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 among global and • Dual listing on LSE and MOEX since 2011 domestic peers with a net debt/EBITDA • One of the lowest DAP cash-cost producers • The technologies used at the Company’s • PhosAgro’s special focus on value-added and included in the MSCI Russia Index • Largest supplier of DAP/MAP and NPK ratio of 1.8 globally and in the first quartile for urea production sites meet the standards of best NPKs secures extra margins compared fertilizers to Russia production available technologies to a basket of individual nutrients • Successfully completed our investment • Demonstrated ability to create value cycle under the Strategy to 2020 to return • Strict cost control and operational • Annual expenditures on charitable and social • Developed domestic sales network and through project execution and capital capex to its normal level efficiency rollout to drive lower costs projects amount to more than RUB 1.5 billion trading offices in all key export markets allocation under the Company’s Strategy going forward to 2020 • One of the largest taxpayers in the regions where it operates, paying RUB 12 billion in taxes in 2018
8 9 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information 2018 PERFORMANCE HIGHLIGHTS
FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS
Revenue, EBITDA, EBITDA Net profit, Total fertilizer Phosphate rock Phosphate-based Nitrogen fertilizers RUB bln RUB bln margin RUB bln production, kt production, kt fertilizers and MCP production, kt Adjusted for FX production, kt 29% 47% 4 P.P. 97% 233.4 74.9 32% 41.8 8,975 8% 10,067 5.5% 6,852 4% 2,123 22% 2018 233.4 74.9 32% 41.8 2018 8,975 10,067 6,852 2,123 2017 181.4 50.8 28% 21.2 2017 8,338 9,540 6,604 1,735 2016 187.7 72.4 39% 42.9 2016 7,425 8,530 5,904 1,495
Cash flow from Net debt, Net debt/ Invested in environmental PhosAgro reports its highest-ever production 6,852 thousand tonnes, while the production of Russia, as well as in foreign markets. The operating activities, RUB bln EBITDA programmes, in 2018, at 9 million tonnes. The successful of nitrogen-based fertilizers was up by 22.4% volume of sales of PhosAgro products in RUB bln RUB bln implementation of the Strategy to 2020 year-on-year to 2,123 thousand tonnes. Russia increased over five years by a factor made this record-setting result possible. The of 50% and in 2018 amounted to 9 million 99% 13% -0.6 169% 59.7 135.3 1.8 3.5 main driver of this growth in fertilizer output Another important achievement in the past tonnes of primary material. was the commissioning of two key strategic year was the increase in the output of apatite 2018 59.7 135.3 1.8 3.5 projects: the new ammonia and granulated concentrate to 10,067 million tonnes, which PhosAgro’s share of the Russian market is 2017 30.0 120.0 2.36 1.3 urea production facilities at the Cherepovets is a record in the industry over the past about 80%, making the Company the leading site. The expansion of capacity and the 25 years, which was made possible thanks supplier in that market. 2016 50.4 105.1 1.45 0.8 increase in raw material self-sufficiency have to ongoing work aimed at expanding our strengthened our position as a leader in our enrichment capacities. industry throughout the world. By the end of Dividends declared, Dividend RUB bln yield the year, the production of phosphate-based In 2018, the Company continued to develop See additional information fertilizers had risen by 3.8% year-on-year to its own sales network in its priority market on pages 52–57 24.9 137% 7.3% 121%
2018 24.9 7.3% 2017 10.5 3.3% SUSTAINABILITY 2016 21.4 6.0%
Emissions into the air Lost time injury The Company has implemented a series of efficiency and improving raw material self- significant resources to issues related to per unit of production, frequency rate (LTIFR), successive steps in recent years aimed at sufficiency and not requiring significant sustainable development. PhosAgro takes kg/t per 1 mln hours worked consolidating its leading global positions as capital expenditures. a very responsible approach to issues of a producer of phosphorus-based fertilizers environmental protection and is constantly 6% 35% with very low production costs. From 2014 The 47% increase in EBITDA and 97% investing in improving its efficiency and 1.6 0.22 to 2018, PhosAgro invested more than 50% increase in net profit allowed the Company reducing the impact of the Company’s 2018 1.6 0.22 of EBITDA in the development of existing and to strictly follow its approved dividend policy activities on the natural environment. 2017 1.7 0.34 the construction of new facilities, applying — for the 2018 fiscal year, accrued dividends In 2018, the Company spent about 2016 1.8 0.52 the best available technologies in doing so. amounted to 60% of adjusted net profit. The RUB 8 billion on projects aimed at reducing The successful completion of our large-scale total amount of dividends declared in 2018 its impact on the environment (including capital investment cycle has created a solid and in 2019 will amount to RUB 24.9 billion, investment and current environmental costs). PhosAgro takes a serious approach to RUB 7.6 billion into environmental foundation for further sustainable growth. pending AGM approval of the dividends As of today, all of the Company’s production sustainability and continues to invest programmes. PhosAgro’s programme This contributed to significant growth in our recommended by the Board of Directors sites meet the latest environmental in measures to mitigate its impact on for increasing energy efficiency deserves FY 2018 financial performance. on 19 March 2019. requirements. the environment and to implement best special attention. The technologies used at practices in the field of occupational safety the Company’s production sites meet the See additional information on pages 64–134 In 2018, PhosAgro placed emphasis on Along with ensuring profitability for See additional information and industrial safety. Over the course of five standards of best available technologies. organic growth projects aimed at increasing shareholders, the Company devotes on pages 58–61 years, the Company has invested around
10 11 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information WHERE WE OPERATE
EXPORT MARKETS
OUR FLEXIBLE PRODUCTION AND SALES Sales in North America MODELS ENABLE US TO SUPPLY THE TAILORED and Latin America, kt FERTILIZERS THAT FARMERS USE TO GROW RUSSIA BETTER CROPS IN OVER 100 COUNTRIES ON % EVERY INHABITED CONTINENT 39 8 2018 3,119 Belarus
2017 2,245 1 6
PhosAgro’s long-term strategy for production A good example of successful interaction Kazakhstanв and sales is aimed at maximising profit and constructive dialogue between countries, Moldova margins, and it allows us to adjust flexibly to in this case Russia and Argentina, is the 2 changing demand in a particular market and abolition of the 6% duty on high-quality 3 to respond quickly to market fluctuations. diammonium phosphate from Russia. The 7 decision, adopted in 2017, allowed Russian 4 Trading companies created by PhosAgro in producers and, in particular, PhosAgro to ыAzerbaijan Brazil, Switzerland, Germany, Poland, France, supply environmentally friendly phosphate- Singapore and last year also in Serbia provide based fertilizers without harmful impurities the Company with a presence in all of its to meet the growing needs of Argentinean priority export markets. The share of direct agricultural producers. 5 sales in 2018 exceeded 90%.
In 2018, we exported 6.4 million tonnes of 9 fertilizers. Volumes of supplies to priority export markets in Europe and Latin America Sales in Europe, Sales in CIS, increased year-on-year by 10.5% (to 2 million % kt kt tonnes) and 23.9% (to 2 million tonnes), respectively, compared to the previous year. > % % Shipments of fertilizers to the CIS decreased 90 SHARE OF DIRECT by 56.1% compared to the previous year due 10.5 56 to the cessation of deliveries to the Ukrainian SALES IN 2018 2018 2,050 2018 330 market. 2017 1,855 2017 752
Due to the cessation of deliveries to the Ukrainian market.
TRADING OFFICES
1 2 3 4 5 6 7 8 9
Hamburg Bayonne Zug Belgrade Limassol Warsaw Singapore Vilnius São Paulo Buenos Aires Germany France Switzerland Serbia Cyprus Poland Singapore Lithuania Brazil Argentina
12 13 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information WHERE WE OPERATE continued
RUSSIA
RUSSIA TODAY, PHOSAGRO IS IN A FAVOURABLE POSITION, WHICH ALLOWS IT TO OBTAIN Krasnoyarsk
SIGNIFICANT BENEFITS FROM THE CURRENT Vladivostok SITUATION AND INCREASE THE VOLUME OF EXPORTS OF ITS OWN PRODUCTS.
Russia’s 2018 grain harvest reached 112.9 regions. In addition to this, the government MLN T BLN USD million tonnes, including more than 72 million is actively working to expand the geography tonnes of wheat. This made 2018 the third- of supply of Russian agricultural products. Cherepovets best year in terms of the grain harvest in Thus, the Ministry of Agriculture of the recent Russian history, indicating a sustained Russian Federation announced that by 112.9 2.5 positive trend in the agricultural market and 2021 it intends to send 50 agricultural RUSSIA’S GRAIN HARVEST EXPORTS OF RUSSIAN FOOD the ability to meet domestic market demand industry representatives abroad to increase IN 2018 PRODUCTS AND AGRICULTURAL from the milling, feed and baking industries. awareness of Russian agricultural products RAW MATERIALS TO CHINA The total volume of wheat shipments also with the goal of increasing demand for increased by 10.8 million tonnes (32%) year- Russian goods. One of the most promising Nizhny Novgorod on-year, amounting to 44.1 million tonnes, importers of Russian agricultural products The plan is to turn a total of 4.41 million Kazan thereby confirming Russia's leading position is China. In 2018, the export of Russian food hectares into agricultural land between 2019 in global wheat exports for the second year products and agricultural raw materials to and 2024. The government also plans to running. Further development of the Russian China amounted to USD 2.5 billion, a more chalk 19 million hectares of acidic soil in agricultural market is expected over the than 300% year-on-year increase. order to increase the fertility of Russian soil Saransk coming years as a result of demand from within the same period. Orel importers of Russian products, as well as due The Presidential Decree on National Goals Lipetsk to active state support for the sector. and Objectives for the Period to 2024, The use of highly efficient, pure and safe published in May 2018, set a benchmark for mineral fertilizers will play an important Kursk Tambov One of the important drivers of Russian agricultural exports at USD 45 billion per year, role in improving soil fertility and ensuring economic growth in recent years has been a signalling a serious commitment on behalf of production growth and exports by Russian Voronezh focus on import substitution in a wide range the government to expanding the industry's agribusiness. In 2018, agricultural producers Belgorod of areas, in particular in the agro-industrial export volume. The Ministry of Agriculture purchased about 3.1 million tonnes of sector. Domestic needs are currently being forecasts that by 2024, the total export value mineral fertilizers (by nutrient content). To met to a large extent by domestic production. of Russian wheat will grow by 50% to USD achieve the intended production and export The development of the country's export 11.4 billion, and that the total export value goals, Russia’s agribusiness must ensure Volgograd potential, in particular non-oil exports, is of oilseeds and oilseed products will nearly that by 2024 agricultural producers purchase determined by the further development of the triple to USD 8.5 billion. The government at least 11.3 million tonnes of mineral Russian economy. A number of measures plans to allocate around RUB 350 billion fertilizers (by nutrient content). Rostov-on-Don are being taken to increase the proportion of towards the development of agricultural food products in exports, which, according production within a six-year period. Most of Thanks to stable growth in demand for to the Federal Customs Service, currently the funds – over RUB 290 billion – will be agriculture products and government stands at 5.5%. allocated for the creation of new production initiatives aimed at developing the Krasnodar volumes through the development of agribusiness sector and exports, particularly MLN T The zeroing of rail tariffs for transport is concessional lending to enterprises and land through the creation of a unified and Stavropol among the measures already implemented reclamation. There will also be an expansion sustainable brand that guarantees high- by the government to support agricultural of crop acreage: the territories of Siberia quality products, a positive environment 3.1 exports. This measure has significantly and the Far East will be cultivated, requiring is being created for further growth of the OF MINERAL FERTILIZERS increased exports of agricultural products additional mineral fertilizer to ensure the fertilizer market and of production capacities. PURCHASED BY AGRICULTURAL from Siberia and the Russian Rar East production of high-quality grains and PRODUCERS IN 2018 oilseeds.
14 15 BUSINESS MODEL PHOSAGRO
PhosAgro’s business model spans the entire fertilizer value chain: from the mining of unique, high-quality phosphate ore that contains virtually no harmful impurities, to downstream processing at Company’s modern facilities in Cherepovets, Balakovo and Volkhov, then on to our well-developed logistics infrastructure and distribution network. The high quality of our products, our position as one of the lowest cash cost producers in the industry and our strict adherence to the principles of sustainable development are what make PhosAgro unique. This efficient business model makes it possible for PhosAgro to deliver strong results and create value for a wide range of stakeholders.
1 UPSTREAM
2 DOWNSTREAM
3 LOGISTICS
DISTRIBUTION AND SALES
See detailed information inside PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional OUR BUSINESS MODEL PhosAgro Report Review Report Governance Report Information
KEY ASPECTS OF PHOSAGRO’S VALUE CHAIN
1 UPSTREAM 2 DOWNSTREAM 3 LOGISTICS 4 DISTRIBUTION AND SALES
At Kirovsk, we mine a high-quality igneous capacities, and labour conditions and social nepheline ore on the back of continued Our fertilizer production assets enjoy domestic JSC Apatit Balakovo branch of Apatit PhosAgro’s logistics infrastructure includes Our distribution and sales operations serve phosphate resource base that, unlike many security. This approach made it possible to expansion of phosphate ore mining and access to other key inputs like natural gas and warehouses, mineral hoppers and two port farmers in all inhabited continents, providing our With the successful completion of the In 2017, we completed the construction other producers’ raw materials, contains turn the Kirovsk branch of JSC Apatit into a measures to increase the rational use of sulphur. We increased ammonia output by 28% construction of two major strategic of an ammonia pipeline at Balakovo with terminals. These assets support our operations consumers with premium-quality phosphate- almost no harmful impurities and can be sustainable, world-class mining and phosphate natural resources. year-on-year after the launch of our new ammonia investment projects at JSC Apatit in an annual capacity of 504 thousand and help us to achieve savings compared to based products. In 2018, we shipped ca. 40% of processed into premium-quality phosphate rock production operation. PhosAgro is line in 2017, which made PhosAgro 89% self- Cherepovets, PhosAgro showed an tonnes, which secured a more efficient third-party services. We constantly monitor downstream products’ export volumes through rock. This reduces costs for processing ore, continuously seeking opportunities to make Beneficiation sufficient in this input. impressive example of how advanced and reliable supply of this key input for the changing business environment in order our own port terminals. technologies have enabled the Company the Balakovo branch of JSC Apatit. This further improvements on the costs front. obtaining apatite concentrate and turning Ore is processed at two apatite-nepheline to consolidate its industry-leading was the foundation for the next step to maintain streamlined and efficient logistics it into high-quality mineral fertilizers. We have achieved a 93% recovery ratio for beneficiation plants. In 2018, PhosAgro Manufacturing of fertilizers, position, expand production and improve forward in further expanding fertilizer operations. The Company has continued to develop its sales phosphate rock as a result of our upstream successfully completed the modernisation of feed and industrial phosphates efficiency, ensure safe working conditions production capacities. network both in its priority market of Russia and Mining and processing optimisation programme. Beneficiation Plant No 3, which resulted in higher Our portfolio offers 39 grades of fertilizers, and minimise the Company’s impact on In-house logistics infrastructure abroad, aiming to be closer to our customers in the environment. The Company aims to PhosAgro has extensive mining operations, production volumes of both phosphate rock including grades containing secondary nutrients Having our own logistics infrastructure helps priority markets. increase total fertilizer output in 2019 by 5% along with highly qualified in-house The upstream operations in our phosphate and nepheline concentrate and made possible a (sulphur) and micronutrients like zinc and boron, compared to 2018. to significantly reduce costs and increase the operational and technical know-how and segment take place at Apatit, which mines recovery ratio of more than 93%, the highest level that are produced at our three downstream reliability of production activities. Mineral fertilizer distribution network capabilities. We make every effort to find apatite-nepheline ore from open-pit and ever achieved from at the plant. production sites in Russia. PhosAgro owns the largest mineral fertilizer the right balance between investments underground mining. In 2018, PhosAgro distribution network in Russia. Мощности: in underground mining and beneficiation extracted 35,326 thousand tonnes of apatite MAP/DAP/NPK/NPS МЛН T Production of phosphate- based fertilizers and feed Underground mines 4,4 phosphates Production of phosphate-based Аммиачная селитра Extracted in 2018: fertilizers, technical phosphate, ТЫС. Т sulphuric and phosphoric acid Аpatite-nepheline ore 530 (+14% y-o-y) High-quality natural resources MLN T The Kirovsk branch of JSC Apatit, 27.8 Production of phosphate-based where we mine apatite-nepheline and nutrient-based fertilizers ore and process it into phosphate and ammonia rock, is the heart of our business. The phosphate rock we produce at
Apatit is high in P2O5 nutrient content and contains almost none of the dangerous impurities, like cadmium, often associated with other phosphate mineral deposits. We are committed to continuing to search for options for the development and more rational use of our extensive resource base.
Beneficiation plants Metachem (Volkhov) Company’s own fleet Produced in 2018: RAILCARS OF VARIOUS SALES Capacities: Open-pit mines Capacities: 6,268 CONFIGURATIONS 16 OFFICES Phosphate rock (+5.5% y-o-y) PKS, NPK Phosphoric acid Ammonia Prilled urea DAP/MAP/NPS Extracted in 2018: DISTRIBUTION MLN T KT KT OF P2O5 MLN T KT MLN T We plan to further increase our fleet to reduce costs 25 CENTRES Аpatite-nepheline ore 10.1 200 100 1.9 1,030 1.8 incurred by contracting cars from third-party operators. (-6% y-o-y) Nepheline concentrate (+4.3% y-o-y) The use of our own transhipment facilities helps reduce This has enabled us to significantly increase MLN T Sulphuric acid STPP APP Granulated urea MCP the cost of transhipment per tonne of finished products, sales volumes and market share on the which, among other things, allows us to increase our 7.6 KT KT KT KT KT KT back of Russia’s stellar agricultural sector 986 240 105 200 550 360 margins on export sales. performance.
17 19 22 Chairman’s statement 24 CEO’s statement NEW STRATEGY TO 2025 APPROVED 26 Overview of the fertilizer market BY BOARD OF DIRECTORS 36 Strategy 40 Managing our risks 48 Internal audit
STRATEGIC 02 REPORT FOCUS ON FURTHER GROWTH AND SUSTAINABILITY PRINCIPLES PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information CHAIRMAN’S STATEMENT
STRATEGIC PROJECTS STRATEGY HIGHLIGHTS PRODUCING RESULTS I am pleased to report that 2018 marked the completion of PhosAgro’s Strategy to 2020, which was announced in 2014, a full two years ahead of schedule. By achieving the strategic goals set out by the Board New granulated urea and ammonia Fertilizer production has risen by 50% over PhosAgro aims to invest around 50% capacities contributed to significant, last five years as a result of investments of EBITDA into further expansion and of Directors, PhosAgro has strengthened sustainable growth in PhosAgro’s cash in debottlenecking and modernisation of vertical integration in the years ahead its low-cash-cost advantage, enhanced its flows and EBITDA existing capacities, as well as new capacities natural hedge against market headwinds and become one of the most sustainably Expanding and strengthening elements like cadmium and other heavy At the same time, we will continue to prioritise the Board of Directors metals. While technologies exist to remove safety and environmental protection as we profitable companies in the industry. The As the Chairman of PhosAgro’s Board such hazardous materials from crop plan PhosAgro’s further development. The financial and operating results we reported of Directors, I am ultimately responsible nutrients when they are manufactured, Company has spent over RUB 7 billion on for the quality and effectiveness of the PhosAgro is one of a small number of environmental protection measures over for FY 2018 are testimony to this. Company’s corporate governance system. producers whose fertilizers are naturally the past five years and ca. RUB 2 billion on All of the members of the Board of Directors pure and free of these elements. workplace health and safety. The results of share my commitment to ensuring that this these investments are just as impressive as Since the Board of Directors approved the infrastructure. The results are impressive: key governance body acts in the interests In order to support sustainable agriculture our financial and production performance. Strategy to 2020 in 2014, PhosAgro has worked fertilizer output has increased to 9.1 million % of all of the Company’s stakeholders and and protect the health of its population, hard to gain direct access to priority export tonnes, and our product portfolio has takes considered decisions. the European Union took the important Once again, I want to thank every member markets, improve vertical entegration, upgrade expanded from 19 to 39 grades of crop 47 step of agreeing in 2018 to limit the amount of the PhosAgro team for their efficient and existing capacities and build new ones, and nutrients in order to better meet demand EBITDA GROWTH In our ongoing efforts to further of cadmium allowed in phosphate-based effective work on delivering on the strategic enhance our domestic market direct sales from farmers all over the world. COMPARED TO 2017 strengthen and improve the work of the fertilizers. This is an important step in the targets put before them by the Board of Board of Directors, 2018 saw the number right direction that, together with transparent Directors. The Company’s performance in of independent directors increase to seven and informative labelling for the fertilizers 2018 has demonstrated that we chose the of the ten members after former LSE CEO with the lowest levels of cadmium, will enable right strategic path and that the team has SUSTAINABILITY HIGHLIGHTS Xavier Rolet joined the Board of Directors farmers and consumers to make more succeeded in delivering excellent results. in May. I believe that the current Board informed decisions about the food they makeup provides us with a diverse and grow and consume. highly qualified group of individuals, whose contributions have further enhanced our Preparing PhosAgro for ability to provide PhosAgro with the strategic the next stage of growth guidance and oversight it needs to continue With all of the key elements of PhosAgro’s its sustainable growth. Strategy to 2020 already completed, the Board of Directors is now focused Over RUB 1.5 billion invested LTIFR decreased by 35% year-on-year Atmospheric emissions reduced Fertilizers for future generations on finalising the next five-year plan for in community support and to 0.22 (per 1 million hours) by 6% year-on-year to 1.6 kg/t Consumers and governments around the the Company. We have approached this charity programmes world are becoming increasingly aware of process with the aim of further enhancing the quality and safety of our food supply. As PhosAgro’s low-cost advantage through this trend develops, we believe that PhosAgro modernisations and implementation of best stands to benefit, thanks to the unique quality available technologies across the Company. of the phosphate raw materials that the We believe that PhosAgro is one of the Company uses to produce its fertilizers. best-positioned companies in the world to continue growing its production capacities Unlike some of the world’s largest producers, to supply high-quality and pure fetilizers to including several that supply the European farmers all over the world, from our priority Over RUB 3.5 billion invested market, PhosAgro’s apatite-nepheline ore, domestic market to priority export markets Sven Ombudstvedt in environmental protection which comes from igneous rock deposits, like Asia, Europe and Latin America. Chairman of the Board of Directors programmes is virtually free of potentially harmful
22 23 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information CEO’S STATEMENT
2018 HIGHLIGHTS
DELIVERING SUSTAINABLE GROWTH IN OPERATING AND FINANCIAL RESULTS % % In 2018, PhosAgro and our stakeholders ben- 9 32 efitted from our completion of all key goals FERTILIZER SALES STRONG EBITDA under the Strategy to 2020 a full two years GROWTH MARGIN ahead of schedule. We delivered sustainable increases in both production and financial BLN RUB % performance during the year and secured significant potential for continued growth. 21 7.3 HISTORICALLY GENEROUS DIVIDEND HIGH FCF YIELD
The Strategy to 2020, first presented at stakeholders. With the Strategy to 2020 Taking on local and global and laboratories in order to promote better Higher production levels, which leveraged successfully complete its investment cycles our Capital Markets Day in 2014, focused already complete, the Board of Directors has sustainability issues understanding of the proper application of our low cash-cost advantage, helped and deliver the results we expected at the on building new capacities, upgrades and approved PhosAgro’s Strategy to 2025. PhosAgro operates large-scale mining and crop nutrients. PhosAgro achieve sustainable growth in beginning of the process. Likewise, I would debottlenecking at existing production sites, chemical production facilities, is a major revenue, cash flows and EBITDA. On the like to thank our shareholders, customers direct access to priority export markets and Investing in vertical integration and low employer in Russia, including in single- We worked hard in 2018 to promote back of strengthening market prices, and and all those who have contributed to our streamlining our corporate structure. Thanks cash-cost advantage industry towns like Apatity and Kirovsk, and PhosAgro’s business reputation and image with operating cash flow of RUB 59.7 billion success. to the commitment, hard work and discipline After finishing our major expansion projects is a global supplier of crop nutrients that are as a socially responsible company both for the full year, we were able to continue of our team, we are already able to see the under our Strategy to 2020, we continue to used in over 100 countries. We therefore play in Russia and abroad. By joining the UN to invest in new capacities while paying out results of the successful implementation of invest in our operations, from upgrades and a significant role in supporting and creating Global Compact, we took on a commitment dividends that exceed our dividend policy. our strategy today. expansions of our mining and beneficiation value for a wide range of stakeholders. In the to adhere to the Compact’s 10 principles capacities to new, efficient feedstock cities where we operate industrial facilities, in the areas of human rights, labour, Outlook We have unlocked value at every stage of production, as well as downstream and we fulfil a wide range of obligations, ranging the environment and the fight against PhosAgro will continue to invest in our business, from mining to beneficiation to logistics. Even as we formulate our Strategy from ensuring the environmental impact corruption. In doing so, we once again enhancing its vertical integration, including midstream and downstream production; in to 2025, the Company is seeking new ways of our operations is kept to a minimum to demonstrated our commitment to the 17 UN in key feedstocks, and in strengthening transport, logistics and sales, we have also to leverage its low-cost advantage, which investing in sport, education, healthcare Sustainable Development Goals to 2030, the its position as one of the world’s lowest delivered sustainable cost savings with new starts with the uniquely high-quality and pure and even economic diversification for one- key driving force in terms of environmental cash-cost producers of phosphate-based port and storage capacities, as well as foreign phosphate rock that we produce at Apatit, industry towns. accountability and preserving the planet for fertilizers. Together with increasing concern trading offices in South America, Europe and on to our cutting-edge production facilities, future generations. for sustainable agricultural practices and Asia. integrated logistics and port infrastructure, At a global level, we are also taking on issues human health, we are optimistic about the and sales offices in key priority markets. relevant to our industry and key stakeholders. Financial and operating performance outlook for PhosAgro. Our fertilizers, which As a result, PhosAgro reported fertilizer The Green Chemistry for Life project that we Having completed our last capex cycle, are naturally pure and free of potentially production of 9.0 million tonnes and achieved PhosAgro stands out among Russian sponsor together with UNESCO and IUPAC 2018 was the first full year in which our new harmful heavy metals, are a key factor not an industry-leading EBITDA margin of 32% for companies and its international peers, aims to support talented young scientists ammonia and granulated urea lines were only in producing premium foods but also FY 2018. investing around 50% of its EBITDA annually engaged in applied research on projects that fully functional. The additional volumes in ensuring that the crop nutrients used into development projects, while maintaining use green chemistry principles to improve made possible by these capacities, as well around the world contribute to long-term food We are pleased with these results, but we investment-grade credit ratings, adhering our world. This programme was renewed as upgrades to existing lines, enabled us to security. are also confident about the future: by to its dividend policy and implementing in January 2019 after the completion of achieve year-on-year increases in fertilizer implementing a comprehensive strategy to important social projects that address both the first five years. We also agreed with the production and sales by 7.6% and 9% to Once again this year, I want to thank all of Andrey A. Guryev further secure our low cash-cost advantage, local and global issues that are relevant to UN’s Food and Agriculture Organization 9 million tonnes and 8.8 million tonnes, our stakeholders, including our employees Chief Executive Officer and Chairman we are in an excellent position to continue our stakeholders. in 2018 to support a global programme to respectively. and contractors who helped PhosAgro to of the Management Board growth while delivering value for all of our increase farmers’ access to soil testing kits
24 25 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OVERVIEW OF THE FERTILIZER MARKET
NUTIRIENT DEMAND DRIVERS
THE GLOBAL ECONOMY AGRICULUTRAL MARKETS
Y-O-Y MLN T BLN T % TRADE BARRIERS, THE PERSISTENT STRENGTH OF % THE DOLLAR, GROWING GEOPOLITICAL TENSIONS 54.2 3 AND VOLATILE OIL PRICES HAVE DAMPENED 25 1.1 TARIFF ON SOYA ESTIMATED EXPECTED RECOVERY OF ESTIMATED GLOBAL EXPECTATIONS OF GLOBAL GDP GROWTH GDP GROWTH IMPORTED BY CHINA SOYA PRODUCTION CEREAL PRODUCTION FROM USA IN ARGENTINA IN LATIN AMERICA IN 2019
Following on from a robust 2017, global One of the key areas of concern throughout Increased geopolitical tensions and oil price economic growth continued through much 2018 was the escalation of trade barriers. volatility also played a role. Sanctions were Both grain and oilseed markets were subject Meanwhile, Argentine soya output suffered Cereal production also suffered in 2017/18, of 2018 before fading towards the end of This kicked off when the Trump administration reimposed on Iran in early November, and to various externalities throughout 2018, throughout 2018. The IGC estimates that largely as result of lower corn output the year. As recently as October 2018, the imposed tariffs on imports of steel and although this initially helped to drive oil prices many of which are set to drag on into 2019. production was down by as much as a (estimated between 3-5% lower year-on-year International Monetary Fund forecast global aluminium from the EU, Canada, Mexico, higher — Brent reached a high of USD 86/ third due to the poor growing conditions by the IGC, USDA, and FAO/AMIS). This is GDP growth of around 3.7% year-on-year. By and China in March. It subsequently grew bbl — the subsequent introduction of waivers Whereas the year started on a positive in the beginning of the year. Moreover, the linked to lower acreage in the United States, December, however, estimates were closer when retaliatory measures were introduced and increased production elsewhere (Saudi note, with Argentina committing to reduce country’s tariff position had to be reassessed persistently hot and dry conditions through to 3.0% year-on-year. Trade barriers, the on the United States by China, including Arabia and Russia) saw prices fall below soybean tariffs by 0.5%/month during the in September due to a lack of government the Safrinha in Brazil, and untimely rain that persistent strength of the dollar, growing a 25% tariff on US soy (more on this below), USD 60/bbl in December. At the same time, year, sentiment soon soured as the United revenues and the associated loss of had a negative impact on yields in the south geopolitical tension, and volatile oil prices and a second round of US tariffs on Chinese equities came under pressure with stock States and China became embroiled in a confidence in the peso. Subsequently, the cone of Latin America. However, a recovery have all played a role. product. Although both countries agreed markets losing ground through much of trade war. China is today the world’s largest government reinstated tariffs on soya (and to 1,073.4 million tonnes is expected for the to temporarily suspend further tariffs, their December. importer of soya, accounting for two thirds grains). While this may, at first glance, appear 2018/19 crop. Better production is expected impact was felt across different sectors of global trade. In July, it introduced a 25% negative for the 2018/19 crop, the fact that year-on-year in Brazil and Argentina due to of the economy. This includes forex, where tariff on soya imports from the United Argentina exports most of its agricultural good rainfall and beneficial field conditions, most currencies lost ground to the US dollar States, the world’s largest producer and its output and incurs much of its cost on a peso Ukraine (despite a dry start to the season) (which tends to be viewed as a safe-haven main trading partner. While trade between basis means that farming margins may well and China. Although US production is currency), prompting tighter policy measures. the two countries continued throughout improve year-on-year, boosting prospects for estimated flat year-on-year for 2018/19, 2018, volumes have moderated, and China the 2018/19 crop. At the time of writing, the this is on less acreage, implying exceptional has been forced to source more product IGC estimated production to recover to 54.2 yields. elsewhere (in particular, Brazil). million tonnes. In contrast, wheat output peaked in 2017/18 Performance of selected currencies of major phosphate importers Global agricultural production, on the back of bumper yields in the EU, mln t Russia, China, and India. The trend for 2018/19 is less encouraging though, with Country’s position DAP AP D USD production estimated 4–5% lower year- against rest of the world mln t C Improved growing on-year. Yields in Europe and Russia are conditions both sharply down due to persistent heat ndia in Brazil and Argentina. and dryness through much of summer. Excellent yields in US Elsewhere, contractions are also expected ra il in Australia and China.
W Pakistan Prolonged hot/dry conditions Argentina in Europe/CIS limiting yields
Canada R
urkey Large US crop despite S US-China trade war. angladesh O Continued growth in Brazil and recovery in Argentina ietnam Source: CRU, IMF, Turkish Central Bank, fx-rate Turkish CRU, IMF, Source: IGC Source: 2016 2017 2017 2018 2018 2019
26 27 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OVERVIEW OF THE FERTILIZER MARKET continued
HIGH-LEVEL NUTRIENT HIGH-LEVEL NUTRIENT DEMAND REVIEW SUPPLY REVIEW
N, P and K fertilizer demand developments, % Y-O-Y mln t
1.3 NUTRIENT DEMAND GROWTH
The implications of the above on fertilizer P demand have been estimated by the International Fertilizer Industry Association
(IFA). n u t e e i ion P e e de to t e The preliminary estimate of nitrogen (N), i to ic con u tion e ti te e u tin phosphate (P) and potassium (K) fertilizer in do n d d u t ent demand stands at 186.9 million tonnes in o nd de nd of nutrient for the 2017/18 season. This ut n u d d u t ent in de nd represents growth of 1.3% year-on-year, which is in line with recent trends. Changes to policy led to greater consumption in India (where the introduction of a soil health N card helped to promote more balanced application) and Nigeria (where a presidential initiative boosted fertilizer usage) but a reduction in China (environmental focus). Preliminary IFA estimates reflect a 1.2% to be commissioned throughout the year, also faltered due to high phosphoric acid Meanwhile, relative changes to FX and an year-on-year increase in global N, P and K driving the total up to 214 million tonnes. prices and the substitution effect from NPK
expansion of area also had an impact production in 2018 – for both fertilizer and grades with lower P2O5 content. (e.g. Ukraine, Brazil, Canada, etc.). Nutrient 2010 2016 2017 2018 non-fertilizer use – at 251 million tonnes of Ammoniated phosphate (DAP/MAP)
use again increased across the board, with IFA Source: nutrient. Fertilizer sales accounted for 75% production in 2018 declined 3% year-on-year Potash markets enjoyed another record year N demand up 0.8% year-on-year, P demand of global N, P and K output, similar to the to 59.7 million tonnes of product, according in 2018, with global production estimated at 2.0% higher year-on-year and K demand America, demand in Argentina and Brazil has The aforementioned estimates were previous year. to CRU. New capacity in Saudi Arabia and 67.0 million tonnes by CRU. 1.7% higher. been driven by improved farming profitability converted to calendar year estimates by Morocco failed to offset declining output (due to the strength of the US dollar) and the IFA. N, P and K demand was assessed Looking at the different nutrients, there was driven by industry consolidation in the United Moving to 2018/19, demand for N, P and China’s shift away from US soybean (US- at 186.3 million and 187.9 million tonnes a net 1.6% increase in global urea production States and China, particularly for MAP, in K is estimated at 188.3 million tonnes of China trade war). of nutrient in 2017 and 2018, respectively. in 2018, bringing the total to 188 million the former to capture higher margins for nutrient. This represents more modest In this instance, N demand is estimated up tonnes. Even so, new capacities continued premium products. Indian DAP production growth of 0.7% year-on-year due to Whereas European demand is set to recover 0.4% year-on-year and K 2.2% higher. P use macroeconomic weakness, the impact of (with the anticipated strengthening of the was 1.0% higher at 45.3 million tonnes of tariffs and poor weather conditions. For a euro and improved weather conditions), nutrient.1 The IFA assessed demand for non- second year running, Africa is set to enjoy Asian consumption is set to remain flat year- fertilizer uses at 61 million tonnes in 2018. MLN T MLN T MLN T the strongest growth (3.9% year-on-year), as on-year. Nutrient use growth is estimated efforts to improve fertilizing habits across at 0.3%, 0.8% and 1.8% for N, P and K, the continent continue to intensify. In Latin respectively. 188 59.7 67 GLOBAL UREA DAP/MAP GLOBAL POTASH PRODUCTION IN 2018 PRODUCTION IN 2018 PRODUCTION IN 2018
1 28 This represents a considerable change compared to previous estimates, with nitrogen 29 use being revised lower and phosphate higher for China during the period 2010–2015. PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OVERVIEW OF THE FERTILIZER MARKET continued
NUTIRIENT DEMAND DRIVERS
FOCUS ON PHOSPHATE FERTILIZER MARKETS IN 2018
Demand developments in key markets, Brazilian barter ratio, 60 kg bags of soya/tonne of MAP mln t emand index 2010=100
30 t on i o t in e ti i e eco in entin nd o u t LESS o d e S C o u e in i A 2018 2019 2017 2018 de ite o i tic nd 25 o d i it c n e R
20 E CIS 15 N A I H i en o t AP in e ti i e eco in 10 ORE o d e E S A 5 S A
2016 2017 2018 2016 2017 2018 2013 2014 2015 2016 2017 2018 Source: IFA Source: Week Fertilizer Agrolink, Source:
The IFA’s preliminary assessment shows made by truck, the strike action saw 10% deficit of rainfall through the monsoon On the supply side of the phosphate industry, In addition to reduced output from the United India, which DAP and NPK imports replaced. that phosphate fertilizer demand stood coastal warehouses quickly filled, delaying season compared with long-term averages. CRU estimated a (prorated) 2% year-on-year States, new integrated phosphoric acid Furthermore, where possible, non-integrated
at 45.2 million tonnes of P2O5 in 2018, imports and raising the cost for the final Good reservoir levels along with an increase of increase in global phosphoric acid capacity at capacity ramped up slower than expected, phosphate fertilizer producers, located registering 1.0% growth year-on-year, customer. In H2, affordability again became minimum support prices in October on all rabi 59.8 million tonnes of nutrient in 2018. New and global production declined by 1% year- mostly across India, moved away from high
following the 1.2% growth recorded in 2017. problematic, as MAP prices moved out of crops (including wheat, barley and rapeseed) integrated projects concentrated in Saudi on-year to an estimated 44.4 million tonnes P2O5 concentrates to lower-analysis NPK step with crop prices (see the barter ratio helped to support fertilizer sales during H2. Arabia and Morocco accounted for almost of nutrient in 2018. This resulted mainly from formulations, further reducing phosphoric Whereas European phosphate deliveries diagram on the next page). This slowed Notably, a much larger amount of DAP was all of this growth in phosphoric acid capacity, accelerated phosphoric acid price growth acid requirements. were robust in early 2018, demand ground deliveries through Q4, as end-user demand imported during 2018 (6.2 million tonnes) which offset the idling of 1.0 million tonnes relative to downstream products. High to a halt in the latter part of the year. This withdrew. relative to 2017 (4.1 million tonnes) due to of nutrient supply in the United States. raw material costs also resulted in lower corresponded with a sharp increase in the high cost of production using imported domestic phosphoric acid production from ammoniated phosphate pricing, a weak euro, Argentina also had a challenging 2018, with phosphoric acid. Much of this stemmed from and a prolonged period of heat/dryness drought conditions followed by an economic China (2.9 million tonnes) and Saudi Arabia (2.0 through the summer months that severely crisis and the subsequent reintroduction of million tonnes). impacted harvests and transportation (i.e. crop export tariffs. Indian imports across the through the Danube and Rhine rivers). Africa has enjoyed some strong growth P value chain Germany was among those affected, with the Phosphate demand was assessed as stable in recent years. The IFA has assessed oc i o t e ounded in IFA assessing its demand 2.5% lower year- in the United States during 2018 but higher in its consumption a further 5.6% higher in d i en i o o ic cid ice ic out t i ed o t in ice on-year, as it was also impacted by regulation Canada due to the expansion of wheat area 2018, following the 13.1% growth recorded limiting nutrient surpluses. and also higher application rates. The growth for 2017, as efforts to improve product in Canada is in line with long-term trends, accessibility and technical support/expertise In Latin America, Brazilian deliveries were with the country boasting one of the more continue to gain traction. In Sub-Saharan R P DAP impacted by transportation and affordability robust growth rates in recent decades. Africa, welcome rains in the Cape (South 2018 issues in 2018. The truck drivers’ strike in Africa) helped to ease the impact of drought, late May/June temporarily paralysed the Elsewhere, Indian phosphate demand is but this was offset by fears of an El Niño 2017 inland transportation network. With around estimated marginally higher year-on-year by event impacting the south-east of the
Source: CRU, IFA. Source: 2016 90% of the country’s fertilizer deliveries the IFA at 6.9 million tonnes of P2O5 despite a continent in 2018/19.
30 31 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OVERVIEW OF THE FERTILIZER MARKET continued
PHOSPHATE FERTILIZER KEY PRICE DEVELOPMENTS MARKETS IN 2018 DURING 2018
Global DAP, MAP, TSP and NPK production index DAP’s key price driver developments in 2018, Price index, week 1 of 2018=100 mln t Production index 2010=100 P GA S A
assumption. FOB CFR I FOB E FOB B S 5 O AP 2 nced nut ition i o t nt in de e o in count ie 120 NP on inte ted ine e con o id tion ndi oducin e 100 DAP
80 TSP 2016 2017 2018 2016 2017 2018 60 Source: Fertilizer Week Fertilizer Source: Source: CRU, Fertecon, IFA; Note: indices based on nutrient content – Note: indices based on CRU, Fertecon, IFA; Source: NPK formulation calculated based on 15% P
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 China benefited largely from the changing Outside of China, DAP/MAP production P2O5 trade flows to India. Robust DAP export fell marginally year-on-year to around % demand — driven by high phosphoric acid 34.8 million tonnes. Both Saudi Arabia and DAP versus other commodities in 2018, Price index, 2 Jan 2018=100 prices — despite domestic consolidation Morocco notably lifted output following the ice e ined o u t t ou out in supported marginal year-on-year growth in commissioning of new capacity. However, 36 comparison to other commodities, finishing the CHINA’S SHARE e i e t n t t e t t o t e e Chinese phosphoric acid production. China the aforementioned reduced production from remains the largest phosphoric acid producer India and lower output from the United States OF GLOBAL PHOSPHATE- 140 globally, with 15.9 million tonnes of nutrient resulted in lower DAP output. Notably, MAP BASED FERTILIZER production in 2018. production outside of China maintained its PRODUCTION 120 growth trajectory, owing in part to robust According to preliminary data from CRU, the import demand in the United States, where USD USD DAP FOB TA PA ammoniated phosphates (DAP/MAP) market capacity closed and where NP+S production 100 L T decreased 3% year-on-year to 59.7 million is increasingly prevalent at the expense R tonnes of product in 2018. Combined, DAP/ of DAP/MAP production. MAP production fell by 1.5 million tonnes 80 compared to the previous year. 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Source: CRU, Fertilizer Week CRU, Fertilizer Source: Phosphoric acid capacity by largest Note: First price point taken by Fertilizer Week in producer, mln t P2O5 DAP prices peaked for a second straight 2018 was 4 January, so the starting point refers to the last recorded price in 2017. year in September at USD 439/tonne on a T 2016 2018 R FOB Tampa basis, recording a USD 46/tonne increase from the end of 2017. In contrast to n t e to oduce c cit ccounted o o t e o 2017, when prices were boosted by tight raw tot e t t u o ne o e tion nd materials markets, the upward trend in 2018 nd o ic con o id te was driven by robust demand and tighter t ei o ition t e indu t e t oduce e n i e ut ient c i ed than expected supply. fifth spot following the merger between iu nd ot o
2016 2018
n t e to oduce 32 c cit ccounted o o t e o 33 tot e t t u o ne o e tion nd nd o ic con o id te t ei o ition t e indu t e t oduce e n i e ut ient c i ed fifth spot following the merger between iu nd ot o PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OVERVIEW OF THE FERTILIZER MARKET continued OTHER FERTILIZERS PHOSPHATE ROCK MARKET REVIEW AMMONIA POTASH UREA
MLN T The recovery in the ammonia market has The demand narrative was also positive been less pronounced than in the urea market. % % in 2018. Consumption increased in India, Ammonia’s supply/demand fundamentals the USA and Brazil, more than offsetting remained weak, and the addition of 1.4 consumption declines in China and Turkey. 207 million tonnes of new capacity in the USA 23 50 India in particular was a major driver of GLOBAL PHOSPHATE ROCK and Indonesia kept the market somewhat GROWTH OF PRICES FOR DECREASE IN UREA pricing in H2 2018, with decent growing PRODUCTION IN 2018 oversupplied. However, high energy prices POTASH IN BRAZIL EXPORTS FROM CHINA conditions driving an increase in tender pushed up average prices for the year by activity. Limited Chinese availability and USD 20/tonne over 2017 values at FOB increased urea purchases from India and Marketable phosphate rock production for direct application in Indonesia. Most Yuzhnyy and FOB Middle East. Global MOP deliveries in 2018 were estimated The global urea market is now two years Brazil pushed the average H2 2018 Middle totalled an estimated 207 million tonnes in of the additional volumes originated from marginally higher year-on-year by CRU at into its recovery phase. Tighter market East benchmark to just over USD 300/tonne. 2018, derived from 38 countries, 15 of which Peru, where production recovered from Rising prices in the oil and seaborne LNG around 67 million tonnes. Like in 2016 and conditions in 2018 allowed the recovery supplied over 2.0 million tonnes. Following a force majeure situation in 2017, and Syria, markets put upward pressure on Europe’s gas 2017, Indian and Chinese MOP contract to gain pace, with the Middle Eastern FOB Energy markets also played a role in driving the largest merchant sales of this century in which re-entered the market following a two- markets throughout the year, pushing prices up negotiations dragged on, this time through benchmarks breaking USD 300/tonne for the up prices. Tight oil and LNG markets pushed 2017, internationally traded phosphate rock year hiatus. Mexico imported much more rock, from an average of USD 5.75/MMBtu in 2017 to the end of Q3 2018. Delayed contractual first time since 2015. On average, the main EU gas prices up to USD 10/MMBtu in Q3 volumes increased further to an estimated exclusively from Morocco, helping to maintain to almost USD 8.00/MMBtu in 2018. This level agreements, for China particularly, resulted FOB Middle East benchmark increased by 2018, raising Europe’s marginal cost of 32.8 million tonnes in 2018, stemming largely exports from the latter above 11.0 million of pricing forced Ukraine to cease exporting from inventory carry-over from high contract USD 45/tonne last year and, factoring in the production and driving Ukrainian exporters from improved rock demand in Mexico and tonnes for the second consecutive year. ammonia and even some of the EU’s nitrate volumes the previous year and increasing improvement in 2017, annual average prices out of the traded market. Ukrainian urea producers to cease ammonia production global spot prices, while domestic producers are now USD 70/tonne above 2016 levels. exports were reduced by around 1.0 million and switch to upgrading imported merchant raised production and further unwound tonnes to just 450,000 tonnes in 2018. PHOSPHATE ROCK MARKET ammonia. This helped to offset the fall in stocks. Brazilian spot prices reached a three- The rally in prices was driven mostly DEVELOPMENTS IN 2018 US ammonia imports that resulted from the year high in nominal terms, increasing by by the ongoing rationalisation of China’s The urea market faced headwinds as the ongoing expansion of US ammonia production. nearly 23% from the beginning of the year huge domestic urea industry. The strict year ended, triggering a sharp downwards to reach USD 353/tonne by the end of 2018 enforcement of environmental regulations adjustment. A collapse in the energy Global phosphate rock capacity Global phosphate rock and production, mln t trade, mln t The US reduced ammonia imports by around on a CFR basis. is significantly restricting Chinese operating markets forced EU gas prices down to 0.9–1.0 million tonnes in 2018, with the full, rates and in doing so is reducing China’s USD 7.00/MMBtu, lowering producer costs stable operation of the Dyno Nobel plant Demand in Brazil remained robust, and export availability. Full-year exports from at the margin. Meanwhile, currency and 37 6 1988 in Louisiana and the opening of the newly soybean in particular benefited from the China more than halved in 2018, falling credit crises in Turkey and dry weather completed Yara/BASF plant in Texas. This United States-China trade war, although it from 4.6 million tonnes to 2.1 million tonnes. conditions in Germany and France reduced 30 5 C ongoing reduction in ammonia imports from has so far had a limited impact on US MOP Mediterranean buying significantly. around 5.2 million tonnes in 2015 to 2.8 million demand. Despite continued voluntary idling China was not the only country to rationalise 19 6 2009 tonnes in 2018 is forcing the US’s main import of established capacity in Canada, K+S urea production. Kuwait’s Petrochemical As the market moved into the new year, supplier, Trinidad, to look further afield to Canada ramped up new export-oriented Industries closed its 1.1 million tonnes/year however, it found stability at USD 285/tonne. P Morocco and the Asia-Pacific region for new supply and benefited most from the contract urea plant at Shuaiba, and Petrobras is in the And with India coming back to the market for export opportunities, thus lowering Caribbean delays in China. Combined, the country’s process of closing two loss-making plants in yet another tender and Chinese availability prices and increasingly challenging Black Sea producers reached record high output of Brazil with a combined capacity of 1.1 million looking severely limited, sentiment remains exporters for business. 21 million tonnes. Slowing demand growth tonnes/year. Together with the reduction of positive for urea. Source: CRU, IFA. Source: 2016 2017 2018 2016 2017 2018 across South-east Asia towards the end of Chinese exports, these closures helped to China’s regulation-triggered capacity the year, reflecting a 10-year low in Malaysian offset the 3.0 million tonnes of new capacity rationalisation is increasing the country’s palm oil prices, dry summer weather that started production, including new plants ammonia import requirement, which almost conditions in Europe and muted supply from in Azerbaijan, Turkmenistan, Malaysia and the reached 1.0 million tonnes in 2018. Meanwhile, new capacity in Russia and Turkmenistan USA. in Asia, higher oil prices helped drive a recovery helped balance the market. in downstream petrochemical prices (including acrylonitrile and nylon), significantly boosting industrial ammonia demand from South Korea, Japan and Taiwan. At the same time, the ramp- up of an explosives plant in Western Australia constrained export availability from Australia.
