2015 saw a number of major corporate events for Uralkali, the most significant being the termination of the listing of the Company’s GDRs on the London Stock Exchange. The Board of Directors’ decision to de-list had a number of reasons but was mainly driven by unfavourable economic conditions in Russia and global geopolitical factors, as well as by low liquidity on the exchange.
The Board had a busy year in 2015. Whilst the number of the Board’s meetings was relatively normal, the Audit Committee was extremely active. The Company maintained high standards of corporate governance and ensured full transparency of its activities. A crucial role was played by our independent directors applying their professionalism and global expertise, which allowed the Company to proceed with its corporate actions in compliance with the best corporate practices in 2015.
At all times, the Company kept its shareholders, investors and other stakeholders updated about the latest developments and decisions.
As of 31 December 2015, the Board of Directors has the composition that was determined by the annual general meeting held on June 15th, 2015: Sergey Chemezov (Chairman and an independent director), Dmitry Mazepin (Deputy Chairman), Sir Robert John Margetts (Deputy Chairman and the Senior Independent Director), Dmitry Konyaev, Dmitry Osipov (the CEO), Paul Ostling (an independent director), Dmitry Razumov, and Michael Sosnovsky.
Formally, the Board also includes Mr Jian Chen, a nominee from Chengdong Investment Corporation (CIC). However, as CIC sold its shareholding in Uralkali during the buyback programme in September 2015, Mr Chen announced he would no longer take part in the work of the Board. Accordingly, since October 2015 Mr Chen has not been involved in the Board’s activities.
The Board continues to have all the necessary expertise to serve the interests of the Company and its shareholders with a balance of independent and non-executive directors, where independent directors take one third of the Board’s composition.
The Board of Directors provides an overall guidance to activities of the Company. In particular, it sets and follows up strategic objectives, mid-term and short-term targets for the management; it also approves financial statements and performs other functions within the remit in the Charter of the Company.
The Board has 4 committees, which hold preliminary discussions and reviews of the matters falling under the Board’s competence. Committees’ resolutions do not create legal implications for the Company; however, their recommendations are considered by the Board when final decisions are made. Two of the Board committees – the Audit Committee and the Appointments and Remuneration Committee – are a requirement of the Listing Rules of the Moscow Exchange.
Distribution of functions within the Board remained the same and in line with best corporate governance practices:
In March 2016, the Appointments and Remuneration Committee considered a suggestion to review the Board’s performance in 2015 and approved the questionnaire for directors. As was instructed by the Committee, the performance review was completed by April 20th, 2016. Following the appraisal, an action plan was developed to improve the work of the Board. In particular, the recommendations included improving the quality of information materials provided to the Board and informing the Board about the Company’s activities more often and in more detail. On the whole, directors gave a very good assessment of how meetings are organised.
The work plan of the Board and its committees for the 2015 calendar year was approved by the Board in December 2014. However, as several unscheduled projects were launched in the course of 2015 – which related to a number of reasons including unfavourable economic conditions in Russia, global geopolitical issues, a drop in liquidity on the London Stock Exchange mentioned above, as well as the consequences of an accident at one of the Company’s mines, and approval of the new corporate long-term investment strategy – the initial work plan had to be adjusted to satisfy the anticipated workload of the Board and its committees.
Traditionally, a Board’s annual work plan is based on current practices of the Company and typical matters falling under the Board’s competence: approval of international statements, convocation of general meetings, discussion of strategic issues, approval of major and related-party transactions, supervision of the management’s performance, and consideration and approval of investment projects.
|Name||The Board of Directors (10 meetings)2||The Audit Committee (11 meetings)||The Appointments and Remuneration Committee (5 meetings)||The Investment and Development Committee (7 meetings)||The Corporate Social Responsibility Committee (4 meetings)|
|Sir Robert John Margetts||All||All||All||All||All|
|Paul James Ostling||All||All||All||All||All|
1“Attendance” means participation of directors in meetings by way of physical presence (for meetings held in presentia), voting by filling voting ballots (for meetings held in absentia), and submission of a written opinion in relation to agenda items if physical presence is impossible.
2One out of ten meetings of the Board of Directors was held in absentia.
3Mr. Senko was a board member until June 15th, 2015.
