Delivering on our strategy

Уралкалий
1 Уралкалий
Уралкалий Maintain industry leadership positions
  • We aspire to sustain a leading market position in the global fertiliser industry and contribute to the global food supply
  • We are focused on meeting the world’s growing demand for food. We seek to take advantage of our bestin-class resource base by selectively expanding production capacity
  • Maximise revenue to create maximum value for all shareholders
  • Stimulate growing demand for potash
  • Increase potash capacity on the lowest cost basis in the industry; option to add more volumes if economically viable
  • Focus on products of the highest quality, increase in production volumes of granular potash
  • Potash price decrease
  • Potash demand decline
  • Political, legal and regulatory risks

Stakeholders engaged

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2 Уралкалий
Уралкалий Focus on enhanced relationships with end customers
  • We ensure secure and risk-free routes to market through enhanced distribution capabilities from the mines to the farmers
  • Strengthen customer relationships and reliability of supply
  • Enhance logistics platform to secure long-term supply in key markets
  • Focus on efficient distribution in key markets
  • Loss of share in specific markets
  • Reduction in production and capacity
  • Lack of specific products
  • Political, legal and regulatory risks

Stakeholders engaged

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3 Уралкалий
Уралкалий Maintain cash cost leadership positions
  • We seek to maintain our leading position in cost-efficiency among potash producers
  • Ensure operating performance and efficiency to provide continued industry leadership
  • Invest in existing capacity and infrastructure in order to ensure maximised margin through the commodity price cycle
  • Inflation and currency fluctuations
  • Non-fulfilment of obligations by contractors or suppliers
  • Expenditure increase

Stakeholders engaged

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Уралкалий
4 Уралкалий
Уралкалий Balance investment in growth with shareholder returns
  • We are committed to retaining a robust capital structure and maximising total shareholder return
  • Retain an efficient capital structure; medium-term target net debt value at the level of 3x LTM EBITDA
  • Maintain balanced approach to capital investment and robust capital discipline
  • Return to shareholders through the buyback of ordinary shares in the event of non-payment of dividends
  • Failure to meet targets set for investment projects
  • Inflation and currency fluctuations

Stakeholders engaged

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5 Уралкалий
Уралкалий Focus on people, communities, safety and environment
  • We aim to be the employer of choice among CIS companies and in the mining industry
  • We are pursuing the highest level of health and safety practices to protect our employees
  • We take significant steps to minimise the environmental impact of our operations
  • The Company participates actively in the development of the cities and local communities in which it operates
  • Seek to be regional and industry employer of choice
  • Focus on workplace safety, employee and community development
  • Operate in a socially responsible manner, maximising environmental impact of operations
  • Lack of qualified employees
  • Non-compliance with environmental and health and safety regulations
  • Environmental risks and risks related to mining operations
  • Risks related to the incidents at Berezniki-1 and Solikamsk-2

Stakeholders engaged

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6 Уралкалий
Уралкалий Continued focus on best corporate governance practices
  • We are guided by the principles of openness, transparency and risk minimisation for all stakeholders and are committed to continuous improvement in our corporate governance practices
  • Remain committed to openness, transparency and risk mitigation for all stakeholders
  • Political, legal and regulatory risks
  • Compliance with applicable legislation and internal policies

Stakeholders engaged

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Legend

УралкалийCustomers and partners

УралкалийShareholders and financial community

УралкалийEmployees

УралкалийTrade unions

УралкалийGovernment and local authorities

УралкалийLocal communities

УралкалийMedia

Уралкалий



Key performance indicators

Dmitry OSIPOV Chief Executive Officer

Despite the challenging macroeconomic environment, Uralkali, one of the most cost-efficient manufacturers in the world, maintained its leading position in the industry. The Company produced 11.4 million tonnes of potash, which enabled it to reach EBITDA of US$1,913 million and an EBITDA margin of 72%.

1 Maintain industry
leadership positions

Net revenue


Relevance to the strategy

Net revenue is the key financial metric that measures the success of the revenue maximisation strategy. We use net revenue to eliminate the effect of trading operations and transportation costs in order to provide for better cross-industry comparison.

Measurement

Net revenue represents revenue net of freight, railway tariff and transshipment costs.

Performance overview

Despite the fall in global demand for potash fertilisers, the Company maintained decent net revenue.

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Achieved production


Relevance to the strategy

Achieved capacity demonstrates the progress of our strategic investment programme and reflects the maximum achievable production level.