34 35 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information STRATEGY
GOALS OF THE STRATEGY TO 2020
PHOSAGRO INTRODUCED ITS STRATEGY TO 2020 IN 2015 AND UPDATED 1 2 3 4 ITS GOALS IN 2017. IN ADDITION TO PROVIDING DIRECT ACCESS PRODUCTION CAPACITY INCREASING CONSOLIDATION TO PRIORITY MARKET GROWTH AND ENHANCED OPERATING AN OVERVIEW OF THE SELF-SUFFICIENCY EFFICIENCY LAST 12 MONTHS, WE WOULD ALSO LIKE TO We have built an end-to-end Upgrading mid-stream capacities, The key to our competitive Merging our production subsidiaries PROVIDE MORE DETAILS distribution chain that captures we were able to expand downstream advantage and ability to provide into a single entity gives us greater ABOUT THE COMPANY’S value all the way to regional output and become less vulnerable pure nutrients is maintaining low control over the assets and the distributors and customers to feedstock price inflation production costs ability to deliver the greatest value CURRENT CONDITION to our shareholders.
Achieved Achieved Achieved On track
Some of our key strategic Goal: Increase share of direct sales in all Goal: Growth in total sales Goal: Launch new 500 ths tonnes/year Goal: Reduce mining cash cost by increasing Goal: Merge all of our production facilities achievements include: PhosAgro sales to Latin America granulated urea line in 2017 share of underground mining up to 80% into a single legal entity • Strengthened the Company’s Goal: Phosphate rock production sustainable low cash-cost position Goal Goal oal by modernising existing facilities, Goal enhancing vertical integration, optimising logistics and streamlining oal Achieved the corporate structure. Achieved chieved Goal: Total sales Goal: Total sales to Europe Achieved • Increased fertilizer production by 53% Goal: Capex/EBITDA target ratio oal of 50% over five years to 9.0 million tonnes Goal: Modernisation of Benefication chieved for FY 2018. Goal Goal Plant No 3 Goal: One of the lowest cash costs • Achieved the highest level of Goal: Increase PhosAgro self-sufficiency in the industry chieved phosphate rock production in 25 years in ammonia to 100% at JSC Apatit in 2020 at Kirovsk branch of JSC Apatit. Achieved Achieved
• Expanded our product portfolio from Goal: Fertilizer production UNDER OUR STRATEGY TO 2020, WE INVESTED 19 to 39 grades of fertilizers. Goal: Domestic market share Goal: Total sales to Russia USD 500 MILLION ANNUALLY, OR ON AVERAGE DAP AP NP • Achieved a an industry-leading Goal 50-60% OF EBITDA FOR THE SAME PERIOD. EBITDA margin of 32% for FY 2018. Goal Goal Goal WHILE ACHIEVING ALL KEY STRATEGIC • Delivered a record high cash flow MILESTONES, WE MAINTAINED A COMFORTABLE of RUB 21.3 billion for FY 2018. Achieved LEVERAGE RATIO WHILE PAYING OUT DIVIDENDS IN LINE WITH THE DIVIDEND POLICY • Paid out 90 RUB billion in dividends Achieved Achieved On track for 2014–2018.
Goal: Increase PhosAgro self-sufficiency in ammonium sulphate to 100% at JSC Apatit in 2020
36 37 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information STRATEGY continued
STRATEGY TO 2025 In 2018, PhosAgro completed all key milestones in its Strategy to 2020. THE STRATEGY TO 2025 AIMS TO FURTHER EXPAND PHOSAGRO’S PRESENCE IN ITS PRIORITY DOMESTIC AND PREMIUM EXPORT MARKETS The Management Board and the Board of Directors adopted a new WHILE STRENGTHENING ITS POSITION AS A PRODUCER OF PURE Strategy to 2025 in March 2019. PHOSPHATE-BASED FERTILIZERS WITH LOW LEVELS OF POTENTIALLY HARMFUL HEAVY METALS AND ONE OF THE LOWEST CASH COSTS OF PRODUCTION
Developing sales in priority markets The number of fertilizer grades produced capacities, including further expansion of its The Company will continue to develop its by PhosAgro is due to increase from 39 in ammonia production, purified phosphoric 5 1 own distribution network both in Russia 2018 to 50, including new high-performance acid, water-soluble fertilizers and nepheline and in export markets. grades with bio-additives. concentrate.These projects will be reviewed by the Board of Directors on the basis of IMPROVING ESG DEVELOPING DISCIPLINE Starting from 2020, the Company plans PhosAgro already passed the peak of its their ability to create value for PhosAgro SALES IN PRIORITY to implement end-to-end digitalisation investment cycle with the completion of shareholders and other stakeholders, while MARKETS of logistics and to introduce elements of its key capital-intensive project under its also adhering to the Company’s dividend precision farming technology, which will Strategy to 2020, i.e., the construction of policy and maintaining its solid financial enable Russian farmers to achieve an even high-tech ammonia and granulated urea position. greater impact from the use of plant mineral facilities. The total investment in these nutrition systems. facilities amounted to RUB 65 billion. These Improving ESG discipline projects now generate a stable cash flow, PhosAgro has already created significant PhosAgro will continue to expand its allowing for a balanced payment of decent value for shareholders and other presence in the premium markets of Europe dividends, as well as implementation stakeholders through successful investments and Latin America, as well as other markets of investment, social and charitable in sustainable increases in efficiency and where the Company can achieve the best programmes. production capacity, while also maintaining STRATEGY netback prices, while also increasing a solid financial position, paying out customer awareness about the safety Improving logistics efficiency competitive dividends and undertaking of the phosphate-based fertilizers Having a logistics system and sales a wide range of social and environmental 2025 produced by PhosAgro. infrastructure in place in priority markets projects. We have also achieved significant will enable the Company to continue creating progress in governance and transparency, 4 2 Increasing production through improved value throughout the entire supply chain thanks in large part to an optimal corporate operational efficiency all the way to end customers. To achieve structure and an expanded Board of Directors DEVELOPMENT INCREASING As part of its Strategy to 2025, the Company this, the Company will focus on expanding with a majority of independent directors. OF PROMISING PRODUCTION will focus on work in three priority areas: the capacity of its own railway and port expanding capacity, improving operational infrastructure, as well as increasing and The Strategy to 2025 that the Board AREAS THROUGH IMPROVED efficiency and increasing self-sufficiency upgrading its fleet of railcars, including of Directors approved aims to further OPERATIONAL in key inputs. through the use of new rolling stock strengthen PhosAgro’s position as a EFFICIENCY management tools to reduce transport producer of environmentally safe phosphate As part of a programme to modernise costs. fertilizers with among the lowest costs in existing and build new production capacities the industry, while continuing to expand using BATs, as well as innovative and digital Development of promising areas production capacities and ensure the solutions, PhosAgro plans to increase the We are continuously searching for ways long-term sustainability of our operations production of high-quality fertilizers and feed to expand and enhance our business globally. The Board of Directors have full 3 phosphates that stand out for their naturally in new directions with new technologies. confidence that this is a strategy that will low levels of potentially harmful heavy metals This includes continued work by our prepare PhosAgro for the future, and that it IMPROVING from 9 million tonnes in 2018 to 11.5 million in-house R&D team at the NIUIF, which is will create significant, sustainable value for LOGISTICS tonnes by 2025. working on new grades of fertilizers and the Company’s shareholders as well as other EFFICIENCY crop nutrients with bio-additives. PhosAgro stakeholders, from employees to the farmers is also considering potential additional new that use our crop nutrients on their fields.
38 39 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGING OUR RISKS
RISK MANAGEMENT SYSTEM
All PhosAgro employees, from mine and plant workers to the members of the Board of Directors, are constantly involved in the Company’s risk management procedures.
BASED ON OUR RISK APPETITE, WE CONTINUOUSLY MONITOR KEY ASPECTS OF RISK THE RISKS THE COMPANY ENCOUNTERS AND TRY TO ENSURE MANAGEMENT AT PHOSAGRO THAT ALL CHANGES HAVE A CONTROLLED IMPACT ON THE ACHIEVEMENT OF THE COMPANY’S GOALS Board of Directors Reviews information on management of the Company’s key risks on a quarterly basis.
• Has overall responsibility for management of financial and nonfinancial risks • Establishes and monitors the performance In 2018, the company continued to develop of the risk management system Risk Management Committee Audit Committee its risk management system, in particular: • Holds management accountable for Coordinates issues related to risk management implementation of the risk management system on behalf of the Board of Directors. • Has oversight responsibility for the finance • A project to integrate the risk management function system into operational business processes • Carries out regular assessments of the risk • Provides recommendations to the Board at the Company’s key production sites management system and principles on necessary changes and improvements was successfully completed. This has • Provides recommendations to the Board on to the financial risk management system made it possible to enhance the culture of necessary changes and improvements to the financial risk management and internal control at risk management system production sites with the aim of decreasing the number of incidents and achieving operational targets.
• The Company’s system for monitoring key Executive management Risk Commission risk indicators was expanded in order to more (CEO and Management Board) Regularly reviews the status of implementation comprehensively monitor changes in the main of risk management activities. risk areas and in the context of risk appetite. • Oversees implementation of, and adherence to, risk management policies • Reviews the status of risk management • A risk management and internal control policy • Monitors and manages risks relevant to job functions • Evaluates the effectiveness of risk management was approved by the Board of Directors, which • Carries out risk identification and reporting measures contributed to further improvement of the • Performs operational risk management Company’s corporate governance systems.
• An independent external evaluation Risk Management and Internal Control Department Internal Audit Department of PhosAgro’s risk management system was Functional and business units The Director of the Department reports operationally carried out, which confirmed that it was at to the CEO and functionally to the chair of the Risk • Carries out regular assessments of the the level of other leading Russian companies Management Committee. Company’s internal control and risk and that it had made substantial progress management systems in comparison with the previous evaluation • Facilitates work across the Company’s divisions • Oversees compliance of PhosAgro’s financial conducted in 2016. to identify and assess risks, as well as develop and economic operations with Russian programmes to manage and minimise risks legislation and the Company’s Charter • Provides PhosAgro employees with methodological • Develops recommendations for the Audit and consultative support on issues related to risk Committee and the Board of Directors management on sound strategic changes to the risk • Organises risk management training management system
40 41 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGING OUR RISKS continued
KEY RISKS
The risks outlined in this report that may impact the Company do not constitute an exhaustive list. The report aims only to identify the key risks.
STRATEGIC RISKS PRODUCTION RISKS
Risk of inadequate Social and human Production risks Workplace health Environmental strategic planning resources risks and safety risks risks
Description Risk of inadequate strategic planning Social and human resources risks are those Risks in the production process are negative Workplace health and safety risks are related Environmental risks cover the occurrence associated with the adoption of an associated with the hiring, development and events of a technical/industrial nature that to injury, occupational illnesses, accidents of potential damage to the environment as incorrect strategic decision and associated retention of employees, as well as risks in lead to disruptions in the production process: and incidents at hazardous production a result of the Company’s activities. management decisions, resulting from relations with local communities and the risk downtime of production equipment, outages, facilities, as well as risks associated with an erroneous assessment of internal and of adverse social situations in regions incidents and accidents at production sites discrepancies between the workplace health external factors that have an impact on the of operation. and production infrastructure facilities, failure and safety elements of the risk management Company’s prospects for development and to meet planned production volumes. system and legal requirements. its ability to achieve its strategic objectives.
Mitigation PhosAgro has successfully implemented all PhosAgro carries out independent and joint PhosAgro aims to operate all types of PhosAgro ensures workplace health and PhosAgro regularly analyses and assesses key projects under its Strategy to 2020, and programmes aimed at attracting talented equipment without breakdowns or unplanned safety in compliance with relevant legislation its impact on the environment. In an effort to the Board of Directors approved the Strategy young specialists, including from other stoppages and to take steps to limit the and global best practices in this area. To limit its environmental impact, the Company to 2025 in March 2019. regions, developing employees’ professional length of unplanned stoppages when they do this end, the Company carries out training is modernising its cleanup and storage competencies and increasing employee occur. With this aim in mind, the Company for staff and checks their knowledge related system and is putting energy-efficiency The Company actively monitors both internal motivation to ensure long-term retention. invests in building new and upgrading to workplace health and safety, promotes a programmes in place. The Company partners and external factors that could impact existing production and power-generating culture of safety, ensures that all contractors with UNESCO and the International Union implementation of the strategy. PhosAgro The Company has adopted a Human equipment, schedules preventative adhere to workplace health and safety of Pure and Applied Chemistry (IUPAC) to also takes a systematic approach to Resources Policy that identifies the main maintenance of equipment and major standards, carries out safety audits and provide grants for research in the field of assessing the potential costs and benefits areas of personnel management that overhauls, while using backup equipment inspections to ensure compliance with the green chemistry with the aim of protecting of new strategic projects in order to facilitate facilitate the achievement of the Company’s and creating a reserve of components, relevant regulations and requirements of the the environment and human health through optimal decision-making. business goals. accessories and spare parts. In addition, a OHSAS 18001 standard on the part of both the implementation of energy-efficient programme to boost the quality and reliability Company enterprises and suppliers. The processes and environmentally friendly of repair work carried out by suppliers is in Company adopted a Strategy for Workplace technologies on the basis of innovative ideas. place, while insurance covers the Company’s Health and Safety that specifies targeted hazardous production facilities and property. programmes to reduce the risks associated PhosAgro’s investment projects make use of with various types of Company activities. the best available technologies to reduce the unit costs of raw materials and energy, as well as emissions of regulated substances.
42 43 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGING OUR RISKS continued
OPERATIONAL RISKS
Project risks Risks of inefficiency and infringement Taxation risks Information Risks to economic of business processes security risks security
Description Project risks are related to exceeding planned Risks associated with inefficiency or the Taxation risks are related to potential claims Risks in the field of information security Economic security risks are related to losses budgets and timelines for the completion intentional or unintentional infringement of by the tax authorities that the Company are risks associated with losses caused to caused to Company property and assets as of new construction and modernisation the Company’s business processes, including has not correctly filed its tax return or made Company property and assets by means a result of legal violations in the economic projects, as well as the failure to achieve counterparty risk related to the supply chain. payments on time. of unauthorised access to its information sphere committed by employees or third efficiency targets related to projects. systems or by the disclosure of confidential parties, including fraud and theft. information.
Mitigation PhosAgro strives to adhere to project PhosAgro aims to support the efficient PhosAgro complies with tax legislation in the The Company carries out various measures The Company takes measures aimed at budgets and timelines and to take a unified functioning of all of the Company’s business countries where it operates. Tax legislation, aimed at preventing unauthorised access to preventing potential losses to its property approach to implementation with the help processes and systems. To achieve this, the including planned changes, is monitored; its information systems as well as disclosure and assets as a result of legal violations in of project management tools. All projects efficiency of business processes is regularly law enforcement practices are analysed; of confidential information. Various technical the economic sphere. A system controlling go through a multi-step review and approval evaluated, bottlenecks are identified, and clarifications are sought from government and software solutions, including encryption, access to the Company’s administrative process. For large-scale and strategically measures to improve efficiency or eliminate bodies regarding tax assessments; law are used to control access to information and production facilities is in place; a clear important projects, a project office is set bottlenecks are developed and implemented. firms, accountants and tax authorities are resources and systems; access rights division of responsibility is established up. Fixed-price contracts are also used. consulted on questions related to various to information are regulated according when it comes to concluding contracts The Company conducts regular monitoring The Company also aims to minimise risk tax-related laws. to different user groups; there is a clear or transactions; checks are carried out of progress against project budgets and in its supply chain by choosing suppliers definition of what constitutes confidential on all counterparties before contracts are deadlines. through competitive tender processes. For information and how it should be handled; executed; a hotline has been created to these purposes, PhosAgro uses multistage periodic audits are carried out to ensure enable the Company to receive feedback tender procedures and signs long-term supply strict compliance with the Company’s from employees. Moreover, additional contracts with its most reliable suppliers. confidentiality policy. oversight checks are carried out by various The Company also carries out a number of departments within the Company. measures to reduce the risks associated with disruptions to its business processes caused by failures of its IT infrastructure, cyberattacks and other external factors.
44 45 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGING OUR RISKS continued
REGULATORY RISKS REPUTATIONAL RISKS FINANCIAL RISKS
Compliance with legal and Corruption risks Reputational Credit risks Currency risks Marketable regulatory requirements risks goods risks
Description Compliance with legal and regulatory Corruption risks associated with losses Reputational risks cover damage to Credit risks resulting in potential financial Currency risks resulting in potential financial Marketable goods risks cover possible losses requirements covers the risk of the resulting from penalties levied against the Company’s business reputation losses caused by the failure of buyers, losses caused by unfavourable changes associated with unfavourable changes in the untimely receipt/extension of licences, the Company by state authorities as a result of unauthorised commercial contractors, suppliers, banks, in exchange rates with respect to the market prices for mineral fertilizers and other as well as risks related to changes as a result of non-compliance or disclosure in the media of insurance companies, clearing centres or Company’s base currency. products, as well as increases in the price of in legislation that could lead to an inadequate compliance on the part of information about the Company’s other financial contractors to fulfil their the main raw materials and equipment that increase in the cost of doing business, the Company or its employees with operations, financial results, upper financial obligations to the Company in full the Company purchases. the implementation of restrictive the requirements of applicable anti- management, etc. and on time. measures by regulatory bodies, corruption legislation. a reduction in investment appeal and/or changes in the competitive environment.
Mitigation The Company ensures full compliance The Company ensures compliance on The Company is transparent and The Company has adopted policies on In the current environment of volatility with In the environment of volatile prices for its in its activities with applicable the part of its enterprises and partners discloses all material facts and managing credit risk that employ different respect to the price of oil and fluctuations core products, the Company is continually legislation. In order to ensure that it with the requirements of relevant developments, while also having methods of managing and reducing credit in the rouble exchange rate against major optimising its sales structure according to receives information about potential anti-corruption legislation. It conducts adopted an information policy and risk, including by completing deliveries currencies, the Company aims to align the fertilizer brands and regional sales focus legislative changes in a timely training focused on combatting media engagement policy. The after full or partial prepayments, with full or currency structure of its debt financing with in order to maximise margins, while also manner, the Company closely tracks corruption and on how to apply Company publishes information partial insurance of credit risk and by using the currency structure of its sales. Most of increasing the share of fertilizer sales to end initiatives at the government and anti-corruption legislation in practice, about its business on its website letters of credit. Delivery without prepayment the Company’s debt is denominated in US users, increasing production efficiency and regulatory level and takes part in and a principle of zero tolerance is and in the media, provides and insurance is only permitted for long- dollars as a natural hedge against primarily providing add-on services to customers such discussions of legislative initiatives communicated to all employees comments in response to media established clients. Providing advance USD-denominated sales. The Company as packaging, blending and storage. and preparation of recommendations and counterparties with respect to enquiries and regularly monitors all payments to suppliers and contractors is carefully tracks analyst forecasts and factors through professional associations. The corruption, and they are warned that relevant coverage in both Russian only considered after the counterparties that can influence the rouble exchange rate In 2018, PhosAgro opened a trade office Company acts in a timely manner in they will be held accountable for any and international media. have been tested for reliability, and also against major currencies. Where needed, the in Buenos Aires (Argentina), in addition to preparing and submitting documents violation of anti-corruption legislation. after the provision of bank guarantees in the Company is able to use full or partial hedging existing offices in Hamburg (Germany), to receive or prolong the licences The Company is a member of the event that the sum of the advance payment instruments against its currency positions. Bayonne (France), Zug (Switzerland), needed to carry out its business. Anti-Corruption Charter of Russian exceeds established internal limits. The Belgrade (Serbia), Limassol (Cyprus), Warsaw Business. Company works with banks, other financial (Poland), Vilnius (Lithuania), São Paulo organisations and insurance companies with (Brazil) and Singapore. With a presence in a high level of financial stability and that meet priority export markets, the Company will be the criteria set out by the Company’s treasury able to respond more quickly to changes in policy. market demand and customer needs.
The Company monitors all covenants In order to reduce the cost of raw materials applicable to existing loans on a regular and equipment, the Company concludes basis. tenders among multiple suppliers, conducts long-term supply contracts and develops lasting relationships with its suppliers.
46 47 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information INTERNAL AUDIT
Internal control body Internal control body
REVIEW AUDIT COMMITTEE BOARD CHIEF EXECUTIVE INTERNAL AUDIT EXTERNAL COMMITTEE OF THE BOARD OF DIRECTORS OFFICER DEPARTMENT AUDITOR OF DIRECTORS
Appointed by Appointed by
General Shareholders’ Board General Shareholders’ Board Board Contract based Meeting of Directors Meeting of Directors of Directors on tender procedures
Reports to Reports to
General Shareholders’ Board Shareholders Board of Directors and General Functional: Audit Meeting of Directors Shareholders’ Meeting Audit Committee Committee
Functions Functions
Prepares a report on the results of the Improves the efficiency and quality of the Determines how the internal control system Functioning of PhosAgro’s internal control Provides an independent and objective Verifies the compliance, in terms of accuracy Company’s operations for the prior year work of the Board of Directors in the area operates and approves various actions system. assessment of the Company’s internal and completeness, of the Company’s annual ahead of the Annual General Shareholders’ of internal control. and policies relating to it. control and risk management systems. financial statements with IFRS. Meeting and gives its opinion on whether Implements internal control procedures the Company’s financial statements Considers issues and provides recommenda- Reports annually to the General Shareholders’ and ensures that they are put into practice. Assists top management in developing Inspects the Company’s financial and are true and accurate. tions to the Board of Directors in areas like: Meeting on the reliability and efficiency and monitoring the implementation commercial operations and its internal • Internal and external audits; of PhosAgro’s internal control system. Promptly informs the Board of Directors of procedures and measures to improve control systems. Monitors compliance with current legislation, • The accuracy and efficiency of internal of any significant risks faced by the Company the risk management, internal control the Company Charter and internal control procedures; Approves the appointment and dismissal or any major weaknesses in the Company’s and corporate governance systems. Prepares a report that is submitted to the regulations. • Management accounting and financial of the Director of Internal Audit. internal control system. Audit Committee at least once a year. reporting; Coordinates with the Company’s external • Risk management procedures and Tells the Board what measures have been auditors and other third parties. In case of a disagreement between the systems; or will be taken to address issues and the Company’s management and the independent • How risks are reflected in the Company’s results of these actions. Conducts internal audits of subsidiaries auditor, the Audit Committee oversees the reporting. in line with established procedures. resolution of the disagreement.
Supervises the Internal Audit Department. Prepares and presents information about JSC KPMG is currently PhosAgro’s external the internal audit function’s operations auditor. to the Board of Directors, Audit Committee and General Shareholders’ Meeting.
Verifies compliance of management and employees with legislation and internal regulations on insider information.
48 49 52 Operational Review 58 Financial Performance CAPEX TO EBITDA 51 % RATIO
BUSINESS 03 REVIEW A YEAR OF INDUSTRY-LEADING PERFORMANCE PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OPERATIONAL REVIEW
Looking back at 2018, PhosAgro saw the positive impact of the successful implemen- tation of its major investment projects under its Strategy to 2020. Our new ammonia and granulated urea lines, combined with further debottlenecking and modernisation of ex- isting capacities, helped PhosAgro to deliver yet another year of growth in fertilizer output, which rose by 7.6% year-on-year to 9 million Mikhail Rybnikov First Deputy CEO of PhosAgro tonnes.
Fertilizer production, kt KT 2018 8,975 % GRADES % 8,975 2017 8 341 8,338 fertilizer produced in 2018 2016 7,399 7.6 39 50 2015 6,750 INCREASE IN FERTILIZER OF CROP NUTRIENTS INCREASE IN FERTILIZER 2014 5,998 PRODUCTION IN 2018 PRODUCED BY PHOSAGRO OUTPUT CAPACITY SINCE COMPARED TO 2017 2014
This represents an impressive 50% increase We were able to achieve these impressive means that PhosAgro’s downstream PhosAgro’s self-sufficiency in key inputs in our fertilizer output capacity compared results thanks to the world-class assets production facilities can efficiently produce with modern and efficient production units to the 6.0 million tonnes produced in 2014. that form the core of PhosAgro’s business. fertilizers that are naturally free of heavy for sulphuric and nitric acid. This in turn will Moreover, we have significantly improved At Apatit we mine apatite-nepheline ore metals and other contaminants. enable us to continue to ramp up production our ability to address demand from farmers that is unique for its high nutrient content of our fertilizer end products, offering growing a wide variety of crops in different and extremely low levels of potentially Looking ahead, we plan to continue to shareholders further sustainable growth soil and climatic conditions thanks to the 39 harmful heavy metals like cadmium. invest in further strengthening our low in cash flows and profitability, and farmers grades of crop nutrients that our facilities Thanks to investments in the efficiency of cash-cost position by investing in further around the world greater access to our pure now produce. our upstream operations, we were able to debottlenecking and efficiency in our existing and high-quality crop nutrients. deliver sustainable cost savings on mining business. At the same time, we are building and processing, and our vertical integration new mid-stream capacities that will improve
52 53 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OPERATIONAL REVIEW continued
PHOSPHATE SEGMENT — PHOSAGRO ORE RESERVES UPSTREAM AS OF 1 JANUARY 2019
Resources, kt Average P O Deposit 2 5 The Kirovsk branch of Apatit mines Upstream compared with 9.8% and 18.8%, respectively, (Categories A+B+C1) content apatite-nepheline ore that is processed into We extracted 35.3 million tonnes of apatite- in 2017. Prayon (Belgium) and Yara (Norway) phosphate rock and nepheline concentrate. nepheline ore in 2018 and produced 10.1 accounted for most of the exports. Kukisvumchorr 386,855 14.20% million tonnes of phosphate rock, up by Yukspor 484,791 14.11% The downstream operations in our 5.5% from 9.5 million tonnes in 2017. This In 2018, nepheline concentrate production phosphate segment take place at Apatit marks the highest annual phosphate rock and sales decreased by 1.2% and 7.4% year- Apatitovy Cirque 100,641 14.11% (formerly PhosAgro Cherepovets), the production output in the last 25 years for the on-year, respectively. Balakovo branch of Apatit (formerly Balakovo Kirovsk branch of Apatit. Rasvumchorr Plateau 314,157 13.03% Mineral Fertilizers) and Metachem. Apatit PhosAgro’s upstream subsidiary, the Kirovsk including the Plot Plateau 1,061 17.06% and the Balakovo branch of Apatit produce Intra-Group sales of phosphate rock branch of Apatit, holds five mining licences phosphate-based fertilizers, and the amounted to 70.5% (7.1 million tonnes) and two licences for geological exploration, Koashva 590,008 16.88% Balakovo branch of Apatit also produces feed in 2018, compared to 71.3% (6.8 million exploration and production, which allow it phosphate (MCP). Metachem produces PKS tonnes) in 2017. to conduct exploration and mining activities Njorkparhk 54,703 13.35% and industrial phosphates such as sodium at six apatite-nepheline ore mines and to Iyolitovy otrog 134 19.4% tripolyphosphate (STPP). We sold 11.3% of the phosphate rock we conduct exploration activities at two deposits. produced to domestic external customers Total 1,931,289 14.78% and 18.0% to international customers,
MLN T LICENCES %
5.5 10.1 MINING GEOLOGICAL SURVEY, INCREASE IN OF PHOSPHATE ROCK LICENCE EXPLORATION AND PHOSPHATE ROCK PRODUCED SET 25-YEAR PRODUCTION LICENCES PRODUCTION IN 2018 RECORD COMPARED TO 2017 Kirovsky mine Rasvumchorrsky mine Plot Plateau (Kukisvumchorr and Yukspor (Apatitovy Cirque and 14 December 2040 PRODUCTION AND SALES VOLUMES — APATIT MINE AND BENEFICIATION PLANT deposits) Rasvumchorr Plateau deposits) 31 December 2025 1 January 2024 Iyolitovy otrog deposit Production volume, kt Sales volume,* kt 1 February 2024 Vostochny mine Tsentralny mine 2018 2017 Change, y/y 2018 2017 Change, y/y (Koashva deposit) (Rasvumchorr Plateau deposit) 31 December 2019 31 December 2020 Phospate rock 10,067 9,540 5.5% 2,964 2,732 8.5%
Nepheline concentrate 986 998 (1.2%) 983 998 (1.5%) Vostochny mine (Njorkparhk deposit) * Not including Intra-Group sales. 31 December 2063
54 55 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information OPERATIONAL REVIEW continued
PHOSPHATE SEGMENT — NITROGEN DOWNSTREAM SEGMENT
Performance on-year in each region to 1.6 million and PhosAgro is also committed to expanding Our nitrogen segment includes the assets of Performance functional. This brought our self-sufficiency In 2018, PhosAgro’s output of phosphate- 1.9 million tonnes, respectively, driven by our overall fertilizer production capacity and the JSC Apatit, which produces ammonia, Urea production increased by 28.4% year- in ammonia from 78% in 2017 to 89% in based products was up by 3.8% year-on-year strategic approach to move deeper into the self-sufficiency in key inputs like sulphuric ammonium nitrate and both granulated and on-year to 1,590 kt in 2018 on the back of 2018. Most of the ammonia we produced to 6.9 million tonnes, primarily driven by distribution chain and expand our on-the- and nitric acid, which we believe will enable prilled urea. the new urea plant commissioned in 2017, was consumed within the Group to support higher NPK production (up by 24% year- ground presence with new local offices. PhosAgro to continue its sustainable growth, while sales increased by 40.4% year-on-year increased production of phosphate-based on-year), which was made possible by the while strengthening our cost leadership Highlights to 1,600 kt. fertilizers, urea and ammonium nitrate in successful modernisation of mid-stream Outlook among global peers. • Nitrogen fertilizer production increased 2018. capacities (both phosphoric and sulphuric We expect to benefit from the completion 22.4% year-on-year to 2.1 million tonnes The majority of our urea sales were in the acid) in Balakovo. of several major investment projects spot market. We believe that this balance In 2018, production of ammonium nitrate (AN) that helped us to achieve sustainable • Nitrogen fertilizer sales were up 35.9% ensures a significant degree of stability in our increased by 7.4%, while sales were up 25%. Sales of phosphate fertilizers rose by 2.3% cost savings in our upstream operations, and reached 2.2 million tonnes urea sales volumes and prices, while at the year-on-year to 6.6 million tonnes in FY 2018. including a new conveyer system for same time enabling us to benefit from the The strongest growth was in North America, removing ore from open pit mines and the • 2018 was the first full year in which our flexibility that spot sales provide. where sales rose by 62% year-on-year to 0.8 overhaul of Beneficiation Plant No 3. We new ammonia and granulated urea lines million tonnes due to a deficit of phosphates are likewise on track to finish upgrades to were fully functional The ammonia we produce is used internally following the closure of capacities in Florida. Beneficiation Plant No 2 that will enable us for the production of phosphate-based Shipments to Latin America increased by 6% to start processing off-balance-sheet ore that and nitrogen fertilizers. In 2018, ammonia year-on-year to 1.2 million tonnes in FY 2018 previously had too low nutrient content to be production increased by 28.2% compared to thanks to our close work with end customers. processed profitably. 2017, as our new ammonia plant was fully Sales to Europe and Russia rose by 1% year-
% % % % 3.8 9.1 22.4 40.4 YEAR-ON-YEAR INCREASE INCREASE IN NPK YEAR-ON-YEAR INCREASE IN INCREASE IN UREA SALES IN PRODUCTION OF PRODUCTION PRODUCTION OF NITROGEN- VOLUME IN 2018 COMPARED PHOSPHATE-BASED IN 2018 COMPARED BASED FERTILIZERS TO 2017 FERTILIZERS TO 2017
PRODUCTION AND SALES VOLUMES — PRODUCTION AND SALES VOLUMES — PHOSPHATE-BASED FERTILIZERS AND MCP NITROGEN-BASED FERTILIZERS
Production volume, kt Sales volume, kt Production volume, kt Sales volume, kt
2018 2017 Change, y/y 2018 2017 Change, y/y 2018 2017 Change, y/y 2018 2017 Change, y/y
DAP/MAP 2,995.0 3,004.0 -0.3% 2,912.6 2,963.9 -1.7% Urea 1,590.0 1,238.2 28.4% 1,600.3 1,139.8 40.4%
NPK 2,799.0 2,566.5 9.1% 2,664.6 2,488.8 7.1% Ammonium nitrate 533.0 496.4 7.4% 595.3 476.0 25.1% NPS 419.0 423.4 -1.0% 423.5 409.8 3.3%
APP 216.0 155.4 39.0% 209.4 170.7 22.7%
MCP 356.0 354.4 0.5% 347.2 350.4 -0.9%
PKS 67.0 99.8 -32.9% 77.6 101.2 -23.3%
56 57 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information FINANCIAL PERFORMANCE
In line with our Strategy to 2020, PhosAgro amounted to RUB 37 billion, a 65% year- than doubling year-on-year due to higher 88.0 billion (USD 1.4 billion), with a gross on-year increase supported by both higher imports following the shuttering of key North margin of 47%, compared to 46% in 2017 completed crucial investment projects in domestic and export sales. American capacities. The remaining 21% of • Gross profit for the nitrogen-based segment 2018 and delivered significant growth across PhosAgro’s 2018 revenue came from Asia increased by 132% year-on-year to RUB The geographic revenue split was in line (including India), the CIS, Africa and Australia. 20.6 billion (USD 328 million). Gross margin all key financial metrics. Revenue rose by with PhosAgro’s historic performance: our for the segment increased by 17 p.p. year- priority domestic market accounted for 30% Gross profit grew by 38% year-on-year to RUB on-year to 56%, driven by the first full year 29% year-on-year to RUB 233.4 billion, while of total sales, while export markets brought 109.5 billion (USD 1.7 billion), and the gross of operations of PhosAgro’s new ammonia EBITDA increased by 47% year-on-year to RUB in the remaining 70%. PhosAgro’s priority margin rose by 3.0 p.p. year-on-year to 47%. and urea units export markets, Europe and Latin America, Gross profit and margin performance for 74.9 billion. The EBITDA margin remained at accounted for approximately 35% and 27% the phosphate-based and nitrogen-based 32%, which is one of the highest levels in our of 2018 revenue, respectively. North America segments were as follows: brought in 17% of 2018 revenue (10% in • The phosphate-based segment saw a 25% 2017), with revenue in monetary terms more year-on-year increase in gross profit to RUB Alexander Sharabaiko, industry. CFO REVENUE BREAKDOWN BY KEY PRODUCTS RUB mln
FY 2018 FY 2017 Change y/y
% With FX-denominated export sales total annual payout ratio to a generous 56.8% DAP/MAP 77.9 62.2 25.3% accounting for 70% of revenue while the of 2018 IFRS net profit. majority of operating costs are in RUB, NPK(S) 60.9 47.1 29.2% PhosAgro’s profitability benefited directly We believe that the boost to EBITDA and cash 32 Phosphate rock 22.1 21.2 4.4% EBITDA MARGIN from the recovery in the global fertilizer flow from our new production capacities is market and the depreciation of the rouble sustainable in 2019. We are continuing to Nitrogen-based 37.0 22.5 64.5% against the US dollar. In addition, measures invest in modernisation and upgrades at taken to control costs and timely upgrades our production units to further strengthen to our mid-stream capacities enabled the our cash-cost advantage, while maintaining FY 2018 FINANCIAL AND OPERATIONAL HIGHLIGHTS Company to restrict cost of sales growth to attractive dividends for our shareholders and RUB mln or % 22% year-on-year amid volatility in prices for investing in important social programmes raw materials. for the local communities where we operate. FY 2018 FY 2017 Change y/y With phosphate-based fertilizer markets The completion of a major investment cycle showing signs of recovery in 2019, we Revenue 233,430 181,351 + 29% in 2017 and the additional cash flows that our are optimistic about our ability to deliver EBITDA 74,908 50,796 +47% new capacities generated in 2018 drove free value for our investors in the year ahead. cash flow to a record high RUB 21.3 billion. PhosAgro’s 2018 revenue amounted to RUB EBITDA margin 32% 28% +4 p.p. As a consequence, our net debt/LTM EBITDA 233.4 billion (USD 3.7 billion), increasing 29% ratio as of 31 December 2018 declined to a year-on-year, driven by higher fertilizer sales Net income 22,135 25,331 -13% comfortable 1.8x, compared to 2.4x a year volumes and a weaker rouble. Revenue from Net income adj 41,748 21,190 +97% earlier. In addition, our full-year adjusted net phosphate-based products amounted to RUB income almost doubled year-on-year to RUB 187.0 billion, a 23% increase year-on-year. 42 billion. As an indication of our confidence At the same time, both domestic and export in the Company’s financial position over revenue demonstrated strong growth of 15% the long term, the Board of Directors has and 27%, respectively, year-on-year. Revenue 31 December 2018 31 December 2017 recommended a final dividend that brings the from the nitrogen fertilizers segment Net debt 135,330 119,985
ND/LTM EBITDA 1.81х 2.36х RUB BLN Sales, kt FY 2018 FY 2017 Change y/y Phosphate-based 6,635 6,485 2.3% 233.4 Nitrogen-based 2,196 1,616 35.9% REVENUE IN 2018 Phosphate rock 2,964 2,732 8.5%
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PhosAgro’s EBITDA in 2018 increased by thus is naturally hedged by primarily RUB BLN million) driven by higher gas purchases Administrative expenses increased by 47% year-on-year to RUB 74.9 billion (USD USD-denominated sales. The net debt to as a result of the first full year of operations 6% year-on-year to RUB 14.9 billion (USD % 1.2 billion), while the EBITDA margin grew LTM EBITDA ratio decreased to 1.81x as of our new ammonia plant; 240 million) in 2018, primarily due to a 5% by 4 p.p. to 32%, compared to 28% in 2017. of 31 December 2018, down from 2.36x • A year-on-year increase in expenditure on increase in personnel costs to RUB 8.3 billion Net profit (adjusted for non-cash FX items) as of 31 December 2017. 124 sulphur and sulphuric acid of 75% to RUB (USD 135 million) and a 32% increase in D&A, 7 amounted to RUB 41.8 billion (USD 666 COST OF SALES IN 2018 10.7 billion (USD 171 million) due to 73% which was partially offset by a 9% decrease GROWTH OF SPENDING ON million) in 2018, a 97% increase compared to Cost of sales grew by 22% year-on-year in growth in the purchase price of sulphur; in professional services expenses. CAPEX COMPARED TO 2017 the year before. 2018 to RUB 124 billion (USD 1.97 billion). • Potash costs increased by 24% year- The key factors behind the growth were: on-year to RUB 10.2 billion (USD 163 In 2018, selling expenses increased by 37% During 2018, the rouble depreciated by • Spending on materials and services grew million) on the back of an 18% increase year-on-year to RUB 34.4 billion (USD 547 nearly 7% year-on-year (the average RUB/ by 18% year-on-year to RUB 36.5 billion in the purchase price and 5% growth in million). The main factors behind this growth USD foreign exchange rates for 2018 (USD 584 million) driven by a 9% year-on- purchased volumes (thanks to the greater were: and 2017 were RUB 62.7 and RUB 58.4, year increase in overall production and share of NPKs with high potash content); • Freight, port and stevedoring expenses respectively), which had a net positive 12% year-on-year PPI inflation; • Electricity costs remained almost flat grew by 57% year-on-year to RUB 17.3 impact on PhosAgro’s financial results, as • D&A was up significantly by 43% year- and amounted to RUB 5.5 billion (USD billion (USD 277 million) primarily due to prices for most of the Company’s products on-year to RUB 19.0 billion (USD 304 88 million); a 23% year-on-year increase in export sales are denominated in USD, while costs are million) as a result of the commissioning • A 33% year-on-year decrease in spending on of rock and fertilizers. Additional pressure primarily RUB-based. of new ammonia and urea plants, the purchased ammonia to RUB 4.2 billion (USD came from the depreciation of the rouble modernisation of Beneficiation Plant No 3 67 million) was mainly due to additional by 7% year-on-year on average, as the Cash flow from operating activities increased and increased capitalised depreciation due volumes of our own production following majority of freight and stevedoring tariffs by almost 100% year-on-year to RUB 59.7 to higher operational activity; the launch of the new 760 thousand tonnes/ are still denominated in USD; billion (USD 952 million), compared to RUB • Spending on salaries and social year ammonia plant at Apatit in Cherepovets; • Russian Railways infrastructure tariff and 30 billion (USD 514 million) in 2017. contributions increased by 8% year-on-year • Fuel costs grew by 16% year-on-year to operators’ fees grew by 13% year-on-year to RUB 12.2 billion (USD 196 million) mainly RUB 3.8 billion (USD 61 million) on the to RUB 10.4 billion (USD 166 million), driven Gross debt (including finance lease liabilities) due to salary indexation (an increase of back of a 30% increase in purchase prices by a change in shipment structures and as of 31 December 2018 increased by 18% almost RUB 500 million), overall fertilizer for heating oil and diesel. However, an indexation of railway tariffs; to RUB 144 billion (USD 2.1 billion). Net production and an increase of around RUB 11% decline in overall consumption level • Spending on customs duties grew by 61% debt as of 31 December 2018 stood at RUB 150 million in medical services and meals; partially offset this growth; year-on-year to RUB 1.4 billion (USD 22 135 billion (USD 1.9 billion). Most of the • Spending on natural gas rose by 32% • Spending on ammonium sulphate million), triggered by increased deliveries Company’s debt is denominated in USD and year-on-year to RUB 12.1 billion (USD 195 increased by 32% year-on-year to RUB 3.0 under DDU terms. billion (USD 49 million) due to 21% growth COST OF SALES in consumption (thanks to a higher share of RUB mln NPS and NPK grades with high ammonium sulphate content) and a 9% increase in the FY 2018 FY 2017 Change y/y purchase price.
Materials and services 36,493 30,869 18%
Depreciation and amortisation 18,936 13,242 43%
Natural gas 12,096 9,154 32% CASH SPENT ON CAPEX IN 2018 AMOUNTED TO RUB 38.4 BILLION (USD 613 MILLION), AN INCREASE OF 7% YEAR-ON-YEAR. THE MAIN Salaries and social contributions 12,209 11,265 8% CAPEX SPENDING WAS ON SCHEDULED MAINTENANCE AND DEVEL- Sulphur and sulphuric acid 10,682 6,120 75% OPMENT OF THE UPSTREAM BUSINESS, AS WELL AS ON CONSTRUC- Potash 10,238 8,279 24% TION OF NEW SULPHURIC AND NITRIC ACID PLANTS
Chemical fertilisers for resale 6,287 4,932 27%
Electricity 5,474 5,451 0%
Ammonium sulphate 3,015 2,287 32%
Ammonia 4,195 6,287 -33%
Fuel 3,775 3,264 16%
Heating energy 564 667 -15%
Total 123,964 101,817 22%
60 61 64 Management approach 72 Environmental review PHOSAGRO JOINED THE UN GLOBAL 88 Health and safety review COMPACT AND FOCUSED ON 98 People development 112 Business conduct review CONTRIBUTING TO THE ACHIEVEMENT 116 Stakeholder engagement OF 10 OF ITS GOALS 130 Social investment
SUSTAINABILITY 04 REPORT DEMONSTRATING COMMITMENT TO ESG PRINCIPLES PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGEMENT APPROACH
Unprecedented population growth in the 20th century put immense IN 2018, PHOSAGRO CREATED A WORKING GROUP pressure on limited natural resources and continues to have an impact on ON SUSTAINABLE DEVELOPMENT THAT IDENTI- every sphere of life. Being a global leader in fertilizer production, PhosAgro FIED THE COMPANY’S MATERIAL TOPICS sees itself as an essential contributor to the production of healthy food and, as a result, to human well-being. Therefore, our management team decided in 2018 to demonstrate our commitment by supporting the implementation of 10 of the UN Global Compact’s Sustainable Development Goals.
