PhosAgro’s key achievements during Andrey Guryev’s five years as CEO include:
- RUB 150 billion invested into development and modernisation, which represents over 50% of EBITDA during the period, one of the highest levels in Russian industry.
- Despite a sharp decline in fertilizer prices, all projects under the Strategy to 2020 were implemented on time and within budget.
- The Company spent at least RUB 2.5 billion per year on social and charitable programmes.
- Fertilizer output increased by more than 40% to a record 8.3 million tonnes, while phosphate rock production hit the highest level achieved in 25 years.
- Investments in workplace safety resulted in a decrease in LTIFR to 0.10 in 2017 compared with 0.20 in 2013
- Labour productivity in the production of apatite concentrate increased by 140%.
- The number of fertilizer grades produced increased from 19 to 39, including grades that contain secondary nutrients such as sulphur (NPS/NPKS).
- Sales to the priority Russian market nearly doubled, strengthening the Company’s position as the largest supplier in the country.
Volkhov, 22 August 2018. The Board of Directors of PhosAgro (Moscow Exchange, LSE: PHOR), one of the largest global producers of phosphate-based fertilizers, has heard a report from Andrey Guryev about the results of his work as CEO over a period of five years and outlining his plans for the medium term. Members of the Board of Directors particularly noted significant progress made across all key areas of PhosAgro’s operations. The Board of Directors conducted a site visit at the Company’s Volkov-based production site the day after the official meeting took place in Cherepovets at JSC Apatit.
Expansion of production, sales and geography
Over the last five years, fertilizer production volumes increased by 40%, reaching a record amount of 8.3 million tonnes in 2017. The number of grades of high-quality fertilizers that are naturally low in potentially-harmful heavy metals produced by PhosAgro has increased from 19 in 2013 to 39 now. Production of phosphate rock (apatite concentrate) increased by more than 20%, exceeding 9.5 million tonnes, the highest volume achieved in the last 25 years. The Company plans to increase its production of fertilizers and phosphate rock by another 8% and 6% by the end of 2018, to more than 9 million and 10 million tonnes, respectively.
The Company has continued to develop its sales network both in its priority market of Russia and abroad. In 2017, around RUB 600 million was invested in developing infrastructure for the Russian sales network, PhosAgro-Region, and more than RUB 2 billion has been invested over the past five years.
PhosAgro’s sales in the Russian market have doubled in five years, reaching 2.34 million tonnes in 2017. PhosAgro’s share of the Russian market is around 30%, making the Company the leading supplier of mineral fertilizers in the country. Thanks in large part to state policy and support for Russian farmers from the members of the Russian Fertilizer Industry Association, which Andrey Guryev has headed since 2016, domestic agricultural producers were able to significantly increase the volume of fertilizers purchased and to achieve a record grain harvest in 2017.
Over the past five years, the PhosAgro has also opened nine foreign trading companies in all of the key regions where its products are sold: Europe, Latin America and Asia. The share of direct export sales increased to more than 90% by the end of 2017.
Investing in sustainable and profitable growth
Over the past five years, the Company has invested approximately RUB 150 billion, or 50-60% of EBITDA, into the construction of new capacities in Russia that use best available technologies. This is one of the highest levels of investment among Russian industrial companies.
The Company successfully completed its investment cycle with the commissioning of the main projects in its Strategy to 2020: the construction of a high-tech ammonia production line with a capacity of 760,000 tonnes per year and a new granulated urea production line with a capacity of 500,000 tonnes per year. Investments in these facilities amounted to RUB 65 billion.
In 2017, capital investments amounted to RUB 32.8 billion, and the forecast for this year remains at the level of RUB 30 billion. In the next two years (2018-2019), PhosAgro plans to earmark no less than RUB 60 billion for investments, which will enable the Company to open up three new production facilities by 2020: sulphuric and nitric acid lines, as well as a new ammonium sulphate plant at the Company’s Cherepovets site. In Kirovsk, there are plans to further develop the ore and raw materials base and to enlarge enrichment capacities, while in Volkhov options for expanding the production site are also being analysed.
Successful capital markets activities
This year, PhosAgro completed the placement of a USD 500 million Eurobond with a 5.25 year (five years, three months) term and an annual coupon rate of 3.949%. At peak demand (with a volume of USD 2.5 billion), oversubscription reached five times. Incredibly favourable investment conditions for the Company made it possible for PhosAgro to reduce the average rate of its debt portfolio and to significantly improve its structure.
PhosAgro has investment-grade credit ratings from all three agencies: Standard & Poor’s (rating/outlook: BBB-/negative), Moody’s (rating/outlook: Baa/stable) and Fitch (rating/outlook: BBB-/stable), and the Company’s GDRs were added to the MSCI Russia index in 2016.
Despite volatile mineral fertilizer prices, the Company has consistently fulfilled its promises to investors and paid dividends in accordance with its dividend policy.
Social responsibility as a strategic priority
In addition to its economic activities in the regions where it operates, PhosAgro also builds housing as part of a corporate programme and plays a role in implementing a number of major social programmes in the areas of education, healthcare, youth policy and supporting sport. Annual expenditures on charitable and social projects amount to more than RUB 2.5 billion. The PhosAgro is one of the largest taxpayers in the regions where it operates, paying some RUB 14.5 billion in taxes in 2017. The Company is the biggest taxpayer in the Murmansk and Vologda regions.
Over the course of five years, the Company has invested around RUB 18 billion into environmental programmes. PhosAgro’s programme for increasing energy efficiency deserves special attention. The technologies used at the Company’s production sites meet the standards of best available technologies.
