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

PROGRESSIN 2016 ACROSS KEY STRATEGIC REPORT Financial highlights Net profit, RUB bln Operating highlights Corporate responsibility highlights

PhosAgroASPECTS continued to deliver outstandingOF 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 toONE 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 CORPORATE RESPONSIBILITY REPORT 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 CORPORATE GOVERNANCE REPORT 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

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 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 STRATEGIC REPORT Suite (OEBS) R12, an enterprise resource planning (ERP) system that offers integrated and often real-time management of core business processes.

THE NEW SYSTEM WILL INCLUDE: CORPORATE RESPONSIBILITY REPORT

Integration of OEBS R12 is a key project to increase the efficiency of PhosAgro’s Oracle Primavera Oracle Demantra business processes. Around A project management system that will A demand forecasting system that gives 3,000 employees will use the system once unify and automate business processes, PhosAgro greater granularity by product it is fully deployed. As such, the integration PROCUREMENT MANUFACTURING FULFILMENT INVENTORY including capital investment projects, IT category and by market. project is a substantial undertaking, projects and organisational restructuring. involving around 150 members of staff, as In testing since December 2016. well as external consultants. Oracle Siebel CRM Will be used by traders to increase OEBS R12 is being installed from scratch Oracle Strategic transparency and create a single client to replace the previous version, R11, CORPORATE GOVERNANCE REPORT Network Optimisation database. which PhosAgro introduced six years ago. (SNO) Since then, the Company has evolved at An integrated planning solution that will a fast pace, and its requirements have increase efficiency and reduce costs Oracle Hyperion outgrown what the previous system could by consolidating Company data and Financial Management offer in terms of integrated resource SALES & ORDER BUSINESS automating processes that previously Will be used for preparation of planning, project management, forecasting, MANAGEMENT INTELLIGENCE had to be done by hand. Planning will be IFRS financial statements, reducing preparation of financial statements brought into a single central function. preparation time and retaining an audit to International Financial Reporting trail for all data. Standards and CRM. These solutions will all be integrated using a corporate database that includes all of the Company’s E-BUSINESS SUITE operational and financial data, as well as

staff information. FINANCIAL STATEMENTS

When completed, PhosAgro will have one of the most advanced ERP systems of any Integration of OEBS R12 Russian corporation, and a significantly FINANCIAL & ASSET REPORTING higher percentage of automated business MANAGEMENT is a key project to increase processes. This will increase transparency and efficiency and reduce costs across the the efficiency of PhosAgro’s Company. business processes. It is the ADDITIONAL INFORMATION largest project in Russia, ~ Central and Eastern Europe 150 HUMAN CAPITAL CUSTOMER CUSTOMER in 2016–2017, according MEMBERS OF STAFF MANAGEMENT RELATIONSHIP SERVICE INVOLVED, AS WELL AS MANAGEMENT to Oracle Consulting data EXTERNAL CONSULTANTS

8 PhosAgro Integrated Report 2016 www.phosagro.com 9 CHAIRMAN’S STATEMENT STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT PhosAgro delivered Nearing completion of 2020 strategic goals impressive Since announcing its strategy to 2020 at the PhosAgro’s strategic strengths end of 2014, PhosAgro has made significant benefitted stakeholders in 2016 “ performance on its progress towards achieving the goals that the Board of Directors set before the strategy to 2020, Company. and the Board is New production capacity and self- Direct access to premium markets: finalising a new When we approved the current strategy, sufficiency: At the same time, PhosAgro is During 2016, in addition to Zug, Warsaw, the Board and I believed that it would nearing completion of larger, ambitious Sao Paulo and Singapore, PhosAgro opened set of priorities create value for stakeholders by making the strategic projects that will secure the trading offices in Biarritz and Hamburg. through 2025 that business more sustainable, more efficient Company’s position as one of the world’s The Company is already benefitting and better able to meet demand from leading fertilizer producers longer-term: the from the ability to work directly with aim to continue customers around the world. new 760 ths tonnes/year ammonia unit, and local farmers and distributors in these to create value for a new 500 ths tonnes/year granulated urea markets, and this will further strengthen Efficient growth: Since 2012, PhosAgro's line are both on track to launch in 2017, as as production capacity ramps up with the stakeholders, from fertilizer production has grown at a CAGR planned. launch of new capacities. the mines of Apatit of 7.9%, while the Company has invested just USD 95 million into upgrades and With the launch of these new capacities, Corporate governance to food consumers’ modernisation of existing production PhosAgro will further secure its position In my role as the Chairman of the Board of plates around the capacities. The resulting 1.6 million tonnes as one of the lowest cash-cost producers Directors, I am directly involved in ensuring of production capacity has strengthened our of phosphate-based fertilizers in the world, that PhosAgro’s corporate governance world. business and brought an EBITDA uplift of with significant potential to continue systems meet the needs of the business roughly USD 180 million per year. to expand production capacity and remain and its stakeholders. We have worked “ self-sufficient in key inputs. hard in recent years to introduce policies FINANCIAL STATEMENTS Sven Ombudstvedt Chairman of the Board of Directors

KEY MILESTONES 2016

MAJOR INVESTMENT NEARING RUB 28 BILLION STRATEGY

PROJECTS ON COMPLETION OF IN DIVIDENDS TO 2025 WILL AIM TO ADDITIONAL INFORMATION TRACK FOR LAUNCH KEY TARGETS FOR PAID IN 2016 DEVELOP PHOSAGRO IN 2017: 760 KT/ STRATEGY TO 2020 ASSETS FURTHER YEAR AMMONIA NET DEBT/EBITDA: AS GLOBAL COST AND 500 KT/YEAR 1.45X LEADER GRANULATED UREA

10 PhosAgro Integrated Report 2016 www.phosagro.com 11 Chairman’s statement (continued) STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT and systems to ensure proper and efficient modernisation to increase efficiency and Strategic review – looking ahead to 2025 monitoring, oversight, communication and PhosAgro’s growth helps create jobs improve our environmental footprint. The Board and I have been impressed accountability across the Company's assets. by the pace at which the Company has for highly qualified specialists in the PhosAgro’s growth helps create jobs reached key milestones in the strategy Being well-informed: Members of the Board communities where we operate in for highly qualified specialists in the to 2020. We launched a strategic review have access to up-to-date information on communities where we operate in Russia, in 2016 and are in the process of finalising financial and operating performance across Russia and we are constantly investing in the strategy to 2025, which specifies a new the Group and regularly interact with the education, health and other aspects of local set of targets for PhosAgro’s next phase of management team, maintaining dialogue on communities in a mutually beneficial way. growth and development. all material issues facing the Company. Diversity: In addition to diverse backgrounds, Corporate responsibility from mine to we hail from all over the world: Russia, plate PhosAgro continues to implement and Having already seen impressive execution Independence: Maintaining representation Norway, the United Kingdom and the United Corporate responsibility for PhosAgro starts refine business conduct policies and and the positive impact on financial and from independent members of the States. This helps us to better understand at the mines in Apatit where we extract practices to ensure that the Company operating results of the strategy to 2020, Board helps to ensure that the interests our many international stakeholders, which apatite-nepheline ore and continues all the and its suppliers are doing business in an the Board and I have all the confidence of all stakeholders in the Company are include customers, shareholders, lenders, way through every step of the phosphates’ ethical and honest way. that the ambitious goals we set under the represented and have a voice at Board suppliers and other business partners. journey to the food on our plates. strategy to 2025 will continue to create meetings. Supported by extensive research and value for PhosAgro’s stakeholders, from Constant focus on improvement: We maintain stringent workplace health flexible production and sales models, we the mines of Apatit to the plates of food Experience: Our backgrounds range from Throughout 2016, the Board oversaw and safety practices and constantly aim can supply farmers with the right crop consumers around the world. global chemical and fertilizer companies implementation of several important to ensure that we are providing the people nutrients for specific crops and growing to soft commodities trading, audit and initiatives for PhosAgro’s corporate who work at our production facilities with conditions. internal controls. As a large Russian governance, which are discussed on the best available practices in this area. business, our Board also has individuals with pages 110–123 of this report. Finally, food consumers benefit from proper significant experience and expertise that is Environmental protection is another high use of PhosAgro fertilizers because of the specifically Russia-focused. priority: we invest in new capacities and unique high quality of the ore that is mined

at Apatit: this ore is exceptionally pure and FINANCIAL STATEMENTS enables us to efficiently produce fertilizers ESG PRIORITIES that are free of dangerous contaminants like lead, arsenic or cadmium that could eventually find their way into the food we Sven Ombudstvedt WE HAIL FROM ALL OVER WE MAINTAIN STRINGENT WE INVEST IN NEW put on our plates. Chairman of the Board of Directors THE WORLD, WHICH WORKPLACE HEALTH AND CAPACITIES AND HELPS US TO BETTER SAFETY PRACTICES MODERNISATION TO UNDERSTAND OUR INCREASE EFFICIENCY

MANY INTERNATIONAL AND MINIMISE OUR ADDITIONAL INFORMATION STAKEHOLDERS ENVIRONMENTAL FOOTPRINT

12 PhosAgro Integrated Report 2016 www.phosagro.com 13 CHIEF EXECUTIVE

OFFICER’S STATEMENT STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT PhosAgro proved From mine to plate Phosphorous is essential to plant and once again that it is animal life. PhosAgro mines and processes We delivered impressive results “ able to deliver value apatite-nepheline ore, which it uses in a challenging market in 2016 throughout market cycles, to produce high-quality phosphate-based with 2016 production fertilizers that agricultural producers all over the world may use to produce the output increasing by 8% food we eat. Strategic performance policy, while continuing to implement an year-on-year, an EBTIDA PhosAgro delivered another strong ambitious investment programme and margin of 39% and I am especially proud of the fact that, due year in terms of strategic performance. also reducing debt levels. to the unique qualities of the apatite- Against the backdrop of challenging sustainable progress in nepheline ore that we mine and use as a market conditions, 2016 demonstrated We continued moving closer to customers, achieving our strategic key raw material, PhosAgro’s phosphate- the advantages of our efforts to further opening new sales offices in Europe, goals. based fertilizers are among the purest improve our industry-leading low cash- and benefitted from recently completed and safest in the world. Our products are cost position. projects like Smart Bulk Terminal and naturally free of dangerous heavy metals underground mining at Main Shaft No 2 “ and other impurities found in many other PhosAgro operated at near 100% capacity at Apatit’s Kirovskiy mine. phosphate deposits. utilisation, increasing both production output and sales volumes for the year, With our key investment projects, the new When our fertilizers are applied to fields, while many global producers had to cut 760 ths tonnes/year ammonia line and Andrey A. Guryev plants receive only helpful and necessary back capacities. 500 ths tonnes/year granulated urea shop, Chief Executive Officer and nutrients, while not introducing on track to be commissioned in 2017, we Chairman of the Management potentially hazardous elements into the We continued to generate strong cash have begun work on a new strategy, which Board food chain. Proper use of PhosAgro flows and maintained solid profitability, will set ambitious goals for management products helps farmers produce food that enabling PhosAgro to pay dividends to 2025.

is safe and healthy for the end consumer. to shareholders in line with the dividend FINANCIAL STATEMENTS

HIGHLIGHTS 2016

DIRECT ACCESS TO ALMOST 100% CAPACITY PRIORITY MARKETS: NEW UTILISATION DESPITE +9.4% SALES OFFICES IN BIARRITZ CHALLENGING MARKET +9% (FRANCE) AND HAMBURG CONDITIONS ADDITIONAL INFORMATION TOTAL FERTILIZER INCREASE IN FERTILIZER (GERMANY) PRODUCTION VOLUME SALES VOLUMES, GROWTH, YEAR-ON-YEAR YEAR-ON-YEAR

14 PhosAgro Integrated Report 2016 www.phosagro.com 15 Chief Executive Officer’s statement (continued) STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT Operating performance combined with production costs rising for of government policies and support from units, on schedule and expected to be fully On the back of continued investments in In 2016 the Company entered into the the first time in the last 7-8 years led to a mineral fertilizer producers). operational in the second half of 2017. debottlenecking and modernisation, we significant contraction of China’s share in After their completion, PhosAgro will begin delivered a 9.4% year-on-year increase in final stage of construction of the new export markets. Outlook to achieve cost savings from using the fertilizer production volumes ammonia production line We started 2017 at prices that represent ammonia we produce instead of purchasing in 2016, and total fertilizer sales increased At the same time, global demand for historical lows for the past 7 years. Unlike externally, combined with higher sales by 8.8% year-on-year. Production of phosphates was healthy in 2016, according 2016, however, I expect price seasonality volumes. This should have a positive phosphate-based fertilizers and feed With prices under significant pressure we work, corporate conduct and a variety to preliminary numbers from the IFA, to be in line with what the market normally impact on free cash flow and potentially on phosphates increased by 10.8% year- globally, our EBITDA for 2016 decreased of other areas that build value for a wide advancing more than 3% vs 2015. This is sees. The fundamentals driving demand for dividend payments. on-year to 5.9 million tonnes, while by 12% year-on-year to RUB 72.4 billion range of stakeholders. a much faster rate of growth than what phosphate-based products remain strong. production of nitrogen-based fertilizers from RUB 82.5 billion in 2015. was seen for either nitrogen or potash The combination of a recovery in ammonia increased by 4.3% year-on-year Market environment fertilizers. Demand growth was supported by prices, greater rationalisation by high-cost, to 1.5 million tonnes. Net debt as of 31 December 2016 Market conditions remained challenging a recovery in consumption in Latin America, non-integrated Chinese producers and stood at RUB 105.1 billion, down from throughout 2016, driven by high levels and stable performance in South Asia. very tight product availability should push Financial performance RUB 105.2 billion as of 31 December 2015, of supply. Several major players that prices up as the high season unfolds. As of While 2016 was a challenging year for as a result of rouble appreciation against had undertaken large-scale investment In the domestic market, PhosAgro’s sales the end of March, DAP prices have already the fertilizer industry, PhosAgro continued the USD as of 31 December 2016. Our net programmes increased their phosphoric increased impressively by 30% year- risen by 16%, with potential to continue to generate solid operating cash flows, debt to EBITDA ratio increased to 1.45 as of acid output, which decreased prices on-year in 2016 and reached nearly growing ahead of the buying season and paid out dividends in line with 31 December 2016, from 1.28 as of for this key input, allowing some non- 2.1 million tonnes. The Russian market in South Asia and Latin America. At the our dividend policy, despite being in a 31 December 2015. integrated mineral fertilizer producers remained one of the globally fastest- same time, this is balanced by more new capex-intensive period. We delivered an to increase production volumes, which growing last year, up 16% year-on-year production coming on line in North Africa EBITDA margin of nearly 40% in 2016, Corporate responsibility decreased import demand. Global prices according to preliminary data from the and Saudi Arabia, which will constrain which remains an unachievable target We continued to work hard on our for phosphate-based fertilizers declined Russian Association of Fertilizer Producers, potential price growth. for even our most integrated and largest corporate responsibility activities significantly. This had a significant effect driven by strong development of the phosphate-based fertilizer peers. in 2016, focusing on environmental impact, on China, which is the world’s largest domestic agriculture industry (as a result Both our key investment projects, the Andrey A. Guryev

education in the cities and towns where phosphoric acid producer. Low prices construction of new ammonia and urea Chief Executive Officer and Chairman FINANCIAL STATEMENTS of the Management Board

HIGHLIGHTS 2016

PHOSAGRO WILL BEGIN TO ACHIEVE COST SAVINGS

+10.8% +4.3% +30% FROM USING AMMONIA ADDITIONAL INFORMATION WE PRODUCE INSTEAD OF YEAR-ON-YEAR INCREASE YEAR-ON-YEAR INCREASE YEAR-ON-YEAR INCREASE PURCHASING EXTERNALLY, IN PHOSPHATE-BASED FERTILIZER IN NITROGEN FERTILIZER IN PHOSAGRO’S DOMESTIC AND WILL BENEFIT FROM AND FEED PHOSPHATES PRODUCTION MARKET SALES HIGHER SALES VOLUMES. PRODUCTION

16 PhosAgro Integrated Report 2016 www.phosagro.com 17 OUR ASSETS STRATEGIC REPORT

UPSTREAM CAPACITIES DOWNSTREAM CAPACITIES DISTRIBUTION AND SALES CORPORATE RESPONSIBILITY REPORT

Apatit PhosAgro-Cherepovets Balakovo branch of Apatit Metachem (Volkhov) PhosAgro-Region PhosAgro Trading

JSC Apatit 100% JSC PhosAgro-Cherepovets 100% Balakovo branch of JSC Apatit 100% JSC Metachem 100% PhosAgro-Region LLC 99.90% Phosint Trading Ltd. 100% (storage and distribution) (distribution)

PhosAgro Asia Pte. Ltd. 100% CORPORATE GOVERNANCE REPORT • Mining of apatite-nepheline ore Production of phosphate-based fertilizers, nitrogen Production of phosphate-based fertilizers, feed Production of PKS, SOP, STPP, sulphuric and Russia’s largest distributor of fertilizers, with 10 (distribution) • Production of phosphate rock fertilizers, sulphuric and phosphoric acids and phosphate, sulphuric and phosphoric acid. phosphoric acid. distribution centres and three branches in close PhosAgro Trading SA 98.44% as of • Production of nepheline concentrate ammonia. proximity to Russia’s major agricultural regions. (trading company based in Zug) 19.04.2017

Phosphate rock MAP/DAP/NPK/NPS MAP/DAP/NPK MCP PKS/SOP STPP Distribution centres in Russia Sales offices in Biarritz (France), Hamburg (Germany), Zug (Switzerland), Warsaw (Poland), Singapore (Asia) 8.5 mln t 4.0 mln t 1.5 mln t 360 kt 100 kt 130 kt 10 and Sao Paulo (Brazil) bring vertical integration Nepheline concentrate Urea APP Regional representative offices into priority export markets.

1.7 mln t 980 kt 140 kt 4 International trading offices Ammonia AN 6 kt kt 1,190 450 FINANCIAL STATEMENTS LOGISTICS ENGINEERING AND R&D

Investing in the future We have made highly productive Focus on efficiency from mining investments into existing capacities to improve efficiency and increase to sales and distribution production output even as we continue ADDITIONAL INFORMATION to construct entirely new ammonia and PhosAgro-Trans Smart Bulk Terminal granulated urea plants that are due to launch in 2017. PhosAgro-Trans LLC 100% Smart Bulk Terminal LLC 70% OJSC NIUIF 94.41% Expanding vertical integration In a continued effort to move closer (transportation) (loading) (research and development) Our new capacities use the latest, most Our vertical integration into logistics, with to farmers in priority markets, we set CJSC Mining and Chemical Engineering 100% efficient production technologies available, the launch of the Smart Bulk Terminal, up sales offices in Biarritz (France) and Handles domestic freight rail operations, with 5,559 Modern container and bulk terminal in Ust-Luga meaning they improve our environmental delivered sustainable cost savings in Hamburg (Germany) during 2016. railcars (primarily mineral hoppers) in operation. with an export capacity of 2 million tonnes/year. footprint while also securing PhosAgro’s 2016, as we shipped 1.3 million tonnes of position as one of the lowest cash-cost fertilizers to export markets through this producers in the global fertilizer industry. efficient new facility in Ust-Luga. Railcars Own shipment terminal capacity 5,559 2 mln t

18 PhosAgro Integrated Report 2016 www.phosagro.com 19 BUSINESS MODEL Building value from

mine to plate STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT Ongoing investments in HIGHLIGHTS: efficiency and business process optimisation, combined with $ MLN domestic access to all key inputs, 95 support our sustainable low-cost INVESTED IN MODERNISATION AND position among global producers DEBOTTLENECKING SINCE of phosphate-based fertilizers 2012 HAS RESULTED IN

As a vertically integrated company, we The journey from mine to plate takes capture value for shareholders at every place through every step of our vertically step of the process, from mining of integrated business: 1.6 MLN T phosphate raw materials to distribution and sales of finished products to farmers • At Apatit, we are mining a large, in Russia or sales to distributors in high-quality igneous phosphate OF NEW PRODUCTION priority export markets like Europe, Latin resource base that, unlike many other CAPACITY, WHICH GIVES America and Asia. producers’ raw materials, contains PHOSAGRO UP TO almost no harmful impurities and can

At the same time, we aim to create value be processed into premium-quality FINANCIAL STATEMENTS for other stakeholders at every link in phosphate rock the chain, whether by managing our • Our downstream fertilizer production environmental footprint, implementing assets enjoy domestic access to other leading workplace health and safety key inputs like natural gas and sulphur $ 180 MLN practices, investing in flexible production • We are continuously investing lines and new fertilizer grades that meet in upgrades, modernisation and farmers’ crop nutrient needs or ensuring a new production capacities at our ADDITIONAL EBITDA P.A. KEY ASPECTS OF PHOSAGRO’S VALUE CHAIN reliable supply of safe and pure fertilizers downstream facilities, which further SINCE 2015 for our customers. secures our position as the world’s ADDITIONAL INFORMATION lowest cash-cost producer High-quality natural resources Upstream: mining and processing Downstream: fertilizers, feed & industrial Sales Logistics Distribution Value created Ultimately, every consumer of food grown • Further integration in logistics, 1 Apatit, where we mine apatite-nepheline 2 Investments in underground mining and 3 phosphates 4 We have moved closer to customers in our 5 In-house logistics infrastructure provides 6 We are the largest supplier of fertilizers 7 We aim to create value for all of our with PhosAgro fertilizers benefits from distribution and sales, including ore and process it into phosphate rock, is the beneficiation capacities, as well as the We produce 35 grades of fertilizers, including priority markets by opening sales offices in sustainable cost advantages and improves in the domestic Russian market, where stakeholders, including the consumers of high-quality and plentiful crops that are opening trade offices in priority heart of our business. The phosphate rock introduction of leading-edge workplace grades containing secondary (sulphur) and Brazil, Europe and Asia. This has helped us the reliability of operations. We manage our we operate a fully integrated distribution food grown with the help of PhosAgro crop grown with fertilizers free from harmful markets, has helped us to achieve we produce at Apatit is high in P2O5 nutrient health and safety practices and technologies, micro nutrients like zinc and boron at our to significantly improve relations with local own fleet of 5,559 railcars in Russia, and and sales network. This has enabled us nutrients, which benefit from very low levels elements like cadmium, lead or arsenic. sustainable cost savings through the content, and contains almost none of the have helped turn Apatit into a world-class three downstream production sites in Russia. buyers, enabling us to meet their needs in 2016 we shipped 27% of downstream to significantly increase sales volumes and of cadmium and other harmful elements entire value chain dangerous impurities, like cadmium, often phosphate rock production operation. We With major investments into new capacities better with the crop nutrients they need. products export volumes through our Smart market share at the time when Russia’s thanks to the exceptionally pure raw associated with other phosphate mineral have achieved a more-than 94% recovery on track for completion in 2017, we plan Bulk Terminal at the Ust-Luga port. agricultural production industry is growing materials we use from the very start. deposits. ratio for phosphate rock with high nutrient to increase our flexible fertilizer and end rapidly. content. product production capacities by another 20% in the coming years.

20 PhosAgro Integrated Report 2016 www.phosagro.com 21 STRATEGIC REPORT OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT FINANCIAL STATEMENTS ADDITIONAL INFORMATION Logistics Sales Downstream fertilizers, feed & industrial phosphates Upstream mining and processing

27 % 80% 17.2% 74% OF DOWNSTREAM PRODUCTS OF DOWNSTREAM PRODUCTS Y-O-Y INCREASE IN PRODUCTION APATITE-NEPHELINE ORE EXPORT VOLUMES VOLUMES WENT EXPORT SALES TO KEY MARKETS OF NPK/NPS FERTILIZERS IN 2016 EXTRACTED FROM UNDERGROUND THROUGH SMART BULK TERMINAL MADE VIA OUR OWN SALES MINES IN 2016 IN UST-LUGA OFFICES

22 PhosAgro Integrated Report 2016 www.phosagro.com 23 STRATEGY STRATEGIC REPORT We have already delivered a significant portion of our key strategic milestones under the strategy to 2020, which aims to further enhance PhosAgro’s inherent strengths: vertical integration, ownership of unique and high-quality phosphate resources, and domestic access to all key inputs Reaching strategic targets for fertilizer manufacturing. Implementation of our strategy to 2020 will strengthen our position as one of the lowest cash-cost producers in the global industry, and will significantly enhance our and delivering results ability to provide safe crop nutrient solutions to farmers nearly anywhere in the world. OPRT EPNIIIYRPR CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT

2016 highlights: OUR KEY STRATEGIC PRIORITIES: 1. DIRECT ACCESS TO PRIORITY MARKETS We have already started to benefit from DIRECT ACCESS INCREASED implementation of parts of our strategy TO PREMIUM OPERATING to 2020, and are on track to deliver on key 1 MARKETS 3 EFFICIENCY Opportunity Why this is our priority milestones during the year ahead: PhosAgro produces some of the safest • Upstream: we increased the share of We aim to increase our share Brazil, Asia and Europe are priority In our domestic market, we aim phosphate-based fertilizers in the underground mining to 74% of total of export sales to markets regions with premium markets for to continue to expand our market-leading • Increased fertilizer production output world thanks to the exceptionally low apatite-nepheline ore extraction at exports: distribution network to provide Russian with significant demand for by 9.4% year-on-year through levels of cadmium and other harmful Apatit in 2016, following the launch of • Local P2O5 nutrient deficit is farmers with our high-quality crop investments in modernisation impurities in the raw materials we mine Main Shaft No 2 at the Kirovsky mine, premium-quality phosphate- forecasted to increase nutrients and support the development of and debottlenecking of existing at Apatit on the Kola Peninsula. Our aim which increased extraction capacity based fertilizers and structural • PhosAgro can achieve fair netback Russia’s agricultural sector. prices for fertilizers capacities. Since 2012, investments in is to bring our crop nutrient solutions to 16 million tonnes of ore per year. deficits of local phosphate debottlenecking of just USD 95 million closer to our customers in priority • Downstream: new, leading-edge • European and other customers are have delivered 1.6 million tonnes of markets by establishing our own sales ammonia and granulated urea supply. potentially sensitive to hazardous additional capacity, which provides up offices in these markets. We already have capacities are at the heart of our impurities such as cadmium, giving to USD 180 million of EBITDA per annum a presence in our three priority export downstream efficiency efforts. These PhosAgro an advantage over other markets of Latin America, Europe and new and efficient production facilities producers • Increased sales to priority export markets Asia, and this has helped us to speak will use the latest technologies with the help of our own sales offices in directly with our customers about what to strengthen our low cash-cost South America, Europe and Asia (for more they want, to react faster to changes in position and will help to minimise information, see “Where we operate” on demand, to gain a better understanding PhosAgro’s environmental impact as WHAT WE DID IN 2016 WHAT WE AIM TO DO IN 2017 WHERE WE WANT TO BE IN 2020 pages 24–25) of the local markets and to promote the we grow our total output. unique quality of the phosphate-based • Logistics: after its first full year of • Opened sales offices in Biarritz (France) • Ramp up marketing and other Domestic market: expand domestic sales

• Shipped 27% of 2016 downstream fertilizers we produce. operations, the Smart Bulk Terminal and Hamburg (Germany) activities aimed at increasing volumes to 2.6 million tonnes through FINANCIAL STATEMENTS products export volumes through Smart in Ust-Luga near Saint Petersburg has • Increased sales to Europe by 20% year- awareness of the advantages a vertically integrated sales network Bulk Terminal in Ust-Luga, achieving cost further improved our netback earnings on-year to 1.5 million tonnes of PhosAgro’s phosphate-based that includes ten sales centres and 21 PRODUCTION CAPACITY savings vs. non-integrated port terminals through vertical integration into port • Increased sales to Asia by 20% year-on- fertilizers, which are naturally very цwarehouses GROWTH AND ENHANCED logistics. year to 1.1 million tonnes low in heavy metals content in 2 SELF-SUFFICIENCY Export markets: increase share of direct • Ramped up Main Shaft No 2 of the • Domestic sales grew by 30% year-on- particular cadmuim. sales to over 75% through seven sales Kirovsky mine, significantly expanding We increased our production capacity year to 2.1 million tonnes • Expand the number of grades offices located in priority markets around the scale of our lower-cost underground from 5.0 million tonnes in 2011 available to farmers based on input the world mining operations to 7.6 million tonnes in 2016, which from our international and domestic represents a CAGR of 8.7%. This was sales offices ADDITIONAL INFORMATION • Increased domestic sales by 30% year-on- achieved primarily through investments year with the help of our market-leading in modernisation and debottlenecking domestic distribution network of existing capacities to expand our production of value-added fertilizers. RELATED RISKS With the launch of our new 760 ths tonne/year ammonia line and Strategic risks Operational, regulatory, reputational 500 ths tonne/year granulated urea line Ineffective strategic planning and financial risks For more information on risks on track for 2017, we aim to continue please see pages 98–105 to increase our production capacity, with significantly enhanced self-sufficiency.

24 PhosAgro Integrated Report 2016 www.phosagro.com 25 Strategy (continued) STRATEGIC REPORT 2. PRODUCTION CAPACITY GROWTH AND GREATER SELF-SUFFICIENCY 3. INCREASE OPERATING EFFICIENCY

Opportunity Why this is our priority Opportunity Why this is our priority

Investments in modernisation Ammonia is a key input that PhosAgro By 2020, we aim to produce 8.7 million Further strengthen our The key to our competitive advantage In order to reduce production costs and debottlenecking of requires to expand its fertilizer output tonnes of fertilizers, including through the sustainable low cash-cost is maintaining industry-leading low throughout the cycle, we are focusing on CORPORATE GOVERNANCE REPORT CORPORATE RESPONSIBILITY REPORT while maintaining self-sufficiency, which addition of: production costs. reducing costs at all stages of production existing facilities have proven is why we are building a 760 ths tonnes/ • 500 ths tonnes/year of granulated urea position by modernising and logistics. to be a highly efficient way of year ammonia plant. capacity (new capacity) existing facilities and increasing capacity without • 400 ths tonnes/year of MAP/DAP/ improving vertical integration. major capital expenditure NPK production (modernisation + debottlenecking) programmes. At the same time, with an eye to our long-term sustainability, we are building new downstream capacities to produce ammonia and WHAT WE DID IN 2016 WHAT WE AIM TO DO IN 2017 WHERE WE WANT TO BE IN 2020 granulated urea to improve • Ramped up operations at Main Shaft • Continue monitoring costs, with the • With the launch of new ammonia and PhosAgro’s self-sufficiency while No 2 at the Kirovsk mine to full capacity, aim of containing fixed costs growth granulated urea units in Cherepovets expanding the share of our lower-cost below CPI in 2017, PhosAgro aims to reduce increasing fertilizer production underground mining operations to 74% • Complete modernisation of costs by becoming fully self-sufficient volumes and maintaining for 2016 vs. 71% in 2015 (excluding off- Beneficiation Plant No 3 at Apatit in ammonia (purchased ammonia vertical integration. balance ore) • Launch of new, efficient 760 ths accounted for 7% of 2016 CoGS) • Shipped 27% of our total export volumes tonne/year ammonia production line • Reduce natural gas consumption ratio for 2016 through the Smart Bulk • Launch of new, efficient 500 ths by 8% following the comissioning of Terminal in its first full year of operations tonne/year granulated urea production the new ammonia plant WHAT WE DID IN 2016 WHAT WE AIM TO DO IN 2017 WHERE WE WANT TO BE IN 2020 reducing fertilizer transportation and line • Continue modernisation of fertilizer transshipment costs production lines with the goal of • Debottlenecking, which requires • Ramp up marketing and other Domestic market: expand domestic sales • Launched a modernisation programme at increasing production capacity by 20% relatively low costs compared to new activities aimed at increasing volumes to 2.6 million tonnes through Beneficiation Plant No 3, which will help in 2016–2020 greenfield or brownfield projects, awareness of the advantages of a vertically integrated sales network that optimise our beneficiation capacities and • Reduce mining cash costs by increasing

enabled PhosAgro increase overall PhosAgro’s phosphate-based fertilizers, includes ten sales centres and FINANCIAL STATEMENTS cut relevant operation and maintenance share of underground mining up to 80% phosphate-based fertilizer production by which are naturally free of cadmium 21 warehouses costs 10.8% year-on-year to 5.9 million tonnes and other hazardous elements Export markets: increase share of direct • The number of grades reached 35, while • Expand the number of grades sales to over 75% through seven sales NPK and NPS fertilizers contributed available to farmers based on input offices located in priority markets around to 43% of total phosphate-based from our international and domestic the world fertilizer production sales offices • Continued construction of: –– new 760 ths tonnes/year ammonia plant –– new 500 ths tonnes/year ADDITIONAL INFORMATION granulated urea line

RELATED RISKS RELATED RISKS Strategic risks Operational, regulatory, reputational and Strategic risks Operational, regulatory, reputational and For more information on risks For more information on risks Ineffective strategic planning financial risks please see pages 98–105 Ineffective strategic planning financial risks please see pages 98–105

26 PhosAgro Integrated Report 2016 www.phosagro.com 27 WHERE WE OPERATE STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT CORPORATE GOVERNANCE REPORT

Phosphate-based fertilizer production/ consumption balance in Russia – DAP/MAP/TSP,

mln t P2O5

Production PhosAgro is Russia’s 1.47 0.44 No 1 fertilizer supplier Consumption FINANCIAL STATEMENTS Domestic market Distribution Centres and Regional The Russian market holds significant average of 29.6% in 2011–2015. Russian Representative Offices in Russia potential, and PhosAgro views it as one of farmers’ demand for fertilizers has been • PhosAgro-Orel the best opportunities globally in terms of supported by strong performance thanks • PhosAgro-Kursk agricultural sector growth option. Russian to years of investment and advantageous • PhosAgro-Lipetsk agricultural enterprises have become more export market conditions. • PhosAgro-Belgorod competitive thanks to the depreciation • PhosAgro-Belgorod of the rouble and state support for the Domestic sales (Voronezh branch) sector, as well as significant investments Sales volumes in our domestic market • PhosAgro-Tambov ADDITIONAL INFORMATION into modernising agricultural production. increased 30% year-on-year in 2016, • PhosAgro-Kuban to 2.1 million tonnes. (Krasnodar) PhosAgro’s sales to local farmers grew by • PhosAgro-Don (Rostov-on-Don) 30% year-on-year in 2016, while our share • PhosAgro-Stavropol of the overall Russian fertilizer market is • PhosAgro-Volga nearing 27%. We have become the largest (Nizhny Novgorod) supplier of fertilizers to Russian agricultural • PhosAgro-Volga (Saransk branch) producers thanks to continued investments • PhosAgro-Volga (Kazan branch) into our market-leading distribution and • PhosAgro-SeveroZapad sales network. Our home market accounted • PhosAgro-SeveroZapad for 33.6% of revenue in 2016, up from an (branch in Volgograd)

28 PhosAgro Integrated Report 2016 www.phosagro.com 29 Where we operate (continued) STRATEGIC REPORT

Export markets CORPORATE RESPONSIBILITY REPORT Our flexible production and sales models We think that this approach is paying off: enable us to supply the tailored fertilizers in 2016, PhosAgro’s sales to the European that farmers in over 100 countries on every market increased by over 20% year-on- Phosphate-based production/ inhabited continent use to grow better year, sales to Latin America declined by consumption balance in East, Central crops. Our strategy to 2020 calls for a just 10% against a backdrop of challenging and West Europe (not EU-28) – particular focus on the priority markets of economic conditions, while sales in Asia DAP/MAP/TSP,

Europe, Latin America and Asia because of grew by 20% year-on-year. mln t P2O5 the significant demand in each of these Production Balance regions, coupled with insufficient local International sales offices 0.8 supply of phosphate resources. • Biarritz -1.0 • Zug 1.9 Phosphate-based fertilizer production/

In order to better reach clients in these • Hamburg Consumption consumption balance in East Asia, priority markets, we have focused on • Warsaw Middle East, South Asia and South East Asia – DAP/MAP/TSP, CORPORATE GOVERNANCE REPORT opening sales offices there. In 2016, • Sao Paulo mln t P O we established new offices in Hamburg • Singapore 2 5 (Germany) and Biarritz (France). These Production Balance came in addition to existing offices in Zug 17.1 0.6 (Switzerland), Sao Paulo (Brazil), Warsaw 16.5 (Poland) and Singapore. These offices bring us closer to our end customers, enabling Consumption us to better understand their needs and better explain what differentiates PhosAgro fertilizers in terms of safety and purity. FINANCIAL STATEMENTS

Phosphate-based fertilizer production/ consumption balance in Latin America – DAP/MAP/TSP,

mln t P2O5

Production Balance 1.4 -3.8

5.2 ADDITIONAL INFORMATION

Consumption

PhosAgro sales structure by regions in 2016, ths t

Russia Europe Latin Asia CIS India North Africa America America 2,095 1,512 1,341 701 554 450 353 313

*DAP/MAP/TSP Production — Demand 29% 21% 18% 10% 8% 6% 5% 4% Source CRU — January 2017 Phosphate Fertilizer Market Outlook

30 PhosAgro Integrated Report 2016 www.phosagro.com 31 MARKET OVERVIEW High-level nutrient AGRICULTURAL MARKET DEVELOPMENTS & IMPLICATIONS ON FERTILIZER DEMAND

supply review STRATEGIC REPORT Crop price index, 186.8 January 2010 = 100 Maize Rice Wheat Soybean MLN T NUTRIENTS The IFA estimated global N, P and K production – for both fertilizer and non- 200 N, P and K fertilizer demand developments, N, P, K FERTILIZER fertilizer use – at 250 million tonnes mln t 150 DEMAND IN 2016 of nutrient in 2016. The production of (ESTIMATED BY IFA) fertilizers accounted for 75% of the total, 186.7 or 187 million tonnes of nutrient. 100 181.6 183.2 182.8 CORPORATE RESPONSIBILITY REPORT Looking at the different nutrients, during 50 2016 there was a net 2% increase in

year 2010 2011 2012 2013 2014 2015 2016 global urea production, taking the total 109.2 109.7 108.9 111.0 Nitrogen to 178.4 million tonnes. Capacity increased in 2016 by 1%, to 211.5 million tonnes. Lower fertilizer Increases seen in Egypt, Nigeria, Iran, Brazilian barter ratio, Around 27 bags of soy bought 1 tonne prices together with 60 kg bags soy/tonne MAP Soybean Bangladesh and Indonesia were offset by of MAP in Brazil a devaluation of closures in China, where 1.5 million tonnes the real contributed 30 41.3 41.3 41.3 42.7 to improved farmer Phosphate was permanently curtailed. affdorability 25 31.1 32.3 32.6 33.1 In the case of concentrated phosphate Potash 20 fertilizers, combined DAP, MAP and

Source: IFA/CRU/Agrolink.com.br Source: 2013 2014 2015 2016 TSP production was 2% higher at 15 CORPORATE GOVERNANCE REPORT 32 million tonnes of P2O5. This was due to a greater volume of MAP being year 2010 2011 2012 2013 2014 2015 2016 produced in the USA, Morocco and Saudi Arabia. Global capacity was estimated at

Nutrient demand drivers High-level nutrient demand review 45.4 million tonnes of P2O5.

