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Annual Report 2016
Main page Strategy Updated Strategy for 2013 - 2020

Updated Strategy for 2013 - 2020

As a result of the current consolidation efforts, the Management Board of Grupa Azoty has updated the “Grupa Azoty Group Strategy for 2013−2020”.

In view of the ongoing growth of the Group, the Grupa Azoty Group Strategy for 2013−2020 has been updated.

The updated Strategy outlines the Group’s key strategic objectives in the main product areas with respect to innovations, operations, sales and financial policy. The Strategy also presents the corporate management objectives and methodology applied across the Group.

MISSION
Create value for the Company and the national economy by delivering safe, useful and innovation-driven chemical products

VISION
Deploy state-of-the-art and comprehensive chemical industry solutions that meet stakeholder expectations

Grupa Azoty today

We are the leading producer of fertilizers and chemicals in Poland and Europe. Our Group comprises four key production companies, based in Tarnów, Puławy, Police and Kędzierzyn-Koźle, and around a dozen subsidiaries. We operate our own logistics infrastructure as well as research, design and maintenance facilities.

Strategic growth directions

Changes in economic conditions and in our immediate environment have necessitated a revision to our previous strategic objectives to better align them to current market landscape. In the years to 2020, Grupa Azoty will pursue growth in four areas representing major challenges for Poland’s top chemical producer.

Launched in 2013, the Grupa Azoty Group consolidation process still offers potential for further gains. In order to ensure more effective management of the Group, a system of management by business segments will be implemented. Until 2020, Grupa Azoty will continue to integrate its processes and consolidate its sales/marketing, procurement, logistics, finance, IT and other functions.

To preserve its strong position on the fertilizer markets at home and in the region, Grupa Azoty will seek to increase control of retail distribution channels and look for opportunities to grow and improve the efficiency of its production processes. In response to changing expectations of its key customers, Grupa Azoty will modify its product range to better meet the needs of modern farming, also by offering auxiliary services to farmers.

In order to diversify its revenue sources and become less dependent on business cycles in agriculture, Grupa Azoty will step up its efforts to expand non-fertilizer business lines, with petrochemicals and plastics as the key areas for growth.

With its own unique expertise in agro-products, Grupa Azoty will become an active participant in research, development and innovation projects in Poland, particularly those focused on developing and marketing advanced, profitable, speciality fine chemicals

Product strategy

Key development directions for our business lines:

Grupa Azoty’s growth strategy for Agro Fertilizes will focus on extending the value chain with speciality products for specific crops and customers, and on enhancing the efficiency of its production processes. Our efforts will mainly focus on tailoring our product portfolio to the needs of large-scale farms, while maintaining a strong position among small farmers. Grupa Azoty will also expand its range of precision farming services.
In order to secure a market outlet for its fertilizer products, Grupa Azoty will take steps to increase control of domestic and foreign distribution channels for agro-products. Fertilizer sales processes will be further consolidated in order to simplify and streamline relationships with key customers. We will seek to increasingly use channels allowing us to deal directly with end consumers and grow sales of products complementary to fertilizers. By consolidating its production assets, Grupa Azoty will act on market opportunities as they arise to reinforce its position on the European fertilizer market.

In Plastics, our strategy will focus on extending the value chain with speciality products, expanding into new business fields, and improving operational efficiency. Once brought on stream, a new polyamide unit in Tarnów will allow us to fully balance caprolactam supply with demand for Grupa Azoty’s polyamide production and to focus on polyamides and their derivatives that are further down the value chain and offer stronger market potential. The new plant will produce PA-6 in a full viscosity range, suitable for a broader spectrum
of applications. In line with its strategy, Grupa Azoty will avoid direct competition with its customers down the polyamide product chain. In addition, we will seek out opportunities to expand into advanced PA-6-based polymers, polymer additives, and engineering plastics.

Grupa Azoty’s strategy for the OXO business will focus on securing access to its own raw materials, extending the value chain with speciality products, and improving operational
efficiency. In order to meet its own propylene demand and create opportunities for growth in a new value chain, Grupa Azoty will invest in a project to build a propylene production unit (PDH) in Police, which will offer an option to expand into derivative products. To better align its offering to market expectations and regulatory requirements, non-phthalate, organic and speciality plasticizers will be added to the product portfolio. In addition, Grupa Azoty sees growth opportunities in extending its product chain and processing of aldehydes into speciality products.

Our strategy for Titanium White and Melamine is to improve efficiency of the existing units by implementing upgrades and removing bottlenecks, and to extend the value chain with polymer
additives. Key development directions for our support functions:

The revised Strategy highlights the need to analyse further centralisation of the Energy segment, the scale of which would depend on potential costs and rewards and on whether energy security can be ensured for each production plant.

The strategy for Logistics covers process consolidation across all production plants based on uniform IT systems enabling process control and centralisation of logistics data to ensure effective management and enhanced performance. In the long term, full process and IT integration will allow us to separate logistics into the Shared Services Centre. In the area of logistics assets management, the Strategy envisages development and implementation of a railway asset management model and increased use of marine assets in Police and Gdańsk. Grupa Azoty also plans to analyse the possibility of using the Odra Waterway and carry out related design work.

In the area of Asset Management, the overall objective is to maximise efficient use of assets through harmonisation of operational planning and production processes for the business lines at the Group level, and through standardisation of operational performance and cost efficiency reporting. In order to improve the safety of people, the environment and processes, drive down failure rates and improve availability, Grupa Azoty will seek to optimise the management of its fixed assets.

