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g RU PA A zOT y s T R AT Egy 2013 - 2020

Powering Creation


Nigdy w przeszłości ani w teraźniejszości nie było postawione w Polsce zadanie tak trudne, tak skomplikowane, tak nowe, tak wielkie do zrealizowania w tak krótkim okresie czasu.

At no other time in Poland’s past or present had a task so daunting, so complicated, so new and so extensive been set to accomplish in such a short period of time.

Eugeniusz Kwiatkowski | 1930

skutec z na s trateg ia na pr z ys z łoś ć The strategy for the future


I N T ROD U C T I ON

Dear Reader It is with great satisfaction that I present to you the updated Grupa Azoty strategy for 2013-2020. The document which was first presented last year outlines a real vision of the Group’s growth and value building in the nearest future. Time, however, does not stand still. Since the document was first published in June 2012, Grupa Azoty has undergone significant changes. Implementation of the consolidation strategy has already shown its first effects. As a result of the acquisition process of Pulawy’s Azoty shares running since July 2012, Grupa Azoty S.A. currently holds a 95.89% stake in the company. This fact is not without impact on the Group’s condition and competitive position. Even more – it’s a new chapter in its history. A chapter which requires very special framing. Recent months, on the other hand, witnessed Grupa Azoty S.A.’s entry into WIG30, the Warsaw Stock Exchange’s main index and its inclusion in the international MSCI (Morgan Stanley Capital International Index). A breakthrough event changing the face of Polish chemistry was the introduction of a new brand – Grupa Azoty. The decision was taken within the context of the dynamically changing landscape of the European and global chemical industry. Therefore, taking the Group’s ongoing development process into account, an updated Grupa Azoty Strategy for 2013-2020 has been created within the framework of a special consolidation team, one with which we hereby present you. Paweł Jarczewski

President of the Management Board of Grupa Azoty S.A.


The key element of the game is the strike itself. The ball is situated centimetres away from the player’s feet. Setting it in motion does not require strong force. It’s safe to say that the player’s task is not so much using his muscles to hit the ball as hard as possible, but rather skilfully directing the club to let it perform independently.

The power of global business is built upon focused development. This is why precision of strategic aims and professionally applied potential ensure that the chosen objective is met naturally. Accurate assumptions and the right decisions define the tactics and technique in golfing, as well as in business operations.

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TAB L E OF CON T EN T S

MISSION AND VISION |

5

DEVELOPMENT DIRECTIONS | PRODUCT STRATEGY |

7

9

INNOVATION STRATEGY |

11

OPERATIONS STRATEGY |

13

COMMERCIAL STRATEGY |

15

FINANCIAL STRATEGY & DIVIDEND POLICY | CORPORATE GOVERNANCE STRATEGY |

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18

17


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M I SSI ON of Grupa A zot y

We add life to the land, and colour to life. Thanks to the experience gained and competencies developed we make chemistry safe and useful to people. We constantly strive to increase the value of Grupa Azoty, making effective use of all synergies and innovations.

VI SI ON of Grupa A zot y

By the end of the decade, we will: listed on the main index of the ▪▪be Warsaw Stock Exchange, that the companies’ ▪▪ensure Shareholders obtain one of the highest returns on invested capital in the industry, our standing position ▪▪maintain as one of Europe’s three largest fertilizer manufacturers.

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D E VELO PM EN T D I R EC T I ONs

In our strive to increase value, grupa azoty will concentrate its activities on taking advantage of the opportunities found in its environment and developing the competencies which are key to the group’s competitive position, especially:

Between 2013–2020, the core activity of grupa azoty will be production and trade in the following sectors: products sector, ▪ agricultural especially mineral fertilizers, materials sector, ▪ state-of-the-art especially construction plastics,

the scale of the group’s ▪ increasing operations through internal

chemicals sector, ▪ organic especially caprolactam, oXo

growth, as well as alliances, mergers and acquisitions in Poland and abroad,

alcohols, plasticizers and specialist chemicals, chemicals sector, ▪ inorganic especially ammonia

integration ▪ deepening between group entities

and titan white.

in order to maximize synergies, the group’s ▪ reducing vulnerability to energy costs

The group will continue to follow the rules of sustainable development, limiting its impact on the natural environment within an economically rational framework while simultaneously taking into account the needs of local communities.

through the application of efficient technological and energy solutions, vulnerability ▪ decreasing to fluctuating economic cycles, as well as natural gas and petrochemical raw materials prices through extending product chains, production costs ▪ lowering through the modernization of main production lines, stable and effective ▪ forging customer relations, increasing awareness of the group’s leading brands and optimizing logistics and product distribution systems, the effectiveness of ▪ increasing key processes while securing and effectively managing intellectual capital, adaptation of product ▪ ongoing quality and range to customer requirements, diversification through the ▪ related application of synergies including elements of the current product portfolio, the organization’s ▪ developing intellectual capital, creating the conditions necessary for transforming it into market value.

