FVPL”). Financial asset that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss (“FVPL”). (f) Inventories Financial assets at fair value through profit or loss (“FVPL”). Financial asset that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss (“FVPL”). 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 . Annual report | 2019Appendices211 210 Lease payments included in the measurement of the lease liability comprise the following: • fixed payments • variable lease payments that depend on the rate • amounts expected to be payable under a residual value guarantee . Lease liability is measured at amortised cost using the effective interest method. It is revalued when there is a change in future lease payments arising from adjusted interest rate, extension or termination option and other events . Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets . For short-term leases (lease term of 12 months or less) and leases of low-value assets the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16 . This expense is presented within cost of sales, administrative expenses and selling expenses in the consolidated statement of profit or loss and other comprehensive income. Policy applicable before 1 January 2019 For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based on the assessment of whether: • • fulfilment of the arrangement was dependent on the use of a specific asset or assets; and the arrangement had conveyed a right to use the asset . An arrangement conveyed the right to use the asset if one of the following was met: the purchaser had the ability or right to operate the asset while obtaining or controlling more than an insignificant amount of the output; the purchaser had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or facts and circumstances indicated that it was remote that other parties would take more than an insignificant amount of the output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output. • • • As a lessee In the comparative period, as a lessee the Group classified leases that transferred substantially all of the risks and rewards of ownership as finance leases. Plant and equipment acquired by way of finance lease were 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 . Assets held under other leases were classified as operating leases and were not recognised in the Group’s statement of financial position. Payments made under operating leases were recognised in the profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised in the profit or loss as an integral part of the total lease payments made. (g) Impairment Financial assets The Group recognises loss allowances for expected credit loss (ECLs) on financial asset measured at amortised cost and debt investments measured at fair value through other comprehensive income (“FVOCI”) . The loss allowances are measured on either of the following bases: 12-month ECLs that result from default events that are possible within the 12 months after the reporting date; and lifetime ECLs that result from all possible default events over the expected life of a financial instrument. For trade receivables the Group estimated the expected credit losses for the entire period, applying a simplified approach to measuring expected credit losses, which uses lifetime expected loss allowance . In the terms of calculating the expected credit loss, the Group considers the credit rating for each counterparty, adjusted with forward-looking factors specific to the debtors, historical credit loss experience and economic environment in which they operate . If, in a subsequent period, the fair value of an impaired financial assets 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. 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 or 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 . 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 . (h) Leases Policy applicable from 1 January 2019 The Group has applied IFRS 16 Leases using a modified retrospective approach under which comparative information has not been restated in accordance with provisions of IFRS 16 and continues to be reported under IAS 17 . The Group has disclosed accounting policies under both IFRS 16 (for the current period) and IAS 17 (for the comparative period presented) in order for users to understand the current period as well as comparative information and changes in significant accounting policies . As a lessee Applying IFRS 16 for all leases (except as noted below), the Group: • Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments; • Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss and other comprehensive income; and • Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and making certain adjustments to reflect the terms of the lease and type of the asset leased. Annual report | 2019Appendices(i) 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 . (j) Financial liabilities The Group financial liabilities comprise trade and other payables, borrowings and bonds and derivative financial instruments. The Group financial liabilities are measured at amortised cost, except for financial liabilities at fair value through profit or loss. Such liabilities include derivatives, other liabilities held for trading, and liabilities that the Group designates to be measured at fair value through profit or loss. The Group derecognises a financial liability when its obligation specified in the contract is discharged or cancelled or expires. (k) 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 immediately as an expense in the profit or loss. To the extent the benefits vest immediately, the expense is recognised immediately in the profit or 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 (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 . (l) 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. (m) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or 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 . 213 212 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. (n) Revenues Revenue from contracts with customers is recognised when control of the goods or services is transferred to a customer . The amount of revenue recognised reflects the consideration the Group expects to receive in exchange for goods or services, taking into account any trade, volume and other discounts . Advances received before the control passes to a customer are recognised as the contract liabilities. There are no other contract liabilities. The amount of consideration does not contain a significant financial component as payment terms for the majority of contracts are less than one year . No information is provided about remaining performance obligations as at the reporting date that have an original expected duration of one year or less, as allowed by IFRS 15 . Contracts with customers for the supply of goods use a variety of delivery terms . The Group determined that under the terms of the majority contracts for the supply of mineral fertilizers the Group undertakes to provide delivery and the related delivery services after the transfer of control over the goods to the buyer at the loading port . Under IFRS 15, these services are a separate performance obligation, which revenue must be recognised during the period of delivery as revenue from logistics activities . The Group recognises revenue from these logistics services at the time of delivery, due to the fact that the potential difference is calculated and recognised as insignificant. In the revenue disclosure the sales of certain product groups include the proceeds from logistics services . Costs related to rendering of logistics services are mainly represented by transportation costs and included in selling expenses . (o) Finance income and costs Finance income comprises interest income, dividend income, gain on the financial assets at FVTPL, gain arising from operations with foreign currency, unwind of discount of financial assets, share of profit of associates 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, loss on the financial assets at FVTPL, bank fees, securitisation fees, loss arising from operations with foreign currency, discount of financial assets, share of loss of associates and foreign currency losses. 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. Foreign currency gains and losses, gains and losses arising from operations with foreign currency, securitisation fees, share of profit and losses of associates are reported on a net basis . (p) Overburden removal expenditure In open pit apatite 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. Annual report | 2019Appendices215 214 (q) 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 or loss as incurred. (a) Financial assets measured at amortised cost The fair values of financial assets carried at amortised cost, which are mainly loans issued and trade and other receivables, approximate their carrying amounts as at the reporting date . (r) 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 . 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 . 