ABOUT THIS IDENTIFICATION OF MATERIAL TOPICS INTEGRATED REPORT In 2018, PhosAgro created a Working Group The selection of material topics will be carried 2. Collecting stakeholder feedback on Sustainable Development that identified out in the following three stages: • Q&A session with representatives from This sustainability report provides an overview several material topics based on a survey operational enterprises involved in the of the Group’s policies and performance in of its members and a benchmark analysis 1. Analysis of open sources management of sustainability issues; 2018 in key areas, including human rights, of business practices in the industry. The • Analysis of industry trends and risks; • Stakeholders opinion survey; health and safety, the environment, human process of identifying and assessing these • Analysis of publicly available information • Analysis of internal and external capital management and community topics has not yet been formalised within the about the Company; stakeholder survey results. engagement, as well as an outline of how Company, but PhosAgro intends to develop • Comparison with material topics disclosed PhosAgro contributes and complies with 10 clear procedures for doing so that are aligned by competitors and global metals and By the end of the second stage, the Company of the UN Sustainable Development Goals in with best market practices. The process for mining companies; aims to have a more specific list of material numerous other ways. identifying these topics, which will provide the • Alignment of the preliminary selection topics basis for internal procedures in the future, is of material topics with UN Sustainable Alongside our corporate values, including presented below. Development Goals that are relevant to the 3. Drawing up a list of material topics our concern for the environment and careful Company. • Approval of the list of material topics use of natural resources, fair competition, Assessments will consist of three main specified by the Working Group on dialogue, compliance, stewardship and parts: analysing open sources, collecting At the end of the first stage, the Company Sustainable Development; effectiveness, the 10 Sustainable Development stakeholder feedback and producing a list plans to compile a preliminary list of material • List of material topics submitted to the Goals that the Company supports help inform of material issues, and it will be completed topics. Board of Directors for evaluation. our sustainability policies. These values are in accordance with GRI standards. supported and agreed by the management See below for the list of material topics and implemented across the Group. We approved by the Company’s working group benchmark our performance against the most on Sustainable Development to be disclosed up-to-date regulatory requirements through in this integrated report. regular monitoring and auditing.
Category Related risk Topic Being a producer of environmentally friendly phosphate-based fertilizers, we take part in a Economic • Risk of inadequate strategic planning • Economic performance On pages variety of initiatives in an effort to improve the • Production risks • Market presence 102–104, 112–115, 213 environment, address and monitor matters • Risks of inefficiency and infringement • Indirect economic impact related to corporate social responsibility, of business processes • Anti-corruption support young scientists all around the world, • Corruption risks and share knowledge with our partners about the best way to apply our fertilizers. Environmental • Compliance with legal • Water On pages and regulatory requirements • Emissions 72–87 • Environmental risks • Energy WE CONSIDER SUSTAINABLE • Effluent and waste
DEVELOPMENT TO BE ONE Social • Reputational risks • Occupational health and safety On pages OF OUR KEY STRATEGIC • Workplace health and safety risks • Employment 88–111 • Social and human resources risks • Training and education PRIORITIES
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REPORT BOUNDARIES
This report includes information and data from our operational enterprises over the course of 2018.
ASSETS INCLUDED IN THE REPORT BOUNDARIES*
Name of enterprise Referred to in this integrated report as
JSC Apatit Apatit
Kirovsk branch KB of Apatit of JSC Apatit
Balakovo branch BB of Apatit of JSC Apatit
JSC Metachem Metachem
* Unless otherwise specified.
SUPPLY CHAIN MANAGEMENT CONTACT INFORMATION
Suppliers are important PhosAgro regional and local regulations. We strive of raw materials and obtaining relevant possible when the Company has complete products. PhosAgro cooperates only with The Company takes feedback from stakeholders, as they play a role in helping to build relationships only with those that operational information so as to facilitate the confidence in the quality of its raw materials. reliable and licensed transport companies. stakeholders on the completeness, the Company’s operations run smoothly. share our values and support us in our running of an efficient service. Each of the Thanks to the continuous improvement of objectivity and materiality of the information environmental initiatives, in developing a designated stages is closely supervised by the Company’s production processes, we can Ensuring workplace health and safety and disclosed in its sustainability reports into In order for PhosAgro to guarantee safe better social environment and in ensuring the Company’s employees. guarantee that our products are of very high guaranteeing the safety of work processes careful consideration. This helps us improve and sustainable production and maintain safe working conditions. quality. are also important aspects of our work. both our management of sustainability its reputation as a responsible fertilizer In addition to the attention given to As part of tender procedures, a supplier performance and our non-financial reporting manufacturer, it is indispensible that high- The raw materials used to produce mineral environmental issues and to the continuous Another key element of the Company’s must provide information regarding social processes. We are also open to your queries quality raw materials be supplied in a timely fertilizers are one of the most important work on initiatives in this domain, PhosAgro business processes is logistics. The protections, including the protection of and suggestions concerning the integrated manner. elements of production. In order to ensure imposes strict requirements on the quality production of fertilizers requires the human rights, fair working hours, etc. report. Any questions or recommendations the quality of these raw materials, PhosAgro of raw materials supplied. The Company transportation of significant amounts can be emailed to: [email protected] PhosAgro strives for long-term cooperation applies the principles of supply chain controls the input of raw materials at multiple of materials, raw materials and finished with suppliers and workers from only those management, which consist of planning, production stages. The production of organisations that fully comply with federal, implementing and controlling the inflow fertilizers under the PhosAgro brand is only
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SUSTAINABILITY APPROACH
Sustainable development is considered PHOSAGRO CONTINUOUSLY STRIVES TO IMPROVE ITS AS A WORLD-CLASS INTEGRATED PRODUCER OF PHOSPHATE- a strategic priority at PhosAgro. We strive to BASED FERTILIZERS, WE UNDERSTAND THAT WE HAVE maximise the value we create not only from SUSTAINABILITY PERFORMANCE IN ORDER TO MINIMISE a commercial standpoint but also in terms of ITS NEGATIVE IMPACT AND TO BUILD VALUE AT EVERY A SUBSTANTIAL IMPACT ON THE ENVIRONMENT, AS WELL our environmental and social activities to the STAGE OF ITS OPERATIONS AS ON VARIOUS GROUPS OF STAKEHOLDERS long-term benefit of all of our stakeholders.
PHOSAGRO SUSTAINABILITY PRIORITY AREAS STRATEGIC OBJECTIVES
1 Sustainable growth to ensure productive operations and efficiency across all aspects of our business Social Environmental Economic • Assisting regional authorities and local • Reducing volumes of waste, emissions • Paying taxes and other fees to governments in creating modern social and discharges of pollutants and resource governments at regional and federal levels 2 infrastructure in the cities where we usage on a per-unit basis by investing • Providing business prospects for local Maintain stringent health and operate in new, more efficient technologies suppliers and encouraging development safety performance standards • Developing and implementing projects • Ensuring that we act as a conscientious of local partners and achieve a zero injury rate for children and young people neighbour and maintain a constructive • Maintain long-term financial stability with a world-class safety culture • Supporting vulnerable segments dialogue with local stakeholders about • Doing business in accordance with legal of the population our environmental impact requirements and business integrity • Providing stable employment and • Preservation of natural ecosystems in principles developing safe working conditions the regions where the Company operates, 3 • Offering fulfilling job opportunities, training rational use of natural resources and Mitigate the environmental and developing a team of professionals implementation of programmes for footprint of our production • Observing human rights restoring environmental capacity activities
CORPORATE DOCUMENTS REGULATING 4 SUSTAINABILITY-RELATED ACTIVITIES Be a reliable partner for local communities where we operate PhosAgro has a wide range of internal and maintain a dialogue with all standards and policies that regulate the Health, safety People and economic Stakeholder engagement stakeholders, consistently taking Company’s approach to sustainability and environment stability and local communities their interests into account when management. Together these provide the • Quality, environmental and • Hotline terms • Charity policy; making decisions necessary governance framework for the industrial safety policy; and conditions of use; Company’s sustainability performance. • Policy on interaction with state • Environmental safety policy; • Code of ethics; authorities.
• Quality management • Anti-fraud and anti-corruption system standard concerning policy; production and consumption 5 waste management; • Personnel management policy. Contribute to the UN Sustainable Development • Occupational health and safety management system Goals certificate OHSAS 18001;
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CONTRIBUTION TO SUSTAINABLE DEVELOPMENT GOALS
As a supplier of essential crop nutrients that are used in more than 100 countries around the world, PhosAgro plays an important role in global food security. We contribute to the UN Sustainable Development Goals (SDGs) in numerous other ways, and while recognising the importance of all 17 SDGs, PhosAgro focuses on 10 of them.
In 2018, PhosAgro formed a Working Group on Sustainable Development that presented the SDGs to the Company’s senior management. Members of the working group discussed the role of the business in attaining the SDGs and identified the Goals that are most relevant for the Company’s business and that PhosAgro is capable of contributing the most to through its operational activities and corporate social responsibility initiatives.
PHOSAGRO’S CONTRIBUTION TO ACHIEVING THE SUSTAINABLE DEVELOPMENT GOALS
2. Zero Hunger 4. Quality Education 7. Affordable and Clean Energy 11. Sustainable Cities and Communities
• Guarantor of Russia’s food security: one in every 3 tonnes • Sponsors and plays a role in the International Centre for Implementation of investment projects aimed at maximising Social responsibility projects in the regions where the Company of fertilizer supplied to the Russian market is produced by Education in Mining Engineering. Founder and sponsor of self-sufficiency in terms of electricity and heat by recovering operates: PhosAgro Schools and the Education, Health and PhosAgro; a joint grant programme with UNESCO and IUPAC for young steam generated in the production of sulphuric acid. Spirituality for Russia’s Children (DROZD) youth movement. The • Participant in a joint project with the UN Food and Agriculture scientists working in the field of chemistry; development of tourism infrastructure in the Murmansk region, Organization called “Development of Sustainable Agriculture • Participant in a joint programme with the Russian Ministry the construction of residential housing in the regions where the 8. Decent Work and Economic Growth through the Implementation of the Global Soil Doctors of Agriculture and the UN Food and Agriculture Organization Company operates.
Programme and the Creation of the Global Soil Laboratory to train farmers in the application of more effective solutions As a result of the implementation of promising investment Network”. in the field of sustainable agriculture (especially in terms of projects for the development of production facilities at the 12. Responsible Production and Consumption soil fertility); Kirovsk and Balakovo branches of Apatit, more than 500 3. Good Health and Well-being • Established various PhosAgro School and PhosAgro College jobs for highly skilled workers will be created at Apatit’s A participant in the Safe Phosphates campaign, which is projects. Cherepovets facility and at Metachem. Implementation of aimed at sharing knowledge and solving problems associated • Producer of safe and pure fertilizers with close to zero corporate programmes in the areas of health, improved working with harmful elements, i.e., heavy metals found in phosphate- harmful impurities: PhosAgro’s phosphate-based fertilizers 6. Clean Water and Sanitation conditions, housing and the social safety net. based fertilizers. The mission of the campaign is to improve meet EU standards for all regulated elements and qualify for understanding of potential risks and to promote solutions that recently-introduced “green labels” for fertilizers. Our long-term investment programmes include the make the most of choosing healthier fertilizers to support food • Producer of phosphate rock that, with its high P O content 9. Industry, Innovation and Infrastructure 2 5 implementation of cutting-edge technologies for environmental security and sustainable agriculture.
and low level of harmful impurities, is one of a kind, occupying protection. In 2018, for example, Metachem introduced a zero- We support scientific research aimed at the development the top spot in ratings of phosphate raw materials. discharge production system that ensures that no waste water of green chemistry technologies, including in the field of crop 17. Partnerships for the Goal is discharged into natural bodies of water. nutrients. PhosAgro has been developing the Green Chemistry for Life programme together with UNESCO. In addition, the Company is developing a partnership with the UN’s Food and Agriculture Organization.
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2018 HIGHLIGHTS KEY EVENTS
% RUB BLN 6 7.6 REDUCTION IN EMISSIONS SPENT ON ENVIRONMENTAL PhosAgro signed a cooperation agreement Irina Bokova, the former Director-General PER TONNE OF PRODUCT PROTECTION IN THE LAST 5 YEARS in the field of sustainable soil management of UNESCO, became one of PhosAgro’s IN 2018 COMPARED TO 2017 with the United Nations Food and Agriculture independent directors and is contributing Organization (FAO) to the Company’s sustainability activities
GLOBAL SUSTAINABLE DEVELOPMENT GOALS
6. Clean Water 7. Affordable and 9. Industry, 12. Responsible and Sanitation Clean Energy Innovation and Consumption Infrastructure and Production
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MANAGEMENT MAIN APPROACH HIGHLIGHTS
2018 was another year of adhering PhosAgro strives to develop its extensive In addition to internal guidelines, PhosAgro We adopted KPIs in 2016 and made every • Possession of all necessary permits at to the highest standards and contributing resource base and produce fertilizers both adheres to Russian regulatory requirements effort to meet them in the subsequent two key production assets to ensure their to environmental protection. safely and in an environmentally friendly and is guided by EU environmental protection years. The main KPIs for the Company’s compliance with environmental legislation manner in order to ensure sustainable directives and international agreements, environmental function are: • Reduction of over-limit payments for Effective management of the Company’s growth of agricultural production worldwide. including the Basel Convention and the • Possession of all necessary environmental environmental impact in year-on-year terms environmental footprint is a key factor in We have in place environmental management Helsinki Convention. permits for key production assets and PhosAgro’s ability to meet its goal of being practices that ensure our compliance with subsidiaries Key 2018 highlights a long-term sustainable business and in applicable regulations, and that help to • The amount of environmental investments Over-limit payments accounted for balancing its obligations to all stakeholders. reduce the impact of our operations on the and financing of environmental activities 1.86% of all payments for the Company’s environment. The Group is committed to aimed at preserving and restoring the environmental impact. continuous improvement in this area and natural-resource potential and biodiversity targets a reduction in environmental impacts of the regions where we operate from its operations. • The size of payments for environmental impact, including over-limit payments, which is a key indicator of the Company’s POLICY overall environmental impact HIGHLIGHTS
Our environmental policy and goals entail PhosAgro invests considerable resources Spending on environmental Payments for environmental impact, implementation of strategic plans for into upgrading facilities and implementing protection, RUB mln our enterprises and form the basis for new technologies that comply with the RUB mln PhosAgro’s environmental protection most stringent environmental regulations. 2.902 er limit payments management system. Existing production facilities are expanded 1 86 and new facilities established in accord- The Company undertakes the following ance with environmental protection laws 156.3 3 Investments in fixed assets activities to achieve this goal: and the best available technologies. At the aimed at environmental • compliance with legal requirements same time, we have seen a steady reduc- protection and sustainable and other responsibilities assumed by tion in specific emissions. use of natural resources A A PhosAgro in the area of environmental Limit: Over-limit: Standard Temporarily Over-limit: Maximum Temporarily Over-limit: 3 permissible permitted 3 permissible permitted protection; discharge: emissions m n 3 • application of the best available PHOSAGRO’S MAIN technologies at production facilities; 1.780 ENVIRONMENTAL 1 19 • minimising environmental risks at all stages of investment projects; PROTECTION AIM IS TO 2017 1 9.638 • conservation of resources and measures REDUCE ITS NEGATIVE to prevent climate change and possible IMPACT ON THE Operating costs A A damage to the environment; for environmental ENVIRONMENT protection • interaction with stakeholders on Limit: Over-limit: Standard Temporarily Over-limit: Maximum Temporarily Over-limit: 3 permissible permitted permissible permitted environmental issues; discharge emissions m n • improvement of management systems to 3 increase effectiveness and efficiency.
We monitor our progress in terms of fulfilling our environmental obligations and achieving Over-limit payments in 2018 for the atmospheric impact associated our objectives on a systematic basis, so that with the extension of the time frame for conducting a sanitary and the CEO can make informed decisions about epidemiological assessment of the draft standards on permissible identified opportunities for improvement. emissions at the Kirovsk branch of Apatit.
2017 2018 An over-limit payment for waste disposal associated with a change in the waste classification at Metaсhem; new types of waste were identified.
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SYSTEM HIGHLIGHTS
MANAGEMENT ENVIRONMENTAL AND REPORTING PRINCIPLES
JSC Apatit’s management system covers We systematically monitor, measure and This high-quality raw material is a key input activities aimed at reducing the impact 1 5 the main levels of management and all evaluate not only the intended results in the for our downstream production sites, which of production activities, as well as to monitor Reducing the amount of disturbed Confirming that the Company’s stages of production from development to area of environmental protection, but we also make some of the world’s purest and safest the effectiveness of implemented activities. territory when developing activities are in compliance product release. It also establishes uniform assess efforts aimed at preventing the occur- phosphate-based fertilizers that farmers use new territories: optimising the with legislative requirements requirements for the management of the rence of repeated and potential inconsisten- to grow the food that ends up on our plates. Requirements for contractors and suppliers development of new territories in and standards in the field of enterprise’s production activities, which cies. The results of the monitoring are used of works and services in the area of project documentation environmental safety: requirements influences the quality and competitiveness of to identify and assess environmental issues, The technological processes involved in environmental safety have been developed for conducting regular external its product, as well as environmental safety. to determine risks and opportunities and to producing ammonia, mineral fertilizers and are available at all of the Company’s environmental audits develop and implement measures to manage and inorganic acids and those used in the tender sites. IMPLEMENTATION OF and respond to risks. production of mineral fertilizers correspond THE PRINCIPLES OF to the best available technologies used in PhosAgro management receives weekly Company management has delegated to the Russian Federation and can reduce any updates on all ongoing environmental 2 6 A SYSTEMATIC APPROACH the chief environmental officer responsibility adverse impact on the environment, cut issues, and quarterly reports are produced Conserving biodiversity, such Carrying out a comprehensive TO INTERNATIONAL for the overall management, organisation down on water consumption and improve for the Chairman of the Health, Safety as freshwater ecosystems and environmental impact assessment STANDARDS IN THE FIELD and coordination of work on the development, both energy and resource efficiency. and Environment Committee of the Board spawning streams: construction of for a project from the construction OF ENVIRONMENTAL implementation, operation and continuous of Directors. On a quarterly basis, the treatment facilities and the adoption stage to the decommissioning stage improvement of the environmental At all stages of production, indicators are Board receives updates on any expenses of measures to replenish biological within the scope of implementation PROTECTION MAKES management system. At each of the Group’s monitored regarding the following types or payments the Company has made resources; preservation of wildlife of said project and any affiliated A SIGNIFICANT production sites, the work of monitoring of environmental impact: monitoring of for its environmental impact. In addition, migration routes projects CONTRIBUTION TO the implementation of environmental atmospheric emissions at the source, the Board of Directors receives annual protection measures, ensuring compliance monitoring of the air near areas of sanitary and semi-annual updates on PhosAgro’s THE ENVIRONMENTAL with regulatory requirements and preparing protection, monitoring of waste-water environmental protection initiatives and COMPONENT OF reports is carried out by experts from the discharge into bodies of water, monitoring current environmental performance. 3 7 THE SUSTAINABLE Company’s departments for environmental and keeping records on areas used to store Implementing a comprehensive Holding all partners in the DEVELOPMENT OF THE monitoring and environmental management. production and consumption wastes for programme for financing major supply chain responsible for The distribution of responsibility and authority all of the Company’s assets, including the conservation measures and their environmental impact: the ENTERPRISE AND THE within the environmental management system activities of contractors. Monitoring is initiatives for the conservation of Company has certain environmental COMPANY AS A WHOLE is determined by regulatory documents, carried out on the basis of environmental biodiversity requirements for suppliers of including Сompany standards, regulations on monitoring programmes adopted at every products and services and for Presenting the Company’s activities as a set structural units, job descriptions, production one of the Company’s production assets. contractors that are published of processes can improve the enterprise’s instructions, etc. These documents regulate The results of environmental monitoring are on open tender sites and are one efficiency by optimising internal and external — as they are intended to — requirements on submitted to the territorial bodies for state of the fundamental criteria for interactions. Compliance with environmental the implementation of various activities and environmental monitoring (Rosprirodnadzor) 4 choosing suppliers and contractors. standards is achieved by continuously workplace safety. in the regions where the Company operates. Refusing to carry out works in Environmental and industrial monitoring the quality of raw materials, If the results of environmental monitoring specially protected natural areas monitoring of contractors is carried preventing critical excesses at all stages The journey of phosphate-based fertilizers, indicate deviations from norms, then, as a or conservation areas, World out on a mandatory basis, including of the production process, continuously our main product, begins at our Kirovsk rule, corrective measures of an organisational Natural Heritage sites, wetlands the filing of oversight reports and measuring the parameters of the production branch of the JSC Apatit mine on the Kola and technical nature are developed. The of international importance the submission of state statistical process, monitoring and automating the Peninsula in north-west Russia, where we results of environmental monitoring are used (sites protected by the Ramsar reports production process and conducting rapid extract unique apatite-nepheline ore that as the basis for investment decisions and in Convention): prohibiting employees, analysis of working environments. contains almost no harmful heavy metals. financial planning for the implementation of including contractors, from hunting or fishing in areas where the Company is implementing projects
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PERMITS AND KEY ENVIRONMENTAL LEGISLATIVE AND CERTIFICATES MEASURES AT THE COMPANY’S ADMINISTRATIVE ENTERPRISES IN 2018 FRAMEWORK The Company’s production sites hold all necessary licences and permits related to None of PhosAgro’s enterprises use ozone- environmental protection. depleting substances in the production process. A small amount (not more than 250 We also undertake regular internal and
kg/year) of carbon tetrachloride (CCl4) is used external audits to assess our compliance and for some laboratory testing processes. We do obtain certification, together with exposure not undertake cross-border hazardous waste assessments, international format safety Kirovsk branch of JSC Apatit JSC Apatit transportation, and our production sites data sheets and recommendations for safe are not situated in protected areas. Hence, handling that are developed in compliance • Dust-suppression measures are being • Pursuant to Decree of the President there are no significant restrictions on our with the requirements of European taken at tailings. of the Russian Federation No 204 of operations. Regulation No 1272/2008 on classification, • A special-purpose programme is 7 May 2018 on the National Goals labelling and packaging of substances and also being implemented to reduce and Strategic Objectives for the mixtures, and No 1907/2006 concerning the volume of waste produced and Development of the Russian Federation the Registration, Evaluation, Authorisation to improve the quality of waste at the for the Period up to 2024, JSC Apatit and Restriction of Chemicals (REACH) in the Kirovsk branch of Apatit. has been taking measures to reduce AWARDS development of exposure scenarios. emissions of air pollutants in the city of Cherepovets. The goal is to reduce As of the end of 2018, PhosAgro Group was In addition to observing Russian atmospheric emissions to 2,690 tonnes the top-ranked producer of mineral fertilizers environmental law, we adhere to international by 2024. in the CIS according to the Fertilizer Daily standards relevant to our business to • In 2018, measures were successfully industry portal. guide our approach. In 2018, JSC Apatit implemented to revamp facilities for the and its subsidiary, the Balakovo branch of production of 660/3-type sulphuric acid JSC Apatit received an award — an Apatit, successfully passed inspections for Balakovo branch of JSC Apatit and to re-equip the recuperative heating opportunity to undertake a national project compliance with the ISO 9001:2015 and ISO stage for tail gas from Unified Acid aimed at improving enterprise management 14001:2015 international standards. Measures taken at the Balakovo branch of Line 7 and the production of nitric acid systems in Russia—from the government of Apatit in 2018 were aimed at preserving aimed at reducing emissions of sulphur the Russian Federation for its product quality. For the first time, it was confirmed that JSC natural capital assets and implementing dioxide, nitrogen oxides, ammonia and This prize has been awarded since 1996 Apatit’s production and sale of feed additives obligatory measures aimed at compliance carbon monoxide to a combined total of by Russia’s Prime Minister to companies are in compliance with the requirements of with regulations on environmental 990 tonnes. and organisations that have implemented the GMP+ B1 Production, Trade and Services protection. • JSC Apatit is involved in a federal best practices in terms of the application of standard. project called “Preservation and advanced management tools and practices. Prevention of Pollution in the Volga JSC Apatit stands out in terms of its The Balakovo branch of Apatit passed River”, which involves measures aimed implementation of lean production, its use of a witness audit for compliance of its at reducing the volume of waste water innovative technologies and the outstanding monocalcium phosphate feed production released into the river. quality of its integrated management with the GMP+ international standard. The systems, as well as its automation of GMP+ standard describes the requirements JSC Metachem business processes. In addition, the for a management system for the production Сompany pays a great deal of attention to of feed and feed ingredients, so as to • Since July 2018, JSC Metachem has issues related to the environmental impact ensure the safety of feed product. The GMP been operating a closed-loop water- of production, an important criterion for the requirements apply to the entire production recycling system, making it impossible award. process from feed production right up to the to release waste water into the Volkhov consumer’s receipt of the product. River. • More than RUB 152 million was spent in order to ensure the uninterrupted operation of gas cleaning equipment.
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IMPACT OF COMPANY ENTERPRISES ON THE ENVIRONMENT IN 2018
EMISSIONS INTO THE ATMOSPHERE WASTE
In 2018, gross emissions from the Group’s Increase in emissions of pollutants at In 2018, the total volume of waste generated overburden rock at the Kirovsk branch production facilities amounted to 32,225 the Kirovsk branch of JSC Apatit: solid KT PER T amounted to 99.1 million tonnes. Approximately of JSC Apatit. % tonnes, which was 258 tonnes, or 1%, lower substances and sulphur dioxide, is a result 90% of this volume was created at JSC Apatit, than in 2017. JSC Apatit, the Balakovo branch of increased production of apatite where the total volume of production and Specific waste generation in 2018 was 4.9 of JSC Apatit and JSC Metachem were able concentrate in 2018. 1.6 consumption waste increased by 9% compared tonnes per tonne of product. This 4% increase 9 to achieve such a reduction through the THE EMISSION OF to the previous year due to the expansion of compared to 2017 is a result of an increase in INCREASE IN PRODUCTION successful implementation of a number The emission of pollutants per tonne of POLLUTANTS PER TONNE production capacity and an increase in output. the production of apatite concentrate in 2018 AND CONSUMPTION WASTE of measures aimed at reducing their adverse manufactured product in 2018 was down OF MANUFACTURED as well.* DUE TO THE EXPANSION OF impact on the atmosphere. 6% compared to 2017, amounting to 1.6 kg Most of the Group’s waste (around 63%) is a PRODUCT IN 2018 PRODUCTION CAPACITY AND of emissions per tonne of product compared predominantly non-hazardous composite of There was no change from 2017 to 2018 in the to 1.7 kg per tonne the year before.* amount of phosphogypsum produced. AN INCREASE IN OUTPUT
* For JSC Apatit, the Balakovo branch of JSC Apatit and JSC Metachem, specific emissions are given per tonne * For JSC Apatit, the Balakovo branch of JSC Apatit and JSC Metachem, specific waste is given per tonne of fertilizer. of fertilizer. For the Kirovsk branch of JSC Apatit, specific emissions are given per tonne of concentrate. For the Kirovsk branch of JSC Apatit, specific waste is given per tonne of concentrate.
Emissions of NOx, SOx and other Waste, t significant pollutants in 2018,t
Solids Sulphur Сarbon Nitrogen oxides Hydrocarbons Volatile organic Others, gaseous Reused waste Stored at Transferred to third Transferred Transferred Transferred Transferred to third parties dioxide monoxide (calc. in NO2) (w/o VOC) component (VOC) and liquid waste dump parties for recycling to third parties to third parties to third parties for treatment for disposal for storage for processing
A A 2017 2017
A A 2017 2017
M M
2017 2017
A A
2017 2017
T T 2017 2017
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WASTE WATER
WASTE GENERATION BY HAZARD CLASS, Ninety-three per cent of the Company’s Of the total volume of unpurified waste No waste water is discharged at the Balakovo т waste water comes from the Kirovsk branch water produced by the Kirovsk branch branch of JSC Apatit, and no waste water Kirovsk branch Balakovo branch JSC Metachem JSC Apatit Total of JSC Apatit. of JSC Apatit, 3% is discharged, while the has been discharged at Metachem since July of JSC Apatit of JSC Apatit remaining 97% is treated in accordance 2018. In 2018, the waste water discharged by with regulatory documents — permits 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 PhosAgro’s industrial enterprises decreased issued by Rosprirodnadzor for the discharge In 2018, state environmental monitoring
Hazard Class 1 0.4 0.2 2.7 2.1 0.3 0.4 6.5 4.7 9.9 7.5 to 185.622 million cubic metres. This was the of pollutants. At our Cherepovets facility, bodies issued two instructions, both of which result of JSC Metachem’s introduction of a waste water from Apatit’s production were fully addressed.
Hazard Class 2 9.5 0.0 0.7 0.0 0.0 0.0 0.2 1.3 10.4 1.3 closed-loop water-recycling system to avoid activities is discharged without treatment. discharging waste water into the Volkhov River. Hazard Class 3 390.3 237.4 260.2 38.0 26.5 0.0 655.1 981.2 1,332.1 1,256.6
Hazard Class 4 2,829.3 6,710.5 154,583.8 123,472.4 494.1 594.9 95,489.6 45,581.4 253,396.8 176,359.2
Total water withdrawal by source1, kt м3 Hazard Class 5 79,907,048.7 88,406,793.5 4,647,047.5 4,786,328.1 1,517.8 2,123.2 5,714,759.1 5,751,953.2 90,270,373.1 98,947,198 Surface water (including Ground water Drinking water from Total 79,910,278.3 88,413,741.6 4,801,894.9 4,909,840.6 2,038.7 2,718.5 5,810,910.5 5,798,521.8 90,525,122.3 99,124,822.6 received from suppliers) municipal supply
T A 2017 GREENHOUSE GAS
The increase in greenhouse gas emissions began operating at full capacity, In addition, we also managed to reduce our A 2017 is due to the fact that our new ammonia as well as an increase in total production specific emissions (per tonne) at our other production unit at JSC Apatit in Cherepovets output. three sites. A 2017 Greenhouse gas emissions3 Volume of gross emissions, t Volume of specific emissions per unit produced, kg/t1, 2 M 2017 A A Metaсhem A T
,512,371 3 22 .86 T 2017
2017 3,971,285 210.35 Drainage, mln м3
Kirovsk branch Balakovo branch JSC Metachem JSC Apatit Total of JSC Apatit of JSC Apatit
Waste-water discharge 171.787 0.000 0.141 13.694 185.622
Discharged without treatment (% of total waste-water discharge) 3% – 0% 0% 3%
1 For Apatit, the BB of Apatit and Metachem, specific emissions of greenhouse gases are given per tonne of fertilizer. 2 For the KB of Apatit, specific emissions of greenhouse gases are given per tonne of concentrate. 1 3 The values of the water withdrawal for 2017 may be different from the similar values from 82 The values of emissions and specific emissions differ from those reported in our 2017 integrated report due to a change in the data collection method 83 and improvements in the method used to make the calculations. the Integrated Report 2017 due to changes in data accounting method. PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information ENVIRONMENTAL REVIEW continued
ENERGY EFFICIENCY
PhosAgro’s production activities are energy- Our Group of companies concentrates intensive, and we are constantly seeking on the following key areas: ways to improve both productivity and • Increasing energy efficiency; the efficiency of resource consumption. • Expanding our own power-generation A fundamental component of the Company’s capacities; work in this area is developing a strong • Waste-heat recovery — using the heat understanding of how our energy resources from gas-turbine exhaust gases for steam are used. production; • Optimising energy resources. WE ARE CONSTANTLY Energy efficiency LOOKING FOR In 2018, the operations of PhosAgro’s OPPORTUNITIES TO production subsidiaries were 40.7% self- UPGRADE TECHNICAL sufficient in electricity, which was achieved ASPECTS OF THE by recapturing heat from the production of sulphuric acid, as well as the use of a COMPANY’S PRODUCTION gas turbine power plant at the Cherepovets CAPACITIES AS A WAY TO facility. In addition, the Company continues to INNOVATE AND OPTIMISE implement programmes aimed at improving energy efficiency at all of the Group’s OUR MANUFACTURING enterprises. PROCESSES
PhosAgro Group energy consumption in 20181
Gross Specific consumption, consumption per tonne of output2
Gross volume of electricity, Natural gas, Heating energy, Fuel, Diesel, Total cost, 3 k m Gcal t t RUB bln
Сost, RUB bln 3 .5 1 bln
1 A comparison of energy consumption and specific energy consumption was not carried out because of improvements to our data collection methods and changes in the method used to make the calculations. 2 For JSC Apatit, the Balakovo branch of JSC Apatit and JSC Metachem, specific consumption is given per tonne of fertilizer. 84 For the Kirovsk branch of JSC Apatit, specific consumption is given per tonne of concentrate. 85 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information METACHEM’S ENVIRONMENTAL INITIATIVES
The Company has been introducing new technologies and carrying out activities to protect the natural environment from the impact TAKING CARE OF THE ENVIRONMENT IS ONE OF THE COMPANY’S DEVELOPMENT PRIORITIES. IN 2018, A ZERO-DISCHARGE of its production operations. PRODUCTION SYSTEM WAS INSTALLED AT JSC METACHEM
Decrease in waste water discharged into the Volkhov River, ths m3 per year 3 First half Second half KT M
1,142.81 0 OF WASTE WATER DISCHARGED INTO Effluent stopped being THE VOLKHOV RIVER IN THE SECOND 911.69 140.62 discharged into the river HALF OF 2018 In 2017–2018, the amount of water used in the closed-loop water circulation system increased, and the amount of waste water discharged into the Volkhov River decreased accordingly.
CLOSED-LOOP WATER RECOVERY PLANTING CLEAN-UP 1 2 3 4 CIRCULATION SYSTEM OF AQUATIC LIFE GREENERY OF THE RIVER IN ADJACENT BANKS TERRITORY
Greenery is planted Volunteers from JSC Metachem Main activities UVENILE VOLKHOV 2 2 WHITEFISH in the adjacent territory organise an annual clean-up every year operation along the banks • Retrofitting the industrial and were released into the Volkhov River in 2018 of the Volkhov River within rainwater drainage system Industrial and rainwater city limits. treatment plant • Upgrading the waste-water The endemic Volkhov whitefish is a unique type discharge system of whitefish with the highest growth rate among species of Ladoga whitefish. It is being reduced • Redirecting the streams of in number, however, and is on the endangered-species treated industrial rainwater list. Metachem helps replenish the Volkhov whitefish Effluent from production population every year. facilities is directed to waste-water treatment plants Volkhov River
Treated water is returned to the production facilities
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Total number of workplace accidents in 2015-2018, people
Minor Serious Fatal injuries injuries accidents
JSC Apatit
KB of Apatit The number of injuries at the Kirovsk branch of JSC Apatit has BB of Apatit decreased by 80% compared to 2015 Metachem
Total
201 201 201 2018
LTIFR, per 1 mln working hours
JSC Apatit Kirovsk branch Balakovo branch JSC Metachem of JSC Apatit of JSC Apatit 0 0.26 0.49 0.84
2018 HIGHLIGHTS KEY EVENTS
4 0 0 0.22 MINOR SERIOUS FATAL LTIFR (PER 1 MLN INJURIES INJURIES ACCIDENTS HOURS WORKED) More than 30 thousand training sessions A system of barriers, signs and Ninety-seven per cent of scheduled for contractors were conducted. checkpoints was introduced. behavioural safety audits (more than 27 thousand) were conducted in 2018. Conducting regular behavioural safety audits is one of the keys to safe and GLOBAL SUSTAINABLE successful operations. DEVELOPMENT GOALS
3. Good Health 8. Decent Work and Well-being and Economic On 12 November 2018, a new training site Six hundred sixty-six third-party contractors Growth for working at heights was introduced. The work at PhosAgro production sites. training was completed by 128 employees in 2018.
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HEALTH AND SAFETY MANAGEMENT HEALTH AND SAFETY STRATEGY APPROACH MANAGEMENT SYSTEM
In 2017, the Company approved a strategy The health and safety of our workers, As a result of these new approaches, PhosAgro ensures workplace health and PhosAgro's largest enterprise, JSC Apatit, The work of the Committee is based on for occupational health and safety that contractors and suppliers is our core contractors understand the Company's safety in compliance with relevant legislation is certified for compliance with the OHSAS the principles of social partnership. specifies the main areas of work and target priority as well as an essential component requirements at the time of entering into and global best practices in this area. For 18001 international standard. programmes to reduce the risks inherently of PhosAgro’s sustainable performance. a tender. Additional meetings are conducted this reason, the Company has implemented The Committee interacts with the Company's associated with the Company's various We need a safe, healthy, motivated and to explain specific regulations to bidders. a multi-level OHS management system, The Occupational Health and Safety executive body responsible for health activies. engaged workforce to sustain and expand The practice of constantly reviewing work which involves managers at all levels, as Committee is an integral part of the and safety, state bodies responsible for our operations, to spur innovations, and plans for the most critical jobs has been well as providing managers, specialists and Company's health and safety management overseeing compliance with Russian laws PhosAgro’s workplace to contribute to our partnerships with introduced. This allows risks to be assessed labourers with the OHS training required system, and it is also one of the ways in on health and safety, other state oversight health and safety strategy local communities and other stakeholders in a timely manner, before work begins, so by national legislation. A system of audits which production and other managers and bodies, and the Company's trade union. aims to achieve three key goals: in a positive way. PhosAgro is fully as to take the necessary safety measures. and inspections aimed at compliance with staff can take part in the Company's work committed to creating a safe and healthy The practice of targeted inspections of the requirements of state regulations and on occupational health and safety. 1 working environment and to providing all contracted organisations, before work corporate standards has been introduced. No fatal injuries among in-house the necessary conditions for strengthening begins, was introduced, looking at priority employees or contractors the Company’s health and safety system. areas such as preparedness to work safely at heights, the availability of serviced Organisational unit Key responsibilities We have implemented a unified scaffolding, safety when operating heavy workplace health and safety system across machinery and compliance with fire safety • Sets strategic priorities and policies 2 all of our operations, and we hold external regulations at work sites and in outbuildings. Environment, Health • Holds management accountable for health and safety monitoring Board of Directors No accidents or catastrophes contractors to the same standards that In addition to this, regular checks are carried and Safety Committee and performance level we set for our own employees. In 2014, out to ensure the personnel in charge of the • Receives quarterly reports on health and safety performance we began working with DuPont Sustainable contracted organisations have documents Solutions to enhance our workplace confirming the relevant OHS training. All of • Sets and monitors company-wide health and safety policy • Reviews of incidents involving people and machinery that occurred health and safety performance. Since this helps to ensure that workers for external Management Board 3 on-site are conducted on a weekly basis Ensuring sustainability then, we have implemented a system of contractors follow the same rules as the of results behavioural safety audits to reveal and enterprise employees. • Provides functional OHS management in the Company's enterprises Company-wide eliminate hazardous situations. A joint in order to implement OHS policies and strategies management level project with DuPont Sustainable Solutions, Our aim is to have no safety violations Directorate of Occupational • Gathers data and prepares reports on OHS for the Board and the the consulting division of DuPont, which and no workplace fatalities. Through close Health and Safety OHS committee • Works with external consultants to implement best OHS collaboration among teams and with was implemented in 2014–2015, proved management practices In 2018, we continued making progress in to be a strong impetus for upgrades to the contractors, we aim to improve our health • Conducts audits and investigations within Company enterprises improving our health and safety performance management system. In 2018, there was an and safety performance every year. in order to contribute to achieving the emphasis on the introduction of common • Responsible for implementing OHS policies and strategies directly Company's strategic goals. Our strategic approaches throughout all enterprises to It is our goal to improve on our lost-time Directors at production sites Operating level and operational goals and tasks in the ensure the safety of work performed by injury frequency rate (LTIFR) every year. Over of production sites • Responsible for the development and implementation of effective measures based on the results of internal and external audits, as area of workplace health and safety are contractors. The following two approaches the past five years, our LTIFR has decreased well as on the results of accident investigations based on an analysis of large volumes of were initiated: raising awareness among by 76%. However, there is still much work to data from internal and external audits and contractors (current and potential) about the be done, and we will continue to improve in • Monitors the enterprise's compliance with OHS regulations inspections, incident investigations, and Company's workplace safety requirements this field. and corporate standards recommendations from representatives of and improving the monitoring of the safety Enterprise • Develops targeted programmes, conducts training and arranges new measures the workforce. of contractors. OHS management • Interacts with regulatory authorities in the OHS sphere on behalf Health and safety of the enterprise and accompanies their inspections team at operating • Conducts its own inspections and presents analytical reports level to enterprise management
PhosAgro’s Occupational Health and Safety system is described in detail in JSC Apatit’s Policy on Quality, 90 the Environment and Occupational Health and Safety. 91 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information HEALTH AND SAFETY REVIEW continued
HEALTH AND SAFETY ACTIVITIES IN 2018 CASE STUDY
Health- and safety-related standards and This makes it possible to identify all hazards training sessions (approved by JSC Apatit, 1 3 regulations implemented in 2018 related to a particular activity, assess risks EMERCOM, and Agrokhimbezopasnost), MINING SAFETY: AN AREA The corporate standard introduced in 2018 is and develop effective measures to reduce each emergency service unit completes drills OF STRATEGIC IMPORTANCE a good example of our systematic approach them in a timely manner before undertaking with the relevant staff on the evacuation of to ensuring workplace safety for contractors. this activity. personnel, fire exercises and civil defence It contains requirements for the approval training exercises. Agrokhimbezopasnost In 2018, PhosAgro was successful in as workers, in actions related to ensuring of work plans and task plans developed by Safety at JSC Apatit sites also conducts preventative work at sites: reducing the accident rate in its mining safety. During the year, the Company contractors. Firstly, this standard combines Safety at JSC Apatit's production sites planned inspections and rounds, patrols, operations. This was the result of ongoing conducted a large number of initiatives NEW TRAINING the requirements of several state regulations. is ensured by both the mining and gas fire safety checks, monitoring of gas and efforts to implement one of the priority aimed at training and engaging staff. CENTRE FOR WORKING This means that contractors do not have to rescue services. It is also overseen by the fire hazards and of newly constructed areas of the Company's OHS strategy that AT HEIGHTS develop their own work plans and task plans. fire divisions of LLC Agrokhimbezopasnost, facilities. In 2018, a target programme for was adopted at the beginning of 2017, Concerning mining safety, the following It also means that specialists and Company which is licensed to perform gas and fire the development of Agrokhimbezopasnost i.e., to ensure mining safety. Work on achievements from 2018 should be Opened by the Company in 2018. management no longer have to coordinate rescue services, as well as search and rescue emergency rescue units was developed and this strategic area focused primarily on mentioned: these documents, which are critical to operations. All trained and certified personnel approved at all sites of JSC Apatit for 2019 to personnel and equipment. • New internal staff training courses workplace safety. Secondly, this document undergo an annual medical examination. 2022. Work on its implementation is currently • Creation of nine animated safety videos provides a constant overview of work plans In accordance with annual plans and underway. In terms of personnel and mine safety, and task plans in the most hazardous jobs. PhosAgro took another step in involving 4 senior and middle management, as well
Specific training highlights in 2018 included the following sessions: EMPLOYEES Completed specialist training EMPLOYEES EMPLOYEES EMPLOYEES 263 CONTRACTOR completed internal training MANAGEMENT courses in 2018 331 43 489 Took part in practical PhosAgro pays close attention to OHS underwent behavioural safety were trained through the Accident attended training courses workshops issues when engaging contractors. audits Investigation programme on the basics of safe behaviour
The Company clarifies its internal safety requirements through regular meetings with the management of its contractors. EVERY SINGLE MANAGER, SPECIALIST AND PRODUCTION LINE 2 EMPLOYEE AT PHOSAGRO RECEIVES WORKPLACE HEALTH AND HOW INCIDENTS SAFETY INSTRUCTION AND TRAINING AND UNDERGOES TESTING ARE REPORTED ON THE SUBJECT IN ACCORDANCE WITH RUSSIAN LEGAL REQUIREMENTS. IN ADDITION, WE CONDUCT A NUMBER OF ADDITIONAL INTERNAL TRAINING SESSIONS It is important for us to receive Next, the company manager transmits information about all incidents as quickly information on the established list as possible. To do this, the Company using text messages and phone calls. has a procedure in which information Industrial accidents and incidents are about incidents is transmitted from then investigated in accordance with eyewitnesses to the supervisors in legislative requirements and procedures charge and from those supervisors to the for conducting internal investigations dispatcher of the respective enterprise. in order to determine the root causes.
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The Company’s employees can receive training on safe methods ALL POSSIBLE TYPES OF SURFACES AND STRUCTURES ENCOUNTERED AT OUR PRODUCTION FACILITIES ARE AVAILABLE AT THE TRAINING and techniques for working at heights at a special training facility. CENTRE. EMPLOYEES CAN WORK ON MASTERING EVERY POSSIBLE SCENARIO ASSOCIATED WITH WORKING AT HEIGHTS VYSOTA TRAINING CENTRE
Self-evacution from 1 Working on an inclined surface, 1 Work on a horizontal The nature of our work means we Our training facility simulates Practising hands-on skills at our
danger zones such as a roof, or with two or platform using stationary often have to deal with heights, and real-life situations as closely training facility is the best means more angles of inclination and mobile horizontal we must have safety training with as possible, and everything of prevention. anchor lines Mobile access to working at heights. is clear and understandable. horizontal anchor line
Inertia- Inertia- based based braking locking system devices Mobile Safety Safety anchor device harness point spe ially trained instru tors conduct the training Mobile horizontal anchor line
1
Additional fa ilities • Lockers • Staff room 1 1 • Equipment 2 groups of people 1 warehouse can be trained at the site at the same time 10 18 • Classroom
20 FUNCTIONAL TRAINING ONES
8 1 1 Working on an inclined surface, Ascending descending vertical Checks and removal of defective 1 Working with scaffolding 11 1 such as a roof, or with two or metal structures equipment and PPE more angles of inclination Working with rope 2 Working in a confined space 12 Working on a ladder 1 Pipeline tressle zones access systems
Working with both vertical Evacution of injured personnel Working near openings Practising skills for safe lifting 11 8 1 18 2 equipped with stands and horizontal entry tanks from heights using rope without barriers (and passing) of tools, materials containing defective access systems and equipment at heights personal protective equipment (PPE) Working with metal props Self-evacution from 1 The use of various anchoring 1 eneral work at heights 1 danger zones devices and temporary fencing using safety PPE
12 Working with cisterns 10 Ascending descending 1 Work on a horizontal platform 20 Practice moving on a ladder ladders using stationary and mobile with an incline of 75 or more horizontal anchor lines by means of mobile anchor lines
2 Working in a confined space 94 95 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SAFETY IN HAZARDOUS WORKPLACES WHEN THE POWER IS SWITCHED OFF AND DISABLED, THE VERIFICATION STAGE OF THE BFC PROCEDURE MUST BE COMPLETED IN ORDER TO ENSURE THERE IS In the interest of safety, the Company has introduced a BFC NO RESIDUAL ENERGY—PRESSURE, LIQUIDS AND GASES, COMPRESSED SPRINGS, system, which prevents the accidental or unauthorised ETC.—IN THE PRODUCTION EQUIPMENT activation of equipment.
hile e uipment is undergoing maintenance or repair and employees are within range, the BFC* (block — flag — The valve can only be check) uses a special lock to suspend the flow of energy, removed by the employee substances or product into the equipment who installed it. This guarantees the safety of every employee within range A SPECIAL LOCK Master locking mechanism MAY BE FITTED: with cable lock
BFCs can be applied to: • handlebars of valves of all sizes; • handles of cranes; • electric machines or knife switches; • electricity switches, etc.