Measurement

The maximum production that could be achieved in the calendar year taking into account projected stoppages for planned repairs and maintenance.

Performance overview

Due to the Solikamsk-2 accident in November 2014, our operational capacity decreased. We continued to implement an updated expansion programme to offset this decline.

1 Achieved production in 2015

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Manpower Productivity


Relevance to the strategy

Output per capita (production personnel) measures manpower productivity and how efficiently we can produce our product.

Measurement

Potash output divided by average production personnel headcount.

Performance overview

Reduced production due to the Solikamsk-2 accident in November 2014 and the unfavourable situation in the world market of potash fertilisers did not significantly influence this indicator.

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please see

2 Focus on enhanced
relationships with end
customers
Sales volume / Production volume

Relevance to the strategy

Difference between production and sales volumes is one of the indicators representing the efficiency of our logistics, trading performance and route to market.

Measurement

The amount of potash sold within the period. The amount of potash produced within the period.

Performance overview

Despite adverse market conditions, the Company maintained a slight difference between production and sales volume in line with the historical range.

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3 Maintain cash cost leadership
positions
Уралкалий

Cash COGS per tonne


Relevance to the strategy

Cash cost of goods sold (COGS) per tonne measures our competitive cost position in the industry.

Measurement

COGS less depreciation and amortisation per tonne.

Performance overview

In 2015, our cash costs remained the lowest in the industry and further decreased due to the depreciation of the rouble

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please see

Maintenance CAPEX


Relevance to the strategy

Sustenance CAPEX measures how efficiently we can sustain our assets post commissioning.

Measurement

Capital expenditures aimed at maintaining the current production facilities in sound technical condition.

Performance overview

The continued depreciation of the rouble had a positive impact on our sustenance CAPEX

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EBITDA margin


Relevance to the strategy

The EBITDA margin demonstrates our pricing success, cost efficiency, advantages of being a pure-potash producer, and reflects the attractive fundamentals of our business.

Measurement

Adjusted EBITDA divided by Net revenue. Adjusted EBITDA is Operating Profit plus depreciation and amortisation and does not include one-off expenses. Net revenue is revenue less railway tariff, freight and transshipment.

Performance overview

Our EBITDA margin in 2015 increased by 8 ppt compared to last year’s, reaching its highest level since 2008. This is explained by the effective work of management to reduce costs, finding new sales channels, earlier investments in capacity expansion and the continuing depreciation of the rouble.

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4 Balance investment in growth with shareholder
returns

Total shareholder return (TSR)


Relevance to the strategy

TSR measures Uralkali’s strategy performance and creation of shareholder value. We also monitor relative TSR performance against other global potash/fertiliser companies.

Measurement

TSR calculation reflects generation of shareholder value through share price appreciation and dividends paid over the reporting period.

Performance overview

In 2015, TSR returned to positive values and was significantly better than that of other large fertiliser producers (with a mean TSR of -30%) due to an increase in the Company's share price, partly caused by the buyback of Uralkali's ordinary shares.

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Net debt/LTM EBITDA


Relevance to the strategy

Net debt/LTM EBITDA measures how robust our capital structure is and how we manage our balance sheet.

Measurement

Net debt = Debt (including bank loans and bonds) less cash and deposits.

Performance overview

The rise in the Net debt/EBITDA ratio was caused by the borrowing of funds necessary for the buyback of Uralkali's ordinary shares

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Expansion CAPEX


Relevance to the strategy

Expansion CAPEX reflects how efficiently we bring new potash capacity on line.

Measurement

Capital expenditures attributable to the expansion programme.

Performance overview

In 2015, we continued to implement our expansion programme. Our expansion CAPEX in 2015 was lower than the anticipated budget due to the additional time needed to select contractors. The decrease of this figure in US$ compared to 2012-2013 can also be explained by RUB devaluation.

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please see

5 Focus on people, communities, safety and environment Уралкалий

Work-related fatal injury frequency rate (FIFR)


Relevance to the strategy

FIFR is the core indicator of responsible health and safety management. It is central to our focus on operational excellence.

Measurement

FIFR is calculated based on the number of fatalities per 200,000 hours worked.

Performance overview

We regret to report that three employees tragically died at Uralkali facilities in 2015. Although an independent investigation led by Rostechnadzor cleared the Company of any wrongdoing, all necessary measures were taken to prevent such accidents in the future.

