Phosagro Integrated Report 2016
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PhosAgro Integrated Report 2016 PHOSAGRO We are a vertically integrated phosphate-based fertilizer producer with mining, processing, logistics and distribution assets in Russia. PhosAgro is one of the largest phosphate-based fertilizer producers by capacity, enjoys a sustainable cash-cost advantage and produces some of the purest phosphate-based fertilizers Contents available worldwide thanks to its high-quality resource base. The phosphate journey begins at our Apatit mine and STRATEGIC REPORT beneficiation plant on the Kola Peninsula in north-west Russia, About this report Year at a glance 6 where we extract unique apatite-nepheline ore that contains Oracle 8 almost no cadmium or other harmful heavy metals. This high- Chairman’s statement 10 The purpose of this integrated report is to Pure and safe fertilizers quality raw material is a key input for our downstream production Chief executive inform the reader about the material issues In this report, we also discuss how sites, which make some of the world’s purest and safest officer’s statement 14 that have the potential to impact our the unique quality of our phosphate Our assets 18 phosphate-based fertilizers that farmers use to grow the food business, and to help the reader understand raw materials allows us to produce that ends up on our plates. Business model 20 how this influences our strategy, our some of the purest and safest fertilizers Strategy 24 We sell 35 grades of fertilizers and other end products operations, our financial performance, the in the world, enabling farmers and Where we operate 28 to agricultural producers from over 100 countries. PhosAgro long-term sustainability of our business consumers to be confident that PhosAgro Market overview 32 has flexible, efficient production lines, its own distribution and and the value we seek to create for our fertilizers are not introducing dangerous Scientific approach 38 stakeholders. In this report, we answer the heavy metals like cadmium into the global Operational review 44 sales network in Russia, as well as sales offices in priority export eight questions that integrated reporting food supply. Financial review 48 markets like Latin America, Europe and Asia. With integrated is meant to address: logistics, including a fleet of railcars and a port terminal in Ust- Corporate responsibility Luga, we are able to further secure our sustainable low cash-cost 1. What does the organisation do and In order to secure the long-term CORPORATE RESPONSIBILITY advantage. what are the circumstances under which sustainability of our business model and REPORT it operates? our operations in Russia, we take a broader Environmental review 56 2. How does the organisation’s governance view of our interaction with stakeholders Health and safety review 64 Our vision Our purpose structure support its ability to create and the material issues that could affect People review 68 value for stakeholders in the short, our business. In this report, we discuss Community investment review 76 our investments in human capital, health We aim to supply safe and effective crop We contribute to global food security by medium and long term? Business conduct review 82 nutrient solutions to farmers around the producing mineral fertilizers that increase 3. What is the organisation’s business and safety, and the local communities in Stakeholder engagement 84 world. We seek to help our end customers the output, quality and heartiness of crops. model? the regions where we operate. We provide Managing our risk 96 meet increasing global demand for food Thanks to the exceptionally low content 4. What are the specific risks and details on how our governance systems by enabling them to grow superior-quality of cadmium and other dangerous heavy opportunities that affect the have been adapted to address business crops, utilising the uniquely safe and metals, our crop nutrients minimise the risk organisation’s ability to create value conduct issues, what we are doing to CORPORATE GOVERNANCE pure phosphate-based crop nutrients that of these elements entering the food supply for stakeholders in the short, medium diminish our impact on the environment Board of Directors 104 PhosAgro produces. through fertilization. and long term? and how we maintain relationships with Executive management 106 5. What are the Company’s key strategic our key stakeholders. Corporate governance 108 We have already completed, or are nearing By 2050, the global population is expected goals and how does it intend to achieve Management responsibility completion of, major investments in to reach 9.6 billion people, which implies them? Determining our material issues statement 122 upstream, downstream, logistics and sales a 60% increase in demand for soft 6. To what extent has the organisation The information within this report was operations as part of our strategy to 2020, commodities just to feed the increased achieved its strategic objectives for the compiled after determining and assessing with the goal of expanding our ability population. Changing diets and alternative period, and what was the effect on the PhosAgro’s material financial and non- FINANCIAL STATEMENTS to produce the world’s purest and safest uses for soft commodities add to this value of the Company for stakeholders? financial issues. Matters for inclusion in the Independent Auditors’ Report 123 mineral fertilizers. already substantial growth in demand. 