Directly connected to the power switch Most manufacturing equipment already has specially designed fitting points for locks Locking mechanisms are A correctly installed made specifically for each master locking piece of equipment. mechanism This ensures they fit securely. Universal cable disablers are the most common
THE COMPANY'S IMPLEMENTATION OF BFC SECURITY The valve is connected as of 31 December 2018 directly to the power switch Through a special locking mechanism and not to the equipment controls. Employees of Virtex and PwC BFC maps were developed and BFC systems are being successfully conducted an audit to determine locking mechanism installation piloted in workshops at JSC Apatit, If no specially designed fitting point is This eliminates the risk that the which units required locking spaces marked with special tags. along with its Kirovsk and Balakovo available, the source is closed off using a equipment could suddenly turn mechanisms. branches, JSC Metachem, and LLC locking mechanism with a special lock on while people are performing Mechanic. maintenance, even if someone should accidentally press the start button A scheme designating the We have developed diagrams, A plan to collect information and necessary BFC installation maps, instructions for using assess the impact of the BFC points was compiled. BFCs, and fitting points indicated system on employee and contractor on the equipment for all the parts injuries has been drawn up. of the Company's safety devices.
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KEY EVENTS
Safety standards research Strategic development training Management skills training In 2018, the Company organised a number for the JSC Metachem Throughout the year, a complete overhaul of key events aimed at the development of On 7-8 August 2018, JSC Metachem of management skills for middle managers human resources. In December, for example, conducted the first stage of a training and employees was implemented at the a focus group was held for employees of the course on strategic development to 2025. Cherepovets site. Young managers gained Balakovo branch of JSC Apatit to discuss The training session was attended by 42 skills in organisation and work planning for employees’ thoughts on issues related staff managers and specialists involved subordinate personnel, setting clear goals, to compliance with safety standards, the in the project. As a result of the event, the time management, etc. new incentivisation system, social welfare project’s key principles were developed, programmes, mentoring and career building. interdepartmental interaction improved, and the roles within each team were defined. In The topics discussed revealed the strengths addition, the training session helped raise the and weaknesses of projects in the area of level of staff engagement in the project. PhosAgro’s Personnel and Social Welfare Policy. As a result of the focus group, strategic sessions will be held to identify opportunities for improving the quality of existing staff programmes.
GLOBAL SUSTAINABLE MEDIUM-TERM 2018 HIGHLIGHTS DEVELOPMENT GOALS PLANS FOR 2019
The Company is currently working to solve 3. Good Health 4. Quality and Well-being Education a number of issues regarding its automation % process, including in personnel management. It is analysing market options to find the most appropriate digital solutions for process 17,458 6.0 management using current technology. AVERAGE HEADCOUNT* EMPLOYEE TURNOVER 8. Decent Work More information about the Company’s RATE and Economic people development system, recruitment Growth policy and other HR issues is available on the PhosAgro website: https://www.phosagro.com/career/policy/
6,447 >100 NUMBER OF ATTENDEES OF STUDENTS TOOK PART IN PROFESSIONAL TRAINING PHOSAGRO CLASSES IN 2018 COURSES
98 * Total number of emploees in PhosAgro Group (including all branches and subsidiaries 99 — see paragraph 33 of the financial statements). PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information PEOPLE DEVELOPMENT continued
OUR PEOPLE ARE THE KEY TO OUR SUCCESS
MANAGEMENT APPROACH
We create value for our employees and We are dedicated to providing respectable social Total number of employees by region, gender and age, people other stakeholders by investing in our conditions for our workforce and safeguarding people: PhosAgro aims to provide stable employee rights, including compliance with Saratov region Murmansk region Moscow region Leningrad region Vologda region employment, safe working conditions and equality and non-discrimination principles. fulfilling job opportunities. We start at the We carry out labour practices strictly in line level of primary school and continue to invest with both Russian legal requirements and all in our people throughout their careers with applicable international standards. Moreover, PhosAgro. the Company’s HR and Human Rights policies reflect the UN Guiding Principles on Business. 10,614 — average number of employees in 2018
under over 55
STRATEGY HIGHLIGHTS
We use a KPI system to link executive We strive to incentivise our staff by providing We help prepare future generations remuneration to priorities like health and competitive wages, paying close attention to of PhosAgro employees by supporting school safety, as well as financial performance. the conditions at our work sites and offering and university programmes that encourage generous non-monetary benefits. students to pursue STEM studies.
Men Women
OUR PEOPLE ARE OUR MOST IMPORTANT ASSET: WITHOUT THEIR HARD WORK, WE WOULD NOT BE ABLE TO ACHIEVE OUR STRATEGIC GOAL OF CREATING SHAREHOLDER VALUE. We rely on a talent pipeline of staff with the We aim to maintain our reputation as an We train our staff to prepare them potential to take on leadership and/or more employer of choice in the regions where we to better navigate our ever-changing OUR RECRUITMENT AND RETENTION EFFORTS HELP ENSURE technically challenging roles to ensure our operate. working environment. THAT WE HAVE THE RIGHT PEOPLE FOR THE JOB viability in the long term.
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EMPLOYMENT POLICY OUR POLICY FOCUSES ON ENSURING THAT OUR STAFF REMAIN HEALTHY AND PROPERLY INCENTIVISED. IN THE COMING YEAR, WE PLAN TO REASSESS SOCIAL HIGHLIGHTS BENEFITS FOR THE OVERALL PHOSAGRO GROUP, AS WELL AS ANALYSE THE COLLECTIVE AGREEMENTS OF PHOSAGRO GROUP’S MAIN PRODUCTION FACILITIES
FAIR AND FOCUSED COMPENSATION AND BENEFITS
The Company’s policy on rewards and compensation and benefits are available for to improve employee satisfaction with a of programmes to improve social and The Company’s top management consists The Company’s regions of significant its incentivisation system are aimed at valued employees who relocate to take up unilateral approach across its enterprises. working conditions, sports and recreation of top-level managers who are responsible presence are located in the Murmansk, encouraging employees’ interest in the employment. The Company’s social programmes cover activities such as the annual corporate for strategic decision-making. PhosAgro’s Vologda, Leningrad and Saratov regions. Company’s performance and to improve all aspects of employees’ daily lives: Olympiad and the establishment of sports top management is an effective structure Our aim is to work in compliance with the that performance in order to achieve our In order to attract and retain staff and improving living conditions; rest and facilities at enterprise sites are aimed at consisting only of highly qualified specialists interests of the regions. PhosAgro not only business goals. motivate them to increase productivity, recreation programmes, such as the improving the overall health of personnel who work in the interests of all Company makes a significant contribution to the PhosAgro offers its employees competitive Company’s corporate treatments and the by preventing disease and encouraging stakeholders and make informed decisions local economies, but it is also one of the The Company’s payroll system fully complies social security benefits and good working provision of medical services under VHI a healthy lifestyle. An annual loyalty and that allow for sustainable development. largest taxpayers in each region and makes with labour legislation, while also providing, conditions. The general consensus is that contracts; organising activities for the satisfaction survey conducted among a significant impact on social development for certain categories of employees, a the Company’s enterprises are among the children and family members of personnel; Company personnel has shown a regular in the regions and on preservation of the compensation package and benefits in best in the regions in which they operate a corporate pension programme; and increase in satisfaction with our social region’s environmental systems. accordance with the best international and in the industry as a whole. Every year comprehensive support for senior citizens welfare benefits. practices. Furthermore, additional since 2016, the Company has been working and youth movements.The implementation
The range of ratios between the standard entry-level wage and Proportion of staff and senior management hired from the local the established minimum wage in the Company’s primary regions community at locations of significant operations, as of 31 December 2018 of operation, including gender differentiation
Proportion of staff hired Proportion of senior management hired from the local community in total headcount from the local community in total headcount
Men Women Vologda region Vologda region 1.47 1.47
Leningrad region 2.00 2.01 Leningrad region
Moscow region 3.68 3.07 Moscow region Murmansk region 1.37 1.27 Murmansk region Saratov region 2.00 1.76
Saratov region
A
EFFECTIVE REMUNERATION SYSTEM supports a culture of constant development across the whole business
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FAIR AND FOCUSED ASSESSMENT OF WORK AND COMPENSATION AND BENEFITS INCREASE IN PERSONNEL
Coverage of the organisation’s defined Results of periodic performance and career development benefit plan obligations,RUB mln assessments broken down by sex and employee categories, 2018
Current value of employee benefit obligations KB of JSC Apatit JSC Apatit BB of JSC Apatit JSC Metachem
(private benefit coverage for newly retiring employees) 10,614
Retirement-related obligations Actual pension Total (other than employee benefit obligations) payments 2018 443
Vologda region Payment of retirement benefits 13.578
Merit benefit plans 15.387 45.726 Employees that took part in the assessments
Financial aid for retired former employees 16.761
Leningrad region Payment of retirement benefits 4.174 M Merit benefit plans 0.000 5.379 ReturnKB of Apatit to work and retention rates of employees who took parental leave, by gender Financial aid for retired former employees 1.205 Murmansk region Payment of retirement benefits 47.135 M S Merit benefit plans 0.000 72.297
Financial aid for retired former employees 25.162 Apatit Saratov region Payment of retirement benefits 4.030
Merit benefit plans 0,000 4.415
Financial aid for retired former employees 0,385 Total Payment of retirement benefits 68.916 Proportion of staff and senior management hired from the local Merit benefit plans 15.387 127.817 communityBB of Apatit at locations of significant operations Financial aid for retired former employees 43.513
Return to work and retention rates of employees who took parental leave, by gender, people Metachem 443 Employees took part in periodic performance and career development Men Number of employees on maternity Number of employees who returned to Number of employees on maternity assessments broken down by sex and leave and parental leave between work after maternity leave and parental leave and parental leave as of 31 employee categories Women 1 January 2018 and 31 December leave between 1 January 2018 and 31 December 2018 2018 December 2018
Percentage of staff participating in periodic Saratov region 34 46 8 performance and career development assessments
Murmansk region 2 135 4 182 1 45 Men Women Not broken down by sex Kirovsk branch of JSC Apatit 4.5% 4.3% 4.4% Moscow region 2 1 Balakovo branch of JSC Apatit 4.1% 3.9% 4.1%
Leningrad region 31 44 12 JSC Metachem 6.0% 2.2% 4.3%
JSC Apatit 3.5% 4.2% 3.8% Vologda region 188 268 67 Total 4.2% 4.0% 4.2%
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TRAINING AND DEVELOPMENT
Personnel training and development delegation, conflict management, project Number of attendees of professional Number of training hours programme management, communication skills and staff training courses in 2018 We rely on a talent pipeline of staff with mentoring. Total number of training Average number of training the potential to take on leadership and/or hours in 2018 hours per employee in 2018 more technically challenging roles to ensure Effective Management programme PhosAgro’s long-term viability. Our focus on As part of this programme, groups eta he training and developing our people also helps of 14–16 employees took part in training 10 hours us hedge against a potential shortage of and development activities on the following KB of Apatit talent in the future. One aspect of this that we topics: KB of Apatit prioritise is including schools, universities and • personnel management, planning, goal our own staff programmes in our recruitment setting, organisational activities and and training initiatives. oversight; • focus on results; We use our PhosAgro Education Centre • management skills; BB of Apatit to help our staff prepare for both external • decision-making; Apatit (legislative/regulatory) and internal (related • effective communication; to optimisation, changes to production or • leadership qualities and building business processes) changes. The Centre relationships; helps run our long-term HR initiatives, like • organisation and management; PhosAgro Classes, High-Potential Graduates • mentoring. and the Staff Reserve programme, and it Apat t holds competitions for professional skills BB of Apatit and young managers.
PhosAgro relies on its Staff Reserve initiative as a means of identifying talented staff with the potential to expand their roles and step into more senior positions, and it provides MetaСhem additional training to help them achieve these goals. The programme includes management training courses on personal and business skills like decision-making, leadership and Group average 791,622 75
NUMBER OF ATTENDEES OF PROFESSIONAL TRAINING 6,447 COURSES 791,622 75 Total number of training Average number of training hours in 2018 hours per employee in 2018
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IN 2013, PHOSAGRO IMPLEMENTED AN INITIATIVE TO CREATE INVESTING IN FUTURE PHOSAGRO CLASSES GENERATIONS OF POTENTIAL EMPLOYEES
PhosAgro Classes interactive whiteboards with built-in Project outcome: Our annual goal remains to have 125 As part of the project, PhosAgro: PhosAgro recruited 48 young specialists Professional, highly qualified personnel projectors and computer hardware that • Students had an increasingly positive participants join PhosAgro Classes at the • Sponsors further training for graduates through the High-Potential Graduates are the Company’s main asset. PhosAgro’s accommodates educational teleconferences attitude towards technical specialisations five schools in the five Russian cities where of PhosAgro Classes in relevant programme in 2018. This brought to 269 technical equipment is so advanced that and scientific conferences. In each region, (results from an independent study by we run the programme. We hope that 50% of specialisations under a future employment the total number of graduates who have staff must have at least basic knowledge PhosAgro has signed a social and economic the Department of Sociology and Higher these students will join PhosAgro by 2021. contract; joined the Company through this programme from their education before taking up partnership agreement with the local Education); • Offers scholarships to the most successful since its inception in 2012. A total of 214 employment. With this in mind, the Company authorities with regard to the project. Similar • There was an increase in the number of Interaction with higher education students (based on their results in the of these employees are still with PhosAgro launched an initiative in 2013 called PhosAgro agreements have also been signed with the students, compared with September 2014, institutions programme); today, pursuing careers in mineralogy, Classes, which involve specialised classes schools involved in the project: who enrolled in specialist universities to Cooperation with universities is an important • Invites current university students to geology, hydraulic engineering, chemistry, for students in the 10th and 11th grades • Vologda region: in Cherepovets, the project study technical subjects due to career part of our youth training system. see the industry in practice at one of the thermal energy and electricity production, rail on certain aspects of chemisty, mathematics partner is Secondary School No 10, which guidance from PhosAgro Classes, which Group’s many companies; transport, open-pit and underground mining, and physics. offers in-depth study of each subject; worked with these specialist universities; To reduce staff shortages in the most highly • Offers students a job in one of the and mine surveying. • Leningrad region: in Volkhov, the project • Professional development for teachers of sought-after specialisations, PhosAgro has Company’s popular specialisations after Our PhosAgro Classes initiative encourages partner is School No 1; specialist subjects (chemistry, physics, established contractual agreements with the they graduate. Of the programme participants still employed school students in the regions where the • Saratov region: in Balakovo, the project mathematics) to prepare students for following higher education institutions: with PhosAgro, a total of 34% had received Company operates to pursue STEM (science, partner is Secondary School No 25; academic competitions through seminars • Saint Petersburg Mining University; High-Potential Graduates promotions and/or had been included in the technology, engineering and mathematics) • Murmansk region: in Kirovsk, the project and workshops taught by methodologists • Lomonosov Moscow State University; We build upon the foundation laid by Staff Reserve as of December 2018, and studies. Our focus on providing high-quality partner is Secondary School No 5; and the best teachers in Russia; • Ivanovo State University of Chemistry PhosAgro Classes by partnering with many of them had successfully completed education from a young age is an important • In Apatity, the project partner is Secondary • A positive response from parents about and Technology; universities through our High-Potential the projects that they were entrusted with element of ensuring the sustainability of the School No 15. the choice of technical specialisations • Cherepovets State University; Graduates programme as an avenue to when they joined the Company. communities where we operate; it also helps and further career opportunities for • D. Mendeleev University of Chemical better reach university students interested us hedge against a potential shortage of A total of 133 students took part in the their children within PhosAgro Group Technology of Russia; in working at PhosAgro. We offer programme talent in the future, especially in areas where it PhosAgro Classes programme in 2018, enterprises; • Saint Petersburg State Institute of recruits a competitive salary, as well as can be difficult to find candidates with the skill all of whom excel at, and are interested in • Awareness of the project at local and Technology; relocation and housing support, and we sets that we need. studying chemistry, physics, mathematics regional levels; • Murmansk Arctic State University; assign them a mentor upon their arrival at and computer science. The programme • The PhosAgro Classes project finished in • Regional universities. PhosAgro. The programme’s key tasks are The Company provides every participating graduated 122 students from five schools the top three in the “Best Programme for to prepare a talent pipeline for key positions student with a corporate uniform and a tablet in 2018, 68% of whom went on to study as Working with Students” category in the within the Company and to identify key computer. Specific funding is allocated to part of technical degree programmes at 2016 Graduate Awards, a Russian national areas and career paths for talented young schools for building repair. Since 2013, physics, universities, with a potential career track at competition for recent graduates and specialists so as to prepare future executives. chemistry, mathematics and computer science PhosAgro. Some of them were accepted young professionals. classrooms have been fully equipped. The into universities on sponsored placement new equipment includes new-generation programmes.
STUDENTS YOUNG YOUNG % 133 122 SPECIALISTS 48 SPECIALISTS 34 took part in the PhosAgro were recruited by PhosAgro were recruited by PhosAgro of the individuals hired through Classes programme in 2018 through the High-Potential through the High-Potential the Talented Young Specialists Graduates programme in 2018 Graduates programme in 2018 programme were promoted
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INVESTING IN FUTURE PUTTING SAFETY PROVIDING EQUAL SETTING HIGH MAINTAINING OPEN GENERATIONS AT THE CORE OPPORTUNITIES STANDARDS CHANNELS OF OF POTENTIAL EMPLOYEES COMMUNICATION
Green Planet interactive educational centre We place employee safety above all, as PhosAgro is one of the most attractive PhosAgro adopted a Code of Ethics in 2014 Our employees have access to multiple Green Planet is an educational centre that was recently confirmed by the International employers in the regions where it operates, and updated it in 2018. The Code applies to channels for communication and feedback provides instruction, insights and recreational Fertilizer Association, which gave PhosAgro mainly thanks to our equal opportunities all employees and is the Company’s primary with the Company, which enables them to activities such as excursions, quests, career- the SHE Excellence Gold Award in November programme, which means that the best document for enhancing its corporate address employment-related or other issues oriented case studies, exhibitions, chemistry 2018 in recognition of the high quality of candidate is chosen for each post regardless culture. The Code clearly outlines all basic at PhosAgro. Some of the formats include experiments, quizzes and round-table workplace health and safety practices of their gender, sexual orientation, religion, requirements for Company employees Q&As in the corporate newspaper, town-hall meetings. Designed for all ages, the centre at the Company. native language and ethnic origin. In addition, and establishes rules and regulations for meetings for staff and management and an is free of charge and is accessible for people PhosAgro has a social responsibility towards individual and collective behaviour within the anonymous whistle-blower hotline, allowing with disabilities. Since 2017, we have been implementing its employees and fulfils its obligations in full Company. It covers all industrial and business staff to choose from various degrees of a project called Development of a Culture compliance with the requirements of federal relations, both within the Company and with anonymity when deciding how to raise an Green Planet’s goals include: of Safety that is aimed at increasing and regional legislation. These requirements business partners and other external parties. issue. • Providing career guidance; accountability among technical and include the prohibition of child and forced Commitment to these principles unifies the • Increasing the prestige and attractiveness engineering personnel employed at labour, as well as freedom of association values of our Company to ensure that all our Our employees also use PhosAgro’s corporate of blue-collar and technical professions; production units, as well as reducing and the right of trade unions to negotiate employees take pride in their work and are intranet for internal messaging, receiving • Providing environmental education, as well the accident rate and increasing the a collective agreement with their employer. keen to communicate with colleagues, feel announcements, planning and accessing as industrial and educational tourism; accountability of employees for compliance comfortable in a team and can grow both informational resources. • Providing information about PhosAgro’s with safety regulations. More than 1,000 professionally and personally. Commitment history and success and also about the people have taken part in the project so to the principles of the Code of Conduct Company’s social responsibility projects far. Employees who underwent training helps the Company to avoid unjustified in the cities where it operates. developed skills in the use of modern risks, maintain long-term economic growth, methods and tools for preparing instructions. strengthen its position in Russian and foreign They also came to realise the need to markets, and increase the Company’s value. fine-tune instructions with the help of modern teaching methods so as to become consciously aware of the rules regarding their own safety and that of their co-workers.
PHOSAGRO IS ONE OF HIGH LEVEL OF CORPORATE >1,000 THE MOST ATTRACTIVE CULTURE EMPLOYERS IN THE REGIONS supports the Company’s image among People have taken part in the WHERE IT OPERATES its employees, encouraging respect Development of a Culture and loyalty of Safety project mainly thanks to its equal opportunities programme
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ACTIVITIES IN 2018
Training and awareness of our policies, Training Reporting misconduct procedures and guidelines are critical All employees receive regular training and We strive to create a culture of transparency components of our compliance programme. undergo testing on preventing corruption within the Company and encourage Together, they support our employees’ and as part of a Company-wide process. This employees to report problems and causes contractors’ understanding of the behaviour exercise aims to develop our employees’ of concerns. In 2016, PhosAgro launched expected of them and provide guidance on understanding of the importance of a hotline service that helps the Company’s how to identify and deal with legal and ethical preventing corruption and of maintaining management prompty respond to reports on issues they may encounter in their daily work. a culture of zero tolerance for corruption a wide range of issues, including corruption, in all aspects of business. violations of the Company’s bylaws, evidence All PhosAgro enterprises adhere to standards of potential and/or actual conflicts of interest, aimed at preventing corruption and other Our training programme includes guidance as well as violations of workplace health and offences in accordance with the Federal on raising concerns in a wide range of safety rules, environmental policies or any Law on Anti-corruption of 25 December 2008: professional spheres. other Company policies. • Employees are required to sign an agreement on compliance with the One group that our anti-corruption training In order to provide open access to the hotline, requirements of the local normative act targets are those who interact with third information about all the available channels (LNA) aimed at preventing corruption parties, and it includes guidance on giving of communication is posted on the Company and fraud; and receiving gifts, entertainment, and website and on the intranet portal. The • The observance of these anti-corruption entertainment expenses. In order to raise hotline service guarantees confidentiality for requirements is included in our employees’ awareness about compliance risks related anyone who reports a problem, as well as job descriptions; to functions for relevant employees, the the timely and unbiased consideration of all • Amendments were made to the Company also conducts face-to-face training. reports. GLOBAL SUSTAINABLE employment contracts of the Company’s DEVELOPMENT GOALS managers to prohibit part-time work in In order to inform employees and contractors The Economic Security Department commercial firms without the prior consent of the Company’s anti-corruption standards, is responsible for conducting initial of Company management; documents will be posted on the internal investigations into every report received via • All contracts include a separate anti- portal under the section “preventing fraud, the hotline and for informing management 8. Decent Work and WE AIM TO DO BUSINESS IN ACCORDANCE WITH Economic Growth corruption clause; corruption and conflicts of interest” and about all incidents that require further THE HIGHEST LEVEL OF ACCOUNTABILITY, INTEGRITY • On 29 January 2018, JSC Apatit was added on the official website under “preventing investigation or corrective actions. AND TRANSPARENCY to the Anti-Corruption Charter of Russian corruption”. Business. The Company’s contractors are sent emails An updated version of the following has with information on the anti-corruption already been approved by PhosAgro’s and anti-fraud measures adopted by the MANAGEMENT Board of Directors: Company. APPROACH • Provision on Conflicts of Interest; • Code of Ethics; Introductory briefings on the subject of the Our business Code of Ethics and The principles of our Corporate We conduct audit forums to monitor • Terms of use of the PhosAgro hotline. Company’s anti-corruption and anti-fraud management procedures are based Governance Policy are based on standards and oversee the implementation and standards in line with the LNA are conducted on the best international practices. We and procedures that address a number effectiveness of the integrity and compliance on a regular basis throughout the job take preventative measures to avoid or of important topics, including bribery and of our business conduct policies company- application process. resolve specific and systemic incidents corruption, conflicts of interest, benefits, wide. Our training programme and materials and constantly seek means of further sponsorships and donations, data privacy, are updated when required to ensure they improvement. Good governance systems fraud and third-party due diligence. In remain engaging and relevant to the risks are an integral part of our risk management order to better prepare the Company to employees may encounter. During the and long-term sustainability. deal with these issues, we developed an year, we provided additional training to annual workforce training programme that targeted audiences on specific areas of our is available both online and in person. The programme. programme is updated on a regular basis.
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ACTIVITIES KEY PRINCIPLES OF IN 2018 BUSINESS CONDUCT
Conflicts of interest • Our Government Relations Policy • PhosAgro’s Charity Policy commits us Our subsidiary, JSC Apatit, maintains a dictates that PhosAgro’s relationships to supporting sustainable development in Commission for Combating Fraud and with government bodies and representatives the regions where we operate. PhosAgro’s Corruption and Regulating Conflicts must be legal and ethical and based on charitable giving is based on the following of Interest. Commission members are principles of fairness and partnership. In principles: it must address a clear need appointed by the Chief Executive Officer. accordance with this policy, interactions and be used for clear purposes, the The main objectives of the Commission involving government bodies should use of funds is closely monitored, and are to prepare proposals for the only relate to PhosAgro’s strategic or transparency and disclosure of information implementation of policies to combat operational matters. must be ensured. We do not engage fraud and corruption and the preparation in charitable giving to representatives of proposals and recommendations for • Our Provision on Conflicts of Interest of the Government, to political parties the resolution of conflicts of interest. As establishes rules for identifying and or movements, or to commercial part of the implementation of measures to addressing potential conflicts of interest. organisations. This policy sets priority resolve conflicts of interest, the Company’s areas for charitable giving, including employees are required to disclose, in a • Our Anti-corruption Policy states that our education, sport, health and well-being, timely manner, information on the existence directors and senior management must and vulnerable members of society such of an actual or potential conflict of interest in adhere to high standards and set an example as veterans and the elderly. relation to fulfilling their duties. On an annual for the entire business. It commits all basis, Company employees must declare any employees to a zero-tolerance approach • PhosAgro does not participate in political conflicts of interest and provide a record of to corruption. activities or provide financial support to their income and expenses. political organisations. • Our Code of Ethics specifies the rules In 2018, 1,842 declarations were submitted for relationships with stakeholders ranging by employees, in which 41 conflicts from employees, shareholders, government of interest were found. The ensuing officials and NGOs to customers, suppliers investigations were used to resolve the and other business partners. It commits conflicts: the employees involved were PhosAgro to engaging with stakeholders transferred to positions where the conflict in a fair and proper manner. was no longer an issue.
The number of declarations submitted has increased as a result of the expansion of this WE STRIVE TO MAINTAIN CORPORATE process to include employees of subsidiary GOVERNANCE TRANSPARENCY AND companies and organisations. Consequently, REGULATORY COMPLIANCE IN ALL we are now working on the automation of AREAS OF OUR BUSINESS AND ALL this process. DIVISIONS OF THE COMPANY
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Our stakeholders are the key to our success. Any person or organisation with an interest in what we do is considered a stakeholder. We also consider any person or organisation that might be affected by our activities and anyone who has an influence over our business decisions to be our stakeholders. 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.
MANAGEMENT 2018 HIGHLIGHTS APPROACH
Working in complex markets and geographies and establishing relationships on regional, national and international levels, our activities are heavily regulated. The constantly evolving 7 nature of both international regulations and NON-DEAL ROADSHOWS WERE national legislation may affect our business. CONDUCTED WITH COMPANY Thus, we work hard to build relationships MANAGEMENT IN KEY FINANCIAL with people at all government levels in the MARKET CENTRES countries in which we operate and ensure that we comply with all permit 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 >230 beneficial opportunities. MEETINGS WERE HELD WITH INVESTORS AND ANALYSTS 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. 8 The following information illustrates how we DOMESTIC AND INTERNATIONAL interact, how we create value, and what we PROFESSIONAL ASSOCIATIONS IN achieved in 2018. WHICH PHOSAGRO IS A MEMBER
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
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INVESTMENT AND FINANCE COMMUNITY
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To facilitate an understanding of the long- • Roadshows term sustainability and potential value of 1 Seven non-deal roadshows were conducted PhosAgro • One-on-one meetings with investors with Company management in key financial market centres (London, New York, Chicago, • To update investors on PhosAgro’s strategic • Investor conferences Frankfurt, Vienna, Tallinn, Stockholm, priorities and progress we have made Helsinki) • Conference calls on financial results • To provide market participants with concrete indicators of progress, such as operational, • Perception studies 2 More than 230 group and one-on-one financial and non-financial results meetings were held with investors and • Ongoing engagement with analysts analysts • To attract a wider pool of investors to improve liquidity, share price and • Regulatory press releases borrowing costs • AGM and formal reporting 3 Four conference calls and webcasts for • To increase our access to a variety analysts and investors were organised of capital market instruments • Corporate website in order to discuss the Company’s financial results • To provide transparency on how our • A dedicated in-house investor relations corporate governance systems work team
• To generate new ideas through a dialogue • The interests of our shareholders are 4 120 messages were distributed throughout with investors represented by seven independent the Russian Federation via the Company’s non-executive directors on the Board of corporate disclosure centre Interfax • To clarify the Company’s contribution Directors to the UN Sustainable Development Goals
5 More than 40 press releases were distributed via the UK regulatory news service
HOW WE CREATE VALUE 120 MESSAGES WERE DISTRIBUTED THROUGHOUT THE RUSSIAN
We issued USD 500 million in Eurobonds with PhosAgro maintained its Institutional Investor named FEDERATION VIA THE CORPORATE INFORMATION a coupon rate of 3.949%, representing a new investment-grade credit ratings PhosAgro CEO Andrey Guryev DISCLOSURE CENTRE INTERFAX benchmark for the Company. This enabled from the rating agencies the best CEO in the emerging us to lower the average interest rate and to Standard & Poor’s, Moody’s EMEA chemicals sector significantly improve the structure of our debt and Fitch portfolio
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REGIONAL GOVERNMENTS AND LOCAL COMMUNITIES
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To ensure that we act as a good neighbour • Implementing environmental programmes 1 Organisation of environmental activities in the regions in • To support the sustainable socio-economic • Implementing cooperation agreements with which the Company operates with the aim of protecting welfare of the regions in which we operate regional governments based on regional and improving the environment development needs • To address community needs, including social or environmental concerns • We support social and sporting organisations 2 An agreement was signed to improve and further socio- • To promote the health and well-being • We sponsor PhosAgro Classes to promote economic cooperation in the medium term between of the communities where we operate advanced chemistry education for PhosAgro and the administration of the Leningrad region schoolchildren • To maintain an ongoing dialogue around government policies or potential regulatory • We offer university scholarships and changes that could affect our business organise recruitment programmes aimed at 3 encouraging children to study chemistry An agreement was signed between PhosAgro and • To improve social infrastructure and the administration of the Saratov region to promote implement partnerships with regional • Implementing the Healthy and Educated cooperation and introduce projects aimed at improving authorities Children of Russia programme the socio-economic development of the region and its attractiveness as a place to live • We encourage the development of sport in regions where we operate 4 • Organising recreational activities An agreement on cooperation was signed between for workers and their families the government of the Vologda region, PhosAgro and JSC Apatit • Our employees are provided with free medical treatment, and we also fund medical infrastructure for residents of the regions in 5 which we operate Holding city-wide events to celebrate the Day of the Chemist in all the regions in which the Company operates • We encourage the development of cultural and spiritual awareness among the younger generation, educating them about Russia’s 6 history and traditions The Education, Health and Spirituality for Russia’s HOW WE CREATE VALUE Children (DROZD) programme opened a children’s • Developing programmes to protect the socio- sports and recreation centre in the city of Balakovo economic rights of veterans, and providing material assistance to participants and veterans of World War II and members of their 7 families Holding events to commemorate the rite of laying the foundation stone for the construction of the Church of • Holding regular meetings with government the Apostle Andrew the First-Called in Vologda We help the residents of the We contribute taxes to local We help to increase the standard We invest in the long-term and community representatives communities where we operate and federal budgets of living in developing areas economic sustainability of one- maintain healthy lifestyles, and through cooperation with local industry towns, help diversify • Investing in universities and technical colleges 8 we also support their education and regional governments the economy and support the that provide education relevant to people The start of a PhosAgro school project at Volkhov creation of new jobs that are not seeking careers at PhosAgro Secondary School No 1 directly dependent on PhosAgro
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INTERNATIONAL INSTITUTIONS
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To address community needs, including • Active participation as members of global, 1 PhosAgro became the first Russian social or environmental concerns national and regional organisations and company ever selected by the UN Food industry associations and their initiatives and Agriculture Organization to implement • To discuss the most important issues a global soil protection initiative from experts’ point of view • Implementing common programmes
• To develop a common strategy and tactics and to unite in the effort to 2 PhosAgro received a SHE Excellence overcome global challenges Gold Award from the International Fertilizer Association for its health, safety and • To review performance environment practices
• To identify priority issues and areas of focus for current and future periods
3 PhosAgro acted as the general partner for the Summer School on Green Chemisty, which was organised by IUPAC
4 As part of the Green Chemistry for Life grant programme, implemented jointly with UNESCO and IUPAC, PhosAgro presented young scientists with grants for research in the field of green chemistry for the fifth time. Over the five years that the project has been in place (2013–2018), the scientific jury has reviewed about 600 applications, and 34 grants have been awarded to young scientists from 26 countries in Africa, Asia, Europe, Latin America and the Middle East
HOW WE CREATE VALUE GRANTS 34 HAVE BEEN AWARDED TO YOUNG We act as a general We support scientific We share our knowledge We invest in research and reliable partner for conferences, thematic and experience with partners and development SCIENTISTS FROM 26 COUNTRIES IN educational programmes exhibitions, competitions and consumers AFRICA, ASIA, EUROPE, LATIN AMERICA for young scientists and AND THE MIDDLE EAST educational initiatives
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EMPLOYEES AND TRADE UNIONS
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To promote a corporate culture that • By negotiating collective agreements with 1 is aligned with PhosAgro’s strategic trade unions that cover issues such as Seminar for authorised personnel goals working conditions and compensation on occupational health and safety for employees at each of our production • To ensure employee satisfaction enterprises (usually for a three-year period) and motivation 2 • We involve trade unions in the development PhosAgro’s so-called Spartakiad games • To guarantee appropriate social of PhosAgro’s workplace health and safety for employees welfare for our current and retired programmes employees • We collaborate extensively with trade unions 3 • To maintain an open dialogue with on cultural and sporting events, workplace The Stars of PhosAgro Festival trade unions and employees health and safety committees, on the nomination of workplace health and safety • To use human resources representatives, and on our health and safety responsibly and effectively workshops 4 Professional craftsmanship competition • To provide our employees with • Employee development programmes, the opportunity for professional including our Staff Reserve Programme advancement • We conduct employee surveys, presentations, 5 bulletin boards, and run an intranet site and Training for trade union activists corporate newspaper
• We hold meetings with general directors of production sites and management responsible for social and HR issues together EMPLOYEES AT ALL OF OUR with trade union representatives PRODUCTION SITES PARTICIPATE • We have a whistle-blower hotline, email IN COLLECTIVE BARGAINING addresses for complaints and telephone AGREEMENTS hotlines for inquiries and social issues and also for reporting violations
HOW WE CREATE VALUE
We provide fulfilling careers; our employees are recognised and rewarded for their work, as well as motivated and pushed to better themselves. By delivering training programmes to help our employees develop their skills and meet their personal career goals, we create a sustainable business that is one of the global leader in its sector
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MEDIA AND THE GENERAL PUBLIC
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To promote and protect PhosAgro’s • Media relations, including regular meetings 1 We published four weekly reputation among all of its stakeholders and briefings with journalists, access to and one corporate newspapers senior management, site tours for press • To reinforce and enhance the public’s and press releases understanding and thus its perception of the Company • Attendance at public hearings, exhibitions 2 Along with our subsidiaries, we and congresses published over 200 press releases • To inform stakeholders about the Company’s plans, performance and priorities • Corporate website, social media
• To advocate for the role of mineral fertilizers 3 Domestic and international media in supporting global food security and to mentioned PhosAgro about 25,000 times illustrate the Company’s contribution to achieving the UN’s Sustainable Development Goals 4 PhosAgro’s CEO conducted regular meetings and interviews with Russian and foreign journalists, providing expert comments on important Company and industry events to leading publications HOW WE CREATE VALUE in Russia, Europe, Latin America and the United States
5 Our CEO spoke with the press at multiple domestic and international events, including the St Petersburg International We make sure the public is Economic Forum, the World Economic informed about our activities Forum in Davos, the International Fertilizer and strive to protect our Association conference, the Sochi Company’s reputation International Economic Forum and other industry and investment conferences
6 Our CEO participated in international ISSUES and regional industry conferences We act as a reliable partner by ensuring that information >200 ~25,000 is distributed about our joint OF CORPORATE NEWSPAPERS WERE PREPARED IN 2018 THE NUMBER OF TIMES PHOSAGRO 7 We provided PR support for a variety projects, initiatives and plans, of corporate events, awards and as well as other news that WAS MENTIONED IN DOMESTIC AND investments over the course of the year requires wide distribution INTERNATIONAL MEDIA
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BUSINESS PARTNERS
WHY WE INTERACT HOW WE INTERACT ACTIVITIES IN 2018
• To provide agricultural producers with • Continuous communication with customers 1 Took part in two international and domestic high-quality mineral fertilizers at competitive and partners — farmers, distributors and industry conferences, seven agricultural prices and to make a contribution to Russian business partners, including in related areas — events, and two Field Days; organised our and world food security in both the domestic and international markets own agronomic conference in Italy and PhosAgro Field Day in the Oryol region • To preserve the health of future generations • Development of our own agronomic service and soil fertility through the application of environmentally friendly mineral fertilizers • Partnership with research institutions containing a minimum amount of harmful 2 The creation of our own agronomic impurities and heavy metals • Research and development of new solutions service, which is aimed at providing to meet market needs agricultural producers with expert support • To establish business relationships built on mutual trust and respect • Membership in industry organisations, such as the IPNI, the IFA and the RAFP, and hosting • To ensure a mutual understanding joint events with them 3 Conducting a number of scientific of obligations and expectations of the studies in cooperation with leading relationship research institutes in Russia and abroad: Wageningen University (the Netherlands), • To inform partners about PhosAgro’s safety, the University of Milan (Italy), the Lorch corporate conduct and other policies that Potato Research Institute (Moscow affect relationships with business partners region) and others
• To increase crop yields in Russia and abroad through the development of integrated plant nutrient systems and technologies for 4 The development, together with RAPU efficient farming and leading Russian research organisa- tions, of projects aimed at the creation • To promote the responsible and rational use of environmentally friendly production of mineral fertilizers, i.e., green agriculture technologies in the field of mineral fertilizers
5 The establishment of our own HOW WE CREATE VALUE Innovation Centre
6 Developing nutritional systems for various crops and determining their effectiveness for agricultural producers
We are a reliable partner and We adhere to the highest Together with our peers, we We drive the development of We support organisations We have 2 million domestic a sought-after client within our standards of workplace safety make every effort to ensure green chemistry by investing in such as the International Plant warehouses and 10 international 7 The IPNI’s first-ever training seminar industry and corporate conduct and that our common voice is scientific research, including as Nutrition Institute (IPNI) and trade offices in countries around for a Russian company, PhosAgro demand the same of our heard all around the world it is applicable to the production the International Fertilizer the world that enable us to have suppliers of mineral fertilizers Association (IFA) closer relationships with our customers
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OUR GOAL
We strive to achieve sustainable growth in all the areas where we operate and to contribute to society through our value chain, with employment opportunities, development of enterprises, infrastructure development and social investment programmes.
To achieve our goal, we have outlined three strategic areas to focus our efforts on:
1 Working with local authorities to create modern social infrastructure (such as providing new equipment to improve healthcare facilities, assisting with the development of municipal services, building new and renovating existing sports and leisure facilities, etc.) in all geographies where we operate
2018 HIGHLIGHTS KEY EVENTS 2 Developing and implementing projects for children and adolescents with a focus on: education and RUB BLN vocational guidance, technology and engineering study programmes, further education and preserving cultural heritage and healthy >1.5 The Education, Health and Spirituality for PhosAgro signed an agreement with lifestyles PROVIDED FOR SOCIAL ASSISTANCE Russia’s Children (DROZD) youth movement, the Leningrad region on stepping up the AND CHARITABLE ACTIVITIES IN 2018 one of PhosAgro’s most important corporate pace of development in terms of socio- social responsibility projects, opened a new economic cooperation in the medium children’s sports centre in Balakovo term 3 Providing support to the most vulnerable sectors of society in terms of treatment, development GLOBAL SUSTAINABLE and helping them get the assistance they need DEVELOPMENT GOALS
PhosAgro signed an agreement with 8. Decent Work and 9. Industrialisation, 11. Sustainable Cities the administration of the Saratov region Economic Growth Innovation and and Communities on the promotion of cooperation and Infrastructure implementation of projects aimed at increasing the socio-economic development and attractiveness of the region
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MANAGEMENT MANAGEMENT OF THE SYSTEM APPROACH OF CHARITABLE ACTIVITIES
Our operations make a significant The Company carries out charitable activities managed by JSC Apatit; Organisational unit Key responsibilities contribution to the national economy on account of the public benefit they bring • Rules for the Provision of Charitable and local economies in the areas where and on the basis of its partnerships with state Assistance by JSC Apatit and the we operate. Our aim is to understand and and local authorities, the local community Companies It Manages; Executive body The Company’s Management Board and CEO. manage our impact and to create sustainable and civic organisations, educational • Regulation on Interaction between benefits for these local communities, while institutions and other stakeholders. Structural Divisions and on the Processing The Company’s Management Board and CEO Make decisions on financing and supporting charity and social investment projects and programmes simultaneously encouraging diverse and of Documents by JSC Apatit and Managed (within the limits of the allocated funds) on the basis of reports. sustainable local economies. The Company’s charitable activities are Companies for the Provision of Charitable carried out on the basis of its own bylaws Assistance. Through our work, we have a significant and in accordance with the Federal Law Deputy CEO Leadership and coordination in respect of charity and social investment activities. impact on the development of local on Charitable Activities and Charitable All of the above-mentioned documents are communities in the regions where we Organisations and the Federal Law on public and are posted on the Company’s Initiates bylaws, arranges and processes all information on ongoing projects and organises public hearings, operate, as well as society as a whole. Advertising. website except for the Regulation, which The Office for External Communications case studies, etc. Therefore, we must recognise that we have concerns the administration of activities, a duty to minimise any negative impact Company bylaws: and the Codes of Ethics , which are available
and to support sustainable growth and • Code of Ethics of PJSC PhosAgro; to every employee on the Company’s intranet. Departments for Social Development at the Provide administrative support: approving agreements, transferring funds, verifying reports from development. Through the proactive and • Code of Ethics of JSC Apatit; Company’s enterprises beneficiaries. strategic involvement of stakeholders and • Codes of Ethics at every company communities, we can achieve a level managed by JSC Apatit; Review new applications, check and fill out paperwork, make proposals concerning the provision of support Commissions for Social Issues and Charity of development that serves the interests of • Policies on Charitable Activities of PJSC within the limits of the funds allocated for these purposes for every Company enterprise. both our local communities and our assets. PhosAgro, JSC Apatit and the companies
WE DO EVERYTHING WE CAN TO UNDERSTAND THE The companies managed by JSC Apatit Every year, the Management Board reviews Targeted support, including the provision SOCIO-ECONOMIC IMPACT OF OUR OPERATIONS AND TO have a sufficient number of highly qualified the results of activities in this area and of jobs by private entrepreneurs, CREATE SHARED VALUE WHILE CONTRIBUTING TO SOCIAL specialists to oversee the implementation decides whether to continue supporting is carried out in accordance with the DEVELOPMENT of programmes in the areas of finance, a programme or project or to discontinue decisions of the Commission for Charitable economics and social policy. its support. Projects at every Company enterprise, within the constraints of the allocated funds. The budget for charitable projects is New projects may be proposed for Decisions regarding the allocation of funds The total amount of contributions for social needs determined every year as part of the overall consideration as follows: are recorded in the minutes of Commission and charitable activities in 2018, RUB mln budget planning process and is approved • upon the proposal of Company experts meetings. by the Company’s Management Board. for the creation of favourable conditions in cities where the Company operates THE COMPANY HAS SET RUB BLN In line with the Company’s Policy on (training personnel, support for veterans’ UP ITS OWN OFFICE Spiritual renewal Charitable Activities, the main criteria for the organisations, development of green selection of projects are as follows: spaces or animal conservation, etc.); FOR EXTERNAL • The aim of the project should be to provide • Following public hearings; COMMUNICATIONS, Social development >1.5 support to particular groups in society, civic • Based on agreements with state authorities WHOSE MAIN TASK in the regions where THE TOTAL AMOUNT OF organisations or charitable foundations; and local governments; IS THE ADMINISTRATION the Company operates CONTRIBUTIONS FOR SOCIAL • The project should not contravene • On the basis of opinion surveys; NEEDS AND CHARITABLE the principles or requirements of the • Following successful meetings between OF CHARITABLE ACTIVITIES IN 2018 Company’s policies or other bylaws; Company executives and representatives ACTIVITIES O • The project must not be a tacit payment of civic organisations. for a service, action, inaction, collusion, patronage or other unlawful advantage Funds are allocated for new projects on Education provided to the Company or its partners. the basis of a Management Board decision. and youth sport An essential factor in making a decision is New projects are considered by the the availability of partners (state authorities, Company’s Management Board in local governments, non-profit organisations accordance with the procedure established etc.). by internal regulations.
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PRIORITY AREAS LIST OF COMMUNITY FOR CHARITABLE PROJECTS INVESTMENT PROGRAMMES
The majority of programmes are The following activities are carried out to implemented in conjunction with regional and evaluate the effectiveness of programmes local government authorities, since the state and projects: is the most reliable partner. • opinion surveys involving external professional experts from among the Some projects are implemented through beneficiaries, civil society, state authorities independent non-profit organisations with and local self-government; Social support and protection, such as Support for preventative medical care and Ensuring the conservation and maintenance Promotion of activities in the fields of the participation of state and local authorities • internal opinion surveys among Company providing financial support to the poor and public health, as well as promoting healthy of buildings, facilities and land of historical, education, science, culture, art and spiritual and of the Company itself. managers of various levels and ordinary reintegration services for the unemployed, lifestyles and improving the psychological religious, cultural or environmental growth; employees; the disabled and others. well-being of residents. significance, including burial sites. The Company has established programmes • programme and project managers assess with specific goals and objectives (see the activities and their impact on the the Company’s website for more details, beneficiaries; phosagro.ru). • public hearings in the cities where the Company operates; BY IDENTIFYING At present, the planning horizon for • an annual review of the results of charitable PRIORITY AREAS, THE charitable activities is from one to two years. activities at a meeting of the Company’s COMPANY ENSURES Responsible managers are assigned to every Management Board. THE EFFICIENT AND programme and project pursuant to the local regulations of each Company enterprise, Medium-term plans for 2019 EFFECTIVE ALLOCATION since all programmes are replicated in the PhosAgro will continue to make the most Promoting the patriotic, spiritual and moral Financing activities in the areas of physical Promoting volunteer work. OF CHARITABLE FUNDS regions where the Company operates. positive impact it can on the life of local upbringing of children and adolescents. education and amateur sport. communities through its social support activities, in addition to measures aimed at regional socio-economic development.
