eurochem-annual-report-2011

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Corporate governance Our governance continued The Board of Directors is modelled on UK board practice and non-executive directors are encouraged to actively debate and challenge management and the strategic decision-making process. How our governance is structured The Board’s primary activities include: • Setting strategic priorities and analysing management’s performance against those goals. • Oversight of control and risk management procedures. • Determining and reviewing EuroChem’s investment policy and individual initiatives. • Considering M&A opportunities that have been reviewed and proposed by management. • Exercising oversight of EuroChem senior management at both Group and manufacturing levels, including advice on key strategic decisions. 70 EuroChem Annual Report and Accounts 2011 Board membership, committees, and attendance The EuroChem Board of Directors consists of seven directors, three of whom are fully independent. We expect our non-executive directors, while maintaining their independence, both to help us maintain a clear strategic direction and to oversee the strengthening of our internal operations. Board attendance Committee attendance Director Attended/held In person In absentia Audit3 Corporate Governance Chairman Strategy and Personnel Andrey Melnichenko Executive director 18/18 8 10 – – – Dmitry Strezhnev (CEO) Non-executive directors George Cardona 18/18 8 10 – – – 1 (Strategy Committee Chairman) 17/18 8 9 – 6/6 – Nikolay Pilipenko Independent, non-executive directors Richard Sheath 18/18 8 10 10/10 – – (Audit Committee Chairman) Vladimir Stolin (Corporate Governance and 18/18 8 10 10/10 – 6/6 Personnel Committee Chairman) 18/18 8 10 – – 6/6 Keith Jackson 18/18 8 10 10/10 6/6 – Charles Adriaenssen2 8/8 2 6 – – 2/6 1 George Cardona did not participate in one Board meeting as the discussion concerned EuroChem’s financial investments in K+S Aktiengesellschaft. Mr Cardona has been on the K+S Supervisory Board since 2009. 2 Charles Adriaenssen opted not to seek re-election and stepped down from the Board following the AGM held on 26 June 2011. The subsequent vacant director position will be filled by the Board in accordance with EuroChem’s Code of Regulations. Any director appointed by the Board to fill a vacancy will serve until the next annual election of directors. 3 The Audit Committee held a total of ten meetings, four of which were teleconferences. Short biographies of each of the directors are presented on page 75 of this report. Full CVs for all Board directors are provided in Appendix 1 to this report, which is available online at www.eurochem.ru. Director independence At present, three out of the Board’s five non-executive directors (out of a total of six directors in addition to the Chairman) are fully independent in that they are independent of the Company’s executives, affiliates, and major counterparties and have no relation with the Company that could potentially influence their objectivity. A member’s independent status is confirmed by the Board of Directors each time he or she is elected. The Board of Directors appoints the General Director and the members of the Management Board and determines the length of their terms. More detailed information on the executive team is available on the EuroChem website: www.eurochem.ru/about/corp-gov/management.
Where did we focus in 2011? The Board of Directors focuses on long-term strategic development by assessing major initiatives, monitoring performance and ensuring that the core elements of sound control, risk management and effective structures are in place. Over the years we have developed a deep understanding of the business and an effective working relationship with the executive team. We signed off on a number of strategic milestones this year, including EuroChem’s geographical expansion in Western Europe with the announced acquisition of BASF fertilizer assets in Belgium and, in a first for a fertilizer producer, our upstream integration into natural gas production. Across the Group, we have given an extra push to investments and controls in health and safety management systems with the goal of further improving safety standards in the workplace. Additionally, we continued to press for a tighter financial reporting calendar and increased oversight on the way we assess and mitigate risks, particularly around our capital investment projects. These are bound to be crucial issues for us in 2012, as we accelerate the development of the Gremyachinskoe potash deposit and start integrating the assets acquired in Belgium and Western Siberia. 2011 was a year of significant strategic initiatives which pave the way to new markets and growth opportunities. Looking ahead The six-month forward agenda we use has helped us create a normal cycle for reviewing ongoing issues such as budgets, financial reporting and strategy. The timing, expectations and goals of these reviews are well understood by the Board and management and include detailed updates on core operational areas, investment projects and strategy. The table below summarises the Board’s activities over the year. Strategic planning and investments Financial reporting control, internal control, and risk management Employee incentives and development Corporate governance and information disclosure • Revisited and repositioned the nitrogen, phosphate, potash, mining, distribution and logistics strategies up to 2016. • Monitored strategic developments and analysed opportunities presented by management. Signed off on several transforming acquisitions. • Increased our monitoring of the Gremyachinskoe