Acron Group at a Glance BUSINESS...

02 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN01 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN

Acron Groupat a Glance

Acron Group is a leading vertically integrated mineral fertiliser producer in Russia and in the world. Its wide range of products includes complex and nitrogen fertilisers, as well as industrial products. In 2014, it sold 6.3 mn t of various products

High vertical integration – three large chemical production facilities, own phosphate mining operations, a project to develop a potash deposit, own transport infrastructure and international distribution network – provides a platform for dynamic development.

Acron Group continuously expands its production capacity, develops distribution opportunities and diversifies its product portfolio. In 2014, both nitrogen fertiliser UAN and apatite concentrate production capacity increased to 1 mtpa. North-Western Phosphorous Company (NWPC), a member of Acron Group, produced its first 1 mn t of apatite concentrate.

KEY 2014 PERFOMANCE INDICATORS KEY 2014 FINANCIAL INDICATORS

ACRON GROUP’SBUSINESS GEOGRAPHY

OTHER 2014 INDICATORS

Sales of Key Products ‘000 t

6.3 mn t2014

2013

2012

6,300

6,159

5,846

RevenueRUB mn

RUB 74.6 bn2014

2013

2012

74,631

67,904

71,112

EBITDARUB mn

RUB 20.2 bn2014

2013

2012

20,249

15,386

19,924

Net profit RUB mn

RUB 6.9 bn2014

2013

2012

6,904

13,019

14,861

Mining

Chemical production

Logistics

Distribution

› Leading vertically integrated NPK producer in Russia, among the top five in the world by NPK capacity.

› The Group produces approximately 13% of nitrogen and phosphate fertilisers in Russia.

› The Group owns two chemical production facilities and a mine in Russia and a chemical plant in China, with aggregate capacity of over 6.3 mn t of end product.

› Potash projects with total recoverable resources of 0.5 bn t of KCl.

› Three Baltic Sea transshipment port terminals.

› Extensive distribution network in Russia and China, wholly owned trading companies.

› The Group’s shares and global depository receipts are listed on MICEX and LSE.

› Over 15,000 employees in six countries.

2014 2013 2012

FINANCIAL PERFORMANCE (IFRS)

Operating profit (RUB mn) 20,955 13,980 18,420

Earnings per share/GDR (RUB) 108.54/ 10.85

301.60/ 30.16

350.52/ 35.05

Declared dividend per share/GDR (RUB) - 152/15.2 110/11.0

EBITDA margin (%) 27 23 28

Assets (RUB mn) 195,940 146,104 156,619

Available-for-sale investments (RUB mn) 3,632 19,398 24,681

Short-term borrowings (RUB mn) 52,559 27,467 23,383

Long-term borrowings (RUB mn) 28,002 22,720 38,176

Net debt (RUB mn)** 55,788 36,633 32,671

Cash flow from operating activities (RUB mn) 12,694 14,360 9,294

Capital investments (RUB mn) 11,478 14,443 16,122

SALES OF KEY PRODUCTS (‘000 T)

Ammonia 112 161 158

Nitrogen fertilisers 2,512 2,443 2,329

Complex fertilisers 2,520 2,649 2,399

Organic compounds 195 192 187

Non-organic compounds 782 707 774

Apatite concentrate 180 8 –

Total 6,300 6,159 5,846

Number of the Group’s employees 15,100 15,722 15,121

* EBITDA is calculated as operating profit, adjusted for amortisation of fixed and depreciation of intangible assets, plus exchange rate profit or loss and other non-cash and non-standard items.

** Inclusive of irrevocable bank letters of credit.

03 ACRON GROUP 2014 ANNUAL REPORT INVESTING IN SUSTAINABLE DEVELOPMENT03 ACRON GROUP 2014 ANNUAL REPORT INVESTING IN SUSTAINABLE DEVELOPMENT

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Our Business

MINING

The Group is establishing an independent phosphate and potash raw material base by developing new deposits in Russia and Canada. Since 2013, Acron Group’s subsidiary NWPC has provided all phosphate inputs to the Group’s Russian production facilities. It also sells apatite concentrate to third parties. In 2014, NWPC reached apatite concentrate production capacity of 1 mtpa and supplied 180,000 t to third parties.

CHEMICAL PRODUCTION

Three large facilities produce a wide variety of nitrogen and complex fertilisers, with ammonia production as the cornerstone.

LOGISTICS

The Group owns three Baltic Sea port terminals with total transshipment capacity of 5 mtpa for multiple types of cargo and a fleet of 2,200 railroad cars and tanks.

DISTRIBUTION

The Group has two distribution networks in Russia and China and two international trading companies in Switzerland and the United States, with sales in 66 countries.

VALUE ADDED (PORTFOLIO INVESTMENTS)

Large liquid stakes in two companies, Uralkali (Russia) and Grupa Azoty (Poland), form a component of the Group’s shareholder value.

Acron Group’s vertically integrated business model is based on an efficient

chain of connected business segments – mining, production, logistics and

distribution – to deliver business efficiency and competitive advantages.

39%Share in Group’s Assets





04 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU

2014 Highlights

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JANUARY

Acron UAN production capacity increased to 1 mtpa.

MARCH

Acron Group shipped its apatite concentrate to third parties for the first time.

FEBRUARY

Acron Group brought in Sberbank Investments as a new investor on the Talitsky potash project. Sberbank Investments purchased 19.9% of Verkhnekamsk Potash Company (VPC).

APRIL

Acron arranged bridging financing in the form of a club-deal loan for USD 400 mn.

JUNE

Acron Group increased its share in Polish Grupa Azoty to 20%.

Based on the results of an exploration programme, Acron Group and Rio Tinto established a joint venture to develop the Albany potash project in Saskatchewan, Canada.

MAY

On May 13, 2014, ordinary shares of Acron with par value of RUB 5 were included in the MICEX Quotation List A Level 2.

DECEMBER

Acron executed a five-year syndicated loan agreement in the form of pre-export financing for USD 525 mn.

05 ACRON GROUP 2014 ANNUAL REPORT INVESTING IN SUSTAINABLE DEVELOPMENT ИНВЕСТИЦИИ В СТАБИЛЬНОЕ РАЗВИТИЕ ГОДОВОЙ ОТЧЕТ 2014 ОАО «АКРОН» 0505 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN

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UNITED STATES AND CANADA

13%of Group’s revenue

847,000 t Sales volume (UAN, AN, ammonia)

Features The United States is the Group’s largest UAN sales market (75% of total sales volume in 2014).

Outlook The Group’s stable position in the U.S. market (28% of total UAN imports in 2014) and increasing demand for liquid fertilisers allow for annual supply increases. The lifting of anti-dumping duties on AN imported to the U.S. offers an opportunity to explore a new sales market for this product.

EUROPE


697,000 t Sales volume (ammonia, bulk blends, AN, urea, UAN, NPK, apatite concentrate, industrial products)

FeaturesThe major consumers of the Group’s products in the region are Lithuania, France, Latvia and Norway. Europe is the key sales market for urea and bulk blends.

Outlook Stable market for sales of a wide variety of products; increased shipments of UAN after antidumping duties were lifted.

LATIN AMERICA


1.040 mn t Sales volume (AN, urea, NPK)

FeaturesBrazil is a key sales market for agricultural use AN in the region (37% of the Group’s total sales). Peru, Argentina and Columbia are large consumers of industrial AN, while Brazil, Mexico and Ecuador purchase large amounts of NPK and nitrogen fertilisers.

Outlook Maintaining high sales in Brazil (45% of total AN imports in 2014). Expansion to other countries amid constantly growing demand for nitrogen fertilisers in the region; increasing supplies of industrial AN and urea; promoting NPK.

AFRICA AND OTHER COUNTRIES*


203,000 t Sales volume (AN, urea, NPK)

FeaturesEvolving sales market for nitrogen products and NPK. Nigeria is the Group’s major consumer in this region.

Outlook Development of agriculture provides a good foundation for further expansion of mineral fertiliser market in various African countries.

Acron Group’s business geography

6 countriesAcron Group’s sales geography

66 countries

CHINA***


1.181 mn t Sales volume (NPK)

FeaturesThe Group’s largest NPK sales market (42% of total NPK sales). Hongri Acron sells all of its NPK on the domestic market. The Group’s Russian production facilities account for 28% of NPK imports to China.

Outlook China remains the key sales market for NPK, and the Group is committed to retaining its status in this market.

CIS****


385,000 t Sales volume (NPK, AN, ammonia, urea, industrial products)

FeaturesUkraine is a large NPK sales market for the Group (8% of total NPK sales volume).

Outlook The volatile political situation in Ukraine may cause a decrease in the Group’s sales volume in the region. Nevertheless, over the long term, demand for the Group’s products in this region will remain stable due to such factors as an extensive agricultural sector and a continued history of cooperation.

RUSSIA


1.366 mn t Sales volume (AN, NPK, urea, ammonia, industrial products)

FeaturesRussia is the second after Brazil market for the Group’s AN (28% of total AN sales), key market for its industrial products (74%) and a large market for the Group’s NPK (10%).

Outlook The Russian market remains a top priority. The Group is one of three largest fertiliser suppliers in Russia.

Mining

Chemical production

Logistics

Distribution

ASIA**


581,000 t Sales volume (AN, NPK, urea, bulk blends)

FeaturesThailand is the largest sales market for the Group’s NPK in this region (13% of the Group’s total NPK sales volume). Stable supplies to Vietnam.

Outlook Ramping up the Group’s sales in Thailand (29% of total NPK imports in 2014) and Vietnam. The Group promotes NPK sales in Indonesia and Myanmar.

* Australia, Oceania and others ** Excluding China *** Excluding sales of third-party products **** Excluding Russia

Business Geography and Sales Market

06 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN

Letter from the Chairman of the Board of Directors

Dear Shareholders,

Many of us will remember 2014 as a year of dramatic geopolitical events, which naturally affected the Russian economy and Russian companies. Because Acron Group chose the optimal business model it operated with confidence and posted solid financial results.

Although the global fertiliser market was relatively stable in the reporting year, it did not show any growth. World fertiliser consumption was up just 0.5%, far below expectations. Competition gained strength as China increased its exports of major fertilisers, considerably limiting the growth potential of world prices. However, the global market remained balanced due to difficulties with export supplies in some countries, including Ukraine and Egypt. Because Acron Group has diversified and balanced the structure of its sales markets, it was able to react flexibly to changes and maintained 100% sales. The Group expanded its sales geography in 2014 and currently supplies its products to 66 countries.

With global prices for our products stagnant, we focused on reducing costs with a cost saving programme. These efforts had a positive impact on our financial performance, further augmented by the full vertical integration of the Group’s Russian companies for phosphate feedstock, as well as macroeconomic factors, such as a weaker rouble and frozen tariffs for Russia’s natural monopolies. As a result, Acron Group enhanced its competitiveness in the global context, and its EBITDA margin reached 27%, against 23% last year.

The amended development strategy approved in 2013 helped us focus on the most efficient investment projects, maintaining fiscal discipline and passing the debt burden peak in the third quarter of 2014. Due to macroeconomic factors, we actually decreased our debt burden. Dollar-denominated Net Debt/EBITDA at year-end was 1.9, against 2.4 the previous year.

In 2014, the Group demonstrated considerable progress in implementing its investment projects. The first stage of the Oleniy Ruchey mine reached capacity of 1 mtpa of apatite concentrate. The Group passed the peak of the Ammonia-4 investment phase and continued searching for a strategic co-investor for the Talitsky potash project.

Our 2015 priorities include: completing construction and installation and starting test-run of the new ammonia unit, which will be the first project completed since Soviet times and the most powerful unit of its kind in Russia; improving the performance of our phosphate business; and identifying the best ways to finance the potash project in Russia.