4“All” refers to the number of Board/Committee meetings where a director had to be present either before the termination of the director’s term of office or before announcement about withdrawal from the Board/Committee or following his/ her election to the Board/Committee.
5Michael Sosnovsky was elected to the Board at the annual general meeting on June 15th, 2015.
Starting from April 2015, the Board focussed on the buyback programmes, which required considerable attention and supervision from the Board. For the buyback programmes, external financial and legal advisers were engaged, and additional meetings of both the Board and the Audit Committee were held. Preparing for and implementing the programmes required an unprecedented level of involvement and commitment by the independent directors. The biggest workload was imposed on the Audit Committee Chairman, who not only spearheaded the preparation, as was instructed by the Board, but also took part in the management’s conference call with investors to share the outcomes of the programmes.
It is also worth mentioning that in April 2015 the Board approved the new version of the Dividend Policy to introduce a discretionary approach to the level of dividends subject to the financial health of the Company and the overall financial environment.
In June 2015, the Board held its traditional strategic session, where directors and the management jointly discussed the key aspects of the Company’s strategy, including the situation at Solikamsk-2, which suffered an emergency in November 2014, existing and additional geological safety measures, work plans of several directorates, health & safety programmes, and the situation in the global potash market. The strategic session was attended by the Management Board in full and several other senior executives. The management team received a set of actions for subsequent implementation with the reports on results provided to the committees and the Board of Directors.
In 2015, the Board had four Committees: the Audit Committee, the Appointments and Remuneration Committee, the Investment and Development Committee, and the Corporate Social Responsibility Committee. All four Committees were actively involved in the development of the Company.
In total, there were 27 Committee meetings in 2015, in which over 80 different matters were reviewed.
|The Audit Committee|
|Risk management and internal control||11,1%|
|Corporate governance and instructions from the Board, including instructions related to the buyback programmes||30,5%|
|Monitoring of KPIs||5,6%|
|The Appointments and Remuneration Committee|
|Achievement of KPIs and recommendations to approve KPIs||11.8%|
|Appraisal of the Board’s performance||11.8%|
|The Investment and Development Committee|
|Strategy and investment projects||38.1%|
|The Corporate Social Responsibility Committee|
|Occupational Safety and Health, and Environment Protection||27.3%|
|Accidents and incidents||27.3%|
|Activity plans and reports||18.2%|
The Audit Committee had a very busy time in 2015: it held 11 formal meetings versus the original plan of 6, and dozens of conference calls, consultations and discussions on top of that. The Chairman of the Committee also held several meetings with the Company’s finance team, internal auditors and external consultants.
As the competence of the Audit Committee includes corporate governance, it received, and followed, the Board’s instructions to prepare and implement the buyback programmes, and also provided the Board with its recommendations on the programmes, all of which were accepted and implemented.
Another important highlight of the Committee’s work was that in August 2015 the Board approved the new version of the Committee’s Regulations. The new document reflected a number of changes to ensure that the Audit Committee’s activities are in line with the new requirements of the Moscow Exchange that will come into force on October 3rd, 2016 and to introduce a special working procedure (the so-called Special Committee) should the Company enter into a strategic transaction (which was also defined in the new version of the Regulations). For more details, please see the Regulations on the Audit Committee on the official web site of the Company at www.uralkali.com).
A special working procedure was used in 2015, when the Special Committee – comprised of independent directors only – developed recommendations for the Board to protect the interests of all shareholders amid a fall in liquidity on the London Stock Exchange. Based on these recommendations, in November 2015 the Board resolved to launch a buyback programme of up to 6.5% of Uralkali’s shares on the open market by March 31st, 2016.
As of December 31st, 2015, the Audit Committee had the following members:
Although a considerable part of the Committee’s time was given to special projects, it still followed its normal work plan on the key areas of its competence: public reporting, internal and external audit, risk management and internal control, corporate governance and compliance.
In 2015, Nikolai Morozov, head of the internal audit department since April 2014, left the Company and was replaced with Nikolai Ivanov. The internal audit department’s reports are regularly reviewed in meetings of the Committee. The Audit Committee made a number of recommendations to improve the structure of the directorate’s reports to ensure that the Committee has a full understanding of the results of completed audits and whether its recommendations were completed.