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Lost time injury frequency rate (LTIFR)


Relevance to the strategy

LTIFR reflects work-related injury frequency. The rate helps us to measure the efficiency of our health and safety initiatives and controls across our operations.

Measurement

LTIFR is calculated based on the number of lost time injuries per 200,000 hours worked.

Performance overview

The LTIFR rate has been consistently declining following the implementation of the Cardinal Rules in 2012.

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Social investments


Relevance to the strategy

Social investments demonstrate and reflect the Company's important role in the community in which we operate.

Measurement

Total amount of social expenditures including charity, support of infrastructure and sport.

Performance overview

In 2015, Uralkali continued to support sport activities, donate to charity and contribute to the development of the region where we operate.

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Voluntary labour turnover


Relevance to the strategy

Labour turnover represents the ability to retain our people, which is key to the Company’s strategy to be positioned as an employer of choice.

Measurement

Turnover is the number of permanent employee resignations as a percentage of total employees (excl. transfer to another employer).

Performance overview

The effectiveness of the Company’s HR policy aimed at increasing employees’ loyalty helped to further decrease the Voluntary Labour Turnover rate in 2015.

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Average annual wages (in the main production unit)


Relevance to the strategy

Average annual wages per employee in the main production unit measures how competitive we are in the market in relation to attraction and retention of the best people.

Measurement

The annual payroll is divided by the average number of employees in the main production unit, excluding top managers and the Moscow office.

Performance overview

In 2015, average annual wages denominated in US$ further decreased because of a strong RUB devaluation. In RUB average annual wages increased by 12%, but the average annual depreciation of the rouble led to a decrease by 30.2% in US dollars. Uralkali constantly monitors salary rates and pays the utmost attention to retaining people through ensuring its salary levels remain attractive.

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Energy consumption


Relevance to the strategy

Energy utilisation as a result of a number of mitigating actions demonstrates how the Company reacts to climate change.

Measurement

Energy consumed (electricity) per tonne of production for industrial needs.

Performance overview

Lower production volumes and energy efficiency programmes resulted in a slight increase in energy consumption per tonne in 2015.

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6 Continued focus on
corporate governance
Уралкалий
Maintaining of credit ratings
2015:

Stable credit outlook maintained

2014:

Investment-grade ratings maintained

2013, 2012:

Investment-grade ratings received and maintained



Relevance to the strategy

Stable credit outlook acknowledges that Uralkali is a first-class borrower with strong industry position, balanced financial policy, prudent risk management, and adherence to leading corporate governance standards.

Measurement

Type of ratings assigned to the Company by three rating agencies: Fitch, Moody’s and Standard & Poor’s.

Performance overview

In December 2015, Standard & Poor’s downgraded the Company's rating to BB-, Stable. Fitch lowered the Company's rating to BB-, Stable. Moody’s lowered Uralkali's rating to Ba2, Stable.

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please see

The Company’s governance and transparency are not negatively cited by the rating agencies / regulators
2015:

Uralkali continued to pursue a consistent policy of enhancing its corporate governance and information transparency. No claims made by regulators.

2014:

Uralkali continued to pursue a consistent policy of enhancing its corporate governance and information transparency. No claims made by regulators.

2013:

The Company pursued a consistent policy of enhancing its corporate governance and information transparency. This included improving the information uploaded to its website and the quality of public reporting. No claims made by regulators.



Relevance to the strategy

The corporate governance system, based on the best international standards, is the backbone of shareholders’ trust.

Measurement

Any defects in the Company’s corporate governance, transparency, disclosure or ethical standards, practices or procedures cited by any rating agency or regulator with jurisdiction over the Company’s securities as a reason for an adverse decision with respect to the Company.

Performance overview

Corporate governance continued to be one of the top priorities for the Company in 2015. The decision-making process in the Company is strictly in line with legal and regulatory requirements and in full accordance with the best international corporate governance practices.




Improving risk management

Given the significant opportunities and challenges that we face, a consistent approach to the development of the risk management and internal control system is crucial for timely identification and assessment of risks, decreasing their probability or minimising their negative effect.

Paul OSTLING Chairman of the Audit Committee

The development of an effective risk management and internal control system is one of the Company's most important strategic objectives. These activities ensure that events that may adversely affect Uralkali’s achievement of its goals are identified promptly and to take adequate response measures by distributing responsibilities between decision-makers.

In 2015, the Company continued its risk management activities as part of COSO ERM, an integrated risk management concept, and ISO 31000 Standard.