We also plan to focus on significantly reducing the Group’s debt burden in 2015 while continuing to invest heavily in strategic projects.

The investment community acknowledged the Group’s economic success by including Acron’s shares in the MICEX Quotation List A Level 2 in May 2014. After the listing reform, Acron’s shares were transferred to the Level 1 (highest) quotation list.

On behalf of the Board of Directors, I would like to thank the management and all of Acron Group’s employees for their excellent performance in 2014.

ALEXANDER POPOVChairman of the Board of Directors

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Net profit in the reporting period was RUB 6.9 billion, down 47% year-on-year. The main reason behind the lower net profit was the exchange rate loss from revaluation of the Group’s currency loans. Because the rouble was weaker by the end of 2014, the net exchange rate loss was RUB 17.8 billion.

Capex was RUB 11.5 billion, mostly spent on the Ammonia-4 project, upgrades to chemical operations and implementation of the second stage of the phosphate project by North-Western Phosphorous Company. The Group allocated RUB 0.5 mn for its potash project.

The Group earmarked RUB 6.2 billion as dividends in 2014.

In the reporting year, total debt rose to RUB 80.6 billion from RUB 50.2 billion. However, this increase was due to a decline in the rouble exchange rate, and the Group’s dollar-denominated debt actually went down to USD 1,432 mn from USD 1,533 mn. The relative debt burden contracted, as well.

To improve the Group’s liquidity and credit, in late December 2014 we executed a 5-year syndicated structured pre-export finance facility for up to USD 525 mn with a club of international and Russian banks. This long-term loan facility helps us mitigate refinancing risks, which is especially important in the complicated Russian debt finance market since the end of 2014.

SustainabilityWe believe that Acron Group contributes to the development of its footprint regions with its stable financial and operating results. We continue our beneficial cooperation with local authorities to promote social and economic development through our active involvement in creating and modernising healthcare, education and cultural facilities. Charitable giving has also been part of the Group’s social responsibility programme for many years.

Since the Group operates major production and mining assets, we are committed to the health and safety of our employees and adhere to the best professional safety practices. The Group’s Russian production facilities have introduced mandatory standards developed based on an analysis of injury causes, perform environmental

monitoring and implement effective measures to minimise environmental impact. In 2014, a secondary sedimentation tank for biologically treated waste water and a waste water supply pipeline were launched at the Dorogobuzh facility. Our new operations are built using the newest resource-saving technologies.

Acron Group has identified ambitious tasks for the coming year: upgrading its chemical operations, pursuing its challenging investment programme and improving competitiveness. I am convinced that we have all the resources we need, with competent managers and a talented team of seasoned professionals and young specialists.

Letter from the Chief Executive Officer

Dear Shareholders, Colleagues and Partners,

It has become a tradition that Acron Group’s operating performance improves each year. In 2014, our output hit a record of 6.3 mn t of fertiliser and other industrial products, up 2% year-on-year.

The Oleniy Ruchey mine (NWPC) in the Murmansk region contributed most of all, as it increased apatite concentrate output 39% to 891,000 t during the past year. This project supplies all the phosphate feedstock for our chemical facilities, and the excess apatite concentrate is sold both domestically and for export.

In the chemical sector, Acron (Veliky Novgorod) was a top performer in nearly all the key products – ammonia, nitrogen and complex fertilisers. In particular, UAN output was up 16% to 937,000 t.

Investment ProgrammeAcron (Veliky Novgorod) made headway in construction of its new ammonia unit. The 700,000-tpa Ammonia-4 unit will be the largest and most efficient production facility in Russia. This project will be the key to expansion of processing operations, reduction of the Group’s capex, improved financial performance and, as a result, increased free cash flows.

Construction of the second stage of the Oleniy Ruchey mine is underway as scheduled. In the reporting year, we minimised capital expenditures by performing capital mining operations without subcontracting. According to the timeline, mine construction and processing plant capacity build-up to increase apatite concentrate output will be complete in 2017.

In 2014, the potash project implemented by VPC to develop the Talitsky area of the Verkhnekamsk potassium and magnesium salt deposit in Perm Krai focused mainly on preparing design documentation and constructing temporary buildings and structures for freezing and shaft sinking operations. This year we plan to complete the design engineering for the Talitsky mine and obtain state expert review approval for the main facilities of the mine and above-ground complex. In 2015, we will continue construction of temporary buildings and structures followed by ground freezing and shaft sinking.

Together with our co-investors, we have identified optimal ways to finance the potash project. Sberbank Investments acquired a stake in the project in early 2014. In December 2014, Acron Group and a syndicate of Indian companies led by NMDC Limited (India) executed a Memorandum of Understanding on the sale of a 30% stake in VPC, the holder of the subsoil licence for the Talitsky area of the Verkhnekamsk deposit. The parties agreed to carry out comprehensive due diligence, upon completion of which the Indian party will propose terms for acquisition of this stake.

Portfolio InvestmentsIn the reporting year, Acron Group increased its holding in Grupa Azoty (Poland) to 20% from 15%, having invested RUB 4.1 billion, and improved our minority position in one of the largest European fertiliser producers.

Acron Group also sold some of its Uralkali shares for RUB 4 billion, reducing its stake to 0.93% from 1.77%. The market value of the remaining shares as of 31 December 2014 is RUB 3.5 billion.

Financial ResultsAccording to the consolidated IFRS financial statements, Acron Group’s revenue was up 10% to RUB 74.6 billion as a result of higher sales.

The cost of production was up 2%, primarily because of greater depreciation and the cost of repairs, fuel and electric power. Selling, general and administrative costs increased 22%, and transportation costs were up 17%, primarily due to the significant forex component.

EBITDA was up 32% to RUB 20.2 billion. EBITDA margin increased from 23% in 2013 to 27% in 2014. NWPC contributed 6% to the Group’s 2014 EBITDA.

VLADIMIR KUNITSKYChief Executive Officer


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Group’s Business Model And Structure

Higher efficiency with a vertically integrated business modelAcron Group’s business model is based on an efficient chain of interrelated business segments – mining, production, logistics and distribution. Vertical integration allows controlling the whole process of generating added value and delivering business efficiency and competitive advantage.

BUSINESS SEGMENT STRUCTURE KPI DESCRIPTION

Miningkey segment

Chemical Productionkey segment

Distributionauxiliary segment

Logisticsauxiliary segment

Phosphorus › NWPC, Oleniy Ruchey mine (Russia)

Potash › VPC, Talitsky mine (Russia) › North Atlantic Potash Inc. (NAP), potash permits in Saskatchewan (Canada)

Nitrogen and complex mineral fertilisers Industrial products › Acron (Russia) › Dorogobuzh (Russia) › Hongri Acron (China)

Sea port terminals › AS DBT (Estonia) › AS BCT (Estonia) › Andrex LLC (Russia)

Railway operator › Acron-Trans (Russia)

Russia › CJSC Agronova

China › Yong Sheng Feng

USA › Agronova International Inc.

Switzerland › Agronova Europe AG

This is the Group’s most dynamically developing business segment. The Group is implementing multiple greenfield projects and allocates a significant portion of its capital investments to this segment.

The segment focuses on providing the Group’s chemical production facilities with feedstock, enhancing the Group’s competitive edge and increase sales.

Maintaining high performance at existing production facilities and boosting ammonia and nitrogen fertiliser output is the main task in developing this segment.

The Group’s logistics infrastructure helps Russian production facilities operate smoothly and efficiently. Handling cargo for third-party producers improves the profitability of this segment.

The key objective of Acron’s distribution network is to strengthen the Group’s position in key markets and make advances in promising new markets.

Reducingoperating costsVertical integrationallows controllingall stages of theproduction processand ensuresits efficiency

Broad productportfolioWe are focused onmanufacturing anextensive range of highadded-value products,and thereby adjustto the market needsand maximise profit

Market diversificationWe continuallyevaluate opportunitiesin the fastest-growingand larger markets

Sustainablevalue

creation

100%Сomplete phosphate independence

726.1 mn tBalance sylvinite reserves (categories A+B+C1)

6.3 mn tOutput of key products

2.9 mn tTransshipment by the Group’s port facilities

6.3 mtSales of Key Products

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09 ACRON GROUP 2014 ANNUAL REPORT INVESTING IN SUSTAINABLE DEVELOPMENT

LOGISTICS DISTRIBUTION PORTFOLIO INVESTMENTS

MINING

Acron Group Structure

AcronHongri Acron

NWPC(phosphates production)

VPC(potash project)

North Atlantic Potash Inc.

(potash permits)

AS DBT(seaport terminal)

AS BCT(seaport terminal)

Andrex(seaport terminal)

Acron-Trans(logistics)

Agronova(Russian distribution

network)

Agronova International Inc.

and Agronova Europe AG

(international traders)

Beijing YongSheng Feng

AMPC, Ltd.(distribution network

in China)

Uralkali(Russian potash

producer)

Grupa Azoty(Polish fertiliser

producer)

Dorogobuzh

100% 100%

50.5% 93.06%

100% 0.93%

51% 100% 100% 20%

50%

100% 100% 100%

CHEMICAL PRODUCTION

Note: percentage of the authorised capital as of 31 December 2014, both direct ownership and through subsidiaries

Group’s Business Model and Structure(continued)

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Strategy

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Building a high-margin, efficient business with a positive growth and development outlook

In 2014, Acron Group’s development strategy did not undergo material changes, and its key objective is still to enhance the Group’s competitive edge and efficiency. Acron Group seeks to become the most efficient NPK producer globally by leveraging its vertical integration and expanding capacity.

The Group’s development strategy is focused on balanced development. The Group seeks to dynamically develop its long-term investment programme without assuming the excessive risk of increased financial burden over the short- and mid-term. Due to a flexible approach to investment planning and the weakening of the RUB to USD exchange rate in 2014, Acron Group was able to cut its net debt 11% in dollar equivalent.

STRATEGY KEY PERFORMANCE INDICATORS ACHIEVEMENTS IN 2014 NEXT STEPS RISKS

1. Building an efficient and competitive business through vertical integration

› Comply with licence provisions › Self-sufficiency in major raw materials › Complete projects milestones › CAPEX budget › Additional EBITDA for the Group

PhosphatesOleniy Ruchey mine

+39%Increase in the production of apatite concentrate in 2014

In 2014, the Group produced 891,000 t of apatite concentrate, up 39% year-on-year, including 180,000 tonnes shipped to third-party consumers.Oleniy Ruchey mine generated EBITDA of USD 30 mn.

Read more on page 15

Potash Talitsky mineThe design process is underway for the mine facilities. Specifically, the “Engineering design of sylvinite reserves development in the Talitsky area of the Verkhnekamsk potassium-magnesium salt deposit” was approved by the Federal Subsoil Resources Management Agency (Rosnedra) in January 2015.Construction and installation at the freezing unit is complete. The main step-down substation Talitskaya-1 (110/6 kW) was commissioned. Construction of temporary buildings and structures for ground freezing and shaft sinking is underway.


NAP (Albany Project)Nine permits (586,000 acres) under the Albany project were transferred to the joint venture, established in June 2014.


PhosphatesOleniy Ruchey mine

1.1 mn tOutput of apatite concentrate in 2015

Further increase the output in 2015 to reach 1.1 mn t.Continue work on the underground mine and expand the processing plant facility to increase apatite concentrate output by 2017.


Potash Talitsky mineThe design for the Talitsky mine facilities is complete; design documentation for the mine construction and above-ground facilities are currently undergoing state expert review.Construction of temporary buildings and structures for shaft sinking is underway, followed by ground freezing and shaft sinking.


NAPIn 2015, the pre-feasibility study and environmental impact research will continue on the Albany and the Foam Lake permits.