In March-April 2015, the Audit Committee led a tender to select auditors for the Company’s International Financial Reporting Standards and Russian Accounting Standards statements.
For the IFRS auditor, the Committee received offers from three of the Top 4 global auditors, reviewed the presentations and recommended to appoint CJSC Deloitte & Touche CIS. The Board of Directors supported the recommendations.
As part of the RAS auditor selection process, requests for quotations were sent to the Top 10 auditors from the RAEX rating agency’s 2013 ranking. Offers were received from six firms, and the Audit Committee and the Board agreed that the best proposal was made by CJSC Energy Consulting.
Both appointment recommendations were raised with shareholders of the Company, and on June 15th, 2015 the general meeting approved CJSC Deloitte & Touche CIS as the IFRS auditor and CJSC Energy Consulting as the RAS auditor.
In August 2015, the Board of Directors, following a recommendation made by the Audit Committee, approved the first consolidated IFRS statements audited by CJSC Deloitte & Touche CIS. Traditionally, representatives of the auditor took part in the meeting of the Audit Committee, in which the statements were approved. The invitees made a number of recommendations to improve the reporting preparation process, which included several amendments to internal documents of the Company. The recommendations were duly noted and implemented.
The fees of CJSC Deloitte & Touche CIS for 2015 were approved by the Board in the amount of 27,750,000 roubles (excluding VAT and including overheads) and the fees of CJSC Energy Consulting were approved in the amount of 6,949,152.54 roubles (excluding VAT).
The actual amount paid in 2015 to the previous IFRS auditor (CJSC PriceWaterhouseCoopers Audit) and its affiliates was 41,836,143 roubles, including:
|Company||Payments for audit services, RUB||Payments for consulting service, RUB|
CJSC PriceWaterhouseCoopers Audit
20 886 000
18 032 972
|PriceWaterhouseCoopers RUSSIA B.V.||
2 256 702
LLC PriceWaterhouse Consulting
|Total:||20 886 000||20 950 143|
The ratio between the fees for the audit and consulting ser vices 49.92% to 50.08% respectively.
The actual amount paid in 2015 to the new IFRS auditor (CJSC Deloitte & Touche CIS) and its af filiates was 63,750,751 roubles, including:
|Company||Payments for audit services, RUB||Payments for consulting service, RUB|
CJSC Deloitte & Touche CIS
27 053 860
30 526 345
|LLC Deloitte Consulting||-||6 125 536|
|Total:||27 053 860||36 651 891|
The ratio between the fees for the audit and consulting ser vices was 42.47% to 57.53% respectively.
In order to monitor provision of non-audit ser vices, the Regulations on the Audit Committee, the current version of which was approved in August 2015, includes a provision stating that all non-audit services provided by auditors of the Company's financial statements have to be pre-approved by the CFO. Individual contracts for non-audit services exceeding US$500,000 have to be pre-approved by the Chairman of the Audit Committee.
Auditors of the Company's financial statements must at least once per year inform the Committee about consulting (non-audit) services rendered to the Company. Taking into account the internal policies and practices adopted by auditors in order to ensure their independence and to avoid conflicts of interests, the Company is reasonably assured that the provision of non-audit (consulting) services does not threaten the auditors' independence in terms of the provided audit services. Following a review of non-audit services, all of which were considered by the Committee in its meeting held on March 2nd, 2016, the Committee concluded that the cost ratio between audit and non-audit services presented above did not challenge the impartiality and independence of the auditors of the Company's financial statements.
The Audit Committee’s work plan for 2016 will in principle be similar to what the Committee was doing in 2015 and will cover internal and external audit, risk management, corporate governance, compliance issues, and consistent focus on the quality of new and existing systems and processes in the Company with full support from the management team.
