17. Investments in associates
In September and October 2010 two Group subsidiaries, PhosInt Limited and PhosAsset GmbH, increased their share capital which was subscribed by a related party resulting in the dilution of the Group’s shareholding in these entities to 49%. As a consequence these entities and Nordwest AG, a subsidiary of PhosAsset GmbH (further the PhosInt Group) were deconsolidated from the Group. At the same time, the Group retained its right for the distribution of all accumulated earnings and reserves relating to these entities prior to the date of loss of controlas determined by the executive management by reference to the IFRS financial statements of these entities. In 2011 dividend in the amount of RUB 1,840 million was accrued and paid from PhosInt Group to the Company out of the opening balance of retained earnings.
As at 31 December 2010 and 2011 these entities held primarily equity and debt instruments of Russian issuers recognized at fair value, loans issued and cash. Accordingly, the fair value of the net assets of these entities approximatedthe book value.
Once the total dividend distributed will reach the amount of retained earnings of PhosInt Groupat the date of loss of control, any subsequent dividend will be made proportionate to the shareholding in these companies.
No consideration was received by the Group on disposal and the financial result of this transaction was nil.
Upon the loss of control in the associate in 2010, the Group entered in a number of put-call agreements with the PhosInt Limited, whereby the PhosInt Limited has the right and the obligation to sell and the Company has the right and obligation to buy, 561 thousand of ordinary and 106 thousand of preferred shares in JSC “Cherepovetsky “Azot”, representing 7.03% and 9.44% of the shares of the relevant class, for a fixed consideration of RUB 570 million. In accordance with the substance of these agreements, the minority parcels of the shares subject to the option agreements have been recognised as if the shares are owned by the Company.
In May 2011 the Group entered into acquisition agreement for 24% of CJSC “Metachem” and 21.85% of CJSC “Pikalevskaya soda” for a total consideration of RUB 313 million. In July 2011 the Group sold its investment in CJSC “Pikalevskaya soda” for RUB 145 million to CJSC “Metachem”.
The movement in the balance of investment in associate for the year ended 31 December 2011 is as follows:
| RUB Million | 2011 |
|---|---|
| Balance at 31 December 2010 | 9,365 |
| Acquisition of CJSC “Metachem” and CJSC “Pikalevskaya soda” | 313 |
| Disposal of CJSC “Pikalevskaya soda” | (145) |
| Share in profit for the period | 2,318 |
| Share in revaluation of available-for-sale securities | (359) |
| Re-cycling of the available-for-sale revaluation surplus to profit and loss | (2,076) |
| Currency translation difference | 334 |
| Dividends accrued | (1,840) |
| Balance at 31 December 2011 | 7,910 |
Carrying values of the Group’s investment in associates at 31 December 2011 and 2010 are as follows:
| RUB Million | 2011 | 2010 |
|---|---|---|
| PhosInt Group | 7,646 | 9,365 |
| FOSAGRO UKRAINE | — | — |
| Metachem Group | 264 | — |
| 7,910 | 9,365 |
The summarized financial position of the associates at 31 December 2011 and 2010 is as follows:
| 2011 (RUB Million) | Metachem Group | PhosInt Group | FOSAGRO UKRAINE |
|---|---|---|---|
| Total assets | 2,593 | 10,213 | 76 |
| Total liabilities | (1,493) | (2,600) | (363) |
| 1,100 | 7,613 | (287) |
| 2010 (RUB Million) | PhosInt Group | FOSAGRO UKRAINE |
|---|---|---|
| Total assets | 9,575 | 148 |
| Total liabilities | (210) | (436) |
| 9,365 | (288) |
The summarized result of operations of the associates for the year ended 31 December 2011 is as follows:
| 2011 (RUB Million) | Metachem Group * | PhosInt Group | FOSAGRO UKRAINE |
|---|---|---|---|
| Revenue | 5,007 | 291 | 2,200 |
| Profit for the period | 399 | 2,441 | 21 |
* For the seven-month period ended 31 December 2011
Profit for the year was partly allocated to PhosAgro based on the profit sharing agreement which was signed on the date the control was lost.
No significant revenue or net result was realised by PhosInt Group or LLC “FOSAGRO UKRAINE” from the moment when they became Group associates until 31 December 2010.
Notes to the Consolidated Financial Statements