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PROD U C T S T R AT EGY THE MAIN STRATEGIC AIMS IN CORE PRODUCT AREAS

MINERAL FERTILIZERS

ENERGY

CHEMICALS

The mineral fertilizers sector will be the largest area of activity during the strategic period, with key importance to the Group’s operations.

Between 2013-2020, the existing coal power plants will continue to provide the majority of thermoelectric energy for the production complexes in Tarnów and Police.

During the strategy’s lifetime, caprolactam, OXO alcohols, plasticizers, ammonia, concentrated nitric acid, titan white and urea for non-fertilizer purposes will continue to form the key elements of the Group’s chemicals product portfolio.

The Group continues expanding its fertilizer range to include liquid and specialist fertilizers, as well as other products and services for agriculture. Increasing production capacity of mechanically-granulated nitrogen fertilizers is planned and, moreover, modernization of ammonia lines will be conducted with the aim of decreasing the processes’ energy consumption. In the event of favourable market conditions, the Group will conduct projects leading to mergers, acquisitions and strategic alliances.

PLASTICS During the strategy’s lifetime, polyamides, polyoxymethylene and modified plastics will continue to form the key elements of the Group’s construction plastics product portfolio.

The operating thermoelectric plants will be systematically modernized, with the scale and scope of the modernization adapted to changing legislation, especially with regard to environmental impacts. Following 2015, the main source of thermoelectric power in KędzierzynKoźle will be provided by a new power plant Work leading to the realization of a project for the construction of a thermoelectric plant in Puławy will be conducted with a strategic partner in order to secure the long-term energy supply needs of Grupa Azoty Puławy. Securing thermoelectric energy requirements in the longer term will depend primarily on adopted legal and market regulations.

Increasing the existing production capacity of construction plastics and further product diversification in this sector is planned for the period 2013-2020.

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A greater degree of diversification of the chemicals product portfolio is also planned, especially with regard to specialist chemicals. Activities leading to balancing caprolactam and polyamide 6 production capacity will also be conducted. Plans for plasticizers include expansion of the product range to cover a new generation of plasticizers. Modernization projects will be implemented on existing production units, directed primarily at improving energy efficiency and consequently lowering production costs of the chemicals on offer.


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I N NOVAT I ON S T R AT EGY

The implementation of the adopted product-market strategy will be supported through intensified activities in the sphere of R&D.

With the allocation of up to 1% of its revenue to research and development aims, the Group would like to offer the market its innovative products, which will gain a growing share of the Group’s sales. The Group will be an active participant of consortia created with other partners in order to implement innovative solutions and ensure they gain market acceptance.

The key aim of research and development work will focus on building competitive advantage based on know-how, which will result in increased innovativeness of the product portfolio, processes and technology.

The Group’s main areas of research activity will include:

Grupa Azoty will further its activities in the R&D and innovation sphere based on partnership with universities, academic institution and clients. A research and development center will function within the Group, based on current centers:

▪▪technologically-advanced materials, added value specialist ▪▪high chemicals, products, including ▪▪innovative bioproducts,

Chemical Center for ▪▪The Technology and Development

▪▪specialist mineral fertilizers, to increase energy ▪▪processes -efficiency of existing technologies,

in Tarnów, PUŁAWY Competencies ▪▪The Center in Puławy.

utilizing synergies ▪▪technologies linked with the Group’s by products.

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O PER AT I ONs s T R AT Egy

grupa azoty operations sphere will concentrate on the optimal use of production capacity and the potential of synergies’ effects between particular entities. strategic aims in this area include: of production ▪ maximisation processes’ effectiveness while ensuring top standards related to use of capital,

▪ optimal use of assets, maximum safety of ▪ ensuring employees and installations. an operational ▪ implementing excellence program within the group. In order to achieve the aims listed above, the group will adopt criteria for sustainable development, striving to fulfil the requirements of the best technologies available, as well as environmental protection requirements.