› Industry risks › Operating risks › Financial risks › Social and environmental risks › Legal risks




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2. Improving operating results by building new production facilities

› Complete projects milestones › CAPEX budget › Additional EBITDA for the Group › Gas consumption rates for ammonia units

› Product output volume

New Ammonia-4 unitThe unit is under intense construction.Due to the weakening RUB to USD rate, CAPEX for the Ammonia-4 unit in dollar terms is expected to be lower than initially budgeted.


In 2014, Acron Group’s Russian facilities consumed an average of 1,078 m3 of natural gas per tonne of product, down 0.6%.

In 2014, principal construction and installation work was completed and comprehensive testing of process equipment for rare-earth elements production commenced.

0.2 mn tIncrease in commercial output in 2014

Total commercial output increased to 6.3 mn t from 6.1 mn t.


700,000 tCapacity of the new unit for the production of ammonia

End of construction and installation, and start-up of new 700,000-tpa ammonia unit planned for late 2015.


Further reduction of gas consumption rate and increase of output at the existing ammonia units

Measures to decrease heat and power consumption are being introduced at the Group’s facilities.

Launch of rare-earth products (lanthanum, cerium and neodymium oxides).


› Operating risks › Social and environmental risks


3. Expanding sales markets › Selling prices › Sales markets › Sales volumes

Group sales volumes increased to 6.3 mn t from 6.2 mn t.

Group sells its products to 66 countries.


Expanding to sales markets with strong demand and global-price premium.

Entering phosphate market as a supplier.


› Industry risks


4. Securing the Group’s solid financial position and reducing the debt burden

› Gross and net debt indices › Net Debt/EBITDA › Average interest rate

The Group’s Net Debt in USD equivalent totalled USD 992 mn, down 11%.

Gross debt decreased to USD 1,432 mn from USD 1,533 mn.

Average annual interest rate as of 31 December 2014 was 4.8% against 4.6% a year before.

Part of investment portfolio was monetised (Uralkali shares sold for USD 115 mn).

In December 2014, a 5-year syndicated structured pre-export finance facility for up to USD 525 mn was executed with a club of partner banks.

Acron Group contracted with Sberbank Investments as a co-investor in the Talitsky potash project. The investor acquired 19.9% of VPC.


Further decrease in Net Debt/EBITDA level.

Decrease in average interest rate on loans and borrowings

Monetisation of portfolio investments and/or non-core assets.

Securing sufficient liquidity and increasing the share of long-term debt.

Further selection of partners for joint implementation of the potash investment projects.


› Industry risks › Financial risks



Strategy (continued)


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5. Enhancing corporate governance transparency

› Compliance with corporate principles and legal requirements and most significant recommendations of Russian and international corporate governance practices

› Clear distribution of responsibility among the main management and supervision bodies of the Group’s companies

The annual general meeting approved the amended Charter and the amended Regulation on Acron’s General Meeting. The amendments reflect relevant requirements of laws and the best practices of corporate management.


Maintain and improve corporate governance system.


› Legal risks


6. Corporate liability for business conduct

› Qualifications of personnel › Industrial safety › Contribution to economic and social development in regions where the Group has its operations

› Environmental impact

1,948 employeesIndustry and corporate awards were given to 1,948 of the Group’s employees.

Dorogobuzh commissioned a unit for secondary sedimentation of biologically treated wastewater and a wastewater feed line. Construction of the industrial waste dump was completed.

The total gross air pollutant emission by Novgorod-based Acron and Dorogobuzh did not exceed permitted levels in the reporting year.

In 2014, NWPC entered into an agreement on social and economic cooperation with the Kirovsk municipal administration. The Company will contribute RUB 41.6 mn for repairs and equipment for children’s and general education institutions, development of the central square in Koashva settlement, and fostering culture in Kirovsk.

All told, Acron Group invested RUB 79.2 mn in social and economic development in its footprint regions.

RUB 79.2 mnAll told, Acron Group invested RUB 79.2 mn in social and economic development in its footprint regions.


Enhance the level of employee qualification

Measures were introduced to decrease the discharge of air and water pollutants and reduce the generation and storage of consumer and production waste.


› Social and environmental risks



Strategy (continued)

ИНВЕСТИЦИИ В СТАБИЛЬНОЕ РАЗВИТИЕ ГОДОВОЙ ОТЧЕТ 2014 ОАО «АКРОН» 1313 ACRON GROUP 2014 ANNUAL REPORT INVESTING IN SUSTAINABLE DEVELOPMENT

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Investment Programme

OBJECTIVES:

› Switch to own phosphate and potash raw materials produced at deposits in Murmansk region and Perm Krai

› Improve Group’s profitability through raw material vertical integration and higher outputs and sales


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Ammonia-4 Project

The ammonia units at Acron (Veliky Novgorod) are among the most efficient in Russia in terms of natural gas consumption. The new unit under construction will use even less natural gas.

SiteAcron, Veliky Novgorod, Russia

Capacity700,000 tpa of ammonia

TimelineEnd of construction and installation, and start-up are scheduled for the end of 2015

InvestmentsUSD 400 mn (including over USD 280 mn already invested)

Current statusConstruction at the site and equipment installation are underway

Project Highlights

+700 ktpaAdditional 700,000 tpa will bring total ammonia output to 2.6 mtpa

Additional ammonia capacity will open up opportunities for further production expansion

+14%New ammonia unit will be 14% more efficient than existing ones, with gas consumption rate at 916 m3/t


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Oleniy Ruchey Mine

In 2013, Acron Group completed vertical integration in the phosphate sector. In 2014, the Group produced its first 1 mn t of apatite concentrate.

SiteNWPC, Murmansk region, Russia

Capacity – Stage 1: 1 mtpa of apatite concentrate (in operation)

– Stages 1 and 2: 2 mtpa of apatite concentrate (Stage 2 is scheduled for commissioning in 2016-2017)

Reserves266.4 mn t (43.3 mn t of Р2О5) of B+C1 category apatite-nepheline ore

InvestmentsUSD 1 bn, including infrastructure (including over USD 800 mn already invested)

Current statusConstruction of Stage 1 completed; design and construction for Stage 2 and auxiliary infrastructure are in progress

Project Highlights

1 mtpaIn mid-2014, the Oleniy Ruchey mine reached capacity of 1 mtpa of apatite concentrate, meeting the needs of all the Group’s operations in Russia and making the Group a major market supplier of apatite concentrate. Deposit has sufficient ore reserves for over 50 years of mine operations.

СТРАТЕГИ

ЧЕСК

ИЙ

ОТЧ

ЕТ


Development of a world-leading potash deposit will help Acron Group complete vertical integration in the potash segment.

Talitsky Mine

SiteVPC, Perm Krai, Russia

CapacityDesign capacity is 2.6 mtpa of potassium chloride

Reserves726.1 mn t (163 mn t of К2О, 258 mn t of KCl) of А+В+С1 category potassium salts

InvestmentsApproximately USD 1.5 bn – 1.7 bn

Current statusVPC completed drilling of freezing boreholes for further shaft sinking. Design and con-struction are underway.

Licence Terms – Start production by 2021 – Reach design capacity by 2023

Project Highlights

Project aims to meet internal demand for 600 ktpa and sell excess potash in the market.

Deposit is favourable for development due to its insignificant depth, well-developed infrastructure and high ore quality.

2.6 mtpaThe planned capacity of the Talitsky mine is 2.6 mn t of potassium chloride per annum.

40 yearsSalt reserves are sufficient for approximately 40 years of mine life.

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Mineral Fertiliser Market Overview

According to the International Fertilizer Industry Association (IFA), mineral fertiliser consumption increased 0.5% to 184 mn t in terms of nutrient in 2014. Total nutrient consumption, including industrial products, was up 2% to 237 mn t.

Consumption of nitrogen and potash fertilisers was up 0.8% and 1.7%, respectively. Preliminary data show applications of phosphorous fertilisers down 1.3%. Increased consumption was recorded in Latin America and Africa, with stable numbers in Europe and Southeast Asia and lower consumption in the United States and India.

Global mineral fertiliser trading volumes reached record levels as consumers replenished inventory. Mineral fertiliser imports were up in North America and Latin America and Southeast Asia.

China retained its leading positions in global exports of urea and phosphorous fertilisers. The Chinese government once again dropped export duties for these types of fertilisers, resulting in an export boom.

According to the IFA estimates, global mineral fertiliser consumption will increase 1.1% in 2015. Nitrogen will show the highest growth (+1.3%). Total nutrient consumption, including industrial products, will grow 1.5-2% and will exceed 240 mn t.

While consumption is expected to be robust, global mineral fertiliser trading volumes may be held back by significant inventory in major consumer countries. China, whose government cancelled the export windows for nitrogen and phosphorous fertilisers, will continue boosting its exports.

Russian mineral fertiliser producers enjoy greater competitiveness as the rouble weakens.

Nitrogen, Phosphorous and Potash Consumption in 2014*

237 mn t

Average Indicative PricesUSD/t, FOB Baltic/Black Sea

Average prices Year-end prices

2014 2013 Change 2014 2013 Change

Urea 311 327 -4.8% 313 322 -3.0%

DAP 479 462 3.8% 488 408 19.6%

Potash 276 373 -26.1% 290 285 1.8%

Sources: Fertecon, FMB

Global Fertiliser Consumptionmn t

2013 2014E 2014/2013 2015F 2015/2014

Nitrogen N 110.9 111.8 0.8% 113.3 1.3%

Phosphorous P2O5 42.1 41.6 -1.3% 41.8 0.6%

Potash K2O 30.1 30.6 1.7% 30.9 0.9%

Total 183.1 184.0 0.5% 186.0 1.1%

Source: IFA (November 2014)

Mineral Fertilisers Consumption in 2014*

184 mn t

78%

22%

Mineral fertilisers

Industrial products and others

61%

22%

17%

Nitrogen

Phosphorous

Potash

* In terms of nutrientSource: IFA (November 2014)

* In terms of nutrientSource: IFA (November 2014)

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According to the IFA estimates, nitrogen fertiliser consumption was up 0.8% to 111.8 mn t N in 2014. Higher consumption was recorded in major markets like India and Brazil. As a result, the nitrogen fertiliser market was in balance in 2014.

Urea prices went up at the beginning of the year due to traditionally active demand from the Northern Hemisphere before the start of the spring seeding season. Prices were down by April because of more aggressive Chinese exports and weaker buying activity off-season in the Northern Hemisphere. As buyers returned to the market in advance of the autumn seeding season and several nitrogen exporters experienced supply limitations, prices returned to the level of the beginning of the year.

China is expected to supply even more nitrogen in 2015, since urea export duties have been lowered again and the seasonal export window was cancelled. New capacity is also expected to come on line in the Middle East, North Africa, China and the United States over the next few years.

Conversely, gas supply disruptions will continue to suppress export volumes from Ukraine and Egypt. Nitrogen consumption will also continue to grow, both in the form of mineral fertilisers and industrial products. According to the IFA forecast, nitrogen fertiliser consumption will increase 1.3%, against 0.8% the previous year, and total nitrogen consumption will increase 2%.

On the whole, IFA forecast data show the demand and supply balance to remain unchanged in 2015.

Nitrogen

Nitrogen Fertilisers and Industrial Productsmn t N

2013 2014E 2015F

Supply* 146.7 149.8 153.1

Demand 139.7 141.3 143.8

Balance 5% 6% 6%

* Effective capacitySource: IFA (November 2014)

Urea pricesUSD/t, FOB Baltic Sea

In 2014, China continued increasing its nitrogen fertiliser exports in response to declines in both urea export duties and the price of coal, the key input for nitrogen production in China. Over the course of the year, China’s urea exports went up 65%.

