Fertile prospects

WBJ Observer talks with Paweł Jarczewski, CEO of Gupa Azoty, Europe's second biggest fertilizer producer, about the company's global reach and Polish industry Interview by Jacek Ciesnowski WBJ Observer: Grupa Azoty was present at the World Economic Forum in Davos for the first time this year. Why did you decide to attend it? Paweł Jarczewski: The Forum is attended by people who manage funds worth some $4 billion, 15 Nobel Prize winners and some 200 top political figures from all over the world and 1,700 of the biggest global companies. It’s the most important place in the world to discuss global business and politics. Grupa Azoty is Europe’s second biggest fertilizer producer and we’re very active when it comes to foreign markets, as well as international forums and discussions regarding our sector. We take part in such events to be a part of all the decisions and regulations which concern our sector. In Davos, we can meet top political figures from all over the world. Thanks to such meetings and discussions, we not only become a recognizable brand, but we hope that in the near future it will translate into business. We will be a first or second-choice company for various investments. We won’t be a no-name company but a well-known partner with a good offer. Before the Forum in Davos, you’ve said that you want to “popularize the Polish way of developing an agricultural business.” What did you mean by that? About 8 percent of the Polish GDP comes from agriculture, there are some 2 million people employed in the sector. Over the course of 25 years, Polish agriculture was successfully and effectively transitioned from smallholder and backwards farming to a modern sector. This is something that we should be proud of and continue to improve. Today, one of the hot topics is food security. A few years ago, in Northern Africa and parts of the Middle East, where food was scarce or very expensive, nations toppled their governments. The tensions stemming from this continue to this day. This is a crucial concern in parts of Asia and Africa. Bill Gates said recently that Africa should be self-sustainable when it comes to food by 2020, which is a very ambitious statement, although I doubt that this is possible in the current situation. Africa is a continent with the highest potential for demographic growth, huge industrial expansion and self-sufficiency when it comes to food. Today, many global organizations propose to introduce modern and sustainable agriculture there, based not on extensive but intensive activities, requiring the use of quality fertilizers, as opposed to high-quantities. [caption id="attachment_86195" align="alignleft" width="300"] Image: Grupa Azoty[/caption] Will you be increasing your presence in Africa? Grupa Azoty is a global corporation and we want to operate globally. We’ve already invested in Africa, having our own phosphate mine in Senegal and we’re interested in investing there more. We’re looking for new deposits and are planning on building a phosphate processing plant. We’re also thinking of producing fertilizers to be sold on the African market. If we want to become a major player in Africa, we have to be present there now. Besides investing in Africa, we also offer our products there. We have our own experience, as a country, on how to successfully transform agriculture and we can offer not only our advice, but play an active role in such transformations. All of the major fertilizer producers are very interested in Africa. Still, for the company, the biggest market right now is Europe. Yes, we’ve announced our long-term strategy for 2013-2020 a few months ago. It encompasses three major aspects – operational effectiveness, internal investments for which we’ve earmarked PLN 8 billion and mergers and acquisitions. Along with consultancy EY, we’ve looked at 2,000 potential acquisition targets. We’ve slimmed the list down to about 10 companies of which the majority is European. When can we see any M&A activity? Such transactions in our sector have to be done in a calm manner. We have experience in such processes, as you have to remember that Grupa Azoty is a holding of 57 companies. This experience will be helpful in the future. The EU is currently negotiating with the US regarding the Transatlantic Trade and Investment Partnership (TTIP). With North America in the midst of a shale gas revolution which is strongly affecting the chemical sector by decreasing the cost of both raw materials and energy, aren’t you afraid that after such an agreement is signed, US companies will flood Europe with their products? The US is now the biggest food producer in the world and we think that the supply will stay there. We’re not afraid that Europe will be flooded with American products. What’s more important is how we can transfer their knowledge and competences to Europe. It is also important that both sides of the agreement are treated equally. In order to prevent imports from damaging its domestic market, the US, just like Europe, has special measures in place like anti-dumping duties. With the TTIP in place such duties will be curbed. What about EU’s strict CO2 emissions targets, which are more demanding than in the rest of the world? We’ve been talking about this for years now. The EU is shooting itself in the foot implementing such strict targets and killing its own industry in the process. Other countries, including the US and China, are polluting way more than the Europeans and because of the regulations, Polish companies now have to spend millions of złotys that could be spent elsewhere on meeting these criteria. Like for example on innovation, which has always been the sector’s backbone. Yet, Poland places at the bottom in all rankings when it comes to innovativeness. In my opinion, there are a lot of misconceptions when it comes to measuring innovativeness. When it comes to the statistics, the most innovative city in Poland is Warsaw. But when you take a closer look, you can see that many of the so-called “innovative projects” are simple, administrative solutions. Introducing a new computer program in one of the banks or buying a product and implementing it in your company can hardly be considered an innovative process. So we should be even lower in those rankings? Obviously, we have a lot of catching up with the world when it comes to academia and scientific inventions, but when we have opportunities we know how to use them. Grupa Azoty itself has implemented many innovative solutions so far. You’ve discussed the company’s long-term strategy, but what about plans for 2015? We want to change Poles’ approach when it comes to growing food. We’re proposing something that others call biomodeling. It’s something that combines effectiveness and ecology. We want to introduce nutritional elements for plants in their early stages of development. It’s not really a product, it’s a technology. Public opinion in Poland seems to think that the country is backward because so many people here work in agriculture. That couldn’t be further from the truth. We use advanced technology, just like in other industries. The whole production chain from growing crops to storing the finished products are of the best quality. Today, people are changing their eating habits. They’re choosing quality over quantity. That’s why we need top quality crops, not necessarily the biggest yields. In the last year, the biggest news stories regarding Grupa Azoty concerned not the company’s products and activities but attempts made by Russian Acron to increase its stake in the company. We have limited contact with that shareholder. They own 20 percent of our shares and since they’ve split their shares into two entities (Norica Holding and Rainbee Holdings) they have not reached out to us. With the Annual General Meeting approaching, I expect they will send their representatives and voice their opinion as usual. With 20 percent of the shares they are able to introduce their representative to the company’s supervisory board. They can, but it’s a very complicated process and needs to be approved by the supervisory board first. Aren’t you worried that Acron will make further attempts to increase its stake? I know that there are legislative attempts to prevent hostile takeovers from happening in the future. The Ministry of the Treasury is working on a bill which should come into force in the first half of this year. It would apply to share purchases in companies seen as strategic in Poland, such as Grupa Azoty.