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 . (s) 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. (b) Financial instruments measured at fair value The fair values of derivative financial assets and liabilities are determined using inputs from observable market data and are categorised as Level 2 of the fair value hierarchy . The fair values of derivative financial liabilities, represented by put and call options on oil (Brent) contracts, are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. (c) Other financial liabilities not measured at fair value The fair values of other financial liabilities, which are mainly loans and borrowings and lease liabilities, are determined for disclosure purposes and categorised as Level 3 of the fair value hierarchy . The fair values are calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. 5. PRIOR YEAR ADJUSTMENTS AND RECLASSIFICATIONS During the current period the Group made a decision to make certain reclassifications to prior period comparatives to be consistent with the current period classifications, effecting the following captions: • • • revenue, cost of sales, administrative expenses, selling expenses, other expenses, net, finance costs and share of loss of associates; inventory, catalysts (as non-current assets); to change the presentation of statement of cash flows, starting from the line of operating profit instead of profit before tax as in previous periods.  Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment . Comparatives were changed accordingly to align them with current year presentation . 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. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible . Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities . • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i .e . as prices) or indirectly (i .e . derived from prices) . • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) . If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred . Fair values have been determined for measurement and / or disclosure purposes based on the methods described in 4(a) to 4(с) . When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability . Revenue Cost of sales Administrative expenses Selling expenses Other expenses, net Finance costs Share of loss of associates, net of provision Catalysts Inventories As previously presented Reclassifications As adjusted RUB Million RUB Million RUB Million 2018 233,430 (123,964) (14,864) (34,410) (2,726) (6,098) (623) (118) (44) 593 (478) 47 (623) 623 233,312 (124,008) (14,271) (34,888) (2,679) (6,721) - 31 December 2018 Reclassifications As adjusted As previously presented RUB Million RUB Million RUB Million 2,414 31,870 160 (160) 2,574 31,710 Annual report | 2019Appendices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 . Segment information as at 31 December 2019 and for the year then ended is as follows: RUB million Segment revenue and profitability Segment external revenues, thereof: Export Domestic Cost of goods sold Gross segment profit Certain items of profit or loss Amortisation and depreciation Total non-current segment assets1 Additions to non-current assets1 Phosphate- based products Nitrogen- based products Other operations Total 201,248 37,882 8,995 248,125 135,220 66,028 (111,086) 31,100 6,782 (16,609) 1,098 7,897 (8,529) 167,418 80,707 (136,224) 90,162 21,273 466 111,901 (17,521) 144,680 37,084 (5,723) 60,645 5,587 (687) 4,968 963 (23,931) 210,293 43,634 Segment information of the Group as at 31 December 2018 and for the year then ended is as follows: RUB million Segment revenue and profitability Segment external revenues, thereof: Export Domestic Cost of goods sold Gross segment profit Certain items of profit or loss Amortisation and depreciation Total non-current segment assets2 Additions to non-current assets2 Phosphate- based products Nitrogen- based products Other operations Total 186,971 37,011 9,330 233,312 132,098 54,873 (98,962) 30,178 6,833 (16,431) 903 8,427 (8,615) 163,179 70,133 (124,008) 88,009 20,580 715 109,304 (14,304) 122,164 25,618 (5,883) 63,162 5,890 (724) 5,265 843 (20,911) 190,591 32,351 The analysis of export revenue by regions is as follows: Europe South America North America India CIS Africa Asia Australia 7. REVENUES Phosphate-based products Sales of chemical fertilisers Sales of apatite concentrate Sales of other phosphate-based products and services Sales of nepheline concentrate Nitrogen-based products Other 8. PERSONNEL COSTS Cost of sales Administrative expenses Selling expenses 217 216 2019 RUB million 2018 RUB million 72,372 34,836 19,397 14,153 13,634 9,509 3,477 40 57,308 43,684 27,589 11,890 11,557 7,895 3,250 6 167,418 163,179 2019 RUB million 2018 RUB million 201,248 165,110 25,799 9,203 1,136 37,882 8,995 248,125 186,971 155,733 22,098 8,326 814 37,011 9,330 233,312 2019 RUB Million 2018 RUB Million (12,744) (9,300) (2,662) (24,706) (11,760) (7,907) (2,257) (21,924) 1 . Total non-current segment assets include property, plant and equipment, intangible assets, right-of-use assets and catalysts . 2 . Total non-current segment assets include property, plant and equipment, intangible assets and catalyst Annual report | 2019Appendices9. COST OF SALES Depreciation Materials and services Potash Salaries and social contributions Natural gas Repair expenses Sulphur and sulphuric acid Transportation of phosphate rock Chemical fertilisers and other products for resale Electricity Fuel Ammonia Ammonium sulphate Drilling and blasting operations expenses 10. ADMINISTRATIVE EXPENSES Salaries and social contributions Professional services Depreciation and amortisation Other 11. SELLING EXPENSES Expenses linked to basis of delivery, inc. Freight, port and stevedoring expenses Russian Railways infrastructure tariff and operators’ fees Custom duties Materials and services Other fixed expenses, inc. Salaries and social contributions Depreciation and amortisation Materials and services 2019 RUB Million. (21,368) (20,138) (13,691) (12,744) (12,627) (10,119) (9,165) (8,641) (6,683) (6,204) (4,849) (4,095) (3,577) (2,323) 2018 RUB Million. (18,936) (18,488) (10,238) (11,760) (12,096) (9,485) (10,682) (7,671) (6,287) (5,474) (4,019) (4,195) (3,015) (1,662) (136,224) (124,008) 2019 RUB million 2018 RUB million (9,300) (1,963) (1,378) (3,835) (16,476) (7,907) (1,677) (1,242) (3,445) (14,271) 2019 RUB million. 2018 RUB million. (32,628) (30,578) (18,340) (11,441) (1,898) (949) (5,493) (4,310) (2,662) (1,185) (1,646) (38,121) (17,829) (10,363) (1,391) (995) (2,257) (733) (1,320) (34,888) 12. TAXES, OTHER THAN INCOME TAX, NET Mineral extraction tax Property tax Land tax VAT included in expenses Environment pollution payment Using water objects payment Other taxes 13. OTHER EXPENSES, NET Social expenditures Loss on disposal of property, plant and equipment and intangible assets Increase in provision for bad debt Increase in provision for inventory obsolescence (Accrual)/reversal of accrual of contingent liabilities Other income, net 14. FINANCE INCOME AND FINANCE COSTS Gain from operations with derivatives Interest income Unwind of discount on financial assets Share of profit of associates (note 18) Dividend income Other finance income Finance income Interest expense Bank fees Securitisation fees Write off of equity securities Provision for bad debt on financial investments Share of loss of associates, net of provision (note 18) Other finance costs Finance costs Net finance costs 219 218 2019 RUB million. 2018 RUB million (954) (558) (301) (294) (171) (38) (68) (885) (1,966) (291) (123) (130) (38) (36) (2,384) (3,469) 2019 RUB million. 2018 RUB million. (2,661) (1,856) (611) (106) (19) (62) 190 (586) (452) (88) 35 268 (3,269) (2,679) 2019 RUB million.. 2018 RUB million.. 700 484 68 13 4 189 1,458 (3,457) (209) (175) (150) (45) - (235) (4,271) (2,813) - 230 67 - - 150 447 (4,666) (156) - - (566) (623) (710) (6,721) (6,274) Annual report | 2019Appendices15. INCOME TAX EXPENSE 16. PROPERTY, PLANT AND EQUIPMENT 221 220 The Company’s applicable corporate income tax rate is 20% (2018: 20%). 2019 RUB million 2019 RUB million Current tax expense Origination and reversal of temporary differences, including change in unrecognised assets Reconciliation of effective tax rate: Profit before tax Income tax at applicable tax rate Over/(under) provided in respect of prior years Unrecognised tax liability/(asset) on profit/(loss) from associates Non-deductible items Change in unrecognised deferred tax assets Effect of tax rates in foreign jurisdictions Reduction in tax rate 2019 RUB million. 