To achieve cost and process synergies and better align its IT support functions with key business processes, Grupa Azoty will continue to streamline its IT environment. To that end, it will develop a target IT model and an IT transformation plan to incorporate planned changes. Raw materials strategy Raw materials and energy account for over 60% of our total operating costs. Grupa Azoty is heavily dependent on third-party suppliers and its overriding goal in raw materials is to secure stable supplies at the lowest possible prices. Progress in the consolidation of procurement processes and addition of new categories to the mix of externally sourced products will be critical to delivering the raw materials strategy.

Grupa Azoty will leverage its competence in the management of natural gas supplies and will continue to use contracts based on pricing formulas linked to market prices. The Company will ensure continuity of gas supplies by signing long-term contracts with reliable suppliers, while monitoring market and regulatory developments and proactively optimising its supply sources by using alternative suppliers.

The Company will use its own raw material sources in a more efficient way and optimise the costs of key raw materials purchased from third-party suppliers. We will also capture opportunities offered by our geographic reach and the proximity of existing suppliers, and secure raw material supplies to meet the ever more stringent environmental regulations.

Grupa Azoty will move forward on its propylene unit project. Supplies of other raw materials will be based on long-term framework contracts diversified with spot transactions. The goal will be to cut costs and improve security of supplies by implementing logistics infrastructure projects.

Innovation strategy

Grupa Azoty keeps track of and follows current trends, including in the area of research, development and innovation (R&D&I). We do not want to be a mere beneficiary but an active participant of initiatives being implemented Poland. Our ultimate goal is to lead the way and break new ground in innovation. In order to maximise potential benefits, Grupa Azoty’s R&D&I will be operationalised to establish appropriate structures, procedures, principles and good practices, which will be coordinated at the Group level. This initiative will be supported through further development of the existing Research and Development Centres, and through establishment of new units and product specialities. Our Strategy will focus on driving innovation that helps to extend the value chain with high-margin, speciality fine chemical products, adapting new technologies to our own needs, and refining existing processes. Grupa Azoty will actively participate in open innovation initiatives, also by working with promising startups (commercial contracts and/or equity participation), implementing CSR projects, and engaging with local communities. In line with the Strategy, R&D&I spending will reach 1% of revenue by 2020.

Operational excellence strategy

Operational excellence, which complements the organic growth strategy, is about implementing mechanisms for continuous business efficiency improvement, which is achieved by streamlining business processes, cutting costs, and minimising the impacts or reducing the risk of a crisis. Given the fast-changing external environment of our businesses, we will continue looking for ways to improve our operational excellence. With the Azoty Pro initiatives at an advanced stage and with some of their optimisation measures having become outdated, Grupa Azoty is set to review its operational excellence programme in detail. Once we switch to segmental management, our efficiency improvement efforts will take the form of a continuous process implemented at individual segments and coordinated on the Group level, which will be established as part of the operationalisation of this Strategy.

Financial strategy

The revision of our strategic goals also necessitated a thorough review of the applied corporate performance indicators to ensure they provide a reliable measure of progress in the Strategy implementation. They provide an appropriate benchmark, reflecting current market conditions, against which progress in the implementation and delivery of our Strategy will be measured.

A strategic direction of Grupa Azoty in the field of finance will be to integrate the finance function so it can effectively support the management of the Group across all levels of the organisation. The integration efforts will include harmonisation of procedures and structures of the finance departments across the Group, which will receive central expert supervision, as well as IT system integration and deployment of a tool to operationalise the Strategy and monitor its progress.

The financing structure will be tailored to the Group’s needs and capabilities, enabling us to implement vital investment projects. The overriding goal underpinning our financing structure is to ensure long-term financial security and internal coherence between all funding sources. Given an extensive capital investment programme in place and the risk of an economic downturn, no lower end has been set for the dividend payout ratio range. Accordingly, if this is justified, the Management Board will not recommend a dividend payment.

Corporate management strategy

A new organisational model for the Group will be developed by 2020, which will help to maximise synergies through integration of selected support functions and implementation of a management system based on key business segments.

Grupa Azoty plans to implement a divisional management structure designed around its key business segments, supported by the Corporate Centre and the Shared Services Centre, to be gradually streamlined through divestments of non-core companies.

 

Based on analyses carried out to date, Grupa Azoty has identified companies in respect of which:
- a business analysis needs to be performed in terms of its consolidation within the Group
and keep-or-sell decision (23 companies),
- the liquidation process needs to be completed (4 companies).

Successful optimisation of the Group’s organisational structure will enable Grupa Azoty to continue the process of consolidating sales functions across the Group. One of the most important strategic goals set by Grupa Azoty is to achieve full consolidation of the fertilizer sales across the Group.

Centralisation of procurement of strategic raw materials has brought tangible benefits. Over the period covered by this Strategy, Grupa Azoty will continue to streamline and harmonise its
procurement structures, and refine its procurement procedures and standards as well as joint purchasing mechanisms. The range of product categories procured through joint tender procedures will be extended, with execution of the procedures supported by an IT platform and other tools.

Grupa Azoty will develop in a sustainable way, taking account of the need to:
- Improve operational safety of its chemical units and reduce its environmental footprint,
- Maintain dialogue with key stakeholders and support local communities,
- Create favourable working conditions by raising employee satisfaction, health and safety standards, and staff qualifications.

Litigation Shareholder
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