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sKU T EC z NA s T R AT Eg I A NA PR z ys z łOś ć The sTraTegy for The fuTure

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COM M ERCI AL S T R AT EGY

Making chemistry safe to people and striving to increase the Group’s worth, we care for lasting and successful relations with our clients. We aim to become our clients’ first choice of supplier, which is why our products are of the highest quality. We also conduct ongoing improvement of service, seeking out effective and innovative solutions.

SALES MINERAL FERTILIZERS The key aim of Grupa Azoty in the area of mineral fertilizer sales will be to build our position as fertilizer market leader based on an innovative customer service system through: direct and indirect sales reach with our complementary product range for farmers,

▪▪

and profitable sales using ▪▪flexible synergies found within the Group, the value chain of ▪▪elongating fertilizer products on offer,

▪▪

expanding the value chain by adding assets from complementary businesses,

▪▪

implementation of agricultural consulting sales support,

of a single sales ▪▪creation headquarters, centralizing commerce and marketing, presence in selected ▪▪ongoing global markets, identifying markets with ▪▪asymmetric demand cycles and developing a product offer for them.

PLASTICS The goal of Grupa Azoty with regard to plastics will be maintaining our position as a leading plastics supplier through: extending the value chain,

▪▪ of applications and ▪▪diversification regions of target market segments, dedicated products ▪▪adding to the range direct collaboration ▪▪developing with plastics processors, and improving ▪▪expanding technical service, of technical ▪▪development consulting, the product range ▪▪adapting to current and future market trends,

▪▪

creation of a single sales headquarters, centralizing product commerce and marketing.

CHEMICALS Grupa Azoty aim in the sphere of chemicals will be maintaining its leading position on the plasticizers and OXO alcohols Central and Eastern European market, as well as the growth of sales of other chemicals found in the Group’s chemical products portfolio. This goal will be achieved by: introducing a new generation of plasticizers into the product range,

RAW MATERIALS Grupa Azoty will strive to ensure strategic materials’ supply security, which will enable sustained continuity of production processes, as well as maximum use of production capacity. These aims will be achieved through the diversification of supply sources. In our search for new and alternative sources of raw materials, the Group may consider capital links with materials suppliers. The Group will also work towards minimising raw materials costs through the integration of purchasing structures.

MARKETING We aim to achieve successful market competitiveness and increased value by building a central office providing innovative market knowledge management and new product brand development. To achieve these aims, the Group will implement effective know-how management for decision-making purposes, assessment of trade security, raising product brand awareness and indicate prospective markets for product offer development.

▪▪

▪▪expanding product chains, the customer service ▪▪improving system through the application of innovative logistics solutions, into new, promising ▪▪expansion market segments and locations, of marketing efforts ▪▪concentration on processors as end-customers. The Group will be a supplier of chemical products furthering its clients’ competitiveness on global markets as well as improving their finished products.

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logistics Grupa Azoty delivers its products to two groups of clients, both requiring different customer service: clients of agricultural products and clients of chemical products. The Group will continue to perfect its customer service and delivery chain management, optimize conditions of cooperation with transport, as well as make optimal use of its storage and transhipment infrastructure.


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FI NAN CI AL S T R AT EGY

The main objective of Grupa Azoty for the strategic period is the generation of increasing economic value added (EVA) and distribution of profits to stakeholders, especially Shareholders, through the implementation of an optimal profit redistribution strategy (dividend policy) at a level of approximately 40% of net income.

The long-term Group financing program has been adapted to Group development aims and assumptions, taking into account appropriate investment expenditure levels. The above factors comprise the main axis of financing strategy, simultaneously guaranteeing liquidity as well as solvency of all of the Group’s companies, as measured by a group of indicators which additionally fulfil creditor requirements. The Group’s financing strategy will be implemented in line with the following conditions for ensuring the minimum levels of Grupa Azoty’s and its leading companies’ indicators:

In order to effectively achieve the economic value added (EVA) growth strategy, the Group has adopted detailed financial goals expressed by increasing main operating and financial indicators, descriptive of the effects of implementing a value-based enterprise management model (VBM):

financial debt ratio in relation ▪▪net to EBITDA, calculated as net financial debt/ EBITDA (per annum) -below 2.5, debt/own capital ▪▪net not exceeding 0.8.

▪▪ROE > 12%, ▪▪ROCE > 14%, ▪▪EBIT/EBITDA margin > 8%/ 14%.

D I VI D EN D POL I C Y Decisions regarding dividend payout will take into account factors affecting the Company and Grupa Azoty, including perspectives for future operations, future profits, monetary requirements, financial situation, expansion plans and relevant legal requirements.