61,184 (12,237) 4 3 (1,174) 15 337 1,276 (11,776) (9,724) (2,052) (11,776) 2018 RUB million 28,110 (5,622) (3) (125) (1,434) 17 39 1,153 (5,975) % 100 (20) - - (2) - 1 2 (19) (8,487) 2,512 (5,975) % 100 (20) - - (5) - - 4 (21) RUB Million Cost At 1 January 2018 Additions Transfers Disposals Other movements At 1 January 2019 Recognition of ROU asset on initial application of IFRS 16 Adjusted cost at 1 January 2019 Additions Transfers from right-of-use assets (note 17) Transfers Disposals Other movements At 31 December 2019 Accumulated depreciation At 1 January 2018 Depreciation charge Disposals Other movements At 1 January 2019 Recognition of ROU asset on initial application of IFRS 16 Adjusted depreciation at 1 January 2019 Transfers from right-of-use assets (note 17) Depreciation charge Disposals Other movements At 31 December 2019 Net book value at 1 January 2018 Net book value at 1 January 2019 Net book value at 1 January 2019 adjusted of IFRS 16 Net book value at 31 December 2019 Land and buildings Plant and equipment Fixtures and fittings Construction in progress Total 67,175 127,023 2,286 6,835 (138) 94 76,252 - 76,252 2,493 - 16,582 (779) (66) 94,482 (12,435) (4,582) 74 (6) (16,949) - 3,903 13,425 (1,335) 1,632 144,648 (4,262) 140,386 5,826 4,245 17,203 (2,623) (108) 164,929 (53,276) (14,813) 1,234 (707) (67,562) 991 (16,949) (66,571) - (1,033) (5,469) (16,010) 638 6 (21,774) 54,740 59,303 59,303 2,522 (72) (81,164) 73,747 77,086 73,815 72,708 83,765 11,078 2,363 - (129) 12 13,324 - 13,324 2,517 - - (182) (10) 15,649 (6,310) (1,863) 96 (7) (8,084) - (8,084) - (1,732) 152 6 (9,658) 4,768 5,240 5,240 5,991 41,858 23,309 (20,260) (305) - 44,602 - 44,602 26,696 - (33,785) (518) - 247,134 31,861 - (1,907) 1,738 278,826 (4,262) 274,564 37,532 4,245 - (4,102) (184) 36,995 312,055 - - - - - - - - - - - - 41,858 44,602 44,602 (72,021) (21,258) 1,404 (720) (92,595) 991 (91,604) (1,033) (23,211) 3,312 (60) (112,596) 175,113 186,231 182,960 36,995 199,459 Annual report | 2019AppendicesDuring 2019, the Group capitalised borrowing costs in the amount of RUB 1,283 million (2018: RUB 836 million) in the value of property, plant and equipment using the weighted average interest rate of 3 .24% per annum . As at 31 December 2019, the balance of the construction in progress account includes the accumulated costs related to in Cherepovets: • Development programme of production facilities for extraction of phosphoric acid and fertilizers in the amount of RUB 3,893 million; • Development programme of ammonia production facilities in the amount of RUB 2,581 million; • Development programme of production facilities for sulphuric acid in the amount of RUB 2,137 million; • The construction of ammonium sulphate plant in the amount of RUB 941 million . in Kirovsk: • Kirovsk mine extension and modernization in the amount of RUB 8,140 million; • The construction of transporter of Koashvinskiy quarry in the amount of RUB of 4,893 million; • The construction of apatit-nepheline beneficiation plant in the amount of RUB 2,277 million; • The development of Rasvumchorrskiy mine in the amount of RUB 1,347 million . 17. RIGHT-OF-USE ASSETS The Group has the following types of right-of-use assets as at 31 December 2019: railway wagons, production equipment, offices. The leases typically run for a period of 5 years, with an option to renew the lease after that date . RUB million Cost At 1 January 2019 New lease contracts and modification of existing lease contracts Disposals Currency translation Transfers to property, plant and equipment (note 16) At 31 December 2019 Accumulated depreciation At 1 January 2019 Depreciation Disposals Currency translation Transfers to property, plant and equipment (note 16) At 31 December 2019 Net book value at 1 January 2019 Net book value at 31 December 2019 Buildings Plant and equipment 137 136 (73) (11) - 189 - (105) 23 2 - (80) 137 109 5,863 5,822 (51) - (4,245) 7,389 (991) (654) 5 - 1,033 (607) 4,872 6,782 Total 6,000 5,958 (124) (11) (4,245) 7,578 (991) (759) 28 2 1,033 (687) 5,009 6,891 Amounts recognised in profit and loss Leases under IFRS 16 Depreciation expense on right-of-use assets Interest expense on lease liabilities Expenses relating to short-term leases Expenses relating to leases with variable payments Amounts recognised in profit and loss Operating leases under IAS 17 Lease expense Contingent rent expense 18. INVESTMENTS IN ASSOCIATES The movement in the balance of investments in associates is as follows Balance at 1 January Share in profit for the period Provision for investments in associates Foreign currency translation difference Balance at 31 December Carrying values of the Group’s investments in associates are as follows: JSC Khibinskaya Teplovaya Kompaniya JSC Giproruda JSC Soligalichskiy izvestkovyi kombinat 223 222 2019 RUB million 759 236 587 375 2018 RUB million. 887 345 2019 RUB million. 2018 RUB million 506 13 - - 519 969 99 (722) 160 506 31 December 2019 RUB Million 31 December 2018 RUB Million 435 63 21 519 421 61 24 506 Annual report | 2019AppendicesSummary financial information for associates is as follows: 2019 Total assets RUB Million Total liabilities RUB Million Net assets RUB Million Revenue RUB Million JSC Khibinskaya Teplovaya Kompaniya JSC Giproruda JSC Soligalichskiy izvestkovyi kombinat 1,605 161 598 2,364 (809) (33) (381) 796 128 217 494 99 581 (1,223) 1,141 1,174 2018 Total assets RUB Million Total liabilities RUB Million Net assets RUB Million Revenue RUB Million JSC Khibinskaya Teplovaya Kompaniya LLC PhosAgro-Ukraine JSC Giproruda JSC Soligalichskiy izvestkovyi kombinat 1,876 - 146 526 2,548 (1,075) - (24) (294) (1,393) 801 - 122 232 1,155 705 3,549 54 497 4,805 Profit/(loss) for the year RUB Million 27 6 (3) 30 Profit/(loss) for the year RUB Million 48 181 9 11 249 19. DEFERRED TAX ASSETS AND LIABILITIES (а) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following items: RUB Million Assets Liabilities 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) 2019 129 43 1,067 1,826 7,427 (55) 10,437 (2,223) 8,214 Net 2019 2019 (12,056) (11,927) (51) (390) (4) - - (12,501) 2,223 (10,278) (8) 677 1,822 7,427 (55) (2,064) - (2,064) Assets Liabilities 2018 102 17 1,067 748 8,482 (40) 10,376 (1,381) 8,995 2018 (9,869) (44) (488) (3) - - (10,404) 1,381 (9,023) Net 2018 (9,767) (27) 579 745 8,482 (40) (28) - (28) The deferred tax assets on tax loss carry-forwards relate to the Russian entities . Due to amendments to the Russian tax legislation, starting from 1 January 2017, tax losses for Russian tax purposes carried forward existing as at 31 December 2019 do not expire . Management has developed a tax strategy to utilise the tax losses above . In assessing the recoverability of the tax losses, major part of which relates to the Company, management considers a forecast of future taxable profits of the Company (the “forecast”) and the Group’s tax position. The forecast is reviewed at each reporting date to ensure that the related tax benefit will be realised. Future taxable profits are expected to be generated from an excess of interest income on loans, to be issued by the Company to the Group subsidiaries, over expenses of the Company. When developing the forecast, management has evaluated profitability and dividend capacity of the Group subsidiaries, and considered expected rates of interest for loans and expected foreign currency rates . As at 31 December 2019, no deferred tax liability for taxable temporary differences of RUB 57,156 million has been recognised (31 December 2018: RUB 52,016 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% . 225 224 (b) Movement in temporary differences during the year RUB million 31 December 2019 Recognised in profit or loss Recognised in other comprehensive income Reclassification 1 January 2019 Property, plant and equipment (11,927) (2,186) Other long-term assets Current assets Liabilities Tax loss carry-forwards Unrecognised deferred tax assets Net tax (liabilities)/assets RUB million Property, plant and equipment Other long-term assets Current assets Liabilities Tax loss carry-forwards Unrecognised deferred tax assets Net tax (liabilities)/ assets 20. OTHER NON-CURRENT ASSETS Loans issued to third parties, at amortised cost Financial assets, at fair value Loans issued to employees, at amortised cost Other long-term assets Provision for loans issued to third parties 21. OTHER CURRENT INVESTMENTS Interest receivable Loans issued to third parties, at amortised cost Loans issued to employees, at amortised cost Loans issued to related parties, at amortised cost Investments in debt securities, at amortised cost Loans issued to associates, at amortised cost Provision for doubtful accounts (8) 677 1,822 7,427 (55) (2,064) 19 108 1,077 (1,055) (15) (2,052) 3 - (10) - - - (7) 23 (9,767) - - - - - 23 (27) 579 745 8,482 (40) (28) 31 December 2018 Recognised in profit or loss Recognised in other comprehensive income Reclassification 1 January 2018 (9,767) (27) 579 745 8,482 (40) (28) (951) (5) 655 (166) 2,996 (17) 2,512 (1) - 4 - - - 3 - - - - - - - (8,815) (22) (80) 911 5,486 (23) (2,543) 31 December 2019 RUB million 31 December 2018 RUB million 653 602 218 673 (510) 1,636 779 752 88 795 (571) 1,843 31 December 2019 RUB million 31 December 2018 RUB million 118 105 80 2 - - (54) 251 88 35 52 117 32 13 (24) 313 Annual report | 2019Appendices22. INVENTORIES Raw materials and spare parts Finished goods: Chemical fertilisers Apatite concentrate Other products Work-in-progress: Chemical fertilisers and other products Chemical fertilisers and other products for resale, purchased from third parties Other goods for resale Provision for obsolescence 23. TRADE AND OTHER RECEIVABLES Trade accounts receivable VAT and other taxes receivable Advances issued Income tax receivable Deferred expenses Receivables from employees Other receivables Provision for doubtful accounts The movements in provision for doubtful accounts are as follows: Balance at 1 January Written off provision through trade receivables Reclassification to non-current assets Foreign currency translation difference Reversal of provision Disposal of trade receivables through provision Increase in provision for bad debt Balance at 31 December See note 31 (c) for the analysis of overdue trade accounts receivable. 