Pure Minerals for Healthy Lives
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PURE MINERALS FOR HEALTHY LIVES Integrated report 2018 01 ABOUT PHOSAGRO ABOUT THIS REPORT Company profile 6 CONTENTS Our key advantages 8 Our integrated Annual Report combines financial and 2018 performance highlights 10 sustainability reporting and aims to inform readers Where we operate 12 about all of the significant factors that may have an Our business model 16 impact on PhosAgro’s activities. The report explains how these factors affect our strategy, operations, financial STRATEGIC REPORT performance, the long-term sustainability of the Company 02 and the value we create for our customers, employees, Chairman’s statement 22 shareholders, business partners, neighbours and the CEO’s statement 24 wider public. Overview of the fertilizer market 26 Strategy 36 Sustainable development has always been a key priority Managing our risks 40 and an important aspect of our business. As a result, it is Internal audit 48 important for us to show not only our business results for 2018 but also PhosAgro’s contribution towards achieving BUSINESS REVIEW the Sustainable Development Goals set out by the Global 03 Reporting Initiative (GRI) and the United Nations Global Operational Review 52 Compact. With this in mind, and with the goal of providing Financial Performance 58 a fully integrated report, we will focus on six key issues on the following pages, namely: 04 SUSTAINABILITY REPORT • What is the Company doing on a global scale, and Management approach 64 what steps is it taking to address the Sustainable Environmental review 72 Development Goals? Health and safety review 88 See pages 6–7 People development 98 Business conduct review 112 • What is the Company’s business model, and how does this create value for all stakeholders? Stakeholder engagement 116 See pages 16–19 Social investment 130 • What are the Company’s key strategic goals, and how CORPORATE 05 have the 2018 results contributed to their achievement? GOVERNANCE See pages 36–39 System and principles of corporate governance 138 Board of Directors of PJSC PhosAgro 148 • What are the key challenges and uncertainties that the Management Board 156 Company is likely to encounter in pursuing its strategy, Committees of the Board of Directors 160 and what are the potential implications for its business Shares and dividends 166 model and future performance? Management responsibility statement 170 See pages 38–39 FINANCIAL STATEMENTS 172 • What is included in the Company’s approach towards 06 sustainable development governance, and what targets does PhosAgro set for itself? 07 GRI CONTENT INDEX 210 See pages 64–71 08 ADDITIONAL • Why does the Company consider it important to adhere INFORMATION to high standards of corporate governance? See pages 138–139 Glossary 2/ - Contacts 221 6 Company profile 8 Our key advantages GRADES 10 2018 performance highlights OF FERTILIZERS AND OTHER 12 Where we operate FINISHED PRODUCTS ARE 16 Our business model 39 PRODUCED BY PHOSAGRO ABOUT 01 PHOSAGRO BY IMPROVING SOIL FERTILITY, WE ARE HELPING LIFE ON EARTH PROSPER PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information COMPANY PROFILE PhosAgro is a vertically integrated mineral fertilizer producer based in Russia. We are one of the world’s most efficient producers of THE COMPANY’S POSITION IN THE GLOBAL INDUSTRY phosphate-based fertilizers and one of the only companies to produce high-grade phosphate rock with a P2O5 content of 39% or higher. No No TOP No THE LIFE CYCLE OF PHOSPHATE-BASED 1 1 5 2 Producer of high-grade Fertilizer supplier (One of the top 5) DAP/ NPK producer FERTILIZERS AT PHOSAGRO phosphate rock in Russia MAP producers by in Europe Source: IFA, PhosAgro One in every three tonnes capacity Source: PhosAgro As a vertically intergrated company, PhosAgro’s operations include upstream and downstream enterprises, as well as of fertilizer sold in Russia is Source: IFA, CRU distribution and logistics, and R&D. PJSC PhosAgro is the parent company, with control over 100% of the shares of its main sold by PhosAgro (excluding Chinese producers) operating subsidiaries. For more details, see Our Business Model on pages 16–19. MINING DOWNSTREAM LOGISTICS SALES AND BENEFICIATION PRODUCTION Description The life cycle of phosphate-based fertilizers begins at The fertilizers produced from PhosAgro’s phosphate rock PhosAgro’s logistics infrastructure includes warehouses, The Company has its own sales network in Russia, as PhosAgro’s Apatit mines on the Kola Peninsula, where are among the purest in the world and are used for the mineral hoppers and two port terminals. These assets well as trading offices in priority export