potash deposit development, especially targeting risks associated with any changes in either the project’s budget or timeline. • Approved further international expansion with the announced acquisition of fertilizer assets in Belgium. • Expanded the raw material base of the business to secure long-term cost advantages, notably by increasing phosphate rock reserves and acquiring a natural gas operator. • Worked on enhancing budget controls and progress monitoring for large-scale investment projects, including identifying and addressing future bottlenecks. • Oversaw the development of documented financial reporting controls and the tightening of reporting deadlines, bringing forward IFRS reporting to within 45 days after the close of the reporting period. • Approved insurance coverage for large-scale investment projects. • Reviewed the approach to financial risk management and health and safety risks. • Reviewed the priorities and focus of the internal audit function. • Oversaw preparations for responding to new transfer pricing tax regulations. • Monitored the development of IT solutions within our unified information system to reduce internal reporting delays and increase risk assessment capabilities. • Developed an internal key executive and management succession and contingency reserve programme. • Evaluated the achievement of management targets in 2011, setting new targets for 2012. • Introduced changes to the incentives and bonus programme to include health and safety components and indicators. • Assessed the Board’s performance. • Oversaw compliance of the Corporate Social Responsibility Report with international standards, reviewed verification procedures. • Rolled out an insider trading policy and tightened procedures ensuring we are in line with anti-trust regulations. Some specific areas we will focus on in 2012 include: Enhancing monitoring of the integration process Increasing value and insights from accounting system Increase HSE accountability i More detailed information about the Board’s responsibilities can be found in the Company Charter and the Board of Directors’ Regulations on the Company’s website www.eurochem.ru/about/corp-gov • Strengthening the monitoring systems to exercise full oversight in the integration of newly acquired assets. • Further narrowing the gap between the reporting period and the production and release of our IFRS accounts. • Continue developing our KPI compliance to integrate workplace safety and environmental targets. Annual Report and Accounts 2011 EuroChem 71 Corporate governance
Page 1 and 2:
Enabling our future Annual Report a
Page 3 and 4:
...by supplying world markets Our s
Page 5 and 6:
2011 Operational highlights > Succe
Page 7 and 8:
Potash 912 MMT of proven and probab
Page 9 and 10:
16 Estonia Lithuania 7 14 15 Belaru
Page 11 and 12:
Raw materials Up to 80% self-suffic
Page 13 and 14:
Ten years of performance Ten years
Page 15 and 16:
A record RUB 131bn in revenues 66%
Page 17 and 18:
4. Global economy Emerging economie
Page 19 and 20:
Ranking by nutrient capacity MMT p.
Page 21 and 22: Despite the significant breakthroug
Page 23 and 24: Business review Our strategy Our st
Page 25 and 26: Enabling our future... ...by supply
Page 27 and 28: 7billion World population in 2011 9
Page 29 and 30: Severneft-Urengoy Novy Urengoy, Yam
Page 31 and 32: Environmental footprint -16% decrea
Page 33 and 34: Our commitment We have committed US
Page 35 and 36: Vertical integration > 2.8 MMT p.a.
Page 37 and 38: Employee participation Our employee
Page 39 and 40: The following table highlights our
Page 41 and 42: Nitrogen segment RUBbn, or as indic
Page 43 and 44: Over the next five years (2012-2016
Page 45 and 46: Phosphate segment RUBbn or as indic
Page 47 and 48: EuroChem’s main planned investmen
Page 49 and 50: i Along with nitrogen and phosphate
Page 51 and 52: Distribution RUBbn, or as indicated
Page 53 and 54: i At Tuapse, one of our priorities
Page 55 and 56: Cost of sales and gross margin As i
Page 57 and 58: 2011 2010 2009 RUBm % of total % ch
Page 59 and 60: Balance sheet Working capital Worki
Page 61 and 62: Environment We’ve come a long way
Page 63 and 64: Occupational health and safety We s
Page 65 and 66: Strategic risks We classify as stra
Page 67 and 68: Area Ref. code Nature Description S
Page 69 and 70: Richard Sheath Audit Committee Chai
Page 71: Nikolay Pilipenko Audit Committee Q
Page 75 and 76: The Strategy Committee The Strategy
Page 77 and 78: 1 Andrey Melnichenko (39) Chairman
Page 79 and 80: Financial information Consolidated
Page 81 and 82: Financial information Consolidated
Page 83 and 84: Financial information Notes to the
Page 85 and 86: 2 Basis of presentation and signifi
Page 87 and 88: 2 Basis of presentation and signifi
Page 89 and 90: 3 Critical accounting estimates, an
Page 91 and 92: 4 Adoption of new or revised standa
Page 93 and 94: 6 Segment information continued The
Page 95 and 96: 8 Intangible assets Note Acquired s
Page 97 and 98: 10 Mineral rights continued As of 3
Page 99 and 100: 13 Cash and cash equivalents and fi
Page 101 and 102: 15 Bank borrowings continued Intere
Page 103 and 104: 17 Derivative financial assets and
Page 105 and 106: 22 Distribution costs Distribution
Page 107 and 108: 26 Income tax continued The movemen
Page 109 and 110: 29 Business combinations Acquisitio
Page 111 and 112: 31 Contingencies, commitments and o
Page 113 and 114: 32 Financial and capital risk manag
Page 119 and 120: Financial information Main producti
Page 121 and 122: Q4 2010 Q3 2010 Q2 2010 Q1 2010 201
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Forward-looking statements This ann
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