31 December 2019 RUB million 31 December 2018 RUB million 11,723 10,837 443 273 4,491 1,778 63 (203) 29,405 12,340 12,982 327 651 3,782 1,729 83 (184) 31,710 227 226 31 December 2019 RUB Million 31 December 2018 RUB Million 5,724 2,506 6 8,236 5,126 4,188 6 9,320 24. CASH AND CASH EQUIVALENTS Cash in bank Call deposits Petty cash 25. EQUITY (a) Share capital Number of shares unless otherwise stated Shares on issue at 31 December 2019 RUB 2.5 par value Shares authorised for additional issue at 31 December 2019, RUB 2.5 par value Shares on issue at 31 December 2018, RUB 2.5 par value Shares authorised for additional issue at 31 December 2018, RUB 2.5 par value Ordinary shares 129,500,000 994,977,080 129,500,000 994,977,080 31 December 2019 RUB million 31 December 2018 RUB million (b) Dividend policy 14,375 10,214 4,865 1,286 99 20 460 (258) 31,061 20,379 8,973 5,716 533 159 11 1,033 (618) 36,186 2019 RUB Million 2018 RUB Million (618) 305 73 42 15 5 (80) (258) (536) 380 - (16) - - (446) (618) The Croup’s dividend policy is based on the following principles: • striking an effective and reasonable balance between the payment of dividends and reinvestment of profit in further development; • ensuring transparency and predictability of dividend payments as a way to boost the Company’s investment case . Amount of such 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 on such factors as the Company’s earnings for the reporting period and its financial position. To calculate the amount of dividend payments, the Board of Directors considers the Company’s consolidated free cash flow for the reporting period (quarter, six months, first nine months or year) under IFRS. 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 reporting period . The term for dividend payments is determined by the General Shareholders’ Meeting and must not exceed 60 days from the date of the resolution to pay the same.  Holders of PhosAgro GDRs are also entitled to receive dividends in respect of the underlying shares, subject to the terms of their Depositary Agreements . In accordance with dividend policy, the Board of Directors shall seek to make sure that the amount of distributed dividends ranges from 50% to over 75% (subject to the Company’s leverage ratio) of the Company’s consolidated free cash flow for the respective period under IFRS. At the same time, the amount of declared dividends shall not be lower than 50% of net profit for the relevant period under IFRS adjusted by the amount of unrealized exchange rate difference. (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 2019, the Company had cumulative retained earnings of RUB 8,689 million (31 December 2018: RUB 12,252 million) . Annual report | 2019AppendicesProposed by the Board of Directors in Approved by shareholders in Total dividends approved during the reporting period November 2018 March 2019 May 2019 August 2019 January 2019 May 2019 June 2019 October 2019 Total dividends approved subsequent to the reporting date November 2019 February 2020 January 2020 February 2020 26. EARNINGS PER SHARE Amount per share RUB. Amount of dividends RUB million. 72 51 72 54 48 18 9,324 6,605 9,324 6,993 32,246 6,216 2,331 8, 547 Basic earnings per share are calculated based on the weighted average number of ordinary shares outstanding during the year . Basic and diluted earnings per share are the same, as there is no effect of dilution. Weighted average number of ordinary shares in issue Profit for the year attributable to shareholders of the Parent, RUB million Basic and diluted earnings per share, RUB 27. LOANS AND BORROWINGS 2019 RUB million 2018 RUB million 129,500,000 129,500,000 49,349 381 22,069 170 This note provides information about the contractual terms of the Group’s loans and borrowings . For more information about the leases, see note 28 . For more information about the Group’s exposure to foreign currency risk, interest rate risk and liquidity risk, see note 31 . 31 December 2019 RUB million 31 December 2018 RUB million Current loans and borrowings Unsecured bank loans Interest payable Unsecured loans from related parties Bank commission (short-term) Non-current loans and borrowings Loan participation notes1,2 Unsecured bank loans Bank commission (long-term) 36,225 19,934 621 - (7) 733 20 (8) 36,839 20,679 61,906 34,951 (121) 96,736 133,575 69,471 53,570 (164) 122,877 143,556 1 . 2 . In May 2017, the Company’s SPV issued a USD 500 million 4,5-year Eurobond with a coupon rate of 3 .95%, which is listed on the Irish Stock Exchange, with the fair value at the reporting date of RUB 33,211 million (31 December 2018: RUB 34,102 million) . In January 2018 the Company’s SPV issued a USD 500 million 5,25-year Eurobond with a coupon rate of 3 .949%, which is listed on the Irish Stock Exchange, with the fair value at the reporting date of RUB 33,843 million (31 December 2018: RUB 33,745 million) . Management believes that the fair value of the Group’s other loans and borrowings approximates their carrying amounts . 229 228 The breakdown of the loans and borrowings denominated in different currencies is as follows: USD-denominated EUR-denominated RUB-denominated The maturity of the loans and borrowings is as follows: Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years 31 December 2019 RUB million 31 December 2018 RUB million 101,853 31,850 - 133,703 123,152 18,531 2,045 143,728 31 December 2019 RUB million 31 December 2018 RUB million 36,846 41,124 9,960 34,190 3,237 8,346 20,687 19,623 46,326 5,665 38,380 13,047 133,703 143,728 Reconciliation of liabilities arising from financing activities: 31 December 2018 RUB million Impact of IFRS 16 RUB million Cash inflows RUB million Cash outflows RUB million Accrual of liabilities RUB million Amortis tion of bank commission RUB million Foreign exchange gain RUB million 31 December 2019 RUB million 142,823 - 48,725 (42,698) - 51 (15,947) 132,954 1,094 143,917 1,738 1,738 - (1,937) 48,725 (44,635) 5,412 5,412 - 51 (63) 6,244 (16,010) 139,198 Loans and borrowings (excluding interest payable) Lease liabilities 28. LEASES Balance as at 1 January 2019 New lease contracts and modification of existing lease contracts Interest expense on lease liabilities Principal lease payments Interest lease payments Effect of foreign currency translation reserve Balance as at 31 December 2019 Leases under IAS 17 Less than one year Between one and five years Lease liability without subsequent asset buyout RUB million Lease liability with subsequent asset buyout RUB million Total RUB million 1,738 3,804 168 (776) (168) (9) 4,757 1,094 1,608 68 (1,161) (68) (54) 1,487 2,832 5,412 236 (1,937) (236) (63) 6,244 2018 RUB million 1,673 1,954 3,627 Annual report | 2019Appendices29. DEFINED BENEFIT OBLIGATIONS Pension obligations, long-term Post-retirement obligations other than pensions 31 December 2019 RUB Million 31 December 2018 RUB Million 332 525 857 302 328 630 The Group has defined benefit plans at JSC “Apatit”, Kirovsk Branch of JSC “Apatit”, Balakovo Branch of JSC “Apatit”, Volkhov Branch of JSC “Apatit” and PhosAgro Trading SA which stipulate payment of a lump sum allowance to employees who have a specified period of service in these companies 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 2018 Benefits paid Current service costs and interest Past service costs Actuarial gain in other comprehensive income Defined benefit obligations at 1 January 2019 Benefits paid Current service costs and interest Past service costs Actuarial loss in other comprehensive income Defined benefit obligations at 31 December 2019 RUB Million 950 (102) 87 (135) (170) 630 (104) 129 69 133 857 The key actuarial assumptions used in measurement of the defined benefit obligations are as follows: Discount rate Future pension increases 30. TRADE AND OTHER PAYABLES Trade accounts payable incl. accounts payable for property, plant and equipment and intangible assets Advances received (contract liabilities) Payables to employees Taxes payable Income tax payable Accruals Dividends payable Other payables 31 December 2019 31 December 2018 6.4% 3.9% 8.8% 4.1% 31 December 2019 RUB million 31 December 2018 RUB million 12,121 11,922 4,728 7,160 2,970 2,526 207 97 2 947 4,248 3,644 3,068 2,229 298 36 - 276 26,030 21,473 231 230 31. 