In contrast, disrupted gas supplies kept output down in several nitrogen exporting nations, namely Ukraine, Egypt and Iran.

Urea Exports from Chinamn t

13.6 mn t2014

2013

2012

13.6

8.3

6.9

World Urea Productionmn t

168.1 mn t2014

2013

2012

168.1

169.3

161.9

World Urea Exportmn t

45.1 mn t2014

2013

2012

45.1

44.9

43.1

Source: China Fertilizer Market

Source: IFA (November 2014) Source: Fertecon


350

400

450

300

250

200

JAN

2014

2013

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Mineral Fertiliser Market Overview(continued)

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Phosphates

In the reporting year, Latin America and Southeast Asia posted higher consumption of phosphorous fertilisers, while Indian consumers pulled back the second year in a row due to subsidy cuts. Consumption also decreased in the United States. According to the IFA estimates, global phosphorous fertiliser consumption decreased 1.3% to 41.6 mn t P2O5 in 2014.

China’s government lowered its export duties on phosphorous fertilisers, which resulted in DAP exports increasing 28%. India remained the major importer.

Globally, production of phosphorous fertilisers and phosphate feedstock was up 2-3% in the reporting year. Production of DAP, the main phosphorous fertiliser, remained the same year-on-year. While DAP output was up in Morocco and Saudi Arabia, it was down in the United States, where Mosaic stopped its DAP operations in respond to high ammonia and sulphur prices.

At the beginning of the year, DAP prices were up due to active demand and limited supply caused by logistics problems. During the spring season, prices went back down as exports from China increased and demand in India faltered. Prices recovered in the summer due to demand in Brazil and the United States. At the end of the year, prices were supported by Mosaic’s pullback on DAP.

According to the IFA estimates, phosphorous fertiliser consumption will recover in 2015, increasing 0.6% to 41.8 mn t P2O5. Demand is expected from India, which has low inventory, and Southeast Asia.

It is anticipated that Chinese producers will continue to boost exports of phosphorous fertilisers, since the government lowered its export duties in 2015 and cancelled the seasonal export window. New capacity is expected to come on line in Morocco.

DAP Exports from Chinamn t

4.9 mn t2014

2013

2012

4.9

3.8

3.9

World DAP Productionmn t

15.6 mn t2014

2013

2012

15.6

15.7

16.1

World DAP Exportmn t

6.4 mn t2014

2013

2012

6.4

6.3

6.7

Source: China Fertilizer Market Source: IFA (November 2014) Source: IFA (November 2014)

Phosphoric Acidmn t P2O5*

2013 2014E 2015F

Supply** 44.9 46.3 47.4

Demand 43.1 43.1 43.9

Balance 4% 7% 7%

* Used for the production of 90% of phosphorous fertilisers, as well as industrial products.

** Effective capacitySource: IFA (November 2014)

Main Phosphorous Fertilisers

30.8 mn t

50%

40%

10%

DAP

MAP

TSP


DAP PricesUSD/t, FOB Baltic Sea

Source: FMB

600

500

400

300

JAN

2014 2013

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC


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PotashPotash fertiliser consumers saw their purchasing power increase in 2014 as prices slipped year-on-year. India posted greater demand, while orders from Latin America and Southeast Asia remained sparse. According to the IFA estimates, potash fertiliser consumption increased 1.7% to 30.6 mn t K2O.

Consumers also returned to the market to replenish their inventory after the wait-and-see position many adopted in the second half of 2013. Potash fertiliser sales went up 11% to 61.3 mn t. All major importers posted higher imports, especially the United States, India, Brazil, Malaysia and Indonesia.

Potash output was up 9% to 60.1 mn t or 36.2 mn t K2O in 2014. Russia and Belarus posted record production volumes. Effective capacities were 71 mn t of potash or 42.5 mn t K2O. Total effective capacity increased to 86%.

Despite stronger demand and improved capacity utilization, potash fertiliser prices did not show significant growth due to increased competition.

According to the IFA estimates, consumption of potassium in mineral fertilisers will go up 0.9% in 2015 to 30.9 mn t K2O, and total potassium consumption, including industrial products, will go up 1.1% to 34.9 mn t K2O. However, new capacity will be brought on line even faster, resulting in an even greater mismatch between demand and supply.

Global potash fertiliser trading volume is expected to decrease due to high inventory levels in 2015. Inventory backlogs and poor price discipline among producers will combine to inhibit price growth.

Potash Fertilisers and Industrial Productsmn t K2O

2013 2014E 2015F

Supply* 40.8 42.5 44.6

Demand 33.9 34.5 34.9

Balance 17% 19% 22%

* Effective capacity.Source: IFA (November 2014)

World Potash Productionmn t

60.1 mn t2014

2013

2012

60.1

55.1

53.1

World Potash Exportmn t

47.3 mn t2014

2013

2012

47.3

41.8

38.6



Potash PricesUSD/t, Spot, FOB FSU

Source: FMB

350

400

450

300

250

200

2014

2013

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NPKNPK prices recovered in 2014 after a drop in the second half of 2013. This development was fuelled by recovering prices in the markets for component nutrients. The NPK price advantage over the basket of component nutrients remained high.

NPK is increasingly popular around the world due to its ease of storage and application. China is one of the major NPK production and consumption markets.

In addition to large-scale domestic production, China annually imports significant tonnage of complex fertilisers. Other Asian, South American and African countries are aggressively expanding their NPK consumption following China’s lead. Complex fertilisers are invariably popular in the CIS, where consumption of straight phosphate and potash fertilisers is traditionally low.

NPK PricesUSD/t, Spot, FOB FSU

Source: FMB

350

400

450

300

250

200

2014

2013

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

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Operating Results

Simplified Process Flow Diagram Aggregate production facilities of the Group’s companies

Natural gas/Coal

Ammonia

Phosphate feedstock Potash feedstock

2.6 mn t

NPK and dry blends

0.8 mn t

Urea

1.8 mn t

AN

1.0 mn t

UAN

1.9 mn t

Complex mineral fertilisers Nitrogen mineral fertilisers

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Chemical Production

2014 Revenue by Product 2014 Revenue by Region

47%

36%

5%

4%

3%

1%

4%

Complex fertilisers

Nitrogen fertilisers

Non-organic compounds

Organic compounds

Ammonia

Apatite concentrate

Services and other goods

21%

17%

17%

13%

12%

11%

6%

3%

China

Latin America

Russia

USA and Canada

Europe

Asia (excl. China)

CIS (excl. Russia)

Africa and other countries

Commercial Output*‘000 t

2014 2013 2012

Ammonia 115 155 152






Total 6,267 6,131 5,887

* Excluding intercompany turnover

Key Products Sales ‘000 t

2014 2013 2012

Ammonia 112 161 158






Total 6,300 6,159 5,846

Operating Results(continued)

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Nitrogen FertilisersOperating Results › Ammonia output was 1.822 mn t (down 5% year-on-year). This decrease in output was caused by a long-term overhaul of the ammonia unit at Dorogobuzh.

› Record high output of nitrogen fertilisers, at 3.017 mn t (up 1% year-on-year), was possible due to upgrades that increased the Acron site’s UAN unit production capacity to 1 mtpa.

Development Plans › Construction of a new 700,000-tpa ammonia facility in 2012–2015 at the Acron site in Veliky Novgorod.

Key Trends in the Nitrogen Fertiliser Market in 2014 › Prices increased in early 2014 because of high demand before the spring sowing season in the Northern Hemisphere. However, by April prices reacted negatively to oversupply from China, which reduced its export duties.

› Limited supply from traditional nitrogen exporters, primarily Ukraine, Egypt and Iran, and higher purchasing activity in advance of the autumn seeding season in the third quarter encouraged prices to return to early 2014 levels.

› IFA estimates show consumption of nitrogen fertilisers up 0.8% in 2014 to 111.8 mn t N. Consumption increased in major markets such as India and Brazil. IFA expects consumption growth to reach 1.3% in 2015.

For more details see Mineral Fertiliser Market Overview at page 17

2014 Operating Results ‘000 t

Ammonia

Nitrogen Fertilisers

AN Urea UAN

Nitrogen fertilisers,

total

OUTPUT

Acron (Veliky Novgorod) 1,221 560 646 937 2,143

Dorogobuzh 526 874 – – 874

Hongri Acron 75 – – – –

Total output 1,822 1,434 646 937 3,017

Incl. in-house consumption 1,707 119 417 – 536

Total commercial output 115 1,316 229 937 2,481

Y-o-y –26% –8% –22% 16% –2%

Sales* 112 1,307 237 967 2,512

* Sales of own products (excluding trading operations)

2014 Ammonia Production in Russia by Producer

2014 Nitrogen Fertiliser Production in Russia by Producer*

20%

19%

19%

12%

8%

7%

7%

8%

TogliattiAzot

UralChem

EuroСhem

Acron

PhosAgro

Minudobrenia (Rossosh)

SBU Azot

Other

26%

20%

14%

14%

8%

5%

5%

8%

EuroСhem

UralChem

Acron

PhosAgro

SBU Azot

KuibyshevAzot


Other

* In terms of nutrientSource: Azotecon-Plus

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Acron (Veliky Novgorod)Ammonia. The Company posted 2014 ammonia output of 1.221 mn t, which, while only 1,000 t higher than the previous year, set a record for the facility. Marginally higher output was accompanied by a 6 m3/t drop in natural gas consumption, bringing average consumption across Acron’s ammonia units to just 1,059 m3/t. Natural gas was consumed at a rate of 1,075 m3/t at the Ammonia-2 unit and 1,043 m3/t at the Ammonia-3 unit, which is the lowest consumption rate in the facility’s history. Acron’s Ammonia-3 unit uses the least natural gas of any facility in Russia (according to the Scientific Research and Design Institute for the Nitrogen Industry and Organic Synthesis Products (GIAP)).

In 2014, Acron moved ahead with technical upgrades of its ammonia units to further reduce gas consumption, enhance reliability and improve safety. Almost the entire output of ammonia (93%) was used to produce fertilisers and industrial products.

AN. AN output was 777,000 t (560,000 t for agriculture and 217,000 t for industrial purposes) in the reporting year; this is the highest level in 28 years of production. Output was up 0.2% year-on-year. In-house consumption of AN for UAN production was 67,000 tpa.

Urea. Urea output was down 1.5% to 646,000 t in 2014. The Company shifted its focus to other chemical products containing ammonia in the periods when sales of urea were less profitable than other of nitrogen fertilisers. Acron processed 65% (417,000 t) of its total urea output internally to produce UAN and urea-formaldehyde resins.

Acron performed a number of upgrades at its urea units in 2014, including the launch of a urea silo warehouse, which improves the quality of urea used to produce amine resins, and the commissioning of evaporation unit No. 5 and side-mounted fluidised-bed equipment.

In the reporting period, the Company’s shipments of high-purity urea for AdBlue fluid, which is used to reduce nitrogen oxides emissions by heavy trucks, were up 53.3% to 18,000 t. The Group began supplying this product to Latin America in 2014.

UAN. UAN output was up 16% in the reporting year to a record high of 937,000 t, due to upgrades that boosted the unit’s capacity to 120 t/h (1 mtpa). In 2014, Acron (Veliky Novgorod) became the largest UAN producer in Russia.

DorogobuzhAmmonia. Ammonia output was down 90,000 t (15%) to 526,000 t in the reporting year, due to a scheduled 43-day overhaul of the ammonia unit in September and October 2014. Upgrades reduced the unit’s natural gas consumption rate 0.1% to 1,121 m3/t. Of the total ammonia output, 97% was used to produce fertilisers.