Global economy Agricultural markets in November 2016 indicated that Northern The implications of the above on fertilizer for fertilizer in most developing/emerging In contrast, MOP production decreased In October 2016, the IMF revised its Following two seasons of strong growth, Hemisphere winter wheat planting had demand have been estimated by the markets. Demand in South and Central by 2.8% to 63.3 million tonnes of product estimate for global GDP growth downwards global cereal production fell in 2015/16 been completed, mostly under favourable International Fertilizer Industry Association America, Africa, part of Asia and Oceania is in 2016, as producers curtailed capacity to 3.1% for 2016, reflecting weaker than as unfavourable weather conditions (El conditions, and production estimated to be (IFA). expected between 4—6% higher year-on- temporarily to draw down on existing expected growth in advanced economies, Niño) came to the fore. This provided up year-on-year in Russia, the USA, Canada, year. N use is improved, growing by 2.4% inventories. This saw operating rates fall the United Kingdom’s vote to leave the temporary support to pricing, but poor India and Kazakhstan. Meanwhile, it also The preliminary estimate of nitrogen (N), year-on-year to 113.0 million tonnes of to their lowest levels since 2010 despite

European Union in June and slower demand and large stock levels (China) noted that harvests had begun in Argentina phosphate (P) and potassium (K) fertilizer nutrient, while P and K demand continue better sales volumes year-on-year. On FINANCIAL STATEMENTS than expected growth in the United kept fundamentals under pressure. By and South Africa, under favourable demand stands at 183.8 million tonnes growing by 1.6% and 1.8% year-on-year, the capacity front, total potash capacity States for much of the year. The fortunes year-end, prices were deemed low enough conditions, and under exceptional of nutrient for the 2015/16 season. This respectively,. was estimated 4.8% higher year-on-year

of developing and emerging market to encourage additional feed usage, but conditions in Australia due to good rainfall. represents a reduction of 0.1% year-on- at 55.1 million tonnes of K2O, driven by economies in general were mixed: in stocks remained plentiful and are set As such, global wheat yields for the season year and is explained by a lower crop The aforementioned estimates have been increases in Canada, Russia, Uzbekistan China, government support measures to grow further through the 2016/17 are estimated at a record 3.4 tonnes/ha in production volume year-on-year, caused converted to calendar year estimates by and China. provided support to commodity prices, and harvest. 2016/17, and production between 745— by an exceptionally strong El Niño event. the IFA. N, P and K demand was assessed strong credit growth helped push GDP 748 million tonnes. Rather unexpectedly, the reduction in the at 182.8 million tonnes of nutrient in 2015 growth to the 6.5—7.0% range during 1H An important component of this view is total volume was due to a smaller usage and 186.8 million tonnes in 2016. In this 2016. Encouragingly, there were signs of that of maize, which, according to the USDA Moving to oilseeds, soybean production of N. N fertilizer demand fell by -0.9% instance, N demand was estimated up by ADDITIONAL INFORMATION a rebalancing of the economy away from and the IGC, will be 7% higher y/y, driven expectations are improved in 2016/17, year-on-year, while both P and K demand 1.9% year-on-year, while K demand was industry towards more of a service-based by good harvests in the USA, the European following a 2% contraction in 2015/16. increased (1.4% and 0.6%, respectively), 1.4% higher. The strongest year-on-year market. While India also enjoyed robust Union, Ukraine, Brazil, Argentina, India, The USDA, IGC and FAO see production driven by better than expected usage in growth, however, was reserved for P, which growth in 2016 due to improved trade Russia and South Africa. Two factors have growing from 313—315 million tonnes in India (P), China (K) and North America was 3.4% higher at 43.3 million tonnes of terms and effective policy actions, Brazilian driven growth: first, despite lower prices, 2015/16 to above 330 million tonnes in (also K). nutrient, as consumption in South Asia was 187MLN T growth remained under pressure because returns are still above those for competing 2016/17, as better growing conditions have 9.8% higher year-on-year. NUTRIENT EQUIVALENT of ongoing political scandals. Meanwhile, in crops. Second, global 2016/17 yields are supported yields, especially in the USA Moving to the 2016/17 crop year, Russia, prospects improved during 2H as oil estimated to be up year-on-year, spurred and Brazil. As is the case with cereals, soya demand for N, P and K is estimated at The IFA has also assessed demand for non- PRODUCTION OF N, P prices increased. This was further boosted on by favourable conditions. The latter is prices enjoyed a modest recovery in early 187.6 million tonnes of nutrient, as a return fertilizer uses in 2016 at 64 million tonnes AND K FERTILIZERS IN by an agreement in December with OPEC also relevant when assessing the 2016/17 2016, but have since come under renewed to growth in cereal and soybean production of nutrient. 2016 to limit production. wheat crop. An assessment taken by AIMS pressure with news of bumper crops. has spurred on an additional requirement

32 PhosAgro Integrated Report 2016 www.phosagro.com 33 Market overview (continued)

DEMAND DEVELOPMENTS IN KEY MARKETS KEY PRICE DEVELOPMENTS IN 2016

P O demand Demand index price index (week 1 2016 = 100) 2 5 Phosphate fertilizer prices were (mln t) (100 = 2014) among the weakest-performing DAP versus other commodities DAP, FOB TAMPA high/low commodity price change range commodities in 2016 STRATEGIC REPORT Europe & CIS North America South & Central America 200 101.9 102.1 100 99.6 100 99.7 100 92.9 95.9 150 Better credit availability & $ 395/t 6.7 6.2 6.4 5.1 5.1 5.3 affordability 100 3.8 3.8 3.9 $ 315/t 50

2014 2015 2016 2014 2015 2016 2014 2015 2016 CORPORATE RESPONSIBILITY REPORT week 1 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51

South Asia East & South East Asia The rest of the world 119.5 Better Phosphate rock, Phosphoric acid, Ammonia, FOB Sulphur, FOB 108.9 14.7 14.5 14.6 DAP’s key price driver developments monsoon FOB Morocco CFR India Black Sea Middle East 100 in 2016/17 100 100.5 102.9 100 98.8 99.8 supported 100 8.8 Kharif and rabi 7.4 8.0 demand 75 3.6 3.6 3.7 Hydrocarbon- led recovery 50 2014 2015 2016 2014 2015 2016 2014 2015 2016

Source: IFA; Fertilizer Week week 1 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 CORPORATE GOVERNANCE REPORT

Focus on phosphate fertilizer markets in 2016 Indian imports across the P value chain, % benefits they offer for cereals and soybean Around 10% of the total was traded producers struggled with stagnant growth. internationally, with India accounting for domestic demand and unfavourable The IFA’s preliminary assessment shows during the 2015/16 crop, bringing Phosphoric 50%. While that country remains the largest competitive pressures in trade markets. acid that phosphate fertilizer demand stood at about poor maize and soybean harvests. DAP Rock On the supply side of the industry, the IFA importer, two important shifts occurred in The lower netbacks offered on

42.69 million tonnes of P2O5 in 2016. This However, phosphate fertilizer demand estimated global phosphoric acid capacity at 2016: firstly, its purchases of phosphoric acid international sales rendered much of the 2012 39% 25% 36% was the first time in five years that demand improved throughout the 2016 calendar 58.1 million tonnes of P2O5. This represents were prioritised to maximise local DAP/NPK Yunnan, Guizhou and Sichuan capacity

grew by more than 2% year-on-year. year, supported by an attractive crop-to- a net increase of 0.7 million tonnes of P2O5 granulation. Secondly, more of the purchased uncompetitive, and producers were fertilizer price ratio, the introduction of year-on-year, as additional capacity was acid was sourced from Tunisia, Jordan and forced to curtail production. In November In South Asia, demand was estimated just a more favourable grain export policy in 2013 30% 32% 38% commissioned in Morocco and Kazakhstan, South Africa, reducing its dependence 2016, news emerged of an agreement

short of 8.8 million tonnes of P2O5, 9.8% Argentina and better weather conditions and one unit in Iraq was removed from the on Morocco. As a result, its production of between 8—10 companies to curtail

higher than the previous year. According in 2H affecting the 2016/17 crop. For the assessment. phosphate fertilizers expanded by 10% y/y, their DAP production by 10—30% of their FINANCIAL STATEMENTS to the IFA, 2016 marked the second year, regional phosphate fertilizer demand 2014 27% 28% 45% whereas DAP imports were 20% lower at normal rates.

consecutive year of growth in Indian P2O5 is estimated at 6.4 million tonnes of P2O5, an Phosphoric acid production was 2.4 million tonnes of P2O5. demand, this time due to better water increase of 3.3% over 2015, as more DAP/ estimated to be up 0.9% in 2016, reaching Outside of China, production of 2015 41% 24% 35% availability, contributing to a 1% expansion MAP and NPs was consumed. Meanwhile, 43.7 million tonnes of P2O5, as more was These actions had an impact on ammoniated phosphate fertilizer fared of planted area during the Kharif and an 8% imports and consumption of NP/NPSs forthcoming from Saudi Arabia, Morocco, the world’s largest producer, China, better: DAP and MAP output increased year-on-year increase in sowings during the (mostly into Brazil) were again estimated Jordan, South Africa and Tunisia. where phosphoric acid volumes were by 5% and 13%, respectively. CRU, a rabi. above 1.0 million tonnes of product in 2016 31% 34% 35% estimated 2% lower year-on-year at consultancy, associates this with lower

2016, reflecting the growing preference for 17.5 million tonnes of P2O5. Chinese input costs. Their estimate for DAP costs European phosphate fertilizer demand phosphates rich in sulphur. More MGA was forthcoming ADDITIONAL INFORMATION was stable year-on-year in 2016 despite a from Tunisia, Jordan & South Africa 5% year-on-year contraction of the cereal In North America, phosphate fertilizer Global DAP, MAP & TSP production Larger NP+S MAP DAP TSP MTP2O5 harvest, as French wheat yields disappointed demand was estimated up by 2.3% year-on- production index (1995 = 100) (mln t) production

due to the wetness of the spring. The maize year to 5.2 million tonnes of P2O5 in 2016, 13.3 11.8 11.7 harvest is estimated up for 2016, and winter owing to the exceptionally good growing > 300 wheat sowing occurred under favourable conditions through much of the year. Y-O-Y 2% 16.2 conditions towards the end of the calendar Preliminary estimates indicated yields and 15.1 200 year, which helped support regional NPK and production to be at record levels, especially INCREASE IN 16.3 DAP/MAP demand. for maize and soybean. Sulphur-based PHOSPHATE FERTILIZER 2.7 2.4 2.6 ammonium phosphates continued to gain DEMAND IN 2016 100 Moving to the Americas, El Niño played market share throughout 2016 due to their

an important role in Brazil and Argentina lower prices, as well as the agronomic Source: IFA; CRU year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

34 PhosAgro Integrated Report 2016 www.phosagro.com 35 Market overview (continued)

PHOSPHATE ROCK MARKET DEVELOPMENTS THROUGH 2016

Global phosphate rock capacity & production, STRATEGIC REPORT mln t 250.4 252.5 254.0 257.7 253.9 Capacity

Other fertilizers

196.8 193.8 197.1 200.7 200.1 The IFA estimates that around Global production also saw growth in Ammonia Potash CORPORATE RESPONSIBILITY REPORT Production 148.5 million tonnes of N was consumed 2016. In this instance, there were two 2016 was a mixed year for ammonia, MOP deliveries disappointed throughout for both fertilizer and non-fertilizer major differences in recent trends: the with prices fluctuating widely across all much of 1H 2016, with Chinese importers uses during the 2016 calendar year. This first being that, in China, production fell benchmarks. The Black Sea benchmark delaying contracts due to the large was 2.1% higher than the 2015 total, by 5% year-on-year to 67.5 million tonnes started the year at USD 265/tonne, keeping volume of stocks that had accumulated 2012 2013 2014 2015 2016 yet in general, the market remained of product. This was associated with stable above USD 250/tonne for most of in local warehouses. While importers oversupplied. Improvement in demand is reduced competitiveness brought about 1H, before falling dramatically from June typically wait for China to set the floor associated with a recovery in agricultural by the removal of transportation and onwards, bottoming out at USD 163/tonne for contract pricing before committing Global phosphate rock rock trade in 2016, markets, which account for around 75% of energy subsidies, as well as higher in mid-November. to their own volumes, in this instance a mln t the N total. In 2016, N fertilizer demand feedstock prices. The government’s efforts lack of action prompted direction from 30.3 was estimated to be up 1.9% year-on- to stimulate domestic coal markets in 2H This momentum was driven by a surge India, with an agreement reached at the 29.0 29.6 28.0 year, as lower prices helped to stimulate saw thermal coal prices doubling to around in merchant ammonia availability. CRU end of June. Once Indian contracts were 25.9 consumption following the difficulties USD 110/tonne, impacting local coal-based estimates that a total of 15 new ammonia agreed at lower prices, trade into the caused by El Niño. urea production costs. As a result, exporters plants were commissioned (outside of country and elsewhere soared, ensuring CORPORATE GOVERNANCE REPORT saw their sales squeezed in international China) during the year, seven of which that global demand was flat y/y at around Urea markets (falling by around a third year- have merchant ammonia capacity. The USA 63 million tonnes of product. Domestic urea deliveries were assessed on-year). This created a gap, which led accounted for the largest portion of new to be up for a third consecutive year in to the second key difference: the fact that merchant capacity, adding three new plants, On the supply side, production 2016. The bulk of the growth stemmed production and trade from the rest of the followed by Russia and Saudi Arabia, which was estimated by the IFA to be from locations outside of China, with world increased sharply year-on-year, added one plant each. This put pressure 1.8 million tonnes lower for the 2016 higher rates recorded in areas where growing by 6% and 13% year-on-year, on the market’s higher-cost participants, calendar year, at 62.7 million tonnes new capacity was commissioned (USA, respectively. Notably, production gains many of which struggled to compete in the of product. This corresponds with even 2012 2013 2014 2015 2016 Nigeria and Iran) or where operating rates were made in Egypt, where natural gas lower price environment. Most affected was greater efforts to limit supplies in North improved (Argentina, Egypt, India, Italy and availability improved; Argentina, where capacity in Ukraine, where curtailments America, where marginal operations in was 20% lower year-on-year in 2016 at in Russia, Kazakhstan, Egypt, Senegal, Pakistan). Somewhat unexpectedly, trade maintenance supported better operating followed. Canada and the USA were closed and USD 252/tonne as prices of phosphoric acid South Africa, Jordan and Saudi Arabia was also assessed to be 1.8% higher year- rates; Russia and Saudi Arabia, where new operating rates at other mines were cut.

(CFR India), sulphur (FOB Middle East) and all increased their y/y output by an on-year. This occurred despite weak import capacity was commissioned. With this, Russia’s Black Sea ammonia Notably, curtailments were also made FINANCIAL STATEMENTS ammonia (FOB Black Sea) fell by 19%, 27% excess of 500,000 tonnes in 2016, demand into India, where large stocks exporters took over as the market’s in the CIS for the first time since the and 2%, respectively, while ammonia ended their total was not sufficient to offset and higher domestic production reduced swing producer, and when prices fell break-up of BPC in 2013, as producers the year only slightly lower. At one point, reductions in Syria and China. Output requirements. Instead, it was driven by to below USD 180/tonne in 2H, it was looked for price stability. The one the benchmark was close to 40% lower, but from these two countries fell by a total of particularly strong trade into Brazil and these producers that cut back production notable contrast was in East Asia, where recovered as hydrocarbon prices improved. 2.5 million tonnes. In Syria, mining was Western Europe, where imports were to balance supply. This strategy was largely production was estimated at close These trends also had an impact on end- suspended due to the war, while in China estimated to be 19% and 25% higher year- successful, and from mid-November prices to 9.0 million tonnes of product, showing use products, with the DAP FOB Tampa production fell to 81 million tonnes as on-year, respectively. rallied. By the end of the year, following a 2.5 times expansion since 2010. - - benchmark ending the year 20% lower at demand weakened. 1–2% Y O Y a dramatic surge in prices, Black Sea USD 315/tonne. On the supply side, urea capacity and ammonia had recovered almost all of its ADDITIONAL INFORMATION Most phosphate rock concentrate is production grew by between 1% and 2% UREA CAPACITY lost ground and finished the year at USD Phosphate rock market also consumed within the country it year-on-year in 2016. Significant additions AND PRODUCTION 260/tonne (only USD 5/atonne below the review was produced in. In 2016, domestic were recorded in Egypt, Nigeria, Iran, INCREASE IN 2016 level at which it started the year). deliveries were estimated at Bangladesh and Indonesia. However, the In 2016, phosphate rock mining was 171.8 million tonnes, registering an IFA also estimates that 1.5 million tonnes undertaken in 29 countries, with 13 increase of 1.7 million tonnes over 2015. of capacity was permanently curtailed due 2 .8% Y-O-Y producing more than 2.5 million tonnes. In contrast, trade fell by 1.6 million tonnes, to a combination of overcapacity, poor The IFA estimates 200.1 million tonnes as the industry continues to move economics and the national government’s DECREASE IN POTASH of rock concentrate was produced, towards downstream integration. The IFA’s drive to address negative environmental PRODUCTION IN 2016 a reduction on the 2015 total of assessment notes that trade into Europe records. 200.7 million tonnes. Although miners and Latin America was especially weak.

36 PhosAgro Integrated Report 2016 www.phosagro.com 37 SCIENTIFIC

APPROACH STRATEGIC REPORT 1 PHOSAGRO World's premium phosphate resource base Ore type Igneous

2.05 bln t AL O content 2 3 13.0–14.0% High

Minor element ratio 0.02–0.04 CORPORATE RESPONSIBILITY REPORT (MER)2

Level of radioactivity Very low

Hazardous metals Very low content World phosphate rock reserves: 1.4 bln t Cadmium content3 Less than 0.1

3.7 bln t

bln t 0.1 1.5 bln t CORPORATE GOVERNANCE REPORT

50 bln t FINANCIAL STATEMENTS

1 1 1 1 1 USA MOROCCO TUNISIA JORDAN CHINA

Ore type Sedimentary Ore type Sedimentary Ore type Sedimentary Ore type Sedimentary Ore type Sedimentary ADDITIONAL INFORMATION

AL2O3 content Very low AL2O3 content Very low AL2O3 content Low to moderate AL2O3 content Very low AL2O3 content Very low

Minor element ratio Minor element ratio Minor element ratio Minor element ratio Minor element ratio 0.05–0.1 0.02–0.04 0.05 0.02–0.03 >0.05 (MER)2 (MER)2 (MER)2 (MER)2 (MER)2

Level of radioactivity Moderate to high Level of radioactivity Moderate Level of radioactivity Moderate Level of radioactivity Low to moderate Level of radioactivity Low to moderate

Hazardous metals Hazardous metals Source: Fertecon, IMC, USGS 2011. Hazardous metals Hazardous metals Hazardous metals Moderate to high Moderate 1 Low to moderate Low Low to moderate content content Primary global DAP/MAP producing content content content regions. 2 Average Minor Element Ratio (MER) Cadmium content3 Cadmium content3 Cadmium content3 Cadmium content3 Cadmium content3 9–38 15-40 greater than 0.1 not sustainable for 40 5-6 2 production of high-quality DAP. 3 Average cadmium content in ppm.

38 PhosAgro Integrated Report 2016 www.phosagro.com 39 Scientific approach (continued)

Researching the impact of safer fertilizers STRATEGIC REPORT HOW CADMIUM GETS TO YOUR PLATE

PhosAgro is cooperating with leading Sedimentary deposits are formed over inhabited ancient seabeds create the European research institutions thousands of years and are the most deposits. Since aquatic flora and fauna also to investigate how the high quality of common: more than 80% of phosphate accumulate heavy metals, many of which our products benefits our stakeholders. minerals currently extracted are of can be dissolved in water, the raw material We have signed agreements with the sedimentary origin. The largest reserves from sedimentary deposits can contain

University of Milan and the Wageningen of ore of this type are concentrated in dangerous impurities such as cadmium, CORPORATE RESPONSIBILITY REPORT ORE DEPOSIT FERTILIZER SOIL PLANT FOOD HUMAN University in the Netherlands to undertake North Africa, the Middle East and the USA. lead, mercury, etc. research to determine the impact of The accumulation of dead organisms that cadmium contained in phosphate-based

fertilizers on a variety of crops and soil Cadmium and heavy metals concentrations 1—200 mg Cd (kg P2O5), and concentration in crops forms a risk for types in different locations. Extensive study has shown that cadmium is present in most commercial phosphate- human health through food intake.2 Phosphate-based fertilizers cadmium content, can cause kidney failure and has been based fertilizers. The application of Our ultimate goal is to demonstrate mg/kg P O PhosAgro statistically associated with an increased these fertilizers is the main source of the PhosAgro produces phosphate-based 2 5 that reducing the cadmium content in risk of cancer. The food we eat is the cadmium that accumulates every year in fertilizers from apatite-nepheline ore phosphate-based fertilizers could have an >60 >40 phosphate- primary source of human exposure Europe’s agricultural soils.2 Higher levels of mined at its own igneous deposit by Apatit, important positive impact of the safety of to cadmium among the non-smoking cadmium in the soil are likely to increase which contains virtually no cadmium or the food that we eat every day. based fertilizers population.1 Cadmium and other heavy the concentration of the element in crops other harmful elements. We therefore metals are present in many phosphate grown in the soil. Plant roots absorb believe that application of PhosAgro The increasing threat of soil contamination deposits, especially those of sedimentary cadmium contained in water, meaning fertilizers to crops helps farmers to produce

contain CORPORATE GOVERNANCE REPORT by cadmium and other heavy metals is origin. that the uptake rate increases as cadmium safer foods, and that this contributes the subject of ever-greater attention in 31% > concentration increases. The element to improving food security as well as the the context of food safety. The European MG/KG Cadmium (Cd) occurs naturally as then moves from the roots to the above- overall health of consumers of agricultural Commission, for example, is currently 8% 1 an impurity in rock phosphate at ground parts of the plants. This increased products. P O CADMIUM considering adopting EU-wide limitations 2 5 for cadmium content in phosphate-based fertilizers. An analysis of phosphate-based fertilizers used in Europe has shown that around 8% of fertilizers contained RESEARCH HIGHLIGHTS Linear increase of Cd concentration more than 60 mg/kg P O of cadmium, in the crop with the increasing soil Cd 2 5 concentration 2 while around 31% of fertilizers have Wageningen University : mg kg-1 over 40 mg/kg P2O5. Phosphate-based

fertilizers produced by PhosAgro are some University of Milan: FINANCIAL STATEMENTS of the safest, and contain just 0.2 mg of 1 2

cadmium per kg of P2O5 (in PhosAgro’s DAP 1 fertilizers). Determining the difference between Determining the long-term changes actual presence and bioavailability in cadmium and other heavy metals Conducting field tests in Italy The formation of phosphate ore deposits (ability to be absorbed) of cadmium content in soil and plants where on crops (rice and wheat) Phosphate deposits can be found in from application of fertilizers and phosphate-based fertilizers with high to compare soil parameters, as Crop Cd Slope=TF=[Cd] / [Cd] several forms on all continents, but the cadmium that has previously and low hazardous elememts content well as biochemical and biological crop soil two most common sources of phosphate accumulated in the soil. This research are applied by using simulations parameters of crops using standard raw materials are igneous and sedimentary will test soils and the absorption of and soil and plant measurements fertilizers and fertilizers with very low ADDITIONAL INFORMATION deposits. heavy metals, cadmium in particular by from the experiments. This will heavy metals content.. The research Soil Cd plants in greenhouse conditions using help to understand how the use of involves three years of field tests on Igneous deposits like PhosAgro’s form over suitable crops (vegetables, root crops, phosphate-based fertilizers with low cultivated farm fields. a period of tens or hundreds of millions grains) and forage grasses. The goal of cadmium and other heavy metals 1 European Food Safety Authority. Cadmium dietary of years as a result of the cooling of this study is to understand how heavy content leads to a decrease in heavy exposure in the European population. EFSA Journal magma. These deposits usually contain metals contained in some fertilizers metals in soil and plants in the medium- 2012;10 (1):2551. [37 pp.] doi:10.2903/j. less dangerous impurities such cadmium, affect the quality of plants, whether and long-term (50—100 years). efsa.2012.2551. 2 Erik Smolders & Laetitia Six. Revisiting and lead and radioactive elements. The largest the cadmium content in fertilizers has updating the effect of phosphate fertilizers deposits are located in Brazil, Canada, an immediate effect, and whether the to cadmium accumulation in European agricultural Finland, Russia and South Africa. cadmium content in agricultural soils soils. 2013. http://ec.europa.eu/health/scientific_ committees/environmental_risks/docs/ decreases. scher_o_168_rd_en.pdf

40 PhosAgro Integrated Report 2016 www.phosagro.com 41 Scientific approach (continued)

PhosAgro fertilizers PhosAgro contain a full range products STRATEGIC REPORT

of essential elements contain almost ESSENTIAL NUTRIENTS The Company is in constant dialogue with no heavy agricultural producers to adapt its product N NITROGEN Р PHOSPHORUS K POTASSIUM offering. The Company’s in-house R&D facilities increases protein accumulation in accumulates energy in plants increase plant resistance against and flexible production lines mean it is able metals ++ ++ ++ plants accelerates biosynthesis adverse conditions and diseases CORPORATE RESPONSIBILITY REPORT to develop new fertilizer grades with additional ++ part of enzymes, nucleic acids, facilitates root system growth acts in processes of carbohydrates secondary nutrients or microelements in ++ ++ ++ response to market demand. chlorophyll, vitamins, alkaloids ++increases winter hardiness, synthesis and their flow in plants ++reduces moisture content in crop improves yield’s quality ++determine cell and fiber ability for yield water retention ++determines protein synthesis intensity

deficiency symptoms: deficiency symptoms: deficiency symptoms: • plant growth rate reduction and • slow growth and maturing • leaf edges browning known as • as a result yield dropdown • yield decrease and its quality leaf burn reduction • plants become irresistible against diseases

SECONDARY NUTRIENTS CORPORATE GOVERNANCE REPORT

Ca CALCIUM Mg MAGNESIUM S SULPHUR ++supports plant’s photosynthesis, ++central atom of each chlorophyll ++is a part of every living cell ad hydrocarbons transport and molecule ++is a constituent of two of 21 amino nitrogen assimilation ++takes part in phosphate acids which form protein ++acts in cell walls construction metabolism, ++helps develop enzymes and ++determines watering and supports ++acts in plant respiration vitamins cell organelle structure ++activates a number of enzyme ++aids in seed production, systems ++promotes nodulation for nitrogen fixation by legumes

deficiency symptoms: deficiency symptoms: deficiency symptoms: FINANCIAL STATEMENTS • root system suppression • yellowish, bronze or reddish color, • small leaves with pale green Elements currently available • chlorosis while leaf veins remain green coloring, stretched stems in PhosAgro products • foliage yellowing and even death • deteriorated plant growth and maturation

MICRONUTRIENTS

B BORON Fe IRON Mo MOLYBDENUM Mn MANGANESE Cu COPPER Zn ZINC Co COBALT Cl CHLORIDE ADDITIONAL INFORMATION ++essential for germination of pollen ++acts as a catalyst to chlorophyll ++facilitates nitrate reductase by plants ++is a part of enzyme systems in plant ++acts in chlorophyll formation ++is a part of enzyme systems ++helps fixing atmospheric nitrogen ++accelerates energy reactions in grains, growth of pollen tubes formation and as an oxygen carrier ++vital for symbiotic nitrogen fixation by ++accelerates germination and ++increases resistance against lodging ++aids synthesis of auxins (plant in legumes plant ++provides seed and cell wall ++helps form respiratory enzyme Rhizobia bacteria in legume root nodules maturity ++supports drought tolerance, winter growth hormones) ++is a constituent of B12 vitamin ++activates several enzyme systems formation systems ++aids chlorophyll synthesis hardiness ++maintains turgor ++supports ammonium and nitrate deficiency symptoms: deficiency symptoms: deficiency symptoms: nitrogen uptake deficiency symptoms: deficiency symptoms: deficiency symptoms: deficiency symptoms: • stunts plant growth • Low respiratory and photosynthesis • yield and protein content decrease in • small germ • growth reduction, chlorosis, “little • external symptoms similar • wilting leaf edges • degrades growing point intensity plants deficiency symptoms: • dieback in citrus leaf” of fruit trees and ”white bud” to nitrogen deficiency • thick side roots • black heart (sugarbeets) • chlorosis • when high doses of nitrogen fertilizers • yellowing between the veins • blasting in vegetable crops of corn • livestock suffers anemia, bad • corky core (apples) are applied low molybdenum causes • leaves specks and further dieback appetite and productivity • potato scab nitrate accumulation in plants

42 PhosAgro Integrated Report 2016 www.phosagro.com 43 Scientific approach (continued)

PhosAgro fertilizers contain a full range STRATEGIC REPORT of essential elements HARMFUL ELEMENTSN N ESSENTIAL NUTRIENTS The Company is in constant dialogue with agricultural producers to adapt its product As ARSENIC Hg MERCURY N NITROGEN Р PHOSPHORUS K POTASSIUM offering. The Company’s in-house R&D facilities ––Arsenic poisoning can cause nausea, –– May have toxic effects on the increases protein accumulation in accumulates energy in plants increase plant resistance against and flexible production lines mean it is able ++ ++ ++ vomiting, abdominal pain and other nervous, digestive and immune plants accelerates biosynthesis adverse conditions and diseases CORPORATE RESPONSIBILITY REPORT to develop new fertilizer grades with additional ++ digestive disorders systems, and on lungs, kidneys, skin part of enzymes, nucleic acids, facilitates root system growth acts in processes of carbohydrates secondary nutrients or microelements in ++ ++ ++ response to market demand. ––Regular exposure can cause and eyes chlorophyll, vitamins, alkaloids ++increases winter hardiness, synthesis and their flow in plants cancer, cardiovascular disease, skin –– For unborn and very young children, ++reduces moisture content in crop improves yield’s quality ++determine cell and fiber ability for hyperpigmentation, keratoses, neurological even small amounts may cause yield water retention Pb problems and developmental disorders serious health and development ++determines protein synthesis Ca problems intensity

Cd CADMIUM deficiency symptoms: deficiency symptoms: deficiency symptoms: Pb LEAD Causes • plant growth rate reduction and • slow growth and maturing • leaf edges browning known as ––Cancer N Pb ––Repeated exposure can cause • as a result yield dropdown • yield decrease and its quality leaf burn ––Cardiovascular diseases abdominal and digestive problems, reduction • plants become irresistible against ––Kidney disfunction aggressive behaviour, headaches, diseases ––Lung problems fatigue, memory loss, anemia SECONDARY NUTRIENTS CORPORATE GOVERNANCE REPORT ––Osteoporosis and numerous other negative symptoms ––Children exposed to lead may Ca CALCIUM Mg MAGNESIUM S SULPHUR suffer from behaviour problems, ++supports plant’s photosynthesis, ++central atom of each chlorophyll ++is a part of every living cell ad low IQ, developmental disorders hydrocarbons transport and molecule ++is a constituent of two of 21 amino and learning difficulties nitrogen assimilation ++takes part in phosphate acids which form protein ++acts in cell walls construction metabolism, ++helps develop enzymes and ++determines watering and supports ++acts in plant respiration vitamins Cr+6 HEXAVALENT CHROMIUM cell organelle structure ++activates a number of enzyme ++aids in seed production, ––Carcinogen systems ++promotes nodulation for nitrogen ––Targets the respiratory system, fixation by legumes kidneys, liver, skin and eyes

––May cause asthma or damage deficiency symptoms: deficiency symptoms: deficiency symptoms: FINANCIAL STATEMENTS to the nasal epithelia and skin • root system suppression • yellowish, bronze or reddish color, • small leaves with pale green Elements currently available • chlorosis while leaf veins remain green coloring, stretched stems in PhosAgro products • foliage yellowing and even death • deteriorated plant growth and maturation

MICRONUTRIENTS

B BORON Fe IRON Mo MOLYBDENUM Mn MANGANESE Cu COPPER Zn ZINC Co COBALT Cl CHLORIDE ADDITIONAL INFORMATION ++essential for germination of pollen ++acts as a catalyst to chlorophyll ++facilitates nitrate reductase by plants ++is a part of enzyme systems in plant ++acts in chlorophyll formation ++is a part of enzyme systems ++helps fixing atmospheric nitrogen ++accelerates energy reactions in grains, growth of pollen tubes formation and as an oxygen carrier ++vital for symbiotic nitrogen fixation by ++accelerates germination and ++increases resistance against lodging ++aids synthesis of auxins (plant in legumes plant ++provides seed and cell wall ++helps form respiratory enzyme Rhizobia bacteria in legume root nodules maturity ++supports drought tolerance, winter growth hormones) ++is a constituent of B12 vitamin ++activates several enzyme systems formation systems ++aids chlorophyll synthesis hardiness ++maintains turgor ++supports ammonium and nitrate deficiency symptoms: deficiency symptoms: deficiency symptoms: nitrogen uptake deficiency symptoms: deficiency symptoms: deficiency symptoms: deficiency symptoms: • stunts plant growth • Low respiratory and photosynthesis • yield and protein content decrease in • small germ • growth reduction, chlorosis, “little • external symptoms similar • wilting leaf edges • degrades growing point intensity plants deficiency symptoms: • dieback in citrus leaf” of fruit trees and ”white bud” to nitrogen deficiency • thick side roots • black heart (sugarbeets) • chlorosis • when high doses of nitrogen fertilizers • yellowing between the veins • blasting in vegetable crops of corn • livestock suffers anemia, bad • corky core (apples) are applied low molybdenum causes • leaves specks and further dieback appetite and productivity • potato scab nitrate accumulation in plants

42 PhosAgro Integrated Report 2016 www.phosagro.com 43 OPERATIONAL REVIEW

Increasing production STRATEGIC REPORT capacity while maintaining utilisation rates

UPSTREAM CORPORATE RESPONSIBILITY REPORT

Capacity by product Phosphate rock sales in 2016, kt PRODUCTION AND SALES VOLUMES – APATIT MINE AND BENEFICIATION PLANT

999 Domestic Production volumes, kt Sales volume1, kt Phosphate rock 1,449 Export 8.5 mln t 2016 2015 Change y-o-y, % 2016 2015 Change y-o-y, %

Mikhail Rybnikov External sales Internal sales Phosphate rock 8,530.2 7,853.3 8.6% 2,448.3 1,962.4 24.8% Executive Director, COO Nepheline concentrate 2,448 6,110 Nepheline concentrate 958.1 951.9 0.7% 969.7 954.6 1.6%

Total: 8,558 1.7 mln t 1 PhosAgro’s Not including Intra-Group sales. production of PHOSAGRO’S ORE RESOURCES AS OF 1 JANUARY 2017 phosphate-based CORPORATE GOVERNANCE REPORT Phosphate segment — upstream Resources, 000 t Average P O PhosAgro’s upstream subsidiary Apatit Deposit 2 5 fertilizers increased (Categories A+B+C1) content holds five mining licences and two The upstream operations in our phosphate Upstream Kukisvumchorr 401,042 14.26 exploration licences, which allow it by another 10.8% segment take place at Apatit, which mines We extracted 33.4 million tonnes of to conduct exploration and mining Yukspor 505,273 14.12 year-on-year in 2016 apatite-nepheline ore that is processed apatite-nepheline ore in 2016, compared activities at six apatite-nepheline ore into phosphate rock and nepheline to 27.2 million in 2015. We produced Apatitovy Cirque 105,799 14.24 mines, and to conduct exploration activities on the back of low- concentrate. 8.5 million tonnes of phosphate rock, up Rasvumchorr Plateau 321,059 13.02 at two deposits. from 7.9 million tonnes in 2015. Koashva 593,393 16.89 cost investments in The downstream operations in our MINING LICENCE modernisation and phosphate segment take place at Intra-Group sales of phospate rock Njorkpahk 58,029 13.31 PhosAgro-Cherepovets, the Balakovo amounted to 71.4% (6,110 kt) of our total Lyolitovy otrog 1,754 14.14 Kirovsky mine (Kukisvumchorr and Yukspor debottlenecking. branch of Apatit (formerly Balakovo Mineral phosphate rock sales in 2015, compared deposits) Plot Plateau 2,058 16.52

Fertilizers) and Metachem. PhosAgro- to 74.8% (5,808 kt) in 2015. This was 31.12.2025 FINANCIAL STATEMENTS Looking ahead, we Cherepovets and the Balakovo branch of primarily due to the 10.8% year-on-year TOTAL 1,988,407 14.78 Apatit produce phosphate-based fertilizers, increase in our own phosphate-based Vostochny mine (Koashva deposit) are about to embark and the Balakovo branch of Apatit also fertilizer production in 2016. 31.12.2017 on a new phase of produces feed phosphate (MCP). Metachem produces PKS, industrial phosphates such We sold 11.7% of the phosphate rock we Resource category sufficient detail to ensure the basic reliability Vostochny mine (Njorkpahk deposit) self-sufficient growth as sodium tripolyphosphate (STPP) and the produced to domestic external customers classification of the projected exploitation. 31.12.2063 and greater internal fertilizer sulphate of potash (SOP). and 16.9% to international customers, compared with 11.2% and 14.0%, Category A: the deposit is known in detail; Category C1: the deposit has been estimated Rasvumchorrsky mine (Apatitovy Cirque processing of our Highlights respectively, in 2015. Prayon (Belgium) boundaries of the deposit have been outlined by a sparse grid of trenches, drill holes and Rasvumchorr Plateau deposits) ADDITIONAL INFORMATION own phosphate rock • Phosphate-based fertilizer and Yara (Norway) accounted for most of by trenching, drilling or underground or underground workings. The quality 01.01.2024 production up 10.8% year-on-year the exports. A decline in domestic sales workings. The quality and properties of the and properties of the deposit are known with the completion to 5.9 million tonnes volumes was primarily due to higher ore are known in sufficient detail to ensure the tentatively by analogy with known deposits Tsentralny mine (Plateau Rasvumchorr deposit) • Phosphate-based fertilizer internal use. reliability of the projected exploitation. of the same type, and the general conditions 31.12.2017 of new ammonia sales up 10.6% year-on-year for exploitation are tentatively known. This EXPLORATION LICENCE and granulated urea to 5.9 million tonnes In 2016, nepheline concentrate production Category B: the deposit has been explored category includes resources peripheral to the • Internal use of our own phosphate rock and sales increased by 0.7% and 1.6% but is only known in fair detail; boundaries of boundaries of Categories A and B and also Illitovy otrog deposit capacities on track accounted for 71.4% of total production year-on-year, respectively. We sell all of our the deposit have been outlined by trenching, reserves allocated in complex deposits in 01.02.2024 for 2017. volume nepheline concentrate to Basel Cement drilling or underground workings. The quality which the ore distribution cannot be reliably Pikalevo, which slightly increased its and properties of the ore are known in determined even by a very dense grid. Plot Plateau nepheline concentrate processing in 2016. 14.12.2040

44 PhosAgro Integrated Report 2016 www.phosagro.com 45 Operational review (continued) STRATEGIC REPORT DOWNSTREAM

Phosphate segment capacity by product PRODUCTION AND SALES VOLUMES – PHOSPHATE BASED FERTILIZERS AND MCP Nitrogen segment capacity by product PRODUCTION AND SALES VOLUMES – NITROGEN BASED FERTILIZERS

Production volume, kt Sales volume, kt Production volume, kt Sales volume, kt MAP/DAP/NPK/NPS Feed phosphate Ammonia Urea Change Change Change Change 2016 2015 2016 2015 2016 2015 2016 2015 5.5 mln t 360 kt y-o-y, % y-o-y, % 1,190 kt 980 kt y-o-y, % y-o-y, % DAP/MAP 2,768.9 2,643.2 4.8% 2,696.4 2,639.2 2.2% Urea 1,036.1 978.1 5.9% 1,018.5 949.4 7.3% CORPORATE RESPONSIBILITY REPORT APP PKS NPK 2,060.0 1,922.6 7.1% 2,043.5 1,878.5 8.8% AN AN 458.9 455.3 0.8% 375.5 416.0 (9.7%) NPS 512.4 272.8 87.8% 517.3 265.3 95.0% 140 kt 100 kt APP 138.8 109.6 26.6% 115.4 104.5 10.4% 450 kt MCP 338.6 272.2 24.4% 338.5 257.7 31.4% Phosphoric acid STTP PKS 85.1 95.9 (11.3%) 90.1 89.8 0.3% 2.3 mln t 130 kt SOP 26.1 36.7 (28.9%) 28.0 35.8 (21.8%)

Phosphate segment: downstream Nitrogen segment

We increased our production and sales of 12.2% year-on-year to 5.5 million tonnes DAP/MAP vs NPK/NPS sales, kt Our nitrogen segment includes the assets Performance we produced was consumed within the CORPORATE GOVERNANCE REPORT phosphate-based fertilizers by 10.8% and and MCP production capacity by 6.2% year-­­­ of PhosAgro-Cherepovets, which produces Overall sales volumes of nitrogen fertilizers Group to support higher phosphate-based 10.6% year-on-year, respectively. on-year to 360 kt. DAP/MAP ammonia, ammonium nitrate, ammonium were stable year-on-year in 2016. fertilizers and urea production volumes in nitrate-based fertilizers and urea. 2016. 2016 2,696.4 Our ability to quickly switch between Outlook Urea production increased by 5.9% production of MAP/DAP and NPK/NPS • PhosAgro will continue to focus on 2015 2,639.2 Highlights year-on-year to 1,036.1 kt in 2016, while In 2016, production of ammonium nitrate fertilizers and our competitive position as strategic goals of optimising costs in • Nitrogen fertilizer production increased sales increased by 7.3% year-on-year (AN) and ammonium nitrate-based

a low-cost producer (we are positioned at upstream operations. NPK/NPS 4.3% year-on-year to 1.5 million tonnes to 1,018.5 kt. fertilizers (NP) increased by 1%, while sales the low end of the cash-cost curve) helped • We are intensifying production activities • Nitrogen fertilizer sales were stable at declined by 9.7%. us to increase production and sales of at our Cherepovets site. In 2016, we 2016 2,560.8 1.4 million tonnes In 2016, 43% of our urea exports were MAP/DAP by 4.8% and 2.2% year-on-year, managed to increase production output • Construction of new 760 000 tonnes/ attributed to long-term urea sales contracts 2015 2,143.8 Outlook respectively, in 2016. by 8% year-on-year. year ammonia plant remains on track for with Trammo AG (Switzerland), which • New ammonia plant due to come online commissioning in 2017 we signed for the period from July 2013 in 2017, adding 760 kt of annual capacity

Production of NPK fertilizers increased to June 2015 (in 2015, this contract was and increase self-sufficiency considerably FINANCIAL STATEMENTS by 7.1% to 2.1 million tonnes, while sales prolonged through September 2016), • New 500 kt/year urea plant due to come rose by 8.8% to 2.0 million tonnes in 2016. and with Ameropa AG (Switzerland). online in 2017 NPS production and sales increased by In-house R&D – Playing a Key Role The majority of our remaining urea sales 87.8% and 95.0% (to 512 kt and 517 kt, in PhosAgro’s Growth were on the spot market or based on short- respectively). term quarterly sales contracts. We believe In May 2016,our in-house engineering as well as feed and industrial salts, sulphuric • modernising existing production capacities that this balance ensures a significant Our PKS fertilizer production and sales of company Mining and Chemical Engineering and extracted phosphoric acids, and the to increase capacity and energy efficiency, degree of stability in our urea sales fertilizers amounted to 85.1 kt and 90.1 kt, has merged its resources with the Y. mining and beneficiation of ores in the using patented technologies volumes and prices, while at the same time respectively. Samoylov Scientific and Research Institute areas of: • conducting investigations and pilot testing enabling us to benefit from the flexibility ADDITIONAL INFORMATION for Fertilizers and Insectofungicides (NIUIF). • conducting exploratory work (geological that spot sales provide. Production and sales volumes of SOP As a result, PhosAgro’s in-house capacity • conducting scientific research work and geodesic surveys) in 2016 decreased by 28.9% and 21.8%, includes an extensive design base and is • developing basic data for design and • developing planning, detailed and The ammonia we produce is used internally respectively, to 26.1 kt and 28.0 kt. able to implement comprehensive projects planning (including basic designs) engineering documentation for the production of phosphate-based in the field of mineral fertilizer production, • supporting the comissioning and ramp-up and nitrogen fertilizers. In 2016, ammonia Due to our production flexibility and of production facilities, including designer production increased by 7.8% compared cash-cost leadership, we were also able supervision to 2015 as a result of effectively scheduled to maintain near-100% capacity utilisation maintainance. This brought our self- throughout 2016, even as we increased sufficiency in ammonia from 72.4% in 2015 MAP/DAP/NPK/NPS production capacity by to 73.1% in 2016. Most of the ammonia

46 PhosAgro Integrated Report 2016 www.phosagro.com 47 STRATEGIC REPORT KEY FINANCIAL PERFORMANCE INDICATORS, FINANCIAL REVIEW RUB,mln 2016 2015 Change y-o-y, %

Revenue 187,742 189,732 -1%

Cost of sales -86,391 -83,064 4%

Gross Profit 101,351 106,668 -5% • Gross profit margin 54% 56% 2 p. p.

