• Corporate Governance Structure
• The General Shareholders' Meeting
• Board of Directors
• Board Committees
• The Executive Body
• Remuneration of the Members of the Board of Directors and the Chief Executive Body of PhosAgro
• Insider Information Policy
• Dividend Policy
• Internal Control and Audit
• Review Committee
• Internal Audit Department
• Risk Management

Risk Management

We are exposed to a number of exogenous and endogenous risks due to the nature of our business. PhosAgro's risk management framework is designed to identify, evaluate and manage the financial and operational risks and uncertainties facing the Company. The Board of Directors has overall responsibility for managing both financial and non-financial risks. Individual line managers are responsible for identifying, monitoring and managing risks within our risk management framework.

Our approach:

PhosAgro has established risk management policies to identify, monitor and analyse risks, and specific rules and procedures to mitigate against these risks, and to ensure compliance. The Board of Directors periodically reviews PhosAgro's risk management policies and systems to reflect changes in market conditions and the Company's activities. Risk management policies are implemented by individual managers within their areas of responsibility, while the Internal Audit Department, Review Committee and senior executives have responsibilities for monitoring and verifying the work of these managers.

Key objectives:

• Identify and manage all possible risks and uncertainties facing the Company;
• Improve the decision-making processes to respond promptly to risks as they emerge.

Below is a discussion of some of the key risks that PhosAgro faces in the course of its operations, and the measures we take to manage these risks:

Key Risks	Description	Mitigation
Market Risks
Risks related to operating in the fertilizer industry, which is cyclical in nature	PhosAgro operates in a cyclical industry, and demand for and prices of the Company's products are difficult to forecast. Historically, demand and prices for PhosAgro's products have fluctuated significantly in response to changes in market conditions.	PhosAgro's phosphate-based fertilizer production lines are flexible and can switch between MAP, DAP, NPK and NPS, within two working shifts. This allows the company to move between phosphate fertilizers and complex fertilizers at short notice in response to changes market demand. More details are available here. Such production flexibility helps the Company to maximise its profitability during periods of growth, as well as to maintain high capacity utilisation levels and stable margins when market conditions are weaker.
Risks related to a potential decrease in demand for mineral fertilizers and/ or apatite concentrate	A decrease in the demand for mineral fertilizers and/ or apatite concentrate may occur due to: Reduced usage of fertilizers by farmers in markets affected by economic factors, weather conditions or other natural occurrences; Introduction and/or extension of anti-dumping measures in importing countries leading to a decrease in supply requirements and/or a need to find other markets, resulting potentially in higher logistics costs; Introduction of export quotas and duties by the Russian Government on products, leading to the restriction of export activities and therefore negatively impacting the financial results of the Company; Changes in the freight market related to a reduction in the availability of vessels of the required tonnage, leading to an increase in logistics costs.	Our flexible sales and production model helps to reduce the risk of declining demand in particular markets or for particular products. We continuously work to diversify and optimise our product range, and also on optimising gross output and phosphate export volumes, in order to minimise the negative impact of a potential decrease in demand. More details are available here. PhosAgro also sells its products on a variety of markets, achieving a good range of delivery destinations on the basis of maximising the netback price (selling price less selling costs), which helps to reduce risks associated with logistics. More details are available here.
Risks related to intense competition	The Company is subject to intense competition from both domestic and foreign producers. Fertilizers are global commodities with little or no product differentiation. Customers make their purchasing decisions primarily on the basis of delivered price, and to a lesser extent on customer service and product quality. PhosAgro competes with a number of domestic and foreign producers, including stateowned and government-subsidised entities.	PhosAgro is currently one of the lowest-cost producers of MAP/ DAP globally, and we are pursuing a strategy of further increasing cost advantages through vertical integration in key feedstocks like phosphate rock and ammonia. Our management team believes that this strategy will help us to remain competitive globally in the long term. More details are available here.
Risks related to changes in prices for raw materials and third-party supply	The principal raw material used for the production of ammonia is natural gas, which PhosAgro purchases from domestic gas suppliers. The key risk is the potential increase in prices for natural gas, as the Russian government announced plans to increase domestic gas prices by up to 15% per year for the years 2013 to 2015, with the aim of ultimately reaching netback parity with Gazprom's European export prices. One of the major raw materials used for the production of phosphate fertilizers is sulphur, which the Company purchases from external suppliers. It is possible that electricity tariffs will increase more than anticipated by our strategic plans. While production flexibility enables the company to respond to market demand, production of NPK fertilizers requires the use of potash as a raw material, the prices of which may be higher than anticipated by our business plans.	The main factors mitigating risks related to third-party supply of raw materials is our high degree of vertical integration in key feedstocks like phosphate rock, ammonia and electricity, combined with the fact that no external feedstock accounts for more than 10% of our cash costs for the production of DAP. In order to reduce overall consumption of natural gas, PhosAgro is modernising its ammonia production facilities to decrease gas consumption per unit of output. In order to mitigate risks related to sulphur prices, we use a diversified sulphur supply. PhosAgro purchases sulphur from Gazprom, Kazakh companies and non-ferrous metals producers. In 2012 we commissioned a new natural gas-powered electricity generation facility at the Cherepovets production site, with a generation capacity of 32 MW, which has brought PhosAgro's total electricity capacity to 183 MW, and overall energy self-sufficiency to more than 40%, up from 35% in 2011. We plan to build new a ammonia production facility using the latest available technologies, which, together with its new gas turbine power plant, is expected to have a gas consumption per tonne of ammonia of 941.5 sm³/t, significantly below the CIS average of 1,155 sm³/t.
Risks related to transportation and logistics	Railway transportation is PhosAgro's principal means of transporting raw materials and products. Moreover, the Company's production facilities are located at considerable distances from most of the destination markets and ports. As a result, the Company's operations are heavily dependant on the Russian railway system, and rely predominantly on the rail freight network operated by Russian Railways, a state-owned monopoly company handling a significant majority of all railway freight in Russia. The Russian Government sets rail tariffs and may further increase these tariffs, which are index-linked to the inflation rate. Access to rolling stock has become more complicated, mainly due to the restructuring of Russian Railways and the transfer of the rolling stock to its subsidiary Federal Freight and its former subsidiary Freight One.	We mitigate this risk by running our own transportation and logistics company, PhosAgro-Trans, for the transportation of our products, including phosphate rock and downstream products. PhosAgro-Trans operates more than 7,000 railcars. In order to reduce reliance on third-party railcar providers, we have increased and refurbished our own railcar fleet, adding railcars with an increased load capacity. PhosAgro has a well-developed transportation infrastructure within its production facilities, including maintenance depots for the rolling stock. To reduce the number of empty runs made by our rolling stock, the Company is optimising its haul distance strategy.
Operational Risks
Risks relating to mining activities	The Group's apatite-nepheline ore mining operations are subject to the hazards and risks normally associated with the exploration and extraction of natural resources through open pit and underground mining activities. Such risks could result in extraction shortfalls, unexpected production stoppages, injuries or damage to property.	We implement an ongoing technical programme to explore and assess ore reserves, which ensures that production is continuous and at an even pace. PhosAgro has introduced systems to monitor and control mining production units, together with other safety measures, and we are constantly looking for ways to improve them further.
Financial Risks
Credit Risk	The Company's credit risk is the risk of financial loss if a customer, or a counterparty to a financial instrument, fails to meet its contractual obligations. Credit risk principally arises in connection with the Company's receivables from customers and from loans issued to related parties.	The Company has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company's standard terms and conditions for delivery and payment are offered. These state that substantial customers/traders must pay for the delivery of fertilizers not later than ten days following the receipt of the shipping documents, while less substantial customers and those who fail in other ways to meet the Company's creditworthiness criteria may only transact with the Company on a prepayment basis. The credit review includes analysing external ratings (when available) and, in some cases, bank references. The majority of PhosAgro's customers have done business with the Company for a number of years, and losses from bad debts have been rare. In monitoring customer credit risk, customers are grouped according to their credit characteristics. New customers are required to deal with the Company on a prepayment basis or to present an acceptable bank guarantee. The Company maintains an allowance for impairment, which represents its estimate of losses incurred in respect of trade and other receivables and investments.
Liquidity Risk	Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.	The Company's approach to managing liquidity is to ensure, to the extent possible, that it will at all times have sufficient liquid funds to meet its liabilities when due, both under normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Typically, it ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 30 days, including the servicing of financial obligations; this excludes the potential impact of force majeure circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Company maintains several lines of credit with a number of Russian and international banks. In February 2013 PhosAgro issued a 5-year, USD 500 million Eurobond, some of the proceeds from which were used to refinance short-term bank loans, thus reducing liquidity risk related to shortterm refinancing.
Currency Risk	The Company's presentation and functional currency is the Russian rouble, and it is exposed to currency risk on sales, purchases and borrowings that are denominated in other currencies, primarily the US Dollar and the Euro.	PhosAgro's currency risk relates to the majority of its revenue coming from foreign-currency-denominated export sales, and is mitigated by a natural hedge effectively created by borrowings denominated in foreign currencies. The Company also buys and sells foreign currencies at spot rates when necessary to address short-term imbalances. It also sometimes uses derivative financial instruments (mainly FX forwards) in order to manage its exposure to currency risk.
Interest Rate Risk	Interest rate risk is the risk that changes in interest rates will adversely impact the financial results of the Company.	The Company's management does not have a formal policy for determining the proportion of exposure that should be at fixed or variable rates. However, the Company's management exercises its judgment to decide whether a fixed or variable rate would be more favourable over the expected period until maturity. PhosAgro does not hedge its interest risk exposure at present, but may consider doing so in the future. The Company carefully monitors its borrowing levels, and does not plan to substantially increase net debt from the current levels, except for sensibly structured M&A deals or major projects for the construction of production facilities. In February 2013 PhosAgro issued its debut Eurobond on highly attractive terms. The 5-year, USD 500 million facility has an annual coupon of 4.204%. This has reduced interest rates risks due to the long-term and fixed rate of the issue.

top