The risk management and internal control system adopted by the Company is based on principles incorporated in ERM (Enterprise Risk Management), an integrated risk management system developed by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). The ERM:
In September 2012, the Board of Directors approved the Risk Management and Internal Control Policy, which specified risk management and internal control responsibilities and roles of Uralkali’s management bodies and employees as follows:
|Management bodies and employees of the Company||Roles of management bodies and employees of the Company|
|Board of Directors||Responsible for the efficiency of the risk management process and for the development and maintenance of the corporate Risk Management and Internal Control System (RMICS).|
|Audit Committee||Considers the most material risks and corresponding management techniques applied by the Company’s executive bodies.|
|CEO||Provides an overall guidance of the risk management process.|
|Management Board||Is an expert authority of the CEO for risk management and internal control.|
|Executive Directors||Ensure regulation of business processes within their area of activity; identify the processes’ objectives and assess key risks.|
|Risk Manager||Coordinates the risk management process and the development of consolidated information about the risk management process and internal control system at all levels for the Audit Committee, the Board of Directors, the CEO and the Management Board.|
|Internal Audit Department||Monitors compliance with the internal control procedures, informs the Audit Committee of identified violations, identifies areas of potential improvements, and provides consultations on corrective measures related to risk management, internal controls and corporate governance.|
|Employees||Duly perform duties assigned to them by the RMICS; timely inform their management about risks identified during current activities.|
Transparency and reliability of financial reporting is one of the crucial principles of corporate governance, and ensuring the proper quality of financial statements is a key function of the Board of Directors, and so this process is always given special attention. Uralkali has a number of control procedures aimed at ensuring the adequacy and reliability of collected and processed data. The process of preparing financial statements involves employees, officers, management bodies and external auditors of the Company, who have the following roles:
|Management bodies and employees of the Company||Roles of management bodies and employees of the Company|
|Chief Financial Officer||
|Board of Directors||Approves financial statements taking into account recommendations made by the Audit Committee|
The Appointments and Remuneration Committee has three members including two independent directors.
As of December 31st, 2015, the Committee is represented by:
In the course of 2015, the management team of Uralkali had several new appointments, and individual nominees were reviewed by the Committee. In particular, Oleg Petrov, who has been the Company’s head of sales and marketing in charge of both domestic and export sales for around 10 years, left Uralkali in 2015. In the wake of his departure, the sales directorate was changed to only cover the domestic market. In October 2015, Aleksey Strakhov was appointed as director of domestic sales. All export sales are managed by a subsidiary of the Company – Uralkali Trading SIA – which is now headed by Vladislav Lyan.
Another new appointment was Eduard Avetisyan, who heads government relations.
Other organisational changes that took place in 2015 include restructuring of the chief engineer’s directorate. On 24th of April 2015, the directorate was renamed as the technical directorate and is led by the chief technical officer Evgeny Kotlyar, formerly the chief engineer of the Company. The technical directorate includes a maintenance department headed by Dmitry Ivanov. Also there was established the capital construction directorate under the CEO. The directorate is headed by Vladimir Nitsulenko.
In 2015, the Board considered several matters, including HR initiatives, labour efficiency and organisational structure. These areas will be subject to more detailed and specific discussions in 2016 to ensure alignment with the corporate strategy, which includes a number of major investment projects aimed at further developing Uralkali’s production capacity
The Company also has a number of internal controls to identify a conflict of interests. In particular, a director is obliged to inform the Company of any persons in relation to which the director is an affiliate. Also, the corporate information system has a list of related parties (updated regularly), which is used to select transactions that have to be raised to the Board of Directors or the general meeting of the Company.
As mentioned earlier, in 2015 a new version of the Regulations on the Audit Committee was approved. The new document introduces a special working procedure for the Audit Committee in the event of a strategic transaction to be entered into by the Company. As strategic transactions mean a transfer of ownership or control in relation to a significant number of voting rights over voting shares of the Company or an acquisition by Uralkali or a member of Uralkali Group of significant blocks of shares, only a special committee comprised solely of independent directors is authorised to issue recommendations pertaining to such transactions (including their terms, conditions and procedures) in order to respect the interests of all shareholders and avoid a conflict of interest on the part of one or several directors who may be associated with major shareholders.
In 2015, Uralkali or other members of Uralkali Group did not grant loans to directors of the Company.
In 2015, the Company entered into a number of transactions, which were deemed major and/or related party transactions pursuant to the Russian Federal Law “On joint-stock companies” (the Law). The Law also stipulates that such transactions must be approved by the general meeting or the Board of Directors depending on the value of transactions, the identity and number of related parties, and explains the approval procedure.