Operating profit 61,598 73,331 -16% CORPORATE RESPONSIBILITY REPORT • Opertaing profit margin 33% 39% 6 p. p.

Loss/Profit for the year 59,886 36,436 64% • Loss/Profit margin 32% 19% -13 p. p. Comprehensive income Gross profit, operating profit, EBITDA Statement of financial statement and net income for the period position EBITDA 72,365 82,464 -12% EBITDA margin 39% 43% 4 p. p. Revenue In 2016, gross profit decreased by 5% year- margin decreased by 4 p.p. to 39% from Gross debt as of 31 December 2016 Net Debt 105,115 105,165 0% PhosAgro’s revenue in 2016 amounted on-year, amounting to RUB 101.4 billion 43% in 2015. decreased to RUB 112.4 billion compared to RUB 187.7 billion. Continued (RUB 106.7 billion in 2015), resulting in a to RUB 134.5 billion as of 31 December Net Debt/EBITDA ratio 1.45 1.28 13% implementation of our strategy aimed 2 p.p. decrease in gross profit margin (from PhosAgro’s financial performance was 2015. Net debt as of 31 December 2016 at improving production flexibility and 56% in 2015 to 54% in 2016). supported by the devaluation of the rouble stood at RUB 105.1 billion, down from expanding capacity supported growth in in 2016 compared to 2015 (the exchange RUB 105.2 billion as of 31 December 2015 KEY OPERATIONAL INDICATORS SALES VOLUMES, sales volumes, thereby increasing fertilizer PhosAgro’s operating profit in the reporting rate to the US dollar averaged RUB 67.03 as a result of the rouble’s appreciation kt production and sales volumes year-on-year period was RUB 61.6 billion, a 16% decrease in 2016 compared to RUB 60.96 in 2015), against the US dollar as of 31 December CORPORATE GOVERNANCE REPORT by 9.4% and 8.8%, respectively. PhosAgro’s from RUB 73.3 billion in 2015. The operating as prices for most of the Company’s export 2016. Most of the Company’s debt is 2016 2015 Change, y-o-y % revenue for the period decreased by 1% profit margin decreased by 6 p.p. from 39% sales are denominated in USD, while costs denominated in US dollars and as a natural year-on-year to RUB 187.7 billion. in 2015 to 33% in 2016. are primarily RUB-based. At the same time, hedge against primarily USD-denominated Phosphate-based products 5,925 5,384 10%

the appreciation of the rouble as of 31 sales. The Company’s net debt to EBITDA Nitrogen-based fertilizers 1,394 1,365 2% In 2016, export sales amounted to 66.4% EBITDA for 2016 decreased by 12% December 2016 (RUB 60.66 per USD 1) ratio increased to 1.45 as of 31 December of the Company’s consolidated revenue year-on-year to RUB 72.4 billion from compared to 31 December 2015 (RUB 72.88 2016 from 1.28 as of 31 December 2015. Apatit mine and beneficiation plant 3,418 2,917 17% compared to 73.2% in 2015. RUB 82.5 billion for 2015. The EBITDA per USD 1) resulted in a foreign exchange Other products 94 103 -8% gain of RUB 16,962 million in 2016; in 2015, the foreign exchange loss was RUB 22,178 million. REVENUE STRUCTURE BY REGION, RUB mln Production flexibility drives Basic and diluted earnings per share increased by 64% in 2016 2016 2015 Change, y-o-y % FINANCIAL STATEMENTS revenue growth to RUB 462 from RUB 281 in 2015. North and Latin America 32,992 44,430 -26%

Europe 46,738 47,303 -1%

Africa 6,367 12,475 -49%

Asia 22,742 23,909 -5%

CIS 15,883 10,740 48%

Russia 63,020 50,875 24%

TOTAL 187,742 189,732 -1% Other Africa ADDITIONAL INFORMATION 0.4% 3%

Nitrogen SEGMENT REVENUE STRUCTURE, fertilizers Phosphate-based Russia CIS RUB mln 10% products 34% 8% 89.6% 2016 2015 Change, y-o-y % Asia Revenue 12% Revenue structure by structure by Phosphate-based products 168,136 167,430 0% products regions Nitrogen fertilizers 18,829 21,574 -13%

North and Europe Other operations 777 728 7% Latin America 25% 18% TOTAL 187,742 189,732 -1%

48 PhosAgro Integrated Report 2016 www.phosagro.com 49 Financial review (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

Africa Phosphate-based 2% PHOSPHATE-BASED PRODUCTS SEGMENT, products segment RUB mln Russia CIS 34% Result 2016 2015 Change, y-o-y % Revenue from the phosphate-based 9% products segment increased slightly Revenue 168,136 167,430 0% Asia Phosphate- to RUB 168.1 billion in 2016. PhosAgro 13% based segment Cost of goods sold -74,667 -70,344 6% increased both production and sales revenue volumes of phosphate-based fertilizers and by region Gross Profit 93,469 97,086 -4%

MCP by 11% year-on-year in 2016. Sales Gross Profit margin 56% 58% -2 p. p. volumes for phosphate rock and nepheline North and Europe Latin America

27% CORPORATE GOVERNANCE REPORT concentrate in 2016 increased by 17% year- 15% on-year.

The phosphate-based products segment’s PHOSPHATE-BASED SEGMENT REVENUE BY REGION, REVENUE AND SALES VOLUMES FOR PRINCIPAL PHOSPHATE-BASED PRODUCTS gross profit for 2016 decreased by 4% RUB mln to RUB 93.5 billion, resulting in a gross profit margin of 56%, compared to a 58% margin Region 2016 2015 Change, y-o-y % Revenue, RUB mln Sales Volume, kt in 2015. North and Latin America 25,765 33,623 -23% 2016 2015 Change, y-o-y % 2016 2015 Change, y-o-y % The phosphate-based fertilizers Europe 44,271 43,692 1% market in 2016 Phosphate rock 26,037 19,155 36% 2,448 1,962 25% • The average prices of DAP (FOB Tampa) Africa 3,912 9,057 -57% DAP/MAP 63,906 73,362 -13% 2,684 2,625 2% and MAP (FOB Baltics/Black Sea) in Asia 21,102 23,782 -11% 2016 were USD 347 per tonne and NPK/NPS 48,373 45,769 6% 2,561 2,144 19% CIS 15,408 10,719 44% FINANCIAL STATEMENTS USD 339 per tonne, respectively, which MCP 9,990 7,749 29% 339 258 31% represent respective year-on-year Russia 57,678 46,557 24% declines of 24% and 26%. The decrease TOTAL 168,136 167,430 0% in global prices for phosphate-based fertilizers was triggered by weak market conditions in the main commodity markets, combined with a higher supply Phosphate based fertilizers market, of fertilizers from new capacities in favourable economics in Brazil’s and • Exports of phosphate-based fertilizers of MAP and NPK to the domestic market, to RUB 39.2 billion (USD 585 million) USD Morocco (2 million tonnes of DAP/MAP/ Argentina’s agriculture industries, (DAP/MAP/NP/TSP) from China in NPS to export markets and phosphate rock in 2016, reflecting a 9% year-on-year NPS/NPK in 1Q 2016 and 3Q 2016) and spurred a recovery in consumption 2016 decreased by 19% year-on-year to both markets. increase in sales volumes and an overall Average DAP price FOB Tampa heightened competition. and import of phosphate-based to 10.1 million tonnes. Separately, • MAP/DAP fertilizers: revenue from 7% year-on-year decrease in NPK ADDITIONAL INFORMATION • A significant decrease in major fertilizers. In 2016, DAP/MAP/TSP/NP/ exports of DAP dropped by 15% DAP/MAP sales was down by 13% average revenue per tonne denominated 2016 347 feedstock prices triggered a spike in NPK imports grew by 23% year-on- year-on-year to 6.8 million tonnes. year-on-year from RUB 73.4 billion in RUB. 2015 459 India’s domestic DAP production, which year and exceeded 6.3 million tonnes, Production curtailments due to low (USD 1,203 million) in 2015 to RUB • Phosphate rock: revenue from phosphate lowered demand for import volumes. including 2.7 million tonnes of imported efficiency and stricter environmental 63.9 billion (USD 953 million) in 2016, rock sales rose by 36% year-on-year

DAP imports to India for 2016 stood at MAP. Liberalisation of agricultural regulations were the key reasons for the reflecting a 15% year-on-year decrease to RUB 26.0 billion (USD 388 million) in Average phosphate rock price FOB Morocco 4.3 million tonnes, which was a 30% export rules in Argentina was an decline in exports. in DAP/MAP average revenue per tonne 2016. Revenue per tonne in RUB terms year-on-year decline. Imports of NP/NPK additional driver of growth in fertilizer denominated in RUB and 2% year-on- increased by 9% year-on-year. Sales 2016 106 to India dropped by 26% year-on-year consumption. Argentina’s DAP/MAP The growth in fertilizer sales volumes was year growth in sales volumes. volumes increased by 25% year-on-year 2015 125 to 0.5 million tonnes. imports in 2016 grew by 74% year-on- primarily due to the Company’s flexible • NPK fertilizers: revenue from NPK sales as a result of increased supplies to both • Relatively low prices for phosphate- year to 1.15 million tonnes. production and sales models, which increased by 1% year-on-year from RUB export and domestic markets. based fertilizers, coupled with enabled a substantial increase in sales 38.9 billion (USD 638 million) in 2015

50 PhosAgro Integrated Report 2016 www.phosagro.com 51 Financial review (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

Nitrogen segment Cost of sales CIS Nitrogen segment revenue decreased from 3% PhosAgro’s cost of sales increased by 4% REVENUE AND SALES VOLUMES FOR RUB 21.6 billion in 2015 to RUB 18.8 billion year-on-year in 2016 to RUB 86.4 billion, NITROGEN FERTILIZERS in 2016. PhosAgro increased production and North and while overall fertilizer sales volumes Asia Latin America Revenue, RUB mln Sales Volume, kt sales volumes of nitrogen-based fertilizers increased by 9% year-on-year. This cost of 9% 38% by 4% and 2%, respectively, year-on-year in Nitrogen sales performance was primarily due to the 2016 2015 Change, y-o-y % 2016 2015 Change, y-o-y % 2016. Africa segment following factors: 13% revenue • An increase of RUB 2.8 billion, or Urea 14,119 16,101 -12% 1,019 949 7% by region Nitrogen segment gross profit for 12%, year-on-year in the cost of AN 4,635 5,358 -13% 376 416 -10%

Europe CORPORATE GOVERNANCE REPORT 2016 decreased by 18% year-on-year materials and services primarily due 13% to RUB 7.8 billion. The gross margin for to an increase in repair expenses, a 2016 was 41%, compared with 44% in 2015, Russia 23% increase in apatite-nepheline NITROGEN PRODUCTS SEGMENT, which was mainly due to price decreases: 24% ore mining, 9% growth in fertilizer RUB mln

in 2016, average revenue per tonne for production volumes and 5% year-on- Results 2016 2015 Change, y-o-y % the Company’s nitrogen-based fertilizers year inflation. decreased by 15% year-on-year. NITROGEN SEGMENT REVENUE BY REGION, RUB mln • A year-on-year increase in personnel Revenue 18,829 21,574 -13% costs of RUB 629 million, or 6%, Cost of goods sold –11,025 -12,063 -9% The nitrogen market in 2016 Region 2016 2015 Change, y-o-y % primarily due to payroll indexation and The average urea price (FOB Baltic) in 2016 PhosAgro’s 15th-anniversary bonuses. Gross Profit 7,804 9,511 -18% North and Latin America 7,227 10,807 -33% stood at USD 194 per tonne vs USD 267 per • A decrease in expenditures on sulphur Gross Profit margin 41% 44% -3 p.p. tonne in 2015. This was driven by stronger Russia 4,565 3,590 27% and sulphuric acid of RUB 2.3 billion, or competition in key markets related to the 28%, year-on-year from RUB 8.4 billion launch of new capacities in the Middle East Europe 2,467 3,611 -32% in 2015 to RUB 6.1 billion in 2016. FINANCIAL STATEMENTS and the USA, as well as a nearly 3.0 million Africa 2,455 3,418 -28% This was driven by a 34% decline in tonne year-on-year decline in urea sulphur and sulphuric acid purchase Asia 1,640 126 1,202% exports to India due to growth in domestic prices denominated in RUB, which was of a 7% increase in NPK production as a result of higher production volumes production. CIS 475 22 2,059% partially offset by a 9% year-on-year during the period. of NPS. Purchase prices decreased by increase in volumes consumed due • A year-on-year increase in expenditures 11% year-on-year in 2016. TOTAL 18,829 21,574 -13% Export revenue from urea declined from to higher production of phosphate- on natural gas of RUB 600 million, or • A decrease in expenditures on fuel RUB 15.7 billion (USD 258 million) in 2015 based fertilizers, mainly MAP/DAP and 8%, to RUB 8.1 billion in 2016. This by 20% from RUB 2.9 billion in 2015 to RUB 13.3 billion in 2016. The decrease NPS. was mainly due to an 8% increase in to RUB 2.3 billion in 2016. This was in revenue per tonne of 18% year-on-year • A year-on-year decrease in expenditures ammonia production volumes. driven by a 14% decline in overall was partially balanced by a 3% year-on-year Average urea price FOB Baltic, on ammonia purchases of RUB • A year-on-year increase in expenditures fuel purchase prices denominated USD increase in sales volumes. Total revenue 2.4 billion, or 29%, from RUB 8.2 billion on electricity of RUB 535 million, or 14%, in RUB. Lower fuel consumption ADDITIONAL INFORMATION from ammonium nitrate (AN) decreased 2016 194 in 2015 to RUB 5.8 billion in 2016. This to RUB 4.5 billion in 2016. This was due volumes resulted from an increase in by 13% year-on-year from RUB 5.4 billion was mainly due to a 30% decline in to a 7.5% indexation in tariffs from 1 July extraction of apatite-nepheline ore from 2015 267 in 2015 to RUB 4.6 billion in 2016 due RUB-denominated prices, which was 2016 and an increase in phosphate underground mining, where electricity is to a 10% year-on-year decrease in sales slightly offset by a 1% year-on-year rock production volumes (Apatit is the primarily consumed. volumes and a 4% year-on-year decrease in decrease in consumption volumes. Group’s main consumer of electricity • A year-on-year decrease in heating revenue per tonne. • A year-on-year decrease of 6% in from third parties). energy expenses of RUB 42 million, or expenditures on potash from RUB • A year-on-year increase in expenditures by 6%, from RUB 718 million in 2015 7.6 billion in 2015 to RUB 7.1 billion in on ammonium sulphate of RUB to RUB 676 million in 2016. This was 2016. This was due to a 16% decrease 371 million, or 17%. This was due mainly due to a 5% decline in RUB- in RUB-denominated prices and 11% to 32% year-on-year growth in denominated prices. growth in purchase volumes as a result ammonium sulphate purchase volumes

52 PhosAgro Integrated Report 2016 www.phosagro.com 53 Financial review (continued) STRATEGIC REPORT

COST OF SALES

2016 2015 Change

Item RUB mln % of cost of sales RUB mln % of cost of sales y-o-y, %

Materials and services 25,746 30% 22,905 27% 12%

Salaries and social contributions 10,784 12% 10,155 12% 6% CORPORATE RESPONSIBILITY REPORT Depreciation 9,377 11% 8,057 10% 16%

Natural gas 8,084 9% 7,484 9% 8%,

Fuel Heating energy Potash 7,104 8% 7,559 9% -6% 3% 1% Sulphur and sulphuric acid 6,065 7% 8,385 10% -28% Ammonium sulphate 3% Materials and services Ammonia 5,801 7% 8,190 10% -29% Chemical fertilizers and other 30% products for resale Chemical fertilizers and 4,254 5% 4,091 5% 4% 5% other products for resale Electricity 5% Electricity 4,462 5% 3,927 5% 14% Ammonia Fuel 2,299 3% 2,865 3% -20% 7%

Sulphur and Cost of sales Ammonium sulphate 2,547 3% 2,176 3% 17% sulphuric acid CORPORATE GOVERNANCE REPORT Salaries and social contributions 7% Heating energy 676 1% 718 1% -6% 12% Potash Other items 42 – 23 – 83% 8% Change in stocks of works in -850 -1% -3,471 -4% -76% progress and finished goods

Natural gas Depreciation TOTAL 86,391 100% 83,064 100% 4% 9% 11%

Selling, general and Statement of cash flows Capital expenditure CASH FLOW STATEMENT, RUB mln administrative expenses Cash flow from operating activities Cash spent on capital expenditure in Results 2016 2015 Administrative expenses rose by 14% • Growth of 54% in materials and services Cash flow from operating activities 2016 amounted to RUB 40.2 billion, FINANCIAL STATEMENTS year-on-year to RUB 13.9 billion in 2016, from RUB 1.6 billion in 2015 to RUB decreased by 20% year-on-year in a decrease of 6% in comparison with Cash flow from operating activities 50,361 63,261 primarily due to an increase in personnel 2.5 billion in 2016. This was mainly 2016 to RUB 50.4 billion compared RUB 42.7 billion in 2015. PhosAgro’s capital Cash flow from investing activities -38,014 -31,463 costs of RUB 1.1 billion, or 16%, year-on- driven by an increase in multimode to RUB 63.3 billion in 2015 due to lower expenditure, which consists of additions year. The increase was mainly due to the shipment volumes to export markets. operating cash flow and higher income tax to property, plant and equipment, amounted Cash flow used in/from financing activities (net of dividends paid) -1,872 -19,243 indexation of salaries, PhosAgro’s 15th- • Growth in freight, port and stevedoring payments, which was partially offset by to RUB 45.3 billion for 2016, compared Dividends paid to shareholders -27,974 -18,130 anniversary bonuses, and the relocation expenses by 2% from RUB 9.2 billion in favourable changes in working capital. to RUB 44.2 billion in 2015. Capital Net change in cash and cash equivalents -17,499 -5,575 of a significant proportion of operational 2015 to RUB 9.4 billion in 2016 mainly expenditure focused on the construction of management to Cherepovets. due to an increase in export shipment Cash used in investing activities the new 760 ths tonnes/year ammonia plant volumes of 7%. After the commissioning Net cash used in investment and the new 500 ths tonnes/year urea plant CAPITAL EXPENDITURE*, RUB mln Selling expenses rose by 19% year- of the Smart Bulk Terminal in June activities increased by 21% in 2016 at PhosAgro-Cherepovets.

on-year from RUB 17.8 billion in 2015 2015, the Company transferred its to RUB 38.0 billion. 2016 2015 Change, y-o-y % ADDITIONAL INFORMATION to RUB 21.1 billion in 2016. This was export shipping activity from Baltic Phosphate-based products/mining and primarily due to the following changes: ports to Ust-Luga. This helped PhosAgro Cash used in financing activities 13,342 10,471 27% beneficiation • Russian Railways infrastructure tariff to achieve sustainable savings in port In 2016, net cash used for financing activities and operators’ fees increased by 34% fees, which was balanced by an increase amounted to RUB 29.9 billion. Phosphate-based products/fertilizers production 10,448 7,442 40% from RUB 6.1 billion in 2015 to RUB in export shipment volumes. Nitrogen fertilizers 20,968 25,025 -16% 8.2 billion in 2016. This was mainly due to an increase in railway tariffs of 9% Other 533 1,255 -58% in 2016, as well as growth in fertilizer TOTAL 45 291 44,193 2% sales (primarily to the domestic market, where predominantly CPT shipments increased by 31% year-on-year). * capital expenditure, which consists of additions to property, plant and equipment

54 PhosAgro Integrated Report 2016 www.phosagro.com 55 ENVIRONMENTAL REVIEW STRATEGIC REPORT We introduced new KPIs for the Company’s Environmental Service in 2016, aimed at helping

to ensure regulatory compliance CORPORATE RESPONSIBILITY REPORT and to minimise payments for over- limit environmental impact

Environmental strategy Policy highlights

Effective management of the Company’s PhosAgro maintains a policy framework and environmental footprint is a key factor related management systems procedures in PhosAgro’s ability to meet its goal to address business conduct matters. of being a long-term sustainable Here are some of the highlights of the CORPORATE GOVERNANCE REPORT business and in balancing its obligations organisation’s policy framework: to all stakeholders. In addition to internal • We continually monitor and analyse the guidelines, PhosAgro adheres to Russian impact that our production sites have regulatory requirements, and is guided by on the environment and implement EU environmental protection directives corrective measures with the goal of and international agreements, including limiting that impact. the Basel Convention and the Helsinki • We aim to comply with all applicable Convention. Russian and international legislation and standards. We have in place environmental • We continually invest in new management practices that ensure our technologies and processes that reduce compliance with applicable regulations, our use of energy and finite resources.

and that help to reduce the impact of our • We look to reduce, process or recycle the FINANCIAL STATEMENTS operations on the environment. We also waste we produce wherever possible. invest in advanced technologies and high- • We embed a culture of respect for the quality production processes to make the environment and the indigenous natural most efficient use possible of finite natural communities where we operate. resources.

Our environmental strategy focuses on the following key areas: • Reducing our waste production, ADDITIONAL INFORMATION emissions and discharges of pollutants and resource usage on a per-unit basis by investing in new, more efficient technologies • Ensuring that we act as a conscientious neighbour and maintain a constructive dialogue with local stakeholders about our environmental impact • Implementing energy-efficiency and energy-saving programmes at all our enterprises

56 PhosAgro Integrated Report 2016 www.phosagro.com 57 Environment review (continued) STRATEGIC REPORT

2016 Highlights System highlights

The main KPIs of the Company’s Management and reporting PhosAgro management receives weekly • payment of a fine and potential liability CORPORATE RESPONSIBILITY REPORT environmental function are: PhosAgro’s environmental affairs are updates on all ongoing environmental in the event of a violation up to and • possession of all necessary overseen by the chief ecologist based at issues, and monthly reports are produced including criminal prosecution environmental permits for the key PhosAgro-Cherepovets, who is supported for the Chairman of the Health, Safety • penalties are calculated in material production assets and subsidiaries by environmental control and resource and Environment Committee of the terms for damage caused to the • the size of payments for environmental use divisions at each of our production Board of Directors. On a quarterly basis, environment impact, including over-limit payments, sites. These divisions are responsible Management and the Board receive regular which is a key indicator of the Company’s for undertaking activities related updates on any expenses or payments the None of PhosAgro’s enterprises use ozone- overall environmental impact to environmental protection, ensuring Company has made for its environmental depleting substances in the production compliance with regulatory requirements impact. On an annual and semi-annual process. A small amount of carbon We introduced new KPIs for the and reporting on these issues. Employees basis, the Board of Directors receives tetrachloride (not more than 250 kg/year) Environmental Service in 2016: of these divisions provide support updates on PhosAgro’s environmental is used for some laboratory testing • obtain all necessary permits at the to production site management when they protection initiatives and current processes. We do not undertake cross- key production assets to ensure their engage with local stakeholders. environmental performance. border hazardous waste transportation, CORPORATE GOVERNANCE REPORT compliance with environmental and our production sites are not situated legislation KEY EVENTS AT PRODUCTION SITES IN 2016 ISO AND OHSAS CERTIFICATES HELD BY PHOSAGRO ENTERPRISES: in protected areas. Hence, there are no • reduce over-limit payments for significant restrictions on our operations. environmental impact in year-on-year ISO 9001 OHSAS 18001 ISO 14001 terms Permits and certificates Apatit: Apatit Since 2011 - - The Company’s production sites hold all Over-limit payments equalled 48% of total • switching to new, more effective chemicals for hardening dusty surfaces PhosAgro-Cherepovets Since 2004 Since 2008 Since 2006 necessary licences and permits related payments in 2014, 35.3% in 2015 and just at tailing facilities to environmental protection. 5.6% in the first three quarters of 2016. A • selecting chemicals for cleaning wastewater as part of the programme Balakovo branch of Apatit Since 2005 - Since 2009 KPI was set in 2016 for a maximum over- to reduce discharge of pollutants that is being implemented over In addition to observing Russian limit payment of 15.4% of the total in 2015. 2015-2019 environmental law, we adhere The result for the first three quarters of • acquiring two waste disposal and recycling units Legislative and administrative framework Russia is also a signatory to most of to international standards relevant

2016 was around 10% of the 2015 level. In general, Russian environmental law the major international environmental to our business to guide our approach, for FINANCIAL STATEMENTS PhosAgro-Cherepovets: meets international standards, utilising conventions and treaties, which, in the example, the Balakovo branch of Apatit is the following main pieces of legislation: event of a conflict with Russian law, take the first Russian enterprise to be certified Signing a four-party agreement with the Russian Ministry of Natural Resources the Environmental Protection Law, the precedence, as dictated by the Constitution as compliant with the European GMP+ and Environment, Federal Service for the Supervision of Natural Resources, Russian Federation Water Code, the Law of the Russian Federation and the Federal quality control standard for feed materials. and the administration of Vologda region, which includes the following plans: on Industrial Waste and Consumption, Law on Environmental Protection. • finishing construction of wastewater treatment facilities at the Rybinsk the Law on Protection of Atmospheric Air We also undertake regular internal and reservoir, which will provide regulatory sewage treatment and the Environmental Expert Review In general, any activity in Russia that external audits to assess our compliance for 10,000 cubic metres per day of ammonia production, as well as Law. These pieces of legislation require may have an adverse impact on the and obtain certification, together with Over-limit payments, % sanitary sewage containing phosphorous and nitrogen complexes at the environmental impact assessments prior environment is subject to: exposure assessments, international format ADDITIONAL INFORMATION 48 village of Novye Ugli to the implementation of a project that • issuance of permits or licences safety data sheets and recommendations 35 • upgrading the aluminium fluoride plant to increase waste recycling may have an impact on natural resources. (including for water use; subsoil use, for safe handling that are developed in volumes, and as part of an import substitution programme No construction or operation is permitted for example, in mining; forest use; air compliance with the requirements of Over-limit 5.6 payments • continuing PhosAgro’s “2 Thousand Trees” programme until the Company is in receipt of a positive emissions; disposal and recycling of European Regulation No 1272/2008 on report from the State Environmental Expert waste; operation of hazardous industrial classification, labelling and packaging, and Metachem: Review (an essential precondition for facilities) No 1907/2006 concerning the Registration, financing and implementation). • establishment of limits with respect Evaluation, Authorisation and Restriction of • developing construction design for a wastewater treatment facility on the to the amount of environmental impact Chemicals (REACH) in the development of Total payments, Volkhov river, which will provide Metachem’s required regulatory sewage Regional legislation supports and expands • payment for negative environmental exposure scenarios. 100% treatment on these federal laws and regulations. impact (emissions and waste disposal) 2014 2015 2016

58 PhosAgro Integrated Report 2016 www.phosagro.com 59 Environment review (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

ENVIRONMENTAL IMPACT OF THE COMPANY’S PRODUCTION SITES IN 2016

Emissions and air quality Waste disposal CORPORATE GOVERNANCE REPORT In 2016, consolidated atmospheric As PhosAgro continually modernises its One key area where we are working on waste produced was 94.1 million tonnes. emissions by PhosAgro’s production 4.4% production facilities, one goal is to reduce recycling solid waste is in the development Approximately 90% of this volume was subsidiaries increased by 1 kt to 29.9 kt, up the volume of waste produced, including of new technologies for reprocessing of produced by Apatit. The 8% year-on-year 3% year-on-year. The increase in emissions DECREASE through recycling. We also aim to reduce phosphogypsum. increase in phopsphate rock production was primarily due to higher production IN ATMOSPHERIC the danger that produced waste poses for volumes was the primary driver behind volumes, with total fertilizer output EMISSIONS PER UNIT the environment. At production facilities, Apatit used 22.8 million tonnes of this increase in waste. The majority of solid growing at a faster pace of 9.4% year-on- OF PRODUCTION IN 2016 some types of waste are used as raw overburden from surface mining for road waste (up to 70%) consists of rocks and year. This brought atmospheric emissions materials in the production process. construction. In 2016, the total volume of overburden from Apatit. per unit of production down by 4.4% year- on-year to 1,749 kg/t in 2016. FINANCIAL STATEMENTS

Emissions Solid waste, Reuse/recycling into the atmosphere, kt mln t mln t

116.3 101.4 29.8 28.9 29.9 27.4 94.1 26.5 11.5 Apatit 85.9 78.2 ADDITIONAL INFORMATION

Total volume 84.5

31.1 25.4 26.5 27.7 26.5 Volume excluding 34.5 Total overburden volume 11.9 PhosAgro-Cherepovets 5.6 2.2 2.2 22.8 37.3

2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Per unit 5.4 Balakovo branch of Apatit Per unit volume 4.3 0.15 (kg/t) excluding overburden, 5.3 2.7 1,836 1,830 1,748 Metachem t/t of production output 5.1 5.4 5.5 1.3 8.3 7.9 0.0024 0.0020

60 PhosAgro Integrated Report 2016 www.phosagro.com 61 Environment review (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

ENVIRONMENTAL IMPACT OF THE COMPANY’S PRODUCTION SITES IN 2016

Water use Electricity Energy efficiency Natural gas and fuel oil PhosAgro’s subsidiaries try to implement Apatit provides drinking water for Kirovsk Water discharges by PhosAgro’s production PhosAgro used a total of 3,334 million PhosAgro’s subsidiaries were 39.91% self- In 2016, PhosAgro’s natural gas the latest available technologies when and Apatity. The largest volume of waste- sites increased slightly, amounting kWh of electricity in 2016. PhosAgro- sufficient in electricity in 2016, including consumption increased by 5.2% year-on- CORPORATE GOVERNANCE REPORT using water in the production process, water discharges, 95%, comes from Apatit. to 200.0 million m3. Cherepovets and Apatit’s Balakovo from thermal energy generated by heat year to 1,914 million m3, while fuel oil maximising use in cycles to reduce waste- branch generated 1,272 million kWh of recapture units installed on sulphuric consumption grew by 3.7% year-on-year water volumes. The Balakovo branch of In 2016, PhosAgro’s total consumption from electricity (79.6% self-sufficiency) using acid production lines. The Company also to 141 kt. Apatit, for example, uses a process that surface water sources increased by 1.7% on-site facilities, which have a total rated continues to implement programmes produces no waste-water. year-on-year to 86.6 million cubic metres. generation capacity of 183 MW. aimed at improving energy efficiency. Apatit is our only consumer of fuel oil. Water consumption per unit of production The increase in fuel oil consumption was Apatit and PhosAgro-Cherepovets are declined by 5.5% year-on-year in 2016 a result of higher production volumes at responsible for the majority of PhosAgro’s to 5.1 cubic metres per tonne. Apatit’s beneficiation facilities. water withdrawal, accounting for 60% and 39.91% 4.2% 28% of the total, respectively. In addition, In 2016, we completed work on a new SELF-SUFICIENCY YEAR-ON-YEAR facility for the capture, storage and IN ELECTRICITY AT DECREASE IN PER- regasification of natural gas, which is part

PHOSAGRO PRODUCTION UNIT ELECTRICITY of the ventilation and heating system at the FINANCIAL STATEMENTS SUBSIDIARIES CONSUMPTION Rasvumchorrsky underground mine. This new system will enable Apatit to decrease its consumption of fuel oil and diversify its Water Water Electricity consumption, sources of energy. discharges, withdrawal, million kWh mln m3 mln m3

85.1 86.6 200.0 80.5 78.5 75.2 3.334 52.5 Apatit 3.089 3.158 3.126 3.260 1.63 ADDITIONAL INFORMATION 189.0 (95%)

Total Total 1.16 volume 24.3 PhosAgro- volume Cherepovets 2012 2013 2014 2015 2016 2016 2012 2013 2014 2015 2016 7.2 Per unit Balakovo branch of Apatit Per unit 0.43 3 (4.5%) (kWh/t) (m /t) 9.9 211 211 210 206 197 4.6 5.4 5.4 5.4 5.1 2.6 Metachem 1.1 (0.5%) 0.11

62 PhosAgro Integrated Report 2016 www.phosagro.com 63 HEALTH AND SAFETY REVIEW We have established unified policies and governance systems safety among the employees at each of • Management receives weekly reports on Unified standards

across our production facilities, which aim to maintain high safety our production sites workplace health and safety performance • As part of the integration and STRATEGIC REPORT levels for production processes and employees of PhosAgro and • We provide for adherence to all legal across the Company; if and when streamlining of PhosAgro’s production our subcontractors. and regulatory requirements in the area incidents do happen, management assets, we have introduced new, unified of workplace health and safety by all is immediately informed about the safety standards and practices across employees, regardless of their position in situation, and then receives detailed all of our subsidiaries. These new the Company information as it becomes available standards are based on internationally • We aim to improve the monitoring of • At the executive management level, we recognised best practices, and are being compliance with workplace health and aim to create a culture of safety whereby implemented together with some of the

safety requirements at our production each manager embraces responsibility best external experts available CORPORATE RESPONSIBILITY REPORT sites with the help of modern for his or her own safety, as well as that • Currently, our PhosAgro-Cherepovets information technologies of others in his or her unit production site has OHSAS 18001:2007 • Each of our subsidiaries has a workplace certification for its occupational health System highlights health and safety service, or dedicated and safety management systems specialists. Their responsibilities include We create a clear culture that embraces advising management, monitoring Training personal, team and company-wide adherence to safety requirements, Every single manager, specialist and responsibility for health, safety and care for helping to identify and mitigate production line employee at PhosAgro fellow employees. In addition to adherence hazardous activities or conditions, receives workplace health and safety to federal legal requirements for workplace ensuring employees evaluate risks prior instruction and training, and undergoes safety, PhosAgro’s management has to starting work, investigating the root testing on the subject in accordance with introduced additional measures to improve cause of incidents and serious deviations, Russian legal requirements. In addition, we our workplace health and safety practices assisting management with developing conduct a number of additional internal CORPORATE GOVERNANCE REPORT based on international standards and best and implementing activities to prevent trainings. Specific training highlights practices. We are also constantly learning – incidents, and to mitigate any identified in 2016 included the following sessions: we use our own experience and that of risks • 89 employees participated in an eight- others to ensure PhosAgro is implementing • The Company conducts regular audits hour course on worlplace safety and safe leading-edge practices in workplace health and inspections of workplace safety production operations and safety across its enterprises. conditions, including internal Safety • Training on basics of safe behaviour was Behaviour Audits. Our production sites attended by 4,481 employees Starting from the second half of 2016, also regularly undergo government • Safe behaviour audit classes, organised we have introduced the development regulatory inspections in cooperation with DuPont Science and implementation of comprehensive • We operate a whistle-blower hotline, and Technology, were taught to 575 programmes to address the most and we strongly encourage employees employees problematic areas of workplace health and to report to management any concerns • Root Cause Analysis workshop was

safety in order to focus on type of activity, regarding possible violations or attended by 102 employees FINANCIAL STATEMENTS job or specific worksite where workplace potentially dangerous situations at our health and safety risks are considered to be production sites, as well as any issues heightened.. related to health and safety Health and safety strategy Policy highlights Governance and oversight Workplace health and safety are of critical PhosAgro management understands • We have established and maintain the • Oversight begins at the Board of Implementing best practices in importance for PhosAgro’s efficient and that creating a culture of safety requires required level of workplace health and Directors, with the Environmental, Health uninterrupted operations, which include commitment and leadership by supervisors safety, whereby the risk of injuries or and Safety Committee chaired by Igor workplace health and safety large-scale mining and processing at every level, as well as involvement in the death, or accidents at production sites Antoshin ADDITIONAL INFORMATION enterprises. PhosAgro’s workplace health work done by employees of the Company is minimised and reflects the latest and safety strategy aims to achieve three and its subcontractors. scientific, industrial and community 2016 PERFORMANCE HIGHLIGHTS key goals: standards Our strategic and operational goals and • We seek to constantly develop and 1. Zero fatal incidents involving employees tasks in the area of workplace health update our workplace health and of PhosAgro or its subcontractors and safety are based on the analysis of safety practices based on international 2. Zero accidents involving production large volumes of data from internal and standards and the experience of other 20% 75% 28% equipment external audits and inspections, incident companies that are leaders in the field of 3. Sustainable performance achieved by investigations, and recommendations from production site safety DECLINE YEAR-ON-YEAR YEAR-ON-YEAR DECLINE YEAR-ON-YEAR creating a culture of safety at production representatives of the workforce. • We are promoting a unified corporate IN MINOR INJURIES IN SERIOUS INJURIES LTIFR DECLINE sites culture concerning workplace health and (8 MINOR INJURIES) (1 SERIOUS INJURY) (0.52 PER 1 MILLION HOURS)

64 PhosAgro Integrated Report 2016 www.phosagro.com 65 Health and safety review (continued) STRATEGIC REPORT

WORKPLACE INJURIES AND FATALITIES CASE STUDY

2013 2014 2015 2016

29 CORPORATE RESPONSIBILITY REPORT

15

10 8

Minor injuries

1. Three steps to safety 2. Improving transportation safety 3. Improving safety of mining work 5 3 4 Serious injuries 1 PhosAgro regularly participates in the All-Russian Week of Workplace During 2016, PhosAgro launched a programme to improve the The Apatit mine is the heart of PhosAgro, providing us with the CORPORATE GOVERNANCE REPORT Health and Safety, which is organised by the Russian Government, safety of automobile, rail, and mine vehicle transportation. exceptionally pure and high-quality phosphate raw materials we in order to learn more about the latest developments at other use to produce phosphate-based fertilizers. We undertook several companies. At the 2016 forum, a number of companies shared their measures during 2016 to improve the safety at Apatit, including: experience implementing practices to identify hazards and evaluate 5 2 risks before starting any job. 1. Improved techniques and tools for installing and maintaining Fatalities 1 0 containment walls for mining excavation sites This idea was quickly adopted by PhosAgro’s workplace health 2. Organised new training and testing for employees responsible and safety team, and approved by management. New procedures for maintaining excavation sites and roadways in mines to improve safety before starting work were developed and entitled 3. Purchased new equipment for installation and maintenance of LTIFR “Three steps to safety”. This new methodology was introduced at all containment walls (per 1 million of our production sites during the second half of 2016 1.03 0.92 hours) 0.73 0.52

. FINANCIAL STATEMENTS 2013 2014 2015 2016 Step 1: Step 2: Step 3: Stop! Think and Take measures Decide whether it identify hazards! to eliminate any is safe to proceed hazard! with work! Measures taken to improve safety included:

1. Introducing new requirements for drivers responsible Our performance for transporting passengers and operating large mining Days without injuries vehicles (as of 31 December 2016) We have achieved good results in 2016: 2. Providing additional training for personnel responsible for zero incidents resulting in loss of the rail transport on the territory of PhosAgro production sites Balakovo branch of Apatit ADDITIONAL INFORMATION ability to work at PhosAgro’s chemical 3. Installing monitoring devices and equipment in certain 706 processing sites, and a 28% year-on-year vehicles to monitor and control the driving style 4. Granted access to automated monitoring of the location of all decline in LTIFR. 4. Professional training for drivers of mining equipment, mining equipment and personnel is for dispatchers PhosAgro-Cherepovets including reviewing reasons for past accidents and learning 5. Installed new equipment to monitor levels of CO, NO , CH 650 2 4 However, we deeply regret that one fatality accident-avoidance driving techniques and O2 at mining sites occurred at the Apatit mine in 2016 due 5. Renovating to certain road- and railways 6. Distributed new leaflets on workplace health and safety for Metachem to a landslide. Following an investigation employees of the Apatit mine into the causes of this incident and an 446 analysis of safety procedures, we took Apatit measures to improve the safety of our 77 mining work (described below).