COMMISSION FOR CHARITABLE PROJECTS
Management Board Deputy The Office for External The Department for Social Development at The Commission for Social Issues and Charity and CEO CEO Communications each of the Company’s enterprises at each of the companies managed by JSC Apatit
• Executive body Provides leadership and coordination in the Initiates regulations, prepares and Handles the technical work: agreeing Considers new applications, checks and • Take decisions on financing and support areas of charity, sponsorship and community processes all information on projects being contract terms, transferring funds, verifying processes documents, and makes proposals for projects and programmes in the areas investment. implemented, and organises public hearings, reports from the beneficiaries. for support within the limits of the funds of charity, sponsorship and community opinion surveys, etc. allocated for these purposes for each of the investment after reviewing reports (within Company’s enterprises. the limits of the allocated funds).
Group level Level of Company enterprises
134 135 138 System and principles of corporate governance 148 Board of Directors of PJSC PhosAgro OF MEMBERS OF THE 156 Management Board % BOARD OF DIRECTORS 160 Committees of the Board of Directors ARE INDEPENDENT 166 Shares and dividends DIRECTORS 170 Management responsibility statement 70
CORPORATE 05 GOVERNANCE COMMITTED TO BEST PRACTICES IN CORPORATE GOVERNANCE PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SYSTEM AND PRINCIPLES OF CORPORATE GOVERNANCE As of 31 December 2018 BOARD OF DIRECTORS
For PhosAgro, the previous year gave us an Gender split Independence Experience
opportunity to take stock of where we are, while also identifying new strategic goals. In Sustainable Female Non-independent development directors 2018, we successfully completed a large-scale Corporate governance investment cycle, highlighted by the launch and legal of state-of-the-art ammonia and granulated Finance urea production facilities, the positive impact of which could already be felt at the end of Chemical, metals and mining Male Independent the year: we are now generating increased directors cash flow, which allows us to maintain a International balance between investments in further business development, support for social initiatives and the payment of dividends. OUR CORPORATE GOVERNANCE PRINCIPLES
As before, we continued to pay special Group’s corporate structure. At the end contribution to the Company’s sustainable attention to improving the quality of our of the year, we decided to restructure development in 2018 and to maintaining its 1 2 corporate governance. In 2018 the Board JSC Apatit by merging JSC Metachem reputation as a responsible partner, as well of Directors was joined by several new and JSC PhosAgro-Trans. The restructuring as to all of PhosAgro’s staff, shareholders Independent Directors: Irina Bokova, who was aimed at further improving managerial and partners for their loyalty to the Company. spent the previous eight years as Director- efficiency and optimisation of business General of UNESCO; Xavier Rolet, the CEO processes, as well as strengthening of the London Stock Exchange for the PhosAgro’s competitive advantages as a ACCOUNTABILITY TRANSPARENCY previous nine years and Andrey Sharonov, vertically integrated company. We intend OF THE 10 The Board of Directors is accountable to PhosAgro’s PhosAgro ensures the reliable and suitable disclosure who has many years of experience in to continue this work as we move forward. General Shareholders’ Meeting and is responsible for: of all matters relating to its operations, such high-ranking government posts and in the • Formulating and overseeing the implementation as financial updates, social and environmental investment field. We are pleased that they The Company’s commitment to best 7 of the Company’s strategy; indicators, operating results, ownership structure chose PhosAgro, and we are confident practices in corporate governance is also MEMBERS OF THE CURRENT • Establishing and maintaining systems that enable and corporate governance. that their vast experience and knowledge illustrated by the fact that the Board of BOARD OF DIRECTORS ARE it to monitor PhosAgro’s performance. will help us achieve our strategic goals Directors carries out an annual assessment INDEPENDENT and make a significant contribution to of its compliance with the principles laid out solving global problems. As a result of in the Central Bank of Russia’s Corporate these appointments, seven of the ten Governance Code of 10 April 2014. Annex members of the current Board of Directors No 2 to this report provides comprehensive 3 4 are independent, which complies with best information on compliance with these practices in terms of openness, business principles in 2018. This was reviewed and transparency and corporate governance, and approved by the Board of Directors as an it also ensures that the Board of Directors independent report. In addition, the Board will take into account the rights and interests provided a separate assessment of criteria RESPONSIBILITY of all stakeholders, from customers in our regarding the quality of corporate governance EQUALITY domestic market to partners in the more that, for one reason or another, were not met PhosAgro recognises the rights of all stakeholders PhosAgro’s corporate governance system protects than 100 countries all around the world that or were not fully met. and is constantly looking for ways to improve shareholders’ rights and ensures that their interests import our products. communication with them and pays attention are respected and taken into consideration. I would like to express my gratitude to the to their needs and expectations so as to foster In 2018, PhosAgro continued work begun members of the Board of Directors and Sven Ombudstvedt mutually beneficial relations. the previous year aimed at simplifying the the management of PhosAgro for their Chairman of the Board of Directors
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PhosAgro’s corporate governance system In 2018, the Company saw improvements together with other shareholders at least In addition to the Annual General bringing to the Board her unique knowledge, 1. Are an employee or a member of PhosAgro is a public company, whose in a number of principles of the Corporate 10% of issued voting shares. The General Shareholders’ Meeting, three Extraordinary skills and competencies. a management body and/or executive shares are included in Moscow Exchange’s Governance Code. In particular, the materials Shareholders’ Meeting has the exclusive General Shareholders’ Meetings were held bodies of a major counterparty Level 1 quotation list, and its depositary for meetings now contain information on the authority to take decisions on a number in 2018, the main subject of which was the The Annual General Meeting of Shareholders or competitor of the Company or receipts are traded on the London Stock shareholders who proposed agenda items of matters, including: distribution of dividends in accordance with of 30 May 2018 elected a new Board of organisations under its control; Exchange. The listing of securities on and those who nominated candidates for the • implementation of amendments and the Company’s dividend policy. In addition, Directors and appointed Xavier R. Rolet as 2. Are an owner or a beneficiary of shares Russian and foreign stock exchanges Company’s Board of Directors and Statutory additions to the Company’s Charter, or a decision on the composition of the new a new independent director. As a result, (a stake) in a major counterparty imposes stricter requirements in terms Audit Commission, as well as the results adoption of a new version of the Charter Board of Directors was taken in light of the the number of independent non-executive or competitor of the Company that of corporate governance. The Company’s of the assessment by the Remuneration • reorganisation or liquidation of the changes to the corporate structure. directors was increased to seven, a change constitutes more than 5 per cent of the corporate governance activities are based and Human Resources Committee of Company that confirms the Company’s commitment to authorised capital or total number of on the principles and recommendations set candidates for the Board of Directors; • election and removal of members of the Role and composition of the Board best practices in corporate governance. voting shares (stakes). forth in the Corporate Governance Code the Board of Directors approved the Risk Board of Directors of Directors recommended for use by the Bank of Russia, Management and Internal Control Policy • increases or reductions in the Company’s The Board of Directors operates in An independent director (and therefore A person shall be considered to be related as well as other requirements of the regulator and made changes to related documents; authorised capital accordance with the Law on Joint Stock candidates for the position of independent to the government or a municipality if, inter (Bank of Russia) in the areas of corporate all material transactions were given the prior • approval of the Company’s external auditor Companies, the Company’s Charter, the director) is a person who is unrelated to: alia, they are currently or were within one governance, the Listing Rules of the Moscow consent of the Board of Directors or the • approval of the Company’s annual reports Company’s Regulations on the Board of • the Company year prior to election to the Board of Directors and London stock exchanges, as well as General Shareholders’ Meeting; an order was and financial statements Directors, the Central Bank of Russia’s • a major shareholder of the Company a state or municipal employee, a person standards for the disclosure of information prepared and issued on the procedure for • distribution of profits, including payment recommended Corporate Governance Code, • a major counterparty of the Company substituting positions in public authorities, developed by the Global Reporting Initiative preparing materials for the Board of Directors of dividends guidelines of the UK Corporate Governance • a competitor of the Company an employee of the Bank of Russia, or a (GRI). that established, among other things, the • payment of remuneration to the members Code and generally accepted good practice • the government (the Russian Federation number of other cases stipulated by the grounds for engaging an independent of the Board of Directors and the Review in corporate governance. or a constituent entity of the Russian above documents. The Company is constantly developing assessor when giving consent (approval) Committee Federation) or a municipality its corporate governance system. Such to material transactions. At the Annual General Meeting of changes aim to improve internal efficiency Voting at a General Shareholders’ Meeting is Shareholders, the Members of the Board A person shall be considered to be related THE BOARD OF DIRECTORS and external competitiveness, which includes Our General Shareholders’ Meeting is generally based on the principle of one vote of Directors are elected by cumulative to the Company in the event that they or IS CONSTANTLY LOOKING raising the level of acceptance of corporate the principal forum through which the per ordinary share, with the exception of the voting for a year-long term. persons related to them, inter alia: governance practices among stakeholders. Company’s shareholders decide which issues election of the Board of Directors, which is 1. Are currently or have been in the preceding FOR NEW WAYS TO One of the criteria related to the maturity are most critical to our business. These done by cumulative voting. According to the Since 2011, PhosAgro’s Board of Directors, three years members of either the MAKE ITS ACTIVITIES of the Company’s corporate governance include approving financial statements and Law on Joint Stock Companies, the quorum as well as its main committees – the Audit executive bodies or employees of the MORE EFFICIENT, system is the degree to which it complies amending the Company’s Charter and other requirement for a General Shareholders’ Committee and the Rumuneration and Company or of entities controlled by the AND TO IMPROVE ITS with the recommendations of the Corporate internal documents. The Board of Directors Meeting is that shareholders (or their Human Resources Committee – have been Company and or the managing company; Governance Code adopted by the Central provides overall guidance to the Company, representatives) accounting for more than chaired by independent directors. Moreover, 2. Are members of the Board of Directors of IMPLEMENTATION OF Bank of the Russian Federation. except in areas that are the remit of the 50% of the issued voting shares must be these committees are composed entirely a legal entity that controls the Company, THE BANK OF RUSSIA’S Shareholders’ Meeting. It sets targets and present. of independent directors. In 2018, the Risk is controlled by the Company, or is a RECOMMENDATIONS FOR oversees how the Management Board and Management Committee was also chaired management company of such a legal THE PERCENTAGE the Chief Executive Officer strive to achieve A General Shareholders’ Meeting may be held by an independent director. Since 2017, entity; and in a number of other cases CORPORATE GOVERNANCE OF THE CODE’S them. The Management Board and the Chief in the form of a meeting (in person) or in the the Board of Directors has been made up stipulated by the above documents. AND COMPLIANCE REQUIREMENTS FULLY Executive Officer manage the Company’s form of absentee voting. All shareholders of 10 members. The Board was expanded WITH INTERNATIONAL day-to-day operations and implement the entitled to participate in the General both because of the requirements of A person shall be considered to be related to CORPORATE GOVERNANCE IMPLEMENTED BY THE strategy approved by the Board of Directors. Shareholders’ Meeting are notified of the Russian corporate legislation and because a major shareholder of the Company in the COMPANY HAS BEEN Meeting by a notice posted on a Company’s of the Company’s desire to recruit as event that they or persons related to them, STANDARDS INCREASING EVERY The General Shareholders’ Meeting website usually 21 days prior to the Meeting. many independent directors as possible. inter alia, are employees or members of the The General Shareholders’ Meeting is the The list of persons entitled to participate in a Since the Company has more than 10,000 executive bodies of a major shareholder of YEAR AND CURRENTLY Company’s highest governing body and is General Shareholders’ Meeting is compiled shareholders, there should be, according the Company, as well as in a number of other EXCEEDS 80% convened by the Board of Directors at least on the basis of data in the Company’s to Russian corporate legislation, no fewer cases stipulated by the above documents. once a year. The Annual General Meeting register of shareholders as of the date than nine Board members. The new makeup is held every year between 1 March and 30 established by the Board of Directors. of the Board of Directors was determined A person shall be considered to be related June. Extraordinary General Meetings may General Shareholders’ Meetings are usually at the Extraordinary General Shareholders’ to a major counterparty or competitor of the be convened by the Board of Directors on held in Russia (Moscow). Meeting held on 26 February 2018, when new Company in the event that they or persons its own initiative or at the request of the independent director Irina Bokova was added, related to them: Review Committee, the external auditor or a shareholder owning individually or
140 141 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SYSTEM AND PRINCIPLES OF CORPORATE GOVERNANCE continued
The main areas of activities undertaken by • the Company’s strategy in the area • monitoring the implementation of priority In addition, the Board of Directors reviewed Planning and evaluation of the activities Board committees the Board of Directors in 2018 included: of international projects; areas of the Company’s activities in 2018 a number of anti-corruption documents: of the Board of Directors The committees of the Board of Directors are • assessment and quarterly monitoring • the sales strategy for mineral fertilizers; and determining priority areas of the • Regulation on Conflicts of Interests within In accordance with the recommendations of advisory and consultative bodies. The Board of the risk management process; • development of a project management Company’s activities for 2019; the Company; the Corporate Governance Code, the Board committees consist of current members of • assessment and quarterly monitoring system at Group enterprises; • reviewing the Company’s budget for 2019, • The Company’s Code of Ethics; of Directors conducted a self-assessment the Board of Directors who have relevant of the activities of subsidiaries in the areas • evaluation of the performance of the as well as quarterly review of the budget • Regulation on the Company’s Hotline. based on 2018 results. In general, most experience and expertise in the area of each of workplace health and safety, industrial Company’s CEO and Management Board; for 2018. aspects of the work of the Board of committee’s focus. safety and environmental protection; • oversight over management relations The above-mentioned documents were Directors and its committees were given a • ensuring compliance with the provisions with shareholders, investors and other amended to reflect changes in Russian positive evaluation. According to the main The committees can also involve external of the Company’s Information Policy and stakeholders; IN 2018, THE BOARD and international anti-corruption legislation. criteria for assessing the impact of their experts and consultants in their work. determining the priorities thereof; • supervising activities aimed at formulating OF DIRECTORS HELD activities, the survey showed a positive The primary role of the committees is • assessment of the effectiveness of the a Development Strategy to 2025, and the 9 MEETINGS COVERING Key documents in the field of corporate trend in comparison with Board members’ the preliminary consideration of the key Company’s risk management and internal implementation status of the Strategy governance—the Company’s Risk assessments from 2016 and 2017. The issues reserved for the Company’s Board of control system; to 2020; A TOTAL OF 77 ISSUES Management and Internal Control Policy self-assessment was carried out on the Directors. The committees are responsible • assessing the degree to which the • assessment of the work of the Corporate and its Corporate Governance Code — basis of a survey of members of the Board for ensuring that issues brought before the requirements of the Company’s Insider Secretary; were updated in response to amendments of Directors. The final report on the results Board have been subject to sufficient review Information Policy were met; to Russian laws in 2018. The Board of of the self-assessment was presented and in order to ensure that the directors are able Directors also approved the work plan for reviewed at meetings of the Remuneration to cast their votes based on full and accurate the Company’s Internal Audit Department for and Human Resources Committee and of information. To achieve this, committee 2019. the Board of Directors. After being discussed, members maintain a regular dialogue with Held Board Audit Strategy Remuneration Risk Management Environment, the following self-assessment results were management, the Company’s external auditor of Directors Committee Committee and Human Committee Health and Safety In addition to the above-mentioned issues, recorded: the composition of the Board of and other advisors on the issues that fall Attended Resources Committee the Board of Directors also reviewed Directors fully meets the requirements of within their remit. Committee Year Name and approved financial statements on a the Code and the Moscow Exchange listing of birth quarterly basis, appointed the Company’s rules. The directors consider the Board’s
Andrey A. Guryev 1982 9 9 1 1 4 4 2 2 top executives, approved major and composition to be strong and balanced. interested-party transactions, and convened The Board’s performance remained highly
Andrey G. Guryev 1960 9 6 1 1 shareholders’ meetings. rated. An improvement in the quality of Board discussions was noted. In addition, In August 2018, an on-site meeting of following a review of the results of the self- Sven Ombudstvedt² 1966 9 9 5 5 1 1 5 5 2 1 the Board of Directors took place at the assessment, the main areas for development Metachem site in Volkhov, where the and improvement of the Board of Directors in Natalia Pashkevich² 1939 9 7 2 1 Company’s key investment project for the 2019 were agreed. construction of new fertilizer production Marcus Rhodes 1961 9 9 5 5 5 5 facilities got under way last year. Board members were informed about how the Ivan Rodionov¹,² 1953 9 4 4 2 design and construction of the facility— an extremely important project for the James Rogers 1942 9 9 5 5 5 5 Company—was progressing. On the basis THE BOARD’S ACTIVITIES ARE PLANNED. MEETINGS ARE of a detailed study of project indicators, the Mikhail Rybnikov 1975 9 9 1 1 4 4 2 2 Board gave the decisions of the Company’s HELD AT LEAST ONCE A QUARTER. THE BOARD CONFIRMS management a positive assessment. The THE DATES AND AN INDICATIVE AGENDA IN ADVANCE Irina Bokova¹ 1952 9 7 meeting highlighted significant progress in ONCE PER YEAR, MAKING CHANGES AS NEEDED all key areas of the Company’s operations in , THROUGHOUT THE YEAR Xavier R. Rolet¹² 1959 9 4 4 2 recent years.
Andrey Sharonov 1964 9 9 5 4
Alexander 1977 9 1 Sharabaiko¹
¹ Alexander Sharabaiko was a member of the Board of Directors until 26 February 2018; Ivan Rodionov was a member of the Board of Directors until 30 May 2018; Irina Bokova has been a member of the Board of Directors since 26 February 2018, and Xavier R. Rolet has been a member since 30 May 2017. ² Ivan Rodionov was the Chairman of the Risk Management Committee until 30 May 2018; Xavier R. Rolet has been the Chairman of the Risk Management Committee since 30 May 2018; Sven Ombudstvedt was a member of the Environment, Health and Safety Committee until 30 May 2018; Natalia Pashkevich has been a member of the Environment, Health 142 and Safety Committee since 30 May 2018. 143 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SYSTEM AND PRINCIPLES OF CORPORATE GOVERNANCE continued
STRUCTURE OF THE BOARD OF DIRECTORS Some of the matters for which the Chief Regular (quarterly) remuneration for the be at a level that enables the Company to Executive Officer is responsible are: Chairman of the Board of Directors, who is an attract, motivate and retain highly skilled In relation to Period of service Age Place • representing the Company before all independent director and is paid an amount professionals to help drive the future growth the Company on the Board of residence federal and local authorities and in equivalent to USD 90,000.00 for a full quarter and performance of the business. At the same meetings with organisations and entities at the official exchange rate set by the Bank time, their remuneration shall not exceed the in Russia and abroad of Russia on the last day of the quarter for amount needed to achieve this. Under 40 USA Non-executive • hiring and dismissing the Company’s which payment is made. Other independent >7 years personnel members of the Board of Directors are paid In 2018, the total remuneration paid 40–50 • carrying out all other activities and legal remuneration in an amount equivalent to USD to PhosAgro’s Board of Directors was Executive steps required to be conducted on behalf 45,000.00 for a full quarter at the official rate RUB 97,318 thousand (excluding reimbursed of the Company in accordance with the set by the Bank of Russia on the last day of expenses). The amount of remuneration 4–7 years 60 Europe Company’s Charter, decisions of the Board the quarter for which payment is made. and additional compensation paid to Independent of Directors and the General Shareholders’ PhosAgro’s Chief Executive Officer is Environment, health and safety Meeting and/or in accordance with current Additional (quarterly) remuneration is paid regulated by a contract between the Chief legislation to the chairmen of Board committees who Executive Officer and the Company, which <3 years 50–60 Russia are independent directors or who are not is signed by the Company’s Chairman of the HR management HR management Andrey A. Guryev was the Company’s Chief Company employees in an amount equivalent Board of Directors. The total remuneration Executive Officer throughout 2018. For Mr to USD 30,000.00 for a full quarter according reflects the Chief Executive Officer’s
Risk management Guryev’s biographical details, please see the to the official exchange rate set by the Bank qualifications and takes into account the Risk management “Board of Directors” section of this report. of Russia on the last day of the quarter for particular contribution of the Chief Executive Law and corporate which the payment is made. Officer to the Company’s financial results. Law andgovernance corporate governance Principles for remuneration of members of the Board of Directors Compensation is provided for actual Management Board remuneration When determining the composition of the expenses incurred by the members of The remuneration paid by the Company to Board, the General Shareholders’ Meeting PhosAgro’s Board of Directors in connection the Chief Executive Officer and the six other Executive bodies • Arranging the preparation and provision The Chief Executive Officer approves the amount and the rules for with the performance of their functions members of the Management Board (who The Company’s day-to-day operations of reports to the Board of Directors According to the Company’s Charter, the determining and paying remuneration and as members of the Board of Directors. represent the Senior Management Team) for and the implementation of its strategy are on PhosAgro’s financial and operating Chief Executive Officer is appointed by the compensation to members of the Board Reimbursement for expenses is provided their services to the Company during the year managed by its collective executive body performance; Company’s Board of Directors for a period of Directors. In addition, the amount of within the first 20 days of the month ended 31 December 2018 was RUB 185.6 (Management Board) and its sole executive • Approving the regulations on of three years and may be dismissed by a remuneration provided by the Company following the reporting month on the basis million (in 2017 it was RUB 234.5 million). body (CEO). incentivisation and other internal decision of the Board of Directors at any to members of the Board of Directors of requests from members of the Board documents that determine the time. The Company’s Corporate Governance creates sufficient motivation for them to of Directors submitted to PhosAgro’s sole The renumeration paid to the Company’s Management Board compensation and benefit policies Code provides that the Chief Executive Officer work effectively, allowing the Company executive body, accompanied by documents senior executives consists of a monthly base The matters that fall within the remit of the for PhosAgro employees; must act in good faith and with due diligence to attract and retain competent and confirming actual expenses incurred. salary plus additional compensation that is Management Board are set out in the Charter • Election and removal of the secretary to further the interests of the Company and skilled professionals. At the same time, paid twice a year. and include: of the Management Board and their its shareholders. All issues related to the the Company avoids paying out more Compensation and reimbursements are • Reviewing, revising and approving powers. Company’s day-to-day operations are within remuneration than is necessary. paid out in cash from PhosAgro’s payment PhosAgro’s quarterly and annual budgets; the authority and responsibility of the Chief office or, upon the submission of the relevant • Determination of the Company’s During the reporting period, the Management Executive Officer except for those matters The Company pays remuneration to members request from a member of PhosAgro’s Board investment policy and new areas of Board held six meetings, at which it reviewed that are subject to ratification by the General of the Board of Directors during the period of Directors to PhosAgro’s sole executive operations; the Company’s quarterly financial and Shareholders’ Meeting, the Company’s Board during which they exercise their duties, and body (CEO), by a bank transfer to the account • Developing PhosAgro’s capital expenditure operational performance. It summarised of Directors and/or the Management Board. it also reimburses expenses related to their indicated in the request. plans and strategy with respect to any new the results of the Company’s 2017 activities The Chief Executive Officer, together with performance as members of the Board of business activities; in March, identified the Company’s priority the Management Board, is responsible for Directors. Regular (quarterly) remuneration Board of Directors remuneration • Making decisions on entering into, activities for 2019 in November, and ensuring that the Company’s strategy and is paid only to independent members of the Members of PhosAgro’s Board of Directors amending or terminating transactions approved the 2019 budget in December. the decisions of the General Shareholders’ Board of Directors. Additional (quarterly) may receive remuneration and be related to the disposal or possibility The Management Board also made decisions Meeting and the Board of Directors are remuneration is paid to the chairmen of compensated for expenses incurred in the of disposal of securities owned by the to approve and amend the charity budget. implemented. In order to ensure efficient Board committees who are independent course of their duties in accordance with Company or shares in the charter capital corporate communications between the directors, as well as to members of the decisions of the General Shareholders’ of business entities whose book value Company’s Board of Directors and the Chief Board of Directors who are not Company Meeting. According to the Company’s exceeds 20% of the book value of the Executive Officer, the Chief Executive Officer employees. Remuneration is paid quarterly Corporate Governance Code, the remuneration Company’s assets; submits regular quarterly reports to the no later than 20 days from the end of the of the Board of Directors shall be in line Board. reporting quarter. with current market conditions and shall
144 145 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SYSTEM AND PRINCIPLES OF CORPORATE GOVERNANCE continued Company’s investment attractiveness recommended by the Board of Directors on At the end of 2018, PricewaterhouseCoopers and its capitalisation. 19 March 2019. conducted an assessment of the compliance BOARD OF DIRECTORS REMUNERATION RUB of the Internal Audit Department with the The Dividend Policy Regulation approved The Review Committee requirements of the International Standards 2017 2018 by the Company establishes a transparent The Review Committee may undertake for the Professional Practice of Internal Igor Antoshin 4,749,761.34 — procedure for determining the dividend audit procedures either on its own initiative, Auditing, the Institute of Internal Auditors’ amount and the payment thereof. Its pursuant to a decision of the General Code of Ethics and the requirements of Sven Ombudstvedt 19,376,953.47 22,957,434.00 purpose is also to provide information Shareholders’ Meeting or the Board of the corporate governance code approved on the conditions and procedure for the Directors or at the request of shareholders by the Board of Directors of the Bank of James Rogers 16,147,461.81 19,131,195.00 payment of dividends to all interested owning at least 10% of the shares in the Russia. Significant improvement was noted Ivan Rodionov 6,458,984.49 2,959,284.38 parties and to determine guidelines for Company. The General Shareholders’ in the work of the Internal Audit Department the Company’s Board of Directors when Meeting elects the members of the Review compared to 2017. A plan was developed Marcus Rhodes 16,147,461.81 19,131,195.00 developing recommendations on the amount Committee for the period until the next and is currently being implemented to further of dividends on shares and the procedure for Annual General Shareholders’ Meeting. improve the internal audit function. Andrey Sharonov 2,592,009.00 11,478,717.00 the payment thereof. The Review Committee comprises three Xavier Rolet — 11,784,706.71 members and is led by the Chairman of Members of PhosAgro’s Board of Directors In accordance with this Regulation, when the Review Committee. Members of the On 1 January 2018, as elected by the Irina Bokova — 9,875,299.80 determining the amount of dividends to Committee cannot be on the Company’s Extraordinary General Shareholders’ Meeting recommend to the General Shareholders’ Board of Directors at the same time, nor of 2 October 2017: Total 65,472,631.92 97,317,831.89 Meeting and the corresponding share of the can they hold positions in the Company’s 1. Andrey A. Guryev Company’s net profit to allocate for dividend executive bodies. 2. Andrey G. Guryev Payment of additional compensation is legitimate interests of investors and to information and the Company bylaws payments, the Company’s Board of Directors 3. Sven Ombudstvedt based on achieving the Company’s key prevent actions by the Company, employees, adopted in accordance with said legal strives to ensure that the amount of funds Internal audit 4. James Rogers performance indicators and accomplishing members of the Board of Directors and the requirements is the Office of the Corporate allocated for dividend payments ranges The Company’s Internal Audit Department 5. Ivan Rodionov additional tasks and goals, as set by the Statutory Audit Commission, related parties, Secretary. The functions performed in this from 30% to 50% of the Company’s profit in assists the Company’s executive 6. Marcus Rhodes Board of Directors and the Chief Executive customers and counterparties aimed at area include the maintenance of lists of accordance with its consolidated financial management and Board of Directors in 7. Mikhail Rybnikov Officer for the reporting year or quarter. misusing insider information and market Company insiders and related parties; the statements under IFRS for the relevant improving the effective management of 8. Natalia Pashkevich The key performance indicators for each manipulation. sending and recording of notifications related reporting period. business processes, as well as the operation 9. Alexander Sharabaiko individual senior manager are set by to the maintenance of said lists; notification of the internal control and risk management 10. Andrey Sharonov period and mainly consist of indicators for The Company’s Insider Information of the persons performing managerial When determining the recommended systems. sustaining operational efficiency, as well Regulation was developed on the basis duties about periods when transactions dividend amount, the Company’s Board On 29 May 2018, as elected by the as for contributing to the achievement of of Russian legislation on countering the involving Company securities are prohibited of Directors must take into account the In its activities, the Internal Audit Extraordinary General Shareholders’ Meeting corporate growth and strategy. unlawful use of insider information and for them; analysis of the possibility of Company’s financial performance for the Department uses a risk-based approach of 26 February 2018: market manipulation, as well as the European using the Company’s insider information relevant reporting period; the amount of profit and works closely with the Departments 1. Irina Bokova To determine the amount of additional annual Union’s market abuse regulation. It governs in transactions involving the Company’s to be allocated for investment and growth, of Risk Management, Internal Control and 2. Andrey A. Guryev compensation, the Company’s EBITDA for the the procedure for drawing up a list of insider securities; preparing a report for the Board financing the Company’s social responsibility Economic Security, as well as with Company 3. Andrey G. Guryev reporting period (pursuant to a decision of information; the procedure for compiling of Directors on the Company’s fulfilment of and other projects; as well as other management. 4. Sven Ombudstvedt the Board of Directors) is taken into account. a list of Company insiders and submitting its legal requirements in terms of protecting significant factors for making an informed 5. James Rogers the list to interested parties; the rules for and sharing insider information; analysis decision on recommended dividends. In 2018, the Internal Audit Department 6. Ivan Rodionov Insider Information Policy the Company’s notification of insiders, as of the grounds for, and organisation of, the audited the Company’s business processes 7. Marcus Rhodes Insider Information is precise and specific well as the rules for insiders’ notification of disclosure of information on transactions If the Company has a net profit based in the following areas: procurement 8. Mikhail Rybnikov information that has not been distributed or the Company and the authorities in charge involving insiders and related parties in on the results of the reporting period, the of materials and services, inventory 9. Natalia Pashkevich shared that, if distributed or shared, could of regulating securities; the procedure for accordance with the requirements of Company’s Board of Directors has the right management, treasury, and investments, as 10. Andrey Sharonov have a significant impact on the value of gaining access to insider information and for European legislation; advising the Company’s to refrain from recommending the payment well as IT audits of the Company’s business the Company’s securities. A list of such sharing insider information with interested employees on issues related to handling of dividends in cases where there is a systems. The audit plan for the year is On 31 December 2018, as elected by the information within the Company has been parties; the privacy policy regarding insider insider information. reasonable assumption that the payment reviewed, discussed, and approved by the annual General Shareholders’ Meeting of drawn up and approved in accordance with information; the rules for insiders to conclude of dividends could entail a significant Audit Committee and the Board of Directors. 30 May 2018: the applicable legal requirements. transactions involving the Company’s Dividend Policy deterioration in the Company’s financial Audits are performed both at the Group level 1. Irina Bokova securities; rules for monitoring compliance The Company’s Dividend Policy is based position. and within subsidiaries. 2. Andrey A. Guryev An insider is a person who has the right to with the requirements of legislation and on balancing the interests of the Company 3. Andrey G. Guryev access insider information on the basis of these regulations; other issues related to and its shareholders when determining According to the results of the Company’s In addition, the Internal Audit Department 4. Sven Ombudstvedt a law, other regulatory legal act, their job the handling and safeguarding of insider the dividend amount, on respecting and activities, the declared dividends amounted monitors the implementation by the 5. James Rogers description or Company bylaws, as well as on information. strictly observing the rights of shareholders, to 60% of the net profit adjusted for FX. The Company’s management of corrective 6. Xavier Rolet the basis of an agreement with the Company. as stipulated by the applicable Russian total amount of dividends declared in 2018 actions proposed based on audit results 7. Marcus Rhodes The Company division responsible for legislation, the Company’s Charter and and in 2019 will amount to RUB 24.9 billion, and reports to the Board of Directors on a 8. Mikhail Rybnikov The purpose of the Company’s Insider fulfilling the legal requirements on insider its bylaws, and is aimed at increasing the pending AGM approval of the dividends quarterly basis. 9. Natalia Pashkevich Information Regulation is to protect the 10. Andrey Sharonov 146 147 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information BOARD OF DIRECTORS OF PJSC PHOSAGRO As of 31 December 2018
OMBUDSTVEDT GURYEV GURYEV SVEN ANDREY G. ANDREY A.
Chairman Deputy Chairman Title: Executive Director
Title: Independent Director Title: Non-executive Director Year of election: 2013
Year of election: 2011 Year of election: 2013 Equity interest / Stake of ordinary shares: no
Equity interest / Stake of ordinary shares: 0.001% Equity interest / Stake of ordinary shares: no Date of birth: 7 March 1982
Date of birth: 27 July 1966 Date of birth: 24 March 1960 Education: The University of Greenwich in London Academy of National Economy under Education: Education: BA in Economics the Government of the Russian Federation Pacific Lutheran University (USA) The G. V. Plekhanov St. Petersburg State Mining Institute Master’s degree; PhD in Economics Bachelor’s degree in Business Administration Degree in Economics and Management of Mining and Exploration The Thunderbird School Enterprises 2011 CJSC PhosAgro AG 2013 PJSC PhosAgro 2016 Russian Rhythmic of Global Management Central State Institute for Physical Education — Deputy CEO for Sales and Logistics — CEO — Gymnastics Federation Master’s degree in International Management 2013 (in addition to other duties) Present Chairman of the Managment Board Present Chairman of the Board of Trustees, Chairman of the Strategy Committee Vice-President 2011 OJSC PhosAgro Member of the Environmental, Health 2008 Saferoad AS 2006 Russian Chemists Union — Deputy CEO and Safety Committee 2016 International Fertilizer — Member of the Board — Vice-President 2013 2013 Present Member of the Risk Management — Industry Association (IFA) of Directors Committee Present Member of the Board of Directors 2011 Moscow Rhythmic — Gymnastics Federation 2010 Western Bulk 2001 Federation Council of the Federal Assembly 2014 JSC PhosAgro-Cherepovets — — Present President 2016 Miners of Russia non-commercial 2013 Member of the Board of Directors of the Russian Federation — Member of the Management Board — partnership 2013 2016 Member of the Federation Council Present Deputy Chairman of the Supreme Mining 2012 Andrey Guryev Charitable Foundation 2010 Norske Skogindusttrier ASA of the Russian Federation Council — Chairman of the Management Board 2014 Russian Chess Federation — CEO Present 2017 — Member of the Board of Trustees 2013 PJSC PhosAgro Present — Deputy Chairman of the Board of Directors 2011 PJSC PhosAgro Present 2012 JSCB Investment Trading Bank OJSC Member of the Strategy Committee 2015 The Russian Olympians Foundation — Chairman of the Board of Directors — Member of the Board of Directors 2014 — Member of the Board of Trustees Present Member of the Audit Committee Present of the Foundation Member of the Strategy Committee 06.2017 JSC AgroGard-Finance — Member of the Board of Directors 2012 LLC PhosAgro-Region Member of the Board of the Foundation 06.2018 — Member of the Management Board 2017 Norske Skogindusttrier ASA Present 2015 Russian Union of Industrialists — Special Advisor 2017 06.2018 JSC AgroGard-Finance — and Entrepreneurs — Chairman of the Board of Directors 2013 PJSC PhosAgro Present Member of the Management Board Present — Member of the Board of Directors 2017 Norske Skog AS Present — Chairman of the Board 2016 Russian Association of Fertilizer Present of Directors — Producers Present President 2017 Norske Skog Holding AS — Member of the Board of Directors Present
Key competencies: Key competencies: • Strategy • Strategy Key competencies: • Finance and audit • Chemistry and mining engineering • Strategy • Chemistry and mining engineering • Environment, health and safety • Human resources
148 149 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information BOARD OF DIRECTORS OF PJSC PHOSAGRO continued
ROGERS RHODES PASHKEVICH JAMES BEELAND JR. MARCUS JAMES NATALIA V.
Title: Independent Director Title: Independent Director Title: Independent Director
Year of election: 2014 Year of election: 2011 Year of election: 2017
Equity interest / Stake of ordinary shares: 0.0064% Equity interest / Stake of ordinary shares: 0.000644% Equity interest / Stake of ordinary shares: no
Date of birth: 19 October 1942 Date of birth: 31 May 1961 Date of birth: 5 November 1939
Education: Education: Education: Yale University (USA) University of Oxford, as a member of Balliol College (England) University of Loughborough Leningrad Mining Institute Bachelor’s degree Bachelor’s / master’s degree in Philosophy, Politics and Economics BS in Economics and History of Economics Grand PhD in Economics, Professor The Institute of Accountants in England and Wales Qualified as a chartered accountant, member Directorship: Advisor:
1986 Virtus Total Return Fund Inc. 2014 Sinofortune Financial Holdings Limited 2006 CQS Cayman Limited Partnership 2008 OJSC Rosinter Restaurants Holding 1999 Saint Petersburg Mining University — Director — Non-Executive Director — Advisor — Member of the Board of Directors — First Vice-Rector Present Present 2015 2015 Present
1988 Virtus Global Dividend & Income Fund Inc. 2016 Duff & Phelps Select Energy MLP Fund Inc. 2011 Forbes & Manhattan 2008 OJSC Cherkizovo Group 2017 PJSC PhosAgro — Director — Director — Advisor Present Present — Member of the Board of Directors — Member of the Board of Directors Present Present 2016 Member of the Environmental, Health and Safety Committee 1990 Beeland Interests, Inc. 2016 Virtus Global Multi-Sector Income Fund 2012 Santiago Gold Fund — — Trustee — Advisor 2008 Tethys Petroleum Limited Director Present Present Present — Member of the Board of Directors 2015 03.2016 Crusader Resources Limited 2007 Beeland Enterprises, Inc. 2013 Laguna Bay Pastoral Company Pty Ltd — Non-Executive Director — Advisor 2011 PJSC PhosAgro — Director 04.2018 01.2018 Present — Member of the Board of Directors Present Chairman of the Audit Committee 08.2017 JSC AgroGard-Finance 2007 Beeland Holdings Pte Ltd 02.2014 Genagro Limited — Independent Director — — Director Present Member of the Advisory Board Present Present 2014 QIWI plc — Member of the Board of Directors Present 2012 Spanish Mountain Gold Limited 01.2018 Ocean Capital Advisors LLC 07.2015 Latitude Technologies Limited — — — Senior Advisor Director Director 01.2017 Present Present 2014 Zoltav Resources Inc — Member of the Board of Directors 2017 2012 Geo Energy Resources Limited 09.2018 Quantum Digital Asset 04.2017 Agritrade Resources Ltd (left on 23 May 2017) — — Non-Executive Director — Management Pte. Ltd. Advisor Present Present Present Member of the Board of Directors 2018 Rustranscom Plc — Non-Executive Director 06.2013 Fab Universal Corp 08.2017 ITF Corporation Present — Independent Director 11.2018 Sirius International Insurance Group, Ltd. — Advisor 06.2014 — Member of the Board of Directors 08.2018 Present 10.2017 Global Blockchain Technologies Corp 2014 PJSC PhosAgro 12.2018 Ananti Inc — Advisor — Member of the Board of Directors — Director 10.2018 Present Chairman of the Remuneration Present and Human Resources Committee Member of the Audit Committee
Key competencies: Key competencies: Key competencies: • Finance and audit • Finance and audit • Chemistry and mining engineering • Human resources • Corporate governance
150 151 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information BOARD OF DIRECTORS OF PJSC PHOSAGRO continued
RYBNIKOV SHARONOV MIKHAIL K. ANDREY V.
Title: First Deputy CEO of PJSC Phosagro Title: Independent Director
Year of election: 2016 Year of election: 2017
Equity interest / Stake of ordinary shares: 0.0258% Equity interest / Stake of ordinary shares: no
Date of birth: 30 November 1975 Date of birth: 11 February 1964
Education: Education: Moscow State University Ufa Aviation Institute Russian Academy of Public Administration under Master’s degree in Economics Major in Aviation Instrument Making the President of the Russian Federation Major in Law
2011 LLC PhosAgro-Region 2015 JSC PhosAgro-Cherepovets 2010 Government of Moscow 2014 PJSC NOVATEK — Member of the — Chairman of the Managment Board — Deputy Mayor for Economic Policy — Member of the Board of Directors 2013 Management Board 2017 2013 Present
2012 CJSC PhosAgro AG 2016 PJSC PhosAgro 2011 National Research University Higher School 2015 PJSC VTB Bank — CEO — Member of the Board of Directors — of Economics — Member of the Supervisory Board 2014 2018 2015 Chairman of the Management Board Present Member of the Supervisory Board
2012 JSC PhosAgro-Cherepovets 2016 LLC PhosAgro-Region 2011 JSCB Bank of Moscow 2015 JSC ROSGEO — Member of the Management Board — — — CEO Present Member of the Board Member of the Board of Directors 2017 Present of Directors 2017
2013 OJSC Moscow Stock Exchange 2017 JSC Apatit 2013 Moscow School of Management SKOLKOVO 2015 PJSC Moscow Exchange — Member of the Board of Directors — CEO — 2013 Rector — Member of the Supervisory Board 2018 Chairman of the Management Board 2016 2016 2013 OJSC Apatit 2018 JSC Apatit 2016 Moscow School of Management SKOLKOVO — Member of the Board of Directors 2013 JSC MC Eko-Sistema 2013 — Member of the Management Board — Chairman of the Board of Directors — President Present 2016 Present 2013 JSC PhosAgro-Cherepovets — Member of the Board of Directors 2018 JSC NIIUIF 2014 ALROSA INC (OJSC) 2017 PJSC PhosAgro — 2016 — Member of the Board of Directors — Member of the Supervisory Board Member of the Board of Directors Present 2015 Present Member of the the Audit Committee Member of the Remuneration and 2013 PJSC PhosAgro 2014 LLC MC NefteTransServis Human Resources Committee — Member of the Management Board — Chairman of the Board of Directors Present Chairman of the Environmental, Health and Safety Present 2018 Medicina JSC Committee, Member of the Strategy Committee, — Chairman of the Board of Directors Member of the Risk Management Committee 2014 PJSC Sovcomflot Present — Member of the Board Present of Directors
Key competencies: Key competencies: • Strategy • Finance and audit • Finance and audit • Law and corporate governance • Chemistry and mining engineering • Human resources • Environment, health and safety
152 153 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information BOARD OF DIRECTORS OF PJSC PHOSAGRO continued
ROLET BOKOVA XAVIER ROBERT IRINA G.
Title: Independent Director Title: Independent Director
Year of election: 2018 Year of election: 2018
Equity interest / Stake of ordinary shares: no Equity interest / Stake of ordinary shares: no
Date of birth: 12 November 1959 Date of birth: 12 July 1952
Education: Education: KEDGE Business School (France) The Institute for Higher National Defence Moscow State Institute of International Relations (Russia) John F. Kennedy School of Government at Harvard University (USA), MSc — Management Science, International Business Studies (IHEDN) (France) International Relations Executive Program Columbia Business School (USA) Post-graduate degree Leadership and Economic Development MBA, International Finance
2000 Lehman Brothers (New York and London) 2014 Bank of England 1989 University of Maryland School of Public Affairs 2009 UNESCO — Managing Director — Governor’s Financial Services Forum — Ford Foundation Fellow on US Foreign Policy — Director-General 2007 2017 1989 2017
2007 Banque Lehman Brothers S.A. (France) 2017 London Stock Exchange Group (LSEG) 1995 Ministry of Foreign Affairs 2018 Ban Ki-moon Centre for Global Citizens — — CEO on garden leave — CEO 2018 of the Republic of Bulgaria — Member of the Board of Directors 2009 1997 Secretary of the Council of Ministers Present of Bulgaria for European Integration 2009 London Stock Exchange Group (LSEG) 2017 Department for International Trade Deputy Minister of Foreign Affairs — CEO — Committee of expert advisors 2018 International Automobile Federation 2017 Present of the Republic of Bulgaria — Member of the Board of Directors Bulgaria’s First Secretary of State Present for European Integration 2011 Columbia University Business School 2018 Shanghai Institute of Finance for the Real — — 2018 PJSC PhosAgro Member of the Board of Overseers Economy — SIFRE — Present Present Expert Advisor 1991 National Assembly of the Republic Member of the Board of Directors — of Bulgaria Present Member of the Remuneration and Human 1992 Member of the National Assembly Resources Committee 2013 HM Treasury 2018 Verseon 2002 — Financial Services Trade and Investment Board — Non-executive director 2017 02.2019 — 2005 2014 The European Securities and Markets 2018 PJSC PhosAgro 2005 UNESCO — Authority (ESMA) — Member of the Board of Directors, Chairman — Ambassador of Bulgaria to France and Monaco and 2017 Securities and Markets Stakeholder Group Present of the Risk Management Committee 2009 Permanent Representative of Bulgaria
Key competencies: Key competencies: • Strategy • Environment, health and safety • Finance and audit • Human resources • Risk management • Law and corporate governance • Chemistry and mining engineering
154 155 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGEMENT BOARD As of 31 December 2018
GURYEV RYBNIKOV LOIKOV ANDREY A. MIKHAIL K. SIROJ A.