AN. AN output was down 96,000 t (10%) year-on-year to 888,000 t in the reporting year (including 14,000 t of AN for industrial use), due to reduced primary commodity ammonia output. In-house AN consumption for dry-blended fertiliser production was 52,000 tpa (6% of total AN output).

Hongri AcronAmmonia. Ammonia output was down 7% in the reporting year to 75,000 t due to a new operating strategy aimed at minimising finished product inventories. The complex fertiliser production plan required lower ammonia output, while commercial ammonia shipments increased 5% to 19,000 t.

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2014 UAN Sales Geography2014 Urea Sales Geography 2014 Agricultural AN Sales Geography

78%

7%

5%

4%

4%

2%

USA

France

Canada

Belgium

Netherlands

Other

50%

41%

4%

3%

2%

Europe

South America

Asia

Russia

Africa

38%

28%

14%

6%

5%

5%

4%

South America

Russia

Europe

Asia

North America

CIS (excl. Russia)

Africa

Note: in monetary terms; sales of own products (excluding trading operations)

Development Investments

Ammonia-4 is the Group’s project to construct a large, 700,000-tpa ammonia unit at the Acron site in Veliky Novgorod. The new plant will meet the facility’s growing demand for nitrogen feedstock. Adopted in 2011, the project will cost an estimated USD 400 mn, with the end of construction and installation, and start-up scheduled for the end of 2015.

TIMELINE

2012 › Basic engineering of ammonia unit, drafting design and specifications

› Selecting major and auxiliary equipment suppliers

› Preparing the construction site: geological and geodesic survey completed, technical survey of current structures completed, unused buildings dismantled

2013–2014 › Preparation and approval of design and specifications

› Signing contracts and purchasing equipment

› Construction, installation of equipment and utilities

› Personnel training

2015 › Completion of construction and equipment installation

› Start-up and commissioning


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2014 NPK Sales Geography 2014 Complex Fertiliser Production in Russia by Producer*

29%

15%

14%

9%

9%

6%

18%

China (Hongri Acron)

China (Russian exports)

Thailand

Russia

Brazil

Ukraine

Other

38%

29%

16%

9%

6%

2%

PhosAgro

Acron


EuroСhem

UralChem

Other

Complex FertilisersOperating Results › The Group produced a total of 2.531 mn t of complex fertilisers in 2014 (down 3% year-on-year).

› In 2014, NWPC provided the Group’s Russian facilities with all the apatite concentrate they needed.

Development Plans › Develop new NPK brands

› The Group will provide its own potash feedstock once the Talitsky mine is commissioned.

Key Trends in the Complex Fertiliser Market in 2014 › In 2014, the NPK market recovered from a downdraft in the second half of 2013 as prices recovered on the nitrogen, phosphate and potassium markets.

› The NPK premium remained high against basic nitrogen, phosphate and potash fertilisers.


2014 Operating Results ‘000 t

NPK Bulk BlendsComplex

Fertilisers, total

OUTPUT

Acron (Veliky Novgorod) 1 187 – 1,187

Dorogobuzh 540 88 628

Hongri Acron 716 – 716

Total output 2,443 88 2,531

Including in-house consumption 36 – 36

Commercial output, total 2,407 88 2,495

YOY –3% –11% –3%

Sales* 2,432 89 2,520

* Sales of own products (excluding trading operations)

Note: in monetary terms; sales of own products (excluding trading operations)

* In terms of nutrientSource: Azotecon-Plus


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Acron (Veliky Novgorod)

In 2014, the Acron facility in Veliky Novgorod produced 1.187 mn t of NPK in physical weight, a record high result in Acron history. To satisfy the market in 2014, Acron produced 120,000 t of NPK 19-9-19 and 25-9-9, in addition to NPK 16-16-16 (up 36,000 t or 3.1% year-on-year).

This record NPK output was achieved through sustainable operation of production units with increased load, overhauls performed on a tight schedule and stable raw material supply.

In the reporting year, all Acron’s needs in apatite concentrate were covered by NWPC, the subsidiary that built and operates the Oleniy Ruchey apatite-nepheline ore mine.

Dorogobuzh

NPK output was down 91,000 t (14%) to 540,000 t due to a long-term scheduled overhaul of the ammonia unit in the reporting year. Dorogobuzh uses NPK and AN to produce dry blended fertilisers. In 2014, 36,000 t of NPK (6% of total output) were used for these purposes.

In 2014, the design documentation for an inert material (dolomite) preparation and dispensing unit was completed. Construction and installation is underway. Introduction of dolomite will provide greater flexibility of nutrient content control and improve the product’s competitive edge. Launch of the unit is scheduled for 2015.

All of Dorogobuzh’s apatite concentrate was supplied by NWPC in the reporting year.

Hongri Acron

In 2014, NPK output was down 2%, from 732,000 t to 716,000 t. In the reporting year, the Chinese government tightened environmental regulations and introduced more stringent emissions standards for the chemical, coal and processing industries. Emission rates were reduced considerably. Very little lead time was given to comply with the new standards. In order to avoid potential violations of the new emission standards, Hongri Acron extended the term of its overhaul, which affected output. Complex fertiliser sales dropped 6% to 716,000 t.

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Mining

Phosphates Oleniy Ruchey MineAcron Group provides all of its own apatite concentrate, a high quality phosphate raw material used by the Group’s Russian facilities. This raw material is produced by NWPC at the Oleniy Ruchey mine in Murmansk region.

Oleniy Ruchey Deposit ReservesApatite-nepheline ore balance reserves under Russian standards (as of 31 December 2014): › Categories B+C1: 266.4 mn t (P2O5: 43.3 mn t)

› Category С2: 130.2 mn t (P2O5: 19.5 mn t).

Balance reserves will ensure the operation of NWPC for 59 years.

JORC resources and reserves (2011): › Ore resources (measured, indicated and inferred): 280.2 mn t (P2O5: 43.6 mn t)

› Ore reserves (proved and probable): 255.4 mn t (P2O5: 34.4 mn t).

2014 Operating Results › The Oleniy Ruchey mine produced a total of 891,000 t of apatite concentrate, up 249,000 t (39%) year-on-year.

› Output of apatite-nepheline ore from the open-pit mine was 3.134 mn t (against 3.162 mn t in 2013).

› In mid-2014, the Oleniy Ruchey mine reached capacity of 1 mn t of apatite concentrate per year.

› In 2014, NWPC shipped a total of 180,000 t of apatite concentrate to third-party buyers (against 8,000 t in 2013).

› Total CAPEX since the start of deposit development exceeds USD 800 mn.

Development PlansConstruction of the underground mine and expansion of the processing facility’s capacity will increase apatite concentrate output to 1.7 mtpa by 2017 and eventually to 2 mtpa.

Key Trends in the Phosphate Fertiliser Market in 2014 › In early 2014, prices reacted to strong demand and limited supply caused by logistics issues; however, prices started to decline by spring due to increasing export from China, which reduced its export duties, and weak demand from India, where the government cut back on subsidies.

› In summer 2014, prices recovered due to stronger seasonal demand from Brazil and the United States. Mosaic cut back on DAP production in Q4 2014, providing further support for prices.

› According to IFA estimates, consumption of phosphates in 2014 was down 1.3% to 41.6 mn t Р2О5. IFA forecasts that consumption will gain 0.6% in 2015, mainly in India, which has low inventory, and Southeast Asia.


Operating Performance And InvestmentsIn 2014, the Oleniy Ruchey mine extracted 8.7 mn m3 of rock, yielding 3.134 mn t of apatite-nepheline ore with an average P2O5 grade of 12.91%, against 3.162 mn t of apatite-nepheline ore with an average P2O5 grade of 14.02% in 2013. Output remained essentially unchanged, and the open pit operated at full capacity. The decrease in P2O5 grade was due to production of poorer ore.

The processing facility produced 891,000 t of apatite concentrate, against 642,000 t in the previous year. The Oleniy Ruchey mine provided all phosphates used by the Group’s Russian production facilities in 2013, and by mid-2014 it achieved an output level of 1 mtpa of apatite concentrate.


COMMISSIONING THE OLENIY RUCHEY MINE: A NEW STAGE IN ACRON GROUP’S DEVELOPMENT

2006 2012 2013 2015 2017

Start of implementationObtaining subsoil licence for the Oleniy

Ruchey deposit

Start of productionStart of apatite concentrate production

Main objective: Construction of the mine’s second stage and underground mine

commissioning

Increase in output

Apatite Concentrate independence Reaching 1.1 mn t capacity

2006–2008Preparations for the Oleniy Ruchey mine construction and passing state expert review

2009–2012Construction of the mine’s facilities, open pit and infrastructure

2013Reaching stable output sufficient to satisfy in-house phosphate consumption at the Group’s Russian facilities; start of apatite concentrate shipments to third-parties

2014Reaching 1 mtpa output of apatite concentrate, increase in processing plant’s capacity to 1.1 mn t

Construction of the mine’s second stageUnderground mineConstruction of the underground mine started in late 2011. By the end of 2014, miners had tunnelled 9.9 km.By 2017, the Group will construct three tunnels (for mineral extraction, conveyor and ventilation) and four vertical shafts (main, air-supply, auxiliary and ventilation). The total length of capital mining operations is 18 km.

Processing plantIn 2013–2017, plant capacity will be expanded with construction of the second stage of the filtration and drying shop and a silo warehouse for apatite and nepheline concentrates. The Group will construct a railroad branch from the mine site to Titan station (approximately 30 km).

30 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN30 ACRON GROUP 2014 ANNUAL REPORT WWW.ACRON.RU/EN


TALITSKY MINE: KEY PROJECT STAGES

2008 2008 – 2015 2012 BY 2021

Obtaining licence to develop the Talitsky area

Main objective: mine commissioning

Raw material independence + open market sales

Preparation stage

Geological exploration Engineering and design

ConstructionStart of construction and assembly

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PotashNorth Atlantic Potash Inc.NAP, an Acron Group subsidiary, holds 20 potash exploration permits for an approximately 1.4-mn-acre (5,600 km2) deposit in Saskatchewan, Canada. Acron Group considers these permits to be a long-term investment in its potash resource base. The area is divided into clusters, of which the most promising are the Albany project (nine permits in the south of the province), Foam Lake project (four permits in the north of the province) and Stockholm project (one permit in the southeast).

The available resource base provides a wide range of investment options. Depending on the cluster, both mid-scale and large-scale projects may be implemented, while geological structures allow for a range of potash production technology, from conventional underground mining to solution (leaching) mining.

Highlights › Albany project (joint venture with Rio Tinto Potash Management Inc.). In 2011, a joint venture (JV) agreement was signed with Rio Tinto Potash Management Inc. for nine permits. In June 2014, the joint venture was established and all nine Albany Project permits with a total area of 586,000 acres were transferred to it. In 2011–2013, an extensive exploration programme costing

USD 50 mn was completed for this cluster. Based on the exploration results, 1.4 bn t of salts (inferred resources) with average KCl content of 31% were recorded. The northern part of КР 405 has an estimated 329 mn t of KCl that may be extracted using the solution method.

› Foam Lake project (a cluster of four permits in the north of the province with a total area of 318,000 acres). In late 2012, resources were valuated according to NI 43-101 standards based on the exploration programme findings; 942 mn t of potash salts (indicated and inferred resources) at a depth of 1,000 to 1,100 m with average KCl content of 30% were recorded. Net recoverable KCl tonnage is estimated at 89 mn t. The cost of geological research was approximately USD 15 mn. This cluster is suitable for constructing a conventional potash mining facility.

› Stockholm project (permit KP 421). A short exploration programme was completed in 2012. The exploration well showed very high content of K2O (34–45% in terms of KCl) at a depth of 1,100 to 1,200 m.

The key strategy for this asset is to analyse the prospects for each permit and select the appropriate development options: either joint ventures with investors or sale.