Most of the transactions in question were approved by the AGM as related party transactions and as transactions which can be entered into in the future in the ordinary course of business within the established limits (transactions with Uralkali’s subsidiaries). All the listed transactions were approved following the procedure stipulated by the Law, and so the transactions do not create any conflict of interests.
Also in 2015, the annual general meeting approved a traditional transaction, under which all directors were deemed related parties, namely, the Directors’ & Officers’ liability insurance agreement, which is negotiated and approved each year.
Aside from the AGM held on June 15th, 2015, three extraordinary general meetings took place in 2015.
The EGM held on August 7th, 2015 approved, inter alia, a major related-party transaction (a series of interconnected transactions) between Uralkali and one of its subsidiaries (JSC Uralkali-Technology). The total value of the transaction was more than 2% but less than 25% of the book value of the Company’s assets. Under this transaction, the EGM approved acquisition by Uralkali of shares issued by JSC Uralkali-Technology as part of an additional equity issue in the total amount of 150 billion roubles.
On August 25th, 2015 Uralkali, on the one part, and Barclays Bank PLC and VTB Capital PLC (the Banks) as dealer managers, on the other part, signed an Indemnity Deed, which was approved by the Board of Directors on August 24th, 2015. The deed was related to the services provided by the Banks in relation to and in connection with the buyback programme, which was launched by the Board on August 24th, 2015. The Company’s liability under the deed did not exceed 2% of the Company’s book value as of t he latest reporting date.
The EGM held on November 17th, 2015 approved a major transaction to secure financing from PJSC Sberbank. The amount of the transaction was more than 25% but less than 50% of the Company’s book value. The general meeting also approved Addendum 1 to the Indemnity Deed with banks (see above) to increase the Company’s liability under the Indemnity Deed to within 25% of the Company’s book value.
Then, another EGM took place on December 9th, 2015, which approved Addendum 2 to the Indemnity Deed with banks to exclude the limits of the Company’s liability. The size of this transaction, related to the series of transactions, exceeded 50% of the Company’s book value.
Shareholders also approved a major transaction to raise financing from PJSC Sberbank, a deal worth over 50% of the Company’s book value if combined with credit facility agreements with the bank, as well as a number of other major related-party transactions (a series of interconnected transactions): framework agreements with the Company’s trading organisation – Uralkali Trading SIA – in the total amount of more than 25% but less than 50% of the Company’s book value, and a transaction to purchase additional shares issued by JSC Uralkali-Technology, the aggregate value of which (combined with previously approved transactions) exceeded 50% of the Company’s book value.
The Chief Executive Officer is the sole executive body of Uralkali, whose competence is determined by the Company’s Charter. The CEO is also the head of the Management Board.
Since December 24th, 2013, Uralkali’s CEO is Dmitry Osipov.
The Management Board is a collective executive body of the Company. Its quantitative and personal composition is determined by the Board of Directors.
In 2015, the composition of the Management Board was changed several times, and as of December 31st, 2015 it had 9 members:
In 2015, the Management Board had 11 meetings.
In 2011, the Company started a process to create committees (or working groups) directly reporting to the CEO to focus on the key aspects of the Company’s activities. To date, there are 7 Working Groups:
The Working Groups were formed to ensure a single approach to decision-making in these areas of activity. Every group is represented by senior executives and is personally led by the CEO. The Working Groups’ competence includes monitoring and review of relevant information; preliminary discussions and risk analysis; and follow-up of scheduled activities. This approach ensures a continuous dialogue with the management team and a two-way flow of information about the most crucial aspects of the Company’s activities. In 2015, around 50 meetings of the Working Groups were held.
Members of the Board of Directors receive remuneration in line with the Regulations on directors’ remuneration and reimbursement. The Regulations only provide for remuneration for independent directors and at the same time specify director independence criteria.
An independent director’s remuneration consists of the base part and a separate part for additional duties as a committee member or chairperson or as a deputy chairperson of the Board of Directors. Both parts of remuneration are fixed values.
Remuneration payable to the Chairman of the Board of Directors is governed by a specific section of the Regulations on directors’ remuneration and compensation. The Chairman’s remuneration is also fixed and is paid on a monthly basis in equal amounts.
In 2015, three independent directors received remuneration: Sergey Chemezov, Sir Robert Margetts and Paul Ostling.