66 PhosAgro Integrated Report 2016 www.phosagro.com 67 PEOPLE REVIEW

We create value for our employees and other stakeholders STRATEGIC REPORT by investing in our people: PhosAgro aims to provide stable Our people are our most employment, safe working conditions and fulfilling job opportunities. We start at the primary school level and continue important asset to invest in our people throughout their careers with PhosAgro. Strategy highlights Policy highlights CORPORATE RESPONSIBILITY REPORT Our people are our most important asset: Our policy focuses on ensuring that without their hard work, we would not our staff remain healthy and properly be able to achieve our strategic goal of motivated. In the coming year, we plan creating shareholder value. Our recruitment to reassess social benefits for the overall and retention efforts help ensure that we PhosAgro Group, as well as analyse the have the right people for the job. collective agreements of PhosAgro Group’s main production facilities. Overall, our • We aim to maintain our reputation as an policy priorities are as follows. employer of choice in the regions where we work • We place an increased priority on • We use a KPI system to link executive preventive health care for our young and remuneration to priorities like health and middle-aged employees who have been safety, as well as financial performance with us for two or more years. CORPORATE GOVERNANCE REPORT • We strive to motivate our staff by • We have begun moving toward providing competitive wages, paying a standardised collective agreement with close attention to the conditions at our our workers work sites and offering generous non- • We aim to maximise the number of our monetary benefits staff who participate in exercise and • We rely on a talent pipeline of staff with sports programmes to improve both their the potential to take on leadership and/ personal health and work productivity or more technically challenging roles • We have analysed our accident and to ensure our viability in the long term health insurance policies to develop • We help prepare future generations a single approach and unified criteria for of PhosAgro employees by supporting selecting providers school and university programmes that • We have revamped our recreational

encourage students to pursue STEM offerings for employees and their FINANCIAL STATEMENTS studies children • We train our staff to prepare them • We have worked to standardise the to better navigate our ever-changing social policies of our subsidiaries working environment

HIGHLIGHTS ADDITIONAL INFORMATION ~ 2.8% 107 822 700,000 7, 599 THE DRIVER BEHIND OF OUR STAFF HOURS EMPLOYEES TOTAL HOURS TRAINING COURSES THE YEAR-ON-YEAR PARTICIPATED OF TRAINING TOOK PART OF TRAINING ATTENDED ATTENDED BY PHOSAGRO REDUCTION IN TOTAL IN PERIODIC PER EMPLOYEE IN PROFESSIONAL BY PHOSAGRO EMPLOYEES EMPLOYEES IN 2016 (DOWN TRAINING HOURS ATTENDED PERFORMANCE AND TRAINING PROGRAMMES IN 2016 (COMPARED TO FROM 8,342 IN 2015 DUE TO WAS A 2% DECREASE CAREER DEVELOPMENT IN 2016 (DOWN FROM >1 MILLION HOURS IN 2015) HEADCOUNT REDUCTIONS) IN HEADCOUNT ASSESSMENTS UNDER 908 IN 2015) THE KPI SYSTEM

68 PhosAgro Integrated Report 2016 www.phosagro.com 69 People review (continued)

OUR EMPLOYEE

Headcount, average per year

Upstream & processing Downstream Storage Logistics Engineering Other

division division and distribution units STRATEGIC REPORT 532 75 425 System highlights

2014 8,708 8,904 989 19,633 Executive remuneration Employee benefits Communication and feedback We introduced a KPI system in 2014, We strive to motivate our staff by providing We have a multichannel communication 89 346 which began by linking top executive competitive wages, paying close attention and feedback programme that allows remuneration via a set of uniform to the conditions at our worksites and the employees to address employment-related 2015 7,375 8,136 611 963 17,520 standards to priorities like health and quality of our employee dining facilities, as or other issues. The formats include Q&As CORPORATE RESPONSIBILITY REPORT safety performance at the management well as by offering generous non-monetary in the corporate newspaper, town hall 86 342 company and subsidiary levels. In 2016, we benefits like corporate medical, rest and meetings for staff and management and expanded the KPI system to encompass all recreation programmes for employees and an anonymous whistle-blower hotline, 2016 6,993 8,420 671 633 17,145 PhosAgro subsidiaries, as well as additional their family members. Additionally, our allowing staff to choose from various 2.8% categories of staff. staff enjoy private pension plans, housing degrees of anonymity when deciding how programmes, corporate sport facilities and to raise an issue. Share of staff participating in periodic performance and career numerous sporting and cultural events. development assessments

HOURS OF TRAINING ATTENDED Managers Specialists Workers

140 114 51 Total Apatit PhosAgro-Cherepovets CORPORATE GOVERNANCE REPORT

677,260 1,306,647

477,568 459,086 437,640 1,057,205 272 Per 122 62 45 18 52 6 233 employee 229 76 304,238 157 280,796 Male Female 535 427 406 141 142 share of men participating in 3.3% share of women participating in 1.8% FINANCIAL STATEMENTS periodic performance and career periodic performance and career development assessments development assessments 61 699,065

EMPLOYEE PRODUCTIVITY 2014 2015 2016 2014 2015 2016

Upstream & processing division, Downstream division, tonnes/person tonnes/person 1,350 ADDITIONAL INFORMATION 1,189 Balakovo branch of Apatit Metachem Group 326,662 969 average 893 850 264,301 75 705 67 61 62 47 50 174,766 152,101

89,267 95,069

39,646 31,284 18,962

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

70 PhosAgro Integrated Report 2016 www.phosagro.com 71 People review (continued) STRATEGIC REPORT Every complaint received via telephone, External fraud to optimisation, changes to production or Staff Reserve stipulate a business’s social responsibilities email or regular mail is recorded in a 62 PhosAgro Classes business processes). The Centre helps run PhosAgro relies on the Staff Reserve and obligations to its employees. This unified register, which also contains any Our PhosAgro Classes initiative encourages our long-term HR initiatives, like PhosAgro initiative as a means of identifying talented includes not using child or forced labour instructions from the Economic Security Internal fraud school students to pursue STEM (science, Classes, High-Potential Graduates and staff with the potential to expand their and ensuring that our staff have the right 6 Service and the results of investigations technology, engineering and mathematics) the Staff Reserve programme, and holds roles and step into more senior positions, to exercise freedom of association and conducted following a complaint. In 2016, studies. The programme’s annual budget competitions for professional skills and and by providing additional training to help collective bargaining. Tenders the Company adopted a new standard totals RUB 19 million. young managers. them achieve these goals. The programme 31

governing the work of the hotline, and includes management training courses on How we measure success CORPORATE RESPONSIBILITY REPORT

placed information about the hotline in Working conditions High-Potential Graduates Management development personal and business skills like decision- relevant media. This led to an increase in 21 We build upon the foundation laid by This programme includes trainings and making, leadership and delegation, conflict To further develop our employees’ personal use of the hotline to submit complaints: PhosAgro Classes by partnering with development courses on the following management, project management, and professional skills in 2017, we plan from just six complaints in 2014 to 41 Other universities through our High-Potential topics: communication skills and staff mentoring. to hold workshops on cross-functional in 2015 and 149 in 2016. The table to the 39 Graduates programme as an avenue • Leadership training, proactive thinking, change right contains information about the types to better reach university students • Management skills Equal opportunity management and time management. of complaints received in 2016. interested in working at PhosAgro. We offer • Setting goals and objectives We pride ourselves on being an employer to ensure our viability in the long term. programme recruits a competitive salary, as • Organising and monitoring mentoring of choice in the regions where we We also plan to focus on our staff’s Our employees also use the corporate Our focus on training and developing well as relocation and housing support, and programmes operate, and having an equal opportunity professional development via the following intranet for internal messaging, receiving our people also helps us hedge against a assign them a mentor upon their arrival at • Time management programme as the cornerstone of our initiatives: announcements, planning and accessing potential shortage of talent in the future, PhosAgro. • Results-oriented work styles reputation. We take a straightforward • A repair safety course for employees informational resources. especially in areas where it can be difficult • Situation analysis and decision-making approach to equal opportunity: we of PhosAgro facilities, subsidiaries and to find candidates with the skill sets Workplace training • Effective communications and strive to select the best person for each contractors CORPORATE GOVERNANCE REPORT Training and development that we need. One aspect of this that we We use our Professional Training and relationship management role without regard to gender, sexual • A group training programme for key We rely on a talent pipeline of staff with prioritise is including schools, universities Development Centre to help our staff orientation, religion, ethnicity or race. users of the new Oracle system the potential to take on leadership and/ and our own staff programmes in our prepare for changes, both external We take seriously our obligations under • A training course for HSE staff or more technically challenging roles recruitment and training initiatives. (legislative/regulatory) and internal (related Russian federal and regional laws that

NUMBER OF WORKERS PARTICIPATING IN PROFESSIONAL TRAINING PROGRAMMES NUMBER OF TRAINING COURSES ATTENDED

Total Apatit PhosAgro-Cherepovets Total Apatit PhosAgro-Cherepovets

2,156 912 4,560

9,178 FINANCIAL STATEMENTS 3,415 3,233 8,342 3,037 3,126

539 7,599

396 330 1,260

908 115 115 822

2014 2015 2016 2014 2015 2016 ADDITIONAL INFORMATION

2014 2015 2016 2014 2015 2016 Group 539 average Group Balakovo branch of Apatit Metachem average Balakovo branch of Apatit Metachem 378 2,295 2,086 327 1,900 1,798 1,602 1,622 227 254 206 213 143 164 839 470 157

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

72 PhosAgro Integrated Report 2016 www.phosagro.com 73 People review (continued) STRATEGIC REPORT

TRAINING AND DEVELOPMENT CORPORATE RESPONSIBILITY REPORT CORPORATE GOVERNANCE REPORT

PhosAgro Classes High-Potential Graduates Oracle 12 Cross-functional training Management streamlining Other programmes

A total of 254 students took part in the PhosAgro recruited 38 young specialists under We prepared a training course for the Oracle In an effort to build upon the managerial In order to streamline our management Other key training and development events in PhosAgro Classes programme in 2016, all the High-Potential Graduates programme 12 project group with the help of consultants. skills of our project management staff, in functions, we moderated a discussion among 2016 included: of whom excel at, and are interested in, in 2016. This brought to he total of 200 The programme included cross-functional June 2016 we held the first session of our our economic affairs staff and managers of • A corporate seminar was held in February studying chemistry, physics, mathematics and graduates who have joined the Company training and situational management. In cross-functional training programme for subsidiaries about new interaction models. and March for about 40 employees from computer science. The programme graduated under this programme since its inception in between each stage of training, participants 51 members of our staff. The courses were As a result, new communications schemes all business units with workshops on 132 students from five schools in 2016, 52% 2012. A total of 169 of these employees are joined a moderated discussion to share developed with the support of business trainer were developed and a number of problems implementing professional standards

of whom went on to join technical degree still with PhosAgro today, pursuing careers in lessons learned and plans for the upcoming Maxim Dolgov of Sales Training International regarding communication between • Staff from the corporate training centre FINANCIAL STATEMENTS programmes with a potential career track mineralogy, geology, hydraulic engineering, session. Members of the management team Russia. In mid-September, we conducted the subsidiaries and the management company. launched a continuous production with PhosAgro. Another 17% were accepted chemistry, thermal energy and electricity joined the sessions as well. second session, which covered management More than 70 people took part in the improvement training project. The first into universities on sponsored placement production, rail transport, open-pit and skills, and in December we held the final discussion, which was facilitated by business classes were held over the summer in programmes. underground mining, and mine surveying. session on relationship management. trainers. Balakovo, after which it was expanded to Cherepovets in December. In 2017, the Our annual goal remains to have 125 Of the programme participants still employed programme will be introduced at other participants join PhosAgro Classes in the five with PhosAgro, a total of 27% had received facilities, including Kirovsk and Volkhov schools in five Russian cities where we run promotions and/or been included in the Staff • Several groups of employees took part in the programme. We hope that 50% of these Reserve as of December 2016, and many of the Business Engineer training programme ADDITIONAL INFORMATION students will join PhosAgro by 2021. them had successfully completed the projects throughout the year that they were entrusted with when they joined the Company.

74 PhosAgro Integrated Report 2016 www.phosagro.com 75 COMMUNITY INVESTMENT

REVIEW We devise our community STRATEGIC REPORT investment initiatives to maximise PhosAgro implements social programs to promote sustainable socio-economic development in regions where the Company our positive impact operates. CORPORATE RESPONSIBILITY REPORT

Strategy highlights System highlights Educated and Healthy Children of Russia aims to combine quality education, PhosAgro implements social programs PhosAgro actively cooperates with vocational guidance and physical training to promote sustainable socio-economic representatives of the local communities for full-fledged spiritual and moral development in regions where the in which it operates, as well as with development, as well as improving the Company operates.The main principles for representatives of federal, regional and health of the younger generation. external social investment are a targeted municipal authorities. approach, control over how funds are spent, In 2013, the DROZD initiative was transparency and information disclosure, Our programmes are the result of expanded into the PhosAgro Classes cooperation and accountability. joint efforts to meet the needs of all programme which runs in the areas stakeholders and ensure compliance with where we operate. Unlike ordinary Our strategic goals for 2016 and 2017 regulatory requirements. comprehensive schools, the programme CORPORATE GOVERNANCE REPORT include: provides for more in-depth study of We strive to conduct our activities in the physics, mathematics, chemistry, biology • Support for education, science, culture, interest of future generations. This includes along with additional lectures in career art, education and spiritual development upgrading and replacing old equipment planning, economics, management, ethics, • Support for healthcare, as well as to minimise any harmful impact on the and social responsibility. PhosAgro the promotion of a healthy lifestyle environment.equipment to minimise our Classes also cover the basics of corporate and improvements in the moral and impact on the surrounding environment. culture, as well as laboratory research in psychological wellbeing of citizens physics and chemistry in the facilities of • Promote a patriotic, spiritual and moral leading universities. The PhosAgro Classes upbringing of children and youth Education Support Program programme acts as a stepping stone • Promote physical education and sports to Russia’s leading science and technical (excluding professional sports) PhosAgro successfully implements a unique universities, after which most participants

• Social support and the protection multi-level educational support program. find work at either PhosAgro or other FINANCIAL STATEMENTS of citizens, including financial aid It is distinctive in its integration of social leading Russian companies. for the poor, social rehabilitation of projects within a single programme that the unemployed, disabled and other covers all levels of education, from pre- DROZD also helps promote sports, fitness individuals school to higher professional education, and tourism. PhosAgro supports the idea • Promote volunteer activities with the possibility of subsequent of a healthy lifestyle by financing sports • Protect and maintain buildings, objects employment in the company. For children events, clubs and facilities in the regions and territories of historical, religious, and young people, projects include where we are present. Our programmes cultural or environmental significance, Educated and Healthy Children of Russia range from children’s activities including burial sites (“DROZD”), PhosAgro Classes and a project to competitive sports and includes ADDITIONAL INFORMATION supporting vocational education. outreach to children from underserved villages. The sports initiatives help serve as a pipeline to funnel young athletes into the regional competitive sports programmes, where many have gone on to participate in Russian and European championships.

76 PhosAgro Integrated Report 2016 www.phosagro.com 77 Community investment review (continued)

CASE STUDY STRATEGIC REPORT

Our Favourite Cities initiative PhosAgro’s Educated Programme phases Programme goals Our Favourite Cities is PhosAgro’s award-winning initiative aimed at and Healthy Children creating a quality environment for growth. We have partnered with 1. Research pressing social problems 1. Create modern social infrastructure in the regional and municipal governments, NGOs, charities, community 2. Establish necessary partnerships and NGOs cities where we live and work, including

of Russia (DROZD) organisations, and even founded our own NGOs to reach our 3. Monitor project implementation and take sports and recreation facilities, roads, CORPORATE RESPONSIBILITY REPORT programme goals. Our target audience includes: local government corrective action health care centres, etc. initiative provides organisations; civil society; the Company stakeholders, employees, 4. Perform annual summary and new project and their families; and the more vulnerable members of our society. search, periodic project reviews, interim thousands of children The programme covers Russia’s Murmansk, Vologda, Saratov and project results Leningrad regions. 5. Report programme results to stakeholders with opportunities in and expand geography of successful We determine cities’ needs, including any partnership or funding projects education, sport, and requirements, by conducting sociological surveys, questionnaires, and interviews, as well as by meeting with legislators and vocational training, representatives of local and regional governments. We then create a project or event to address the issue or request, and add it to the helping prepare our programme and funding plans. The programme managers monitor and report on implementation. Where necessary for project CORPORATE GOVERNANCE REPORT future generations for implementation, we may select an NGO to partner with or create an success NGO specific to the project.

PHOSAGRO COMMUNITY INVESTMENT PROGRAMMES AND INITIATIVES FINANCIAL STATEMENTS

CHILDREN’S EDUCATION AND HEALTHY CULTURAL CARING FOR ELDERLY OUR FAVOURITE SPIRITUAL SPORTS LIFESTYLES ENRICHMENT AND NEEDY CITIES INITIATIVE ENLIGHTENMENT

• Educated and Healthy Children of Russia • Apatit corporate museum • Volunteer centres in the Murmansk region • Partnering with cities and government • Providing ongoing charitable support for the • Russian Olympians Foundation (DROZD) NGO • PhosAgro-Cherepovets corporate museum • Harmony recreation centre in Cherepovets organisations renovation and construction of Orthodox holy • Russian Federation of Rhythmic Gymnastics

• PhosAgro Classes programme • Apatit’s Balakovo branch corporate museum • Volleyball Without Borders project in • Supporting medical institutions places in Russia and abroad • Russian Chess Federation ADDITIONAL INFORMATION • Supporting colleges and universities • Metachem corporate museum Cherepovets • Building and renovating sports centres • Organising Patriarchal charter flights for • Champion Foundation • Apatit CEO’s grant for youth education, cultural • Landscaping and caring for monuments • Providing financial assistance to World War II • Repairing and renovating educational and pilgrimages to the Italian city of Bari for • Saint Petersburg Judo Federation enrichment and sport • Supporting the Spasskaya Tower festival, veterans training institutes St. Nicholas the Miracle-Maker’s Saint’s day • Severyanka women’s volleyball team, • Installing children’s playgrounds and sports including the participation of employees and • In the Name of Good charity foundation • Putting on citywide concerts celebrations Cherepovets areas in residential neighbourhoods their children • Renovating and landscaping city parks, squares • Restoring the tradition of factory chapels: • Proton-BAES volleyball club, Saratov and pedestrian areas began construction of four churches on the • Avtodor basketball club, Saratov • Repairing roads premises of the Company’s sites in Kirovsk and • Turbine speedway club, Balakovo Cherepovets • Russian Cross-Country Skiing Federation KHIBINSK START INITIATIVE HEALTH CARE

• Khibinsk initiative movement • Supporting the Bakulev Cardiology Research • Khibinsk business incubator NGO and Cardiovascular Surgery Centre

78 PhosAgro Integrated Report 2016 www.phosagro.com 79 Community investment review (continued)

CASE STUDY STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT Murmansk Region Vologda Region Saratov Region Leningrad Region

• Within the framework of a public-private partnership with • PhosAgro is one of Vologda Region’s largest One of the priorities of the Balakovo branch of Apatit is investment • PhosAgro finances reonvations in the orphanage, palace of the Government of the Murmansk region, a project is being taxpayers and invested RUB 63 billion in the region into the region’s social infrastructure, including: culture, schools and pre-schools in Volkhov. The Company implemented to develop a tourist cluster in the city of Kirovsk. by modernising its production facilities and repairing • Investing in the region’s social infrastructure, including repairing has allocated funds to renovate public spaces around Volkhov, The programme aims to support the social and economic local infrastructure. PhosAgro is also involved in the local health resort. and to restore the World War II memorial at the mass grave in development of the Kirov-Apatity region, to create a comfortable repairing schools, pre-schools and sports facilities, • At the request of legislators from the Bykov Ostrog region, the Novooktyabrsk. living environment and to reduce Kirovsk’s mono-industry as well as the local cultural centre, college and Company is helping repair roads using gypsum, a production dependence. university. by-product. Within the framework of the project, the modern ski resort Big • Over the past eight years, the Company has built • The DROZD-Balakovo club has launched the “DROZD-village” Woodyavr has been established and has been recognised as the housing for more than 1,700 of its employees in one programme, and has organised lessons for conscription-age best resort in Russia as well as being named the best snowboard of the suburbs of Cherepovets. At the request of the men in hand-to-hand combat and firearms training. park twice. The airport of Apatity has been modernised. Modern local community, it has also funded the construction • Apatit’s Balakovo branch has helped restore several of the CORPORATE GOVERNANCE REPORT tourist infrastructure is also being created, including hotel and of the new Church of St Athanasius and Theodosius city’s World War II memorials, as well as the open-air military recreation complexes, a children’s belt lift and a new training of Cherepovets, which is the city’s first new religious equipment museum. slope, as well as a ski piste at the Tirvas sanatorium. centre since the fall of the Soviet Union. This is the highest-altitude resort in the North-West of Russia. • PhosAgro has helped sponsor various municipal The wide, European-quality ski tracks are FIS certified and meet events, including an annual religious festival as well as the requirements of both professional and beginner alpine skiers. an annual rock music festival. The Russian freestyle team trains here. • In honour of the 70th anniversary of the end of Khibiny Start project The total length of the trails exceeds 35 kilometres, and the World War II, the Company helped the Perspectiva number of ski routes of various complexity has increased to 28. Foundation repair a tank that fought in the war In 2015, the Khibiny Initiative was established as a community movement. The project focuses on two key areas of activity: • Kirovsk’s infrastructure was also updated under the ski resort and place it as a monument to the victory in a Active citizens, deputies of the city council of Kirovsk and the youth project, including the airport, regional hospital, museum and Cherepovets park. organisation of Apatit participated in its creation. 1. exposition hall, city parks, and heating and water distribution Teaching the basics of entrepreneurial activity; consulting on issues like

networks. The main task of the Khibiny Initiative is the formation of the economic marketing, personnel management, planning, organisation and control, FINANCIAL STATEMENTS • Thanks to the development of the Bolshoy Woodyavr ski resort, basis of the city through combining efforts and opportunities of the city, management of financial and economic activities, accounting, tax tourism and business activity in the tourism and related sectors regional and federal authorities with the initiative of citizens and support systems, business-related legal issues; further consulting services to assist has been growing for two years in a row. With the goal of of Apatit. Through such cooperation, key issues facing the city’s residents in the development of business plans, business models, investment decreasing its “mono-industry” dependence, the city was given can be solved. projects.. TOR status (territory for advanced development). This will attract around RUB 300 million of investments into the economy of To reduce the city’s unemployment rate, the Khibiny Initiative proposed 2. Kirovsk, and create more than 500 new jobs. Tourist traffic to the the Khibiny Start project. Its main objective is the formation of The Khibiny Start grant contest focuses on supporting young city is expected almost double. a comfortable environment for the development of self-employment entrepreneurs. The “Do Business” business plan contest is conducted out and small business. to support existing entrepreneurs. One of the most important criteria for ADDITIONAL INFORMATION obtaining a grant is the creation of at least one workplace. > The Khibiny Business Development Centre (HCRB), an autonomous 3.2 BLN RUB 63 BLN RUB non-profit organisation, was established to manage the project. It acts In 2016: as an operator for the development and support of small business. • 27 business projects were implemented PHOSAGRO SPENT TO PHOSAGRO INVESTED The project is carried out within the framework of a public-private • 45 jobs were created HELP THE REGIONAL IN THE REGION BY partnership with local government and regional authorities. • SMEs paid a total of RUB 400,000 in taxes GOVERNMENT BUILD MODERNISING ITS A SKI RESORT AS AN PRODUCTION FACILITIES ANCHOR FOR TOURISM IN AND REPAIRING LOCAL MURMANSK REGION INFRASTRUCTURE

80 PhosAgro Integrated Report 2016 www.phosagro.com 81 BUSINESS CONDUCT REVIEW STRATEGIC REPORT PhosAgro’s business conduct framework Policy highlights is based on global best practice All employees receive regular PhosAgro’s business conduct policy framework and management procedures training and undergo testing on are based on best practice standards. Highlights of this framework include: preventing corruption • Our Government Relations Policy dictates

that PhosAgro’s relationships with local, CORPORATE RESPONSIBILITY REPORT regional and federal governments must or movements, or to commercial of internal resources to document and be legal and ethical, and based on organisations. This policy sets priority investigate issues reported via the principles of fairness and partnership. In areas for charitable giving, including hotline. accordance with this policy, interactions education, sport, health and well-being, • All employees receive regular training involving government bodies should and vulnerable members of society such and undergo testing on preventing only relate to PhosAgro’s strategic or as veterans and the elderly. corruption as part of a company-wide operational matters. • PhosAgro does not participate in process. This exercise aims to build an • Our Conflicts of Interest Policy political activities or provide financial understanding of the importance of establishes rules for identifying and support to political organisations. preventing corruption and of maintaining addressing potential conflicts of interest. a culture of corruption avoidance • Our Anti-corruption Policy states that System highlights throughout the business. our directors and senior management • PhosAgro maintains a Commission CORPORATE POLICIES must adhere to high standards and set • PhosAgro has in place a whistle-blowing for Adherence to the Code of Ethics CORPORATE GOVERNANCE REPORT an example for the entire business. procedure that includes a telephone and Regulating Conflicts of Interest. It commits all employees to a zero- hotline. All employees are provided with Commission members are appointed tolerance approach to corruption. information about the purpose of the by the Chief Executive Officer and are • Our Code of Ethics specifies the rules hotline and when it should be used (for responsible for identifying potential for relationships with stakeholders example, to confidentially report matters conflicts of interest and assisting with FINANCIAL & ASSET CODE POLITICAL CHARITY ANTI-CORRUPTION CONFLICTS ranging from employees, shareholders, such as theft, corruption, reputational resolution, implementing behaviour MANAGEMENT OF ETHICS NEUTRALITY POLICY POLICY OF INTEREST government officials and NGOs risks, conflicts of interest, legal violations standards and creating an environment to customers, suppliers and other and environmental, health and safety that supports adherence to the Code of business partners. It commits PhosAgro incidents). PhosAgro’s Chief Executive Ethics and the Conflicts of Interest Policy. to engaging with stakeholders in a fair Officer is responsible for the allocation and proper manner. • PhosAgro’s Charity Policy commits us

to supporting sustainable development FINANCIAL STATEMENTS in the regions where we operate. Activities in 2016 PhosAgro’s charitable giving is based on the following principles: it must In 2016, the Internal Audit service conducted 14 audits including address a clear need and be used for consultations for management & risk management efficiency clear purposes, the use of funds is evaluation. The audits looked at areas like capital investments, closely monitored, and transparency domestic sales, energy consumption, environmental compliance, STAKEHOLDERS and disclosure of information must industrial safety, as well as audits of risk management activities be ensured. We do not engage in involving external consultants. charitable giving to representatives ADDITIONAL INFORMATION of the Government, to political parties

INTERNAL AUDIT SERVICE ACTIVITIES IN 2016 INCLUDED:

INVESTMENT REGIONAL EMPLOYEES THE GENERAL BUSINESS AND FINANCE GOVERNMENTS & TRADE UNIONS PUBLIC AND PARTNERS AUDIT PROJECTS INCLUDING CONSULTATIONS FOR COMMUNITY & LOCAL MEDIA COMMUNITIES 14 MANAGEMENT & RISK MANAGEMENT EFFICIENCY EVALUATION

82 PhosAgro Integrated Report 2016 www.phosagro.com 83 STAKEHOLDER ENGAGEMENT

We create long-term value by building solid and sustainable STRATEGIC REPORT relationships with our stakeholders. PhosAgro aims to engage in a strategic way with the groups that are affected by our business or may impact it. Our ability to understand and respond to stakeholders’ evolving expectations helps us to create a sustainable and strong company.

INVESTMENT AND FINANCE COMMUNITY CORPORATE RESPONSIBILITY REPORT

Why we engage

EXPLAIN SUPPORT LIQUIDITY SUPPORT A POSITIVE PROMOTE MAINTAIN USE DIALOGUE AS PHOSAGRO’S AND SHARE PRICE PERCEPTION OF KNOWLEDGE ACCESS TO AN OPPORTUNITY STRATEGY AND BY ATTRACTING OUR CORPORATE OF THE LONG- A WIDE ARRAY TO OBTAIN NEW PROGRESS WE HAVE NEW INVESTORS TO GOVERNANCE TERM POTENTIAL OF CAPITAL IDEAS AND IDENTIFY MADE TOWARDS THE COMPANY SYSTEMS AND VALUE OF MARKET BEST PRACTICES ACHIEVING OUR THE COMPANY INSTRUMENTS GOALS CORPORATE GOVERNANCE REPORT

2016 ENGAGEMENT ACTIVITIES How we engage How we create our value

• Roadshows • Conducted four non-deal roadshows with Company We continue to implement a generous • One-on-one meetings with investors management in key financial market centres like London, Paris, dividend policy, and paid RUB 28 billion or • Capital Markets Day Zurich, Geneva, Stockholm, Copenhagen, Helsinki, New York, RUB 72/GDR in dividends in 2016 • Investor conferences Boston, etc. • Conference calls on financial results We were included in MSCI Russia index • Ongoing engagement with analysts • Organised 30 investment conferences and forums from May 2016, and significantly increased

• Regulatory press releases the GDRs’ liquidity while ADTV (average FINANCIAL STATEMENTS • AGM and formal reporting • Organised four conference calls and webcasts for analysts and daily trading volumes) grew by more than • Corporate website investors to discuss the Company’s financial results 75% YoY and reached almost USD 6mn per • Provision of a dedicated in-house day in 2016 investor relations team and the support • Disclosed 40 press releases via UK regulatory news service of knowledgeable professional advisory • Disclosed 181 Russian Federation mandatory information press We have maintained an investment-grade services releases via the corporate information disclosure centre and credit rating from Standard & Poor’s thanks • Three independent non-executive Interfax to our conservative financing policy and directors on the Board of Directors solid cash flow generation capacity ensure that the interests of public ADDITIONAL INFORMATION shareholders are represented

4 30 11 NON-DEAL ROADSHOWS INVESTMENT INDUSTRY TO GLOBAL FINANCIAL CONFERENCES AND CONFERENCES CENTRES FORUMS

84 PhosAgro Integrated Report 2016 www.phosagro.com 85 Stakeholder engagement (continued) STRATEGIC REPORT

REGIONAL GOVERNMENTS & LOCAL COMMUNITIES CORPORATE RESPONSIBILITY REPORT

Why we engage

TO PROMOTE TO ADDRESS TO SUPPORT TO MAINTAIN A DIALOGUE AROUND TO ENSURE THAT SOCIO-ECONOMIC COMMUNITY NEEDS THE HEALTH AND GOVERNMENT POLICIES OR WE ARE A GOOD DEVELOPMENT IN AND SOCIAL OR WELL-BEING OF POTENTIAL REGULATORY CHANGES NEIGHBOUR REGIONS WHERE ENVIRONMENTAL THE COMMUNITIES THAT MAY AFFECT OUR BUSINESS WE WORK CONCERNS WHERE WE OPERATE CORPORATE GOVERNANCE REPORT

2016 ENGAGEMENT ACTIVITIES How we engage How we create our value

• Implementing environmental • Organised visits of specialists from the Bakuleva Cardiological We help ensure that the local communities programmes Centre to regions where PhosAgro operates to conduct medical that supply the workforce for our • Funding medical treatment for examinations and provide treatment for PhosAgro employees production sites are healthy and well- employees and residents in the regions and local residents educated where we operate • Developing cooperation agreements with • Signed and implemented agreements with regional We pay taxes into local and federal budgets regional governments based on what is governments where PhosAgro has operations most appropriate for the region • Signed agreement with the Russian Federation Ministry of We help improve comfort and quality of

• Meetings with government and Economic Development and the Vologda region to support a life of community residents by cooperating FINANCIAL STATEMENTS community representatives programme for projects in the areas of industrial and agricultural with local and regional governments in • Supporting local social and sporting biotechnology priority areas of development organisations • PhosAgro-Cherepovets signed an agreement on cooperation • Sponsoring PhosAgro Classes to support with the Ministry of Natural Resources, the Federal Service for chemistry education for school-aged Environmental Monitoring and the government of Vologda children region as part of the Year of the Environment • Investing in universities and technical • Signed plan for renovation of roads near Bykov Ostrog using colleges that grant degrees that could phosphogypsum from PhosAgro production sites lead to careers in PhosAgro ADDITIONAL INFORMATION • Introducing university scholarship and • Signed agreements with the Proton volleyball club, Avtodor recruitment programmes aimed at basketball club and the Turbina speedway racing club encouraging the study of chemistry • Started construction of a rehabilitation centre in Cherepovets as part of the development programme for the Cherepovets Chemical and Technical College 418 MLN RUB 14.5 BLN RUB • Signed agreement with the Vologda region regarding INVESTED IN TAXES PAID INTO LOCAL, modernisation of the vocational education system and the LOCAL EDUCATION REGIONAL AND FEDERAL supply of professional personnel for the chemicals sector INITIATIVES BUDGETS

86 PhosAgro Integrated Report 2016 www.phosagro.com 87 Stakeholder engagement (continued) STRATEGIC REPORT

EMPLOYEES & TRADE UNIONS CORPORATE RESPONSIBILITY REPORT

Why we engage

ESTABLISH ENSURE EMPLOYEE PROVIDE MEANINGFUL MAINTAIN RESPONSIBLE AND PROVIDE RELEVANT A CORPORATE MOTIVATION IS SOCIAL GUARANTEES CONSTRUCTIVE EFFECTIVE USE OF PROFESSIONAL CULTURE THAT APPROPRIATE AND FOR CURRENT AND RELATIONSHIPS HUMAN RESOURCES DEVELOPMENT IS ALIGNED WITH EFFECTIVE RETIRED EMPLOYEES WITH TRADE OPPORTUNITIES FOR PHOSAGRO’S UNIONS AND OUR EMPLOYEES STRATEGIC GOALS EMPLOYEES CORPORATE GOVERNANCE REPORT

2016 ENGAGEMENT ACTIVITIES How we engage How we create our value

• Trade unions engaged in development of PhosAgro’s • The Ruskhimprofsoyuz trade union held a meeting of its By providing fulfilling careers that reward, workplace health and safety programmes Presidium in Kirovsk, hosted by the PhosAgro-Apatit trade union recognise, motivate and develop our • Collective agreements negotiated with trade unions and the Minudobreniya Association of Trade Unions people, we create a sustainable business incorporating conditions and compensation for that is a global leader in its sector employees (usually for three-year terms, entered • Signed collective agreements negotiated with trade unions at into with each of our production entities) PhosAgro-Cherepovets (June 2016), Apatit (March 2016), the We aim to deliver training programmes • Collaboration with trade unions including sporting Balakovo branch of Apatit (December 2016) and Metachem to help employees meet their personal

and cultural events, joint participation in workplace (December 2015) career goals and benefit the Company. FINANCIAL STATEMENTS health and safety committees, nomination of workplace health and safety representatives and • Trade unions, with the support of PhosAgro, arrange the For more information, see the People participation in health and safety workshops following events annually: review section of this report • Employee development programmes, including our –– PhosAgro Stars Festival Staff Reserve Programme –– Company-wide sporting competitions • Employee surveys, presentations, bulletin boards, –– Professional skills competitions (including welding, lathe intranet and corporate newspapers turning and electrical work) • Meetings with general directors of production sites –– Professional development workshops on topics like and management responsible for social and HR workplace health and safety, and management skills ADDITIONAL INFORMATION issues together with trade union representatives • Whistle-blower hotline: dedicated email addresses • General directors and HR personnel at production facilities, for complaints, telephone hotlines for inquiries together with trade unions, regularly meet with employees; about social issues, reporting violations every corporate newspaper provides contact information for feedback, and in the event of a violation of Company rules, > employees are encouraged to call dedicated hotline numbers 11 .4 THS 72.8% 1,000 EMPLOYEES ARE AVERAGE UNION INSPECTIONS CONDUCTED UNION MEMBERS MEMBERSHIP PER BY AUTHORISED WORKPLACE TEAM SAFETY MONITORS

88 PhosAgro Integrated Report 2016 www.phosagro.com 89 Stakeholder engagement (continued) STRATEGIC REPORT

THE GENERAL PUBLIC AND MEDIA CORPORATE RESPONSIBILITY REPORT

Why we engage

TO ENHANCE PUBLIC INFORM STAKEHOLDERS PROMOTE UNDERSTANDING PERCEPTION AND ABOUT THE COMPANY’S OF THE ROLE OF MINERAL UNDERSTANDING OF PLANS, PERFORMANCE AND FERTILIZERS IN SUPPORTING THE COMPANY PRIORITIES GLOBAL FOOD SECURITY

2016 ENGAGEMENT ACTIVITIES CORPORATE GOVERNANCE REPORT How we engage How we create our value

• Interaction with experts and public • Published four weekly newspapers at production sites and monthly corporate We protect the reputation of our Company organisations newspaper and make sure the public is informed about • Media engagement, including regular our activities meetings and briefings with journalists, • PhosAgro and its subsidiaries published over 230 press releases access to senior management, site tours • Domestic and international media mentioned PhosAgro over 20,000 times for press and press releases • PhosAgro’s CEO conducted regular meetings and interviews with Russian and • Attendance at public hearings foreign journalists, providing expert comments on important Company and • Company plant tours, exhibitions and industry events to leading publications including the Financial Times, Bloomberg, congresses Reuters, The Wall Street Journal, Forbes, CNBC, Business FM, Vedomosti, • Corporate website, social media Kommersant, Interfax, RBC, RIA Novosti, TASS, Rossiskaya Gazeta and Izvestia FINANCIAL STATEMENTS The CEO: • Held press conferences as part of various domestic and international events, including the Saint Petersburg International Economic Forum, the World Economic Forum in Davos, the International Fertilizer Association conference, the Sochi International Economic Forum, the Russo-German Natural Resources Forum, VTB’s Russia Calling! Investor Conference and other industry and investment conferences • Protected the Company’s reputation and informed the public about its ongoing activities ADDITIONAL INFORMATION • Participated in international and regional industry conferences • Maintained membership in Russian and international professional associations (A. Guryev was elected President of the Russian Association of Fertilizer Producers and was reappointed as the Vice President for Eastern Europe and Central Asia of the International Fertilizer Association) > • Organised grant ceremony for talented young scientists as part of the PhosAgro/ 230 71 20THS UNESCO/IUPAC Green Chemistry for Life programme • Organised PR support for a variety of corporate events, awards and investments PRESS RELEASES MEDIA EVENTS PUBLICATIONS during the year PUBLISHED ORGANISED IN RUSSIAN AND INTERNATIONAL PRESS

90 PhosAgro Integrated Report 2016 www.phosagro.com 91 Stakeholder engagement (continued) STRATEGIC REPORT

BUSINESS PARTNERS CORPORATE RESPONSIBILITY REPORT

Why we engage

CONSUMER UNDERSTANDING AND CREATING A BUSINESS MUTUAL UNDERSTANDING HEALTH CONTRIBUTION TO RELATIONSHIP BUILT ON OF OBLIGATIONS AND MAJOR ISSUES AFFECTING TRUST AND RESPECT EXPECTATIONS OF THE FERTILIZER THE RELATIONSHIP AND MINING INDUSTRIES CORPORATE GOVERNANCE REPORT 2016 ENGAGEMENT ACTIVITIES How we engage How we create our value

• Contracts and agreements • Attended 15 international and local industry conferences (4 IFA, We are a reliable partner and a sought- • Conferences 3 CRU, 4 FMB Argus, 2 IPNI, 2 other) after client within our industry • Joint submissions on issues affecting our • Hosted a conference to award the first grants given out under industry the PhosAgro/UNESCO/IUPAC Green Chemistry for Life We work with our peers to ensure that the • Support for international applied programme sponsored by PhosAgro to support promising industry’s voice is properly represented research and sustainability projects projects by young chemists around the world • Negotiations with consumers, publications and distribution of • Participated in domestic and international professional We support scientific research to help

advertising materials associations develop “green chemistry” technologies, FINANCIAL STATEMENTS • Membership in industry associations including in the field of crop nutrients ADDITIONAL INFORMATION

92 PhosAgro Integrated Report 2016 www.phosagro.com 93 Stakeholder engagement (continued) STRATEGIC REPORT

FARMERS CORPORATE RESPONSIBILITY REPORT

Why we engage

TO MAINTAIN A DIALOGUE WITH EDUCATE FARMERS ABOUT PROMOTE RESPONSIBLE AND SUSTAINABLE USE OF OUR CUSTOMERS AND ENSURE THE BENEFITS OF PHOSAGRO’S FERTILIZERS IN ORDER TO ENCOURAGE FARMERS NOT TO WE OFFER THE PRODUCTS THEY CONTAMINANT-FREE INTRODUCE HARMFUL ELEMENTS INTO THE FOOD CHAIN NEED PHOSPHATE-BASED FERTILIZERS WITH LOW-QUALITY PHOSPHATE-BASED FERTILIZERS CORPORATE GOVERNANCE REPORT 2016 ENGAGEMENT ACTIVITIES How we engage How we create our value

• In our domestic market: • Participated in 55 domestic and international meetings, Our strategy to 2020 aimed — through feedback from our seminars, exhibitions, conferences and forums dedicated at bringing us closer to farmers distribution network, which works to agriculture and/or fertilizers directly with Russian farmers and • Began conducting «Field Day» seminars for agricultural We offer customers 35 fertilizer grades agricultural holdings cooperatives, famers and agronomists after introducing two new PKS grades and • International markets: • Introduced customised recommendations for fertilizer one new NPS grade in 2015. — establishment of our own trading application based on region, crop, soil and other conditions We continue investing in further enhancing operations • Gave out sample products to introduce farmers to new grades our product offering in priority markets, bringing us closer of fertilizers

to farmers • Promotion of responsible application of mineral fertilizers for Our fertilizers have one of the FINANCIAL STATEMENTS —membership in industry organisations sustainable farming that minimises environmental impact. lowest levels of impurities due like the International Plant Nutrient to the exceptionally high quality Institute and the International • Launched new grades of PKS, as well as NPK and NPS fertilizers of our phosphate rock, meaning Fertilizer Association containing micro-elements (boron and zinc) it is more effective • Agreements signed with leading scientific research institutes in Europe • Opened new sales offices in Biarritz (France) and Hamburg We provide information about the positive (Wageningen in the Netherlands and the (Germany), to enhance our ability to work directly with farmers effects of phosphate-based fertilizers on University of Milan) to conduct extensive in our priority export markets crop output and their important role in research that will assess the impact on global food security ADDITIONAL INFORMATION the quality of crops and soil of using • Cooperating with IPNI to develop recommendations for almost entirely cadmium-free fertilizers application of phosphate-based and complex fertilizers for soy, produced by PhosAgro. The tests will be wheat, corn and sugar beets in order to provide farmers with run in different geographical locations, recommendations in accordance with 4R Nutrient Stewardship as well as for different types of crops, principles and will include a direct comparison with the traditional types of fertilizers used in 55 2 6 each selected location FERTILIZER AND/OR NEW SALES TOTAL NUMBER OF TRADING AGRICULTURE SECTOR OFFICES OPENED OFFICES OUTSIDE OF RUSSIA EVENTS ATTENDED IN EUROPE IN PRIORITY EXPORT MARKETS

94 PhosAgro Integrated Report 2016 www.phosagro.com 95 MANAGING OUR RISKS STRATEGIC REPORT

RISK MANAGEMENT SYSTEM RISK MAP CORPORATE RESPONSIBILITY REPORT

Board of Directors Strategic risks Impact 1 • Has overall responsibility for management of • Risk of inadequate strategic planning 1 2 3 5 4 6 15 financial and non-financial risks • 2 Social and human resources • Establishes and monitors performance of risk management systems Production risks 7.1 7.2 8 10 • Holds management accountable for • 3 Risks in the production process high implementation of risk management system • 4 Risks related to occupational health and 13 14 industrial safety • 5 Environmental risks

Risk Management Audit Committee Risk Commission Operational risks 6 Committee • Has oversight responsibility for the finance • Reviews the status of risk management • Project risks CORPORATE GOVERNANCE REPORT • Carries out regular assessment of the risk function • Evaluates the effectiveness of risk •7.1 Risks of inefficiency and infringement of 9 11 12 management system and principles • Provides recommendations to the Board on management measures business processes (key risk) • Provides recommendations to the Board changes and improvements to the financial •7.2 Taxation risks (key risk) on changes and improvements to the risk management system • 8 Risks in the field of information security medium financial risk management system • 9 Risks in the area of economic security