PhosAgro Board of Directors Chairman Sven Ombudstvedt said: “Over the past five years with Andrey Guryev as CEO, PhosAgro has implemented a series of consistent steps that have allowed the Company to consolidate its leading positions in both the Russian and global markets. Under his leadership, the Company has been able to fully implement all the plans envisaged by the Strategy to 2020, the key elements of which are the new high-tech ammonia and urea plants. I can say that these new facilities are truly an impressive example of how advanced technologies have enabled PhosAgro to consolidate its industry-leading position, expand production and improve efficiency, ensure safe working conditions and minimise the Company’s impact on the environment. PhosAgro has been developing in line with its strategy, paying attention to all spheres of activity—from production and sales to corporate governance, investor relations, environmental activities and the social sphere. The Company is forging ahead, and we already have a clear vision of growth priorities through 2025.”
Xavier Rolet, a member of PhosAgro’s Board of Directors and the Chairman of its Risk Management Committee, said: “PhosAgro has been a model in terms of its adherence to the principles of transparency and information disclosure, as well as when it comes to improving its standards of corporate governance, since going public. After an increase in the Company’s free float to more than 25% as a result of its SPO in 2017, the Board of Directors was expanded from eight to ten members, and the majority of Board members are currently independent directors. This decision was the initiative of Andrey Guryev, the Company’s young new leader, who is focused on bringing together Russian and international best practices. I am extremely pleased with this decision, as well as with my new position as one of the members of the Company’s Board of Directors.”
According to Board member Irina Bokova: “PhosAgro takes a very responsible approach to issues of environmental protection and is constantly investing in improving efficiency and reducing the impact of its activities on the environment. As of today, all of PhosAgro’s production assets meet the latest environmental standards. During Andrey Guryev’s five years at the helm, the Company has allocated about RUB 18 billion for the implementation of environmental programmes. PhosAgro has also launched with UNESCO the Green Chemistry for Life programme. In addition, the Company is now developing a format for interaction and joint activities with the Food and Agriculture Organization of the United Nations.”
James Rogers, a member of PhosAgro’s Board of Directors and the Chairman of its Remuneration and Human Resources Committee, said: “I have been following the work of the PhosAgro for a long time, and I've never once regretted my decision in 2014 to join the Company’s Board of Directors or to become a shareholder. While PhosAgro has been investing in its own development and in social projects, it has not forgotten about its shareholders. I’ve actually seen everything from the very beginning, like how Andrey Guryev, leading a team of professionals, systematically built up the Company’s fundamental value over these five years. And, in my opinion, Andrey is doing an excellent job. The Company has increased production output by 50%, doubled the number of fertilizer grades available and become one of the most efficient companies in the global fertilizer industry. The Company’s fundamental value has increased, and a strong basis for dynamic growth in the future has been created. Moreover, the team that has been assembled is excellent—everyone is motivated to achieve results and set new records. And I appreciate Andrey’s openness and accessibility to the Board – I know I am always able to reach him to discuss any question.”
PhosAgro CEO Andrey Guryev, speaking to members of the Board of Directors at PhosAgro’s Volkhov-based enterprise, JSC Metakhim, had this to say: “Our efforts are aimed at improving production and business processes, workplace safety and protecting the environment. In my opinion, our close-knit team of professionals, working consistently and in unison all these years, has achieved impressive results: over the past five years, specific emissions have decreased; labour productivity—an area in which PhosAgro is a leader among industrial companies—has doubled at all the Company’s enterprises; and workplace injuries have been cut in half, with LTIFR decreasing to 0.1, which corresponds to best industry practice.
“I want to tell you that we are going to continue moving forward. We plan to beat our records and establish new ones. The Company is going to develop production lines, establish new programmes in the sphere of environmental protection, develop methodologies to create an even more comfortable working environment for staff and fulfil our obligations to our investors while remaining a socially responsible business.
“Over the past five years, the Company has invested up to 50-60% of EBITDA on developing its Russian assets as part of its long-term strategy. As a result, the Company has demonstrated a nearly double-digit growth rate in terms of production, thanks to which PhosAgro occupies a leading position on the global industry cost curve and has also created a solid basis to further strengthen its financial stability, increase cash flow and ensure sustainable growth in shareholder value.
“In the medium term, PhosAgro intends to balance the volume of new investments to ensure stable high growth rates and to offer existing and new shareholders profitability on par with the top international and Russian peers.”
The Board of Directors also considered a number of other issues. Inter alia, the Board called an Extraordinary General Meeting of Shareholders (“EGM”) for 1 October 2018 and recommended that the EGM approve the payment of dividends in the amount of RUB 5.83 billion, or RUB 45 per ordinary share (RUB 15 per Global Depositary Receipt) from retained net profit as of 31 December 2017. This recommendation was made following a discussion by the Board of Directors of the Company’s financial results in the first half of 2018 in comparison with the approved budget, including the interim consolidated financial statements in accordance with IFRS, which are expected to be disclosed on 23 August 2018. The record date for shareholders eligible to participate in the EGM was set as 6 September 2018, and the Board has recommended that the EGM approve 12 October 2018 as the record date for shareholders eligible to receive dividends.
At today’s meeting the Board also heard a report on implementation of the Company’s international projects for the period August 2017 to July 2018, as well as information about work with investors during the same period.
In addition, the Board heard information from the Committee chairs about the work of the Board Committees during 2Q 2018, reviewed information about risk management during the period and approved the report on the work of the corporate secretary.
Finally, the Board acknowledged that all of the Independent Directors meet the criteria for independence defined in the Regulation on the Board of Directors of PJSC PhosAgro, the Corporate Governance Code recommended by the Central Bank of the Russian Federation, and Moscow Exchange Listing Rules.