PotashTalitsky mineIn 2014, VPC moved ahead with implementation of Acron Group’s largest investment project, construction of a mine in the Talitsky area in Perm Krai.

Talitsky Area ReservesBalance sylvinite reserves according to State Reserves Committee (Rosnedra) (2012): › Categories А+В+С1: 726.1 mn t of salts (К2О: 163 mn t, KCl: 258 mn t)

Recoverable reserves (including temporarily inactive reserves) in accordance with the 2014 Development Plan for Sylvinite Reserves at the Talitsky area of the Verkhnekamsk: 255 mn t of KCl.

JORC resources (2011): › Measured and indicated resources: 708.9 mn t of salts (К2О: 156.9 mn t, KCl: 248.5 mn t)

› Inferred resources: 910.2 mn t of salts (К2О: 155.9 mn t, KCl: 246.7 mn t)

Highlights › The engineering design for development of sylvinite reserves at the Talitsky area of the Verkhnekamsk potassium and magnesium salt deposit was drafted and submitted for review and approval to the Russian Federation State Reserves Commission

› Design contracts signed; drafting of design documentation is underway for construction of external utility network (gas, water and power supply) and linear infrastructure (railway facilities)

› Skip shaft No. 1: – Construction and assembly of temporary structures for shaft sinking are underway – Freezing pipes inserted to form shaft’s ice wall

› Cage shaft No. 2 – Construction and assembly of temporary structures for shaft sinking are underway – Completed construction and equipment installation of shaft and freezing facility – Finalised grading at the Talitsky mine site near the shaft area – Completed construction of circular gallery and foundation for headframes

› Main step-down power substation Talitskaya-1 110/6 kV brought on line

› Completed reconstruction of Berezniki-Sortirovochnaya railway crossing

› Finalised site deforesting to construct slime dam and salt tailings pile

Development Plans for 2015 › Approval of Engineering design for development of sylvinite reserves at the Talitsky area of the Verkhnekamsk potassium and magnesium salt deposit by the Russian Federation State Reserves Commission (Rosnedra) (in January 2015, the development design was approved)

› State expert review of design documentation for mine construction

› Further design and engineering of the Talitsky mine facilities, state expert review of design documentation for construction of surface facilities of the Talitsky mine

› Further design of off-site utility and linear structure facilities, obtaining approval of state expert review for the design documentation to build off-site utilities and linear structures

› Construction of temporary buildings and structures for sinking operations with further soil freezing and shaft sinking

Key Trends in the Potash Fertiliser Market in 2014 › In 2014, consumer purchasing power increased due to lower potash fertiliser prices. Consumers replenished inventories, giving up their wait-and-see attitude of the second half of 2013. As a result, global potash fertiliser sales reached a record high.

› Despite growing demand and increased capacity utilisation, potash fertiliser prices did not increase significantly because of stronger competition.

› According to IFA, consumption of potash fertilisers increased 1.7% in 2014, to 30.6 mn t of K2O. The IFA forecasts 0.9% growth in consumption in 2015 and expects that global sales will decrease because of existing inventory.



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Other Business Segments

Industrial Products

2014 Operating Results‘000 t

Acron DorogobuzhHongri Acron Total output

Commercial products, total YOY Sales

OUTPUT

Organic compounds 401 194 1 195

Methanol 83 – – 83 12 -42% 12

Formalin 144 – – 144 9 11% 9

Urea-formaldehyde resins (UFR) 174 – – 174 174 6% 174

Non-organic compounds 808 808 20% 782

Low-density and technical-grade AN 217 14 – 230 230 1% 208

Calcium carbonate 373 10 – 383 383 52% 383

Liquid carbon dioxide 22 31 – 53 53 -6% 52

Argon 7 – – 7 7 1% 7

Hydrochloric acid – – 136 136 136 5% 132

Acron (Veliky Novgorod)

The Acron facility primarily uses methanol and formalin for further processing and production of urea-formaldehyde resins (UFRs): 86% and 94% of total output, respectively.

In the reporting year, Acron produced 83,000 t of methanol, up 6% year-on-year. Output was in line with in-house and customer demand.

Output of UFRs and formalin was up 10,000 t (6%) and 14,000 t (10%) year-on-year. The Acron facility in Veliky Novgorod developed a formula to produce melamine-based UFRs (2% to 30% melamine), and their production increased year-on-year.

UFRs are used in the wood-processing and furniture industries to produce chipboard and medium and high density

fibreboards. The resin market is highly competitive and consumers demand ongoing improvements to product quality and toxic emissions. Acron strives to compete more effectively in this sector and is developing new resin formulas. Sales of melamine-based resins were up in 2014 (9,500 t, against 7,300 t in 2013) for producing chipboard in formaldehyde emissions class 1/2Е-1. Test shipments of resins and formalin in tank containers were conducted. Formaldehyde and urea-formaldehyde concentrate production units reached 100% capacity.

Overall output of non-organic compounds (low-density and technical-grade ammonium nitrate, liquid carbon dioxide, argon and calcium carbonate) increased 23%, mainly due to strong demand for calcium carbonate (sales were up 49%). Output of the remaining non-organic compounds was down 2%.


DorogobuzhOutput of low density prilled ammonium nitrate increased 7 times to 14,000 t in the reporting year. Due to increased demand, calcium carbonate output increased 6.5 times to 10,000 t. Output of liquid carbon dioxide was down 18% (31,000 t against 38,000 t in 2013) because of a scheduled overhaul of ammonia unit.

Hongri AcronIn the reporting year, hydrochloric acid sales were up 5% to 136,000 t. This slight increase was triggered by demand.

Apatite-nepheline Ore Integrated ProcessingAcron Group is implementing two innovative projects: development of pilot facilities for nepheline concentrate processing and extraction of rare earth elements from apatite concentrate.

Nepheline-10 ProjectAcron (Veliky Novgorod) developed an acid-based technology for nepheline concentrate processing to produce a range of products for the construction, chemical and metals industries.

In 2014, Acron continued construction and assembly at the site where it is building a 10,000-tpa pilot facility for nepheline concentrate processing. Total project investments are estimated at USD 35 mn, and the end of construction is scheduled for 2015.

Rare Earth Elements ProjectAcron (Veliky Novgorod) developed a technology for extracting rare earth element concentrate from the apatite concentrate processing workflow to obtain five products: lanthanum, cerium, neodymium, light and heavy REE concentrates.

Since 2011, a pilot unit used to fine-tune the technology has been in operation at Acron’s site. In 2014, the Company completed construction of a 200-tpa production line (measured in terms of lanthanide oxides). In December 2014, carbonates of lanthanum and cerium were produced under a comprehensive

testing programme. Completion of a comprehensive testing programme for all processing stages and confirmation of the design target for production performance and product quality is scheduled for the first half of 2015. The project’s total CAPEX is estimated at USD 45 mn.

This project was included in the Rare and Rare Earth Elements sub-programme of a national government programme entitled Industrial Development and Competitive Growth.


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AS DBT, AS BCT and Andrex Sea Port TerminalsThe Group owns three port terminals on the Baltic Sea that ship most of the Group’s export cargo. AS DBT (Muuga, Estonia) and Andrex (Kaliningrad, Russia) transship bulk cargoes, while AS BCT (Sillamäe, Estonia) transships liquid fertilisers and ammonia.

Operating ResultsIn 2014, the Group’s port terminals transshipped a total of 2.9 mn t, down 2% year-on-year. The Group’s own cargo share was 86%, against 69% in 2013.

The decrease in cargo turnover was due to a decrease in transshipment of bulk cargo for other producers at AS DBT (down 507,000 t, or 74%) and Andrex (down 2,700 t, or 90%) terminals. This decrease to some extent was offset by greater transshipment (267,000 t or 23% more) of bulk cargo produced by Acron Group in the reporting period. Ammonia and liquid fertiliser UAN transshipment at AS DBT increased 191,000 t (18%) to a record high

of 1.282 mtpa. This was due to higher output of UAN at Acron’s Veliky Novgorod facility. Transshipment of third-party cargo at AS DBT did not change.

In the reporting year, AS DBT grappled the new and old interdome flooring to ensure cargo safety and the structural integrity of the space between domed warehouses.

Rail FleetIn 2014, Acron Group’s Russian companies moved a total of 6.1 mn t of rail cargo. Acron-Trans, the Group’s logistics arm, provides rail transportation of commodities and end products to port terminals and customers in Russia and the CIS for the Group’s Russian companies. Acron-Trans operates over 2,200 railcars and tanks owned by the Group, as well as leased rolling stock of approximately 1,500 railcars.

Logistics

2014 Transshipment by the Group’s Port Facilities ‘000 t

2.9 mn tBulk cargo

UAN

Ammonia

1,620

1,863

989

760

293

331

2014 2013


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Distribution

This segment of the Group’s operations includes distribution networks in Russia (Agronova) and China (Yong Sheng Feng) and the wholly-owned trading companies Agronova Europe AG and Agronova International Inc.

Operating Results for the SegmentRussia (Agronova)Agronova comprises 14 specialised trading companies that provide direct access to consumers in major farming regions of the country. Agronova’s subdivisions store, sell and deliver mineral fertilisers. The distribution network has total storage capacity of 169,000 t.

In 2014, the Group sold its products to 60 regions of Russia. Total shipments were 1.366 mn t, up 7% year-on-year. This increase is mainly due to high demand for calcium carbonate by Russian industrial companies. Acron Group has begun supplying significant volumes of apatite concentrate to Russian consumers. In 2014, the Group sold 687,000 t of mineral

fertilisers (including low-density and technical-grade ammonium nitrate), down 17% year-on-year. This decrease was due to lower output at Dorogobuzh, which performed a scheduled overhaul. Sales of all brands of ammonium nitrate decreased 24%, while sales of NPK were up 9%. According to the Russian Association of Fertiliser Producers, at year-end the Group accounted for 12% of AN and 20% of NPK (all brands) sold in the Russian market.

China (Yong Sheng Feng)Yong Sheng Feng (YSF) focuses on wholesaling fertilisers produced by Acron Group and independent producers. The Company sells fertilisers both through retailers operating under the YSF trade mark and through a network of distributors.

In 2014, YSF’s sales in the Chinese domestic market were up 8% to 179,000 t. By offering quality fertilisers via an extended sales network, the Company was able to sustain dynamic sales in the highly competitive Chinese market. In 2014, YSF

continued its expansion into the market in southern China, increasing sales through a distribution network in Guangdong and Hainan provinces. YSF introduced several measures to improve storage conditions and logistics operations in China.

ExportTrading companies (Agronova Europe AG and Agronova International Inc.) handle marketing, distribution and sea transportation of the Group’s export fertilisers. In the reporting year, Agronova Europe AG and Agronova International Inc. posted aggregate sales of 3.5 mn t (up 6% year-on-year).

Key results by Sales MarketThe Group’s export strategy aims at achieving a diversified sales geography and increasing the product range; the priority focus areas include increasing supplies to emerging markets and making direct sales to local distributors.


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AsiaChina and Thailand remain key markets for the Group’s complex fertilisers in Asia. Traditionally, Acron Group has been a leading NPK supplier to these markets. In 2014, the Group’s share in Chinese NPK imports was 26%. Acron also has a leading position in Thailand. The Group has strengthened its presence in the promising markets of Indonesia and Myanmar. In 2014, Acron was the major NPK exporter to Myanmar. The Group sells its products to Asia on DAP terms, which maximises the return on sales and maintains control over distribution channels.

United States and CanadaThe Group increased its sales of liquid nitrogen fertilisers to the United States and Canada year-on-year. Acron continues to expand a direct cooperation with American and Canadian importers and distributors. The Group’s share in total U.S. UAN imports is approximately 28%.