Internal Audit Risk Management Regulatory risks Department Department Executive management •10 Compliance with legal and regulatory • Carries out regular assessment of the • Facilitates work across the Company’s (CEO and Management requirements Please see the full 11 Company’s internal control and risk divisions to identify and assess risks, as well Board) • Corruption description of each risk in management systems as develop programmes to manage and • Oversees implementation of, and the table on pages 100–105 • Oversees compliance of PhosAgro’s financial address risks adherence to, risk management policies Reputational risks 12 and economic operations with Russian • Provides PhosAgro employees with • Monitors and manages of risks relevant • Reputational risks low FINANCIAL STATEMENTS legislation and the Company’s Charter methodological and consultative support on to job function • Develops recommendations for the Audit issues related to risk management • Carries out risk identification and Financial risks Committee and the Board of Directors on • Organises risk management training reporting •13 Credit risks strategic changes to the risk management • Performs operational risk management •14 Currency risks low medium high •15 Marketable goods Probability

In 2016, PhosAgro ensured the effective In 2016, the Company continued to develop • A declaration and provision on No significant changes were made to the CEO and functionally to the chair of the The risks outlined in this report that may ADDITIONAL INFORMATION functioning of its risk management its risk management system: PhosAgro’s risk appetite were approved Company’s corporate governance system Board’s Risk Management Committee. impact the Company do not constitute system by identifying and assessing • At the management level, a Risk by the Board of Directors. Risk appetite in 2016 overall as a result of changes an exhaustive list. The report aims only risks in a timely manner and developing Commission was formed that is establishes the level of risk that is to the risk management system. The Risk At the end of 2016, an independent to identify the key risks. and implementing measures to manage responsible for the regular review of acceptable in terms of achieving the Management Committee coordinates issues external evaluation of PhosAgro’s risk those risks. Senior management devoted the status of risk management and Company’s goals and facilitates effective related to risk management on behalf of management system was carried out, which significant attention to managing key the effectiveness of risk management decision-making while taking risks the Board of Directors, and both the Risk confirmed that it was at the level of other risks that have a high impact and a high measures. The Commission includes into account. Commission and the Risk Management leading Russian companies. In 2017, the probability. The Board of Directors reviewed managers responsible for key functions • The Company’s bylaws establishing a Department coordinate risk management Company plans to maintain the effective information on managing the Company’s within the Company. The Commission is unified methodology and procedure for on behalf of Company management. functioning of its risk management system. key risks on a quarterly basis. headed by PhosAgro’s Chief Operating cooperation and responsibility regarding The Director of the Risk Management Officer. risk management were updated. Department reports operationally to the

96 PhosAgro Integrated Report 2016 www.phosagro.com 97 Managing our risks (continued) STRATEGIC REPORT

STRATEGIC RISKS PRODUCTION RISKS CORPORATE RESPONSIBILITY REPORT

Risk of inadequate strategic Social and human resources Production risks Workplace health and safety Environmental risks planning (key risk) (key risk) (key risk) risks (key risk) (key risk) Risk of inadequate strategic planning associated 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 of with the adoption of an incorrect strategic decision associated with the hiring, development and events of a technical/industrial nature or naturally to injury, occupational illnesses, accidents and potential damage to the environment as a result of and associated management decisions, resulting retention of employees, as well as risks in relations occurring events that lead to disruptions in the incidents at hazardous production facilities, as well the Company’s activities. from an erroneous assessment of internal and with local communities and the risk of adverse production process: downtime of production as risks associated with discrepancies between the external factors that have an impact on the social situations in regions of operation. equipment, outages, incidents and accidents at workplace health and safety elements of the risk Company’s prospects for development and its ability production sites and production infrastructure management system and legal requirements. to achieve its strategic objectives. facilities, failure to meet planned production volumes. Risk level CORPORATE GOVERNANCE REPORT

Impact

• Failure to reach the target values of key strategic • Discrepancies between the number of • Unscheduled downtime, accidents and incidents • Occupational injuries, complete or partial loss • Non-compliance with established regulations indicators (assessment adjusted in connection staff members and their qualifications and at production facilities, the loss of production of the capacity to work (assessment adjusted to regarding the impact on various components of with the updated strategy until 2020) the Company’s needs output, setbacks in economic indicators, damage reflect risk statistics for 2016) the environment • Loss of competitive advantages associated to, or loss of, equipment with the level of technological development • Unscheduled downtime, accidents and incidents of production and the constraints of external at facilities related to energy infrastructure infrastructure

Measures for minimising risk FINANCIAL STATEMENTS In 2016, an updated version of the Company's PhosAgro carries out independent and joint PhosAgro aims to operate all types of equipment PhosAgro ensures workplace health and safety PhosAgro regularly assesses and analyses its strategy until 2020 was approved by PhosAgro's programmes aimed at attracting talented without breakdowns or unplanned stoppages, in compliance with relevant legislation and impact on the environment. In an effort to Board of Directors, while preparation of young specialists, including from other and to take steps to limit the length of unplanned global best practices in this area. To this end, limit its environmental impact, the Company is the Company's strategy until 2025 continues. regions, developing employees’ professional stoppages when they do occur. With this aim in the Company carries out training for staff and modernising its clean-up and storage system There is a system in place that monitors both competencies and increasing employee mind, the Company invests in the construction checks their knowledge related to workplace and is putting energyefficiency programmes internal and external factors that could have motivation to ensure long-term retention. of new equipment and the upgrading of existing health and safety, promotes a culture of safety, in place. The Company partners with UNESCO an impact on implementation of the strategy. equipment, schedules preventative maintenance ensures that all contractors adhere to workplace and the International Union of Pure and Applied PhosAgro also carries out analysis comparing best of equipment and major overhauls, while using health and safety standards, carries out safety Chemistry (IUPAC) to provide grants for research industry practices to the practices it employs, or back-up equipment and creating a reserve audits and inspections to ensure compliance in the field of green chemistry with the aim plans to employ, to assess costs and benefits in of components, accessories and spare parts. with guidelines both for Company divisions and of protecting the environment and human order to facilitate optimal decision-making. A programme to boost the quality and reliability for suppliers for which the Company has put health, creating energyefficient processes and of repair work carried out by suppliers is in place. the OHSAS 18001 system in place. Additional implementing ecological safety technologies ADDITIONAL INFORMATION Insurance covers the Company’s dangerous measures to reduce workplace injuries when on the basis of innovative ideas. Facilities being production facilities and property. performing work underground have also been launched by PhosAgro in 2017, in particular its developed and are being implemented. ammonia and granulated urea plants, as well as its biochemical treatment facilities, have been included as environmentally safe production facilities by the Russian Ministry of Natural Resources and the Environment in its plan of activities for the Year of the Environment. These facilities utilise best available technologies, and after being commissioned, they will make it possible to reduce specific consumption of raw materials and energy, as well as specific emissions of regulated substances.

98 PhosAgro Integrated Report 2016 www.phosagro.com 99 Managing our risks (continued) STRATEGIC REPORT

OPERATIONAL RISKS CORPORATE RESPONSIBILITY REPORT

Project risks Risks of inefficiency and Taxation risks Information security risks Risks to economic (key risk) infringement of business (key risk) (key risk) security (key risk) Project risks are related to exceeding planned Risks associated with inefficiency or the intentional Taxation risks are related to potential claims by tax Risks in the field of information security are risks Economic security risks are related to losses caused budgets and timelines for the completion of new or unintentional infringement of the Company’s authorities that the Company has not correctly filed associated with losses caused to the Company’s to the Company’s property and assets as a result of construction and modernisation projects, as well business processes, including counterparty risk its tax return or made payment on time. property and assets by means of unauthorised legal violations in the economic sphere committed as the failure to achieve efficiency targets related related to supply chain. access to its information systems or by the by employees or third parties, including fraud and to projects. disclosure of confidential information. theft.

Risk level CORPORATE GOVERNANCE REPORT

Impact

• Exceeding the planned budgets and timelines for • Late deliveries of feedstock, raw materials, • Financial (penalties), administrative and criminal • Disclosure of confidential information • Loss of an enterprise’s property as a result of illegal the implementation of key projects equipment and spare parts from third parties consequences as a result of violations uncovered actions, including fraud and theft • Poor implementation or work tasks • Interruption of production lines and lower by the tax authorities (assessment adjusted production volumes on account of risk management measures undertaken in 2016) Measures for minimising risk

PhosAgro aims to carry out its projects (the key PhosAgro aims to support the efficient functioning PhosAgro complies with tax legislation in projects are the construction of new ammonia The Company carries out various measures The Company takes measures aimed at preventing of all of the Company’s business processes. To the countries where it operates. Tax legislation, and granulated urea plants) in line with planned aimed at preventing unauthorised access to potential damage to its property and assets as achieve this, the efficiency of business processes including planned changes, is monitored; law

information systems as well as disclosure of a result of legal violations in the economic sphere. FINANCIAL STATEMENTS budgets and timelines. Uniform approaches enforcement practices are analysed; clarifications is regularly evaluated, bottlenecks are identified, confidential information. Different technical and A system controlling access to the Company’s to project implementation and management are sought from government bodies regarding and measures to improve efficiency or eliminate software solutions are used to control access to administrative and production facilities is in place; are employed. Projects undergo a multi-step tax assessments; law firms, accountancies and tax bottlenecks are developed and implemented. information resources and systems; access rights a clear division of responsibility is established review and approval process. Project offices are authorities are consulted on questions related to to information are regulated according to different when it comes to concluding contracts or established for particularly large and important double taxation and various tax-related laws. projects. Contracts can be made with a fixed (hard) user groups; there is a clear definition of what transactions; checks are carried out on all price. Regular monitoring to ensure compliance We also aim to minimise risk in our supply chain constitutes confidential information and how it counterparties before contracts are executed; with project timelines and budgets is carried out. by choosing suppliers through competitive tender should be handled; periodic audits are carried out a hotline has been created to enable the Company processes. PhosAgro aims to establish long-term to ensure strict compliance with the Company’s to receive feedback from employees.Besides, relationships with reliable suppliers by signing confidentiality policy. additional oversight checks are carried out by long-term supply contracts. various departments within the Company. ADDITIONAL INFORMATION

100 PhosAgro Integrated Report 2016 www.phosagro.com 101 Managing our risks (continued) STRATEGIC REPORT

REGULATORY RISKS REPUTATIONAL RISKS FINANCIAL RISKS

Compliance with legal and Corruption Reputational Credit risks Currency risks Marketable goods risks CORPORATE RESPONSIBILITY REPORT regulatory requirements risks risks (key risk) (key risk) (key risk) (key risk)

Compliance with legal and regulatory requirements Corruption risks associated with losses resulting Reputational risks cover damage to the Company’s Credit risks resulting in potential financial losses Currency risks resulting in potential financial losses Marketable goods risks cover possible losses cover the risk of timely receipt / extension of licences from penalties levied against the Company by business reputation as a result of unauthorised caused by the failure of buyers, commercial caused by unfavourable changes in exchange rates associated with unfavourable changes in the and risks from changes in legislation that could state authorities as a result of non-compliance disclosure in the media of information about the contractors, suppliers, banks, insurance companies, with respect to the Company’s base currency. market prices for mineral fertilizers and other lead to an increase in the cost of doing business, the or inadequate compliance on the part of the Company’s operations, financial results, upper clearing centres or other financial contractors products, as well as increases in the price of implementation of restrictive measures by regulatory Company or its employees with the requirements of management, etc. to fulfil their financial obligations to the Company the main raw materials and equipment that the bodies, a reduction in investment appeal and/or applicable anti-corruption legislation. completely and on time. Company purchases. changes in the competitive environment.

Risk level CORPORATE GOVERNANCE REPORT

Impact

• Non-compliance on the part of the Company • The performance of corrupt acts by • The unauthorised disclosure of information to • Failure by clients to pay for delivered goods • Debt levels as reported in our main operating • Critical impact on the cost of production of one or with the requirements for licensed activities the employees or contractors of the Company’s the media about the Company’s operations by • Late payments by clients for delivered goods currency could increase as a result of more raw materials, cost increases and worsening • Publication by federal and regional authorities of enterprises unauthorised and/or unidentified representatives • Inability to repay debt upon maturity unfavourable fx rate changes financial results the Russian Federation, foreign states, associations of the Company (leaks) • Losses from derivative financial instruments • Loss of revenue as a result of the poor choice of a of states and international organisations of legal • Public statements and actions on the part of third • Realised and unrealised losses from revaluation of product with low marginality acts that result in new burdens and restrictions for parties (individuals or organisations) concerning FX-denominated debt The Company has adopted policies on managing the Company the Company that denigrate the Company’s • Decrease in cash flow in our main operating credit risk that employ different methods of business reputation in order to have a negative currency managing and reducing credit risk, including impact on its operations Measures for minimising risk by completing deliveries after full or partial pre- In the current environment of reduced prices for

payments, with full or partial insurance of credit risk its core products, the Company is continually FINANCIAL STATEMENTS and by using letters of credit. Delivery without pre- In the current environment of volatility with The Company ensures full compliance of its The Company is transparent and discloses all optimising its sales structure according to The Company ensures compliance of its activities payment and insurance is only permitted for long- respect to the oil price and the fluctuations in activities with applicable legislation. In order material facts and developments, while also fertilizer brands and regional sales focus in order with the requirements of relevant anti-corruption established clients. Providing advance payments to the rouble exchange rate against major currencies, to ensure that it receives information about having adopted an information policy and media to maximise margins, while also increasing legislation. It conducts training focused on suppliers and contractors is only considered after the Company aims to align the currency structure potential legislative changes in a timely manner, engagement policy. The Company publishes the share of fertilizer sales to end users, increasing combatting corruption and on how to apply anti- the counterparties have been tested for reliability, of its debt financing with the currency structure the Company closely tracks initiatives at a information about its business on its website and production efficiency and providing add-on corruption legislation in practice, and a principle of and also after the provision of bank guarantees in of its main sales. Most of the Company’s debt is government and regulatory level, and takes part in in the media, provides comments in response to services to customers such as packaging, blending zero tolerance is communicated to all employees the event that the sum of the advance payment denominated in US dollars as a natural hedge discussions of legislative initiatives and preparation media enquiries and regularly monitors all relevant and storage. and counterparties with respect to corruption, and exceeds established internal limits. The Company against primarily USD-denominated sales. of recommendations through professional coverage in both Russian and international media. they are warned that they will be held accountable works with banks and insurance companies with The Company carefully tracks analyst forecasts associations. The Company acts in a timely for any violation of anti-corruption legislation. JSC a high level of financial stability and that meet and factors that can influence the rouble In 2016, PhosAgro opened trade offices in manner in preparing and submitting documents to PhosAgro-Cherepovets is a member of the Anti- the criteria set out by the Company’s treasury exchange rate against major currencies. Where Hamburg, Germany, and Biarritz, France, in receive or prolong the necessary licences needed Corruption Charter of Russian Business. policy. needed, the Company is able to use full or partial addition to its existing offices in Zug, Switzerland; to carry out its business. hedging instruments against its currency positions. Warsaw, Poland; Sao Paulo, Brazil; and Singapore. ADDITIONAL INFORMATION To mitigate credit default risks, the Company runs With a presence in priority export markets, three internal policies that provide enough flexibility the Company will be able to respond more quickly in cash management: to changes in market demand and customer needs. The anti-dumping duty on imports of urea produced by the PhosAgro Group into the United a) the total amount of capital spending should not States, one of the world’s largest importers of this exceed 50% of forecast EBITDA (earnings before type of fertilizer, was abolished in 2016. taxes, interest, depreciation and amortisation) b) the Company aims to keep leverage at the appropriate level with Net Debt/EBITDA below 1 In order to reduce the cost of raw materials and c) a flexible dividends policy that keeps the dividend equipment, the Company conducts tenders payout in the range of 30—50% among multiple suppliers, conducts long-term supply contracts and develops lasting relationships The Company monitors all covenants applicable to with its suppliers. existing loans on a regular basis.

102 PhosAgro Integrated Report 2016 www.phosagro.com 103 Board of Directors Board of Directors BOARD OF DIRECTORS structure, % professional experience, % We have the right mix of knowledge of Russia and The Board of Directors consists of a diverse group international business to help PhosAgro succeed in of professionals with experience in audit, chemicals,

all of its priority areas. investing and financial markets. STRATEGIC REPORT 25% 37.5% 37.5% 50% 25% 12.5% 12.5%

Audit Committee Strategy Remuneration Environmental, Health Risk Management Committee and Human Resources and Safety Committee Committee Executive Independent Non-executive Chemical Finance and Capital Sales Executive Director Committee directors directors directors industry audit markets CORPORATE RESPONSIBILITY REPORT

ANDREY A. GURYEV SVEN OMBUDSTVEDT ANDREY G. GURYEV MARCUS RHODES JAMES ROGERS MIKHAIL RYBNIKOV IGOR ANTOSHIN IVAN RODIONOV Executive Director Independent Director Non-executive Director Independent Director Independent Director Executive Director Non-executive Director Non-executive Director CEO of PhosAgro

Year appointed to Board: Year appointed to Board:

2013 2006 2013 2011 2014 2016 2004 2004

Committee appointments: Committee appointments: CORPORATE GOVERNANCE REPORT

(Head of the committee) (Head of the committee) (Head of the committee) (Head of the committee) (Head of the committee) Recent roles Recent roles

2013-present: CEO of PhosAgro 2010-present: Chief Executive 2006-present: Vice President 2002-2008: Audit Partner, Jim Rogers is currently the president 2013-present: Chief Operating 2013-2016: Adviser to the CEO of 2003-present: Professor, Higher 2011-2013: Deputy CEO for Sales Officer, Norske Skogindustrier ASA of the Russian Union of Ernst & Young of Beeland Interests, Inc. He is a Officer, PJSC PhosAgro PhosAgro School of Economics and Logistics of PhosAgro AG 2008-2009: Senior Vice President, Chemical Sector Businesses 1998-2002: Audit Partner, Arthur legendary investor and co-founder 2012-present: Chief Executive 2009-2013: CEO of PhosAgro 2006-2014: Professor, Russian State 2011-2013: Deputy CEO of SCD SAS and Organisations, a non-profit Andersen of the Quantum Fund, a global Officer, JSC PhosAgro AG Engineering Centre University for the Humanities PhosAgro 2006-2008: Chief Financial organisation investment partnership. 2008-2012: Chief Operating Officer, 2006-2009: CEO of PhosAgro 2004-2006: Managing Director, Officer and Head of Strategy, Yara 2001-2013: Member of He is an author, financial CJSC PhosAgro AG AIG-Interros RCF Adviser International ASA the Federation Council commentator, adventurer and 2006-2008: Chief Financial Officer, 1997-2006: Managing Director, AIG successful international investor, CJSC PhosAgro AG Brunswick Capital Management Education and currently holds directorships 2004-2006: Chief Financial Officer, and advisory positions at a dozen OJSC Apatit companies and investment funds 2001-2004: Chief Financial Officer, • Bachelor’s degree in Economics • Master of Science degree in Graduated from • Graduate degree in Economics around the world. OJSC Ammophos from the University of Greenwich International Management from • the G.V. Plekhanov St Petersburg from the University of (UK) the Thunderbird School of Global State Mining Institute Loughborough (UK). Qualified FINANCIAL STATEMENTS Education • Graduated from the Russian Management (USA) • the Lenin State Central Institute of Chartered Accountant, member Academy of National Economy • Bachelor of Science degree in Physical Culture of the Institute of Chartered under the Government of Business Administration from Accountants in England & Wales • BA from Yale University, BA/ • Graduate degree in Economics • Graduate degree in Economics • Graduate degree in Economics the Russian Federation. PhD in Pacific Lutheran University (USA) (ICAEW) and member of the Non- MA from Balliol College, Oxford from the Lomonosov Moscow from the G.V. Plekhanov from the Lomonosov Moscow Economics Executive Director Group of University State University St. Petersburg State Mining State University (Russia) the ICAEW • Bachelors/masters degree in PPE University from Balliol College at Oxford University (UK) Shares in PhosAgro Shares in PhosAgro Mr Andrey A. Guryev owns no Mr Ombudstvedt owns 4,000 Mr Andrey A. Guryev owns no Mr Rhodes owns 2,500 Global shares in PhosAgro. According Global Depositary Receipts shares in PhosAgro. According to Depositary Receipts (GDRs – 3 GDRs Mr Rogers owns 25,000 Global Mr Rybnikov owns shares equal to Based on information available Mr Rodionov owns shares and GDRs to information available to (GDRs – 3 GDRs = 1 ordinary information available to the Company, = 1 ordinary share), which represents Depositary Receipts (GDRs – 3 GDRs 0.0258% of PhosAgro’s authorised to the Company, Mr Antoshin equivalent to 0.0064% of PhosAgro’s ADDITIONAL INFORMATION the Company, the ownership of share) for PhosAgro shares, the ownership of companies holding 0.0006% of the Company’s = 1 ordinary share) for PhosAgro capital. holds the right to indirectly control authorised capital. companies holding 43.66% (45.46% which represents 0.001% of 43.66% (45.46% as of 31/12/2016) of authorised capital. shares, which represents 0.0064% of 100% of the voting shares of as of 31/12/2016) of PhosAgro’s the Company’s authorised capital. PhosAgro’s authorised capital, namely the Company’s authorised capital. Vindemiatrix Trading Limited, authorised capital, namely Private Private Company Limited by shares Carranita Holdings Limited and Membership of the Board of Directors Membership of the Board of Directors Membership of the Board of Directors Company Limited by shares Chlodwig Enterprises Limited and Dubberson Holdings Limited, which in other organisations in other organisations in other organisations Chlodwig Enterprises Limited and Private Company Limited by shares together hold shares equivalent Private Company Limited by shares Adorabella Limited, is held in trusts, to 11.88% (12.66% as of 31/12/2016) Adorabella Limited, is held in trusts, the economic beneficiaries of which Member of the Boards of Directors, Member of the Boards of Directors, of PhosAgro’s authorised capital. Member of the Board of Directors, the economic beneficiaries of which are Andrey A. Guryev and members QIWI PLC, and Zoltav Resources Inc. First China Financial Network Igor Antoshin’s stake in PhosAgro RUSS-INVEST Investment Company, are Andrey A. Guryev and members of his family. Andrey A. Guryev’s wife Holdings Limited; Geo Energy includes 2,489,540 ordinary shares Interdepartmental Analytical Centre, of his family. owns shares representing 4.82% of Resources Limited; Spanish Mountain in the Company (1.92% of the share AgroGard-Finance. PhosAgro’s authorised capital. Gold Limited; Virtus Global Dividend capital) that were transferred by him & Income Fund Inc. (The Zweig Total under a REPO deal on 21/12/2016. Return Fund, Inc.), The Zweig Fund, Inc.; Crusader Resources Limited

104 PhosAgro Integrated Report 2016 www.phosagro.com 105 EXECUTIVE MANAGEMENT STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

SERGEY SEREDA ALEXANDER SHARABAIKO ALEKSEY SIROTENKO SIROJ LOIKOV SERGEY PRONIN IRINA EVSTIGNEEVA ROMAN OSIPOV First Deputy CEO, Chief Financial Officer, Deputy CEO for Corporate and Human Resources and Social Deputy CEO for Sales and Director for Marketing and Director of Business JSC PhosAgro-Cherepovets PJSC PhosAgro Legal Affairs, PJSC PhosAgro Policy Director, PJSC PhosAgro Marketing, PJSC PhosAgro Development, PJSC PhosAgro Development, PJSC PhosAgro Deputy CEO for International and Adviser to the CEO, Head of Legal, JSC PhosAgro- Human Resources and Social Deputy CEO for Sales, Special Projects, PJSC PhosAgro JSC PhosAgro-Cherepovets Cherepovets representative office Policy Director, JSC PhosAgro- JSC PhosAgro-Cherepovets representative office in Moscow in Moscow Cherepovets representative office representative office in Moscow in Moscow Advisor to the CEO, LLC PhosAgro- Region Recent roles Recent roles 2016-present: First Deputy CEO, JSC 2014-present: Adviser to the CEO, 2011-present: Head of Legal, JSC 2013-present: Human Resources CORPORATE GOVERNANCE REPORT PhosAgro-Cherepovets; Deputy JSC PhosAgro-Cherepovets PhosAgro-Cherepovets (CJSC and Social Policy Director, PJSC 2017-present: Deputy CEO for Sales 2017-present: Director for Marketing 2013-present: Director of Business CEO for International and Special (CJSC PhosAgro AG) PhosAgro AG) PhosAgro and Marketing, PJSC PhosAgro and Development, PJSC PhosAgro Development, PJSC PhosAgro Projects, PJSC PhosAgro 2013-present: Chief Financial 2010-present: Deputy Chief 2013-present: Human Resources 2016-present: Deputy CEO for Sales 2011-2016: Director of Corporate 2012-present: Member of the Board 2014-2016: First deputy CEO, Officer, PJSC PhosAgro Executive Officer for Corporate and and Social Policy Director, of the JSC PhosAgro-Cherepovets Finance and Investor Relations, of Directors, PJSC PhosAgro OJSC PhosAgro Legal Matters, PJSC PhosAgro JSC PhosAgro-Cherepovets PJSC PhosAgro 2012-2014: Chief Financial Officer, (CJSC PhosAgro AG) representative office in Moscow 2012-2013: Adviser to the CEO, 2013-2015: Deputy CEO for Sales CJSC PhosAgro AG 2006-2011: Head of Legal 2008-2011: Head of Corporate OJSC PhosAgro and Logistics, CJSC PhosAgro AG Department, CJSC PhosAgro AG 2011-2013: Human Resources 2016: Advisor to the CEO of Finance Division, OJSC PhosAgro 2011-2012: Head of Corporate Director, CJSC PhosAgro AG the JSC PhosAgro-Cherepovets 2012: Deputy CEO for Business 2013: Sales Director, Finance, OJSC Uralkali 2005-2006: Deputy Chief representative office in Moscow 2003-2008: held various posts in Development, CJSC PhosAgro AG CJSC PhosAgro AG Executive Officer for Legal Affairs, 2009-2011: Human Resources the finance block of OJSC PhosAgro 2010-2011: Financial Adviser to CJSC Lukoil-Neftekhim Director, CJSC Russian Standard 2012-2016: CEO, 2009-2012: Chief Financial Officer, 2013-2014: Deputy CEO Chief Executive Officer, OJSC LLC PhosAgro-Region CJSC PhosAgro AG for Government Relations, Silvinit 2000-2005: Head of Legal 2008-2009: Personnel OJSC PhosAgro Department, Interkhimprom Group Development Director, Metinvest 2013-2015: Adviser to the Division 2008-2009: Deputy Chief Financial 2005-2010: held various positions Ukraine for Mineral Fertilizer Sales in Officer, CJSC PhosAgro AG 2012-2013: Deputy CEO for from Chief Specialist to Chief Eastern Europe and the CIS, FINANCIAL STATEMENTS Government Relations and Control, Financial Officer at LLC Mineral 2005-2008: Human Resources CJSC PhosAgro AG 2003-2008: held various financial OJSC PhosAgro Group Director, Leman Commodities S.A. management positions, GAZ Group 2012: Deputy CEO for Human 2007-2012: Chief Executive Officer, 2003-2005: 1st Class Analyst 1996-2005: held various positions Resources and Social Affairs, CJSC 2002-2003: Auditor, Ernst & Young CJSC Hydrostroy Burgas at Securities and Investments at British American Tobacco (UK, PhosAgro AG Department, OJSC Silvinit Uzbekistan and Russia offices) 1998-2002: Senior Consultant, 2007: Chief Executive Officer, CJSC 2011-2012: Deputy CEO for External Arthur Andersen AgroGard 1998-2003: held various positions at Communications and Information Belaruskali Production Association 2005-2007: Chief Executive Officer, Policy, CJSC PhosAgro AG Chairman of OJSC AgroGard- 2010-2011: Director for External Finance Communications and Corporate Relations, CJSC PhosAgro AG

2003-2005: Adviser to the Chairman ADDITIONAL INFORMATION of the Board of Directors, Head of 2010: Director for organisational and Internal Control and Audit Division, social issues, CJSC PhosAgro AG Director of the Voskresensk branch of CJSC PhosAgro AG, CEO of 2010: First Deputy CEO, CJSC Voskresensk Mineral Fertilizers, First PhosAgro AG Deputy CEO of CJSC PhosAgro AG Education Education

• Graduated from the V. V. • Graduated from the Moscow • Graduated from the Moscow • Graduated from the Moscow State • Bachelor’s degree in Economics • Graduate degree in Law from • Bachelor of Science degree in Kuibyshev Moscow Engineering State Financial Academy under State Financial Academy under Institute of International Affairs with Honours from Belarus State the Lomonosov Moscow State Business Management from and Construction Institute with the Russian Government with a the Russian Government with a with a degree in International Economic University (Belarus) University (Russia) Nottingham Trent University (UK) a degree Industrial and Civil degree in Finance and Credit degree in Finance and Credit Economic Relations • MBA in Finance from Nottingham • Graduate degree in International Construction. PhD in Economics University Business School (UK) Economic Relations from the Tashkent State University of Economics (Uzbekistan)

106 PhosAgro Integrated Report 2016 www.phosagro.com 107 CORPORATE GOVERNANCE STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT as of the date established by the Board of Directors. General Shareholders’ Meetings Sven Ombudstvedt Guiding PhosAgro’s strategic are usually held in Russia (Moscow). Chairman of the Board of Directors performance Our Board of Directors has been chaired by an independent director since 2011. The Board of PhosAgro has successfully advanced Outside of Russia, PhosAgro is actively It operates in accordance with the Law “ Directors worked key strategic projects like increasing engaged in discussions at the European How governance works at PhosAgro • reorganisation or liquidation of the on Joint Stock Companies, the Company’s benefication capacity at Apatit, as well Union level regarding cadmium regulations Our Shareholders’ Meeting is the principal Company Charter, the Central Bank of Russia’s with management as construction of new ammonia and that are aimed at making phosphate- forum through which the Company’s • election and removal of members of the recommended Corporate Governance Code, granulated urea lines at PhosAgro- based fertilizers safer, and the Company shareholders take decisions on the most Board of Directors guidelines of the UK Corporate Governance during 2016 to update Cherepovets. The Company’s sales strategy successfully got anti-dumping duties significant issues affecting our business. • increases or reductions in the Company’s Code and generally accepted good practice has also moved forwards, with the opening against urea from PhosAgro-Cherepovets These include approving financial authorised capital in corporate governance.

PhosAgro’s strategy CORPORATE GOVERNANCE REPORT of sales offices in key export markets and removed in the US. statements and amending the Company’s • approval of the Company’s external through 2020, while expansion of domestic market share. Charter and other internal documents. auditor Key activities undertaken by the Board of also monitoring The Board also engaged in a strategic The Board of Directors provides overall • approval of the Company’s annual Directors in 2016 included: On the regulatory side, we continue review, looking at PhosAgro’s development guidance to the Company except in areas reports and financial statements • reviewing the Company’s operational progress against to develop our internal systems for health, through 2020 with a continued focus on that are the remit of the Shareholders’ • distribution of profits, including payment priorities for 2016 safety and environment, and are achieving cost competitiveness, which will be helped Meeting. It sets targets and oversees their of dividends • using the KPI system to determine the the strategy and good results. This is an important issue by higher volumes and more efficient implementation by the Management • payment of remuneration to the size of bonus payments for executives implementation of for the Board, as the legal and regulatory logistics and production. Board and the Chief Executive Officer. members of the Board of Directors and and management in 2015 environment where we operate is The Management Board and the Chief the Review Committee • monitoring risk management updated corporate developing. I would like to thank the Board and Executive Officer manage the Company’s performance governance PhosAgro’s management for the hard work day-to-day operations and implement the Voting at a General Shareholders’ Meeting • approving PhosAgro’s updated Corporate that was put into building a responsible, strategy approved by the Board of Directors. is generally based on the principle of Secretary Policy

standards. sustainable business in 2016, and all of one vote per ordinary share, with the • approving PhosAgro’s Internal Audit FINANCIAL STATEMENTS “ PhosAgro’s stakeholders for your continued The General Shareholders’ Meeting exception of the election of the Board of Policy OUR CORPORATE GOVERNANCE PRINCIPLES engagement with the Company. The General Shareholders’ Meeting is the Directors, which is done by cumulative • ensuring compliance with the Company’s Company’s highest governing body and is voting. According to the Law on Joint Stock Information Policy and determining the convened by the Board of Directors at least Companies, the quorum requirement for Information Policy priorities for 2017 Accountability Equality Responsibility Transparency once a year. The Annual General Meeting a General Shareholders’ Meeting is that • approving PhosAgro’s Risk Management is held between 1 March and 30 June each shareholders (or their representatives) Policy We strive to ensure the The Board of Directors is PhosAgro’s corporate governance PhosAgro values the rights accounting for more than 50% of the • approving PhosAgro’s updated Corporate appropriate disclosure of year. Extraordinary General Meetings may accountable to PhosAgro’s system is designed to protect of all stakeholders and aims be convened by the Board of Directors on issued voting shares must be present. Governance Code General Meeting of Shareholders, shareholders’ rights and ensure to cooperate with a wide range of reliable information on all its own initiative or at the request of the • approving PhosAgro’s updated Insider and is responsible for: equal treatment of all shareholders. individuals and institutions to find significant issues related to our ADDITIONAL INFORMATION operations, including financial Review Committee, the external auditor A General Shareholders’ Meeting may Information Policy • Formulating the Company’s ways to ensure the Company’s status, social and environmental or a shareholder owning individually be held in the form of a meeting or by • updating the Company’s strategy to 2020 strategy financial stability and its successful, performance, operating results or together with other shareholders at absentee ballot. All shareholders entitled • determining the Company’s operational • Establishing and maintaining sustainable development. and ownership. least 10% of the issued voting shares. to participate in a General Shareholders’ priorities for 2017 systems that enable it The General Shareholders’ Meeting has the Meeting are notified of the Meeting by • reviewing the Company’s budget to monitor PhosAgro’s exclusive authority to take decisions on a a notice sent by post or in person in for 2017 performance number of matters, including: most cases no less than 20 days prior • Holding management • implementation of amendments and to a Meeting. The list of persons entitled accountable for successful additions to the Company’s Charter, or to participate in a General Shareholders’ implementation of the adoption of a new version of the Charter Meeting is compiled on the basis of data Company’s strategy in the Company’s register of shareholders

108 PhosAgro Integrated Report 2016 www.phosagro.com 109 Corporate governance (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT As of 31 December 2016, the Board of • the Company Significant attention was paid to matters of Issuers whose shares are included in that took effect on 1 January 2017, primarily members of the Board of Directors who Directors consisted of eight members, • a material shareholder of the Company corporate governance. organised trading were given a period concerning the regulation of transactions. have relevant experience and expertise in three of whom were independent non- • a material counterparty of the Company of two years to bring their internal the area of each Committee’s focus. executive directors (INEDs). The number of • a competitor of the Company Since 2012, systemic changes have been documentation and corporate governance Based on committee recommendations, directors and the membership of the Board • the government (Russian Federation, and continue to be made to the legislation structure into compliance with the listing the Board of Directors also reviewed The Committees can also involve external of Directors are determined by the General constituent entity of the Russian governing shareholders. Amendments have rules. The Central Bank of Russia also and approved other important corporate experts and consultants in their work. Shareholders’ Meeting, with the term of Federation) or a municipality been made to Russia’s Civil Code, the Law requires issuers to include an annex governance documents in 2016, including: The primary role of the Committees is appointment being until the next Annual on Joint Stock Companies and the Law to their annual report certifying compliance the Risk Appetite Policy, the internal audit the preliminary consideration of the key General Shareholders’ Meeting is held. The Board of Directors constantly aims on Securities Markets, as well as many with the principles of the Central Bank of and Internal Control Policy, the updated issues reserved for the Company’s Board of When choosing Board members, it is of to improve its effectiveness and to comply other pieces of legislation and related Russia Code. Corporate Secretary Policy and the Insider Directors. The Committees are responsible paramount importance that the Company with the recommendations of the Bank of regulations. Several new regulations Information Policy. for ensuring that issues brought before find the right balance between professional Russia regarding corporate governance, entered force in April 2014, including a new During 2015–2016, the Company reviewed the Board have been subject to sufficient skills and experience, independence and as well as internationally recognised Corporate Governance Code introduced the internal documentation regulating The Board of Directors decided to engage review in order to ensure that the Directors CORPORATE GOVERNANCE REPORT industry knowledge. good practice in corporate governance. by the Central Bank of Russia. Some of its operations, including the Company’s a third party, PricewaterhouseCoopers are able to cast their votes based on full The members of the Board of Directors the requirements of the latter were also Charter, the Shareholder Meeting Policy, the Consulting, to conduct an independent and accurate information. To achieve this, An independent director (candidate are elected at the Annual General included in the listing rules, which must Board of Directors’ Policy, four committee review of its activity to ensure absolute Committee members maintain a regular to serve as an independent director) is a Shareholders’ Meeting by cumulative be followed for stocks to be included in policies, the Corporate Secretary Policy and compliance with the Corporate Governance dialogue with management, the Company’s person unrelated to: voting. In 2016, the Board of Directors held the quotation list, as well as to maintain a the Audit Policy. The corporate governance Code. external auditor and other advisers on the 10 meetings covering a total of 87 issues. given listing level. structure was also updated, including the issues that fall within their remit. structure of the Audit Department and of At its meeting in December, the Board the Risk Management Department, among of Directors reviewed and approved the other changes. The final step in this process updated strategy until 2020, the Company’s Remuneration and Environment Audit Strategy Risk Management was the Company’s Corporate Governance consolidated budget for 2017 and the Board Human Resources Health and Safety Committee Committee Committee Committee Committee Code, which the Board of Directors operational priorities for 2017. approved in November 2016. Year

Name Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended FINANCIAL STATEMENTS of Birth The Board of Directors reviewed the Board Committees Andrey 1982 10 10 2 2 4 4 3 3 updated Charter and recommended it for The Committees of the Board of Directors A. Guryev approval by the General Shareholders’ are advisory and consultative bodies. Igor 1963 10 9 3 3 Meeting to account for legislative changes The Board Committees consist of current Antoshin

Andrey List of transactions by members of the Board of Directors and the 1960 10 10 2 2 G. Guryev Management Board to purchase or sell PhosAgro shares in 2016

Sven 1966 10 10 4 4 4 4 3 3 Ombudstvedt IVAN RODIONOV ADDITIONAL INFORMATION

Marcus 1961 10 10 4 4 4 4 Type of transaction Type of security Number of securities Date of transaction Rhodes

Ivan Purchase Global Depositary Receipts 14,500 12 July 2016 1953 10 10 4 4 Rodionov

Roman 1971 4 4 2 2 Osipov IGOR ANTOSHIN

James 1942 10 10 4 4 4 4 Type of transaction Type of security Number of securities Date of transaction Rogers REPO PJSC PhosAgro shares 2,489,540 21 December 2016 Mikhail 1975 6 6 2 2 2 2 Rybnikov

110 PhosAgro Integrated Report 2016 www.phosagro.com 111 Corporate governance (continued) STRATEGIC REPORT AUDIT COMMITTEE STRATEGY COMMITTEE

Сommittee members Сommittee members • Evaluating the development of the As of 31 December 2016, the Audit The Committee’s remit includes: As of 31 December 2016, the Audit Company’s subsidiaries, including Committee comprised: • reviewing the IFRS financials for integrity Committee comprised: reviewing their strategies and transparency • Making recommendations regarding the

Marcus Rhodes Committee Chairman, • analysing financial reporting processes, Andrey A. Guryev Committee Chairman, Company’s M&A projects CORPORATE RESPONSIBILITY REPORT Independent Non-executive Director of the including carrying out regular reviews Executive Director of the Board of • Analysing and making Marcus Rhodes Board of Directors and making recommendations Andrey A. Guryev Directors recommendations regarding potential Committee Chairman • recommending the Company’s external Committee Chairman strategic partnerships Sven Ombudstvedt Committee Member, auditor to the Board of Directors and Andrey G. Guryev Committee Member, Independent Non-executive Director of the maintaining an ongoing relationship Non-executive Director of the Board of PhosAgro continues Board of Directors with the external auditor During 2016, we Directors to introduce and • analysing and supporting the internal undertook a strategic “ James Rogers Committee Member, audit system and risk management “ Mikhail Rybnikov Committee Member, upgrade automated Independent Non-executive Director of the procedures, including drafting of review of PhosAgro’s Executive Director of the Board of systems to improve Board of Directors recommendations for their improvement development plan Directors. the speed and Key areas through 2020. Key areas The Audit Committee supervises the Directs the development of the Company’s CORPORATE GOVERNANCE REPORT quality of its financial Company’s financial and accounting “ strategy and related processes, including activities. It reviews and evaluates the management of the Company’s assets reporting. Company’s financial statements, which and the review of major innovation and “ are prepared by the Company and audited investment programmes and projects. by the Company’s external auditor. According to the Statute of PhosAgro’s Audit Committee, the Audit Committee shall consist of not fewer than three The Committee’s remit includes: current members of the Board of Directors, • Monitoring and updating the Company’s and shall be chaired by an independent mid-term and long-term strategy, and director. drafting policy as required FINANCIAL STATEMENTS

The Audit Committee and the Company Activities in 2016 The Committee was pleased to note Activities in 2016 continue to focus on optimising the successful implementation of all of internal business processes involved During the reporting period, the Audit Committee held four meetings, in which matters covering PhosAgro’s strategic goals for 2016, and In 2016, the Strategy Committee held two meetings, where it focused on: in preparation of PhosAgro’s financial priority areas of the Company’s activity were considered. Considerable focus was placed on that the Company is on track to complete ADDITIONAL INFORMATION reporting. We aim to ensure accuracy and improving internal audit procedures. In 2016, the Audit Committee focused on: key investment projects on schedule. We • identifying key strategic activities for 2016 • updating the Company’s strategy through completeness, while also speeding up are currently in the process of finalising • reviewing the Committee’s work in 2015 2020 the process of collecting and verifying • making recommendations for, and • futher improving the quality of the financial PhosAgro’s development strategy • reviewing implementation of strategy in data. Looking ahead to 2017, our aim is monitoring the implementation of, OeBS accounting and reporting preparation through 2025, which is aimed at further 2016 and plans for 2017 to continue moving PhosAgro’s reporting Oracle v. 12.0 process, as confirmed by the Company’s strengthening the Company’s leading • making investment and borrowing plans for dates closer to those of global leaders in • establishing targets and monitoring the auditors position in the global phosphate-based 2017 and 2018 transparency and disclosure. implementation of the IFRS 2017 budget fertilizer industry. • monitoring the implementation of the Hyperion consolidated financial reporting automation system

112 PhosAgro Integrated Report 2016 www.phosagro.com 113 Corporate governance (continued) STRATEGIC REPORT REMUNERATION AND HUMAN RESOURCES COMMITTEE ENVIRONMENTAL, HEALTH AND SAFETY COMMITEE

Сommittee members Key areas Сommittee members The Committee’s remit includes: As of 31 December 2016, the Remuneration The Remuneration and Human Resources As of 31 December 2016, the and Human Resources Committee Committee’s Statute requires that the Environmental, Health and Safety • ensuring the Company’s compliance comprised: Committee’s Chairman be an Independent Committee comprised: with legal and regulatory requirements

Non-executive Director on the Company’s relating to environmental and health and CORPORATE RESPONSIBILITY REPORT Jim Rogers James Rogers Committee Chairman, Board of Directors, and that the Chief Igor Antoshin Igor Antoshin Committee Chairman, safety issues Committee Chairman Independent Non-executive Director of the Executive Officer cannot be a member of Committee Chairman Non‑executive Director of the Board of • ensuring the Company’s development Board of Directors the Committee. Directors and enforcement of policies, procedures We continue We have implemented and practices beneficial to the protection to focus on ensuring Sven Ombudstvedt Committee Member, The Committee’s remit includes: best practice HSE Andrey A. Guryev Committee Member, of the environment and the health “ Independent Non-executive Director of the • developing of the Company’s policy in “ Executive Director of the Board of Directors and safety of employees, contractors, management KPIs Board of Directors relation to organising the activities and policies across PhosAgro customers and the public motivation of the Board of Directors and have improved Sven Ombudstvedt Committee Member, • evaluating the Company’s efficient and remuneration Marcus Rhodes Committee Member, • developing of the Human Resources Independent Non-executive Director of the use of natural resources and energy, are aligned with Independent Non-executive Director of the Policy in relation to the Company’s performance in this area. Board of Directors enforcement of energy-saving and key stakeholder Board of Directors senior management, and supervising its “ resource-conservation activities implementation In 2016, the Committee reviewed the Key areas within the Company, and providing interests. Company’s HSE reports every quarter. The Environmental, Health and Safety recommendations for further CORPORATE GOVERNANCE REPORT Special attention was paid to targeted Committee was formed to oversee the implementation and improvement of “ programmes and work schedules, as Company’s activities in the areas of these activities well as to monitoring implementation. environmental protection, efficient • preventing industrial accidents, including Investments and target projects aimed use of natural resources and energy, plans, programmes and processes at reducing our environmental impact and occupational health and safety for established by the Company to evaluate, were reviewed and evaluated. Changes employees, including the avoidance of manage and decrease risks of industrial to environmental legislation were reviewed industrial accidents, and to advise the accidents for potential impacts on the Company’s Board of Directors on such issues. • Improving conditions related to the operations. The Committee surveyed and health and safety of the Company’s evaluated management’s performance employees, and enforcing policies for with regards to environmental permits and decreasing and eliminating occupational measures undertaken to address issues injuries

identified during inspections. FINANCIAL STATEMENTS

In 2016, Committee members received In 2016, the Committee reviewed Activities in 2016 monthly reports containing up-to-date Activities in 2016 management KPI and bonus policies information about: industrial injuries, to ensure that they continued to align During the reporting period, the Remuneration and Human Resources Committee held four accidents and incidents; ongoing audits During the reporting period, the Environmental, Health and Safety Committee held three management interests with those of key meetings. The main issues considered by the Committee during 2016 were: by government agencies, results of meetings, at which the following issues were covered: stakeholders. The Committee also finalised such audits, and corrective actions the headcount optimisation, which has • analysis of implementation of the • evaluation of the independence of recommended during the audits; • proposed changes to the Committee • evaluation of the results of subsidiaries’ significantly streamlined PhosAgro’s Company’s social programmes in 2015 and candidates for the Board of Directors implementation of such measures as regulations in connection with new work on compliance with environmental ADDITIONAL INFORMATION operations. priority areas of social policy in 2016 • evaluation of the work of the Board of internal audits, incident investigations, requirements issued by the Moscow regulations in 2015 and for the first nine • evaluation of the performance of the Chief Directors in 2016 special evaluations of labour conditions, Exchange and the Russian Corporate months of 2016 Executive Officer and the Management and the investigation and reporting of Governance Code • evaluation of subsidiaries’ comprehensive Board, recommendations for the Board of occupational diseases; performance of • review of PhosAgro’s integrated report safety systems for handling hazardous Directors regarding their reappointment industrial analyses. for 2015 cargoes (storage, loading and • assessment of the headcount optimisation • evaluation of the results of subsidiaries’ transportation) programme at PhosAgro and its subsidiaries; The Committee’s input has helped work on compliance with workplace • review of proposed changes to Russian • review of the Human Resources Policy for to improve the quality and the scope of health and safety regulations for Federation environmental protection PhosAgro and its subsidiaries reporting. This ensures a deeper and more hazardous production sites in 2015 and for legislation and analysis of possible effects efficient review of HSE issues by both the the first nine months of 2016 for the Company Committee and the Board of Directors.