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 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 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 . The Group has the following foreign-currency-denominated financial assets and liabilities: RUB Million 31 December 2019 31 December 2018 Current assets Non-current assets Non-current liabilities Loans and borrowings Lease liability Current liabilities Loans and borrowings Lease liability Payables USD denominated EUR denominated USD denominated EUR denominated 2,593 - 227 23 3,759 - 11 - (84,277) (12,580) (108,405) (12,615) - - (375) - (17,576) (19,270) (14,747) - (571) - (907) (674) (495) (99,831) (32,507) (120,937) (5,916) (38) (679) (19,237) 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 13,234 million, before any tax effect (2018: would have increased/(decreased) the Group’s profit for the year by RUB 14,017 million). This analysis assumes that all other variables, in particular interest rates, remain constant . The analysis is performed on the same basis for 2018 . The foreign exchange gain recognised in profit or loss of RUB 12,346 million (RUB 19,613 million of foreign exchange loss for the comparative period) resulted from the appreciation of the Russian Rouble against major currencies during the reporting period (its depreciation during the comparative period) . Foreign currency translation differences In addition, the net assets of the Group’s foreign subsidiaries denominated in USD and EUR amount to RUB 15,235 million as at the reporting date (31 December 2018: RUB 15,319 million). Annual report | 2019Appendices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 . The interest rate profile of the Group’s interest-bearing financial instruments is as follows: Fixed rate instruments Other non-current assets Other current investments Long-term borrowings Short-term borrowings Lease liabilities Variable rate instruments Long-term borrowings Short-term borrowings 31 December 2019 RUB Million 31 December 2018 RUB Million 870 2,692 (87,285) (33,610) (7,214) (124,547) (9,572) (3,236) (12,808) 868 4,405 (113,781) (14,655) (1,094) (124,257) (9,260) (5,299) (14,559) At 31 December 2019, a 1% increase/(decrease) in LIBOR/EURIBOR would have decreased/(increased) the Group’s profit and equity by RUB 128 million (31 December 2018: RUB 146 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 . As at 31 December 2019, the Group’s maximum exposure to credit risk is represented by the carrying amount of its financial assets and amounted to RUB 24,721 million (31 December 2018: RUB 32,281 million) . As at 31 December 2019, the Group’s financial assets measured at amortised cost amounted to RUB 24,118 million (31 December 2018: RUB 31,529 million) . As at 31 December 2019, the Group’s financial assets measured at fair value amounted to RUB 602 million (31 December 2018: RUB 752 million) . 233 232 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 . In addition, the major part of trade receivables in the Group’s foreign subsidiaries is insured . The Group establishes an allowance for impairment that represents its estimate of the expected credit losses in respect of trade and other receivables and other financial assets. The main component of this allowance is a specific loss component that relates to individually significant exposures. The analysis of overdue trade and other receivables 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 2019 RUB Million 31 December 2018 RUB Million 13,234 884 139 318 260 17,956 3,143 75 137 101 14,835 21,412 Starting from 2019 the Group sells without recourse trade receivables to a bank for cash proceeds . These trade receivables are derecognised from the statement of financial position, because the Group transfers substantially all of the risks and rewards - primarily credit risk and late payment risk . The amount of cash proceed received on transfer is recognised in cash and cash equivalents . The arrangement with the bank is such that the customers remit cash directly to the Group and the Group transfers the collected amounts to the bank . The receivables are considered to be held within a held-to-collect business model consistent with the Group‘s continuing recognition of the receivables . The following information shows the carrying amount of trade receivables for the reporting period that was transferred and derecognised and the cash proceeds received . Trade receivables transferred to the bank Associated cash proceeds/(outflow), net Net-off with other payables and effect of forex 31 December 2019 RUB Million 31 December 2018 RUB Million 11,696 5,332 6,364 - - - Payables to the bank as at 31 December 2019 amounted to RUB 748 million are presented within other payables . Receivables from the bank as at 31 December 2019 amounted to RUB 474 million are presented within trade receivables . Annual report | 2019AppendicesCurrent and non-current financial assets The Group lends money to related parties and to third 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 and third party loans. Cash and cash equivalents are primarily held with banks with high credit rating . Guarantees The Group considers that financial guarantee contracts entered into by the Group to guarantee the indebtedness of other parties are insurance arrangements in accordance with IFRS 4 Insurance Contracts, 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 (note 34) . 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 . The table below illustrates the contractual maturities of financial liabilities, including interest payments, which are converted at the closing exchange rates, where applicable: RUB Million Unsecured bank loans Interest payable Leases Loan participation notes Trade and other payables Financial guarantees issued for associates and related parties 31 December 2019 Carrying value Contractual cash flows 0-1 year 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs > 5 yrs 71,176 75,983 37,689 11,240 10,782 3,780 3,654 8,838 621 6,244 61,906 13,167 726 621 621 - - - 7,214 1,944 1,824 1,674 1,104 68,323 2,452 33,294 1,222 31,355 13,167 13,167 804 366 - 438 - - - - - 668 - - - - - - - - 153,840 166,112 56,239 46,796 13,678 36,239 4,322 8,838 RUB Million Carrying value Contractual cash flows 0-1 year 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs > 5 yrs Unsecured bank loans 73,504 80,901 22,009 21,258 12,795 6,515 4,255 14,069 31 December 2018 235 234 (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 . 32. COMMITMENTS The Group has entered into contracts to purchase plant and equipment for RUB 43,603 million (31 December 2018: RUB 30,826 million). 33. 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 . The tax authorities have the power to impose fines and penalties for tax arrears. A tax year is generally open for review by the tax authorities during three subsequent calendar years . Currently the tax authorities are taking a more assertive and substance-based approach to their interpretation and enforcement of tax legislation . Current Russian transfer pricing legislation requires transfer pricing analysis for the majority of cross-border intercompany and major domestic intercompany transactions.  Starting from 2019, transfer pricing control, as a general rule, is applied to domestic transactions only if both criteria are met: the parties apply different tax rates, and the annual turnover of transactions between them exceeds RUB 1 billion . The Russian transfer pricing rules are close to OECD guidelines, but have certain differences that create uncertainty in practical application of tax legislation in specific circumstances. A very limited number of publicly available transfer pricing court cases in Russia does not provide enough certainty as to the approach to applying transfer pricing rules in Russia . The impact of any transfer pricing assessment may be material to financial statements of the Group, however, the probability of such impact cannot be reliably assessed. Russian tax authorities may review prices used in intra-group transactions, in addition to transfer pricing audits . They may assess additional taxes if they conclude that taxpayers have received unjustified tax benefits as a result of those transactions. Russian tax authorities continue to exchange transfer pricing as well as other tax related information with tax authorities of other countries . This information may be used by the tax authorities to identify transactions for additional in-depth analysis . Unsecured loans from other companies Interest payable Secured finance leases Loan participation notes Trade and other payables Financial guarantees issued for associates and related parties 20 733 1,094 69,471 12,221 1,057 20 733 1,158 20 733 766 - - - - 262 130 - - - - - - 79,303 2,744 2,751 37,250 1,372 35,186 12,221 12,221 1,233 300 - 455 - 478 - - - - - - - - - - - - - Derivative financial liabilities 626 626 626 - - 158,726 176,195 39,419 24,726 50,653 7,887 39,441 14,069 Annual report | 2019Appendices(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. 34. RELATED PARTY TRANSACTIONS (a) Transactions and balances with associates (i) Transactions with associates Sales of goods and services Other income, net 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 2019 RUB million 2018 RUB million 32 2 1 (527) 2,150 4 3 (472) 31 December 2019 RUB million. 31 December 2018 RUB million. 