In December 2015, the general meeting of the Company approved the new version of the remuneration regulations. As the actual time and effort contributed by directors in 2015 considerably exceeded the original work plan, the new document allowed for a one-time increase in the annual base remuneration for independent directors subject to the increase being capped at the amount of base remuneration and subject to the Company implementing a strategic transaction in the respective year.
According to the new remuneration regulations, the annual base remuneration for all independent directors was increased once in December 2015.
Shareholders also deemed reasonable and satisfied a Board’s suggestion to increase the size of remuneration for chairing the committees required by the Moscow Exchange’s Listing Rules (i.e. the Audit Committee and the Appointments and Remuneration Committee).
Several other amendments were introduced to the remuneration structure, all of which are published on Uralkali’s official web site.
In accordance with the the Regulations on directors’ remuneration and reimbursement Members of the Board of Directors are reimbursed for their travel expenses (travel to and from the location of the meeting of the Board of Directors), accommodation costs and costs not related to participation in Board meetings but connected with the business of the Company. Members of the Board of Directors are reimbursed for the expenses incurred by them within reasonable limits.
In total payments to directors in 2015 were as follows:
|In RUB||In US$**|
*Based on the average RUB/US$ exchange rate in 2015 - 60.96 RUB/1 US$.
Remuneration payable to members of the Management Board consists of two parts: a monthly salary, the size of which is specified in individual employment contracts, and an annual bonus. The amount of the bonus depends on the achievement of individual annual KPIs, which reflects the contribution of a member of the management team to the achievement of strategic and operating goals of the Company. Members of the Management Board do not receive any additional remuneration for their work in the Management Board.
Currently, the Company does not have a long-term management incentive programme, and so senior executives of the Company are not paid additional bonuses.
The total amounts paid to the Management Board for 2015 were as follows:
|In RUB||In US$**|
*After personal income tax.
**Based on the average RUB/US$ exchange rate in 2015 - 60.96 RUB/1 US$.
According to JSC Independent Registrar, as of December 31st, 2015 there are no directors (Board of Directors and Management Board members) who currently hold or previously held positions in management bodies of Uralkali in 2015 in the Company’s share register both as of January 1st, 2015 and as of December 31st, 2015. There is no record of any transactions made by members of Uralkali’s management bodies to acquire or alienate shares of the Company, including dates and essence of transactions, the category (type) and number of Uralkali shares, which were the subject matter of such transactions from January 1st, 2015 until December 31st, 2015. The share register has no records of nominee shareholders as of January 1st, 2015 and December 31st, 2015.
In 2011, the Company adopted an anti-fraud programme, which sets a mechanism to prevent corporate fraud. The programme covers internal, economic and information security and provides for a hotline service to receive messages about suspected fraudulent activities. The Security Directorate works in close contact with the Company’s compliance officer to identify conflicts of interests and respond to any identified noncompliance. In 2015, the programme remained in force, and a number of activities were implemented.
In 2013, the Company started a project to create an anti-corruption system. As of the end of 2015, the compliance system includes anti-trust compliance, ethical compliance and sanctions compliance components, all of which are closely monitored to avoid breaching any applicable regulations. The Company holds regular training workshops and online knowledge assessments, and develops new controls as becomes necessary.
|Board Committee||Members||Key functions||Targets for 2015|
The Audit Com- mittee
|Paul Ostling (Chairman), Sir Robert John Margetts, Michael Sosnovsky||•risk management and internal control•external and internal audit•corporate governance•legal compliance||
The CSR Committee
|Sir Robert John Margetts (Chairman),Paul Ostling, Dmitry Konyaev, Dmitry Osipov, Michael Sosnovsky||Consideration of health, safety, environment and social responsibility issues to develop an effective management system for these areas.||
The Appointments and Remuneration Committee
|Paul Ostling (Chairman), Sir Robert John Margetts, Dmitry Konyaev||Engagement of qualified specialists for the management of the Company; development of necessary incentives to facilitate a successful functioning of the Company’s management bodies to implement strategic plans and ensure succession in management.||
The Investment and Development Com- mittee
|Sir Robert John Margetts (Chairman),Paul Ostling, Dmitry Konyaev, Dmitry Osipov, Michael Sosnovsky, Jian Chen||Consideration of the Company’s strategic development, budgeting process and major investment projects.||