114 PhosAgro Integrated Report 2016 www.phosagro.com 115 Corporate governance (continued) STRATEGIC REPORT RISK MANAGEMENT COMMITTEE EXECUTIVE BODY

Сommittee members The Committee’s remit includes: Management Board During the reporting period, the Management Board, is responsible for As of 31 December 2016, the Risk • evaluating the effectiveness of the As of 31 December 2016, the Management Management Board held seven meetings, ensuring that the Company’s strategy and Management Committee comprised: Company’s risk management system and Board consisted of: at which it reviewed the Company’s the decisions of the General Shareholders’ making recommendations regarding quarterly financial and operational Meeting and the Board of Directors are

Ivan Rodionov Committee Chairman, improvements Andrey A. Guryev Chairman of the performance. It approved the 2016 budget implemented. In order to ensure efficient CORPORATE RESPONSIBILITY REPORT Ivan Rodionov Non-executive Director of the Board of • preparing recommendations for the Management Board in March and the 2017 budget in December. corporate communications between the Committee Chairman Directors Company’s Board of Directors regarding: The Management Board also made Company’s Board of Directors and the –– risk management methodology, Mikhail Rybnikov Member of the decisions to approve and amend the charity Chief Executive Officer, the Chief Executive Andrey A. Guryev Committee Member, determining the Company’s most Management Board budget. Officer submits regular quarterly reports The Committee Executive Director of the Board of material risks that require constant to the Board. monitored the Directors monitoring and management, Siroj Loikov Member of the Management Senior management “ and recommendations regarding Board The Management Board effectively Some of the matters for which the Chief implementation of Mikhail Rybnikov Committee Member, improvements to the unified risk represents PhosAgro’s senior management. Executive Officer is responsible are: risk management Executive Director of the Board of management system Alexander Sharabaiko Member of the It oversees the day-to-day operations of the • deciding on all issues related to the Directors –– determining the Company’s risk Management Board Company and implements the Company’s Company that do not fall within the systems across appetite and its risk tolerance strategy. competence of the General Shareholders’ the enterprise, and Key areas –– changes and additions to PhosAgro’s Alexei Sirotenko Member of the Meeting, the Board of Directors or the The Risk Management Committee risk management policy Management Board The Chief Executive Officer Management Board CORPORATE GOVERNANCE REPORT met several times was created in 2014 with the goal According to the Company’s Charter, the • representing the Company before all to analyse emerging of developing recommendations and The matters that are within the Chief Executive Officer is appointed by the federal and local authorities and in proposals for the Board of Directors and competence of the Management Board are Company’s Board of Directors for a period meetings with organisations and entities risks related other management bodies with regard set out in the Charter, and include: of one year and may be dismissed by a in Russia and abroad to events that took to identification and management of • reviewing, revising and approving of decision of the Board of Directors at any • hiring and dismissing the Company’s material risks for the Company, as well as PhosAgro’s quarterly and annual budgets time. The Company’s Corporate Governance personnel place during the improvements to, and further development • developing PhosAgro’s capital Code provides that the Chief Executive • carrying out all other activities and year. of, the Company’s risk management expenditure plans and strategy with Officer shall act in good faith and with legal steps required to be conducted on systems. respect to any new business activities due diligence to further the interests of behalf of the Company in accordance “ • deciding to enter into, change or the Company and its shareholders. All with the Company’s Charter, decisions terminate certain transactions related issues related to the Company’s day-to-day of the Board of Directors and the to the disposal of securities and stakes in operations are within the authority and General Shareholders’ Meeting and/or in

other companies responsibility of the Chief Executive Officer accordance with current legislation FINANCIAL STATEMENTS • arranging the preparation and provision except for those matters that are subject of reports to the Board of Directors to ratification by the General Shareholders’ Andrey A. Guryev was the Company’s Chief on PhosAgro’s financial and operating Meeting, the Company’s Board of Directors Executive Officer throughout 2016. For Mr performance and/or the Management Board. The Chief Guryev’s biographical details, please see the • approving incentivisation and similar Executive Officer, together with the “Board of Directors” section of this report. documents that determine the In 2016, the Committee continued Activities in 2016 compensation and benefit policies for to develop and further improve its Risk PhosAgro employees Management Policy, and to review our risk • monitoring how PhosAgro’s key risks are • providing recommendations • electing and removing of the secretary ADDITIONAL INFORMATION analysis and risk tolerance in line with managed to management on risk management of the Management Board and his/her the current market situation. Throughout • considering PhosAgro’s risk appetite policies and procedures powers the year, the Board of Directors received • review of PhosAgro’s key risks and updates regular risk management updates. to its risk map

116 PhosAgro Integrated Report 2016 www.phosagro.com 117 Corporate governance (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT Board and senior management The remuneration of the Company’s Union’s newly enacted regulation aimed at PhosAgro’s net profit under IFRS, while The Review Committee that was developed in compliance with remuneration senior managers consists of base salary, combating market manipulation. other factors such as cash requirements The Review Committee may undertake the corporate governance code, the Members of PhosAgro’s Board of which is paid monthly, plus additional and financial position are also considered. internal audit procedures either on its recommendations of the Central Bank of Directors may receive remuneration compensation, paid quarterly and annually. PhosAgro controls insider activity by While formally the amount of dividend own initiative, pursuant to a decision of Russia and the Moscow Exchange’s listing and be compensated for expenses Payment of additional compensation is placing restrictions on the use and payments is based on the Company’s net the General Shareholders’ Meeting or rules. The policy outlines the Internal incurred in the course of their duties in based on achieving the Company’s key circulation of insider information. For profits for the first quarter, six months, nine the Board of Directors or at the request Audit Department’s goals and tasks, the accordance with decisions of the General performance indicators and accomplishing example, insiders may not pass on months and/or full year calculated under of shareholders owning at least 10% of rights and responsibilities of its staff, as Shareholders’ Meeting. According to the additional tasks and goals, as set by the information available to them to other Russian Accounting Standards (RAS), and the shares in the Company. The General well as the conditions that guarantee its Company’s Corporate Governance Code, Board of Directors and Chief Executive individuals except in cases expressly payments are made in relation to these Shareholders’ Meeting elects the members operational independence. the remuneration of the Board of Directors Officer for the reporting quarter or year. provided for in current legislation and specific periods, the Board of Directors of the Review Committee for the period shall be in line with current market The key performance indicators for each the Company’s documents. The Corporate bases its dividend decisions on the until the next Annual General Shareholders’ The department has also been reorganised conditions and shall be at a level that individual senior manager are set by Secretary’s office maintains lists of insiders Company’s IFRS results. A decision on the Meeting. The Review Committee comprises into two functional units to comply with enables the Company to attract, motivate period and mainly consist of indicators for and notifies insiders of their inclusion payment of an interim dividend is made at three members and is led by the Chairman the new policy: CORPORATE GOVERNANCE REPORT and retain highly skilled professionals sustaining operational efficiency as well on these lists. The office gathers data on the General Shareholders’ Meeting within of the Review Committee. Members of the • the internal audit function audits to help drive the future growth and as contributing to the achievement of possible or actual disclosures of insider three months of the end of the relevant Committee cannot be on the Company’s the efficiency of business processes, performance of the business. At the same corporate growth and strategy. information and brings them to the period. If the dividends are approved by the Board of Directors at the same time, nor including the risk management and time, the remuneration shall not exceed attention of the Company’s Board of General Shareholders’ Meeting, decisions can they hold positions in the Company’s internal control systems; the amount needed to achieve this. Annual additional compensation is Directors. In the event that the Company regarding ex-dividend dates are made executive bodies. • the special projects function implements calculated by adding percentages (as set suffers a loss due to a breach of the Insider based on the recommendations of the bespoke projects, including research and In 2016, the total remuneration paid by the Board of Directors) of the Company’s Information Policy, the insider is required Board of Directors. Internal Audit Department forensics. to the Board of Directors of PhosAgro was EBITDA for the reporting period. to compensate the Company for any The responsibility for performing USD 800.0 thousand and RUB 9,247.1 damages. The ex-dividend date must be set between internal audits of PhosAgro falls on New documents regulating the Internal thousand. The amount of remuneration and Insider Information Policy 10 and 20 days from the date of the the Internal Audit Department. It is an Audit Department have been confirmed additional compensation paid to the Chief PhosAgro has instituted a well-defined Dividend Policy decision to pay dividends. Dividends must independent department within PhosAgro to reflect the reorganisation, including staff Executive Officer of PhosAgro is regulated policy on insider information that is one of PhosAgro’s Dividend Policy is based on the be paid to registered shareholders who are that functionally reports to the Audit job descriptions that have been developed

by a contract between the Chief Executive the most important factors in ensuring that following principles: nominee shareholders that are professional Committee of the Board of Directors and to comply with the internal auditor FINANCIAL STATEMENTS Officer and the Company, which is signed the rights and interests of its shareholders • shareholders’ interests are to be securities traders or fund managers within administratively reports to the CEO. professional standard. by the Company’s Board of Directors. and investors are respected. The Company’s balanced between the payment of 10 working days from the ex-dividend The total remuneration reflects the Chief principles are outlined in the Regulation dividends and reinvestment of profit date. Other registered shareholders must The Internal Audit Department is tasked In 2016, the department audited the Executive Officer’s qualifications and takes on Insider Information, which is available into further development be paid within 25 working days after the with improving the efficiency of business- following business processes: capital into account the particular contribution on the website. An insider is a person who • there is to be a transparent and ex-dividend date. Holders of PhosAgro process management, internal control and construction, domestic sales, energy of the Chief Executive Officer to the has the right to access insider information predictable dividend policy that is GDRs are also entitled to receive dividends risk management systems of PhosAgro management, environmental compliance Company’s financial results. as part of his or her job description or in attractive to investors in respect of shares underlying the GDRs, and its subsidiaries by conducting an and industrial safety. It also brought on line with an internal Company document, • the majority of profit is to be used for subject to the terms of their depositary independent and objective assessment external consultants to help audit the risk The remuneration paid by the Company a contract with the Company or a law reinvestment to support the Company’s agreements. of their risk management, corporate management system. ADDITIONAL INFORMATION to the Chief Executive Officer and the four or regulatory requirement. PhosAgro’s growth governance, information systems and other members of the Management Board Internal Audit Department, which reports In determining the size of dividends to be internal control, as well as other projects The Internal Audit Department’s plans (who represent the Senior Management to the Board of Directors, is responsible A decision on the payment of a dividend, paid out, the Board of Directors will always that fall within the department’s scope as for 2017 include auditing the following Team) for their services to the Company for ensuring compliance with current laws its timing and the exact amount of such try to recommend dividend payments of required by the international internal audit business processes: mining and refining, during the year ended 31 December and regulations on insider information. a payment is subject to approval of the between 30% and 50% of the consolidated standards established by the Institute of fertilizer production, transportation 2016 was RUB 234.6 million in salary and In 2016, the Board of Directors approved General Shareholders’ Meeting, based on profit for the year, calculated in accordance Internal Auditors. logistics, insider information and export additional compensation. a revised version of the policy to account recommendations provided by PhosAgro’s with IFRS. Dividend payments in 2016 sales. for changes in Russian legislation, as Board of Directors. The Board of Directors’ totalled nearly 50% of the Company’s net In 2016, the Board of Directors well as the requirements of the European recommendations depend primarily on profit for the period. approved a new Internal Audit Policy

118 PhosAgro Integrated Report 2016 www.phosagro.com 119 Corporate governance (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT INTERNAL CONTROL AND AUDIT

Internal control body Internal control body

REVIEW AUDIT COMMITTEE BOARD CHIEF INTERNAL EXTERNAL COMMITTEE OF THE BOARD OF DIRECTORS OF DIRECTORS EXECUTIVE OFFICER AUDIT DEPARTMENT AUDITOR

Appointed by Appointed by

General Shareholders’ Board General Shareholders’ Board Board General Shareholders’ Meeting of Directors Meeting of Directors of Directors Meeting CORPORATE GOVERNANCE REPORT Reports to Reports to

Board Functional: Audit Committee General Shareholders’ Board of Directors Audit Committee Shareholders Meeting of Directors

Functions Functions

Prepares a report on the results of the Company’s Improves the efficiency and quality of the work of Determines how the internal control system Functioning of PhosAgro’s internal control system. Provides an independent and objective assessment Verifies the compliance, in terms of accuracy and operations for the prior year ahead of the Annual the Board of Directors in the area of internal control. operates and approves various actions and policies of the Company’s internal control and risk completeness, of the Company’s annual financial General Shareholders’ Meeting and gives its opinion relating to it. Implements internal control procedures and management systems. statements with IFRS. on whether the Company’s financial statements are Considers issues and provides recommendations to ensures that they are put into practice. true and accurate. the Board of Directors in areas like: Reports annually to the General Shareholders’ Assists top management in developing and Inspects the Company’s financial and commercial • internal and external audits Meeting on the reliability and efficiency of Promptly informs the Board of Directors of any monitoring the implementation of procedures and operations and its internal control systems. significant risks faced by the Company or any major Conducts internal audit procedures and ensures • the accuracy and efficiency of internal control PhosAgro’s internal control system. measures to improve the risk management, internal FINANCIAL STATEMENTS compliance with Russian Accounting Standards procedures weaknesses in the Company’s internal control control and corporate governance systems. Prepares a report that is submitted to the Audit (RAS). Monitors compliance with current legislation, • management accounting and financial reporting Approves the appointment and dismissal of system. Committee at least once a year. the Company Charter and internal regulations. • risk management procedures and systems the Director of Internal Audit. Coordinates with the Company’s external auditors Tells the Board what measures have been or will be and other third parties. In case of a disagreement between the Company’s • how risks are reflected in the Company’s taken to address issues and results of these actions. management and the independent auditor, reporting Conducts internal audits of subsidiaries in line with the Audit Committee oversees the resolution of Supervises the Internal Audit Department. established procedures. the disagreement. Prepares and presents information about KPMG is currently PhosAgro’s external auditor. the internal audit function’s operations for the Board of Directors, Audit Committee and General Shareholders’ Meeting.

Verifies compliance of management and ADDITIONAL INFORMATION employees with legislation and internal regulations on insider information.

120 PhosAgro Integrated Report 2016 www.phosagro.com 121 MANAGEMENT RESPONSIBILITY STATEMENT

The Company’s management hereby confirms that, to the best of its knowledge: Pre-approved by the Board of Directors March 21, 2017 a. The financial statements prepared in b. The management report includes a accordance with International Financial fair review of the development and Reporting Standards as issued by the performance of the business and Approved by the Annual International Accounting Standards the position of the Company and General Meeting of Board give a true and fair view of the the undertakings included in the Shareholders May 30, 2017. assets, liabilities, financial position consolidation taken as a whole, together and profit or loss of the Company with a description of the principal risks and the undertakings included in the and uncertainties that they face. consolidation taken as a whole;

The consolidated financial statements for the year ended 31 December 2016 were approved by the Company’s management on 21 March 2017.

Andrey A. Guryev Andrey A. Guryev Chairman of the Management Board and Chairman of the Management Chief Executive Officer of PJSC PhosAgro Board and Chief Executive Officer of PJSC PhosAgro

122 PhosAgro Integrated Report 2016 CONSOLIDATED STRATEGIC REPORT FINANCIAL STATEMENTS CORPORATE RESPONSIBILITY REPORT

Contents

Auditors’ Report 124 Consolidated Statement of Profit or Loss and Other Comprehensive Income 127 Consolidated Statement of Financial Position 128 Consolidated Statement of Cash Flows 129 Consolidated Statement of Changes in Equity 130 Notes to the Consolidated Financial Statements 131 1. Background 131 2. Basis of preparation 131 3. Significant accounting policies 132 4. Determination of fair values 137 CORPORATE GOVERNANCE REPORT 5. Segment information 138 6. Revenues 139 7. Personnel costs 139 8. Cost of sales 140 9. Administrative expenses 140 10. Selling expenses 140 11. Other expenses, net 140 12. Finance income and finance costs 140 13. Income tax expense 141 14. Property, plant and equipment 142 15. Investments in associates 143

16. Deferred tax assets and liabilities 144 FINANCIAL STATEMENTS 17. Other non-current assets 146 18. Other current investments 146 19. Inventories 147 20. Trade and other receivables 147 21. Cash and cash equivalents 148 22. Equity 148 23. Earnings per share 149

24. Loans and borrowings 150 ADDITIONAL INFORMATION 25. Defined benefit obligations 152 26. Leases 153 27. Trade and other payables 153 28. Financial risk management 154 29. Commitments 159 30. Contingencies 159 31. Related party transactions 160 32. Significant subsidiaries 161 33. Events subsequent to the reporting date 161

www.phosagro.com 123 Financial Statements (continued) STRATEGIC REPORT

JSC “KPMG” PJSC “PhosAgro” 10 Presnenskaya Naberezhnaya Moscow, Russia 123112 Independent Auditors’ Report Telephone +7 (495) 937 4477 Page 2 Fax +7 (495) 937 4400/99 Internet www.kpmg.ru CORPORATE RESPONSIBILITY REPORT

Independent Auditors’ Report VALUATION OF DEFERRED TAX ASSETS To the Shareholders and Board of Directors PJSC “PhosAgro” Please refer to the Note 16 in the consolidated financial statements.

Opinion Group in accordance with the independence The key audit matter How the matter was addressed in our audit Other Information assessing the Group’s ability to continue as We have audited the consolidated requirements that are relevant to our audit The Group has recognised significant Our audit procedures included the following: Management is responsible for the a going concern, disclosing, as applicable, financial statements of PJSC “PhosAgro” of the consolidated financial statements deferred tax assets in respect of tax losses. other information. The other information matters related to going concern (the “Company”) and its subsidiaries (the in the Russian Federation and with the We analysed the underlying methodology comprises the information included in the and using the going concern basis of “Group”), which comprise the consolidated International Ethics Standards Board for The recovery of the deferred tax assets and tested the mathematical accuracy of Annual Report but does not include the accounting unless management either

statement of financial position as at Accountants’ Code of Ethics for Professional depends on achieving sufficient taxable the taxable profits forecast model used consolidated financial statements and our intends to liquidate the Group or to cease CORPORATE GOVERNANCE REPORT 31 December 2016, the consolidated Accountants (IESBA Code), and we have profits in the future. to estimate the likelihood of the recovery of auditors’ report thereon. The Annual Report operations, or has no realistic alternative but statements of profit or loss and other fulfilled our other ethical responsibilities deferred tax assets. is expected to be made available to us after to do so. comprehensive income, changes in equity in accordance with the requirements in the Future taxable profits to be used for the date of this auditors’ report. and cash flows for the year then ended, and Russian Federation and the IESBA Code. utilisation of tax losses accumulated by the We evaluated the appropriateness of Those charged with governance are notes, comprising significant accounting We believe that the audit evidence we Company mainly represent interest income management’s key assumptions and Our opinion on the consolidated financial responsible for overseeing the Group’s policies and other explanatory information. have obtained is sufficient and appropriate to be received by the Company on the loans estimates, in particular the likelihood of statements does not cover the other financial reporting process. to provide a basis for our opinion. issued to the Group subsidiaries less interest generating sufficient future taxable profits information and we will not express any In our opinion, the accompanying expense of the Company from financing. to support the recognition of deferred form of assurance conclusion thereon. Auditors’ Responsibilities for the Audit of consolidated financial statements Key Audit Matters tax assets, in reference to performance the Consolidated Financial Statements present fairly, in all material respects, Key audit matters are those matters that, The assessment of the potential to utilise trends and dividend capacity of the Group In connection with our audit of the Our objectives are to obtain reasonable the consolidated financial position of the in our professional judgment, were of most the tax losses is dependent on the forecast subsidiaries. consolidated financial statements, assurance about whether the consolidated Group as at 31 December 2016, and its significance in our audit of the consolidated profitability of the Group subsidiaries, the our responsibility is to read the other financial statements as a whole are free consolidated financial performance and its financial statements of the current period. amount of dividends to be distributed We corroborated expected interest rates information identified above when it from material misstatement, whether due consolidated cash flows for the year then These matters were addressed in the to the Company, expected foreign currency for loans to be issued and financing becomes available and, in doing so, consider to fraud or error, and to issue an auditors’ FINANCIAL STATEMENTS ended in accordance with International context of our audit of the consolidated exchange and interest rates for loans to be to be received by the Company to publicly whether the other information is materially report that includes our opinion. Reasonable Financial Reporting Standards (IFRS). financial statements as a whole, and in issued by the Company to Group subsidiaries available market benchmarks. inconsistent with the consolidated financial assurance is a high level of assurance, but forming our opinion thereon, and we do not and financing to be received by the statements or our knowledge obtained is not a guarantee that an audit conducted Basis for Opinion provide a separate opinion on these matters. Company. Using KPMG tax specialist, we considered in the audit, or otherwise appears to be in accordance with ISAs will always detect We conducted our audit in accordance the appropriateness of the application of materially misstated. a material misstatement when it exists. with International Standards on Auditing There is inherent uncertainty involved relevant tax legislation by the Group, in Misstatements can arise from fraud or error (ISAs). Our responsibilities under those in forecasting timing and quantum of relation to the utilisation of tax losses. Responsibilities of Management and and are considered material if, individually standards are further described in the future taxable profits, which support the Those Charged with Governance for the or in the aggregate, they could reasonably Auditors’ Responsibilities for the Audit of the extent to which tax assets are recognised. Consolidated Financial Statements be expected to influence the economic

Consolidated Financial Statements section Therefore, this is the key judgmental area Management is responsible for the decisions of users taken on the basis of ADDITIONAL INFORMATION of our report. We are independent of the our audit is concentrated on. preparation and fair presentation of the these consolidated financial statements. consolidated financial statements in accordance with IFRS, and for such internal As part of an audit in accordance with ISAs, control as management determines is we exercise professional judgment and necessary to enable the preparation of maintain professional skepticism throughout Audited entity: PJSC “PhosAgro” Registration No. in the Unified State Register of Legal Entities 1027700190572. consolidated financial statements that are the audit. We also: Moscow, Russia free from material misstatement, whether Independent auditor: JSC “KPMG”, a company incorporated under the Laws of the Russian Federation, a member firm due to fraud or error. • Identify and assess the risks of material of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. misstatement of the consolidated Registration No. in the Unified State Register of Legal Entities 1027700125628. In preparing the consolidated financial financial statements, whether due Member of the Self-regulated organization of auditors “Russian Union of auditors” (Association). The Principal statements, management is responsible for to fraud or error, design and perform Registration Number of the Entry in the Register of Auditors and Audit Organisations: No. 11603053203.

124 PhosAgro Integrated Report 2016 www.phosagro.com 125 Financial Statements (continued) STRATEGIC REPORT

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR 2016 PJSC “PhosAgro” Independent Auditors’ Report RUB million Page 3

Note 2016 2015

Revenues 6 187,742 189,732 CORPORATE RESPONSIBILITY REPORT Cost of sales 8 (86,391) (83,064) GROSS PROFIT 101,351 106,668

audit procedures responsive to those the disclosures, and whether the be expected to outweigh the public interest Administrative expenses 9 (13,891) (12,184) risks, and obtain audit evidence that is consolidated financial statements benefits of such communication. Selling expenses 10 (21,129) (17,751) sufficient and appropriate to provide represent the underlying transactions a basis for our opinion. The risk of not and events in a manner that achieves fair The engagement partner on the audit resul- Taxes, other than income tax (2,261) (1,994) detecting a material misstatement presentation; ting in this independent auditors’ report is: Other expenses, net 11 (2,472) (1,408) resulting from fraud is higher than for • Obtain sufficient appropriate audit OPERATING PROFIT 61,598 73,331 one resulting from error, as fraud may evidence regarding the financial involve collusion, forgery, intentional information of the entities or business omissions, misrepresentations, or the activities within the Group to express Finance income 12 909 1,222 override of internal control; an opinion on the consolidated financial Finance costs 12 (4,682) (6,093) • Obtain an understanding of internal statements. We are responsible for the I.A. Yagnov Foreign exchange gain/(loss), net 28(b) 16,962 (22,178)

control relevant to the audit in order direction, supervision and performance JSC “KPMG” CORPORATE GOVERNANCE REPORT Share of profit/(loss) of associates 15 140 (59) to design audit procedures that are of the Group audit. We remain solely Moscow, Russia appropriate in the circumstances, but not responsible for our audit opinion. 24 March 2017 PROFIT BEFORE TAX 74,927 46,223 for the purpose of expressing an opinion on the effectiveness of the Group’s We communicate with those charged with internal control; governance regarding, among other matters, Income tax expense 13 (15,041) (9,787) • Evaluate the appropriateness of the planned scope and timing of the audit PROFIT FOR THE YEAR 59,886 36,436 accounting policies used and the and significant audit findings, including any Attributable to: reasonableness of accounting estimates significant deficiencies in internal control • Non-controlling interests* 2 (6) and related disclosures made by that we identify during our audit. • Shareholders of the Parent 59,884 36,442 management; • Conclude on the appropriateness of We also provide those charged with management’s use of the going concern governance with a statement that we have OTHER COMPREHENSIVE INCOME basis of accounting and, based on the complied with relevant ethical requirements

Actuarial gains and losses, net of tax 25 (68) (4) FINANCIAL STATEMENTS audit evidence obtained, whether a regarding independence, and communicate material uncertainty exists related with them all relationships and other Foreign currency translation difference (3,105) 3,405 to events or conditions that may cast matters that may reasonably be thought OTHER COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR (3,173) 3,401 significant doubt on the Group’s ability to bear on our independence, and where to continue as a going concern. If we applicable, related safeguards. conclude that a material uncertainty TOTAL COMPREHENSIVE INCOME FOR THE YEAR 56,713 39,837 exists, we are required to draw attention From the matters communicated with those in our auditors’ report to the related charged with governance, we determine Attributable to: disclosures in the consolidated financial those matters that were of most significance • Non-controlling interests* 2 (6) statements or, if such disclosures are in the audit of the consolidated financial • Shareholders of the Parent 56,711 39,843

inadequate, to modify our opinion. Our statements of the current period and are ADDITIONAL INFORMATION Basic and diluted earnings per share (in RUB) 23 462 281 conclusions are based on the audit therefore the key audit matters. We describe evidence obtained up to the date of our these matters in our auditors’ report * non-controlling interests are the minority shareholders of the subsidiaries of PJSC “PhosAgro” auditors’ report. However, future events unless law or regulation precludes public or conditions may cause the Group disclosure about the matter or when, in The consolidated financial statements were approved on 24 March2017 : to cease to continue as a going concern; extremely rare circumstances, we determine • Evaluate the overall presentation, that a matter should not be communicated structure and content of the consolidated in our report because the adverse A.A. Guryev A.F. Sharabaiko financial statements, including consequences of doing so would reasonably Chief executive officer Chief financial officer

The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the 126 PhosAgro Integrated Report 2016 www.phosagro.com consolidated financial statements set out on pages 133 to 163. 127 Financial Statements (continued) STRATEGIC REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR 2016

RUB million RUB million

ASSETS Note 31 December 2016 31 December 2015 CASH FLOWS FROM OPERATING ACTIVITIES Note 2016 2015

Property, plant and equipment 14 154,713 120,952 Profit before tax 74,927 46,223 Advances issued for property, plant and equipment 4,684 7,424 Adjustments for: Intangible assets 1,165 566 Depreciation and amortisation 8, 9, 10 10,767 9,133 CORPORATE RESPONSIBILITY REPORT Investments in associates 15 816 810 Loss on disposal of property, plant and equipment and intangible assets 11 614 915 Deferred tax assets 16 5,110 5,901 Finance income 12 (909) (1,222) Other non-current assets 17 2,226 2,822 Finance costs 12 4,682 6,093 Non-current assets 168,714 138,475 Share of (profit)/loss of associates 15 (140) 59 Foreign exchange (gain)/loss, net (18,040) 23,663 Other current investments 18 3,282 4,902 Operating profit before changes in working capital and provisions 71,901 84,864 Inventories 19 19,934 17,814 Increase in inventories (2,120) (5,287) Current income tax receivable 339 453 Increase in trade and other receivables (4,023) (6,116) Trade and other receivables 20 29,674 25,511 Increase in trade and other payables 3,019 2,741 Cash and cash equivalents 21 7,261 29,347 Cash flows from operations before income taxes and interest paid 68,777 76,202 Current assets 60,490 78,027 Income tax paid (13,451) (7,488) TOTAL ASSETS 229,204 216,502

Finance costs paid (4,965) (5,453) CORPORATE GOVERNANCE REPORT

CASH FLOWS FROM OPERATING ACTIVITIES 50,361 63,261 EQUITY 22

Share capital 372 372 CASH FLOWS FROM INVESTING ACTIVITIES Share premium 7,494 7,494 Loans repaid/(issued), net 253 (151) Retained earnings 74,932 43,460 Acquisition of property, plant and equipment and intangible assets (40,246) (42,668) Other reserves 5,486 8,659 Proceeds from disposal of property, plant and equipment 270 170 Equity attributable to shareholders of the Parent 88,284 59,985 Proceeds from disposal of investments 1,277 - Equity attributable to non-controlling interests 137 213 Finance income received 432 1,008 TOTAL EQUITY 88,421 60,198 Cash of Phosint Group at the date of acquisition - 10,178

CASH FLOWS USED IN INVESTING ACTIVITIES (38,014) (31,463)

LIABILITIES FINANCIAL STATEMENTS

Loans and borrowings 24 98,239 105,565 CASH FLOWS FROM FINANCING ACTIVITIES Defined benefit obligations 25 767 424 Proceeds from borrowings 34,149 46,376 Deferred tax liabilities 16 4,600 3,677 Repayment of borrowings (33,727) (62,041) Non-current liabilities 103,606 109,666 Dividends paid to shareholders of the Parent 22 (27,974) (18,130)

Trade and other payables 27 22,803 17,011 Dividends paid to non-controlling interests (9) - Current income tax payable 237 491 Payment of finance lease liabilities (1,951) (1,905) Loans and borrowings 24 14,137 28,947 Proceeds from/(payments for) settlement of derivatives, net 127 (1,590)

Derivative financial liabilities - 189 Acquisition of non-controlling interests (218) - ADDITIONAL INFORMATION Current liabilities 37,177 46,638 Other payments (243) (154) Proceeds from contribution to charter capital of subsidiaries by non-controlling interests - 71

CASH FLOWS USED IN FINANCING ACTIVITIES (29,846) (37,373) TOTAL EQUITY AND LIABILITIES 229,204 216,502

NET DECREASE IN CASH AND CASH EQUIVALENTS (17,499) (5,575)

Cash and cash equivalents at 1 January 29,347 30,687 Effect of exchange rates fluctuations (4,587) 4,235

CASH AND CASH EQUIVALENTS AT 31 DECEMBER 21 7,261 29,347

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out 128 financial statements set out on pages 133 to 163. PhosAgro Integrated Report 2016 www.phosagro.com on pages 133 to 163. 129 Financial Statements (continued) STRATEGIC REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR 2016

RUB million

Attributable to shareholders of the Parent

Foreign Attributable Actuarial Share Retained currency to non- 1. Background 2. Basis of preparation Share capital gains and Total premium earnings translation controlling losses CORPORATE RESPONSIBILITY REPORT reserve interests (a)Organisation and operations (a) Statement of compliance rate of RUB 27.7487 for USD 1. Equity BALANCE AT 1 JANUARY PJSC “PhosAgro” (the “Company” or the These consolidated financial statements items arising during the year are 372 7,494 22,708 (312) 5,570 149 35,981 2015 “Parent”) and its subsidiaries (together have been prepared in accordance with recognised at the exchange rate ruling at Total comprehensive income for the year referred to as the “Group”) comprise International Financial Reporting Standards the date of transaction; Russian legal entities and foreign trading (“IFRS”) as issued by the International • The resulting foreign exchange Profit for the year - - 36,442 - - (6) 36,436 subsidiaries. The Company was registered Accounting Standards Board. difference is recognised in other Actuarial gains and losses, net of tax - - - (4) - - (4) in October 2001. The Company’s location is comprehensive income. Foreign currency translation - - - - 3,405 - 3,405 Leninsky prospekt 55/1 building 1, Moscow, The Group additionally prepares IFRS difference Russian Federation, 119333. consolidated financial statements in the The translation from EUR into RUB, where - - 36,442 (4) 3,405 (6) 39,837 Russian language in accordance with the applicable, was performed as follows: The Group’s principal activity is production Federal Law No. 208-FZ On consolidated Transactions with owners recognised directly in equity of apatite concentrate and mineral fertilisers financial reporting • Assets and liabilities as at 31 December Dividends to shareholders of - - (15,540) - - (1) (15,541) the Parent at plants located in the cities of Kirovsk 2016 were translated at the closing (Murmansk region), Cherepovets (Vologda (b) Basis of measurement exchange rate of RUB 63.8111 for EUR Additional contribution to charter - - - - - 71 71 capital of subsidiaries region), Balakovo (Saratov region) and The consolidated financial statements are 1 (31 December 2015: RUB 79.6972 for CORPORATE GOVERNANCE REPORT Volkhov (Leningrad region), and their prepared on the historical cost basis except EUR 1); Other - - (150) - - - (150) distribution across the Russian Federation that investments available-for-sale and • Profit and loss items were translated at - - (15,690) - - 70 (15,620) and abroad. derivative financial instruments are stated the average exchange rate for 2016 of at fair value RUB 74.2310 for EUR 1. (for 2015: RUB The Company’s key shareholders are several 67.7767 for EUR 1); BALANCE AT 31 DECEMBER 372 7,494 43,460 (316) 8,975 213 60,198 Cyprus entities holding approximately 20% (c) Functional currency • Equity items, which were recognised at 2015 of the Company’s ordinary shares each. The national currency of the Russian the date of adoption of IFRS, 1 January The majority of the shares of the Company Federation is the Russian Rouble (“RUB”), 2005, were translated at the exchange are ultimately owned by trusts, where the which is the functional currency of the rate of RUB 37.8409 for EUR 1. Equity economic beneficiary is Mr. Andrey G. Guryev Parent and its subsidiaries, except for foreign items arising during the year are BALANCE AT 1 JANUARY 372 7,494 43,460 (316) 8,975 213 60,198 and his family members. trading subsidiaries, where the functional recognised at the exchange rate ruling at 2016 currency is USD. the date of transaction; Total comprehensive income for the year (b) Russian business environment • The resulting foreign exchange Profit for the year - - 59,884 - - 2 59,886 The Group’s operations are primarily difference is recognised in other FINANCIAL STATEMENTS Actuarial gains and losses, net of tax - - - (68) - - (68) located in the Russian Federation. (d) Presentation currency comprehensive income. Consequently, the Group is exposed These consolidated financial statements are Foreign currency translation - - - - (3,105) - (3,105) difference to the economic and financial conditions presented in RUB. All financial information (e) Use of estimates and judgments of the Russian Federation which display presented in RUB has been rounded to the The preparation of consolidated financial - - 59,884 (68) (3,105) 2 56,713 characteristics of an emerging market. nearest million, except per share amounts. statements in conformity with IFRS requires Transactions with owners recognised directly in equity The legal, tax and regulatory frameworks management to make judgments, estimates Dividends to shareholders of continue development, but are subject The translation from USD into RUB, where and assumptions that affect the application - - (27,974) - - (9) (27,983) the Parent, note 22 to varying interpretations and frequent applicable, was performed as follows: of accounting policies and the reported Acquisition of non-controlling changes which together with other legal amounts of assets, liabilities, income and - - (149) - - (69) (218) interests without a change in control and fiscal impediments contribute to the • Assets and liabilities as at 31 December expenses. Actual results may differ from ADDITIONAL INFORMATION Other - - (289) - - - (289) challenges faced by entities operating in 2016 were translated at the closing those estimates. the Russian Federation. The consolidated exchange rate of RUB 60.6569 for USD - - (28,412) - - (78) (28,490) financial statements reflect management’s 1 (31 December 2015: RUB 72.8827 for Estimates and underlying assumptions are assessment of the impact of the Russian USD 1); reviewed on an ongoing basis. Revisions business environment on the operations • Profit and loss items were translated at to accounting estimates are recognised BALANCE AT 31 DECEMBER 372 7,494 74,932 (384) 5,870 137 88,421 and the financial position of the Group. the average exchange rate for 2016 of in the period in which the estimates are 2016 The future business environment may differ RUB 67.0349 for USD 1. (for 2015: RUB revised and in any future periods affected. from management’s assessment. 60.9579 for USD 1); • Equity items, which were recognised at Information about critical assumptions and the date of adoption of IFRS, 1 January estimation uncertainties that have the most 2005, were translated at the exchange significant effect on the amounts recognised

