Areas of focus

What we focused on in 2010…

The Board of Directors

The Board of Directors works to a forward agenda that is updated twice a year; this helps us stay focused on what matters and maintain a regular schedule for review of key issues, while allowing for flexibility if we need to address important developments. Our schedule includes six joint-presence meetings; if issues requiring substantial additional discussion arise, meetings may be held either by conference call or, for procedural issues, by absentee vote. More detailed information about the Board’s responsibilities can be found in the Company Charter and the Board of Directors Regulation, both available on our website at http://www.eurochem.ru/about/corp-gov.

The Board also focused on the issue of the construction of EuroChem’s port terminal in Tuapse. From the outset, one of our priorities was to build a new terminal using the best industrial and environmental safety standards in the world. While this was successful, some members of the local community expressed concerns about the environmental impact of the facility, particularly following operational testing carried out in March 2010. At the Board level, we took the public reaction to the Tuapse port very seriously. We conducted a review of internal and external communications policies, updating them to help avoid situations like this in the future. We also installed a new crisis response plan aimed at ensuring that EuroChem reacts in a timely and correct manner if and when a crisis situation arises.

Strategic planning and investments	Updating segment and functional strategies with an outlook to 2015 in line with the established strategy review cycle Monitoring execution of the 2010 budget and approval of the 2011 budget; developing budget reporting and planning systems Overseeing progress and enhancing controls for investment projects Monitoring communication with strategic partners and analyzing opportunities presented by management Expanding the company's raw material base to secure long-term cost advantages
Financial reporting control, internal control, and risk management	Quality assurance for accounting and reports; tightening reporting deadlines Introducing an integrated management information system Developing internal control procedures based on a unified data system that will include all Group companies Developing the risk management function, including review of the strategic and financial risks map and management reports on specific risks, insurance of risks, and hedging of financial risks Reviewing the priorities and function of Internal Audit
Employee incentives and development	Reviewing the HR policy and budget Evaluation of management target achievements in 2010, setting new targets for 2011 Introducing changes to the incentives and bonus program for project-based work Overseeing work with the succession pool of candidates for key positions
Corporate governance and information disclosure	Developing corporate governance practices and analyzing the Board’s performance Overseeing compliance of the corporate social responsibility report with global standards; reviewing verification procedures

…and what we plan for 2011

The forward agenda we use has helped to create a normal cycle for reviewing recurring issues such as budgets, financial reporting and strategy. The Directors and management understand the timing, expectations and goals of these activities. Such reviews also include bi-annual detailed updates on core functional areas, on capital investment projects and on segment strategies. Some of the other areas that we plan to dedicate our attention to include:

Enhancing monitoring of major investment projects	We want to strengthen our monitoring systems to implement better oversight of change management in order to control risks related to changes in project budgets or timelines
Strengthening internal controls through broader use of IT solutions	Our unified information system seeks to strengthen controls at various levels, enabling us to conduct ongoing risk analysis, assess projects as they develop, view cost-efficiency indicators against other project implementation parameters, monitor environmental compliance, comply with labor safety and security standards, and promptly identify areas requiring improvement
Increasing value and insights from accounting system	Our accounting system already allows us to consolidate and report on our results quickly and accurately, and helped us become one of the first Russian companies to release audited IFRS financial results in 2011. In the future, we expect these systems to contribute to the process of making investment decisions on specific operations and to reviewing performance by moving to economic value accounting

Detailed oversight takes place in the Board’s committees. While the Board retains ultimate responsibility, this delegation helps ensure oversight is thorough. The committees analyze information from management, flag issues to be referred to the Board, and ensure sufficient preparation has been done before matters are sent to the Board.

2010 areas of focus:

The Audit Committee

The Committee’s primary function is to oversee the quality of financial reports, as well as the integrity and reliability of the information disclosed by the company. During 2010 the focus of the committee around external reporting was on reducing the time EuroChem takes to report its IFRS financials.

In 2010, the Committee held six joint-presence meetings and four meetings by conference call. Most committee meetings are attended by the external auditors, the CFO, the Head of Internal Audit, and the Corporate Secretary.

The Committee holds discussions with the external auditors, PricewaterhouseCoopers, twice a year without the presence of management. The committee chairman has regular one-to-one meetings with the Head of Internal Audit. Between meetings, the Committee is in regular contact with the CFO, the Head of Internal Audit, the Risk Management desk and the Corporate Secretary.

External audit	Appraisal of auditor performance, discussion of audit fee and independence Review of audit risks and control procedures
Financial reporting	Review of interim and annual consolidated reports Discussion of monthly management reports to our understanding of financial performance at all times during the year Monitoring of adherence to debt covenants
Risk management and internal control systems	Consideration of: Changes to control systems for large investment projects Deployment of the Oracle-based unified information system Company policies and procedures with regards to EU anti trust regulation insider dealing and appointment of an insider trading control officer
Internal audit	Appraisal of internal audit performance, review of the function’s role and audit plans Review of internal audit reports and management response
Information disclosure	Guidance on the preparation of the Annual Report Discussion of assurance over CSR report disclosures Review of external communications and crisis communications policies
Control mapping – financial reporting controls	Development of controls for preparation of financial reports and assurance over the financial reporting accuracy

The Strategy Committee

The Strategy Committee has two members, both of whom are non-executive Directors. It held four meetings during the year with the CEO, CFO and Head of Strategic Planning in attendance. The Committee makes recommendations to the Board on our overall strategy, strategies for individual business lines, capital expenditure, acquisitions, joint ventures and licenses. In addition to formal meetings, the Committee members regularly meet informally with management in order to stay updated on developing strategic opportunities.

Strategic planning and implementation	Review of strategy implementation, new strategic initiatives and discussions with potential strategic partners Analysis of investment program budgets, effectiveness of budgeting process and planning
Financing of strategic projects	Monitoring of financing plans for company’s investment projects and compliance with debt covenants
Operational efficiency and HSE	Modernization of production units, including to ensure compliance with environmental requirements and labor safety standards
Access to raw materials	Review plans to enhance access to raw materials, including taking part in license auctions

The Corporate Governance and Personnel Committee

The Corporate Governance and Personnel Committee has three members, all of whom are independent Directors. During 2010, the Committee held six joint-presence meetings and focused in particular on the HR policy and staffing for our new investments as they develop. The Committee has played an important role in the development of our corporate governance systems over a number of years, and continuously reviews ways to improve them.

Remuneration and incentives	Reviewed performance indicators and development of an incentive system for executive management; assess the achievements of top managers over the reporting period and set targets for the coming year
Appointments and staffing	Oversaw appointments to several key management positions in 2010 and expanded the list of positions that require Board approval for appointment and remuneration decision Reviewed staffing for key investment projects, especially for mining projects where hiring and retaining qualified specialists are key elements to success Worked on developing the management succession pool and managing HR risks, including professional development plans for succession pool candidates
HR policy	Reviewed systems to retain key employees and protect the core of our workforce through social, professional development and financial means Developed the EuroChem ‘staff reserve’ – promising talent that the company hopes will grow into senior management roles over time
Corporate governance	Analyzed the performance of the Board of Directors and the steps that can be taken to improve the corporate governance system as a whole. The Committee also devoted its attention to procedural issues and the quality of information reported to the Board of Directors (including information about material incidents at manufacturing companies)