Key risk factors

This section describes only the major and most significant risk factors, which may have a considerable impact on the financial and operating performance of PJSC Uralkali. All estimates and forecasts contained herein should only be viewed taking these risks into account.

Other risks, of which PJSC Uralkali is unaware or which are not currently deemed significant, may become material in the future and have a considerable adverse effect on the Group’s commercial, financial and operating performance.

The Integrated Report does not aim to give an exhaustive description of all risks that may impact the Company. PJSC Uralkali will disclose any necessary information in a timely manner according to the applicable laws.

Our risk management approach is based on understanding of our current risk exposure, appetite and dynamics.



Year in review
Activities completed in 2015:
  1. Finalisation of the internal control system for financial reporting accuracy
  2. Introduction of a corruption prevention system and a compliance system in foreign affiliated companies and representative offices
  3. Review of methods and approaches to the formalisation and visualisation of the risks, their description
Plans for 2016:
  1. Implementation of a current risk monitoring system
  2. Integration of risk management in the operational management at a deeper level with the development of risk management policies in specific areas of business
  3. Further integration of risk management processes and formalisation of risk management development, implementation and monitoring practices for key risk areas



Uralkali's risk map for 2015


I. Strategic risks

  1. Failure to meet targets set for investment projects

II.Operating risks

  1. Lack of qualified employees
  2. Reduction in production/capacity
  3. Non-fulfilment of obligations by contractors or suppliers
  4. Expenditure increase

III. Financial risks

  1. Inflation and currency fluctuations

IV. Environment/Development environment

  1. Environmental risks and risks related to mining operations
  2. Risks related to the incidents at Berezniki-1 and Solikamsk-2
  3. Non-compliance with environmental and health and safety regulations

V. Marketing risks

  1. Potash demand decline
  2. Potash price decrease
  3. Lack of specific products

VI. Legal risks

  1. Risks, connected with the licensing of use of natural resources
  2. Political, legal and regulatory risks
  3. Compliance with applicable legislation and internal policies


Risk Description Risk level Dynamics Description of change Risk minimisation measures

Strategic risks

Failure to meet targets set for investment projects
  • Risks that investment projects’ timeframes and budgets will be exceeded.
  • Risks that the capacity expansion and other projects’ technical parameters will not be achieved.

MEDIUM
The Company continues to implement its investment programme in line with previously adopted plans.
  • The Company makes investment decisions based on market outlook; it selects the most economically efficient projects and determines optimal implementation periods.
  • The Company uses project management principles during project implementation.
  • Major investments are made after the design stage activities have been completed and after the timeframe, costs and feasibility of the projects have been confirmed.

Operating risks

Lack of qualified employees
  • Challenges in recruiting and retaining sufficiently qualified personnel.
  • Additional time and financial costs to increase staff qualifications.

LOW
There has been a large influx of skilled personnel into the labour market during the economic downturn. The Company constantly monitors the state of the labour market and promptly hires qualified personnel to meet its staffing needs.
Reduction in production capacity
  • Internal factors such as equipment failures, deterioration of infrastructure, etc.
  • External factors such as lower ore quality or reduced capacity following technology modifications due to regulatory changes, etc.

MEDIUM
Production capacity decreased in connection with the accident at Solikamsk-2. The Company continues to expand its production capacity and replace retired assets.
Non-fulfilment of obligations by contractors or suppliers The failure of key partners, relations with whom are strategically important, to meet their contractual obligations.
HIGH
The Company's activities depend on monopolistic energy suppliers and the Russian railways. In the context of macroeconomic instability, suppliers and contractors can raise the price of their products and services. The Company strives to ensure alternative suppliers are available for all its needs.
Expenditure increase Production costs may increase due to the wear-and-tear of production equipment, utilisation of obsolete technologies, or inefficient spending on operating activities.
MEDIUM
The Company continues its risk prevention activities in line with previously approved plans. The Company is implementing programmes to increase productivity and reduce operating expenditures.

Financial risks

Inflation and currency fluctuations Additional costs through more expensive materials, resources and services (e.g. transport services) created by inflation and exchange rate fluctuations.
HIGH
Macroeconomic instability both in Russia and abroad increases risks in the short term.
  • The Company mitigates the impact of exchange rate fluctuations by hedging.
  • It also takes necessary measures to maintain its strong credit position.