The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming 130 part of, the consolidated financial statements set out on pages 133 to 163. PhosAgro Integrated Report 2016 www.phosagro.com 131 Financial Statements (continued) STRATEGIC REPORT

in the consolidated financial statements is the date that control is lost. Subsequently same way as unrealised gains except that Where an item of property, plant and Buildings 12-17 years (III) Amortisation CORPORATE RESPONSIBILITY REPORT included in the following notes: it is accounted for as an equity-accounted they are only eliminated to the extent that equipment comprises major components Intangible assets, other than goodwill, are investee or as an available-for-sale financial there is no evidence of impairment. having different useful lives, they are Plant and equipment 4-15 years amortised on a straight-line basis over their • note 3(c)(iv) – estimated useful lives of asset depending on the level of influence accounted for as separate items of property, estimated useful lives from the date the Fixtures and fittings 3-6 years fixed assets; retained (b) Foreign currencies plant and equipment. asset is available for use. The estimated • note 16 – recognition of deferred tax Transactions in foreign currencies are useful lives are 3 – 10 years. assets: availability of future taxable (III) Acquisitions and disposals of non- translated to RUB at the foreign exchange (II) Leased assets Tangible fixed assets acquired after the date profit against which carry-forward tax controlling interests rate ruling at the date of the transaction. Leases under which the Group assumes of adoption of IFRS, are depreciated over the (e) Investments losses can be used; Any difference between the consideration Monetary assets and liabilities denominated substantially all the risks and rewards of following useful lives: Non-derivative financial instruments • note 18 – recognition of bad debt paid to acquire a non-controlling interest, in foreign currencies at the reporting ownership are classified as finance leases. Non-derivative financial instruments provision on promissory notes: and the carrying amount of that non- date are translated to RUB at the foreign Plant and equipment acquired by way of comprise investments in equity and debt uncertainties associated with the mutual controlling interest, is recognised in equity. exchange rate ruling at that date. Non- finance lease is stated at an amount equal securities, trade and other receivables, cash Buildings 10-60 лет court claims filed by the Group and the monetary assets and liabilities denominated to the lower of its fair value and the present and cash equivalents, loans and borrowings, bank. Any difference between the consideration in foreign currencies that are stated at value of the minimum lease payments at Plant and equipment 5-35 лет and trade and other payables. received from disposal of a portion of a historical cost are translated to RUB at the inception of the lease, less accumulated Fixtures and fittings 2-25 лет

3. Significant accounting Group’s interest in the subsidiary and the foreign exchange rate ruling at the date of depreciation and impairment losses. Non-derivative financial instruments are CORPORATE GOVERNANCE REPORT policies carrying amount of that portion, including the transaction. Non-monetary assets and recognised initially at fair value plus, for attributable goodwill, is recognised in equity. liabilities denominated in foreign currencies (III) Subsequent expenditure instruments not at fair value through profit The accounting policies set out below have that are stated at fair value are translated Expenses in connection with ordinary (d) Intangible assets or loss, any directly attributable transaction been applied consistently to all periods (IV) Associates to RUB at the foreign exchange rate ruling maintenance and repairs are recognised in (I) Research and development costs. Subsequent to initial recognition presented in these consolidated financial Associates are those enterprises in which at the dates the fair values were determined. the statement of profit or loss as they are Expenditure on research activities, non-derivative financial instruments are statements the Group has significant influence, but not Foreign exchange differences arising on incurred. undertaken with the prospect of gaining measured as described below. control, over the financial and operating translation are recognised in the profit or new scientific or technical knowledge and (a) Basis of consolidation policies. The consolidated financial loss. Expenses in connection with periodic understanding, is recognised in the profit Held-to-maturity investments: If the Group (I) Subsidiaries statements include the Group’s share of maintenance on property, plant and and loss as an expense as incurred. has the positive intent and ability to hold Subsidiaries are entities controlled by the the total recognised gains and losses of (c) Property, plant and equipment equipment are recognised as assets and debt instruments to maturity, then they Group. The Group controls an entity when associates on an equity accounted basis, (I) Owned assets depreciated on a straight-line basis over the Expenditure on development activities, are classified as held-to-maturity. Held- it is exposed to, or has rights to, variable from the date that significant influence Property, plant and equipment is stated at period until the next periodic maintenance, whereby research findings are applied to a to-maturity investments are measured at returns from its involvement with the effectively commences until the date that cost less accumulated depreciation and provided the criteria for capitalizing such plan or design for the production of new amortised cost using the effective interest entity and has the ability to affect those significant influence effectively ceases. impairment losses. The cost of property, items have been met. or substantially improved products and method, less any impairment losses. FINANCIAL STATEMENTS returns through its power over the entity. When the Group’s share of losses exceeds plant and equipment at the date of processes, is capitalised if the product or The financial statements of subsidiaries the Group’s interest in the associate, that transition to IFRS was determined by Expenses incurred in connection with major process is technically and commercially Available-for-sale financial assets: are included in the consolidated financial interest is reduced to nil and recognition reference to its fair value at that date replacements and renewals that materially feasible and the Group has sufficient The Group’s investments in equity securities statements from the date that control of further losses is discontinued except (“deemed cost”) as determined by an extend the life of property, plant and resources to complete development. and certain debt securities are classified commences until the date that control to the extent that the Group has incurred independent appraiser. equipment are capitalised and depreciated The expenditure capitalised includes the as available-for-sale financial assets. ceases. The accounting policies of obligations in respect of the associate. on a systematic basis. cost of materials, direct labour and an Subsequent to initial recognition, they are subsidiaries have been changed when Cost includes expenditure that is directly appropriate proportion of overheads. Other measured at fair value and changes therein, necessary to align them with the policies (V) Transactions eliminated on consolidation attributable to the acquisition of the asset. (IV) Depreciation development expenditure is recognised other than impairment losses (see note adopted by the Group. Intra-group balances and transactions, The cost of self-constructed assets includes Depreciation is charged to the profit and in the profit and loss as an expense 3(i)), and foreign exchange gains and losses

and any unrealised gains arising from the cost of materials and direct labour, any loss on a straight-line basis over the as incurred. Capitalised development on available-for-sale monetary items, are ADDITIONAL INFORMATION (II) Loss of control intra-group transactions, are eliminated other costs directly attributable to bringing estimated useful lives of the individual expenditure is stated at cost less recognised directly in other comprehensive Upon the loss of control, the Group in preparing the consolidated financial the asset to a working condition for their assets. Depreciation commences on the accumulated amortisation and impairment income. When an investment is derecognises the assets and liabilities of statements. Unrealised gains arising from intended use, the costs of dismantling and month following the month of acquisition losses. derecognised, the cumulative gain or loss in the subsidiary, any non-controlling interests transactions with associates and jointly removing the items and restoring the site or, in respect of internally constructed other comprehensive income is transferred and the other components of equity related controlled enterprises are eliminated on which they are located, and capitalised assets, from the month following the month (II) Other intangible assets to the profit or loss. to the subsidiary. Any surplus or deficit to the extent of the Group’s interest in the borrowing costs. Purchased software that is an asset is completed and ready for use. Other intangible assets acquired by the arising on the loss of control is recognised enterprise. Unrealised gains resulting from integral to the functionality of the related Land is not depreciated. Group are represented by Oracle software, Other: Other non-derivative financial in profit or loss. If the Group retains any transactions with associates are eliminated equipment is capitalised as part of that which has finite useful life and is stated instruments are measured at amortised cost interest in the previous subsidiary, then against the investment in the associate. equipment. The estimated useful lives as determined at cost less accumulated amortisation and using the effective interest method, less any such interest is measured at fair value at Unrealised losses are eliminated in the when adopting IFRS (1 January 2005) are as impairment losses impairment losses. Investments in equity follows: securities that are not quoted on a stock

132 PhosAgro Integrated Report 2016 www.phosagro.com 133 Financial Statements (continued) STRATEGIC REPORT

exchange and where fair value cannot be is any objective evidence that it is impaired. loss. Changes in impairment provisions estimated on a reasonable basis by other A financial asset is impaired if objective attributable to time value are reflected as a impairment losses recognised in prior When the benefits of a plan are improved, (o) Income tax means are stated at cost less impairment evidence indicates that a loss event has component of interest income. periods are assessed at each reporting the portion of the increased benefit relating Income tax expense comprises current

losses occurred after the initial recognition of the date for any indications that the loss to past service by employees is recognised and deferred tax. Income tax expense is CORPORATE RESPONSIBILITY REPORT asset, and that the loss event had a negative If, in a subsequent period, the fair value has decreased or no longer exists. An immediately as an expense in the profit recognised in profit and loss except to the Derivative financial instruments effect on the estimated future cash flows of of an impaired available-for-sale debt impairment loss is reversed if there has and loss. To the extent the benefits vest extent that it relates to items recognised The Group from time to time buys that asset that can be estimated reliably. security increases and the increase can be been a change in the estimates used immediately, the expense is recognised in other comprehensive income, in which derivative financial instruments to manage related objectively to an event occurring to determine the recoverable amount. An immediately in the profit and loss. case it is recognised in other comprehensive its exposure to foreign currency risk. All Objective evidence that financial assets after the impairment loss was recognised impairment loss is reversed only to the income. derivatives are recognised on the balance (including equity securities) are impaired can in profit or loss, then the impairment loss extent that the asset’s carrying amount does All actuarial gains and losses are recognised sheet at fair value. Derivatives are not include default or delinquency by a debtor, is reversed, with the amount of the reversal not exceed the carrying amount that would in full as they arise in other comprehensive Current tax is the expected tax payable designated as hedging instruments. restructuring of an amount due to the Group recognised in profit or loss. However, any have been determined, net of depreciation income. on the taxable income for the year, using Derivatives are initially recognised at fair on terms that the Group would not consider subsequent recovery in the fair value of an or amortisation, if no impairment loss had tax rates enacted or substantively enacted value on the date a derivative contract otherwise, indications that a debtor or issuer impaired available-for-sale equity security is been recognised. (II) Long-term service benefits other than at the reporting date, and any adjustment is entered into and are subsequently will enter bankruptcy, the disappearance of recognised in other comprehensive income. pensions to tax payable in respect of previous years. remeasured at their fair value with the an active market for a security. In addition, (j) Share capital The Group’s net obligation in respect of changes in fair value recognised in profit for an investment in an equity security, a Non-financial assets (I) Repurchase of share capital long-term service benefits, other than Deferred tax is recognised using the balance and loss. significant or prolonged decline in its fair The carrying amounts of the Group’s non- When share capital recognised as equity pension plans, is the amount of future sheet method, providing for temporary

value below its cost is objective evidence of financial assets, other than inventories is repurchased, the amount of the benefits that employees have earned in differences between the carrying amounts CORPORATE GOVERNANCE REPORT (f) Inventories impairment. and deferred tax assets, are reviewed at consideration paid, including directly return for their service in the current and of assets and liabilities for financial Inventories are stated at the lower of cost each reporting date to determine whether attributable costs, is deducted from equity. prior periods. The obligation is calculated reporting purposes and the amounts used and net realisable value. Net realisable The Group considers all individually there is any indication of impairment. If using the projected unit credit method for taxation purposes. Deferred tax is not value is the estimated selling price in significant receivables and held-to- any such indication exists, then the asset’s (II) Dividends and is discounted to its present value recognised for the following temporary the ordinary course of business, less the maturity investment securities for specific recoverable amount is estimated. Dividends are recognised as a liability in the and the fair value of any related assets is differences: the initial recognition of assets estimated costs of completion and selling impairment. period in which they are declared deducted. The discount rate is the yield at or liabilities in a transaction that is not expenses. The recoverable amount of an asset or cash- the reporting date on government bonds a business combination and that affects An impairment loss in respect of a financial generating unit is the greater of its value (k) Loans and borrowings that have maturity dates approximating the neither accounting nor taxable profit, and The cost of inventories is based on the asset measured at amortised cost is in use and its fair value less costs to sell. In Loans and borrowings are recognised terms of the Group’s obligations. All actuarial differences relating to investments in weighted average principle and includes calculated as the difference between its assessing value in use, the estimated future initially at fair value less any directly gains and losses are recognised in full as subsidiaries to the extent that it is probable expenditure incurred in acquiring the carrying amount, and the present value of cash flows are discounted to their present attributable transaction costs. Subsequent they arise in other comprehensive income. that they will not reverse in the foreseeable inventories and bringing them to their the estimated future cash flows discounted value using a pre-tax discount rate that to initial recognition, loans and borrowings future. In addition, deferred tax is not existing location and condition. In the case at the asset’s original effective interest reflects current market assessments of the are stated at amortised cost with any (III) State pension fund recognised for taxable temporary differences of manufactured inventories and work in rate. Losses are recognised in profit or loss time value of money and the risks specific difference between initial value and The Group makes contributions for the arising on the initial recognition of goodwill. FINANCIAL STATEMENTS progress, cost includes an appropriate share and reflected in an allowance account to the asset. For the purpose of impairment redemption value being recognised in benefit of employees to Russia’s State Deferred tax is measured at the tax rates of overheads based on normal operating against receivables. Interest on the impaired testing, assets are grouped together into the the profit and loss over the period of the pension fund. The contributions are that are expected to be applied to the capacity asset continues to be recognised through smallest group of assets that generates borrowings on an effective interest basis. expensed as incurred. temporary differences when they reverse, the unwinding of the discount. When a cash inflows from continuing use that are based on the laws that have been enacted (g) Trade and other receivables subsequent event causes the amount of largely independent of the cash inflows of (l) Employee benefits (m) Provisions or substantively enacted by the reporting Trade and other receivables are stated at impairment loss to decrease, the decrease in other assets or groups of assets (the “cash- (I) Pension plans A provision is recognised when the Group date. Deferred tax assets and liabilities are cost less impairment losses. impairment loss is reversed through profit generating unit”). The Group’s net obligation in respect of has a legal or constructive obligation as offset if there is a legally enforceable right or loss. defined benefit post-employment plans, a result of a past event, and it is probable to offset current tax assets and liabilities, (h)Cash and cash equivalents An impairment loss is recognised if the including pension plans, is calculated that an outflow of economic benefits will be and they relate to income taxes levied by

Cash and cash equivalents comprise cash Impairment losses on available-for-sale carrying amount of an asset or its cash- separately for each plan by estimating the required to settle the obligation. If the effect the same tax authority on the same taxable ADDITIONAL INFORMATION balances and call deposits. Bank overdrafts investment securities are recognised by generating unit exceeds its recoverable amount of future benefit that employees is material, provisions are determined by entity, or on different tax entities, but they that are repayable on demand and form transferring the cumulative loss that has amount. Impairment losses are recognised have earned in return for their service in discounting the expected future cash flows intend to settle current tax liabilities and an integral part of the Group’s cash been recognised in other comprehensive in the profit and loss. Impairment losses the current and prior periods. That benefit is at a pre-tax rate that reflects current market assets on a net basis or their tax assets and management are included as a component income, and presented in the fair recognised in respect of cash-generating discounted to determine its present value, assessments of the time value of money and, liabilities will be realised simultaneously. of cash and cash equivalents for the purpose value reserve in equity, to profit or loss. units are allocated first to reduce the and the fair value of any plan assets, if any, where appropriate, the risks specific to the of the consolidated statement of cash flows. The cumulative loss that is removed carrying amount of any goodwill allocated is deducted. The discount rate is the yield liability. A deferred tax asset is recognised to the from other comprehensive income and to the units, if any, and then to reduce the at the reporting date on government bonds extent that it is probable that future taxable (I) Impairment recognised in profit or loss is the difference carrying amount of the other assets in the that have maturity dates approximating (n) Trade and other payables profits will be available against which Financial assets between the acquisition cost, net of any unit (group of units) on a pro rata basis. the terms of the Group’s obligations. Trade and other payables are stated at temporary difference can be utilised. A financial asset not carried at fair value principal repayment and amortisation, and The calculation is performed using the amortised cost. Deferred tax assets are reviewed at each through profit or loss is assessed at each the current fair value, less any impairment An impairment loss in respect of goodwill projected unit credit method. reporting date and are reduced to the extent reporting date to determine whether there loss previously recognised in profit or is not reversed. In respect of other assets,

134 PhosAgro Integrated Report 2016 www.phosagro.com 135 Financial Statements (continued) STRATEGIC REPORT

that it is no longer probable that the related Finance costs comprise interest expense (t) Earnings per share No new standards and amendments became 1 January 2017 with early adoption tax benefit will be realised. on borrowings, foreign currency losses, The Group presents basic and diluted effective for the Group from 1 January2016 . permitted. changes in the fair value of financial assets earnings per share (“EPS”) data for its

(p) Revenues at fair value through profit or loss and ordinary shares. Basic EPS is calculated (w) New standards and interpretations not The Group is currently assessing the impact CORPORATE RESPONSIBILITY REPORT Revenue from the sale of goods is measured impairment losses recognised on financial by dividing the profit or loss attributable yet adopted of these new and amended standards on at the fair value of the consideration assets. Borrowing costs that are not directly to ordinary shareholders of the Company by A number of new standards, amendments the consolidated financial statements and received or receivable, net of returns and attributable to the acquisition, construction the weighted average number of ordinary to standards and interpretations are not plans to adopt these pronouncements when allowances, trade discounts and volume or production of a qualifying asset are shares outstanding during the period, yet effective as at 31 December 2016, and they become effective. rebates. Revenue is recognised when the recognised in profit or loss using the adjusted for own shares held. have not been applied in preparing these significant risks and rewards of ownership effective interest method. consolidated financial statements: 4. Determination of fair have been transferred to the buyer, If the number of ordinary shares outstanding values recovery of the consideration is probable, Foreign currency gains and losses are increases/(decreases) as a result of a share • IFRS 9 Financial Instruments is the associated costs and possible return of reported on a net basis. split/(reverse share split), the calculation of intended to replace IAS 39 Financial A number of the Group’s accounting policies goods can be estimated reliably, and there the EPS for all periods presented is adjusted Instruments: Recognition and and disclosures require the determination is no continuing management involvement (r) Overburden removal expenditure retrospectively. Measurement. The standard introduces of fair value, for both financial and non- with the goods. In open pit apatite rock mining operations, new classification and measurement financial assets and liabilities. Fair values it is necessary to remove the overburden Diluted EPS is determined by adjusting requirements, a single forward-looking have been determined for measurement Transfers of risks and rewards vary and other waste in order to access the the profit or loss attributable to ordinary “expected loss” impairment model and and / or disclosure purposes based on the

depending on the individual terms of economically recoverable resources. shareholders and the weighted average a substantially-reformed approach methods described in 4(a) to 4(с). When CORPORATE GOVERNANCE REPORT the contract of sale. Transfer may occur number of ordinary shares outstanding, to hedge accounting. Effective for applicable, further information about the when the product is dispatched from the Stripping costs incurred during the pre- adjusted for own shares held, for the effects annual periods beginning on or after assumptions made in determining fair Group companies’ warehouses (mainly for production phase of the open pit mine are of all dilutive potential ordinary shares, 1 January 2018 with early adoption values is disclosed in the notes specific domestic dispatches) or upon loading the capitalised as the cost of the development which comprise convertible notes and share permitted; to that asset or liability. goods onto the relevant carrier or upon the of the mining property and amortised over options granted to employees • IFRS 15 Revenue from contracts delivery to the destination point defined by the life of the mine. with customers outlines a single (a) Investments in equity and debt the customer. (u) Segment reporting comprehensive model for entities securities According to the Group’s approach An operating segment is a component of the to use in accounting for revenue from The fair value of held-to-maturity Where the Group acts in the capacity of to stripping, the ore, which becomes Group that engages in business activities contracts with customers. Effective for investments and available-for-sale an agent rather than as the principal in a accessible after the overburden removal, from which it may earn revenues and incur annual periods beginning on or after financial assets is determined by reference transaction, the revenue recognised is the is extracted within three months. expenses, including revenues and expenses 1 January 2018 with early adoption to their quoted bid price at the reporting net amount of commission earned by the Therefore, the stripping ratio (volume of that relate to transactions with any of the permitted; date. The fair value of held-to-maturity Group. overburden removed over the volume of Group’s other components. All operating • IFRS 16 Leases outlines a single lessee investments is determined for disclosure resources extracted) is expected to stay segments’ operating results are reviewed accounting model and requires to bring purposes only. FINANCIAL STATEMENTS Revenue from services rendered is relatively constant over the future periods regularly by the CEO to make decisions most leases on-balance sheet. Effective recognised in the profit or loss in and stripping costs incurred during about resources to be allocated to the for annual periods beginning on or after For non-quoted investments the fair value, proportion to the stage of completion of the the production phase of the open pit mine segment and assess its performance, and 1 January 2019 with early adoption if reliably measurable, is determined using transaction at the reporting date. The stage are recognised in the profit or loss as for which discrete financial information is permitted if IFRS 15 is also applied at or valuation models. of completion is assessed by reference incurred. available. before the date of initial application of to surveys of work performed. IFRS 16; (b) Trade and other receivables (s) Other expenses Segment results that are reported to the • Amendments to IAS 12 Income Taxes The fair value of trade and other receivables (q) Finance income and costs (I) Operating leases CEO include items directly attributable clarify the accounting for deferred tax is estimated as the present value of future Finance income comprises interest income Payments made under operating leases to a segment as well as those that can be assets for unrealised losses on debt cash flows, discounted at the market rate of

on funds invested (including available- are recognised in the profit and loss on a allocated on a reasonable basis. Unallocated instruments measured at fair value. interest at the reporting date. ADDITIONAL INFORMATION for-sale financial assets), dividend income, straight-line basis over the term of the lease. items comprise mainly corporate assets, Effective for annual periods beginning gains on the disposal of available-for- Lease incentives received are recognised in related head office expenses and Group’s on or after 1 January 2017 with early (c) Non-derivative financial liabilities sale financial assets and changes in the the profit or loss as an integral part of the associates. adoption permitted; Fair value, which is determined for fair value of financial assets at fair value total lease payments made. • Amendments to IAS 7 Statement of disclosure purposes, is calculated based on through profit or loss, and foreign currency Segment capital expenditure is the total Cash Flows requires entities to provide the present value of future principal and gains. Interest income is recognised as it (II) Social expenditure cost incurred during the year to acquire disclosures that enable investors interest cash flows, discounted at the market accrues in profit or loss, using the effective To the extent that the Group’s contributions property, plant and equipment, and to evaluate changes in liabilities arising rate of interest at the reporting date. For interest method. Dividend income is to social programs benefit the community intangible assets other than goodwill. from financing activities, including finance leases the market rate of interest recognised in profit or loss on the date at large and are not restricted to the Group’s changes arising from cash flows is determined by reference to similar lease that the Group’s right to receive payment is employees, they are recognised in the profit (v) Adoption of new and revised standards and non-cash changes. Effective for agreements. established. or loss as incurred. and interpretations annual periods beginning on or after

136 PhosAgro Integrated Report 2016 www.phosagro.com 137 Financial Statements (continued) STRATEGIC REPORT

Segment information of the Group as at 31 December 2015 and for the 5. Segment information year then ended is as follows:

The Group has two reportable segments, • Nitrogen-based products segment

as described below, which are the Group’s includes mainly production and CORPORATE RESPONSIBILITY REPORT strategic business units. The strategic distribution of ammonia, ammonium PHOSPHATE- NITROGEN- OTHER business units offer different products, nitrate and urea on the factory located in RUB million BASED BASED OPERATIONS and are managed separately because they Cherepovets. PRODUCTS PRODUCTS TOTAL

require different technology and marketing Segment revenue and profitability 167,430 21,574 728 189,732 strategies. The following summary describes Certain assets, revenue and expenses are not the operations in each of the Group’s allocated to any particular segment and are, reportable segments: therefore, included in the “other operations” Segment external revenues, thereof: column. None of these operations meet Export 120,873 17,984 - 138,857 • Phosphate-based products segment any of the quantitative thresholds for Domestic 46,557 3,590 728 50,875 includes mainly production determining reportable segments. and distribution of ammophos, Cost of goods sold (70,344) (12,063) (657) (83,064) diammoniumphosphate, sodium Information regarding the results of each tripolyphosphate and other phosphate reportable segment is included below. Gross segment profit 97,086 9,511 71 106,668 based and complex (NPK) fertilisers on Performance is measured based on gross

the factories located in Cherepovets, profit, as included in internal management Certain items of profit or loss CORPORATE GOVERNANCE REPORT Balakovo and Volkhov, and production reports that are reviewed by the Group’s and distribution of apatite concentrate CEO. Amortisation and depreciation (7,022) (1,890) (221) (9,133) extracted from the apatite-nepheline ore, Total non-current segment assets 76,090 41,992 3,436 121,518 which is mined and processed in Kirovsk; Additions to non-current assets 17,913 25,025 1,255 44,193

The analysis of export revenue by regions is as follows: 6. Revenues RUB million RUB million Segment information as at 31 December 2016 and for the year then ended is as follows: 2016 2015 2016 2015

PHOSPHATE- NITROGEN- Europe 46,738 47,303 Sales of chemical fertilisers 146,369 154,312

OTHER FINANCIAL STATEMENTS RUB million BASED BASED OPERATIONS North and South America 32,992 44,430 Sales of apatite concentrate 26,037 19,155 PRODUCTS PRODUCTS TOTAL CIS 15,883 10,740 Sales of sodium tripolyphosphate 4,839 5,803 Segment revenue and profitability 168,136 18,829 777 187,742 Asia 12,462 5,724 Sales of nepheline concentrate 825 737

India 10,280 18,185 Sales of ammonium 75 115 Segment external revenues, thereof: Africa 6,367 12,475 Other sales 9,597 9,610 Export 110,458 14,264 - 124,722 124,722 138,857 187,742 189,732 Domestic 57,678 4,565 777 63,020

Cost of goods sold (74,667) (11,025) (699) (86,391) 7. Personnel costs ADDITIONAL INFORMATION Gross segment profit 93,469 7,804 78 101,351 RUB million

2016 2015 Certain items of profit or loss

Amortisation and depreciation (8,095) (2,328) (344) (10,767) Cost of sales (10,784) (10,155) Total non-current segment assets 91,880 60,240 3,758 155,878 Administrative expenses (7,882) (6,784) Additions to non-current assets 23,791 20,967 533 45,291 Selling expenses (511) (373)

(19,177) (17,312)

138 PhosAgro Integrated Report 2016 www.phosagro.com 139 Financial Statements (continued) STRATEGIC REPORT

8. Cost of sales 11. Other expenses, net 13. Income tax expense RUB million RUB million RUB million 2016 2015 2016 2015 The Company’s applicable corporate income tax rate is Materials and services (25,746) (22,905) Social expenditures (2,081) (1,821) 20% (2015: 20%)

Loss on disposal of property, plant 2016 2015 CORPORATE RESPONSIBILITY REPORT Salaries and social contributions (10,784) (10,155) (614) (915) and equipment and intangible assets (Increase)/decrease in provision for Current tax expense (13,311) (9,879) Depreciation (9,377) (8,057) (151) 161 inventory obsolescence Origination and reversal of temporary Natural gas (8,084) (7,484) Increase in provision for bad debt (85) (41) differences, including change in (1,730) 92 unrecognised assets Potash (7,104) (7,559) Fines and penalties received 268 956 Sulphur and sulphuric acid (6,065) (8,385) (15,041) (9,787) Other income, net 191 252 Ammonia (5,801) (8,190) (2,472) (1,408) Electricity (4,462) (3,927)

Chemical fertilisers and other (4,254) (4,091) products for resale

Ammonium sulphate (2,547) (2,176) 12. Finance income and finance costs Reconciliation of effective tax rate: RUB million Fuel (2,299) (2,865)

2016 2015 2016 % 2015 % CORPORATE GOVERNANCE REPORT Heating energy (676) (718) Interest income 479 933 Profit before tax 74,927 100 46,223 100 Other items (42) (23) Gain from operations with derivative 210 - Income tax at applicable tax rate (14,985) (20) (9,245) (20) financial instruments Change in stock of WIP and finished 850 3,471 goods Unwind of discount of financial Reversal of income tax on intra- 95 128 - - 399 1 assets group dividends

(86,391) (83,064) Other finance income 125 161 Under provided in respect of prior 76 - (250) (1) years Finance income 909 1,222 Unrecognised tax liability/(asset) on 28 - (12) - profit/(loss) from associates 9. Administrative expenses Interest expense (4,365) (5,198) RUB million 2016 2015 Loss from operations with derivative Non-deductible items (697) (1) (638) (1) - (310) financial instruments Change in unrecognised deferred Salaries and social contributions (7,882) (6,784) (15) - - -

Bank fees (315) (277) tax assets FINANCIAL STATEMENTS Professional services (1,555) (2,003) Effect of tax rates in foreign Other finance costs (2) (308) 28 - (41) - jurisdictions Depreciation and amortisation (798) (606) Finance costs (4,682) (6,093) Reduction in tax rate 524 1 - - Other (3,656) (2,791) NET FINANCE COSTS (3,773) (4,871) (13,891) (12,184) (15,041) (20) (9,787) (21)

10. Selling expenses RUB million

2016 2015 ADDITIONAL INFORMATION

Freight, port and stevedoring (9,358) (9,185) expenses Russian Railways infrastructure tariff (8,169) (6,099) and operators’ fees Materials and services (2,499) (1,624) Depreciation (592) (470)

Salaries and social contributions (511) (373)

(21,129) (17,751)

140 PhosAgro Integrated Report 2016 www.phosagro.com 141 Financial Statements (continued) STRATEGIC REPORT 14. Property, plant and equipment RUB million

COST 15. Investments in associates RUB million Plant and Construction in Land and buildings Fixtures and fittings Total equipment progress CORPORATE RESPONSIBILITY REPORT The movement in the balance of Carrying values of the Group’s At 1 January 2015 25,663 67,061 5,373 31,212 129,309 investments in associates is as follows: investments in associates are as follows: Additions 10 741 1,544 41,898 44,193 2016 2015 31 DECEMBER 31 DECEMBER Consolidation of Phosint Group - 747 - - 747 2016 2015 Transfers 5,392 8,574 - (13,966) - Balance at 1 January 810 12,975 JSC Khibinskaya Teplovaya 386 400 Disposals (244) (2,411) (168) (644) (3,467) Kompaniya Share in profit/(loss) for the year 140 (59) LLC PHOSAGRO-UKRAINE 312 245 Dividends accrued (47) - At 1 January 2016 30,821 74,712 6,749 58,500 170,782 JSC Giproruda 69 116 Foreign currency translation OJSC Soligalichskiy izvestkovyi Additions - 248 1,696 43,347 45,291 (87) 1,941 49 49 difference kombinat Transfers 14,674 10,441 - (25,115) - Consolidation of Phosint Limited - (14,047) 816 810 Disposals (616) (1,232) (148) (409) (2,405) Balance at 31 December 816 810 At 31 December 2016 44,879 84,169 8,297 76,323 213,668 CORPORATE GOVERNANCE REPORT

ACCUMULATED DEPRECIATION Summary financial information for associates is as follows:

Plant and Construction in Land and buildings Fixtures and fittings Total equipment progress (Loss)/profit for 2016 Total assets Total liabilities Net assets Revenue the year

At 1 January 2015 (6,564) (33,044) (3,615) - (43,223) JSC Khibinskaya Teplovaya Kompaniya 2,376 (1,655) 721 699 (29)

LLC PHOSAGRO-UKRAINE 2,247 (1,465) 782 9,496 386 Depreciation charge (1,434) (6,778) (777) - (8,989) Disposals 75 2,162 145 - 2,382 JSC Giproruda 326 (201) 125 102 (16) OJSC Soligalichskiy izvestkovyi kombinat 299 (81) 218 483 43

At 1 January 2016 (7,923) (37,660) (4,247) - (49,830) 5,248 (3,402) 1,846 10,780 384 FINANCIAL STATEMENTS Depreciation charge (1,983) (7,669) (1,027) - (10,679) Disposals 269 1,157 128 - 1,554 (Loss)/profit for 2015 Total assets Total liabilities Net assets Revenue the year

At 31 December 2016 (9,637) (44,172) (5,146) - (58,955) JSC Khibinskaya Teplovaya Kompaniya 2,550 (1,800) 750 545 (77) LLC PHOSAGRO-UKRAINE 1,398 (780) 618 5,959 416

Net book value at 1 January 2015 19,099 34,017 1,758 31,212 86,086 JSC Giproruda 884 (407) 477 130 103

OJSC Soligalichskiy izvestkovyi kombinat 242 (49) 193 555 10 Net book value at 1 January 2016 22,898 37,052 2,502 58,500 120,952 ADDITIONAL INFORMATION

Net book value at 31 December 2016 35,242 39,997 3,151 76,323 154,713 5,074 (3,036) 2,038 7,189 452

As at 31 December 2016, the balance mine extension in the amount (a) Leasing of the construction in progress account RUB of 6,113 million, the development of Plant and equipment with the carrying value includes the accumulated costs related Rasvumchorrskiy mine in the amount of of RUB 5,778 million (31 December 2015: to the construction of ammonia plant in RUB 4,163 million and the construction RUB 6,008 million) is leased under various the amount of RUB 34,222 million and urea apatit-nepheline beneficiation plant in the finance lease agreements, see note 26(a). plant in the amount of RUB 11,925 million amount of RUB 3,853 million in Kirovsk. in Cherepovets, as well as underground

142 PhosAgro Integrated Report 2016 www.phosagro.com 143 Financial Statements (continued) STRATEGIC REPORT

16. Deferred tax assets and

liabilities CORPORATE RESPONSIBILITY REPORT

(a) Recognised deferred tax assets and (b) Movement in temporary liabilities differences during the year Deferred tax assets and liabilities are RUB million attributable to the following items:

2016 RUB million 2016 2015

Recognised in profit Recognised in other Assets Liabilities Net Assets Liabilities Net 31 December 1 January or loss comprehensive income

Property, plant and equipment 27 (5,688) (5,661) 7 (5,235) (5,228) Property, plant and equipment (5,661) (433) - (5,228)

Other long-term assets 17 (31) (14) 85 (19) 66 Other long-term assets (14) (80) - 66

Current assets 822 (488) 334 958 (405) 553 Current assets 334 (219) - 553

Liabilities 1,238 (33) 1,205 1,566 (10) 1,556 Liabilities 1,205 (367) 16 1,556 CORPORATE GOVERNANCE REPORT

Tax loss carry-forwards 4,682 - 4,682 5,298 - 5,298 Tax loss carry-forwards 4,682 (616) - 5,298

Unrecognised deferred tax assets (36) - (36) (21) - (21) Unrecognised deferred tax assets (36) (15) - (21) Tax assets/(liabilities) 6,750 (6,240) 510 7,893 (5,669) 2,224 NET TAX ASSETS/(LIABILITIES) 510 (1,730) 16 2,224 Set off of tax (1,640) 1,640 - (1,992) 1,992 - Net tax assets/(liabilities) 5,110 (4,600) 510 5,901 (3,677) 2,224 2015

Recognised in profit Recognised in other 31 December 1 January The deferred tax assets on tax loss carry- for loans to be issued or obtained by the or loss comprehensive income

forwards relate to the Russian entities. Due Company and expected foreign currency Property, plant and equipment (5,228) 25 - (5,253) to recent amendments to the Russian tax rates. Other long-term assets 66 151 - (85) legislation, starting from 1 January 2017, tax losses for Russian tax purposes carried As at 31 December 2016, no deferred tax Current assets 553 26 - 527 FINANCIAL STATEMENTS forward existing as at 31 December 2016 do liability for taxable temporary differences Liabilities 1,556 (63) 1 1,618

not expire. of RUB 29,869 million has been recognised Tax loss carry-forwards 5,298 (51) - 5,349 (31 December 2015: no deferred tax liability Unrecognised deferred tax assets (21) 4 - (25) Management has developed a tax for deductible taxable temporary differences strategy to utilise the tax losses above. of RUB 29,090 million), either because the NET TAX ASSETS 2,224 92 1 2,131 In assessing the recoverability of the tax Parent can control the timing of reversal of losses, management considers a forecast the temporary differences and it is probable of future taxable profits of the Company that the temporary differences will not (the “forecast”) and the Group’s tax position. reverse in the foreseeable future, or because

The forecast is reviewed at each reporting the applicable tax rate is expected to be 0%. ADDITIONAL INFORMATION date to ensure that the related tax benefit will be realised. Future taxable profits are expected to be generated from an excess of interest income on loans, to be issued by the Company to the Group subsidiaries, over interest expense on loans and borrowings, currently held or to be obtained by the Company. When developing the forecast, management has evaluated profitability and dividend capacity of the Group subsidiaries, and considered expected rates of interest

144 PhosAgro Integrated Report 2016 www.phosagro.com 145 Financial Statements (continued) STRATEGIC REPORT

19. Inventories RUB million

31 DECEMBER 31 DECEMBER 2016 2015

Raw materials and spare parts 7,586 6,561

17. Other non-current assets CORPORATE RESPONSIBILITY REPORT RUB million Finished goods: Chemical fertilisers 8,274 7,664 31 DECEMBER 31 DECEMBER 2016 2015 Apatite concentrate 219 299

Financial assets available-for-sale, at cost 595 596 Work-in-progress: Loans issued to related parties, at amortised cost 330 862 Apatite-nepheline ore 1,329 790 Loans issued to third parties, at amortised cost 266 248 Chemical fertilisers and other products 1,296 1,643 Financial assets available-for-sale, at fair value 138 81

Loans issued to employees, at amortised cost 103 133 Other goods for resale 173 45 Loans issued to associates, at amortised cost 40 - Chemical fertilisers for resale, purchased from 1,238 842 Finance lease receivable - 13 the third parties

Other long-term receivables 754 889 Provision for obsolescence (181) (30)

19,934 17,814 CORPORATE GOVERNANCE REPORT 2,226 2,822

18. Other current investments 20. Trade and other receivables RUB million RUB million 31 DECEMBER 31 DECEMBER 2016 2015 31 DECEMBER 31 DECEMBER 2016 2015 Investments in debt securities, at amortised cost 4,656 5,671 Trade accounts receivable 12,770 11,368 Financial assets available-for-sale, at fair value 424 1,636 Taxes receivable 11,932 9,429 Loans issued to related parties, at amortised cost 218 - Advances issued 4,693 4,462 Loans issued to third parties, at amortised cost 162 183 Other receivables 513 582 FINANCIAL STATEMENTS Loans issued to employees, at amortised cost 115 114 Deferred expenses 229 164 Interest receivable 35 27 Receivables from employees 36 21 Loans issued to associates, at amortised cost - 68 Finance lease receivable - 12 Provision for doubtful accounts (2,328) (2,797) Provision for doubtful accounts (499) (527) 3,282 4,902 29,674 25,511

As at 31 December 2016 and 31 December The movements in provision for doubtful accounts are as follows:

2015 the Group held debt securities issued ADDITIONAL INFORMATION 2016 2015 by entities affiliated to a bank, which at the See note 28(c) for the analysis of end of 2014 went into a financial recovery Balance at 1 January (527) (534) overdue trade accounts receivable. procedure, monitored by the Russian Foreign currency translation Deposit Insurance Agency, finalised in June 67 (91) difference 2015. Taking into account the uncertainties Disposal of provision through trade associated with the mutual court claims 46 139 receivables filed by the Group and the bank, the Group recognised a provision of 50% of the Increase in provision for bad debt (85) (41) nominal value of the debt securities in the amount of RUB 2,328 million (31 December Balance at 31 December (499) (527) 2015: RUB 2,797 million).

146 PhosAgro Integrated Report 2016 www.phosagro.com 147 Financial Statements (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

21. Cash and cash equivalents RUB million 31 DECEMBER 31 DECEMBER (c) Dividends 2016 2015 TOTAL DIVIDENDS APPROVED DURING THE REPORTING PERIOD In accordance with Russian legislation the Cash in bank 4,860 18,900 Proposed by the Board Approved by Amount of dividends Amount per share RUB Company’s distributable reserves are limited Call deposits 2,395 10,441 of Directors in shareholders in RUB million to the balance of accumulated retained November 2015 January 2016 63 8,159 Petty cash 6 6 earnings as recorded in the Company’s 7,261 29,347 March 2016 May 2016 57 7,382 statutory financial statements prepared May 2016 July 2016 63 8,159 in accordance with Russian Accounting Principles. As at 31 December 2016, the August 2016 October 2016 33 4,274 22. Equity Company had cumulative retained earnings

27,974 of RUB 37,046 million (31 December 2015: CORPORATE GOVERNANCE REPORT (a) Share capital RUB 31,857 million).

NUMBER OF SHARES UNLESS OTHERWISE STATED ORDINARY SHARES TOTAL DIVIDENDS APPROVED SUBSEQUENT TO THE REPORTING DATE

Shares on issue at 31 December 2016, RUB 2.5 par value 129,500,000 Proposed by the Board Approved by Amount of dividends Amount per share RUB of Directors in shareholders in RUB million Shares authorised for additional issue at 31 December 2016, RUB 994,977,080 2.5 par value November 2016 January 2017 39 5,051

To be approved March 2017 30 3,885 Shares on issue at 31 December 2015, RUB 2.5 par value 129,500,000 in May 2017 Shares authorised for additional issue at 31 December 2015, RUB 994,977,080 2.5 par value 8,936 FINANCIAL STATEMENTS

2016 2015 (b) Dividend policy Whether the Company will pay dividends 23. Earnings per share The Company expects to distribute cash and the timing and exact amount of such Weighted average number of ordinary shares in issue 129,500,000 129,500,000 dividends in the future and expects the dividends will be subject to the approval Basic earnings per share are calculated Profit for the year attributable to shareholders of the Parent, 59,884 36,442 amount of such dividends to be between 30 of the recommendation made by the Board RUB million based on the weighted average number of and 50 per cent of the Group’s consolidated of Directors at the General Shareholders’ ordinary shares outstanding during the year. profit calculated in accordance with Meeting and will depend on a variety of Basic and diluted earnings per share, RUB 462 281 Basic and diluted earnings per share are the IFRS attributable to shareholders of PJSC factors, including the Company’s earnings, same, as there is no effect of dilution.