7. What are the key challenges and report are determined by their scope and IFRS FS and notes 127 uncertainties that the organisation relate to the businesses over which the Our strategy builds value for our We believe that, by implementing our is likely to encounter in pursuing its organisation has operational control. shareholders by enabling us to increase our strategy aimed at strengthening our core strategy, and what are the potential ADDITIONAL INFORMATION internal use of apatite-nepheline ore for sustainable advantages, we will best serve implications for the business model and Shareholder information 162 value-added end products and to achieve our shareholders, the local communities future performance? Glossary 164 sustainable cost savings with more efficient where we work, farmers all over the 8. How does the organisation determine Names of legal entities technologies or vertical integration of key world who use our products, as well as which matters are worth including in used in this report 167 parts of the value chain. the consumers of the food grown with the integrated report, and how are such Contacts 168 PhosAgro fertilizers. matters quantified or evaluated? Chief Executive Officer’s statement 2016WE MADE AT A SIGNIFICANTGLANCE PROGRESS IN 2016 ACROSS KEY REPORT STRATEGIC Financial highlights Net profit, RUB bln Operating highlights Corporate responsibility highlights ASPECTSPhosAgro continued to deliver outstanding OF value OURfor investors in 2016: BUSINESS AND • While new ammonia and granulated urea capacities are on track to launch in 2017, We continue to invest in improving we declared dividends totalling RUB 28 billion, or RUB 216 per share 59.9 we increased finished goods output by 8% year-on-year by investing in modernisation our environmental footprint, as well as (RUB 72 per GDR) backed by sustainable cash flows, we remain on track + 64.56% and debottlenecking existing capacities in maintaining leading workplace health ONEto launch new, efficient MORE capacities in 2017 thatLINE will support further MAXIMUM growth, 59.9 and safety solutions. and we finished the year with net debt/EBITDA of just 1.45x. • With the lowest cash cost in the industry, PhosAgro was able to maintain near 100% capacity utilisation throughout 2016, even as other global players were forced to shutter REPORT RESPONSIBILITY CORPORATE 36.4 ineffective and loss-making production in the face of historically low prices 24.5 See additional information 18.1* on page 58 See additional information • Increased sales in the domestic Russian market, where agricultural production 8.6 on page 50 continues to grow and ongoing investments in the agricultural sector represent a significant opportunity for domestic fertilizer producers with well-developed 2012 2013 2014 2015 2016 distribution networks like PhosAgro *Adjusted net profit is calculated as net profit adjusted for unrealised foreign See additional information exchange loss on page 46 Revenue, RUB bln EBITDA, RUB bln Dividend payout ratio, % Downstream Phosphate-based fertilizers, Emissions into the air Dividends accrued for a given year sales volumes, kt MCP and STPP sales volumes, kt per unit of production, kg/t REPORT GOVERNANCE CORPORATE 187.7 72.4 50% 7,319 5,925 1.75 -1.05% -12.24% -2 p.p. +8.45% +10.05% -4.37% 7,319 6,749 6,056 6,221 5,925 1.93 2.00 5,338 5,384 1.86 1.83 189.7 1.75 187.7 52 52 4,794 4,837 82.5 50 4,243 72.4 43 43 123.1 105.3 104.6 37.6 34.9 23.9 FINANCIAL STATEMENTS FINANCIAL 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Cash flow from EBITDA margin, % Net debt/EBITDA Upstream sales volumes Nitrogen fertilizers Lost time injury frequency rate operating activities, RUB bln of apatite-nepheline ore products, kt sales volumes, kt (LTIFR), per 200,000 hours worked 50.4 39% 1.45 3,418 1,394 0.10 -20.38% -4 p.p. +0.2% +17.18% +2.09% -33.33% ADDITIONAL INFORMATION ADDITIONAL 4,583 0.21 3,912 1,385 1,365 1,394 0.20 2.5 1,262 0.18 3,329 3,418 43 1,095 63.3 39 2,917 0.15 33 1.8 50.4 31 1.5 1.3 23 0.10 25.5 27.5 0.8 17.9 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 6 PhosAgro Integrated Report 2016 www.phosagro.com 7 ORACLE In 2016, PhosAgro launched a project to introduce Oracle Enterprise Business REPORT STRATEGIC Suite (OEBS) R12, an enterprise resource planning (ERP) system that offers integrated and often real-time management of core business processes.