Environment/Development environment

Environmental risks and risks related to mining operations Uralkali’s mining operations are exposed to risks associated with exploration, extraction and processing of minerals, which include flooding, fire and other types of incidents and may create unforeseen costs and reduce the Company's operational efficiency.
HIGH
Given unpredictable natural factors associated with mining, the Company takes a conservative approach to mitigating environmental risks.
  • The Company follows its previously developed mining plan, which includes an extensive safety section.
  • The Company regularly audits the effectiveness of measures aimed at minimising mining risks.
Risks related to the incidents at Berezniki-1, Solikamsk-2 The flooding of Berezniki-1 in October 2006 as well as an accident at Solikamsk-2 in 2014 had a significant impact on the size of mineral reserves and may lead to additional costs, losses and obligations.
HIGH
The Company adheres to its safety and social responsibility policies and adopts a conservative approach. The Company follows its social responsibility policy, under which it maintains a constructive and consistent relationship with state authorities to respond to any issues in a timely manner.
Noncompliance with environmental and health and safety regulations
  • Uralkali’s operations and the use of its property are governed by various environmental and health and safety laws and regulations, which may be interpreted in various ways.
  • Additional costs and obligations created by compliance with these laws and regulations.

MEDIUM
In 2015, the Company implemented comprehensive programmes to minimise such risks.
  • PJSC Uralkali has developed and applied system of safety standards.
  • The Company conducts regular staff safety training and implements measures to prevent occupational diseases.
  • The Company pays special attention to compliance and improving performance.

Marketing risks

Potash demand decline Macroeconomic factors, including global population changes, insufficient cultivated land per capita, decreases in personal income and difficulties in raising loans to purchase potash fertilisers, may weaken global demand for potash.
HIGH
Due to macroeconomic and geopolitical instability, the potash demand growth rate does not match current market supply.
  • Uralkali’s management is developing a marketing strategy to promote potash and actively supports agricultural producers (e.g. by updating farmers’ calculators).
  • Uralkali's management is actively monitoring and supporting all key markets.
  • We estimate future demand for our products and try to comply with it.
Potash price decrease Producers’ pursuit of high capacity utilisation together with insufficient demand may result in excessive supply and a subsequent drop in global potash prices, reducing the Company's revenue and profit.
HIGH
A mismatch between the potash demand growth rate and current market supply affects sales prices.
Lack of specific products With its production capacity fully utilised, the Company may face a deficit of a particular product for a specific market.
MEDIUM
The accident at Solikamsk-2 temporarily increases the risk of a shortage of a particular product. In 2015, the Company balanced its production capacity.

Legal risks

Risks, connected with the licensing of use of natural resources
  • Legislative changes or decisions by regulators to terminate or restrict the licences.
  • The Company's operations depend on the continued validity of its licences and its compliance with licence terms.

MEDIUM
In 2013 Uralkali has extended its main mining licences.
  • The Company has a plan to maintain existing licences.
  • The Company has introduced internal controls to follow up on the plan and respond promptly to any deviations.
Political, legal and regulatory risks
  • The Russian market and a number of developing markets where PJSC Uralkali operates are exposed to higher risks than more developed markets, including significant legal, economic and political risks.
  • The Company could breach applicable laws or regulations.
  • Certain measures of governmental bodies or increased regulation could lead to additional costs, as well as affect investors’ expectations.
  • Additional obligations, costs and restrictions for Uralkali due to audits by tax authorities, the federal health and safety agency (Rostechnadzor) and other regulators.

MEDIUM
PJSC Uralkali is registered in Russia and operates in a number of developing markets, which are exposed to higher risks than more developed markets, including legal, economic and political risks, i.e. rapidly changing legislation and legal practice.
  • The Company has developed a set of connected measures to ensure its compliance with statutory rules and norms.
  • The Company also monitors any relevant legislative changes in all applicable jurisdictions and liaises with supervisory authorities to promptly adjust its activities where necessary.
Compliance with applicable legislation and internal policies
  • Non-compliance with the legislation of Russia and other jurisdictions, including anti-monopoly laws.
  • Claims, including antimonopoly claims, may create additional costs for the Company.

HIGH
Uralkali is subject to special state regulations in various jurisdictions. Due to macroeconomic instability, regulators can increase their requirements. The Company is developing a set of measures and internal controls to ensure its legal compliance, including compliance with anti-monopoly laws.

Low risk

Medium risk

High risk

Probability of the risk decreased

Probability of the risk increased

Probability of the risk unchanged