“PhosAgro”, adjusted by unrealised foreign cash requirements, financial condition ADDITIONAL INFORMATION exchange gain/(loss). and other factors deemed relevant by the Board of Directors in making their recommendation to the General Shareholders’ Meeting.

148 PhosAgro Integrated Report 2016 www.phosagro.com 149 Financial Statements (continued) STRATEGIC REPORT

24. Loans and borrowings

This note provides information about the

contractual terms of the Group’s loans and CORPORATE RESPONSIBILITY REPORT borrowings. For more information about the finance leases, see note 26(a). For more information about the Group’s exposure to foreign currency risk, interest rate risk and liquidity risk, see note 28.

NON-CURRENT LOANS AND CURRENT LOANS BORROWINGS AND BORROWINGS RUB million

Contractual interest rate Year of maturity 31 December 2016 31 December 2015 Contractual interest rate Year of maturity 31 December 2016 31 December 2015

Unsecured bank loans: Unsecured bank loans: RUB-denominated 5.75%-12.95% 3,000 6,500 RUB-denominated 11.50%-12.65% 2020-2021 4,000 3,000

EUR-denominated 0.21% 1,861 - EUR-denominated EURIBOR(6M)+2.15% 2027 3,031 -

USD-denominated LIBOR(1M)+1.18%-3.35% 4,221 11,783 USD-denominated LIBOR(1M)+1.18%-3.35% 2018-2020 21,028 38,506 CORPORATE GOVERNANCE REPORT

USD-denominated LIBOR(3M)+3% - 3,644 USD-denominated LIBOR(3M)+2.85% 2020 15,021 -

USD-denominated LIBOR(6M)+1.05% 1,336 - USD-denominated LIBOR(6M)+1.05% 2021 7,967 8,700 USD-denominated 4.17% 2027 13,955 13,051

Unsecured letters of credit issued by banks:

EUR-denominated EURIBOR(3M)+1.10% 952 - Unsecured letters of credit issued by banks:

EUR-denominated EURIBOR(6M)+1.10%-1.15% - 317 EUR-denominated EURIBOR(6M)+1.1%-1.18% 2019 485 185

EUR-denominated EURIBOR(12M)+1.10%-1.1 5% 326 2,982 EUR-denominated EURIBOR(12M)+1.1%-1.15% 2017 - 1,329 EUR-denominated 1.79% 2019 - 104 Unsecured loans from related parties: RUB-denominated 9%-17% - 29 Unsecured loans from other companies: USD-denominated LIBOR(12M)+1.25% 2018 614 742 FINANCIAL STATEMENTS Unsecured loans from other companies: RUB-denominated 12% 9 - Loan participation notes:

2 EUR-denominated LIBOR(1M)+1.50% - 438 USD-denominated 4.204% 2018 30,308 36,400

Finance lease liabilities: Finance lease liabilities: USD-denominated 3.8%-12.55% 1 2018-2021 1,830 3,548 EUR-denominated 1.17%-14.77% 1 1,680 2,351 98,239 105,565

Interest payable:

112,376 134,512 ADDITIONAL INFORMATION RUB-denominated 9 3 EUR-denominated 743 900

14,137 28,947 1 Contractual interest rate on financial 2 In February 2013, the Company’s lease agreements consists of: SPV issued a USD 500 million -interest rate and fees to a lessor; 5-year Eurobond with a coupon rate -insurance of property; of 4.204%, which is listed on the -property tax (for lease agreements Irish Stock Exchange, with the fair concluded since 2013 property tax is value at the reporting date of RUB excluded from the interest rate). 31,337 million (31 December 2015: RUB 36,405 million).

150 PhosAgro Integrated Report 2016 www.phosagro.com 151 Financial Statements (continued) STRATEGIC REPORT

25. Defined benefit obligations 26. Leases

2016 31 DECEMBER 31 DECEMBER RUB million (a) Finance leases RUB million 2016 2015 LLC “PhosAgro-Trans”, a Group subsidiary, Minimum lease has entered into several agreements Interest Principal Pension obligations, long-term 535 345 payments

to lease 2,750 railway wagons. Other Group CORPORATE RESPONSIBILITY REPORT Less than one year 1,900 220 1,680 subsidiaries also have entered into lease Between one and five Post-retirement obligations other than pensions 232 79 agreements in 2014 and 2015. At the end of 1,994 164 1,830 years the lease term, the ownership for the leased assets will be transferred to the lessee. 3,894 384 3,510 767 424

Defined benefit pension plans relate there is a defined benefit plan other than 2015 RUB million to three subsidiaries of the Group: JSC the pension plan in JSC “Apatit”. This defined Minimum lease “Apatit”, JSC “PhosAgro-Cherepovets” and JSC benefit plan stipulates payment of a lump Interest Principal payments “Metachem”. The plans stipulate payment sum to employees who have a specified of a fixed amount of monthly pension to all period of service in JSC “Apatit” upon their Less than one year 2,760 409 2,351 retired employees, who have a specified retirement. All defined benefit plans are Between one and five 3,857 441 3,416 period of service in the entities. The pension unfunded. The movement in the present years increases with the increase of the service value of the defined benefit obligations is More than five years 135 3 132

period. The pension is paid over the as follows: CORPORATE GOVERNANCE REPORT 6,752 853 5,899 remaining life of the pensioners. In addition, RUB MILLION (b) Operating leases RUB million 31 DECEMBER 31 DECEMBER Defined benefit obligations at 1 January 2015 453 During 2015-2016, LLC “PhosAgro-Trans”, 2016 2015 Benefits paid (99) a group subsidiary, entered into several Less than one year 208 62 Current service costs and interest 72 operating lease agreements to rent railway Between one and five years 244 168 Past service credit (7) wagons. The rent payments for 2016, which Actuarial gain in other comprehensive income 3 5 are recorded in the cost of sales, amounted 452 230 to RUB 240 million (2015: RUB 278 million). Defined benefit obligations at 1 January 2016 424

Benefits paid (73) The non-cancellable operating lease rentals are payable as follows: Current service costs and interest 57 FINANCIAL STATEMENTS Past service credit 275 Actuarial loss in other comprehensive income 1 84

DEFINED BENEFIT OBLIGATIONS AT 31 DECEMBER 2016 767 27. Trade and other payables

31 DECEMBER 31 DECEMBER RUB million 2016 2015 The key actuarial assumptions used in measurement of the defined benefit Payable for property, plant and equipment 6,060 3,282 obligations are as follows: Trade accounts payable 5,574 4,763 ADDITIONAL INFORMATION 31 DECEMBER 31 DECEMBER Advances received 5,203 3,901 2016 2015 Taxes payable 3,409 2,617

Discount rate 8.5% 9.6% Accruals 1,231 1,394

Future pension increases 4.5% 5.4% Payables to employees 1,167 873 Other payables 159 181

3 The related deferred tax benefit of RUB 22,803 17,011 16 million (2015: deferred tax expense of RUB 1 million) is recognised in other comprehensive income, see note 16(b)

152 PhosAgro Integrated Report 2016 www.phosagro.com 153 Financial Statements (continued) STRATEGIC REPORT

28. Financial risk management Management estimate that a 10% of the Russian Rouble against major whether it believes that a fixed or variable (a) Overview (b) Market risk The Group uses from time to time derivative strengthening/(weakening) of RUB against currencies during the reporting period and rate would be more favourable to the Group In the normal course of its operations, the Market risk is the risk that changes in financial instruments in order to manage USD and EUR, based on the Group’s its devaluation during the comparative over the expected period until maturity.

Group has exposure to market, credit and market prices, such as foreign exchange its exposure to currency risk. The Group exposure as at the reporting date would period. In addition, the net assets of the CORPORATE RESPONSIBILITY REPORT liquidity risks. rates, interest rates and equity prices will implemented a natural hedge approach have increased/(decreased) the Group’s Group’s foreign subsidiaries denominated The interest rate profile of the Group’s affect the Group’s income or the value (policy) aiming at reducing its exposure profit for the year by RUB 10,255 million, in USD amount to RUB 12,454 million as interest-bearing financial instruments is as This note presents information about the of its holdings of financial instruments. to foreign currency risk by means of before any tax effect (2015: would have at the reporting date (31 December 2015: follows: Group’s exposure to each of the above The objective of market risk management borrowing in the same currencies in which increased/(decreased) the Group’s profit RUB 14,655 million). risks, the Group’s objectives, policies and is to manage and control market risk sales agreements are denominated. for the year by RUB 11,591 million). This processes for measuring and managing exposures within acceptable parameters, analysis assumes that all other variables, Interest rate risk risk, and the Group’s management of while optimising the return The Group has the following foreign- in particular interest rates, remain Interest rate risk is the risk that changes capital. Further quantitative disclosures are currency-denominated financial assets and constant. The analysis is performed on the in interest rates will adversely impact the included throughout these consolidated Foreign currency risk liabilities: same basis for 2015. financial results of the Group. Management financial statements. The Group is exposed to currency risk on The foreign exchange gain recognised does not have a formal policy of determining sales, purchases and borrowings that are in profit or loss of RUB 16,962 million how much of the Group’s exposure should The Board of Directors has overall denominated in a currency other than the and the foreign exchange loss of RUB be to fixed or variable rates. However, at responsibility for the establishment and respective functional currencies of Group 22,178 million for the comparative the time of raising new loans or borrowings oversight of the Group’s risk management entities. The currencies giving rise to this period resulted from the appreciation management uses its judgment to decide

framework. The Group’s risk management risk are primarily USD and EUR. CORPORATE GOVERNANCE REPORT policies are established to identify and RUB million analyse the risks faced by the Group, to set In respect of monetary assets and liabilities 31 DECEMBER 31 DECEMBER 2016 2015 appropriate risk limits and controls, and denominated in foreign currencies, the to monitor risks and adherence to limits. Group ensures that its net exposure is kept Fixed rate instruments Risk management policies and systems are to an acceptable level by buying or selling Long-term loans issued, at amortised cost 369 381

reviewed regularly to reflect changes in foreign currencies at spot rates when Long-term loans issued to related parties, at amortised cost 330 862 market conditions and the Group’s activities. necessary to address short-term imbalances. Investments in debt securities, at amortised cost, net of provision 2,328 2,874

Finance lease receivable - 25

Short-term deposits 2,395 10,441 31 DECEMBER 2016 31 DECEMBER 2015 Financial assets available-for-sale, at fair value 424 1,636 RUB million RUB million Short-term loans issued to related parties, at amortised cost 218 - USD denominated EUR denominated USD denominated EUR denominated

Short-term loans issued to associates, at amortised cost - 68 FINANCIAL STATEMENTS Non-current assets Short-term loans issued, at amortised cost 277 297

Non-current investments 330 - 862 - Long-term borrowings (50,093) (56,103)

Short-term borrowings (6,550) (8,880)

Current assets (50,302) (48,399) Receivables 1,517 4 1,403 1

Current investments 218 - 5 - Variable rate instruments

Cash and cash equivalents 2,033 2 7,538 298 Long-term borrowings (48,146) (49,462)

Short-term borrowings (6,835) (19,164) ADDITIONAL INFORMATION

Non-current liabilities (54,981) (68,626) Loans and borrowings (90,108) (3,516) (100,205) (1,618)

At 31 December 2016, a 1% increase/ Current liabilities (decrease) in LIBOR/EURIBOR would have Payables (1,227) (719) (1,951) (358) decreased/(increased) the Group’s profit or loss and equity by RUB 550 million (31 Loans and borrowings (7,944) (3,139) (18,588) (3,299) December 2015: RUB 686 million). (95,181) (7,370) (110,936) (4,976)

154 PhosAgro Integrated Report 2016 www.phosagro.com 155 Financial Statements (continued) STRATEGIC REPORT CORPORATE RESPONSIBILITY REPORT

(c) Credit risk The majority of the Group’s customers have Current and non-current financial assets liquidity to meet its liabilities when due, Credit risk is the risk of financial loss been transacting with the Group for several The Group lends money to related parties, under both normal and stressed conditions, to the Group if a customer or counterparty years, and losses have occurred infrequently. who have good credit standing. Based on without incurring unacceptable losses or to a financial instrument fails to meet its In monitoring customer credit risk, the prior experience, management believes risking damage to the Group’s reputation. contractual obligations, and arises from the customers are grouped according to their that there is no significant credit risk in Group’s receivables from customers, loans credit characteristics. Trade and other respect of related party loans. Typically the Group ensures that it has issued to related parties, current and non- receivables relate mainly to the Group’s sufficient cash on demand to meet expected current financial assets and cash and cash wholesale customers. As at 31 December 2016 and 31 December operational expenses for a period of 30 equivalents. 2015 the Group held promissory notes days, including the servicing of financial The Group does not require collateral in issued by an entity affiliated to a bank, obligations; this excludes the potential Trade and other receivables respect of trade and other receivables, which at the end of 2014 went into a impact of extreme circumstances that

The Group’s exposure to credit risk is except for new customers who are required financial recovery procedure, monitored cannot reasonably be predicted, such as CORPORATE GOVERNANCE REPORT influenced mainly by the individual specific to work on a prepayment basis or present an by the Russian Deposit Insurance Agency, natural disasters. In addition, the Group characteristics of each customer. The general acceptable bank guarantee or set up letter of finalised in June 2015. Taking into account maintains several lines of credit in various characteristics of the Group’s customer base, credit with an acceptable bank. the uncertainties associated with the Russian and international banks. including the default risk of the industry and outcome of this procedure and mutual court country, in which customers operate, has less The Group establishes an allowance for claims filed by the Group and the bank, the The table below illustrates the contractual of an influence on credit risk. impairment that represents its estimate Group recognised a provision of 50% of the maturities of financial liabilities, including of incurred losses in respect of trade and nominal value of the promissory notes in the interest payments, which are converted Management has established a credit policy other receivables and investments. The main amount of RUB 2,328 million (31 December at the closing exchange rates, where under which each new customer is analysed components of this allowance are a specific 2015: RUB 2,797 million) applicable: individually for creditworthiness before loss component that relates to individually the Group’s standard payment and delivery significant exposures, and a collective loss Guarantees terms and conditions are offered. The Group’s component established for groups of similar The Group considers that financial review includes external ratings, when assets in respect of losses that have been guarantee contracts entered into by the available, and in some cases bank references. incurred but not yet identified. The collective Group to guarantee the indebtedness of FINANCIAL STATEMENTS Purchase limits are established for each loss allowance is determined based on other parties are insurance arrangements, customer, which represent the maximum historical data of payment statistics for and accounts for them as such. In this amount of outstanding receivables; these similar financial assets. respect, the Group treats the guarantee limits are reviewed quarterly. Customers contract as a contingent liability until such that fail to meet the Group’s benchmark The analysis of overdue trade accounts time as it becomes probable that the Group creditworthiness may transact with the receivable is as follows: 31 DECEMBER 31 DECEMBER will be required to make a payment under Group only on a prepayment basis. 2016 2015 the guarantee.

RUB million RUB million The Group’s policy is to provide financial

Not past due 10,695 8,624 guarantees only to the subsidiaries or ADDITIONAL INFORMATION

Past due 0-90 days 795 1,789 related parties.

Past due 91-180 days 452 215 (d) Liquidity risk Past due 181-365 days 302 205 Liquidity risk is the risk that the Group will not be able to meet its financial obligations More than one year 526 535 as they fall due. The Group’s approach 12,770 11,368 to managing liquidity is to ensure, as far as possible, that it will always have sufficient

156 PhosAgro Integrated Report 2016 www.phosagro.com 157 Financial Statements (continued) STRATEGIC REPORT

30. Contingencies 31 DECEMBER 2016 RUB million (e) Capital management (a) Litigation (c) Environmental contingencies Carrying Contractual The Board’s policy is to maintain a strong The Group has a number of small The environmental legislation, currently 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years value cash flows capital base so as to maintain investor, claims and litigations relating to regular effective in the Russian Federation, is CORPORATE RESPONSIBILITY REPORT Unsecured bank creditor and market confidence and business activities and small fiscal claims. relatively new and characterised by frequent 75,420 84,790 12,975 18,682 21,433 13,690 2,915 15,095 loans to sustain future development of the Management believes that none of these changes, official pronouncements and Unsecured business. The Board of Directors monitors claims, individually or in aggregate, will court decisions, which are often unclear, loans from other 623 668 43 625 - - - - the return on capital invested and the level have a material adverse impact on the contradictory and subject to varying companies of dividends to shareholders. Group. interpretation by different authorities. Unsecured letters of 1,763 1,782 1,288 5 489 - - - credit There were no changes in the Board’s (b) Taxation contingencies The Group is involved in chemical approach to capital management during the The taxation system in the Russian production, which is inherently exposed Interest payable 752 752 752 - - - - - year. Federation continues to evolve and is to significant environmental risks. characterised by frequent changes in The Group companies record environmental Secured finance 3,510 3,894 1,900 1,032 624 226 112 - The Company and its subsidiaries are legislation, official pronouncements and obligations as they become probable and leases subject to externally imposed capital court decisions, which are sometimes reliably measurable. The Group companies Loan participation 30,308 31,787 1,263 30,524 - - - - requirements including the statutory contradictory and subject to varying are parties to different litigations with notes requirements of the country of their interpretation by different tax authorities. the Russian environmental authorities.

Trade and other domicile and the bank covenants Taxes are subject to review and investigation The management believes that based on CORPORATE GOVERNANCE REPORT 13,024 13,024 13,024 - - - - - payables by a number of authorities, which have its interpretations of applicable Russian Financial guarantees (f) Fair values the authority to impose severe fines, legislation, official pronouncements and issued for associates 1,667 2,291 344 380 485 458 528 96 Unless stated otherwise, management penalties and interest charges. A tax year court decisions no provision is required for and related parties believes that the fair value of the Group’s generally remains open for review by the environmental obligations. However, the 127,067 138,988 31,589 51,248 23,031 14,374 3,555 15,191 financial assets and liabilities approximates tax authorities during the three subsequent interpretations of the relevant authorities their carrying amounts. calendar years; however, under certain could differ from management’s position circumstances a tax year may remain open and the effect on these consolidated longer. Recent events within the Russian financial statements, if the authorities were 31 DECEMBER 2015 Federation suggest that the tax authorities successful in enforcing their interpretations, RUB million 29. Commitments are taking a more assertive and substance- could be significant. Carrying Contractual 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years based position in their interpretation and value cash flows The Group has entered into contracts enforcement of tax legislation. to purchase plant and equipment for Unsecured bank loans 85,184 95,401 25,480 24,053 16,459 10,333 4,601 14,475 RUB 16,609 million (31 December 2015: These circumstances may create tax risks in FINANCIAL STATEMENTS

Unsecured loans from RUB 35,854 million). the Russian Federation that are substantially 1,180 1,221 460 14 747 - - - other companies more significant than in other countries. Management believes that it has provided Unsecured loans from 29 34 34 - - - - - related parties adequately for tax liabilities based on its interpretations of applicable Russian tax Unsecured letters of 4,917 4,980 3,351 1,522 2 105 - - legislation, official pronouncements and credit court decisions. However, the interpretations of the relevant authorities could differ Interest payable 903 903 903 - - - - - and the effect on these consolidated

financial statements, if the authorities were ADDITIONAL INFORMATION Secured finance leases 5,899 6,752 2,760 1,574 1,259 754 270 135 successful in enforcing their interpretations, could be significant. Loan participation 36,400 39,758 1,523 1,518 36,717 - - - notes

Trade and other 9,620 9,620 9,620 - - - - - payables

Financial guarantees issued for associates 1,795 2,637 301 345 393 516 458 624 and related parties

145,927 161,306 44,432 29,026 55,577 11,708 5,329 15,234

158 PhosAgro Integrated Report 2016 www.phosagro.com 159 Financial Statements (continued) STRATEGIC REPORT

32. Significant subsidiaries

31. Related party transactions 31 December 2015 31 December 2016 Subsidiary Country of incorporation Effective ownership Effective ownership (rounded) CORPORATE RESPONSIBILITY REPORT (rounded)

Apatit, JSC (including Balakovo branch) Russia 100% 100% (a) Transactions and balances with associates (b) Transactions and balances with other related parties PhosAgro-Cherepovets, JSC Russia 100% 100% (I) Transactions with associates (I) Transactions with other related parties Metachem, JSC Russia 100% 100% NIUIF, OJSC Russia 94% 94%

2016 2015 2016 2015 PhosAgro-Trans, LLC Russia 100% 100% PhosAgro-Region, LLC Russia 100% 100% RUB million RUB million RUB million RUB million PhosAgro-Belgorod, LLC Russia 100% 100% Sales of goods and services 7,849 5,382 Sales of goods and services 1,238 965 PhosAgro-Don, LLC Russia 100% 100% Interest income 11 114 Interest income 48 36 PhosAgro-Kuban, LLC Russia 100% 100% Dividends income 47 - Purchases of goods and services (1,359) (919) PhosAgro-Kursk, LLC Russia 100% 100% Purchases of goods and services (467) (492) PhosAgro-Lipetsk, LLC Russia 100% 100%

PhosAgro-Oryol, LLC Russia 100% 100% CORPORATE GOVERNANCE REPORT (II) Balances with associates (II) Balances with other related parties PhosAgro-Stavropol, LLC Russia 100% 100% PhosAgro-Volga, LLC Russia 100% 100% 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER

2016 2015 2016 2015 PhosAgro-SeveroZapad, LLC Russia 100% 100% PhosAgro-Tambov, LLC Russia 100% 100% RUB million RUB million RUB million RUB million Trading house PhosAgro, LLC Russia 100% 100% Long-term loans issued, at Trade and other receivables 968 595 330 862 amortised cost Phosint Trading Limited Cyprus 100% 100% Long-term loans issued, at 40 - Short-term loans issued, at Phosagro Asia Pte Ltd Singapore 100% 100% amortised cost 218 - amortised cost PhosAgro Trading SA Switzerland 97.6% 97.6% Short-term loans issued, at - 68 amortised cost Trade and other receivables 2 5 Phosint Limited Cyprus 95% 95%

Trade and other payables (30) (22) Trade and other payables (115) (358) PhosAgro Chartering SA Switzerland 95% 95% PhosAgro Baltic Sp.z o.o. Poland 95% - Short-term loans FINANCIAL STATEMENTS - (29) received PhosAgro Deutschland GmbH Germany 95% - PhosAgro France SAS France 95% -

(III) Financial guarantees (III) Financial guarantees 33. Events subsequent to the reporting date The Group issued financial guarantees The Group issued financial guarantees to banks on behalf of associates amounting to banks on behalf of related parties In March 2017, the Board of Directors proposed paying a dividend of RUB 30 per ordinary share. The total amount of proposed dividends to RUB 1,580 million amounting to RUB 87 million was RUB 3,885 million, see note 22. (31 December 2015 RUB 1,661 million). (31 December 2015: RUB 134 million). ADDITIONAL INFORMATION The balances and transactions with related parties are usually unsecured and denominated in RUB

(c) Key management remuneration The remuneration of the Board of Directors and 13 members of key management personnel amounted to RUB 892 million (2015: RUB 535 million).

160 PhosAgro Integrated Report 2016 www.phosagro.com 161 SHAREHOLDER INFORMATION STRATEGIC REPORT DIVIDENDS SHAREHOLDER STRUCTURE OF PHOSAGRO AS OF 31 DECEMBER 2016 Share capital SOURCE: UNALLOCATED NET INCOME AS OF 31 DECEMBER 2015 AND 31 MARCH 2016

PhosAgro’s authorised capital as of Amount of dividend per Name Number of shares Share, % Amount of accrued 31 December 2016 is RUB 323,750,000, Dividends accrued AGM/EGM date Dividend cut-off date ordinary share/ GDR dividends (RUB bln) consisting of 129,500,000 ordinary shares ADORABELLA LIMITED 29,716,162 22.95 (RUB) with a par value of RUB 2.5 per share. DUBBERSON HOLDINGS LIMITED 8,639,705 6.67 4Q 2015 31/05/2016 11/06/2016 57/19 7.4 1Q 2016 29/07/2016 10/08/2016 63/21 8.2 Stock exchanges CHLODWIG ENTERPRISES LIMITED 29,151,400 22.51 CORPORATE RESPONSIBILITY REPORT PhosAgro’s shares are traded on the CARRANITA HOLDINGS LIMITED 4,028,519 3.11 2Q 2016 03/10/2016 14/10/2016 33/11 4.3 A1 quotation list of the Moscow 3Q 2016 16/01/2017 27/01/2017 39/13 5.1 Exchange under the symbol PHOR VINDEMIATRIX TRADING LIMITED 3,726,814 2.88 (ISIN: RU000A0JRKT8). Vladimir Litvinenko 18,823,850 14.54 Evgeniya Guryeva 6,235,960 4.82 Dividends out to shareholders were net of the amount regulating taxation matters or for which Global Depositary Receipts (three GDRs Dividends accrued in 2016 were paid in of the tax deducted. The withholding a specific article provides for a special Other shareholders *** 29 ,177,590 22.53 represent one share) are traded in the full. On 21 March 2017, PhosAgro’s Board tax rate depends on the status of the taxation regime, shall be performed by the Main Market of the London Stock Exchange TOTAL 129,500,000 100.00 of Directors recommended a final 2016 shareholder, in accordance with the tax authority at the place of registration of under the symbol PHOR. dividend of RUB 30 per share (RUB 10 per information that the shareholder provides. the tax agent within three years from the *** Other shareholders includes shares held as part of a REPO transaction undertaken by Igor Antoshin depositary receipt), or RUB 3.9 billion in PhosAgro also took into account any double end of the tax period in which the income Regulation S GDRS on 21.12.2016 involving 2,489,540 shares, or 1.92% of the Company’s total issued shares. total. If approved by the Annual General taxation treaties and, where appropriate, was paid. CUSIP number: 71922G209 Meeting of Shareholders (the “AGM”) on 30 made tax payments in accordance with the ISIN: US71922G2093 May 2017, this will bring PhosAgro’s payout provisions of the relevant treaty. Information disclosure CORPORATE GOVERNANCE REPORT Common code: 065008939 ratio to 50% of net profit, demonstrating PhosAgro strictly follows the requirements SEDOL: 0B62QPJ1 Other ownership information our commitment to the Company’s dividend Due to changes in Russian Federation law imposed by Russian securities regulations, RIC: PHOSq.L as of 31 December 2016 policy and to upholding the promises made related to the payment of dividends that as well as rules for the companies traded According to the information available the voting shares of Dubberson Holdings to shareholders during the IPO and SPO. came into effect on 1 January 2015, existing on the LSE, in its information disclosure Rule 144A GDRS to the Company, the shares of Chlodwig Limited, Carranita Holdings Limited, and or potential PhosAgro shareholders and filings. The Company publicly discloses CUSIP number: 71922G100 Enterprises Limited and Adorabella Vindemiatrix Trading Limited. In 2016, PhosAgro acted as a tax agent and holders of the Company’s GDRs are all required information to shareholders ISIN: US71922G1004 Limited are ultimately held on trust when it paid out dividends to the accounts advised to consult their tax advisers for and investors in a timely manner through Common code: 065008939 where the economic beneficiaries are Mr Up to date information about PhosAgro’s of organisations that own shares as listed tax implications with regards to dividend authorised newswires, the corporate SEDOL: 0B5N6Z48 Andrey Guryev and members of his family. ownership structure is available on the in the Russian share register. The Company payments. The refund of a previously website www.phosagro.com, and via RIC: GBB5N6Z48.L Based on information available to the Company’s website: www.phosagro.com/ calculated and withheld tax on those withheld tax on income paid to foreign PhosAgro’s official disclosure page on the Citigroup Global Markets Deutschland AG acts as Company Mr Igor Antoshin has the right investors/capital. dividends and remitted the amount of tax organisations in respect of which the Interfax portal http://www.e-disclosure.ru/ the depositary for the Company’s GDR Programme. to indirectly control 100% of the votes on to the relevant authorities. Dividends paid Russian Federation’s international treaties portal/company.aspx?id=573 FINANCIAL STATEMENTS

SHARE PERFORMANCE IN 2016:

PhosAgro GDR PhosAgro Local Shares Source: Bloomberg

Traded volume, Price, Traded Volume in Local Shares, Price, GDR mln USD/GDR RUB, thousand RUB/ local share

12 20 40 3,500 ADDITIONAL INFORMATION High Year-end price High 15.25 2,945 9 15 30 3,000 15.55 Year-end price 10.7 2,599 6 10 20 2,500 Trading volume: Low Trading volume: Low 2,225 3 5 108.25 10 2,000 2.05 0 0 MILLION GDRS 0 1,500 MILLION GDRS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

162 PhosAgro Integrated Report 2016 www.phosagro.com 163 GLOSSARY STRATEGIC REPORT

Abbrevations Industry terms in the ore. Concentrates are produced in other work involved in the search for Monocalcium phosphate or MCP P2O5 (phosphoric pentoxide) beneficiation plants. mineralisation. A type of feed phosphate with the highest A term used to express the content of GDR or depositary receipt Ammonia phosphorus digestibility and content. phosphorus in a substance. Global Depositary Receipt A colourless combustible gas with the Crushing Feed phosphates

chemical formula NH3. Ammonia is a A mechanical method of reducing the size Inorganic feed phosphates are a high- Nepheline Phosphorous or P bln compound of nitrogen and hydrogen, and is of rock. quality phosphorus source for animal A mineral containing aluminium oxide One of the primary plant nutrients essential CORPORATE RESPONSIBILITY REPORT Billion primarily used in the production of mineral feed. Most inorganic feed phosphates are (Al2O3). for plant growth. fertilizers and a wide variety of nitrogen- Deposit derived from phosphate rock, which is km containing organic and inorganic chemicals. An area of reserves identified by surface chemically treated to make phosphorus Netback price PKS Kilometres mapping, drilling or development. available for animals in the form of quality Revenue net of costs associated with A multi-nutrient fertilizer containing Ammonium nitrate or AN feed phosphates. The main inorganic shipping goods from the production site phosphorous, potassium and sulphur. kt A nitrogen fertilizer with a nitrogen content Diammonium phosphate or DAP feed phosphates are calcium, magnesium, to the buyer. Thousand metric tonnes of approximately 34%, produced by reacting A type of multi-nutrient fertilizer calcium-magnesium, ammonium and Potash or K nitric acid (an intermediate chemical containing nitrogen and phosphorous. sodium phosphates. Nitrogen or N One of the primary plant nutrients essential mln feedstock produced from ammonia) with Production of DAP is based on the These phosphates are constant in One of the primary plant nutrients essential for plant growth. Million ammonia (AN). neutralisation of phosphoric acid by composition, low in impurities and for plant growth and a universal way of ammonia with subsequent drying and considered to be the best available sources storing nitrogen in nitrogen-containing Rare earth elements/resources mln t NP granulating. of phosphorus for animals. An adequate products. A group of 15 elements with atomic Million tonnes (Ammonium nitrate-based fertilizers) supply of inorganic feed phosphates in numbers ranging from 57 to 71: lanthanum, Complex ammonium nitrate-based fertilizer Downstream animal feed is essential for animals’ well- NPK cerium, praseodymium, neodymium, CORPORATE GOVERNANCE REPORT MW with phosphorus content. Liquid complex The processing of apatite concentrate, being. A multi-nutrient fertilizer containing promethium, samarium, europium, Megawatt fertilizers or APP liquid phosphate- and natural gas, sulphur and potash into usable nitrogen, phosphorus and potassium. gadolinium, terbium, dysprosium, holmium, nitrogen-based fertilizer. products such as mineral fertilizer, Grade of mineral fertilizer erbium, thulium, ytterbium and lutetium. RUB industrial and feed phosphates. The relative quality or percentage content NPS Russian rouble Apatite of useful components. A multi-nutrient fertilizer containing Sedimentary A group of phosphate minerals (phosphate Drillhole nitrogen, phosphorous and sulphur. Formed by the deposition of solid t ore), usually referring to hydroxylapatite, A circular hole made in rock, often in Key performance indicator (KPI) fragmental material that originates from Metric tonne = 1,000 kg fluorapatite and chlorapatite with the conjunction with a core barrel, in order Performance indicators of a division Open-pit mine the weathering of rocks and is transported

chemical formula Ca5(PO4)3(OH, F, Cl). to obtain a core sample. (company) that help the Company A mine working or excavation that is open from a source to a site of deposition. ths Apatite is the world’s major source of to evaluate the implementation of plans to the surface and where material is not Thousand phosphorus, found as variously coloured, EBITDA and make decisions regarding management put back into the mined-out areas. Shaft glassy crystals, masses or nodules. Calculated as operating profit adjusted for remuneration. A mine working (usually vertical) used

CFR The phosphorus content of apatite is depreciation and amortisation. Phosphate rock to transport miners, supplies, ore or FINANCIAL STATEMENTS

Cost and Freight — an Incoterms rule. traditionally expressed as phosphorus K2O Phosphate rock (apatite concentrate or capping.

CFR means that the seller must pay the pentoxide (P2O5). Emission Universal means of storage of potassium phosphorus concentrate) is an imprecise costs and freight to bring goods to the port Pollution discharged into the atmosphere (potash) in potassium-containing products. term that includes both unprocessed Sulphate of potash or SOP of destination, including customs costs Apatite-nepheline ore from smokestacks, other vents at phosphorus-containing ore and A non-chloride potash fertilizer. for exporting the goods. The buyer pays Ore containing minerals of apatite and commercial or industrial facilities and from MER or ‘minor element ratio’ beneficiated concentrates. Practically all to insure the goods. Risk is transferred nepheline. transportation exhaust systems. The sum of the iron, aluminium and production of phosphate fertilizers is based Sulphuric acid

to the buyer once the goods are loaded on magnesium content divided by the P2O5 on phosphate rocks containing some form A strong sulphur-based inorganic mineral

the vessel. Maritime transport only. By-product End product content. of the mineral apatite. acid with the chemical formula H2SO4. Material, other than the principal product, Commercial product other than those ADDITIONAL INFORMATION FOB that is generated as a consequence of an used internally to produce other types of Monoammonium phosphate or MAP Phosphates Tailing Free on Board — an Incoterms rule. industrial process. commercial products. For PhosAgro, end A type of multi-nutrient fertilizer A salt or ester of phosphoric acid or The fluid slurry that is left after treatment The seller must load goods on board the products are phosphate-based fertilizers, containing nitrogen and phosphorous. a fertilizer containing phosphorus and extraction of an economically vessel nominated by the buyer; costs for Concentrate nitrogen fertilizers, feed and industrial Production of MAP is based on the compounds. extracted mineral. delivery of the goods on board of the Material that is the result of beneficiation phosphates, and sulphate of potash. neutralisation of phosphoric acid by vessel are the responsibility of the seller. of an ore and which has a higher ammonia with subsequent drying and Phosphoric acid Trenches concentration of mineral values than Exploration granulating. Monoammonium phosphate Mineral (inorganic) acid having the Lines excavated to a predetermined depth

USD the mineral values originally contained The search for minerals. Prospecting, is often used in the blending of dry chemical formula H3PO4. to establish the geological structure of a United States dollars sampling, mapping, diamond drilling and agricultural fertilizers. deposit.

164 PhosAgro Integrated Report 2016 www.phosagro.com 165 Glossary (continued) STRATEGIC REPORT

Urea The International Plant Nutrition Institute changes and developments in international Names of legal entities used Data on ore reserves presented in this report are prepared on the An organic compound of carbon, nitrogen, (IPNI) environmental and maritime law. in this report basis of: oxygen and hydrogen. It is the most The IPNI is a global organisation with After ratification, the Convention

widely used and highest-concentration initiatives addressing the world’s growing entered into force on 17 January 2000. PJSC PhosAgro • Data from the approved state register as of 01.01.2016; CORPORATE RESPONSIBILITY REPORT nitrogen-based fertilizer formed by reacting need for food, fuel, fibre and feed. The Convention covers the whole of the PhosAgro • Data from Form 70-TP “Information on Mineral Extraction ammonia with carbon dioxide at a high Baltic Sea area, including inland waters During Production”, which contains data on mined volumes pressure. Environmental assessment (EA) as well as the water of the sea itself and JSC PhosAgro-Cherepovets (extracted from the subsoil) and losses during mining A process where the breadth, depth and the seabed. Measures are also taken in the PhosAgro-Cherepovets (regulatory, actual, excess); Waste type of analysis depend on the proposed whole catchment area of the Baltic Sea • Information on changes in reserves for the 2016reporting Rock lacking sufficient grade and/or other project. An EA evaluates a project’s to reduce land-based pollution. JSC Apatit period: mining, losses during mining, reserves remaining characteristics of ore to be economical. potential environmental risks and impacts Apatit at year end (as of 01/01/2017), reflected in the statistical in its area of influence and identifies IFA reporting form 5-GR “Information on the state of and changes Upstream ways to improve project design and International Fertilizer Association, France. Balakovo branch of JSC Apatit to solid mineral reserves”; Extraction of solid, liquid and gaseous implementation by preventing, minimising, Balakovo branch of Apatit or BMF • Approved Rosnedra protocols for deposits. resources from the earth using specialised mitigating or compensating for adverse ISO equipment. environmental impacts and by enhancing International Organization for JSC Metachem Calculations and recalculations for approved reserves are positive impacts. Standardization, the world’s largest Metachem compliant with normative documents: CORPORATE GOVERNANCE REPORT Waste water standards development organisation. Spent or used water from individual homes, FAO Between 1947 and the present day, the OJSC NIUIF • Order No. 40 of the Ministry of Natural Resources of the communities, farms or industries that Food and Agriculture Organization of the ISO has published more than 19,000 NIUIF Russian Federation dated 7 March 1997 “On Approval contains dissolved or suspended matter. United Nations. international standards, ranging from of Classifications of Mineral Reserves” (together with standards for activities such as agriculture PhosAgro-Trans LLC “Classification of Reserves of Deposits and Potential Resources Other terms Feasibility study and construction through mechanical PhosAgro-Trans of Solid Minerals”, “Classification of Currently Mined Reserves A comprehensive engineering estimate of engineering and medical devices and Forecast Groundwater Resources”); Basel Convention all costs, revenues, equipment requirements to the newest information technology PhosAgro-Region LLC • Order of the Ministry of Natural Resources of the Russian The Basel Convention on the Control of and production levels likely to be achieved developments. PhosAgro-Region Federation of 5 June 2007 No. 37-R “On Approval of Transboundary Movements of Hazardous if a mine is developed. The study is used Methodological Recommendations for Application of Wastes and their Disposal was adopted to determine the technical and economic LSE Mining and Chemical Engineering LLC Classification of Reserves of Deposits and Potential Resources on 22 March 1989 by the Conference of viability of a project and to support the London Stock Exchange. Mining and Chemical Engineering or MCE of Solid Minerals”.

Plenipotentiaries in Basel, Switzerland. search for project financing. FINANCIAL STATEMENTS The overarching objective of the Basel Moscow Exchange Smart Bulk Terminal LLC Ensuring the completeness of geological exploration, rational use Convention is to protect human health Fertecon/Argus—FMB/CRU Russia’s MICEX and RTS stock exchanges Smart Bulk Terminal and preservation of subsoil is carried out in accordance with the and the environment against the adverse Fertilizer Economic Market Analysis and were merged into one entity, MICEX—RTS, law Russian Federation law No. 2395-1 “On Subsoils” dated 21 effects of hazardous wastes. Its scope of Consultancy, UK. in December 2011 and rebranded as the Phosagro Asia Pte Ltd February 1992. application covers a wide range of wastes Moscow Exchange in May 2012. Phosagro Asia defined as “hazardous wastes” based Group/Company/PhosAgro The information in this Report related to mineral resources as of on their origin and/or composition and Refers collectively to PJSC PhosAgro and its Risk assessment Phosint Trading Limited 1 January 2017 is based on information compiled by the Geology their characteristics, as well as two types subsidiaries. Qualitative and quantitative evaluation Phosint Trading Service Department of Apatit and authorised by Mr Sergey of wastes defined as “other wastes” — carried out in an effort to determine Glubokiy, Chief Geologist of Apatit. ADDITIONAL INFORMATION household waste and incinerator ash. Helsinki Convention the risk posed to human health or the The Helsinki Convention was signed in environment by the presence or potential The Department for Environment, Food 1974 by the then-seven Baltic coastal presence and use of specific pollutants. and Rural Affairs (Defra) states, and made all the sources of Defra is the government department pollution around the entire sea subject to a responsible for environmental protection, single convention. The 1974 Convention food production and standards, agriculture, entered into force on 3 May 1980. A new fisheries and rural communities in the convention was signed in 1992 by all the United Kingdom. states bordering on the Baltic Sea and the European Community in light of political

166 PhosAgro Integrated Report 2016 www.phosagro.com 167 CONTACTS

Investor PhosAgro Contacts for employees and Relations Legal Address potential employees

Alexander Seleznev 55/1 Leninsky Prospekt, bld. 1, Moscow Diana Sidelnikova Head of Investor Relations 119333, Russia Head of Personnel Evaluation and Development Tel.: +7 495 231–3115 Tel.: +7 495 232–9689 Email: [email protected] Fax: +7 495 956–1902 Tel.: +7 820 259–3113 Email: [email protected] Depositary Citigroup Global Markets Deutschland AG Contacts for media Frankfurter Welle Reuterweg 16 Andrey Podkopalov 60323 Frankfurt, Germany Director of Information Policy

Tel.: +7 495 232–9689, 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.: +7 495 232–9689, ext. 26–52 Tel.: +7 495 937 4477 Email: [email protected] Fax: +7 495 937 4400/99 Web: www.kpmg.ru Sam VanDerlip International PR Adviser

Registrar Mobile (UK): +44-75-54-993-032 OJSC Reestr Tel. (Russia): +7 499 918–3134 3, bldg. 2, Zubovskaya Ploschad, Email: [email protected] Moscow 119021, Russia

Tel.: +7 495 617 0101 Sustainability contacts Fax: +7 495 680 8001 Anatoly Kutyrev Email: [email protected] Chief Ecologist Web: www.aoreestr.ru Tel.: +7 495 231–2747 Email: [email protected]

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