Date of birth: 7 March 1982 Date of birth: 30 November 1975 Date of birth: 9 September 1972
Equity interest / Stake of ordinary shares: no Equity interest / Stake of ordinary shares: 0.0258% Equity interest / Stake of ordinary shares: no
Education: Education: Education: The University of Greenwich in London Academy of National Economy under the Government Moscow State University Tashkent State Nottingham Trent BA in Economics of the Russian Federation Master’s degree in Economics Economics University University (UK) Master’s degree; PhD in Economics International Economic Bachelor’s degree in Business Relations Management
2011 CJSC PhosAgro AG 2014 JSC PhosAgro-Cherepovets 2011 LLC PhosAgro-Region 2011 CJSC PhosAgro AG — Deputy CEO for Sales and Logistics — Member of the Management Board — Member of the — Human Resources Director 2013 2016 2013 (in addition to other duties) 2013 Management Board 2014 Russian Chess Federation 2013 OJSC PhosAgro 2011 OJSC PhosAgro 2012 CJSC PhosAgro AG — Human Resources Director — — Member of the Board of Trustees — 2015 2013 Deputy CEO Present CEO (along with other duties) 2015 Chairman of the Management Board 2013 CJSC PhosAgro AG 2011 Moscow Rhythmic 2015 The Russian Olympians Foundation — 2012 JSC PhosAgro-Cherepovets — Human Resources and Social — Gymnastics Federation Member of the Board of Trustees 2015 Present Present — CEO Policy Director President of the Foundation 2017 Member of the Board of the Foundation 2013 PJSC PhosAgro 2012 Andrey Guryev Charitable Foundation 2013 OJSC Moscow Stock Exchange — Member of the Management Board — Present Chairman of the Management Board 2015 Russian Union of Industrialists — Member of the Board of Directors Present — and Entrepreneurs 2013 Present Member of the Management Board 2013 LLC Izumrud — Member of the Board of Directors 2012 JSCB Investment Trading Bank OJSC 2013 OJSC Apatit 2017 — Member of the Board of Directors 2016 Russian Association of Fertilizer — Member of the Board of Directors 2013 2014 — Producers 2014 CJSC PhosAgro AG Present President — Member of the Management Board 2012 LLC PhosAgro-Region 2013 JSC PhosAgro-Cherepovets 2015 — — Member of the Board of Directors Member of the Management Board 2016 Russian Rhythmic 2016 Present — 2015 PJSC PhosAgro Gymnastics Federation — Human Resources and Social Policy Director Present Chairman of the Board of Trustees, Vice-President 2018 2013 PJSC PhosAgro 2013 PJSC PhosAgro (along with other duties) — — Member of the Board of Directors Member of the Management Board Present 2016 International Fertilizer Present Chairman of the Environmental, Health and Safety 2015 LLC Korporativnoe pitanie (Corporate Nutrition) — Industry Association (IFA) Committee, Member of the Strategy Committee, — Member of the Board of Directors Present 2018 2013 PJSC PhosAgro Member of the Board of Directors Member of the Risk Management Committee — CEO Present 2015 JSC PhosAgro-Cherepovets Chairman of the Managment Board 2016 Miners of Russia non-commercial 2015 JSC PhosAgro-Cherepovets — Human Resources and Social Policy Director; — partnership — 2017 Chairman of the Strategy Committee Present Chairman of the Managment Board Member of the Management Board Member of the Environmental, Health Deputy Chairman of the Supreme Mining Council 2017 and Safety Committee 2017 LLC Tirvas Member of the Risk Management 2016 PJSC PhosAgro — Member of the Board of Directors — Member of the Board of Directors 2018 Committee Present 2017 JSC Apatit 2016 LLC PhosAgro-Region — Human Resources and Social — Member of the Management Board 2018 Policy Director Present 2017 JSC Apatit 2017 JSC Apatit — Member of the Management Board — CEO 2018 2018 Chairman of the Management Board 2018 PJSC PhosAgro — Deputy CEO 2018 JSC Apatit Present — Member of the Management Board Present
2018 JSC NIIUIF — Member of the Board of Directors Present
156 157 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGEMENT BOARD continued
SHARABAIKO OSIPOV GILGENBERG SIROTENKO ALEXANDER F. ROMAN V. ALEXANDER A. ALEXEI A.
Date of birth: 25 February 1977 Date of birth: 4 November 1971 Date of birth: 6 December 1980 Date of birth: 3 January 1969
Equity interest / Stake of ordinary shares: no Equity interest / Stake of ordinary shares: no Equity interest / Stake of ordinary shares: no Equity interest / Stake of ordinary shares: no
Education: Education: Education: Education: Baltic State Technical University Moscow State University Belarusian State Economic University Nottingham University Business School Master’s degree from the LETI-Lovanium International The Vologda branch of the Moscow State Law Academy Degree in jurisprudence Bachelor of Economics with honours MBA in Finance School of Management. Law degree
2012 CJSC PhosAgro AG 2015 LLC PhosAgro-Region 2012 PJSC PhosAgro 2006 CJSC PhosAgro AG 2015 LLC Gorniy tseh 2007 CJSC PhosAgro AG — Chief Financial Officer — Member of the Management Board — Member of the Board of Directors — Head of Legal — Member of the Board of Directors — Member of the Management Board 2014 Present 2015 2013 2018 2015
2013 OJSC PhosAgro 2017 PJSC PhosAgro 2012 CJSC PhosAgro AG 2013 The Kirovsk branch 2017 The Kirovsk branch of JSC Apatit 2010 PJSC PhosAgro — — — Member of the Management Board — — Executive director — Deputy CEO for Corporate and Legal Chief Financial Officer Member of the Board 2013 of CJSC PhosAgro AG 2018 Present 2014 2018 of Directors 2014 Head of Legal Affairs (along with other duties) 2013 OJSC PhosAgro 2017 JSC Hibinskаyа Teplovaya 2013 CJSC PhosAgro AG 2017 JSC Apatit 2014 The Kirovsk branch — Member of the Management Board — Member of the Management Board — Kompaniya 2015 — Advisor to the CEO 2013 — of CJSC PhosAgro AG Present 2011 CJSC PhosAgro AG Present 2015 Member of the Board of Directors — Legal Affairs Director Executive director 2015 2013 PJSC PhosAgro 2013 PJSC PhosAgro 2017 JSC Apatit 2018 PJSC PhosAgro — Member of the Management Board — Business Development Director 2014 LLC Tirvas — 2017 — Member of the Management Board Present — Deputy CEO and Chief of Staff for the 2013 PJSC PhosAgro Present Chairman of the Board of Directors 2018 CEO — Member of the Management Board 2018 Present 2014 CJSC PhosAgro AG 2013 JSC AgroGard-Finance 2018 PJSC PhosAgro — 2018 PJSC PhosAgro — Advisor to the CEO — Member of the Board of Directors 2014 LLC Ecoprom 2015 JSC PhosAgro-Cherepovets 2015 Member of the Management Board Present — Member of the Board of Directors — Member of the Management Board Present 2018 Present — Legal Affairs Director 2017 Member of the Management Board 2014 PJSC PhosAgro 2014 JSC Giproruda — Chief Financial Officer — Member of the Board of Directors 2014 LLC Teleset 2018 JSC NIUIF Present Present — Member of the Board of Directors — Member of the Board of Directors 2017 JSC Apatit 2018 Present — Legal Affairs Director Present 2015 JSC PhosAgro-Cherepovets 10.2017 PJSC PhosAgro Member of the Management Board — — Member of the Management Board 2015 JSC PhosAgro-Cherepovets 2018 JSC Apatit Advisor to the CEO Present 2017 — Executive director — First Deputy CEO Member of the Management Board 2017 Present Member of the Management Board 2018 JSC Apatit — Member of the Management Board 2015 JSC Airport Present — Member of the Board of Directors 2018
2015 JSC Kanatnaya doroga (Cableway) — Member of the Board of Directors 2018
2015 LLC Tsentr Stroitelnikh Materialov — (Building Materials wholesale) 2018 Member of the Board of Directors
158 159 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information COMMITTEES OF THE BOARD OF DIRECTORS
RISK MANAGEMENT COMMITTEE AUDIT COMMITTEE
Сommittee members Сommittee members
Xavier R. Rolet Ivan Rodionov Andrey A.Guryev Mikhail Rybnikov Marcus Rhodes Sven Ombudstvedt James Rogers Andrey Sharonov
(since 30 May 2018) (until 30 May 2018) Committee Member, Committee Member, Committee Chairman, Committee Member, Committee Member, Committee Member, Committee Chairman, Committee Chairman, Executive Director Executive Director Independent Non- Independent Non- Independent Non- Independent Non- Independent Non- Non-executive executive Director of executive Director of executive Director of the executive Director of executive Director of Director of the Board the Board of Directors the Board of Directors Board of Directors the Board of Directors the Board of Directors of Directors
Xavier R. Rolet Marcus Rhodes Committee Chairman Committee Chairman
KEY AREAS KEY AREAS
The Committee assists the Board The Committee’s remit includes: The Audit Committee supervises the The Committee’s remit includes: of Directors and other corporate • assessment of the efficiency of the Company’s financial and accounting • reviewing the IFRS financials for integrity units in drafting recommendations Company’s risk management system activities. It reviews and evaluates and transparency; and proposals for identifying the and drafting recommendations for its the Company’s financial statements, • analysis of financial reporting processes, most significant risks, developing improvement; which are prepared by the Company including carrying out regular reviews and management measures, as well as • preparation of risk management and audited by the Company’s external making recommendations for the Board of improving the risk management methodologies, identification of the most auditor. Directors; system. significant risks that require constant • recommending the Company’s external monitoring and management; According to the Regulations on the auditor to the Board of Directors and • preparation of recommendations regarding Company’s Audit Committee, the Audit maintaining an ongoing relationship with improvement of the risk management Committee shall consist of no fewer the external auditor; system; than three current members of the • analysis and support of the internal audit • risk appetite determination. Board of Directors and shall be chaired system and risk management procedures, by an independent director. including drafting recommendations for their improvement.
ACTIVITIES IN 2018 ACTIVITIES IN 2018
Xavier R. Rolet became a member of • Results of a reassessment of the • Quarterly monitoring of the management During the reporting period, the Audit Committee performance based on IFRS consolidated • Developing a 2019 performance plan for the Committee in 2018. His key areas of Company’s key risks and updating the of key corporate risks. held five meetings, where matters covering all financial statements, including reasons for the Company’s Internal Audit Department responsibility include risk management, Company’s risk map; priority areas of the Company’s activity were changes as compared with the results of and monitoring the implementation strategy, finance and audit, law and corporate • Assessment of the efficiency of the risk In 2019, the Committee is planning to pay considered. previous periods; of the 2018 plan, as well as assessing governance, and chemistry and mining. management and internal control system. more attention to the Company’s risk appetite • Distribution of quarterly press releases on the performance of the Internal Audit analysis and deviations. The format of In 2018, the Audit Committe focused on the the Company’s performance for investors; Department and monitoring the In 2018, the Risk Management Committee Key issues to be considered by the Risk quarterly reports will be adapted to reflect following issues, among others: • Analysis of the Company’s compliance with implementation of recommendations. held four meetings. The main issues Management Committee in 2019: this updated approach. • Establishing targets for the 2019 consolidated Russian and European legislation on the considered by the Committee in 2018 were: • Reassessment of the Company’s key risks budget and monitoring the budget planning protection and use of insider information; • Results of the monitoring of the and updating the Company’s risk map; process; • Assessing the Company’s internal management of key corporate risks • Assessment of the efficiency of the risk • Analysis of the implementation of the 2018 oversight and internal audit system; (quarterly); management and internal control system; budget; • Further improving the quality of • Analysis of the Company’s financial the financial accounting and report preparation process;
160 161 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information COMMITTEES OF THE BOARD OF DIRECTORS continued
STRATEGY COMMITTEE REMUNERATION AND HUMAN RESOURCES COMMITTEE
Committee members Committee members
Andrey A. Guryev Andrey G. Guryev Mikhail K. Rybnikov Sven Ombudstvedt James Rogers Andrey Sharonov Irina Bokova Sven Ombudstvedt Marcus Rhodes
Committee Chairman, Committee Member, Committee Member, (since 30 May 2015) Committee (since 20 November (since 20 November (until 20 November (until 20 November 2018) 2018) 2018) Executive Director Non-executive Director Executive Director Committee Member, Chairman, 2018) Independent Director Independent Committee Member, Committee Member, Committee Member, Committee Member, Non-executive Independent Non- Independent Non- Independent Non- Independent Non- Director executive Director executive Director executive Director executive Director
Andrey A. Guryev James Rogers Committee Chairman Committee Chairman
KEY AREAS KEY AREAS
The Strategy Committee assists the The Committee’s remit includes: The Regulations on the Remuneration The Committee’s remit includes: Board of Directors in the development • monitoring and updating the Company’s and Human Resources Committee • development of the Company’s policy of the Company’s strategy and related mid-term and long-term strategy, and require that the Committee Chairman in relation to organising the activities and processes, including management drafting policy as required; be an Independent Non-executive incentivisation of the Board of Directors; of the Company’s assets and review • evaluating the development of the Director on the Company’s Board of • development of the Human Resources of major innovation and investment Company’s subsidiaries, including Directors, and that the Chief Executive Policy in relation to the Company’s senior programmes and projects. The reviewing their strategies; Officer cannot be a member of the management, and supervision of its Committee and its Chairman are • making recommendations regarding Committee. implementation. appointed by the Board of Directors, the Company’s M&A projects; which ensures a comprehensive • analysis and recommendations regarding discussion and analysis of issues potential strategic partnerships. within the Committee’s remit and considers a variety of opinions.
ACTIVITIES IN 2018
Andrey Sharonov and Irina Bokova independence of all candidates for the Remuneration and Human Resources (independent directors) became members Board of Directors; Committee and the guidelines established of the Committee in 2018. Both have the • Assessment of the performance of the by the Corporate Governance Code; ACTIVITIES IN 2018 relevant experience. Company’s executive bodies and senior • Assessment of the Corporate Secretary’s executives in 2017 in accordance with performance; Following the Board of Directors’ self- Company’s economic efficiency, and the In 2018, the Committee worked on creation of Mr Sharonov’s key areas of responsibility the criteria described in the Company’s • Results of the employment satisfaction assessment in 2018, Sven Ombudsvedt outlook to 2025 in terms of the expansion the Corporate Development Strategy to 2025, include finance and audit, law and corporate Remuneration Policy, as well as a survey conducted at PhosAgro and became a member of the Committee. His of output; which is aimed at further strengthening of governance, and HR management, while Ms preliminary assessment of the goals other Group companies, as well as an key areas of responsibility include strategy, • Key indicators and sales development the Company’s leading position in the global Bokova’s key areas of responsibility include achieved by the above-mentioned analysis of the results and the drafting of finance and audit, and chemisty and mining. models; phosphate-based fertilizer industry. HR management and environment, health executives in line with the Company’s recommendations; • Key areas of logistics development; and safety. incentivisation programme; • Recommending that the Board of Directors In 2018, the Strategy Committee held one • Future projects (assessment of prospects, • Results of the implementation of social approve the methodology and schedule for meeting, where the following issues were preliminary calculation of the efficiency During the reporting period, the Remuneration programmes in 2017 and the key social the Board’s performance self-assessment considered: of new products); and Human Resources Committee held four policy areas in 2018; in 2018. • Implementation status of the approved • Key investment projects in 2019. meetings. The main issues considered by the • Analysis of Board members’ involvement Corporate Development Strategy; Committee in 2018 were: in Board activities in accordance with • A strategy for the development of fertilizer • Assessment of the professional skills and the Regulations on the Company’s production, an assessment of the
162 163 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information COMMITTEES OF THE BOARD OF DIRECTORS continued
ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE
Committee members
Mikhail Rybnikov Andrey A. Guryev Natalia Pashkevich Sven Ombudstvedt
Committee Chairman, Committee Member, (since 30 May 2018) (until 30 May 2018) Executive Director Executive Director Committee Member, Committee Member, Independent Non-executive Independent Non- Director executive Director
Mikhail Rybnikov Committee Chairman
KEY AREAS ACTIVITIES IN 2018
The Environmental, Health and Safety The Committee’s remit includes: • the prevention of industrial accidents, Natalia Pashkevich became a member and safety requirements for the operation The Committee monitored the Committee was formed to oversee the • the Company’s compliance with legal including plans, programmes and of the Committee in 2018. Her knowledge of production facilities at the Company’s implementation of environmental mitigation Company’s activities in the areas of and regulatory requirements relating to processes established by the Company and experienced enabled the Committee to subsidiaries as well as benchmark results; plans by the management of PhosAgro environmental protection, the efficient environmental and health and safety to evaluate, manage and decrease risks conduct an assessment of the environmental • Key results of work aimed at environmental Group companies. use of natural resources and energy, issues; of industrial accidents; technology used by the Company, taking safety compliance at the Company’s and occupational health and safety for • the Company’s development and • the improvement of conditions related into account the latest scientific and subsidiaries; In 2018, the Committee focused on analysing employees, including the avoidance of enforcement of policies, procedures and to the health and safety of the Company’s technological advancements, including those • Factor analysis of changes in payment for the Company’s adverse impact on the industrial accidents, and to advise the practices beneficial to the protection of the employees, and the enforcement of developed by the Saint Petersburg Mining any negative impact on the environment; environment in comparison with that of other Board of Directors on such issues. environment and the health and safety of policies for decreasing and eliminating University. • Review of changes to Russian companies, as well as a comparison with the The Committee and its Chairman are employees, contractors, customers and occupational injuries. environmental protection legislation expected adverse environmental impact if the appointed by the Board of Directors. the public; During the reporting period, the and analysis of possible effects for the best available technologies were used. • the evaluation of the Company’s efficient Environmental, Health and Safety Committee Company’s subsidiaries; use of natural resources and energy, held two meetings, where the following • Analysis and assessment of the key enforcement of energy-saving and resource issues were covered: aspects of measures taken by PhosAgro conservation activities within the Company, • Key results of work aimed at compliance Group companies to improve energy and providing recommendations for further with the regulatory occupational health efficiency. implementation and improvement of these activities;
164 165 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SHARES AND DIVIDENDS
Share capital Market of the London Stock Exchange under Common code: 065008939 SEDOL: SHARE/GDR PERFORMANCE PhosAgro’s authorised capital as of 31 the symbol PHOR. 0B5N6Z48 December 2018 is RUB 323,750,000, RIC: GBB5N6Z48.L LONDON STOCK EXCHANGE consisting of 129,500,000 ordinary shares Regulation S GDRS with a par value of RUB 2.5 per share. CUSIP number: 71922G209 ISIN: Citigroup Global Markets Deutschland AG Closing price, USD US71922G2093 acts as the depositary for the Company’s Stock exchanges Common code: 065008939 SEDOL: GDR Programme. PhosAgro’s shares are traded on the A1 0B62QPJ1 quotation list of the Moscow Exchange under RIC: PHOSq.L the symbol PHOR (ISIN: RU000A0JRKT8). Rule 144A GDRS Global depositary receipts (three GDRs CUSIP number: 71922G100 ISIN: represent one share) are traded in the Main US71922G1004
Volume, mln
Analyst coverage PhosAgro is covered by analysts from leading Russian and international brokers:
Company Analyst Phone
Aton Andrey Lobazov +7 (495) 213 0337
BCS Investment Bank Oleg Petropavlovskiy +7 (495) 785 5336 MOSCOW EXCHANGE BMO Joel Jackson +1 (416) 359 4250
Credit Suisse Semyon Mironov +7 (495) 662 8510 Share price, USD
Gazprombank Matvey Taits +7 (495) 983 1800
Goldman Sachs Nina Dergunova +7 (495) 645 4230 Morgan Stanley Muneeba Kayani +971 (4) 709 7117
Deutsche Bank Denis Gabrielik +971 (4) 428 3870
Raiffeisen Konstantin Yuminov +7 (495) 221 9842
Sberbank CIB Irina Lapshina +7 (495) 258 0511 Volume, USD VTB Capital Elena Sakhnova +7 (495) 663 4682 Uralsib Denis Vorchik +7 (495) 788 0888
BAML Stephanie Bothwell +44 (20) 799 50371
Alfa Bank Boris Krasnojenov +7 (495) 795 3612
166 167 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information SHARES AND DIVIDENDS continued
Ownership structure DIVIDEND PAYMENTS Based on information available to the Number of shares Share, % Company, the shares of Chlodwig Enterprises Limited and Adorabella Limited are held in Adorabella Limited 27,385,162 21.15% Type and date of the General Reporting period for which (following Declared dividends, Declared dividends per trusts where the economic beneficiaries are Shareholders' Meeting where the results of which) the declared total, RUB Chlodwig Enterprises Limited 29,151,400 22.51% the relevant resolution on the dividends are (were) paid Mr Andrey Guryev and members of his family. declaration of dividends was ordinary share, depositary receipt, adopted Igor Antoshin1 5,941,353 4.59% RUB RUB As of 29 December 2018, there were no shareholders in the Company with a stake of Vladimir Litvinenko 25,052,800 19.35% EGSM 22 January 2019 – * 9,324,000,000 72.00 24.00 more than 5% beyond those already disclosed by the Company (in the table above). Evgenia Guryeva 6,235,960 4.82% EGSM 1 October 2018 – * 5,827,500,000 45.00 15.00
Free float 35,733,325 27.59% EGSM 6 July 2018 – * 3,108,000,000 24.00 8.00 The Company does not have any information about the possibility of acquisition or the AGSM 30 May 2018 – * 1,942,500,000 15.00 5.00 Total: 129,500,000 100% actual acquisition by certain shareholders of EGSM 26 February 2018 – * 2,719,500,000 21.00 7.00 a degree of control disproportionate to their participation in the Company’s authorised Number of shareholders and other registered persons EGSM 2 October 2017 – * 3,108,000,000 24.00 8.00 10,792 capital, including on the basis of shareholder in the Company’s register as of 29 December 2018 agreements or because of the availability of EGSM 5 July 2017 – * 2,719,500,000 21.00 7.00 ordinary and preferred shares with different Number of voting shares in the Company 129,500,000 shares AGSM 30 May 2017 2016 3,885,000,000 30.00 10.00 nominal values. Shares held by the Company and its subsidiaries no EGSM 16 January 2017 – * 5,050,500,000 39.00 13.00
EGSM 3 October 2016 – * 4,273,500,000 33.00 11.00 1 Igor Antoshin’s stake in PhosAgro does not include ordinary shares in the Company that were transferred by him under a repo deal. EGSM 29 July 2016 – * 8,158,500,000 63.00 21.00
AGSM 31 May 2016 2015 7,381,500,000 57.00 19.00
EGSM 15 January 2016 – * 8,158,500,000 63.00 21.00
EGSM 6 October 2015 – * 7,381,500,000 57.00 19.00
EGSM 14 July 2015 – * 6,216,000,000 48.00 16.00 Dividends In 2018, PhosAgro acted as a tax agent payments. The refund of previously withheld PhosAgro’s dividend policy calls for a target when it paid out dividends to the accounts tax on income paid to foreign organisations AGSM 8 June 2015 2014 1,942,500,000 15.00 5.00 payout ratio of 30–50% of consolidated of organisations that own shares as listed in respect of which the Russian Federation’s IFRS net profit, and the Board of Directors in the Russian share register. The Company international treaties regulating taxation EGSM 31 December 2014 9 M 2014 2,590,000,000 20.00 6.67 considers recommendations of a dividend calculated and withheld tax on those matters or for which a specific article EGSM 16 September 2014 6 M 2014 3,237,500,000 25.00 8.33 payment on a quarterly basis. dividends and remitted the amount of tax to provides for a special taxation regulation the relevant authorities. Dividends paid out shall be performed by the tax authority at the AGSM 13 June 2014 – * 2,499,350,000 19.30 6.43 to shareholders were net of the amount of place of registration of the tax agent within DIVIDENDS ACCRUED the tax deducted. The withholding tax rate three years from the end of the tax period in * Payments were made from undistributed profit for previous years. IN 2018 WERE PAID depends on the status of the shareholder, which the income was paid. IN FULL in accordance with the information that the shareholder provides. PhosAgro also took Information disclosure into account any double taxation treaties PhosAgro strictly follows the requirements On 19 March 2019, PhosAgro’s Board of and, where appropriate, made tax payments imposed by Russian securities regulations, as Directors recommended a final 2018 dividend in accordance with the provisions of the well as rules for the companies traded on the of RUB 51 per share (RUB 17 per depositary relevant treaty. LSE, in its information disclosure and filings. receipt), or RUB 6.6 billion in total. If approved The Company publicly discloses all required by the Annual General Shareholders' Meeting Due to changes in Russian Federation information to shareholders and investors in a (AGM) on 24 May 2019, this will bring law related to the payment of dividends timely manner through authorised newswires; PhosAgro’s payout ratio to 60% of net profit, that came into effect on 1 January 2015, the corporate website, www.phosagro.ru, demonstrating our commitment to the existing or potential PhosAgro shareholders http://www.phosagro.ru/ori/item4157.php Company’s dividend policy and to upholding and holders of the Company’s GDRs are and http://www.e-disclosure.ru/portal/ the promises made to shareholders during advised to consult their tax advisors for company.aspx?id=573 (PhosAgro’s official the IPO and SPO. tax implications with regard to dividend disclosure page on the Interfax portal).
168 169 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information MANAGEMENT RESPONSIBILITY STATEMENT
THE COMPANY’S MANAGEMENT HEREBY CONFIRMS THAT, TO THE BEST OF ITS KNOWLEDGE:
The financial statements prepared in accordance with International Financial The Company was guided by GRI FINANCIAL Reporting Standards as issued by the standards, as well as the principles of International Accounting Standards Board the ISO 26000 and AA 1000 standards give a true and fair view of the assets, during the preparation of the intregrated liabilities, financial position and profit or loss report. STATEMENTS of the Company and the undertakings included in the consolidation taken as a whole. 06 A draft of this integrated report was reviewed and pre-approved at a Board The management report includes a fair review of Directors meeting on 19 March 2019. 172 Independent Auditors’ Report 193 14. Income tax expense of the development and performance of the It was also reviewed and pre-approved 175 Consolidated Statement of Profit business and the position of the Company and at the Annual General Shareholders' 193 15. Property, plant and equipment the undertakings included in the consolidation or Loss and Other Comprehensive Meeting on 24 May 2019. Income 194 16. Investments in associates taken as a whole, together with a description 195 17. Deferred tax assets and liabilities of the principal risks and uncertainties that 176 Consolidated Statement of Financial Position they face. 197 18. Other non-current assets 177 Consolidated Statement of Cash Flows 197 19. Other current investments
THE CONSOLIDATED 178 Consolidated Statement of Changes 197 20. Inventories FINANCIAL STATEMENTS FOR in Equity 198 21. Trade and other receivables
THE YEAR ENDED Notes to the Consolidated 198 22. Cash and cash equivalents Financial Statements 31 DECEMBER 2018 WERE 198 23. Equity 179 1. Background APPROVED BY THE BOARD OF 199 24. Earnings per share 179 2. Basis of preparation DIRECTORS ON 19 MARCH 2019 200 25. Loans and borrowings 182 3. Significant accounting policies 201 26. Defined benefit obligations 188 4. Determination of fair values 202 27. Leases 189 5. Prior year adjustments and reclassifications 202 28. Trade and other payables
190 6. Segment information 203 29. Financial risk management
191 7. Revenues 206 30. Commitments
191 8. Personnel costs 207 31. Contingencies
191 9. Cost of sales 207 32. Related party transactions
192 10. Administrative expenses 209 33. Significant subsidiaries
192 11. Selling expenses 209 34. Seasonality
192 12. Other expenses, net
192 13. Finance income and finance costs
Andrey A. Guryev Chairman of the Management Board and Chief Executive Officer of PJSC PhosAgro
170 171 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information FINANCIAL STATEMENTS
INDEPENDENT Key Audit Matters In preparing the consolidated financial • obtain an understanding of internal control Key audit matters are those matters that, statements, management is responsible for relevant to the audit in order to design AUDITORS’ REPORT in our professional judgment, were of most assessing the Group’s ability to continue as audit procedures that are appropriate in the significance in our audit of the consolidated a going concern, disclosing, as applicable, circumstances, but not for the purpose of Opinion VALUATION OF DEFERRED TAX ASSETS financial statements of the current period. matters related to going concern and using expressing an opinion on the effectiveness We have audited the consolidated financial These matters were addressed in the context the going concern basis of accounting unless of the Group’s internal control; statements of PJSC “PhosAgro” (the of our audit of the consolidated financial management either intends to liquidate the • evaluate the appropriateness of accounting “Company”) and its subsidiaries (the “Group”), The key audit matter How the matter was addressed in our audit statements as a whole, and in forming our Group or to cease operations, or has no policies used and the reasonableness which comprise the consolidated statement opinion thereon, and we do not provide a realistic alternative but to do so. of accounting estimates and related of financial position as at 31 December 2018, The Group has recognised significant deferred tax Our audit procedures included the following: separate opinion on these matters. disclosures made by management; the consolidated statements of profit or loss assets in respect of tax losses. Those charged with governance are • conclude on the appropriateness of and other comprehensive income, changes Other Information responsible for overseeing the Group’s management’s use of the going concern
in equity and cash flows for the year then The recovery of the deferred tax assets depends We analysed the underlying methodology and tested Management is responsible for the other financial reporting process. basis of accounting and, based on the ended, and notes, comprising significant on achieving sufficient taxable profits in the future. the mathematical accuracy of the taxable profits information. The other information comprises audit evidence obtained, whether a material accounting policies and other explanatory forecast model used to estimate the likelihood the information included in the Annual Auditors’ Responsibilities for the Audit uncertainty exists related to events or information. of the recovery of deferred tax assets. Report but does not include the consolidated of the Consolidated Financial Statements conditions that may cast significant financial statements and our auditors’ report Our objectives are to obtain reasonable doubt on the Group’s ability to continue
In our opinion, the accompanying Future taxable profits to be used for utilisation of We evaluated the appropriateness of management’s thereon. The Annual Report is expected to assurance about whether the consolidated as a going concern. If we conclude that a consolidated financial statements tax losses accumulated by the Company mainly key assumptions and estimates, in particular the be made available to us after the date of this financial statements as a whole are free material uncertainty exists, we are required present fairly, in all material respects, the represent interest income to be received by likelihood of generating sufficient future taxable auditors’ report. from material misstatement, whether due to draw attention in our auditors’ report to consolidated financial position of the Group the Company on the loans issued to the Group profits to support the recognition of deferred tax to fraud or error, and to issue an auditors’ the related disclosures in the consolidated subsidiaries less expenses of the Company. assets, in reference to performance trends and as at 31 December 2018, and its consolidated dividend capacity of the Group subsidiaries. Our opinion on the consolidated financial report that includes our opinion. Reasonable financial statements or, if such disclosures financial performance and its consolidated statements does not cover the other assurance is a high level of assurance, but are inadequate, to modify our opinion. cash flows for the year then ended in The assessment of the potential to utilise the tax We corroborated expected interest rates for loans information and we will not express any form is not a guarantee that an audit conducted Our conclusions are based on the audit accordance with International Financial losses is dependent on the forecast profitability of to be issued and financing to be received by the of assurance conclusion thereon. in accordance with ISAs will always detect evidence obtained up to the date of our Reporting Standards (IFRS). the Group subsidiaries, the amount of dividends to Company to publicly available market benchmarks. a material misstatement when it exists. auditors’ report. However, future events or be distributed to the Company, expected foreign currency exchange and interest rates for loans. In connection with our audit of the Misstatements can arise from fraud or error conditions may cause the Group to cease Basis for Opinion consolidated financial statements, our and are considered material if, individually to continue as a going concern; We conducted our audit in accordance responsibility is to read the other information or in the aggregate, they could reasonably • evaluate the overall presentation, structure There is inherent uncertainty involved in forecasting Using KPMG tax specialist, we considered the with International Standards on Auditing timing and quantum of future taxable profits, appropriateness of the application of relevant tax identified above when it becomes available be expected to influence the economic and content of the consolidated financial (ISAs). Our responsibilities under those which support the extent to which tax assets are legislation by the Group, in relation to the utilisation and, in doing so, consider whether the other decisions of users taken on the basis of statements, including the disclosures, standards are further described in the recognised. Therefore, this is the key judgmental area of tax losses. information is materially inconsistent with these consolidated financial statements. and whether the consolidated financial Auditors’ Responsibilities for the Audit of the our audit is concentrated on. the consolidated financial statements or our statements represent the underlying Consolidated Financial Statements section knowledge obtained in the audit, or otherwise As part of an audit in accordance with ISAs, transactions and events in a manner that of our report. We are independent of the appears to be materially misstated. we exercise professional judgment and achieves fair presentation; Group in accordance with the independence maintain professional scepticism throughout • obtain sufficient appropriate audit evidence requirements that are relevant to our audit of Responsibilities of Management and the audit. We also: regarding the financial information of the consolidated financial statements in the Those Charged with Governance for the • Identify and assess the risks of material the entities or business activities within Russian Federation and with the International Consolidated Financial Statements misstatement of the consolidated financial the Group to express an opinion on the Ethics Standards Board for Accountants’ Management is responsible for the statements, whether due to fraud or error, consolidated financial statements. We are Code of Ethics for Professional Accountants preparation and fair presentation of the design and perform audit procedures responsible for the direction, supervision (IESBA Code), and we have fulfilled our other consolidated financial statements in responsive to those risks, and obtain audit and performance of the group audit. We ethical responsibilities in accordance with accordance with IFRS, and for such internal evidence that is sufficient and appropriate remain solely responsible for our audit the requirements in the Russian Federation control as management determines is to provide a basis for our opinion. The risk opinion. and the IESBA Code. We believe that the audit necessary to enable the preparation of of not detecting a material misstatement evidence we have obtained is sufficient and consolidated financial statements that are resulting from fraud is higher than for one appropriate to provide a basis for our opinion. free from material misstatement, whether resulting from error, as fraud may involve due to fraud or error. collusion, forgery, intentional omissions,
Audited entity: PJSC “PhosAgro” Registration No. in the Unified State Register of Legal misrepresentations, or the override of Registration No. in the Unified State Register of Legal Entities 1027700125628. internal control; Entities 1027700190572. Moscow, Russia Member of the Self-regulated organization of auditors “Russian Union of auditors” (Association). The Principal Independent auditor: JSC “KPMG”, a company incorporated Registration Number of the Entry in the Register of under the Laws of the Russian Federation, a member Auditors and Audit Organisations: No. 11603053203. firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. 172 173 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information FINANCIAL STATEMENTS continued
We communicate with those charged with CONSOLIDATED STATEMENT OF PROFIT OR LOSS governance regarding, among other matters, AND OTHER COMPREHENSIVE INCOME FOR 2018, the planned scope and timing of the audit and significant audit findings, including any RUB mln significant deficiencies in internal control that Note 2018 2017 we identify during our audit. Revenues 7 233,430 181,351
We also provide those charged with Cost of sales 9 (123,964) (101,817) governance with a statement that we have Gross profit 109,466 79,534 complied with relevant ethical requirements Administrative expenses 10 (14,864) (14,018) regarding independence, and communicate Selling expenses 11 (34,410) (25,201) with them all relationships and other matters that may reasonably be thought to bear on Taxes, other than income tax (3,469) (2,679) our independence, and where applicable, Other expenses, net 12 (2,726) (1,647) related safeguards. Operating profit 53,997 35,989
Finance income 13 447 615 From the matters communicated with those Finance costs 13 (6,098) (6,990) charged with governance, we determine those matters that were of most significance Foreign exchange (loss)/gain, net 29(b) (19,613) 4,141
in the audit of the consolidated financial Share of (loss)/profit of associates, net of provision 16 (623) 287 statements of the current period and are therefore the key audit matters. We describe Profit before tax 28,110 34,042 these matters in our auditors’ report unless Income tax expense 14 (5,975) (8,711) law or regulation precludes public disclosure Profit for the year 22,135 25,331
about the matter or when, in extremely rare Attributable to: circumstances, we determine that a matter Non-controlling interests* 66 (2) should not be communicated in our report because the adverse consequences of Shareholders of the Parent 22,069 25,333 doing so would reasonably be expected to Other comprehensive income/(loss) outweigh the public interest benefits of such Items that will never be reclassified to profit or loss communication. Actuarial gains and losses 26 (170) (342)
Items that may be reclassified subsequently to profit or loss The engagement partner on the audit resulting in this independent auditors’ report is: Foreign currency translation difference 2,872 (377)
Other comprehensive income/(loss) for the year 3,042 (719)
Total comprehensive income for the year 25,177 24,612
Attributable to:
Non-controlling interests* 66 (2)
Shareholders of the Parent 25,111 24,614 I.A. Yagnov Basic and diluted earnings per share (in RUB) 24 170 196 JSC “KPMG” Moscow, Russia 19 March 2019 * Non-controlling interests are the minority shareholders of the subsidiaries of PJSC “PhosAgro”
The consolidated financial statements were approved on 19 March 2019:
A.A. Guryev A.F. Sharabaiko Chief executive officer Chief financial officer
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CONSOLIDATED STATEMENT OF FINANCIAL CONSOLIDATED STATEMENT POSITION AS AT 31 DECEMBER 2018, OF CASH FLOWS FOR 2018,
RUB mln RUB mln Note 31 December 2018 31 December 2017 Note 2018 2017
Assets Cash flows from operating activities
Property, plant and equipment 15 186,231 175,113 Profit before tax 28,110 34,042
Catalysts 2,414 1,900 Adjustments for:
Advances issued for property, plant and equipment 6,759 2,334 Depreciation and amortisation 9, 10, 11 20,911 14,807 Intangible assets 1,786 1,773 Loss on disposal of property, plant and equipment and intangible assets 12 586 614 Investments in associates 16 506 969 Finance income 13 (447) (615)
Deferred tax assets 17 8,995 5,371 Finance costs 13 6,098 6,980 Other non-current assets 18 1,843 1,955 Share of profit of associates, net of provision 16 623 (287)
Non-current assets 208,534 189,415 Foreign exchange loss/(gain), net 19,613 (4,371)
Other current investments 19 313 352 Operating profit before changes in working capital and provisions 75,494 51,170 Inventories 20 31,870 25,445 Increase in inventories (5,438) (6,917) Trade and other receivables 21 36,186 33,727 Decrease/(increase) in trade and other receivables 324 (1,240) Cash and cash equivalents 22 9,320 2,691 Increase/(decrease) in trade and other payables 655 (134) Current assets 77,689 62,215 Cash flows from operations before income taxes and interest paid 71,035 42,879 Total assets 286,223 251,630 Income tax paid (6,146) (8,326) Equity 23 Finance costs paid (5,210) (4,558)
Share capital 372 372 Cash flows from operating activities 59,679 29,995 Share premium 7,494 7,494 Cash flows from investing activities Retained earnings 93,951 85,480 Acquisition of property, plant and equipment and intangible assets (38,416) (35,918) Other reserves 7,809 4,767 (Issue)/repayment of loans issued, net (257) 475 Equity attributable to shareholders of the Parent 109,626 98,113 Proceeds from disposal of property, plant and equipment 19 365 Equity attributable to non-controlling interests 195 129 Finance income received 307 371 Total equity 109,821 98,242 (Acquisition)/disposal of investments, net (8) 359
Liabilities Other payments (814) -
Loans and borrowings 25 122,877 76,530 Cash flows used in investing activities (39,169) (34,348) Finance lease liabilities 27(a) 376 1,004 Cash flows from financing activities Defined benefit obligations 26 630 950 Proceeds from borrowings 25 83,874 90,094 Deferred tax liabilities 17 9,023 7,914 Repayment of borrowings 25 (83,572) (74,245) Non-current liabilities 132,906 86,398 Dividends paid to shareholders of the Parent 23 (13,598) (14,763) Loans and borrowings 25 20,679 44,025 Dividends paid to non-controlling interests - (5) Finance lease liabilities 27(a) 718 1,117 Finance leases paid 25 (1,285) (1,365) Trade and other payables 28 21,473 21,848 Payments for settlement of derivatives (22) - Derivative financial liabilities 626 – Other payments - (22) Current liabilities 43,496 66,990 Cash flows used in financing activities (14,603) (306) Total equity and liabilities 286,223 251,630 Net increase/(decrease) in cash and cash equivalents 5,907 (4,659)
Cash and cash equivalents at 1 January 2,691 7,261 Effect of exchange rates fluctuations 722 89 Cash and cash equivalents at 31 December 22 9,320 2,691
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CONSOLIDATED STATEMENT NOTES TO THE CONSOLIDATED FINANCIAL OF CHANGES IN EQUITY FOR 2018, STATEMENTS FOR 2018 ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
RUB mln 1. BACKGROUND Share capital Share premium Retained Actuarial Foreign Attributable to Total Starting in 2014, the United States of (b) Basis of measurement earnings gains and currency non-controlling (a) Organisation and operations America, the European Union and some The consolidated financial statements are losses translation interests other countries have imposed and expanded reserve PJSC “PhosAgro” (the “Company” or the prepared on the historical cost basis except “Parent”) and its subsidiaries (together economic sanctions against a number that investments available-for-sale are stated Balance at 1 January 2017 372 7,494 74,932 (384) 5,870 137 88,421 referred to as the “Group”) comprise Russian of Russian individuals and legal entities. at fair value.
Total comprehensive income for the year legal entities and foreign trading subsidiaries. The imposition of the sanctions has led to The Company was registered in October increased economic uncertainty, including (c) Functional currency Profit for the year – – 25,333 – – (2) 25,331 2001. The Company’s location is Leninsky more volatile equity markets, a depreciation The national currency of the Russian Actuarial gains and losses – – – (342) – – (342) prospekt 55/1 building 1, Moscow, Russian of the Russian rouble, a reduction in both Federation is the Russian Rouble (“RUB”), Foreign currency translation difference – – – – (377) – (377) Federation, 119333. local and foreign direct investment inflows which is the functional currency of the Parent – – 25,333 (342) (377) (2) 24,612 and a significant tightening in the availability and its subsidiaries, except for foreign trading The Group’s principal activity is production of credit. As a result, some Russian entities subsidiaries, where the functional currency Transactions with owners recognised directly in equity of apatite concentrate and mineral fertilisers may experience difficulties accessing the is USD. Dividends to shareholders of the Parent – – (14 763) – – (6) (14 769) at plants located in the cities of Kirovsk international equity and debt markets and Other – – (22) – – – (22) (Murmansk region), Cherepovets (Vologda may become increasingly dependent on (d) Presentation currency region), Balakovo (Saratov region) and state support for their operations. The These consolidated financial statements are – – (14 785) – – (6) (14 791) Volkhov (Leningrad region), and their longer-term effects of the imposed and presented in RUB. All financial information Balance at 31 December 2017 372 7 494 85 480 (726) 5 493 129 98 242 distribution across the Russian Federation possible additional sanctions are difficult to presented in RUB has been rounded to the and abroad. determine. nearest million, except per share amounts. Balance at 1 January 2018 372 7 494 85 480 (726) 5 493 129 98 242 The Company’s key shareholders are two The consolidated financial statements reflect The translation from USD into RUB, where Total comprehensive income for the year Cyprus entities holding approximately 20% management’s assessment of the impact applicable, was performed as follows: Profit for the year – – 22,069 – – 66 22,135 of the Company’s ordinary shares each. of the Russian business environment on the • Assets and liabilities as at 31 December Actuarial gains and losses – – – 170 – – 170 The majority of the shares of the Company operations and the financial position of the 2018 were translated at the closing Foreign currency translation difference – – – – 2,872 – 2,872 are ultimately owned by trusts, where the Group. The future business environment may exchange rate of RUB 69.4706 for USD 1 (31 economic beneficiary is Mr. Andrey G. Guryev differ from management’s assessment. December 2017: RUB 57.6002 for USD 1); – – 22,069 170 2,872 66 25,177 and his family members. • Profit and loss items were translated at the Transactions with owners recognised directly in equity 2. BASIS OF PREPARATION average exchange rate for 2018 of RUB (b) Russian business environment 62.7078 for USD 1 (for 2017: RUB 58.3529 Dividends to shareholders of the Parent, note 23 – – (13,598) – – – (13,598) The Group’s operations are primarily located (a) Statement of compliance for USD 1); – – (13,598) – – – (13,598) in the Russian Federation. Consequently, These consolidated financial statements • Equity items arising during the year are Balance at 31 December 2018 372 7,494 93,951 (556) 8,365 195 109,821 the Group is exposed to the economic have been prepared in accordance with recognised at the exchange rate ruling at and financial conditions of the Russian International Financial Reporting Standards the date of transaction; Federation, which display characteristics (“IFRS”) as issued by the International • The resulting foreign exchange difference of an emerging market. The legal, tax Accounting Standards Board. is recognised in other comprehensive and regulatory frameworks continue income. development, but are subject to varying The Group additionally prepares IFRS interpretations and frequent changes consolidated financial statements in the which together with other legal and fiscal Russian language in accordance with the impediments contribute to the challenges Federal Law No. 208-FZ On consolidated faced by entities operating in the Russian financial reporting. Federation.