markets in Latin high-quality phosphate ore is mined and processed into cultivation of agricultural products that end up on the plates support our operations and help us to achieve savings America and Europe. PhosAgro strives to move closer to phosphate rock. We are one of several global producers of consumers all over the globe. compared to third-party services. We constantly monitor its end customer through the further expansion of its sales whose phosphate ore is virtually free of cadmium and the changing business environment in order to maintain network, warehouse capacities and infrastructure, as well other potentially harmful impurities. Our flexible and efficient production and sales models streamlined and efficient logistics operations. as automation of production and measures to increase enable PhosAgro to produce 39 grades of fertilizers and efficiency. other finished products to meet demand from customers in more than 100 countries. Our guiding The high quality of the apatitenepheline ore that we mine After completing a large-scale investment programme We maintain a continuous focus on improving all aspects We strive to be as close as possible to our final consumer principles is central to our ability to efficiently produce high-quality in 2017, the full impact of PhosAgro’s new production of our logistics, striving to provide the most efficient, reliable through the implementation of a verified strategy to fertilizers that are naturally free of potentially harmful capacities was achieved in 2018: the Company’s production and highest-quality service to our customers and build strengthen existing trade links and a balanced approach impurities that could end up in agricultural soils or even capacity increased significantly, with 9 million tonnes long-term relationships with them. to entering new markets. our food. of fertilizer produced in FY 2018. Our goals By producing mineral fertilizers, which are vital for PhosAgro aims to further expand its production capacities, We plan to further increase our fleet to reduce costs incurred We believe that implementing a strategy aimed at further increasing the yield, quality and nutritional value of crops, with a particular focus on key inputs like sulphuric and nitric by contracting cars from third-party operators. developing and strengthening our fundamental advantages we are contributing to ensuring food security throughout acids, as well as ammonium sulphate. PhosAgro also plans allows us to build a business that best meets the interests the world and to more environmentally sustainable to continue to expand the number of fertilizer grades it of the residents of the regions where we operate, farmers agricultural practices. produces, continuing the trend of the past five years, during who use our products, as well as our investors and other which the number grew from 19 to 39. stakeholders. P2O5 GRADES RAILCARS COUNTRIES Numbers % to know >39 39 6,268 >100 nutrient content of high-grade of fertilizers and other finished own fleet of various currently use PhosAgro phosphate rock produced at Apatit products are produced by PhosAgro configurations products MLN TONNES USD PER TONNE TRADING OFFICES 93% 1.9 2 10 WORLDWIDE Recovery rate achieved at export cargo volumes handled savings on export shipments ANOF-3 following upgrades via own port terminals via own port terminals completed in 2018 6 7 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OUR KEY ADVANTAGES WORLD-CLASS INTEGRATED STRONG FINANCIAL ONE OF THE LOWEST ADHERING TO HIGHEST FLEXIBLE PRODUCTION TRANSPARENT AND PHOSPHATE PRODUCER PROFILE CASH-COST PRODUCERS STANDARDS AND SALES PLATFORM EFFECTIVE CORPORATE WITH TRACK RECORD OF IN THE WORLD OF SUSTAINABLE GOVERNANCE VALUE CREATION DEVELOPMENT • Vertically integrated producer of fertilizers • Strong profitability and one of the highest • Developing a unique and extensive • Contributing to the UN Sustainable • Depending on the market situation, 46% • Transparent ownership structure with and premium phosphate rock with P2O5 gross margins in the phosphate segment resource base with a mine life Development Goals of phosphate production can be switched 27.6% of shares in free float content over 39% of around 60 years from DAP/MAP to NPK • Investment-grade corporate ratings: • Material investments into environmental • Seven independent non-executive directors • Strong market position in the premium BBB-/Baa3/BBB- • Self-sufficient in major inputs: 100% programmes (RUB 7.6 billion over • Netback-driven sales model with on the Board of Directors European market and fast-growing Latin in phosphate rock, about 90% in ammonia five years) a global presence America market • The lowest leverage