Latin AmericaThe Group supplied a record high volume of nitrogen-based and complex fertilisers to Latin America in the reporting year. The Group is increasing its presence by introducing new NPK brands in Ecuador, Columbia and several other countries with promising markets. Brazil remains

the region’s key market. Shipments of nitrogen-based fertilisers and complex fertilisers to Brazil, where Acron Group is known to be a reliable partner and supplier of high-quality products, were up in 2014. The Brazilian agricultural market continues to grow every year, and demand for the Group’s products increases accordingly.

AfricaIn 2014, the African markets were more volatile than the previous year. However, the Group continues shipments of complex fertilisers to the markets of West Africa and East Africa. Various NPK brands are still the Group’s key products in this region.

EuropeEurope is the Group’s second most important UAN market and a very important urea market. In 2014, Acron strengthened its position in the region, executing new long-term contracts to supply agricultural grade urea and AdBlue grade urea. The United Kingdom, Ireland and Finland are the largest consumers of dry blends.

Read more about sales markets in Business geography and sales market at page 06

Key Objectives › The Group’s portfolio investments are liquid assets and are therefore included in the shareholder value. The Group may raise additional funds at any time through monetisation of these assets.

› Return on sales of financial investments may be used for investments, debt service and dividend payment.

Stake in Uralkali › In 2014, the Group sold a portion of its stake for RUB 4 bn, thereby decreasing its interest from 1.77 to 0.93%. The market value of Acron’s remaining stake in Uralkali was RUB 3.5 bn as of 31 December 2014.

Stake in Grupa Azoty › In the first half of 2014, the Group increased its shareholding in the Polish company Grupa Azoty from 15.34% to 20%. The market value of the Group’s stake as of 31 December 2014 was RUB 20 bn.

Distribution (continued)Portfolio Investments

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Financial Review

This financial performance analysis is based on the audited consolidated financial statements of Acron Group prepared in accordance with the international financial reporting standards (“IFRS”) and should be reviewed jointly with it. It is based on a comparison of the results of the financial year that ended 31 December 2014 and the financial year that ended 31 December 2013. In addition to the IFRS financial results and indices, this section contains management financial and operational information.

DividendsOn 20 April 2015, Acron’s Board of Directors recommended to the annual general meeting declaring dividends for 2014 in the amount of RUB 139 per ordinary share and paying the dividends out of Acron’s retained earnings from previous years for the reason that Acron posted losses in its RAS non-consolidated statement. No interim dividends were paid in 2014. Dividends for 2013 were also paid out of retained earnings for past years. The dividend amount was RUB 6,161 mn (RUB 152 per share), or 47% of IFRS net profit.

The Group’s dividend policy stipulates that the annual dividend payment be no less than 30% of the Group’s IFRS net profit.

Debt StructureNet debt was up 52% to RUB 55,788 mn as of the end of 2014, against RUB 36,633 mn in 2013. The relative debt burden was also up, with the Net Debt/EBITDA ratio increasing from 2.4 to 2.8 year-on-year. The Group’s total debt as of 31 December 2014 was up 61% from RUB 50,187 mn to RUB 80,561 mn year-on-year. Short-term loans account for 65% and long-term loans make up the remaining 35% of the total debt. The increase in the Group’s total debt was related to re-evaluation of its foreign currency debt. The U.S. dollar-denominated Net Debt/EBITDA ratio was down to 1.9 from 2.3 as of beginning of 2014, as was dollar equivalent of Total and Net Debt.

Net Debt calculation RUB mn

As of 31 December 2014

As of 31 December 2013 Change (%)

Long-term loans and borrowings 28,002 22,720 +23

Short-term loans and borrowings 52,559 27,467 +91

Total debt 80,561 50,187 +61

Less:

Cash and cash equivalents 24,773 12,787 +94

Irrevocable bank deposits - 767 N/A

NET DEBT 55,788 36,633 +52

EBITDA 20,249 15,386 +32

Net debt/EBITDA 2.76 2.38 +16

The major borrowers among the Group’s companies are its chemical production facilities (Acron, Dorogobuzh and Hongri Acron), as well as AS BCT and NWPC.

The principal creditor banks included AO Raiffeisenbank, Sberbank of Russia, Sviaz-Bank, VTB Bank and other Russian and international banks.

As of 31 December 2014, the share of U.S. dollar-denominated loans increased to 74%, against 73% in 2013; the share of rouble loans and borrowings was 15%, down from 16% in 2013; the share of euro loans and borrowings did not change year-on-year and was 6%; the share of yuan loans and borrowings was 6%, up from 5% in 2013.

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As of 31 December 2014 the Group has made a public offering of three issues of its rouble bonds: › Series 04 with a par value of RUB 3,750 mn to be redeemed in 2021 and offered in 2015. In 2012, Series 04 bonds worth RUB 1,380 mn were redeemed. The rest of the bonds are outstanding.

› Series 05 with a par value of RUB 3,750 mn to be redeemed in 2021 and offered in 2015. In 2012, Series 05 bonds worth RUB 1,997 mn were redeemed. The rest of the bonds are outstanding.

› Series BO-01 with a par value of RUB 5,000 mn to be redeemed in 2015 (no options are provided for this bond issue). All bonds from this series are currently outstanding.

The total volume of bonds outstanding as of 31 December 2014, was RUB 8,764 mn (less previously redeemed bonds and bonds held by Acron’s subsidiaries).

On 30 December 2014, Acron Group announced a five-year syndicated pre-export facility agreement for up to USD 525 mn with a club of partner banks. The loan was utilised to repay the USD 400 mn bridge loan the Group obtained in April 2014. The following banks are participating in the transaction: Societe Generale Corporate & Investment Banking, Rosbank (PJSC JSCB), HSBC Bank plc, HSBC Corporate Trustee Company (UK) Limited, Bank of China Limited (Luxembourg branch), AO UniCredit Bank and International Investment Bank. Later, they were joined by ING Bank and Black Sea Trade and Development Bank.

Financial PerformanceRevenueIn physical terms, sales volume of the Group’s main products was up 2% year-on-year to 6.3 mn t.

Acron Group’s Main Products Sales ‘000 t

Product 2014 2013 Change (%)

Ammonia 112 161 -30

Nitrogen fertilisers 2,512 2,443 +3

Complex fertilisers 2,520 2,649 -6

Organic compounds 195 192 +1

Non-organic compounds 782 707 +11

Apatite concentrate 180 8 24 times

FERTILISER AND INDUSTRIAL PRODUCTS 6,300 6,159 +2

Most of the Group’s revenue is generated by sales of nitrogen and complex fertilisers. In 2014, Russia, China, the United States, Brazil, Thailand and Ukraine were the Group’s key markets by volume.

In 2014, the Group’s revenue was up 10%, to RUB 74,631 mn. This positive dynamic was basically driven by the weaker rouble relative to USD.

Average Indicative Global Fertiliser Prices USD/t, FOB Black Sea or Baltic Ports

Product 2014 2013 Change (%)

Ammonia 499 479 +4

Urea (prilled) 311 327 -5

AN 282 287 -2

UAN 243 256 -5

NPK 16-16-16 354 384 -8

Sources: Fertecon, FMB

Official RUB/USD Exchange Rate

2014 2013 Change (%)

RUB/USD exchange rate as of 31 December 56.2584 32.7292 +72

Average annual RUB/USD exchange rate* 38.4217 31.8480 +21

* Calculated average nominal exchange rate for the corresponding periodSource: Central Bank of the Russian Federation

Financial Review(continued)

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Revenue by Region RUB mn

Region 2014 2013 Change (%)

Russia 12,602 12,756 -1

European Union 8,681 7,671 +13

CIS 4,078 5,085 -20

USA and Canada 9,896 7,518 +32

Latin America 12,673 9,445 +34

China 15,988 14,825 +8

Asia (excl. China) 8,406 6,060 +39

Other regions 2,307 4,544 -49

TOTAL 74,631 67,904 +10

Cost of SalesRUB mn

2014 2013 Change (%)

Change in inventories of finished goods and work in progress

-730 1,112 decrease

Staff costs 5,067 5,466 -7

Materials and components used, including: 13,576 13,185 +3

Phosphate 1,014 2,920 -65

Potash 4,877 5,652 -14

Coal 743 848 -12

Sulphur 790 789 0

Other 6,152 2,976 +107

Fuel and energy 5,483 4,705 +17

Natural gas 9,961 9,674 +3

Depreciation and amortisation 3,871 2,566 +51

Impairment (reversal)/loss 97 217 -55

Services 305 421 -28

Production overheads 445 482 -8

Repairs and maintenance 3,743 3,214 +16

Drilling and blasting 301 204 +48

Social expenditure 565 763 -26

TOTAL 42,684 42,009 +2

The reporting year saw changes in revenue distribution by region. Increased revenue was generated in Latin America, the United States and Canada, Asia and the European Union, due to higher sales volume in Brazil (up 17%), Thailand (up 39%), the United States and Canada (up 8%). Lower revenue was recorded in Africa: sales volume to Nigeria decreased 63%. Revenue from the CIS was down 20% due to reduced shipments to Belarus and Moldova.

Cost of SalesIn 2014, the cost of the Group’s sales was RUB 42,684 mn, up 2% year-on-year. The higher cost of sales was mainly driven by increased expenses for fuel and power due to boosted output and higher energy prices, increased repairs and maintenance expenses because of previously commissioned capacity and higher inventory and components costs. Depreciation expenses increased due to commissioning of capital construction facilities. The growth was partially offset by lower potash feedstock prices and reduced phosphate costs as the facilities switched to apatite concentrate from internal sources, as well as by lower production personnel costs.

Change in Inventories of Finished Goods and Work in ProgressIn 2014, the index of change in inventories of finished goods and work in progress was negative RUB 730 mn (increase in inventory).


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Staff CostsStaff costs only include the cost of production personnel. The cost of administrative staff is included in Selling, General and Administrative expenses. In 2014, staff costs reflected in the cost of sales were down 7% to RUB 5,067 mn due to the cost cutting programme.

Total staff costs reflected in the Cost of Sales and in Selling, General and Administrative expenses in 2014 amounted to RUB 7,980 mn, up 4% year-on-year

(against RUB 7,704 mn in 2013). This increase in total staff costs was caused by an indexation of wages and by the fact that management wages are partially denominated in U.S. dollars. Increased costs were offset in part by a 4% reduction of the Group’s staff to 15,100 (2013: 15,722).

Materials and Components Used. Fuel and Energy. Natural Gas These items account for the majority of Cost of Sales. In the reporting year, the cost of materials and components

increased 3%. The cost of phosphates purchase from third-party suppliers decreased in 2014, since the Group’s Russian facilities obtained their feedstock from the Oleniy Ruchey mine and only Hongri Acron purchased phosphates outside the Group.

Fuel and EnergyFuel, energy and natural gas costs were up due to higher 2014 average prices for these resources in Russia as compared to 2013.