41 - (18) 15 13 (10) (iii) Financial guarantees The Group issued financial guarantees to banks on behalf of associates amounting to RUB 726 million (31 December 2018: RUB 1,007 million) . (b) Transactions and balances with other related parties (i) Transactions with other related parties Sales of goods and services Other expenses, net Interest income Interest expenses Purchases of goods and services (ii) Balances with other related parties Short-term loans issued, at amortised cost Trade and other receivables Short-term loans received Trade and other payables 2019 RUB million 2018 RUB million 352 (61) 3 (1) 557 22 14 (54) (2,005) (2,030) 31 December 2019 RUB million 31 December 2018 RUB million 2 7 - (123) 117 53 (20) (131) 237 236 (iii) Financial guarantees The Group has not issued financial guarantees to banks on behalf of other related parties (31 December 2018: RUB 50 million). The balances and transactions with related parties are usually unsecured and denominated in RUB . (c) Key management remuneration The remuneration of the Board of Directors and key management personnel amounted to RUB 2,462 million (2018: RUB 1,775 million) . . 35. SIGNIFICANT SUBSIDIARIES Subsidiary Apatit, JSC (including Balakovo, Volkhov and Kirovsk branchs) Mekhanik, LLC NIUIF, JSC 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 PhosAgro Trading SA Phosint Limited PhosAgro Logistics SA PhosAgro Polska Sp.z o.o. PhosAgro Deutschland GmbH PhosAgro France SAS PhosAgro Balkans UAB PhosAgro Baltic Logifert Oy Bulk Terminal Kotka Oy Country of ncorporation Effective ownership31 December 2019(rounded) Effective ownership31 December 2018(rounded) Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Cyprus Singapore Switzerland Cyprus Switzerland Poland Germany France Serbia Lithuania Finland Finland 100% 100% 94% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 94% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual report | 2019Appendices36. SEASONALITY The Group is subject to certain seasonal fluctuations in fertiliser demand due to the timing of fertiliser application and, as a result, fertiliser purchases by farmers. However, the effect of seasonality on the Group‘s revenue is partially offset by the fact that the Group sells its fertilisers globally and fertiliser application and purchases vary by region . The Group’s costs are generally stable throughout the year, hovever several maintenance activities undertaken at the Group‘s production facilities may not be evenly spreaded . 37. EVENTS SUBSEQUENT TO THE REPORTING DATE In January 2020 the Company’s SPV issued a USD 500 million 5-year Eurobond with a coupon rate of 3 .05%, which is listed on the Irish Stock Exchange . In January 2020 the Company partly redeemed 4,5-year Eurobond issued through SPV in May 2017 with a 3 .95% coupon rate (see note 27) by USD 150 million. Redemption was financed by the Eurobond issued in January 2020. In February 2020, the Board of Directors proposed paying a dividend of RUB 18 per ordinary share . The total amount of proposed dividends was RUB 2, 331 million (see note 25) . 239 238 Annual report | 2019Appendices102-55 GRI CONTENT INDEX GRI Indicator GRI 102 GENERAL DISCLOSURES Organisational profile GRI 102–1 Name of the organisation GRI 102–2 Activities, brands, products and services GRI 102–3 Location of headquarters GRI 102–4 Location of operations GRI 102–5 Ownership and legal form GRI 102–6 Markets served GRI 102–7 Scale of the organisation GRI 102–8 Information on employees and other workers GRI 102–9 Supply chain Omissions/Comment PJSC PhosAgro 55/1 Leninsky Avenue, Bld. 1, Moscow, 119333, Russia Public Joint-Stock Company PhosAgro For technical reasons, 2019 data on the number of employees, type of employment and contract, with a breakdown by age and gender, is not fully disclosed; this information will be provided in the 2020 report. GRI 102–10 Significant changes to the organisation and its supply chain There were no significant changes N O I T A M R O F N I L A N O I T I D D A GRI 102–11 Precautionary principle or approach GRI 102–12 External initiatives GRI 102–13 Membership of associations Strategy GRI 102–14 Statement from senior decision-maker Ethics and Integrity GRI 102–16 Values, principles, standards and norms of behaviour Governance GRI 102–18 Governance structure Stakeholder Engagement GRI 102–40 List of stakeholder groups GRI 102–41 Collective bargaining agreements GRI 102–42 Identifying and selecting stakeholders GRI 102–43 Approach to stakeholder engagement GRI 102–44 Key topics and concerns raised Reporting Practice GRI 102–45 Entities included in the consolidated financial statements GRI 102–46 Defining report content and topic boundaries GRI 102–47 List of material topics GRI 102–48 Restatements of information GRI 102–49 Changes in reporting GRI 102–50 Reporting period GRI 102–51 Date of most recent sustainability report GRI 102–52 Reporting cycle GRI 102–53 Contact point for questions regarding the report GRI 102–54 Claims of reporting in accordance with the GRI Standards No restatement of information was made for the previous reporting period. The Report contains updates of the data for previous years, which is indicated in the text Throughout the reporting period, there were no significant changes to the scope and boundaries of aspects compared to previous reporting periods The reporting period is calendar year 2019 The Company does not have a separate report on sustainable development. Information on sustainable development is included in the integrated report. The most recent integrated report was published on April. 30, 2019 Since 2011, PhosAgro has been publishing integrated reports annually This Report has been prepared in accordance with the GRI Standards: Core option 78 241 240 Page number (or link) 2–3 4–5, 8–9 254 8–9 2–3 8–9, 48–49 12–13, 14–15, 127 127 150–151 58–61 18–19, 84–95 16–17, 18–19, 84–93 22–29, 81 82–83, 156–157, 185 156–181 142–149 147 142, 78–79 142 79–81, 142–149 2–3 78–79, 2–3 79–80 Annual report | 2019Appendicies GRI Indicator GRI 102–55 GRI content index GRI 102–56 External assurance GRI 200 ECONOMIC GRI 201 Economic Performance GRI 103 Management approach GRI 201–1 Direct economic value generated and distributed GRI 201–3 Defined benefit plan obligations and other retirement plans GRI 202 Market Presence GRI 103 Management approach GRI 202–1 Ratios of standard entry level wage by gender compared to local minimum wage GRI 202–2 Proportion of senior management hired from the local community GRI 203 Indirect Economic Impacts GRI 103 Management approach GRI 203–1 Infrastructure investments and services supported GRI 203–2 Significant indirect economic impacts GRI 204 Procurement Practices GRI 103 Management approach GRI 204–1 Proportion of spending on local suppliers at significant locations of operation GRI 205 Anti-corruption GRI 103 Management approach GRI 205–3 Confirmed incidents of corruption and actions taken GRI 300 ENVIRONMENTAL GRI 302 Energy GRI 103 Management approach GRI 302–1 Energy consumption within the organisation GRI 302–3 Energy intensity GRI 302–4 Reduction in electricity consumption GRI 303 Water and Effluents GRI 103 Management approach GRI 303–1 Interactions with water as a shared resource 243 242 Page number (or link) 240 2, 194 12–13, 42–56 75 130 124–125 128 128 136–138 138–141 138–141 150 152–153 185 185 111–112 111 111 112 109–111 109 Omissions/Comment This appendix Withdrawal of water from surface water bodies Branch Apatit (Cherepovets) Kirovsk branch of Apatit Volkhov branch of Apatit Water body in accordance with water use agreement Rybinsk Reservoir Lake Bolshoi Vudyavr Volkhov Reservoir (Volkhov River) Balakovo Branch of Apatit Saratov Reservoir Waste water discharge at Apatit Waste water discharge Kirovsk branch of Apatit Discharge 1. Industrial waters at ANBP-3 Discharge 2. Industrial waters at ANBP-2 Discharge 3. Rainwaters at ANBP-2 Receiving water body Zhemchuzhnaya River Belaya River Belaya River Discharge 4. Mining waters of the combined Kirovsky, Central, and Rasvumchorrsky mines Lake Bolshoi Vudyavr Discharge 6. Waters of the wells installed at the Vostochny mine to reduce groundwater level Vuonnemyok River Discharge 5. Mining waters of the Koashva and Nyorkpakh underground mines Discharge 8. Mining waters of the Koashva and Nyorkpakh underground mines Apatit (Cherepovets) Effluents from the phosphate facility Effluents from the nitrogen facility Lake Kitchepakhk Lake Kitchepakhk Rybinsk Reservoir Rybinsk Reservoir Annual report | 2019AppendiciesGRI Indicator Omissions/Comment GRI 303–2 Management of water discharge-related impacts Effluents are treated to standard permissible discharge and temporarily permitted discharge levels set by permits to discharge pollutants into the environment (water bodies) issued by a relevant authority for each discharge GRI 303–3 Water withdrawal GRI 303–4 Water discharge GRI 303–5 Water consumption GRI 305 Emissions GRI 103 Management approach GRI 305–1 Direct (Scope 1) GHG emissions GRI 305–4 GHG emissions intensity GRI 305–7 Nitrogen oxides (NOX), sulphur oxides (SOX), and other significant air emissions GRI 306 Effluents and Waste GRI 103 Management approach GRI 306–1 Total water discharge by quality and destination GRI 306–2 Waste by type and disposal method GRI 306–4 Transport of hazardous waste GRI 307 Environmental Compliance GRI 103 Management approach GRI 307-1 Non-compliance with environmental laws and regulations 1. 