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The translation from EUR into RUB, where (f) Adoption of new and revised standards reported for 2017 was not restated and • IFRIC 22, Foreign Currency Transactions applicable, was performed as follows: and interpretations presented in the form in which it was and Advance Consideration; • Assets and liabilities as at 31 December The Group has adopted new standards that previously reported in accordance with IAS • Amendments to IAS 40, Transfers of 2018 were translated at the closing are mandatory for financial annual periods 18, IAS 11 and related clarifications. Investment property. exchange rate of RUB 79.4605 for EUR 1 beginning on 1 January 2018. (31 December 2017: RUB 68.8668 for EUR The Group analysed the impact of the new The following table explains the original 1); IFRS 9 Financial Instruments has replaced standard on the financial statements. As measurement categories under IAS 39 and • Profit and loss items were translated at the IAS 39 Financial Instruments: Recognition a result, the Group determined that under the new measurement categories under average exchange rate for 2018 of RUB and Measurement. The standard provides the terms of the majority supply mineral IFRS 9 for each class of the Group’s financial 73.9546 for EUR 1 (for 2017: RUB 65.9014 amended guidance on the classification, fertilizers contracts Group undertakes to assets and financial liabilities as at 1 January for EUR 1); recognition and measurement of financial provide delivery of goods and the related 2018: • Equity items arising during the year are assets and liabilities. The major impact from delivery services after the transfer of recognised at the exchange rate ruling at the transition relates to the classification control over the goods to the buyer at the RUB mln the date of transaction; of financial assets and introduction of an loading port. According to IAS 18, the Group • The resulting foreign exchange difference expected credit loss model which results in recognised such services and charged the Original classification New classification Original carrying amount New carrying amount under IAS 39 under IFRS 9 under IAS 39 under IFRS 9 is recognised in other comprehensive the earlier recognition of credit losses and full costs at the time of loading. According income. is more forward looking than the previous to IFRS 15, these services are a separate Financial assets incurred loss model. The Group used an performance obligation, which revenue must (e) Use of estimates and judgments exemption in IFRS 9, which allows not to be recognised during the period of delivery as Equity securities Available-for-sale Mandatorily at FVTPL 755 755 The preparation of consolidated financial restate prior periods in the year of initial revenue from logistics activities. The Group Debt securities Held to maturity Amortised cost 21 21 statements in conformity with IFRS requires application. recognizes revenue from these logistics Long-term loans issued Loans and receivables Amortised cost 426 426 management to make judgments, estimates services at the time of delivery, due to the and assumptions that affect the application The Group estimated the expected credit fact that the potential difference is calculated Other long-term assets Loans and receivables Amortised cost 753 753
of accounting policies and the reported losses for the entire period of the financial and recognised as insignificant. Short-term loans issued Loans and receivables Amortised cost 314 314 amounts of assets, liabilities, income and instruments, applying a simplified approach expenses. Actual results may differ from to measuring expected credit losses for trade The group also assessed the impact of the Interest receivable Loans and receivables Amortised cost 38 38 those estimates. receivables, which uses lifetime expected new standard on the revenue disclosure. The Trade accounts receivable Loans and receivables Amortised cost 14,971 14,971 loss allowance. In the terms of calculating the Group believes that the current disclosure Receivables from employees Loans and receivables Amortised cost 26 26 Estimates and underlying assumptions are expected credit loss, the Group considers the meets the requirements of the new standard. reviewed on an ongoing basis. Revisions to credit rating for each counterparty, adjusted The Group will continue to monitor the Other receivables Loans and receivables Amortised cost 818 818 accounting estimates are recognised in the with forward-looking factors specific to the impact of accounting for logistics services Cash and cash equivalents Loans and receivables Amortised cost 2,691 2,691 period in which the estimates are revised and debtors, historical credit loss experience as separate contractual obligations and will in any future periods affected. and economic environment in which they make the necessary changes to accounting Total financial assets 20,813 20,813 operate. As at 1 January 2018, there was no policies in the future if the effect becomes Financial liabilities Information about critical assumptions and effect on the Group’s consolidated financial significant. estimation uncertainties that have the most statements as a result of the implementation Loans and borrowings Other financial liabilities Other financial liabilities (120,656) (120,656) significant effect on the amounts recognised of an expected credit loss model. As at 31 The effect of applying the new standard as at Finance lease liabilities Other financial liabilities Other financial liabilities (2,121) (2,121) in the consolidated financial statements is December 2018, the Group’s estimation of and for the year ended 31 December 2018 to included in the following notes: the expected credit losses resulted in the various reporting items was insignificant. Trade and other payables Other financial liabilities Other financial liabilities (12,385) (12,385) • Note 3(c)(iv) – estimated useful lives of increase of the allowance for doubtful debts Total financial liabilities (135,162) (135,162) fixed assets; for trade receivables by RUB 69 million (USD Other new standards and interpretations to • Note 17 – recognition of deferred tax 1 million) compared to the historical credit standards set out below became effective 1 assets: availability of future taxable profit loss model required by IAS 39. January 2018 and did not have any impact or against which carry-forward tax losses can did not have a material impact on the Group’s be used. IFRS 15 Revenue from Contracts with consolidated financial statements: Customers has replaced IAS 11 Construction • Amendments to IFRS 10 and IAS 28 Contracts and IAS 18 Revenues. The regarding the sale or contribution of assets standard outlines the principles an entity between an investor and its associate or must apply to measure and recognise joint venture; revenue. The Group applies IFRS 15 using the • Amendments to IFRS 2, Share-based cumulative effect method (without practical Payment; simplifications). The effect of application • Amendments to IFRS 4, Applying IFRS of new standard on the date of the initial 9 Financial instruments with IFRS 4, application (1 January 2018) is estimated to Insurance contracts; be insignificant. Therefore, the information
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(g) New standards and interpretations not No significant impact is expected for the (iii) Acquisitions and disposals of non- (b) Foreign currencies Where an item of property, plant and (iv) Depreciation yet adopted Group’s finance leases. controlling interests Transactions in foreign currencies are equipment comprises major components Depreciation is charged to the profit or loss The following standard is not yet effective Any difference between the consideration translated to the respective functional having different useful lives, they are on a straight-line basis over the estimated as at 31 December 2018, and have not been Based on the information currently available, paid to acquire a non-controlling interest, and currencies of the Group entities at the accounted for as separate items of property, useful lives of the individual assets. applied in preparing these consolidated the Group estimates that it will recognise the carrying amount of that non-controlling exchange rate ruling at the date of the plant and equipment. Depreciation commences on the month financial statements: additional lease liabilities of RUB 1,800 interest, is recognised in equity. transaction. Monetary assets and liabilities of acquisition or, in respect of internally million as at 1 January 2019. The Group does denominated in foreign currencies at the (ii) Leased assets constructed assets, from the month when an IFRS 16 Leases has replaced IAS 17 Leases, not expect the adoption of IFRS 16 to impact Any difference between the consideration reporting date are translated to the functional Leases under which the Group assumes asset is completed and ready for use. Land is IFRIC 4 Determining whether an Arrangement its ability to comply with the loan covenants. received from disposal of a portion of a currency at the exchange rate ruling at that substantially all the risks and rewards of not depreciated. contains a Lease, SIC-15 Operating Leases Group’s interest in the subsidiary and the date. Non-monetary assets and liabilities ownership are classified as finance leases. – Incentives and SIC-27 Evaluating the carrying amount of that portion, including denominated in foreign currencies that are Plant and equipment acquired by way of The estimated useful lives as determined Substance of Transactions Involving the 3. SIGNIFICANT ACCOUNTING attributable goodwill, is recognised in equity. stated at historical cost are translated to finance lease is stated at an amount equal when adopting IFRS (1 January 2005) are as Legal Form of a Lease. POLICIES the functional currency at the exchange rate to the lower of its fair value and the present follows: (iv) Associates ruling at the date of the transaction. Non- value of the minimum lease payments at IFRS 16 introduces a single, on-balance sheet The accounting policies set out below have Associates are those enterprises in which monetary assets and liabilities denominated inception of the lease, less accumulated lease accounting model for lessees. A lessee been applied consistently to all periods the Group has significant influence, but not in foreign currencies that are stated at fair depreciation and impairment losses. Buildings 12 to 17 years recognises a right-of-use asset representing presented in these consolidated financial control, over the financial and operating value are translated at the exchange rate its right to use the underlying asset and a statements, except for the adoption of IFRS 9 policies. The consolidated financial ruling at the dates the fair values were (iii) Subsequent expenditure Plant and equipment 4 to 15 year lease liability representing its obligation to and IFRS 15 from 1 January 2018. statements include the Group’s share of determined. Foreign exchange differences Expenses in connection with ordinary make lease payments. There are recognition the total recognised gains and losses of arising on translation are recognised in the maintenance and repairs are recognised in Fixtures and fittings 3 to 6 years exemptions for short-term leases and leases (a) Basis of consolidation associates on an equity accounted basis, profit or loss. the statement of profit or loss as they are of low-value items. Lessor accounting (i) Subsidiaries from the date that significant influence incurred. remains similar to the current standard — Subsidiaries are entities controlled by the effectively commences until the date that (c) Property, plant and equipment i.e. lessors continue to classify leases as Group. The Group controls an entity when it is significant influence effectively ceases. When (i) Owned assets Expenses in connection with periodic Tangible fixed assets acquired after the date finance or operating leases. exposed to, or has rights to, variable returns the Group’s share of losses exceeds the Property, plant and equipment is stated at maintenance on property, plant and of adoption of IFRS, are depreciated over the from its involvement with the entity and has Group’s interest in the associate, that interest cost less accumulated depreciation and equipment are recognised as assets and following useful lives: IFRS 16 is expected to have a material the ability to affect those returns through is reduced to nil and recognition of further impairment losses. The cost of property, depreciated on a straight-line basis over the impact on the Group’s financial statements in its power over the entity. The financial losses is discontinued except to the extent plant and equipment at the date of transition period until the next periodic maintenance, the period of initial application. statements of subsidiaries are included in the that the Group has incurred obligations in to IFRS was determined by reference to its provided the criteria for capitalizing such Buildings 10 to 60 years consolidated financial statements from the respect of the associate. fair value at that date (“deemed cost”) as items have been met. The Group is required to adopt IFRS 16 date that control commences until the date determined by an independent appraiser. Plant and equipment 5 to 35 years Leases from 1 January 2019. The Group that control ceases. The accounting policies (v) Transactions eliminated on consolidation Expenses incurred in connection with major has assessed the estimated impact that of subsidiaries have been changed when Intra-group balances and transactions, and Cost includes expenditure that is directly replacements and renewals that materially Fixtures and fittings 2 to 25 years initial application of IFRS 16 will have on necessary to align them with the policies any unrealised gains arising from intra-group attributable to the acquisition of the asset. extend the life of property, plant and its consolidated financial statements, as adopted by the Group. transactions, are eliminated in preparing the The cost of self-constructed assets includes equipment are capitalised and depreciated on described below. consolidated financial statements. Unrealised the cost of materials and direct labour, any a systematic basis. (ii) Loss of control gains arising from transactions with other costs directly attributable to bringing In respect of the leases in which the Group Upon the loss of control, the Group associates and jointly controlled enterprises the asset to a working condition for their is a lessee, new assets and liabilities will be derecognises the assets and liabilities of the are eliminated to the extent of the Group’s intended use, the costs of dismantling and recognised for the Group’s operating leases subsidiary, any non-controlling interests and interest in the enterprise. Unrealised gains removing the items and restoring the site of land, buildings and other facilities (see the other components of equity related to resulting from transactions with associates on which they are located, and capitalised Note 27). The nature of expenses related to the subsidiary. Any surplus or deficit arising are eliminated against the investment in the borrowing costs. Purchased software that those leases will now change because the on the loss of control is recognised in profit associate. Unrealised losses are eliminated in is integral to the functionality of the related Group will recognise a depreciation charge or loss. If the Group retains any interest in the same way as unrealised gains except that equipment is capitalised as part of that for right-of-use assets and interest expense the previous subsidiary, then such interest is they are only eliminated to the extent that equipment. on lease liabilities. measured at fair value at the date that control there is no evidence of impairment. is lost. Subsequently it is accounted for as an Previously, the Group recognised operating equity-accounted investee or as an available- lease expense on a straight-line basis over for-sale financial asset depending on the level the term of the lease, and recognised assets of influence retained. and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
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(d) Intangible assets (e) Financial assets Financial assets at fair value through other (g) Impairment If, in a subsequent period, the fair value of An impairment loss in respect of goodwill (i) Research and development Non-derivative financial instruments. comprehensive income (“FVOCI”). Financial assets an impaired financial assets increases and is not reversed. In respect of other assets, Expenditure on research activities, Non-derivative financial instruments Financial assets are classified and measured Previously under IAS 39 a financial asset not the increase can be related objectively to an impairment losses recognised in prior periods undertaken with the prospect of gaining comprise investments in equity and debt at fair value through other comprehensive carried at fair value through profit or loss was event occurring after the impairment loss are assessed at each reporting date for any new scientific or technical knowledge and securities, trade and other receivables, cash income if they meet both of the following assessed at each reporting date to determine was recognised in profit or loss, then the indications that the loss has decreased or no understanding, is recognised in the profit or and cash equivalents, loans and borrowings, conditions and are not designated as at whether there was any objective evidence impairment loss is reversed, with the amount longer exists. An impairment loss is reversed loss as an expense as incurred. and trade and other payables. FVTPL: that it was impaired. A financial asset was of the reversal recognised in profit or loss. if there has been a change in the estimates • They are held within a business model impaired if objective evidence indicated that used to determine the recoverable amount. Expenditure on development activities, Non-derivative financial instruments are whose objective is achieved by both a loss event had occurred after the initial Non-financial assets An impairment loss is reversed only to the whereby research findings are applied to recognised initially at fair value plus, for collecting contractual cash flows and recognition of the asset, and that the loss The carrying amounts of the Group’s non- extent that the asset’s carrying amount does a plan or design for the production of new instruments not at fair value through profit selling financial assets; event had a negative effect on the estimated financial assets, other than inventories and not exceed the carrying amount that would or substantially improved products and or loss, any directly attributable transaction • Their contractual terms give rise on future cash flows of that asset that can be deferred tax assets, are reviewed at each have been determined, net of depreciation or processes, is capitalised if the product or costs. specified dates to cash flows that are estimated reliably. reporting date to determine whether there amortisation, if no impairment loss had been process is technically and commercially solely payments of principal and interest on is any indication of impairment. If any such recognised. feasible and the Group has sufficient From 1 January 2018, the Group financial the principal amount outstanding. Objective evidence that financial assets were indication exists, then the asset’s recoverable resources to complete development. The assets are classified in the following impaired could include default or delinquency amount is estimated. expenditure capitalised includes the cost of measurement categories based on the on the These assets are subsequently measured by a debtor, restructuring of an amount due materials, direct labour and an appropriate Group’s business model for managing the at fair value. Interest income calculated to the Group on terms that the Group would The recoverable amount of an asset or cash- proportion of overheads. Other development financial assets and the contractual terms of using the effective interest method, foreign not consider otherwise, indications that a generating unit is the greater of its value in expenditure is recognised in the profit or the cash flows: financial assets at amortised exchange gains and losses and impairment debtor or issuer would enter bankruptcy, use and its fair value less costs to sell. In loss as an expense as incurred. Capitalised cost; financial assets at fair value (either are recognised in profit or loss. the disappearance of an active market for a assessing value in use, the estimated future development expenditure is stated at through other comprehensive income or security. cash flows are discounted to their present cost less accumulated amortisation and profit or loss). Financial assets at fair value through value using a pre-tax discount rate that impairment losses. profit or loss (“FVPL”). From 1 January 2018 an impairment loss reflects current market assessments of the Financial assets at amortised cost. Financial asset that do not meet the criteria in respect of a financial asset measured at time value of money and the risks specific (ii) Other intangible assets Financial asset is measured at amortised for amortised cost or FVOCI are measured at amortised cost the Group has changed the to the asset. For the purpose of impairment Other intangible assets acquired by the Group cost if it meets both of the following fair value through profit or loss (“FVPL”). accounting policy for impairment losses of testing, assets are grouped together into are represented by Oracle software, which conditions and is not designated as at fair financial assets held at amortised cost by the smallest group of assets that generates has finite useful life and is stated at cost less value through profit or loss (“FVTPL”): (f) Inventories replacing incurred loss model with an ECL cash inflows from continuing use that are accumulated amortisation and impairment • The asset is held within a business model Inventories are stated at the lower of cost model following the transition to IFRS 9. largely independent of the cash inflows of losses. whose objective is to hold assets in order and net realisable value. Net realisable value Under IFRS 9, loss allowances are measured other assets or groups of assets (the “cash- to collect contractual cash flows; is the estimated selling price in the ordinary on either of the following bases: 12-month generating unit”). (iii) Amortisation • The contractual terms of the financial course of business, less the estimated costs ECLs that result from default events that Intangible assets, other than goodwill, are asset give rise on specified dates to cash of completion and selling expenses. are possible within the 12 months after the An impairment loss is recognised if the amortised on a straight-line basis over their flows that are solely payments of principal reporting date; and lifetime ECLs that result carrying amount of an asset or its cash- estimated useful lives from the date the asset and interest on the principal amount The cost of inventories is based on the from all possible default events over the generating unit exceeds its recoverable is available for use. The estimated useful outstanding. weighted average principle and includes expected life of a financial instrument. amount. Impairment losses are recognised lives are 3 – 10 years. expenditure incurred in acquiring the in the profit or loss. Impairment losses The financial assets are measured at inventories and bringing them to their For trade receivables the Group estimated recognised in respect of cash-generating amortised cost using the effective interest existing location and condition. In the case the expected credit losses for the entire units are allocated first to reduce the carrying method, less any impairment losses. Any of manufactured inventories and work in period, applying a simplified approach to amount of any goodwill allocated to the gains or losses arising from derecognition progress, cost includes an appropriate share measuring expected credit losses, which units, if any, and then to reduce the carrying are recognised directly in profit or loss. of overheads based on normal operating uses lifetime expected loss allowance. In the amount of the other assets in the unit (group capacity. terms of calculating the expected credit loss, of units) on a pro rata basis. 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.
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(h) Share capital When the benefits of a plan are improved, (l) Income tax (m) Revenues Revenue from the sale of goods is measured (n) Finance income and costs (i) Repurchase of share capital the portion of the increased benefit relating Income tax expense comprises current Revenue from contracts with customers is at the fair value of the consideration received Finance income comprises interest income When share capital recognised as equity is to past service by employees is recognised and deferred tax. Income tax expense is recognised when control of the goods or or receivable, net of returns and allowances, on funds invested (including available-for- repurchased, the amount of the consideration immediately as an expense in the profit recognised in profit or loss except to the services is transferred to a customer. The trade discounts and volume rebates. Revenue sale financial assets), dividend income, paid, including directly attributable costs, is or loss. To the extent the benefits vest extent that it relates to items recognised amount of revenue recognised reflects the is recognised when the significant risks and gains on the disposal of available-for-sale deducted from equity. immediately, the expense is recognised in other comprehensive income, in which consideration the Group expects to receive rewards of ownership have been transferred financial assets and changes in the fair value immediately in the profit or loss. case it is recognised in other comprehensive in exchange for goods or services, taking to the buyer, recovery of the consideration is of financial assets at fair value through profit (ii) Dividends income. into account any trade, volume and other probable, the associated costs and possible or loss, and foreign currency gains. Interest Dividends are recognised as a liability in the All actuarial gains and losses are recognised discounts. Advances received before the return of goods can be estimated reliably, income is recognised as it accrues in profit period in which they are declared. in full as they arise in other comprehensive Current tax is the expected tax payable on control passes to a customer are recognised and there is no continuing management or loss, using the effective interest method. income. the taxable income for the year, using tax as the contract liabilities. There are no involvement with the goods. Dividend income is recognised in profit or (i) Financial liabilities (ii) Long-term service benefits other than rates enacted or substantively enacted at other contract liabilities. The amount of loss on the date that the Group’s right to The Group financial liabilities comprise trade pensions the reporting date, and any adjustment to tax consideration does not contain a significant Transfers of risks and rewards vary receive payment is established. and other payables, borrowings and bonds The Group’s net obligation in respect of long- payable in respect of previous years. financial component as payment terms depending on the individual terms of the and derivative financial instruments. The term service benefits, other than pension for the majority of contracts are less than contract of sale. Transfer may occur when Finance costs comprise interest expense Group financial liabilities are measured at plans, is the amount of future benefits that Deferred tax is recognised using the balance one year. No information is provided about the product is dispatched from the Group on borrowings, foreign currency losses, amortised cost, except for financial liabilities employees have earned in return for their sheet method, providing for temporary remaining performance obligations as at the companies’ warehouses (mainly for domestic changes in the fair value of financial assets at fair value through profit or loss. Such service in the current and prior periods. The differences between the carrying amounts reporting date that have an original expected dispatches) or upon loading the goods onto at fair value through profit or loss and liabilities include derivatives, other liabilities obligation is calculated using the projected of assets and liabilities for financial reporting duration of one year or less, as allowed by the relevant carrier or upon the delivery to the impairment losses recognised on financial held for trading, and liabilities that the Group unit credit method and is discounted to purposes and the amounts used for taxation IFRS 15. destination point defined by the customer. assets. Borrowing costs that are not directly designates to be measured at fair value its present value and the fair value of any purposes. Deferred tax is not recognised attributable to the acquisition, construction through profit or loss. related assets is deducted. The discount for the following temporary differences: Contracts with customers for the supply of Where the Group acts in the capacity of or production of a qualifying asset are rate is the yield at the reporting date on the initial recognition of assets or liabilities goods use a variety of delivery terms. The an agent rather than as the principal in a recognised in profit or loss using the effective The Group derecognises a financial liability government bonds that have maturity dates in a transaction that is not a business Group determined that under the terms transaction, the revenue recognised is the net interest method. when its obligation specified in the contract approximating the terms of the Group’s combination and that affects neither of the majority contracts for the supply of amount of commission earned by the Group. is discharged or cancelled or expires. obligations. All actuarial gains and losses accounting nor taxable profit, and differences mineral fertilizers the Group undertakes Foreign currency gains and losses are are recognised in full as they arise in other relating to investments in subsidiaries to to provide delivery and the related delivery Revenue from services rendered is reported on a net basis. (j) Employee benefits comprehensive income. the extent that it is probable that they will services after the transfer of control over recognised in the profit or loss in proportion (i) Pension plans not reverse in the foreseeable future. In the goods to the buyer at the loading port. to the stage of completion of the transaction The Group’s net obligation in respect of (iii) State pension fund addition, deferred tax is not recognised for Under IFRS 15, these services are a separate at the reporting date. The stage of completion defined benefit post-employment plans, The Group makes contributions for the taxable temporary differences arising on the performance obligation, which revenue must is assessed by reference to surveys of work including pension plans, is calculated benefit of employees to Russia’s State initial recognition of goodwill. Deferred tax is be recognised during the period of delivery as performed. separately for each plan by estimating the pension fund. The contributions are measured at the tax rates that are expected revenue from logistics activities. The Group amount of future benefit that employees expensed as incurred. to be applied to the temporary differences recognises revenue from these logistics have earned in return for their service in the when they reverse, based on the laws that services at the time of delivery, due to the current and prior periods. That benefit is (k) Provisions have been enacted or substantively enacted fact that the potential difference is calculated discounted to determine its present value, A provision is recognised when the Group by the reporting date. Deferred tax assets and recognised as insignificant. and the fair value of any plan assets, if any, has a legal or constructive obligation as and liabilities are offset if there is a legally is deducted. The discount rate is the yield at a result of a past event, and it is probable enforceable right to offset current tax assets In the revenue disclosure the sales of certain the reporting date on government bonds that that an outflow of economic benefits will be and liabilities, and they relate to income taxes product groups include the proceeds from have maturity dates approximating the terms required to settle the obligation. If the effect levied by the same tax authority on the same logistics services. Costs related to rendering of the Group’s obligations. The calculation is material, provisions are determined by taxable entity, or on different tax entities, but of logistics services are mainly represented is performed using the projected unit credit discounting the expected future cash flows they intend to settle current tax liabilities and by transportation costs and included in the method. at a pre-tax rate that reflects current market assets on a net basis or their tax assets and selling expenses disclosure. assessments of the time value of money and, liabilities will be realised simultaneously. where appropriate, the risks specific to the Previous accounting policy applied under IAS liability. A deferred tax asset is recognised to the 18 until 31 December 2017. 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.
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(o) Overburden removal expenditure (q) Earnings per share 4. DETERMINATION OF FAIR VALUES (a) Financial assets measured (c) Other financial liabilities 5. PRIOR YEAR ADJUSTMENTS In open pit apatite rock mining operations, The Group presents basic and diluted at amortised cost not measured at fair value AND RECLASSIFICATIONS it is necessary to remove the overburden earnings per share (“EPS”) data for its A number of the Group’s accounting policies The fair values of financial assets carried The fair values of other financial liabilities, and other waste in order to access the ordinary shares. Basic EPS is calculated and disclosures require the determination of at amortised cost, which are mainly loans which are mainly loans and borrowings and During the current period the Group made economically recoverable resources. by dividing the profit or loss attributable to fair value, for both financial and non-financial issued and trade and other receivables, finance lease liabilities, are determined for a decision to make reclassifications to prior ordinary shareholders of the Company by the assets and liabilities. approximate their carrying amounts as at the disclosure purposes and categorised as Level year comparatives to be consistent with the Stripping costs incurred during the pre- weighted average number of ordinary shares reporting date. 3 of the fair value hierarchy. The fair values current year classifications, effecting the production phase of the open pit mine are outstanding during the period, adjusted for When measuring the fair value of an asset are calculated based on the present value following captions: capitalised as the cost of the development of own shares held. or a liability, the Group uses market (b) Financial instruments of future principal and interest cash flows, • cost of sales, administrative expenses, the mining property and amortised over the observable data as far as possible. Fair measured at fair value discounted at the market rate of interest at selling expenses and other expenses,net; life of the mine. If the number of ordinary shares outstanding values are categorised into different levels The fair values of derivative financial the reporting date. For finance leases the • elements making revenue; increases/(decreases) as a result of a share in a fair value hierarchy based on the inputs assets and liabilities are determined using market rate of interest is determined by • elements making cost of sales; According to the Group’s approach to split/(reverse share split), the calculation of used in the valuation techniques as follows: inputs from observable market data and reference to similar lease agreements. • nventory, catalysts (as non-current assets), stripping, the ore, which becomes accessible the EPS for all periods presented is adjusted • Level 1: quoted prices (unadjusted) in are categorised as Level 2 of the fair value trade and other payables; after the overburden removal, is extracted retrospectively. active markets for identical assets or hierarchy. • segment information. within three months. Therefore, the stripping liabilities. ratio (volume of overburden removed over the Diluted EPS is determined by adjusting • Level 2: inputs other than quoted prices The fair values of derivative financial volume of resources extracted) is expected the profit or loss attributable to ordinary included in Level 1 that are observable for liabilities, represented by put and call options to stay relatively constant over the future shareholders and the weighted average the asset or liability, either directly on oil (Brent) contracts, are based on broker periods and stripping costs incurred during number of ordinary shares outstanding, (i.e. as prices) or indirectly (i.e. derived from quotes. Similar contracts are traded in an the production phase of the open pit mine are adjusted for own shares held, for the effects prices). active market and the quotes reflect the recognised in the profit or loss as incurred. of all dilutive potential ordinary shares, • Level 3: inputs for the asset or liability that actual transactions in similar instruments. which comprise convertible notes and share are not based on observable market data (p) Other expenses options granted to employees. (unobservable inputs). (i) Operating leases RUB mln 2017 Payments made under operating leases are (r) Segment reporting If the inputs used to measure the fair As previously Reclassifications As adjusted recognised in the profit or loss on a straight- An operating segment is a component of the value of an asset or a liability might be presented line basis over the term of the lease. Lease Group that engages in business activities categorised in different levels of the fair value incentives received are recognised in the from which it may earn revenues and incur hierarchy, then the fair value measurement Cost of sales (101,429) (388) (101,817) profit or loss as an integral part of the total expenses, including revenues and expenses is categorised in its entirety in the same Selling expenses (24,466) (735) (25,201) lease payments made. that relate to transactions with any of the level of the fair value hierarchy as the lowest Administrative expenses (14,662) 644 (14,018) Group’s other components. All operating level input that is significant to the entire Other expenses, net (2,136) 489 (1,647) (ii) Social expenditure segments’ operating results are reviewed measurement. Finance costs (6,980) (10) (6,990) To the extent that the Group’s contributions regularly by the CEO to make decisions about to social programs benefit the community resources to be allocated to the segment The Group recognises transfers between at large and are not restricted to the Group’s and assess its performance, and for which levels of the fair value hierarchy at the end of RUB mln 31 December 2017 employees, they are recognised in the profit discrete financial information is available. the reporting period during which the change As previously Reclassifications As adjusted or loss as incurred. has occurred. presented Segment results that are reported to the Catalysts – 1,900 1,900 CEO include items directly attributable to Fair values have been determined for Inventories 27,345 (1,900) 25,445 a segment as well as those that can be measurement and / or disclosure purposes allocated on a reasonable basis. Unallocated based on the methods described in 4(a) to items comprise mainly corporate assets, 4(с). When applicable, further information related head office expenses and Group’s about the assumptions made in determining associates. fair values is disclosed in the notes specific to that asset or liability. Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment.
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6. SEGMENT INFORMATION Cherepovets, Balakovo and Volkhov, and Information regarding the results of each The analysis of export revenue by regions is as follows: production and distribution of apatite reportable segment is included below. RUB mln The Group has two reportable segments, concentrate extracted from the apatite- Performance is measured based on gross as described below, which are the Group’s nepheline ore, which is mined and profit, as included in internal management 2018 2017 strategic business units. The strategic processed in Kirovsk; reports that are reviewed by the Group’s CEO. Europe 57,308 44,511 business units offer different products, • Nitrogen-based products segment includes South America 43,684 28,537 and are managed separately because they mainly production and distribution of Segment information as at 31 December North America 27,589 12,082 require different technology and marketing ammonia, ammonium nitrate and urea on 2018 and for the year then ended is as India 11,890 7,087 strategies. The following summary describes the factory located in Cherepovets. follows: the operations in each of the Group’s CIS 11,557 17,287 reportable segments: Certain assets, revenue and expenses are not Africa 7,895 7,058 • Phosphate-based products segment allocated to any particular segment and are, Asia 3,250 4,320 includes mainly production and distribution therefore, included in the “other operations” Australia 6 11 of ammophos, diammoniumphosphate, column. None of these operations meet any 163,179 120,893 sodium tripolyphosphate and other of the quantitative thresholds for determining phosphate based and complex (NPK) reportable segments. 7. REVENUES fertilisers on the factories located in RUB mln
RUB mln 2018 2017
Phosphate-based Nitrogen-based Other Total Phosphate-based products 186,971 151,519 products products operations Sales of chemical fertilisers 155,733 123,227 Segment revenue and profitability Sales of apatite concentrate 22,098 21,158 Segment external revenues, thereof: 186,971 37,011 9,448 233,430 Sales of other phosphate-based products and services 8,326 6,453
Export 132,098 30,178 903 163,179 Sales of nepheline concentrate 814 681 Domestic 54,873 6,833 8,545 70,251 Nitrogen-based products 37,011 22,495 Cost of goods sold (98,962) (16,431) (8,571) (123,964) Other 9,448 7,337 Gross segment profit 88,009 20,580 877 109,466 233,430 181,351
Certain items of profit or loss 8. PERSONNEL COSTS
Amortisation and depreciation (14,304) (5,883) (724) (20,911) RUB mln
Total non-current segment assets1 124,418 60,748 5,265 190,431 2018 2017
Additions to non-current assets1 25,618 5,890 843 32,351 Cost of sales (12,209) (11,265) Administrative expenses (8,271) (7,875) Selling expenses (1,888) (1,466) Segment information of the Group as at 31 December (22,368) (20,606) 2017 and for the year then ended is as follows: 9. COST OF SALES RUB mln RUB mln Phosphate-based Nitrogen-based Other Total products products operations 2018 2017
Materials and services (36,493) (30,869) Segment revenue and profitability Depreciation (18,936) (13,242) Segment external revenues, thereof: 151,519 22,495 7,337 181,351 Salaries and social contributions (12,209) (11,265) Export 103,648 16,983 262 120,893 Natural gas (12,096) (9,154) Domestic 47,872 5,512 7,074 60,458 Sulphur and sulphuric acid (10,682) (6,120) Cost of goods sold (81,135) (13,641) (7,041) (101,817) Potash (10,238) (8,279) Gross segment profit 70,384 8,854 296 79,534 Chemical fertilisers and other products for resale (6,287) (4,932) Certain items of profit or loss Electricity (5,474) (5,451) Amortisation and depreciation (10,227) (4,192) (388) (14,807) Ammonia (4,195) (6,287)
Total non-current segment assets1 108,711 66,081 3,994 178,786 Fuel (3,775) (3,264)
Additions to non-current assets1 26,928 8,955 613 36,496 Ammonium sulphate (3,015) (2,287) Heating energy (564) (667) (123,964) (101,817) 190 1 Total non-current segment assets include property, plant and equipment, intangible assets and catalysts. 191 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information FINANCIAL STATEMENTS continued
10. ADMINISTRATIVE EXPENSES 14. INCOME TAX EXPENSE RUB mln The Company’s applicable corporate income tax rate is 20% (2017: 20%).
2018 2017 RUB mln
Salaries and social contributions (8,271) (7,875) 2018 2017 Professional services (1,792) (1,970) Current tax expense (8,487) (5,803) Depreciation and amortisation (1,242) (943) Origination and reversal of temporary differences, 2,512 (2,908) including change in unrecognised assets Other (3,559) (3,230) (5,975) (8,711) (14,864) (14,018) 11. SELLING EXPENSES RECONCILIATION OF EFFECTIVE TAX RATE, RUB mln
2018 2017 RUB mln
Freight, port and stevedoring expenses (17,344) (11,065) 2018 2017 Russian Railways infrastructure tariff and operators’ fees (10,383) (9,218) Profit before tax 28,110 100% 34,042 100%
Materials and services (2,671) (1,966) Income tax at applicable tax rate (5,622) (20%) (6,808) (20%)
Salaries and social contributions (1,888) (1,466) (Under)/over provided in respect of prior years (3) – 29 – Custom duties (1,391) (864) Unrecognised tax (asset)/liability on (loss)/profit from associates (125) _ 57 _ Depreciation (733) (622) (34,410) (25,201) Non-deductible items (1,434) (5%) (1,361) (4%) 12. OTHER EXPENSES, NET Change in unrecognised deferred tax assets 17 – 13 – Effect of tax rates in foreign jurisdictions 39 – 38 – RUB mln Reduction in tax rate 1,153 4% 144 – 2018 2017 Recognition of previously unrecognised deferred tax liabilities – – (823) (2%) Social expenditures (1,903) (1,649) (5,975) (21%) (8,711) (26%) Loss on disposal of property, plant and equipment and intangible assets (586) (614) 15. PROPERTY, PLANT AND EQUIPMENT Increase in provision for bad debt (452) (164) RUB mln (Increase)/decrease in provision for inventory obsolescence (88) 85 Land Plant and Fixtures Construction Total Reversal of accrual/(accrual) of contingent liabilities 35 (38) and buildings equipment and fittings in progress
Other income, net 268 733 Cost (2,726) (1,647) At 1 January 2017 44,879 84,169 8,297 76,323 213,668 13. FINANCE INCOME AND FINANCE COSTS Additions 1,391 2,774 2,874 29,457 36,496 RUB mln Transfers 21,379 42,248 – (63,627) – 2018 2017 Disposals (474) (2,168) (93) (295) (3,030) Interest income 230 254 At 1 January 2018 67,175 127,023 11,078 41,858 247,134 Unwind of discount of financial assets 67 89 Additions 2,286 3,903 2,363 23,309 31,861 Dividend income – 4 Transfers 6,835 13,425 – (20,260) – Other finance income 150 268 Disposals (138) (1,335) (129) (305) (1,907) Finance income 447 615 Other movements 94 1,632 12 – 1,738
Interest expense (4,666) (4,347) At 31 December 2018 76,252 144,648 13,324 44,602 278,826
Provision for bad debt on financial investments (note 18) (566) (2,243) Accumulated depreciation Bank fees (156) (355) At 1 January 2017 (9,637) (44,172) (5,146) – (58,955) Other finance costs (710) (45) Depreciation charge (3,155) (10,718) (1,250) – (15,123) Finance costs (6,098) (6,990) Disposals 357 1,614 86 – 2,057 Net finance costs (5,651) (6,375) At 1 January 2018 (12,435) (53,276) (6,310) – (72,021) Depreciation charge (4,582) (14,813) (1,863) – (21,258) Disposals 74 1,234 96 – 1,404 Other movements (6) (707) (7) – (720) At 31 December 2018 (16,949) (67,562) (8,084) – (92,595)
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RUB mln Summary financial information Land Plant and Fixtures Construction Total for associates is as follows: and buildings equipment and fittings in progress RUB mln 2018 Net book value at 1 January 2017 35,242 39,997 3,151 76,323 154,713 Total Total Net Revenue (Loss)/profit Net book value at 1 January 2018 54,740 73,747 4,768 41,858 175,113 assets liabilities assets for the year Net book value at 31 December 2018 59,303 77,086 5,240 44,602 186,231 JSC Khibinskaya Teplovaya Kompaniya 1,876 (1,075) 801 705 48 LLC PhosAgro-Ukraine – – – 3,549 181 JSC Giproruda 146 (24) 122 54 9 During 2018, the Group capitalised borrowing • Development programme of production In Kirovsk: costs in the amount of RUB 836 million facilities for sulphuric acid in the amount • Kirovsk mine extension and modernization JSC Soligalichskiy izvestkovyi kombinat 526 (294) 232 497 11 (2017: RUB 652 million) in the value of of RUB 2,795 million; in the amount of RUB 10,962 million; 2,548 (1,393) 1,155 4,805 249 property, plant and equipment using the • The construction of ammonium sulphate • The development of Rasvumchorrskiy weighted average interest rate of 3% per plant in the amount of RUB 2,679 million; mine in the amount of RUB 7,067 million; RUB mln 2017 annum. • Development programme of production • The construction of apatit-nepheline Total Total Net Revenue (Loss)/profit assets liabilities assets for the year facilities for extraction of phosphoric acid beneficiation plant in the amount of RUB As at 31 December 2018, the balance of the and fertilizers in the amount of RUB 2,419 5,329 million; JSC Khibinskaya Teplovaya Kompaniya 2,128 (1,384) 744 751 23 construction in progress account includes million; • The construction of transporter LLC PhosAgro-Ukraine 2,611 (1,170) 1,441 13,996 777 the accumulated costs related to. • Modernization of production facilities of Koashvinskiy quarry in the amount JSC Giproruda 132 (23) 109 99 (16) for urea plant in the amount of RUB 976 of RUB of 2,821 million. JSC Soligalichskiy izvestkovyi kombinat 425 (196) 229 500 5 In Cherepovets: million; 5,296 (2,773) 2,523 15,346 789 • Maintenance programme of ammonia • The construction of service infrastructure (a) Leasing production facilities in the amount of RUB of ammonia plant in the amount of RUB Plant and equipment with the carrying value 3,099 million; 299 million. of RUB 4,496 million (31 December 2017: RUB 5,422 million) is leased under various 17. DEFERRED TAX ASSETS finance lease agreements, see note 27(a). AND LIABILITIES
16. INVESTMENTS IN ASSOCIATES (a) Recognised deferred tax assets and liabilities The movement in the balance of investments Deferred tax assets and liabilities are in associates is as follows: attributable to the following items:
RUB mln RUB mln 2018 2017 2018 2017 Assets Liabilities Net Assets Liabilities Net Balance at 1 January 969 816 Share in profit for the period 99 287 Property, plant and equipment 102 (9,869) (9,767) 78 (8,893) (8,815) Provision for investments in associates (722) – Other long-term assets 17 (44) (27) 6 (28) (22) Foreign currency translation difference 160 (134) Current assets 1,067 (488) 579 469 (549) (80) Balance at 31 December 506 969 Liabilities 748 (3) 745 947 (36) 911 Tax loss carry-forwards 8,482 – 8,482 5,486 – 5,486 Carrying values of the Group’s investments Unrecognised deferred tax assets (40) – (40) (23) – (23) in associates are as follows: Tax assets/(liabilities) 10,376 (10,404) (28) 6,963 (9,506) (2,543) Set off of tax (1,381) 1,381 – (1,592) 1,592 – RUB mln Net tax assets/(liabilities) 8,995 (9,023) (28) 5,371 (7,914) (2,543) 31 December 2018 31 December 2017
JSC Khibinskaya Teplovaya Kompaniya 421 398 LLC PhosAgro-Ukraine – 488 JSC Giproruda 61 25 JSC Soligalichskiy izvestkovyi kombinat 24 58 506 969
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The deferred tax assets on tax loss carry- (the “forecast”) and the Group’s tax position. As at 31 December 2018, no deferred tax 18. OTHER NON-CURRENT ASSETS forwards relate to the Russian entities. Due The forecast is reviewed at each reporting liability for taxable temporary differences of RUB mln to recent amendments to the Russian tax date to ensure that the related tax benefit RUB 52,016 million has been recognised (31 legislation, starting from 1 January 2017, will be realised. Future taxable profits are December 2017: RUB 48,502 million), either 31 December 2018 31 December 2017 tax losses for Russian tax purposes carried expected to be generated from an excess because the Parent can control the timing Loans issued to third parties, at amortised cost 779 232
forward existing as at 31 December 2018 of interest income on loans, to be issued of reversal of the temporary differences and Financial assets, at fair value 724 755 do not expire. by the Company to the Group subsidiaries, it is probable that the temporary differences Loans issued to employees, at amortised cost 88 77 over expenses of the Company. When will not reverse in the foreseeable future, or Management has developed a tax developing the forecast, management has because the applicable tax rate is expected Financial assets, at amortised cost 28 21 strategy to utilise the tax losses above. evaluated profitability and dividend capacity to be 0%. Loans issued to related parties, at amortised cost – 97 In assessing the recoverability of the tax of the Group subsidiaries, and considered Loans issued to associates, at amortised cost – 20 losses, management considers a forecast expected rates of interest for loans and of future taxable profits of the Company expected foreign currency rates. Provision for loans issued to third parties (571) – Other long-term assets 795 753
(b) Movement in temporary differences 1,843 1,955 during the year 19. OTHER CURRENT INVESTMENTS
RUB mln RUB mln
31 December 2018 Recognised Recognised in other 1 January 2018 31 December 2018 31 December 2017 in profit or loss comprehensive income Loans issued to related parties, at amortised cost 117 213 Property, plant and equipment (9,767) (951) (1) (8,815) Other long-term assets (27) (5) – (22) Interest receivable 88 42
Current assets 579 655 4 (80) Loans issued to employees, at amortised cost 52 35 Liabilities 745 (166) – 911 Loans issued to third parties, at amortised cost 35 43 Tax loss carry-forwards 8,482 2,996 – 5,486 Investments in debt securities, at amortised cost 32 – Unrecognised deferred tax assets (40) (17) – (23) Net tax (liabilities)/assets (28) 2,512 3 (2,543) Loans issued to associates, at amortised cost 13 23
Provision for doubtful accounts (24) (4) RUB mln 313 352 31 December 2017 Recognised in other 1 January 2018 1 января 2017 comprehensive income Property, plant and equipment (8,815) (3,154) – (5,661) 20. INVENTORIES Other long-term assets (22) (8) – (14) RUB mln Current assets (80) (414) – 334 31 December 2018 31 December 2017
Liabilities 911 (149) (145) 1,205 Raw materials and spare parts 12,500 9,812 Tax loss carry-forwards 5,486 804 – 4,682 Finished goods: Unrecognised deferred tax assets (23) 13 – (36) Chemical fertilisers 12,982 9,363 Net tax assets (2,543) (2,908) (145) 510 Other products 651 1,260
Apatite concentrate 327 200
Work-in-progress: Chemical fertilisers and other products 3,782 3,543 Chemical fertilisers for resale, purchased from the third parties 1,729 1,279 Other goods for resale 83 84 Provision for obsolescence (184) (96)
31,870 25,445
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21. TRADE AND OTHER (b) Dividend policy of Directors in making their recommendation RECEIVABLES The Company expects to distribute cash to the General Shareholders’ Meeting.
RUB mln dividends in the future and expects the amount of such dividends to be between 30 (c) Dividends 31 December 2018 31 December 2017 and 50 per cent of the Group’s consolidated In accordance with Russian legislation the Trade accounts receivable 20,379 15,507 profit calculated in accordance with IFRS Company’s distributable reserves are limited attributable to shareholders of PJSC to the balance of accumulated retained VAT and other taxes receivable 8,973 10,306 “PhosAgro”, adjusted by unrealised foreign earnings as recorded in the Company’s Advances issued 5,716 4,662 exchange gain/(loss). statutory financial statements prepared
Income tax receivable 533 2,734 in accordance with Russian Accounting Whether the Company will pay dividends Principles. As at 31 December 2018, the Deferred expenses 159 210 and the timing and exact amount of such Company had cumulative retained earnings Receivables from employees 11 26 dividends will be subject to the approval of of RUB 35,076 million (31 December 2017: the recommendation made by the Board RUB 32,102 million). Other receivables 1,033 818 of Directors at the General Shareholders’ Provision for doubtful accounts (618) (536) Meeting and will depend on a variety of factors, including the Company’s earnings, 36,186 33,727 cash requirements, financial condition and The movements in provision for doubtful other factors deemed relevant by the Board accounts are as follows:
RUB mln
2018 2017 Proposed by the Board Approved Amount per share, Amount of dividends, of Directors in by shareholders in RUB RUB mln Balance at 1 January (536) (499)
Foreign currency translation difference (16) 17 Total dividends approved during the reporting period
Written off provision through trade receivables 380 110 November 2017 February 2018 21 2,720
Increase in provision for bad debt (446) (164) March 2018 May 2018 15 1,942
Balance at 31 December (618) (536) May 2018 July 2018 24 3,108 August 2018 October 2018 45 5,828
See note 29(c) for the analysis of overdue trade 13,598 accounts receivable. Total dividends approved subsequent to the reporting date November 2018 January 2019 72 9,324 22. CASH AND CASH EQUIVALENTS March 2019 To be approved in May 2019 51 6,605
RUB mln 15,929
31 December 2018 31 December 2017
Cash in bank 5,126 2,459 24. EARNINGS PER SHARE Call deposits 4,188 227
Petty cash 6 5 Basic earnings per share are calculated based on the weighted average number of 9,320 2,691 ordinary shares outstanding during the year. 23. EQUITY Basic and diluted earnings per share are the same, as there is no effect of dilution. (a) Share capital
Number of shares unless otherwise stated Ordinary shares 2018 2017
Shares on issue at 31 December 2018, RUB 2.5 par value 129,500,000 Weighted average number of ordinary shares in issue 129,500,000 129,500,000
Shares authorised for additional issue at 31 December 2018, RUB 2.5 par value 994,977,080 Profit for the year attributable to shareholders of the Parent, RUB million 22,069 25,333 Basic and diluted earnings per share, RUB 170 196 Shares on issue at 31 December 2017, RUB 2.5 par value 129,500,000
Shares authorised for additional issue at 31 December 2017, RUB 2.5 par value 994,977,080
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25. LOANS AND BORROWINGS 26. DEFINED BENEFIT OBLIGATIONS
This note provides information about the RUB mln RUB mln contractual terms of the Group’s loans and 31 December 2018 31 December 2017 31 December 2018 31 December 2017 borrowings. For more information about the finance leases, see note 27(a). For more Current loans and borrowings Pension obligations, long-term 302 701 information about the Group’s exposure to Unsecured bank loans 19,934 14,266 Post-retirement obligations other than pensions 328 249 foreign currency risk, interest rate risk and Interest payable 733 946 630 950 liquidity risk, see note 29. Unsecured loans from other companies 20 13 Loan participation notes1 – 28,800 Bank commission (short-term) (8) – 20,679 44,025 The Group has defined benefit plans at JSC Non-current loans and borrowings “Apatit”, Kirovsk Branch of JSC “Apatit” and Loan participation notes2,3 69,471 28,800 JSC “Metachem” which stipulate payment of a lump sum allowance to employees who Unsecured bank loans 53,570 46,577 have a specified period of service in these Unsecured letters of credit issued by banks – 1,254 companies upon their retirement. All defined Bank commission (long-term) (164) (101) benefit plans are unfunded. The movement 122,877 76,530 in the present value of the defined benefit 143,556 120,555 obligations is as follows: The breakdown of the loans and borrowings denominated in different currencies is as follows: RUB mln
RUB mln Defined benefit obligations at 1 January 2017 767
31 December 2018 31 December 2017 Benefits paid (81) USD-denominated 123,152 100,874 Current service costs and interest 79 EUR-denominated 18,531 6,356 Past service costs (12) RUB-denominated 2,045 13,426
143,728 120,656 Actuarial loss in other comprehensive income 197 The maturity of the loans and borrowings is as follows Defined benefit obligations at 1 January 2018 950 Less than 1 year 20,687 44,025 Benefits paid (102) 1-2 years 19,623 9,483 Current service costs and interest 87 2-3 years 46,326 16,291
3-4 years 5,665 31,844 Past service costs (135)
4-5 years 38,380 5,064 Actuarial gain in other comprehensive income (170) More than 5 years 13,047 13,949 Defined benefit obligations at 31 December 2018 630 143,728 120,656 Reconciliation of liabilities arising from financing activities: The key actuarial assumptions used in measurement RUB mln of the defined benefit obligations are as follows: 31 December 2017 Cash inflows Cash outflows Amortisation Foreign 31 December 2018 of bank commision exchange loss 31 December 2018 31 December 2016 Loans and borrowings 119,609 83,874 (83,572) 47 22,865 142,823 (excluding interest payable) Discount rate 8.8% 7.7%
Finance lease liabilities 2,121 – (1,285) – 258 1,094 Future pension increases 4.1% 4.2%
121,730 83,874 (84,857) 47 23,123 143,917
1 In February 2013, the Company’s SPV issued a USD 500 million 5-year Eurobond with a coupon rate of 4.204%, which is listed on the Irish Stock Exchange, with the fair value at the reporting date of RUB nil million (31 December 2017: RUB 29,342 million). The redemption was financed by the Eurobond placed in January 2018.