The main premise of Grupa Azoty’s dividend payout policy is payment according to the level of profit attained and the Company’s financial capabilities. Management, when submitting proposals for dividend payout, will consider the need to ensure an appropriate level of financial indicators, financial standing and capital necessary for the Group’s further growth. Management will make future recommendations that the AGM pass resolutions concerning dividend payout at a level between 40% and 60% of the Company’s unconsolidated net profit for the given fiscal year.

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COR POR AT E GOVER NAN CE S T R AT EGY

Grupa Azoty will apply the highest standards of capital market communication and corporate governance principles in all its operations, in accordance with the guidelines laid out in the “Code of Best Practice for WSE Listed Companies”. CORPORATE GOVERNANCE In keeping with Group policy regarding market communication and providing information about the principles of management and oversight while ensuring their transparency, the Group plans to continue its participation in programs which safeguard the equal rights of shareholders, in particular minority shareholders. The main objectives of taking part in the above programs will include establishing and promoting the highest standards of communication between companies listed on the Warsaw Stock Exchange regulated market and investors, as well as developing the best practical solutions for investor relations, encompassing contacts between such companies and individual investors. The Group will endeavour to maintain its place among companies managed in a responsible and sustainable manner, which actively pursue a strategy of corporate social responsibility.

MANAGEMENT MODEL The key premise of the adopted management model is increased Group value through operating “as one company”. In order to ensure consistent value growth for shareholders and other stakeholders, Grupa Azoty will develop its value management model, facilitating the implementation of Group strategy by management. The Group’s management model entails the centralization of areas which provide the highest synergy effects and managing main economic processes at Group level, while maintaining recognition of Grupa Azoty’s business companies. Group management authority will be allocated to corporate departments, reporting to Grupa Azoty Management. To ensure effectiveness of the model, management systems based on international ISO 9001:2008; ISO 14001:2004; PN-N 18001:2004, BS OHSAS 18001:2007; and HACCP standards will be applied, along with IT activities resulting in: of business ▪▪transparency processes, management of all ▪▪integrated elements of the value chain, reliability, comparability and ▪▪data integrity, analysis, reliability and ▪▪speedy ease of report generation, availability of ▪▪dedicated management information, automation of data ▪▪progressive processing and distribution, degree of IT infrastructure ▪▪high reliability, stability, speed and flexibility, information security ▪▪coherent system, building trust in the organization and its effective functioning on the market.

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HUMAN RESOURCES MANAGEMENT The main objective of the Grupa Azoty Human Resources Management Strategy is treating employees as the company’s most important capital. The key goals of the Group’s personnel policy are:

▪▪hiring the best employees, an organizational culture ▪▪building which will aim to constantly raise productivity and employees’ creativity, use of employees’ ▪▪maximum knowledge, competencies and skills.


RESPONSIBILITY

IMAGE AND BRAND

Grupa Azoty implements a strategy of sustainable development and social responsibility based on a model solution adopted by the Parent Entity, the “Azoty Tarnów Sustainable Development Strategy”. This strategy is a reflection of an integrated approach to actions taken with regard to economic efficiency, responsibility towards employees and the environment, and environmental relations.

The main objective of the Grupa Azoty Human Resources Management Strategy is treating employees as the company’s most important capital.

The strategy will be based on three pillars: production (minimised ▪▪sustainable environmental impact by Group

The key goals of the Group’s personnel policy are:

▪▪hiring the best employees, an organizational culture ▪▪building which will aim to constantly raise productivity and employees’ creativity, use of employees’ ▪▪maximum knowledge, competencies and skills.

companies, development of cooperation with academic institutions, fostering ecological awareness, manufacturing of sustainable products, continuing engagement in the Responsible Care program – a voluntary commitment by chemical sector companies to conduct operations in compliance with bioethics standards, improve work conditions, increase safety of installations functioning and maintain ongoing contact with surroundings), workplace (increased ▪▪the employee satisfaction, improved occupational health and safety, launching employee development initiatives), and relation building ▪▪dialogue (supporting the development of local communities, adopting a formula for dialogue with each of the key stakeholder groups, building effective communication regarding sustainable development, developing an ethical Group culture).

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Grupa Azoty ul. Eugeniusza Kwiatkowskiego 8, 33-101 Tarnów, Poland

www.grupaazoty.com grupa Azoty strategy 2013–2020

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Grupa Azoty Strategy 2013-2020