98% of effluents are treated in various ways by undergoing mechanical, physical and chemical or biological purification at treatment facilities until standard permissible discharge and temporarily permitted discharge rates are reached as required by permits to discharge pollutants into the environment (water bodies) issued by a relevant authority for each discharge. 2% of effluents are discharged without any treatment, but their quality is also in line with the standard permissible discharge and temporarily permitted discharge rates. There has been no unplanned water discharge. 2. Waste water discharge at Apatit Waste water discharge Receiving water body Kirovsk branch of Apatit Discharge 1. Industrial waters at ANBP-3 Discharge 2. Industrial waters at ANBP-2 Discharge 3. Rainwaters at ANBP-2 Zhemchuzhnaya River Belaya River Belaya River Discharge 4. Mining waters of the combined Kirovsky, Central, and Rasvumchorrsky mines Lake Bolshoi Vudyavr Discharge 6. Waters of the wells installed at the Vostochny mine to reduce groundwater level Vuonnemyok River Discharge 5. Mining waters of the Koashva and Nyorkpakh underground mines Discharge 8. Mining waters of the Koashva and Nyorkpakh underground mines Apatit (Cherepovets) Effluents from the phosphate facility Effluents from the nitrogen facility Lake Kitchepakhk Lake Kitchepakhk Rybinsk Reservoir Rybinsk Reservoir The Company performs no cross-border shipping of waste deemed hazardous under the terms of the Basel Convention а. i. - disclosed on page 93 a. ii. - in 2019, 10 cases of non-compliance were identified across all production sites. No penalties other than financial applied a. ii. - there were no litigations b. not applicable 245 244 Page number (or link) 110 110 111 109 104–106 106 106 105 106–108 111 108 99 Annual report | 2019AppendiciesGRI Indicator GRI 400 SOCIAL GRI 401 Employment GRI 103 Management approach GRI 401–1 New employee hires and employee turnover 247 246 Page number (or link) 124–125 127 Omissions/Comment New hires in 2019 Region Vologda region Vologda region Vologda region Total Saratov region Saratov region Saratov region Total Leningrad region Leningrad region Leningrad region Total Moscow region Moscow region Moscow region Total Murmansk region Murmansk region Murmansk region Total Total Leavers in 2019 Region Vologda region Vologda region Vologda region Total Saratov region Saratov region Saratov region Total Leningrad region Leningrad region Leningrad region Total Moscow region Moscow region Moscow region Total Murmansk region Murmansk region Murmansk region Total Total Gender <25 years 25–34 years 35–44 years 45–55 years over 55 Total F M F M F M F M F M 57 80 137 5 8 13 10 8 18 1 1 2 21 101 122 292 120 143 263 15 36 51 28 19 47 2 3 5 63 394 457 823 96 86 182 17 16 33 27 19 46 8 6 14 64 387 451 726 40 36 76 5 6 11 8 13 21 2 3 5 42 145 187 300 23 10 33 9 15 24 22 8 30 2 2 21 23 44 133 336 355 691 51 81 132 95 67 162 15 13 28 211 1,050 1,261 2,274 Gender <25 years 25–34 years 35–44 years 45–55 years over 55 Total F M F M F M F M F M 24 43 67 3 3 4 4 8 14 31 45 1 1 76 83 159 11 16 27 18 20 38 37 242 279 2 7 9 57 69 126 15 11 26 18 23 41 34 259 293 3 2 5 43 40 83 3 14 17 14 17 31 36 121 157 1 1 36 26 62 11 27 38 34 13 47 15 28 43 3 1 4 236 261 497 40 71 111 88 77 165 136 681 817 8 12 20 124 512 491 289 194 1,610 GRI 401–2 Benefits provided to full-time employees that are not provided to temporary or part-time employees Benefits established by collective bargaining agreements apply to all employees of the Company’s main production sites and do not depend on the status or conditions of employment GRI 401–3 Parental leave GRI 403 Occupational Health and Safety GRI 103 Management approach GRI 403–1 Occupational health and safety management system GRI 403–2 Hazard identification, risk assessment, and incident investigation GRI 403–3 Occupational health services GRI 403–4 Worker participation, consultation, and communication on occupational health and safety 129 130 116 117 118 117 119 Annual report | 2019AppendiciesGRI Indicator Omissions/Comment GRI 403–5 Worker training on occupational health and safety GRI 403–6 Promotion of worker health GRI 403–7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships GRI 403–8 Workers covered by an occupational health and safety management system GRI 403–9 Work-related injuries GRI 404 Training and Education GRI 103 Management approach GRI 404–1 Average hours of training per year per employee GRI 404–2 Programmes for upgrading employee skills and transition assistance programmes GRI 404–3 Percentage of employees receiving regular performance and career development reviews GRI 413 Local Communities GRI 103 Management approach GRI 413–1 Percentage of operations with implemented local community engagement, impact assessments, and development programmes Data on the assessment of engagement of, dialogue with, and development of local communities, formal grievance mechanisms and other aspects in compliance with the GRI 413-1 disclosure requirements will be fully disclosed in the 2020 report. 136–141 249 248 Page number (or link) 119 116 118–120 117–119 120 130 132 131 132 136 Annual report | 2019AppendiciesINDEPENDENT ASSURANCE REPORT Independent practitioner’s limited assurance report by AO Deloitte & Touche CIS (‘Deloitte’) to PJSC Phosagro Board of Directors on the 2019 Sustainability Report for the year ended 31 December 2019 . SCOPE OF ASSURANCE We have been engaged by PJSC Phosagro to perform an assurance engagement in accor- dance with International Standard on Assurance Engagements (ISAE) 3000 (Revised) (‘the Standard’) to provide public limited assurance on accu- racy of Selected Data presented in PJSC Phosagro Sustainability Report prepared in accordance with GRI Standards (‘the Report’) for the year ended 31 December 2019 . ASSURANCE PROCEDURES AND ROLES We carried out limited assurance on accuracy of the following data related to 2019 year and included into the Report: (1) Selected key performance indicators specified below in the section “Selected non-financial performance data for public limited assurance”, and (2) PJSC Phosagro’s self-declaration in preparing its Report 2019 in accordance with the requirements of Global Reporting Initiative (GRI) Sustainability Reporting Standards as stated on page 193 of the Report . OUR KEY ASSURANCE PROCEDURES To achieve limited assurance, the ISAE 3000 (Revised) requires that we review the processes, systems and competencies used to compile the areas on which we provide our assurance . Considering the risk of material error, we planned and performed our work to obtain all of the information and explanations we considered necessary to provide sufficient evidence to support our assurance conclusion . To form our conclusions, we undertook the following procedures: • Conducted site visit to one business unit – AO “Apatit” (Vologda region); • Analysed on a sample basis the key systems, processes, policies and controls relating to the collation, aggregation, validation and reporting processes of the selected sustainability performance indicators; • Conducted interviews with employees of PJSC Phosagro responsible for sustainability performance, policies and corresponding reporting; • Conducted selective substantive testing to confirm accuracy of received data to the selected key performance indicators; • Made enquiries of management and senior executives to obtain an understanding of the overall governance and internal control environment, risk management, materiality assessment and stakeholder engagement processes relevant to the identification, management and reporting of sustainability issues; • Performed selective review of disclosures in the Report on compliance with GRI Standards; We believe that our evidence obtained is sufficient and appropriate to provide a basis for our limited assurance conclusion . INHERENT LIMITATIONS Inherent limitations exist in all assurance engagements due to the selective testing of the information being examined. Therefore fraud, error or non-compliance may occur and not be detected. Additionally non-financial information, such as that included in reporting documents is subject to more inherent limitations than financial information, given the nature and methods used for determining, calculating and sampling or estimating such information. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in this Report and for no other purpose . To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than PJSC Phosagro for our work, for this Report, or for the conclusions we have formed . Our engagement provides limited assurance as defined in ISAE 3000 (Revised). The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement and consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. ROLES AND RESPONSIBILITIES • The Directors are responsible for the preparation, accuracy and completeness of the sustainability information and statements contained within the Report . They are responsible for determining PJSC Phosagro sustainability objectives and for establishing and maintaining appropriate performance management and internal control systems from which the reported information is derived . • Our responsibility is to express a conclusion on the selected Subject Matter based on our procedures . We conducted our engagement in accordance with the ISAE 3000 (Revised) Assurance Engagements other than Audits or Reviews of Historical Financial Information issued by the International Auditing and Assurance Standards Board . 251 250 LIMITED ASSURANCE CONCLUSION Based on the scope of our work and the assur- ance procedures performed nothing has come to our attention that causes us to believe that the aforementioned Selected Data, which we were engaged to provide limited assurance on, as speci- fied in the ‘Roles and responsibilities’ section above are materially misstated . Natalya Kaprizina Engagement partner 28 April 2020 INDEPENDENCE AND QUALITY CONTROL • We have complied with the independence and other ethical requirements established by the Rules on Independence of Auditors and Audit Firms and the Code of Professional Ethics for Auditors approved by the Audit Council of the Ministry of Finance of the Russian Federation and by the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which are based on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. • The firm applies the International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements . SELECTED NON-FINANCIAL PERFORMANCE DATA FOR PUBLIC LIMITED ASSURANCE We have been engaged by the Board of Directors of PJSC Phosagro to perform limited assurance procedures on accuracy of the following key performance data of the 2019 reporting year included into the Report: Employees Health and safety Emissions into the atmosphere Average headcount (Total number of emploees in PhosAgro Group, including all branches and subsidiaries). Proportion of senior management hired from the local community in total headcount. Percentage of employees receiving regular performance and career development reviews Average hours of training per year per employee Total number of workplace accidents. Total number of fatal accidents. Lost Time Injury Frequency Rate (LTIFR) per 1 million hours Gross sulphur dioxide emissions, tones. Gross nitrogen oxides emissions calc. in NO2, tones. Gross carbon monoxide emissions, tones. Gross solid emissions, tones. Greenhouse gas Gross GHG emissions (Scope1), tones. Hazardous waste Total weight of generated waste, tones. Waste with a breakdown by the disposal methods, tones Water consumption Total water withdrawal by source by branches, mln m3. Waste-water discharge by branches, mln m3. Energy Total non-renewable fuel consumption by fuel type. Electricity consumption. Heating consumption. Stakeholder engagement The total amount of funds allocated for the needs of society, charity, in million rubles. Anticorruption Confirmed amount of incidents of corruption The Entity: Public Joint Stock Company Phosagro Primary State Registration Number: 1027700190572 State registration number: P-18009.16 dated 10.10.2001 issued by the State Registration Chamber under the Ministry of Justice of the Russian Federation Address: 119333, Russian Federation, Moscow, Leninsky prospekt., 55/1 Audit Firm: AO “Deloitte & Touche CIS” Certificate of state registration № 018.482, issued by the Moscow Registration Chamber on 30.10.1992. Primary State Registration Number: 1027700425444 Certificate of registration in the Unified State Register № 77 004840299 of 13.11.2002, issued by Moscow Interdistrict Inspectorate of the Russian Ministry of Taxation № 39. Member of Self-regulatory organization of auditors Association “Sodruzhestvo”, ORNZ 12006020384 Annual report | 2019AppendiciesGLOSSARY 253 252 ESG – environmental, social, and governance kg – kilogram KPI – key performance indicator ESPP – European Sustainable Phosphorus Platform kWh – kilowatt-hour AN – ammonium nitrate ANBP – apatite-nepheline beneficiation plant ANSES – French Agency for Food, Environmental and Occupational Health & Safety ASF – African swine fever ATG – atmosphere gauge (unit of pressure) BAT – best available technique bln – billion Capex – capital expenditure CCl 4 – carbon tetrachloride Cd – cadmium CDA 2 – nationwide programme to modernise the electricity industry EU – European Union FAO – Food and Agriculture Organisation GDP – gross domestic product GDR – global depositary receipt GLONASS – Global Navigation Satellite System GLOSOLAN – Global Soil Laboratories Networks; supporting the GLOSOLAN by developing research capacities and strengthening the Regional Soil Laboratories Networks (RESOLAN) . GRI – Global Reporting Initiative CDP – Carbon Disclosure Project GSP – Global Soil Partnership CIS – Commonwealth of Independent States CJSC – closed joint-stock company CO2 – carbon dioxide COVID-19 – сoronavirus disease 2019, the pandemic caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) DAP – diammonium phosphate DCDA – Double Contact Double Absorption DROZD – Educated and Healthy Children of Russia programme EBITDA – earnings before interest, taxes, depreciation and amortisation EMERCOM – Ministry for Civil Defence, Emergencies and Elimination of Consequences of Natural Disasters H2SO4 – sulphuric acid HR – human resources HSE – health, safety and environment IFA – International Fertilizer Association IFRS – International Financial Reporting Standards IMF – International Monetary Fund IPCC – in-pit crushing and conveying at the Vostochny mine IRR – internal rate of return IT – information technology IUPAC – International Union of Pure and Applied Chemistry IYPT 2019 – International Year of the Periodic Table JSC – joint-stock company JSCB – joint-stock commercial bank LSE – London Stock Exchange LTIFR – lost time injury frequency rate MAP – monoammonium phosphate MCP – feed monocalcium phosphate mg – milligram mln – million MOP – muriate of potash MS – management system MW – megawatt NH3 – ammonia NIUIF – Samoilov Scientific Research Institute for Fertilizers and Insectofungicides NO2 – nitrogen dioxide NPK – nitrogen-phosphorus-potassium fertilizer OHS – occupational health and safety OJSC – open joint-stock company OPEC – Organisation of the Petroleum Exporting Countries P2O5 – phosphoric pentoxide PhosAgro Group – PJSC PhosAgro and its subsidiaries and affiliates PJSC – public joint-stock company PwC – PricewaterhouseCoopers R&D – research and development RAFP – Russian Association of Fertilizer Producers RAS – Russian Accounting Standards REACH – Registration, Evaluation, Authorisation and Restriction of Chemicals Rospotrebnadzor – Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing Rosstandart – Federal Agency on Technical Regulating and Metrology Rostekhnadzor – Federal Service for the Supervision of Environment, Technology and Nuclear Management RSPP – Russian Union of Industrialists and Entrepreneurs RUB – Russian rouble SDG – UN Sustainable Development Goal SMEs – small and medium-sized enterprises SO2 – sulphur dioxide STPP – sodium tripolyphosphate Strategy to 2025 – PhosAgro’s Development Strategy to 2025 t – metric tonne ths – thousand TTF – Title Transfer Facility UDT – thermal treatment facility UN – United Nations UNESCO – United Nations Educational, Scientific and Cultural Organisation USA – United States of America USD – United States dollar VAT – value-added tax VOC – volatile organic compound WHO – World Health Organisation Annual report | 2019Appendicies255 254 CONTACTS INVESTOR RELATIONS CORPORATE SECRETARY PHOSAGRO LEGAL ADDRESS DEPOSITARY AUDITOR REGISTRAR CONTACTS FOR EMPLOYEES AND POTENTIAL EMPLOYEES CONTACTS FOR MEDIA SUSTAINABILITY CONTACTS Andrey Serov Head of Investor Relations Tel .: +7 (495) 231 31 15 Email: ir@phosagro .ru Sergey Samosyuk Tel .: +7 (495) 232 96 89, ext . 2712 Email: ks@phosagro .ru 55/1 Leninsky Prospekt, bldg . 1, Moscow 119333, Russia Tel .: +7 (495) 232 96 89 Fax: +7 (495) 956 19 02 Citigroup Global Markets Deutschland AG Frankfurter Welle Reuterweg 16 60323 Frankfurt, Germany JSC KPMG Naberezhnaya Tower Complex, 10 Presnenskaya Naberezhnaya Moscow 123112, Russia Tel .: +7 (495) 937 44 77 Fax: +7 (495) 937 44 00/99 Web: www .kpmg .ru JSC Reestr 129090, Moscow, B . Balkanskiy lane, 20, bldg . 1, Russia Tel .: +7 (495) 617 01 01 Fax: +7 (495) 680 80 01 Email: reestr@aoreestr .ru Web: www .aoreestr .ru Diana Sidelnikova Deputy Director of Human Resources and Social Policy Tel .: +7 (820) 259 31 13 Email: dsidelnikova@phosagro .ru Andrey Podkopalov Director of Information Policy Tel .: +7 (495) 232 96 89, ext . 26 51 Timur Belov Head of Information Policy Division Press Secretary Tel .: +7 (495) 232 96 89, ext . 26 52 Email: pr@phosagro .ru Sam VanDerlip International PR Advisor Mobile (UK): +44 (7554) 993 032 Tel . (Russia): +7 (499) 918 31 34 Email: vanderlip@em-comms .com Sergey Kudryashov Head of Sustainable Development Department Tel .: +7 (495) 231 27 47 Email: SVKudryashov@phosagro .ru Annual report | 2019Appendicies

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