Inputs and Energy Consumption

2014 2013 2012

Price (RUB*) QuantityAmount

(RUB mn) Price (RUB*) QuantityAmount

(RUB mn) Price (RUB*) QuantityAmount

(RUB mn)

ACRON AND DOROGOBUZH

Natural gas (m3 mn) 4,275 2,330 9,959 3,974 2,435 9,674 3,445 2,289 7,885

Acron 4,246 1,578 6,702 3,941 1,586 6,250 3,418 1,528 5,225

Dorogobuzh 4,336 751 3,257 4,034 849 3,424 3,498 760 2,660

Apatite concentrate (‘000 t) 6,378 732 4,666 6,969 769 5,358 5,123 699 3,579

Acron 6,223 494 3,075 6,794 495 3,364 4,948 481 2,378

Dorogobuzh 6,700 237 1,591 7,284 274 1,994 5,510 218 1,201

Potash (‘000 t) 6,817 477 3,251 8,286 482 3,992 10,279 458 4,708

Acron 6,755 327 2,207 8,202 310 2,540 10,145 316 3,208

Dorogobuzh 6,951 150 1,044 8,437 172 1,453 10,578 142 1,500

Energy (kWh mn) 2,687 1,049 2,820 2,555 1,084 2,770 2,273 1,055 2,398

Acron 2,626 779 2,047 2,530 788 1,995 2,270 782 1,775

Dorogobuzh 2,865 270 774 2,622 295 775 2,282 273 623

Thermal power ( ‘000 Gcal) Acron 819 1,127 923 739 1,186 876 649 1,146 744

HONGRI ACRON

Phosphate rock (‘000 t) 3,473 292 1,014 3,615 339 1,226 3,366 407 1,372

Potash (‘000 t) 11,307 145 1,645 11,803 141 1,660 14,628 153 2,232

Coal (‘000 t) 5,079 146 743 5,271 161 848 6,133 192 1,175

Sulphur (‘000 t) 6,710 118 790 5,784 136 789 8,027 138 1,109

NWPC

Energy (kWh mn) 1,795 134 240 1,981 96 190 - - -

* Inclusive of transportation costs and related expenses; unit prices: natural gas – per 1 k m3; phosphate and potash inputs, coal and sulphur – per 1 t; energy – per 1 k kWh; thermal power – per 1 Gcal


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Transportation ExpensesIn 2014, transportation expenses were up 17% year-on-year, mainly due to an increase in container transportation and higher rouble-denominated freight costs due to a considerably weaker rouble. These factors notwithstanding, railway transportation costs decreased due to streamlined logistics and decreased shipments by Dorogobuzh, which was undergoing a scheduled overhaul.

Selling, General and Administrative ExpensesIn 2014, selling, general and administrative expenses were up 22% to RUB 6,446 mn (against RUB 5,271 mn in 2013). This increase was primarily due to wages indexation,the fact that management salaries are partially denominated in USD and due to creating bad debt reserve.

EBITDAEBITDA is calculated as operating profit (operating results) adjusted for depreciation and amortisation, foreign exchange gain or loss and other non-cash and extraordinary items. In 2014, EBITDA was RUB 20,249 mn, up 32% year-on-year. EBITDA margin in 2014 increased to 27% (against 23% in 2013). This increase was due to rouble depreciation against the U.S. dollar and implementation of a cost saving programme.

Transportation Expenses RUB mn

2014 2013 Change (%)

Railway tariff 2,548 2,638 -3

Freight 1,442 990 +46

Maintenance of rolling stock 562 542 +4

Container transportation 1,711 975 +75

Handling of goods 1,989 1,765 +13

Other 581 668 -13

TOTAL 8,833 7,578 +17

EBITDA Calculation RUB mn

2014 2013

Operating profit 20,955 13,980

Depreciation and amortisation 3,871 2,566

Net foreign currency gain on operations -4,552 -1,112

Gains on operations with exploration permits -154 -199

Loss on disposal of property, plant and equipment 129 151

TOTAL CONSOLIDATED EBITDA 20,249 15,386

Financial Income/ CostsIn 2014, the Group’s financial costs were RUB 22,000 mn, against RUB 2,437 mn in 2013. This increase was caused by the negative effect of a revaluation of the Group’s liabilities due to appreciation of the dollar against the rouble. Foreign currency net losses were RUB 22,324 mn in 2014 (against net losses of RUB 2,930 mn in 2013).

Net ProfitIn 2014, the Group’s net profit was down 47% to RUB 6,904 mn (against RUB 13,019 mn in 2013). This decrease was mainly due to the foreign exchange loss on revaluation of foreign currency liabilities. The Group managed to avoid a more substantial drop in net profit by increasing its Gain on sale of investments. The adjusted net profit margin was 9% in 2014, down from 19% in 2013.

Gain on Disposal of InvestmentsIn 2014, Acron’s gain on disposal of investments was up 50% to RUB 8,088 mn. The sale of a part of the Group’s stake in Uralkali brought in RUB 3,876 mn, against RUB 5,400 mn in 2013. This item increased because in 2014 the Group’s interest in Grupa Azoty S.A. was recognised as an Investment recorded based on equity method. As a result, the revaluation accumulated in equity as of the date of de-recognition of investments for RUB 4,188 was reclassified as a gain.


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Changes in Key Balance Sheet IndicatorsProperty, Plant and EquipmentIn the reporting period, the Group’s PP&E was up 19% to RUB 72,552 mn, against RUB 61,068 mn in 2013, due to implementation of the Group’s investment programme, specifically of its mining projects and construction of a new ammonia plant. PP&E was 37% of the total book value of the Group’s assets in 2014.

Exploration and Evaluation Licences and Expenditures In the reporting period, this item increased 17% to RUB 32,103 mn. The increase was due to capitalisation of interest on loans in cost of potash exploration licence in Russia. Additionally, the Group increased its share in Canadian potash exploration permits. Most of the item (82%) related to the Talitsky area of the Verkhnekamsk potassium-magnesium deposit.

Available-for-sale InvestmentsIn the reporting year, this item was down to RUB 3,632 mn from RUB 19,398 mn at the beginning of 2014. This was mainly due to reclassification of the Group’s stake in Grupa Azoty S.A. as Investments recorded based on equity method, and disposal of Uralkali shares. The fair value of the Uralkali shares, at RUB 3,475 mn, is recognised as Current assets.

Investment in Equity Accounted InvesteesIn the reporting period, the Group’s share in Grupa Azoty S.A. increased from 15.34% to 20%, and Grupa Azoty S.A. was recognised as Investments in equity accounted investees.

InventoriesIn the reporting period, raw materials and finished products inventories increased 23% to RUB 13,420 mn. This increase was due to a rise in rouble-denominated global end product and raw material prices and a weaker rouble.

Non-controlling InterestThe Group’s equity held by minority shareholders in its subsidiaries is recorded in Non-controlling interest under Equity. In the reporting period, this item increased to RUB 23,261 mn, against RUB 13,231 mn at the beginning of 2014. This decrease was primarily due to the sale of a stake in VPC to Sberbank Investments.

Cash FlowsOperating ActivitiesNet cash flow from operating activities was down 12% in 2014 to RUB 12,694 mn (against RUB 14,360 mn in 2013). This decrease was due to an increase of RUB 4,088 mn in the Group’s Working Capital in 2014 (against a decrease of RUB 4,336 mn in 2013). This increase in Working Capital was caused by the higher value of inventories (see above), trade receivables, other receivables and advances to suppliers.

Investing ActivitiesIn 2014, net cash used in investing activities was RUB 11,408 mn (against RUB 9,247 mn in 2013). In the reporting year, cash flow from investing activities was primarily affected by the following events: › The Group’s capital expenditures (Purchase of property, plant, equipment and intangible assets) worth RUB 11,478 mn, including:

– Upgrading chemical production facilities and implementing capacity expansion projects at these production facilities (including the Ammonia-4 project) worth RUB 8,755 mn – Financing of the Oleniy Ruchey mine project in the amount of RUB 2,198 mn – Financing of the Talitsky mine construction in the amount of RUB 454 mn

› Net decrease in credits granted in 2014 was RUB 9 mn against RUB 1,313 mn in 2013

› Proceeds from sale of available-for-sale investments (0.84% stake in Uralkali) were RUB 3,984 mn (against RUB 5,541 mn in 2013)

› Purchase of available-for-sale investments in the amount of RUB 4,115 mn (against RUB 3,840 mn in 2013); the largest item was the Group’s investment in Azoty Tarnów (Poland)

Financing ActivitiesCash inflow from financing activities in 2014 totalled RUB 1,107 mn (against cash outflow of RUB 20,975 mn in 2013). This cash inflow was attributable to sale of a stake in VPC and a decrease in loan repayments. In 2014, the net loan increase was RUB 1,073 mn (against decrease of RUB 15,379 mn in 2013). The cash outflow was caused by dividend payment of RUB 6,255 mn, against RUB 2,692 mn in 2013.


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Segment InformationA business segment is a component of the Group’s business that engages in economic activity that may yield a return or result in losses, including revenue and expenses from operations with other segments of the Group. Segment financial information includes revenues and EBITDA. Detailed information on business segments is presented in Note 4 to Acron’s IFRS financial statements.

Acron, Dorogobuzh and Hongri Acron (jointly “Chemical Production”)Commercial product output at the Group’s chemical production facilities in 2014 was down 0.4% to 6.094 mn tonnes. This output decrease was attributable to scheduled overhauls at Dorogobuzh, but partially offset by an increase in output at Acron (Veliky Novgorod). Output of nitrogen-based and complex fertilisers at the Acron facility was up 3% to reach a record high. UAN output was up 16% due to capacity expansion.

The Group’s Russian facilities are its most profitable assets, with the EBITDA margin at 25–33% in 2014, against 26–27% in 2013. This increase in EBITDA margin was attributable to higher product prices in roubles while expenditures were under control. The EBITDA margin at Hongri Acron increased to 7% in 2014, from 6% in 2013.

LogisticsIn the reporting year, turnover at the Group’s seaport terminals was down 2% to 2.9 mn tonnes. The Group’s own products turnover represented 86% of the total, against 69% in 2013. Logistics generated EBITDA margin at 30% in 2014, against 22% in 2013.

TradingThe Group’s consolidated sales were 6.300 mn tonnes, with in-house commercial product output of 6.267 mn tonnes (including apatite concentrate for sale).

Information on Reportable Segments for the Year Ended 31 December 2014 RUB mn

Segment SalesEliminable

Intersegment Sales External Sales EBITDA

Acron 39,404 -33,174 6,230 13,181

Dorogobuzh 16,103 -10,986 5,117 4,040

Hongri Acron 10,447 -12 10,435 774

Logistics 3,425 -2,790 635 1,030

Trading 53,116 -2,396 50,720 207

Mining NWPC 4,888 -3,936 952 1,143

Mining (excl. NWPC) - - - -56

Other 2,457 -1,915 542 -70

TOTAL 129,840 -55,209 74,631 20,249

Information on Reportable Segments for the Year Ended 31 December 2013 RUB mn

Segment SalesEliminable

Intersegment Sales External Sales EBITDA

Acron 33,421 -26,977 6,444 9,080

Dorogobuzh 17,497 -11,141 6,356 4,611

Hongri Acron 10,234 -75 10,159 622

Logistics 2,970 -2,250 720 656

Trading 45,102 -1,782 43,320 -156

Mining NWPC 4,115 -3,675 440 719

Mining (excl. NWPC) - - - -116

Other 2,830 -2,365 465 -30

TOTAL 116,169 -48,265 67,904 15,386

As a secondary segment of the Group, distribution generates the minimum profit required to secure its normal operations. The major objective of this segment is entry into promising sales markets. In recent years, the Group has achieved a strong footprint in rapidly growing markets in Asian and Latin American countries due to the efficient operation of its trading companies under the international brand Agronova. The Russian Agronova distribution network is one of the largest in the Russian mineral fertiliser market.

Mining at NWPCThis is the Group’s most intensively developing business segment. In 2014, EBITDA at NWPC was RUB 1,143 mn, against RUB 719 mn in 2013, with EBITDA margin at 23%. In July 2014, the mine reached capacity of 1 mn t of apatite concentrate. In the reporting period, the Group’s Russian production facilities received all their phosphate feedstock from NWPC. The surplus of 180,000 t of apatite concentrate was sold to third parties. The Group expects profits and profitability at the Oleniy Ruchey mine to go up over the next few years as output increases.


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