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 34,102 million (31 December 2017: RUB 29,258 million).
3 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 33,745 million.
200 Management believes that the fair value of the Group’s other loans and borrowings approximates their carrying amounts. 201 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information FINANCIAL STATEMENTS continued
27. LEASES RUB mln 2018 29. FINANCIAL RISK MANAGEMENT (b) Market risk The Group implemented a natural hedge Market risk is the risk that changes in approach (policy) aiming at reducing its Minimum lease Interest Principal (a) Finance leases payments (a) Verview market prices, such as foreign exchange exposure to foreign currency risk by means JSC “PhosAgro-Trans”, a Group subsidiary, In the normal course of its operations, the rates, interest rates and equity prices will of borrowing in the same currencies in Less than one year 766 48 718 has entered into several agreements to Group has exposure to market, credit and affect the Group’s income or the value of which sales agreements are denominated. lease 2,000 railway wagons in 2011–2014. Between one and five years 392 16 376 liquidity risks. its financial instruments. The objective of Other Group subsidiaries also have entered 1,158 64 1,094 market risk management is to manage The Group has the following foreign- into lease agreements in 2016 and 2017. This note presents information about the and control market risk exposures within currency-denominated financial assets At the end of the lease term, the ownership Group’s exposure to each of the above acceptable parameters, while optimising the and liabilities: RUB mln 2017 for the leased assets will be transferred to risks, the Group’s objectives, policies and return. the lessee. Minimum lease Interest Principal processes for measuring and managing risk, payments and the Group’s management of capital. Foreign currency risk Less than one year 1,247 130 1,117 Further quantitative disclosures are included The Group is exposed to currency risk on Between one and five years 1,059 55 1,004 throughout these consolidated financial sales, purchases and borrowings that are statements. denominated in a currency other than the 2,306 185 2,121 respective functional currencies of Group The Board of Directors has overall entities. The currencies giving rise to this responsibility for the establishment and risk are primarily USD and EUR. oversight of the Group’s risk management (b) Operating leases Operating leases for other companies framework. The Group’s risk management In respect of monetary assets and liabilities During 2017–2018, JSC “PhosAgro-Trans”, of the Group are mainly represented by policies are established to identify and denominated in foreign currencies, the a group subsidiary, entered into several office leases. analyse the risks faced by the Group, to set Group ensures that its net exposure is operating lease agreements to rent 1,200 appropriate risk limits and controls, and kept to an acceptable level by buying or railway wagons. Also Kirovsk branch of JSC The non-cancellable operating lease rentals to monitor risks and adherence to limits. selling foreign currencies at spot rates “Apatit”, a group subsidiary, has long-term (excluding VAT) are payable as follows: Risk management policies and systems when necessary to address short-term lease contracts for production facilities. are reviewed regularly to reflect changes in imbalances. market conditions and the Group’s activities.
RUB mln RUB mln
31 December 2018 31 December 2017 31 December 2018 31 December 2017
Less than one year 907 717 USD denominated EUR denominated USD denominated EUR denominated
Between one and five years 1,562 1,202 Current assets 3,759 11 1,802 51
2,469 1,919 Non-current assets – – 97 –
Non-current liabilities 28. TRADE AND OTHER PAYABLES Loans and borrowings (108,405) (12,615) (68,705) (5,807) RUB mln Finance lease liability (375) – (1,004) – 31 December 2018 31 December 2017
Trade accounts payable 11,922 12,129 Current liabilities
incl. accounts payable for property, plant and equipment 4,248 5,838 Loans and borrowings (14,747) (5,916) (32,169) (549) and intangible assets Finance lease liability (674) (38) (1,117) – Advances received (contract liabilities) 3,644 4,414
Payables to employees 3,068 2,933 Payables (495) (679) (74) (321)
Taxes payable 2,229 2,014 (120,937) (19,237) (101,170) (6,626)
Income tax payable 298 109
Accruals 36 51
Other payables 276 198
21,473 21,848
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Management estimate that a 10% devaluation of the Russian Rouble against be to fixed or variable rates. However, at when available, and in some cases bank for new customers who are required to strengthening/(weakening) of RUB against major currencies during the reporting period the time of raising new loans or borrowings references. Purchase limits are established for work on a prepayment basis or present an USD and EUR, based on the Group’s (its appreciation during the comparative management uses its judgment to decide each customer, which represent the maximum acceptable bank guarantee or set up letter exposure as at the reporting date would period). whether it believes that a fixed or variable amount of outstanding receivables; these of credit with an acceptable bank. have increased/(decreased) the Group’s rate would be more favourable to the Group limits are reviewed quarterly. Customers profit for the year by RUB 14,017 million, Foreign currency translation differences over the expected period until maturity. that fail to meet the Group’s benchmark In addition, the major part of trade before any tax effect (2017: would have In addition, the net assets of the Group’s creditworthiness may transact with the Group receivables in the Group’s foreign subsidiaries increased/(decreased) the Group’s profit foreign subsidiaries denominated in USD The interest rate profile of the Group’s only on a prepayment basis. is insured. for the year by RUB 10,780 million). This and EUR amount to RUB 15,069 million as interest-bearing financial instruments analysis assumes that all other variables, at the reporting date (31 December 2017: is as follows: The majority of the Group’s customers have The Group establishes an allowance for in particular interest rates, remain constant. RUB 18,429 million). been transacting with the Group for several impairment that represents its estimate The analysis is performed on the same years, and losses have occurred infrequently. of the expected credit losses in respect basis for 2017. Interest rate risk In monitoring customer credit risk, customers of trade and other receivables and other Interest rate risk is the risk that changes are grouped according to their credit financial assets. The main component of this The foreign exchange loss recognised in in interest rates will adversely impact the characteristics. Trade and other receivables allowance is a specific loss component that profit or loss of RUB 19,613 million (RUB financial results of the Group. Management relate mainly to the Group’s wholesale relates to individually significant exposures. 4,141 million of foreign exchange gain for does not have a formal policy of determining customers. the comparative period) resulted from the how much of the Group’s exposure should The analysis of overdue trade and other The Group does not require collateral in receivables is as follows: respect of trade and other receivables, except
RUB mln RUB mln
31 December 2018 31 December 2017 31 December 2018 31 December 2017 Not past due 17,956 15,147 Fixed rate instruments Past due 0–90 days 3,143 590 Other non-current assets 868 427 Past due 91–180 days 75 33 Other current investments 4,405 541 Past due 181–365 days 137 78 Long-term borrowings (113,781) (64,476) More than one year 101 477 Short-term borrowings (14,655) (40,035) 21,412 16,325 Finance lease liabilities (1,094) (2,121) (124,257) (105,664) Current and non-current financial assets The Group’s policy is to provide financial maintains several lines of credit in various Variable rate instruments The Group lends money to related parties guarantees only to the subsidiaries or related Russian and international banks. Long-term borrowings (9,260) (12,155) and to third parties, who have good credit parties. Short-term borrowings (5,299) (3,044) standing. Based on the prior experience, The table below illustrates the contractual management believes that there is no (d) Liquidity risk maturities of financial liabilities, including (14,559) (15,199) significant credit risk in respect of related Liquidity risk is the risk that the Group will interest payments, which are converted party and third party loans. not be able to meet its financial obligations at the closing exchange rates, where At 31 December 2018, a 1% increase/ As at 31 December 2018, the Group’s Trade and other receivables as they fall due. The Group’s approach to applicable: (decrease) in LIBOR/EURIBOR would have maximum exposure to credit risk is The Group’s exposure to credit risk is Cash and cash equivalents are primarily managing liquidity is to ensure, as far as decreased/(increased) the Group’s profit and represented by the carrying amount of its influenced mainly by the individual specific held with banks with high credit rating. possible, that it will always have sufficient equity by RUB 146 million (31 December financial assets and amounted to RUB 32,281 characteristics of each customer. The liquidity to meet its liabilities when due, under 2017: RUB 152 million). million (31 December 2017: RUB 20,813 general characteristics of the Group’s Guarantees both normal and stressed conditions, without million). customer base, including the default risk The Group considers that financial guarantee incurring unacceptable losses or risking (c) Credit risk of the industry and country, in which contracts entered into by the Group to damage to the Group’s reputation. Credit risk is the risk of financial loss to As at 31 December 2018, the Group’s customers operate, has less of an influence guarantee the indebtedness of other parties the Group if a customer or counterparty financial assets measured at amortised cost on credit risk. are insurance arrangements in accordance Typically the Group ensures that it has to a financial instrument fails to meet its amounted to RUB 31,557 million with IFRS 4 Insurance Contracts, and sufficient cash on demand to meet expected contractual obligations, and arises from the (31 December 2017: RUB 20,058 million). Management has established a credit accounts for them as such. In this respect, operational expenses for a period of 30 Group’s receivables from customers, loans policy under which each new customer is the Group treats the guarantee contract days, including the servicing of financial issued to related parties, current and non- As at 31 December 2018, the Group’s analysed individually for creditworthiness as a contingent liability until such time as obligations; this excludes the potential current financial assets and cash and cash financial assets measured at fair value before the Group’s standard payment and it becomes probable that the Group will impact of extreme circumstances that equivalents. amounted to RUB 724 million (31 December delivery terms and conditions are offered. be required to make a payment under the cannot reasonably be predicted, such as 2017: RUB 755 million). The Group’s review includes external ratings, guarantee (note 32). natural disasters. In addition, the Group
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RUB mln 31 December 2018 31. CONTINGENCIES adequately for tax liabilities based on its of prices with the arm’s length level could be interpretations of applicable Russian tax as well subject to scrutiny on the basis of Carrying value Contractual 0–1 1–2 2–3 3–4 4–5 > 5 cash flows year years years years years years (a) Litigation legislation, official pronouncements and unjustified tax benefit concept. The Group has a number of small court decisions. However, the interpretations Unsecured bank loans 73,504 80,901 22,009 21,258 12,795 6,515 4,255 14,069 claims and litigations relating to regular of the relevant authorities could differ and (c) Environmental contingencies Unsecured loans from other 20 20 20 – – – – – business activities and small fiscal claims. the effect on these consolidated financial The environmental legislation, currently companies Management believes that none of these statements, if the authorities were successful effective in the Russian Federation, is Interest payable 733 733 733 – – – – – claims, individually or in aggregate, will have in enforcing their interpretations, could be relatively new and characterised by frequent Secured finance leases 1,094 1,158 766 262 130 – – – a material adverse impact on the Group. significant. changes, official pronouncements and
Loan participation notes 69,471 79,303 2,744 2,751 37,250 1,372 35,186 - court decisions, which are often unclear, (b) Taxation contingencies Transfer pricing legislation enacted in the contradictory and subject to varying Trade and other payables 12,221 12,221 12,221 – – – – – The taxation system in the Russian Russian Federation starting from 1 January interpretation by different authorities. Financial guarantees issued 1,057 1,233 300 455 478 – – – Federation continues to evolve and is 2012 provides for major modifications for asso-ciates and related parties characterised by frequent changes in making local transfer pricing rules closer The Group is involved in chemical production, Derivative financial liabilities 626 626 626 – – – – – legislation, official pronouncements and to OECD guidelines, but creating additional which is inherently exposed to significant 158,726 176,195 39,419 24,726 50,653 7,887 39,441 14,069 court decisions, which are sometimes uncertainty in practical application of tax environmental risks. The Group companies contradictory and subject to varying legislation in certain circumstances. These record environmental obligations as they interpretation by different tax authorities. transfer pricing rules provide for an obligation become probable and reliably measurable. Taxes are subject to review and investigation for the taxpayers to prepare transfer pricing The Group companies are parties to different RUB mln 31 December 2017 by a number of authorities, which have the documentation with respect to controlled litigations with the Russian environmental authority to impose severe fines, penalties transactions and prescribe the basis and authorities. The management believes that Carrying value Contractual 0–1 1–2 2–3 3–4 4–5 > 5 cash flows year years years years years years and interest charges. A tax year generally mechanisms for accruing additional taxes based on its interpretations of applicable remains open for review by the tax authorities and interest in case prices in the controlled Russian legislation, official pronouncements Unsecured bank loans 60,843 68,276 16,236 9,656 17,483 3,930 5,768 15,203 during the three subsequent calendar years; transactions differ from the market level. The and court decisions no provision is required Unsecured loans from other 13 14 14 – – – – – however, under certain circumstances a transfer pricing rules apply to cross-border for environmental obligations. However, the companies tax year may remain open longer. Recent transactions between related parties, as interpretations of the relevant authorities Unsecured letters of credit 1,254 1,276 14 1,262 – – – – events within the Russian Federation suggest well as to certain cross-border transactions could differ from management’s position and Interest payable 946 946 946 – – – – – that the tax authorities are taking a more between independent parties, as determined the effect on these consolidated financial assertive and substance-based position in under the Russian Tax Code (no threshold is statements, if the authorities were successful Secured finance leases 2,121 2,306 1,247 734 217 108 – – their interpretation and enforcement of tax set for the purposes of prices control in such in enforcing their interpretations, could be Loan participation notes 57,600 62,252 30,133 1,137 1,141 29,841 – – legislation. transactions). In addition, the rules apply significant. Trade and other payables 12,385 12,385 12,385 – – – – – to in-country transactions between related These circumstances may create tax risks in parties if the accumulated annual volume of Financial guarantees issued 1,374 1,697 301 455 461 480 – – for asso-ciates and related parties the Russian Federation that are substantially the transactions between the same parties more significant than in other countries. exceeds a particular threshold (RUB 1,000 136,536 149,152 61,276 13,244 19,302 34,359 5,768 15,203 Management believes that it has provided million in 2014 and thereon). The compliance
(e) Capital management There were no changes in the Board’s 30. COMMITMENTS 32. RELATED PARTY TRANSACTIONS The Board’s policy is to maintain a strong approach to capital management during the capital base so as to maintain investor, year. The Group has entered into contracts to (a) Transactions and balances creditor and market confidence and to purchase plant and equipment for RUB with associates sustain future development of the business. The Company and its subsidiaries are subject 30,826 million (31 December 2017: RUB (i) Transactions with associates The Board of Directors monitors the return on to externally imposed capital requirements 26,637 million).
capital invested and the level of dividends to including the statutory requirements of RUB mln shareholders. the country of their domicile and the bank 2018 2017 covenants. Sales of goods and services 2,150 9,262
Other income, net 4 –
Interest income 3 15
Purchases of goods and services (472) (393)
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(ii) Balances with associates 33. SIGNIFICANT SUBSIDIARIES RUB mln
31 December 2018 31 December 2017 Subsidiary Country 31 December 2018 31 December 2017 of incorporation Effective ownership Effective ownership Trade and other receivables 15 573 (rounded) (rounded)
Short-term loans issued, at amortised cost 13 23 Apatit, JSC (including Balakovo and Ki-rovsk branchs) Russia 100% 100% Long-term loans issued, at amortised cost – 20 Metachem, JSC Russia 100% 100% Trade and other payables (10) (13) NIUIF, JSC Russia 94% 94%
PhosAgro-Trans, JSC Russia 100% 100% (iii) Financial guarantees PhosAgro-Region, LLC Russia 100% 100%
The Group issued financial guarantees to PhosAgro-Belgorod, LLC Russia 100% 100%
banks on behalf of associates amounting to PhosAgro-Don, LLC Russia 100% 100% RUB 1,007 million (31 December 2017: RUB 1,318 million). PhosAgro-Kuban, LLC Russia 100% 100% PhosAgro-Kursk, LLC Russia 100% 100% (b) Transactions and balances with other PhosAgro-Lipetsk, LLC Russia 100% 100% related parties (i) Transactions with other related parties PhosAgro-Oryol, LLC Russia 100% 100%
PhosAgro-Stavropol, LLC Russia 100% 100% RUB mln
2018 2017 PhosAgro-Volga, LLC Russia 100% 100%
Sales of goods and services 557 1,135 PhosAgro-SeveroZapad, LLC Russia 100% 100%
Other income, net 22 – PhosAgro-Tambov, LLC Russia 100% 100%
Interest income 14 28 Trading house PhosAgro, LLC Russia 100% 100% Interest expenses (54) (54) Phosint Trading Limited Cyprus 100% 100% Purchases of goods and services (2,030) (1,340) Phosagro Asia Pte Ltd Singapore 100% 100%
PhosAgro Trading SA Switzerland 100% 100% (ii) Balances with other related parties Phosint Limited Cyprus 100% 100% RUB mln PhosAgro Logistics SA Switzerland 100% 100% 31 December 2018 31 December 2017 Phosagro Baltic Sp.z o.o. Poland 100% 100% Short-term loans issued, at amortised cost 117 213 Phosagro Deutschland GmbH Germany 100% 100% Trade and other receivables 53 1 Phosagro France SAS France 100% 100% Long-term loans issued, at amortised cost – 97 PhosAgro Balkans Serbia 100% 100% Finance lease liabilities – (285) UAB PhosAgro Baltic Lithuania 100% – Short-term loans received (20) (5)
Trade and other payables (131) (65)
34. SEASONALITY (iii) Financial guarantees (c) Key management remuneration The Group’s costs are generally stable The Group issued financial guarantees to The remuneration of the Board of Directors The Group is subject to certain seasonal throughout the year with the exception of a banks on behalf of related parties amounting and key management personnel amounted to fluctuations in fertiliser demand due to the slight increase during May-June as a result to RUB 50 million (31 December 2017: RUB RUB 1,775 million (2017: RUB 1,449 million). timing of fertiliser application and, as a result, of maintenance activities undertaken at the 56 million). fertiliser purchases by farmers. However, the Group’s production facilities. effect of seasonality on the Group’s revenue The balances and transactions with is partially offset by the fact that the Group related parties are usually unsecured and sells its fertilisers globally and fertiliser denominated in RUB. application and purchases vary by region.
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GRI CONTENT INDEX
GRI Indicator Comment Page number (or link) GRI Indicator Comment Page number (or link)
GRI 102 GENERAL DISCLOSURES GRI 102–11 Precautionary Principle or approach This assessment is conducted as part of the current activities related to modernization projects, reconstruction and new 1. ORGANIZATIONAL PROFILE construction. Plans are developed to prevent or reduce the likelihood of incidents according to the biggest risk factors. GRI 102–1 Name of the organization PJSC PhosAgro.
On pages GRI 102–2 Activities, brands, products • Apatit concentrate About PhosAgro, GRI 102–12 External initiatives PhosAgro has signed an agreement on cooperation in soil Business model management with the Food and Agriculture Organization of the 73, 123 and services • Nepheline concentrate on pages 6–7, 16–19 United Nations (FAO). PhosAgro joined the UN Global Compact. • Monoammonium phosphate or MAP • Diammonium phosphate or DAP • NPK GRI 102–13 Membership of associations 1. The International Fertilizer Industry On page • NPS Association (IFA) 113, 123, 129 • PKS 2. The International Plant Nutrition Institute (IPNI) • Liquid complex fertilisers (HCS) or APP 3. Russian Union of Industrialists and Entrepreneurs 4. Russian Chemists Union (RCU) • Carbamide (prilled and granulated) 5. Russian Association of Fertiliser Producers (RAFP) • Ammonium nitrate or AN 6. NPP Mining Society • Compound nitrogen phosphate fertilisers (NArFU) or NP 7. UN Global compact • Monocalcium phosphate or MCP 8. Anti-Corruption Charter of Russian Business • STPP
2. STRATEGY GRI 102-3 Location of head-quarters 119333, Moscow, Leninsky Avenue, apt. 55/1, bld. 1 GRI 10–14 Statement from senior On pages GRI 102–4 Location of operations PhosAgro locates in Russia and supplies products About PhosAgro decision-maker 24–25 o more than 100 countries. on pages 6–7
3. ETHICS AND INTEGRITY GRI 102–5 Ownership and legal form Public Joint Stock Company “PhosAgro”. GRI 102–16 Values, principles, standards On pages GRI 102–6 Markets served The Company considers Russia, Latin America On pages and norms of behavior 112–115 and Europe to be the priority markets. 12–15
4. GOVERNANCE GRI 102–7 Scale of the organization On pages 10–11, 16–19, 98 GRI 102–18 Governance structure On pages 138–165
GRI 102–8 Information on employees On pages 98–111 and other workers 5. STAKEHOLDER ENGAGEMENT
GRI 102–40 List of stakeholder groups On pages GRI 102–9 Supply chain On page 116–129 66
GRI 102–41 Collective bargaining Collective bargaining agreements have been concluded with On page GRI 102–10 Significant changes to There were no significant changes. agreements 100% of employees from the Company’s main production 125 the organization and its supply chain enterprises.
GRI 102–11 Precautionary Principle Observance of the precautionary principle is part of a On pages or approach comprehensive systemic assessment of various operational 40–47 risks related to the production and business activities of the Company’s enterprises.
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GRI Indicator Comment Page number (or link) GRI Indicator Comment Page number (or link)
On page GRI 102–42 Identifying and selecting MATERIAL TOPICS 116 stakeholders GRI 200 ECONOMIC GRI 102–43 Approach to stakeholder On page GRI 201 ECONOMIC PERFORMANCE engagement 116 GRI 103 Management approach On pages 16–19, 36–39 GRI 102–44 Key topics and concerns On page raised 116
GRI 201–1 Direct economic value generated On pages and distributed 58–61 6. REPORTING PRACTICE
GRI 102–45 Entities included in the consolidated On page financial statements 209 RUB mln Item Stakeholder 2018
GRI 102–46 Defining report conюtent On page Direct economic value generated 233,896 64–66 and topic Boundaries Revenue from sales 223,982
Revenue from other sales 9,448 GRI 102–47 List of material topics On page Wide range of stakeholders 65 Revenue from financial investments 447
Revenue from sale of assets 19
GRI 102–48 Restatements of information No restatements of information was done according Economic value distributed (218,393) to previous reporting period. Operating expenses Suppliers and contractors (175,964)
GRI 102–49 Changes in reporting Throughout the reporting period, there were no significant Wages and other payments to employees Employees (12,209) changes to the scope and boundaries of aspects compared to Payments to providers of capital Shareholders and creditors previous reporting periods. payments to shareholders (13,598) GRI 102–50 Reporting period Reporting period — calendar year 2018. payments to creditors (4,666)
GRI 102–51 Date of most recent report The Company does not have a separate report on sustainable https://www.phosagro.com/ Tax expenses and other payments to government Government (11,956) development. Information on sustainable development is investors/reports/year/ including income tax expense (5,975) included in the Integrated Report. Date of publication of last Integrated Report – 28/04/2018 Economic value retained 15,503
GRI 102–52 Reporting cycle Since 2011, PJSC PhosAgro has published Integrated Reports annually. GRI 201–3 Defined benefit plan obligations On page and other retirement plans GRI 102–53 Contact point for questions On page 104 regarding the report 67
GRI 202 MARKET PRESENCE
GRI 102–54 Claims of reporting in accordance This report has been prepared in accordance On page with the GRI Standards with the GRI Standards: Core option. GRI 103 Management approach 100
GRI 102–55 GRI content index This appendix. GRI 202–1 Ratios of standard entry level wage On page GRI 102–56 External assurance On pages by gender compared to local minimum wage 102 172–174, 218–219
GRI 202–2 Proportion of senior management On page hired from the local community 103
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GRI Indicator Comment Page number (or link) GRI Indicator Comment Page number (or link)
GRI 203 INDIRECT ECONOMIC IMPACTS GRI 303 WATER AND EFFLUENTS
GRI 103 Management approach On page GRI 103 Management approach On page 132 74
GRI 203–1 Infrastructure investments On pages GRI 303–1 Interactions with water On pages and services supported 130–135 as a shared resource 83
GRI 303–2 Management of water On page GRI 203–2 Significant indirect On pages discharge-related impacts 83 economic impacts 130–135
GRI 303–3 Water withdrawal On page GRI 205 ANTICORRUPTION 83
GRI 103 Management approach On page 112 GRI 303–4 Water discharge On page 83
GRI 205–3 Confirmed incidents of corruption On page and actions taken 114 GRI 305 EMISSIONS
GRI 103 Management approach On page 74 GRI 300 ENVIRONMENTAL GRI 302 ENERGY GRI 305–1 Direct (Scope 1) GHG emissions On page 82 GRI 103 Management approach On page 84
GRI 305-4 GHG emissions intensity On page 82 GRI 302–1 Energy consumption within The Company also consumes a small On page the organization amount of petrol. 84–85 On page GRI 305–7 Nitrogen oxides (NOX), sulfur oxides (SO ), and other significant air emissions 80 GRI 302–3 Energy intensity On page X 84–85
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GRI Indicator Comment Page number (or link) GRI Indicator Comment Page number (or link)
On page GRI 306 EFFLUENTS AND WASTE GRI 403–4 Worker participation, consultation, and Health and Safety Committee communication on occupational health and safety 92–93 GRI 103 Management approach On page 74 GRI 403–5 Worker training on occupational On page health and safety 94–97 GRI 306–2 Waste by type On pages and disposal method 81–82 GRI 403–6 Promotion of worker health On page 92 GRI 306–4 Transport of hazardous waste The Company performs no crossborder shipping of waste deemed hazardous under the terms of the Basel Convention. GRI 403–7 Prevention and mitigation of On page GRI 400 SOCIAL occupational health and safety impacts directly 88–97 GRI 401 EMPLOYMENT linked by business relationships On page GRI 103 Management approach GRI 403–8 Workers covered by an occupational On page 100 health and safety management system 92
GRI 401– 1 1 New employee hires and employee Data on employee turnover is presented without On page 98 GRI 403–9 Work-related injuries On page turnover breakdown by gender, age and region. 89
On page GRI 401–2 Benefits provided to full-time employees Benefits established by collective bargaining agreements apply that are not provided to temporary or part-time to all employees of the Company’s main production sites and do 104 GRI 404 TRAINING AND EDUCATION employees not depend on the status or conditions of employment. GRI 103 Management approach On page 100 GRI 401–3 Parental leave As of 31 December 2018, 390 from the Company’s main On page production facilities were on maternity/paternity leave. 104 GRI 404–1 Average hours of training per year per On page employee 107
GRI 403 OCCUPATIONAL HEALTH AND SAFETY On pages On page GRI 404–2 Programs for upgrading employee skills GRI 103 Management approach 106–110 90 and transition assistance programs
On page On page GRI 403–1 Occupational health and safety GRI 404–3 Percentage of employees receiving 105 management system 91 regular performance and career development reviews On pages GRI 403–2 Hazard identification, risk assessment, and incident investigation 40–43, 93
On page GRI 403–3 Occupational health services 93
216 217 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information INDEPENDENT PRACTITIONER’S LIMITED ASSURANCE REPORT
On PJSC PhosAgro’s Sustainability Report for 2018 considered the internal control system • Visit to the subsidiary JSC Apatit, which was performed continuously throughout the relevant to the Company’s preparation of the selected based on a risk analysis using both reporting period, and the procedures were To the Management of PJSC PhosAgro Report, in order to design procedures that are qualitative and quantitative criteria; performed on a test basis. appropriate in the circumstances, but not for • Comparing the information presented in the purposes of expressing a conclusion as the Report with data from other sources to Conclusion to the effectiveness of the Company’s internal determine its completeness, accuracy and Our conclusion has been formed on the basis Introduction policies; making judgments and estimates Our Independence and Quality Control control. consistency; of, and is subject to, the matters outlined in We were engaged by the Management that are reasonable in the circumstances; We have complied with the independence • Assessing the completeness of qualitative this report. We believe that the evidence we of PJSC PhosAgro (the “Management”) maintaining adequate records in relation to the and ethical requirements established by the Our engagement also included: assessing the and quantitative information on sustainable have obtained is sufficient and appropriate to to perform an engagement to issue an information included in the Report; ensuring Rules on Independence of Auditors and Audit appropriateness of the information included development against recommendations of provide a basis for our conclusion. independent limited assurance report on PJSC that staff involved with the preparation of Firms and the Code of Professional Ethics for in the Report and the suitability of the GRI the GRI Standards; PhosAgro ‘s (the “Company”) Sustainability the Report are properly trained, information Auditors approved by the Audit Council of the Standards used by Management in preparing • Reading and analysing information on Based on the procedures performed and Report for 2018 (the “Report”) which is systems are properly updated and that any Ministry of Finance of the Russian Federation the Report in the circumstances of the sustainable development included in the described in this report, nothing has come to included in the Company’s Integrated Report changes in the reporting system encompass and by the Code of Ethics for Professional engagement; evaluating the appropriateness Report to determine whether it is in line with our attention that causes us to believe that “Clean Minerals for Healthy Life” for 2018 (the all key business units. Accountants issued by the International Ethics of the methods, policies and procedures our understanding and knowledge of the Management’s statement that the Report is “Integrated report”) on pages 62-135 with a Standards Board for Accountants, which are used in the preparation of the Report and Company’s sustainable development activity; prepared, in all material respects, based on limited assurance conclusion that, based on Our Responsibilities and Applicable based on fundamental principles of integrity, the reasonableness of estimates made by • Recalculation of quantitative data and the GRI Standards and is free from material our work performed, nothing has come to Standards objectivity, professional competence and Management. inspection of underlying documentation. misstatement, is not fairly stated. our attention that causes us to believe that Our responsibility is to perform procedures due care, confidentiality and professional Management’s statement that the Report is to obtain evidence in respect of the Report behaviour. The procedures we developed based on the The procedures performed in a limited prepared, in all material respects, based on prepared by Management, and to issue a performed risk assessment are a combination assurance engagement vary in nature and the “core” version of the Global Reporting report with an independent limited assurance We apply the International Standard on of inspections, recalculations, analytical timing from, and are less in extent than Initiative Sustainability Reporting Standards conclusion regarding Management’s Quality Control 1, and accordingly maintain procedures and inquiries. for, a reasonable assurance engagement. (the “GRI Standards”) and is free from material statement in respect of the Report based on a comprehensive system of quality Consequently, the level of assurance obtained misstatement, is not fairly stated. the evidence obtained. control including documented policies and Our procedures included, but were not limited in a limited assurance engagement is procedures regarding compliance with ethical to, the following: substantially lower than the assurance that Our conclusion covers only indicators in the We conducted our engagement in accordance requirements, professional standards and • Inspection of the processes used by the would have been obtained had a reasonable Report listed in the Appendix 1 “Index of GRI with the International Standard on Assurance applicable legal and regulatory requirements. Company to identify topics and issues assurance engagement been performed. Content” to the Integrated Report on pages Engagements 3000 Assurance Engagements material to the Company’s key stakeholder 210-217 of the Integrated Report. Other Than Audits or Reviews of Historical Procedures Performed groups, with the purpose of understanding Criteria Used Financial Information (ISAE 3000) issued The procedures selected, and our such processes in the Company, as well To evaluate the Report, GRI Standards were Management’s Responsibilities by the International Auditing and Assurance determination of the nature, timing and as analysis of information from open used which are available at the link: Management is responsible for the Standards Board. extent of these procedures, depend on sources on topics and issues material to key https://www.globalreporting.org/standards/ preparation and presentation of the Report our professional judgment, including the stakeholder groups of other organizations in that is free from material misstatement in ISAE 3000 requires that we plan and perform assessment of risk of material misstatement the industry, with the purpose of determining Management’s Statement accordance with the GRI Standards, and for our procedures to obtain a meaningful level during the preparation of the Report, whether the level of completeness of disclosure of Management states that the Report is the information and statements contained of assurance about whether Management’s due to fraud or error, our understanding of such topics and issues in the Report; prepared, in all material respects, based on therein. statement that the Report is prepared, in all the Company’s activities, as well as other • Interviews with Management representatives the GRI Standards and is free from material material respects, based on the GRI Standards engagement circumstances. and officers at corporate headquarter level misstatement. This responsibility includes designing, and is free from material misstatement, is and subsidiaries regarding the sustainable implementing and maintaining internal fairly stated. In making these risk assessments, we development strategy and policies regulating Inherent Limitations control system relevant to the preparation material issues in areas of importance for Due to the limitations inherent in any internal of the Report that is free from material the Company, stage of implementation of control structure, it is possible that errors or misstatement, whether due to fraud or error. such policies, and procedures for collecting irregularities in the information presented in
It also includes: determining the Company’s Engaging entity: PJSC PhosAgro. Audit firm (practitioner): JSC “KPMG”, a company information on sustainable development; the Report may occur and not be detected. objectives in respect of sustainable Registration No. in the Unified State Register of Legal incorporated under the Laws of the Russian Federation, • Interviews with staff at the corporate Our engagement is not designed to detect all Misiura E. I. development performance and reporting, Entities 1027700190572. a member firm of the KPMG network of independent headquarter level and subsidiaries weaknesses in the internal control system JSC “KPMG” including the identification of key stakeholder Moscow, Russia. member firms affiliated with KPMG International responsible for providing the information in over the preparation and presentation of the Moscow, Russia Cooperative (“KPMG International”), a Swiss entity. groups and their material issues; selecting the Report; Report, as the engagement has not been May 29, 2019 Registration No. in the Unified State Register of Legal applicable requirements of the GRI Standards; Entities 1027700125628. preventing and detecting fraud; identifying Member of the Self-regulated organization of auditors and ensuring that the Company complies “Russian Union of auditors” (Association). The Principal with the laws and regulations applicable to its Registration Number of the Entry in the Register of activities; selecting and applying appropriate Auditors and Audit Organisations: No. 11603053203.
218 219 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information GLOSSARY
ABBREVATIONS INDUSTRY TERMS
GDR or depositary receipt Ammonia Deposit The main inorganic feed phosphates are storing nitrogen in nitrogen-containing praseodymium, neodymium, promethium, Global Depositary Receipt A colourless combustible gas with the An area of reserves identified by surface calcium, magnesium, calcium-magnesium, products. samarium, europium, gadolinium, terbium,
chemical formula NH3. Ammonia is a mapping, drilling or development. ammonium and sodium phosphates. These dysprosium, holmium, erbium, thulium, bln compound of nitrogen and hydrogen and is phosphates are constant in composition, NPK ytterbium and lutetium. Billion primarily used in the production of mineral Diammonium phosphate or DAP low in impurities and considered to be the A multi-nutrient fertilizer containing nitrogen, fertilizers and a wide variety of nitrogen- A type of multi-nutrient fertilizer containing best available sources of phosphorus for phosphorus and potassium. Sedimentary km containing organic and inorganic chemicals. nitrogen and phosphorous. Production animals. An adequate supply of inorganic Formed by the deposition of solid fragmental Kilometres of DAP is based on the neutralisation feed phosphates in animal feed is essential NPS material that originates from the weathering Ammonium nitrate or AN of phosphoric acid by ammonia with for animals’ well-being. A multi-nutrient fertilizer containing nitrogen, of rocks and is transported from a source to kt A nitrogen fertilizer with a nitrogen content subsequent drying and granulating. phosphorous and sulphur. a site of deposition. Thousand metric tonnes of approximately 34% produced by reacting Grade of mineral fertilizer nitric acid (an intermediate chemical Downstream The relative quality or percentage content of Open-pit mine Shaft mln feedstock produced from ammonia) with The processing of apatite concentrate, useful components. A mine working or excavation that is open A mine working (usually vertical) used to
Million ammonia (NH3). natural gas, sulphur and potash into usable to the surface and where material is not put transport miners, supplies, ore or capping. products such as mineral fertilizer, industrial Key performance indicator (KPI) back into the mined-out areas. mln t NP and feed phosphates. Performance indicators of a division that help Sulphate of potash or SOP Million tonnes (Ammonium nitrate-based fertilizers) the Company evaluate the implementation Phosphate rock A non-chloride potash fertilizer. Complex ammonium nitrate-based fertilizer Drillhole of plans and make decisions regarding Phosphate rock (apatite concentrate or MW with phosphorus content. Liquid complex A circular hole made in rock, often in management remuneration. phosphorus concentrate) is an imprecise Sulphuric acid Megawatt fertilizers or APP liquid phosphate- and conjunction with a core barrel, in order to term that includes both unprocessed A strong sulphur-based inorganic mineral
nitrogen-based fertilizer. obtain a core sample. K2O phosphorus-containing ore and beneficiated acid with the chemical formula H2SO4. RUB Universal means of storage of potassium concentrates. Practically all production of Russian rouble Apatite EBITDA (potash) in potassium-containing products. phosphate fertilizers is based on phosphate Tailing A group of phosphate minerals (phosphate Calculated as operating profit adjusted for rocks containing some form of the mineral The fluid slurry that is left after treatment t ore), usually referring to hydroxylapatite, depreciation and amortisation. MER or ‘minor element ratio’ apatite. and extraction of an economically extracted Metric tonne = 1,000 kg fluorapatite and chlorapatite with the The sum of the iron, aluminium and mineral.
chemical formula Ca5(PO4)3(OH, F, Cl). Apatite Emission magnesium content divided by the P2O5 Phosphates ths is the world’s major source of phosphorus, Pollution discharged into the atmosphere content. A salt or ester of phosphoric acid or a Trenches Thousand found as variously coloured, glassy crystals, from smokestacks, other vents at fertilizer containing phosphorus compounds. Lines excavated to a predetermined depth masses or nodules. The phosphorus content commercial or industrial facilities and from Monoammonium phosphate or MAP to establish the geological structure of a CFR of apatite is traditionally expressed as transportation exhaust systems. A type of multi-nutrient fertilizer containing Phosphoric acid deposit.
Cost and freight — an Incoterms rule. CFR phosphorus pentoxide (P2O5). nitrogen and phosphorous. Production Mineral (inorganic) acid having the chemical
means that the seller must pay the costs End product of MAP is based on the neutralisation formula H3PO4. Urea and freight to bring goods to the port of Apatite-nepheline ore Commercial product other than those of phosphoric acid by ammonia with An organic compound of carbon, nitrogen,
destination, including customs costs for Ore containing minerals of apatite and used internally to produce other types of subsequent drying and granulating. P2O5 (phosphoric pentoxide) oxygen and hydrogen. It is the most widely exporting the goods. The buyer pays to insure nepheline. commercial products. For PhosAgro, end Monoammonium phosphate is often used in A term used to express the content of used and highest-concentration nitrogen- the goods. Risk is transferred to the buyer products are phosphate-based fertilizers, the blending of dry agricultural fertilizers. phosphorus in a substance. based fertilizer formed by reacting ammonia once the goods are loaded on the vessel. By-product nitrogen fertilizers, feed and industrial with carbon dioxide at a high pressure. Maritime transport only. Material, other than the principal product, phosphates, and sulphate of potash. Monocalcium phosphate or MCP Phosphorous or P that is generated as a consequence of an A type of feed phosphate with the highest One of the primary plant nutrients essential Waste FOB industrial process. Exploration phosphorus digestibility and content. for plant growth. Rock lacking sufficient grade and/or other Free on board — an Incoterms rule. The The search for minerals. Prospecting, characteristics of ore to be economical. seller must load goods on board the vessel Concentrate sampling, mapping, diamond drilling and Nepheline PKS
nominated by the buyer; costs for delivery Material that is the result of beneficiation of other work involved in the search for A mineral containing aluminium oxide (Al2O3). A multi-nutrient fertilizer containing Upstream of the goods on board of the vessel are the an ore and that has a higher concentration mineralisation. phosphorous, potassium and sulphur. Extraction of solid, liquid and gaseous responsibility of the seller. of mineral values than the mineral values Netback price resources from the earth using specialised originally contained in the ore. Concentrates Feed phosphates Revenue net of costs associated with Potash or K equipment. USD are produced in beneficiation plants. Inorganic feed phosphates are a high-quality shipping goods from the production site to One of the primary plant nutrients essential United States dollars phosphorus source for animal feed. Most the buyer. for plant growth. Waste water Crushing inorganic feed phosphates are derived from Spent or used water from individual homes, A mechanical method of reducing the size phosphate rock, which is chemically treated Nitrogen or N Rare earth elements/resources communities, farms or industries that of rock. to make phosphorus available for animals One of the primary plant nutrients essential A group of 15 elements with atomic numbers contains dissolved or suspended matter. in the form of quality feed phosphates. for plant growth and a universal way of ranging from 57 to 71: lanthanum, cerium,
220 221 PhosAgro Integrated Report 2018 phosagro.com About Strategic Business Sustainability Corporate Financial Additional PhosAgro Report Review Report Governance Report Information GLOSSARY continued
OTHER TERMS NAMES OF LEGAL ENTITIES USED IN THIS REPORT
Basel Convention FAO IFA PJSC PhosAgro Data on ore reserves presented in this report Calculations and recalculations for approved The Basel Convention on the Control of Food and Agriculture Organization of the International Fertilizer Association, France. PhosAgro are prepared on the basis of: reserves are compliant with normative Transboundary Movements of Hazardous United Nations. • Data from the approved state register as documents: Wastes and their Disposal was adopted ISO JSC Apatit of 1 January 2017; • Order No 40 of the Ministry of Natural on 22 March 1989 by the Conference of Feasibility study International Organization for Standardization, Apatit • Data from Form 70-TP “Information on Resources of the Russian Federation Plenipotentiaries in Basel, Switzerland. A comprehensive engineering estimate of the world’s largest standards development Mineral Extraction During Production”, dated 7 March 1997 on Approval of The overarching objective of the Basel all costs, revenues, equipment requirements organisation. Between 1947 and the Kirovsk branch of JSC Apatit which contains data on mined volumes Classifications of Mineral Reserves Convention is to protect human health and and production levels likely to be achieved present day, the ISO has published more KB of Apatit (extracted from the subsoil) and losses (together with “Classification of Reserves the environment against the adverse effects if a mine is developed. The study is used than 19,000 international standards, during mining (regulatory, actual, excess); of Deposits and Potential Resources of hazardous wastes. Its scope of application to determine the technical and economic ranging from standards for activities such Balakovo branch of JSC Apatit • Information on changes in reserves for of Solid Minerals”, “Classification of covers a wide range of wastes defined as viability of a project and to support the as agriculture and construction through BB of Apatit the 2017 reporting period: mining, losses Currently Mined Reserves and Forecast “hazardous wastes” based on their origin search for project financing. mechanical engineering and medical devices during mining, reserves remaining at year Groundwater Resources”); and/or composition and their characteristics, to the newest information technology JSC Metachem end (as of 1 January 2018), reflected • Order of the Ministry of Natural as well as two types of wastes defined as Fertecon/Argus—FMB/CRU developments. Metachem in the statistical reporting form 5-GR Resources of the Russian Federation “other wastes” — household waste and Fertilizer Economic Market Analysis and “Information on the state of and changes of 5 June 2007 No 37-R on Approval of incinerator ash. Consultancy, UK. LSE OJSC NIUIF to solid mineral reserves”; Methodological Recommendations for London Stock Exchange. NIUIF • Approved Rosnedra protocols for Application of Classification of Reserves The Department for Environment, Food Group/Company/PhosAgro deposits. of Deposits and Potential Resources of and Rural Affairs (Defra) Refers collectively to PJSC PhosAgro and its Moscow Exchange JSC PhosAgro-Trans Solid Minerals. Defra is the government department subsidiaries. Russia’s MICEX and RTS stock exchanges PhosAgro-Trans responsible for environmental protection, were merged into one entity, MICEX—RTS, Ensuring the completeness of geological food production and standards, agriculture, Helsinki Convention in December 2011 and rebranded as the PhosAgro-Region LLC exploration, rational use and preservation of fisheries and rural communities in the United The Helsinki Convention was signed in 1974 Moscow Exchange in May 2012. PhosAgro-Region subsoil is carried out in accordance with the Kingdom. by the then-seven Baltic coastal states, and Law of the Russian Federation 2395-1 on made all the sources of pollution around Risk assessment Mining and Chemical Engineering LLC Subsoils dated 21 February 1992. The International Plant Nutrition Institute the entire Baltic Sea subject to a single Qualitative and quantitative evaluation carried Mining and Chemical Engineering or (IPNI) convention. The 1974 Convention entered out in an effort to determine the risk posed MCE The information in this Report related to The IPNI is a global organisation with into force on 3 May 1980. A new convention to human health or the environment by the mineral resources as of 1 January 2018 initiatives addressing the world’s growing was signed in 1992 by all the states presence or potential presence and use of Smart Bulk LLC is based on information compiled by the need for food, fuel, fibre and feed. bordering on the Baltic Sea and the European specific pollutants. Smart Bulk Geology Service Department of the Kirovsk Community in light of political changes and branch of Apatit and authorised by Mr Sergey Environmental assessment (EA) developments in international environmental Phosagro Asia Pte Ltd Glubokiy, Chief Geologist of the Kirovsk A process where the breadth, depth and and maritime law. After ratification, the Phosagro Asia branch of Apatit. type of analysis depend on the proposed Convention entered into force on 17 January project. An EA evaluates a project’s potential 2000. The Convention covers the whole of Phosint Trading Limited environmental risks and impacts in its the Baltic Sea area, including inland waters Phosint Trading area of influence and identifies ways to as well as the water of the sea itself and the improve project design and implementation seabed. Measures are also taken in the whole by preventing, minimising, mitigating or catchment area of the Baltic Sea to reduce compensating for adverse environmental land-based pollution. impacts and by enhancing positive impacts.
222 223 PhosAgro Integrated Report 2018 phosagro.com CONTACTS
INVESTOR PHOSAGRO LEGAL CONTACTS FOR EMPLOYEES RELATIONS ADDRESS AND POTENTIAL EMPLOYEES Alexander Seleznev 55/1 Leninsky Prospekt, bldg. 1, Moscow Diana Sidelnikova Head of Investor Relations 119333, Russia Deputy Director of Human Resources Tel.: +7 (495) 231 31 15 Tel.: +7 (495) 232 96 89 and Social Policy Email: [email protected] Fax: +7 (495) 956 19 02 Tel.: +7 (820) 259 31 13 Email: [email protected] CORPORATE DEPOSITARY SECRETARY Citigroup Global Markets Deutschland AG CONTACTS Sergey Samosyuk Frankfurter Welle Reuterweg 16 FOR MEDIA Tel.: +7 (495) 232 96 89, ext. 2712 60323 Frankfurt, Germany Andrey Podkopalov Email: [email protected] Director of Information Policy Tel.: +7 (495) 232 96 89, ext. 26 51 AUDITOR JSC KPMG Timur Belov Naberezhnaya Tower Complex, Head of Information Policy Division 10 Presnenskaya Naberezhnaya Press Secretary Moscow 123112, Russia Tel.: +7 (495) 232 96 89, ext. 26 52 Tel.: +7 (495) 937 44 77 Email: [email protected] Fax: +7 (495) 937 44 00/99 Web: www.kpmg.ru Sam VanDerlip International PR Advisor Mobile (UK): +44 (7554) 993 032 REGISTRAR Tel. (Russia): +7 (499) 918 31 34 JSC Reestr Email: [email protected] 129090, Moscow, B. Balkanskiy lane, 20, bldg. 1, Russia Tel.: +7 (495) 617 01 01 SUSTAINABILITY Fax: +7 (495) 680 80 01 CONTACTS Email: [email protected] Lyubov Nazarova Web: www.aoreestr.ru Head of the Environmental Management and Control Department Tel.: +7 (495) 231 27 47 Email: [email protected]
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