With a view to building the most beautiful and effective company, the head of PhosAgro, Andrey Guryev, has no doubt in Russia’s bright future as a great agricultural power that will feed the whole world with environmentally friendly products. For his part, he is preparing to provide each fruit of the land with the food it needs.
This article was originally published at the «Grand Book. Industry.» Almanac.
The overarching objectives that I aspire to as the head of PhosAgro, could be drafted in the following way: I want to build up the most beautiful and effective company in Russia – in terms of profitability, asset quality, management, and the degree of trust in it from minority shareholders. One of the key elements of this work is our board of directors, whose structure and composition reflect the quality and principles of the entire company, who we are and what the basis of our business is.
Six out of ten directors on the board of PhosAgro have independent status. Though, it is a rare proportion for the Russian market, it is of fundamental, qualitative importance to our company. Firstly, it brings investor confidence and suggests that the company is principally managed in an independent way. Secondly, it is managed professionally at the best international standards.
Besides, they are highly competent and respectable people. I will name only three widely known public figures: Jim Rogers, a legendary investor and businessman; Irina Bokova, former Director General of UNESCO; and Xavier Rolet, who was the CEO of the London Stock Exchange, and since 2019 is the Chairman of the board of directors of PhosAgro.
I should emphasize that the mere participation of these people in our board of directors serves as the best advertisement: all of them are recognizable, have great personal and professional experience and enjoy incredible respect abroad. This is of extreme importance for any public international company aimed at capitalization growth, such as PhosAgro. They deeply understand our business, and work both as the ambassadors of our company and Russia all over the world. Each of them had their own reasons to accept the offer. And each of them brought something of their own to the company.
Our acquaintance with Jim Roger Shappened by chance in 2014. As a shareholder, I was looking for a good independent director, as in our strategy we initially focused on improving corporate governance and needed strong people. I could notice Jim’s interest at the stage of preliminary discussions. His strategic vision of the world as an investor closely links Russia with China, so he was looking for options of working in the Russian market. He found our proposal interesting, since agriculture with its powerful long-term uptrends, like the rapid growth of the planet’s population, a paradigm shift in nutrition, with rice becoming a side dish and not a main course, which creates a multiplier effect along the entire food production chain, was a very understandable business for him.
27% is the labor productivity growth at PhosAgro enterprises over the past five years. This indicator turns the company into the leader of the Russian market
Jim agreed to take the chair of an independent director after he found out more about our company, us personally, and our goals and values, including the focus on increasing profits, capitalization, and sales. And soon, at my request, he gave his first advice: to never listen to what he advises. Though, later he admitted it unsuccessful since it contained a ban on listening to his advice.
No doubt, Jim’s contribution from the very beginning was not limited to advice. He offered his experience and many ideas. In particular, as the head of the HR and Remuneration Committee, he put much effort into improving the company’s motivation system. It was interesting to him. He wanted to see how people live and work – from ordinary employees to top managers, who have helped PhosAgro demonstrate phenomenal results in all respects – output, profit, labor productivity – for several consecutive years.
We met Irina Bokova, at that time Director General of UNESCO, about five years ago. PhosAgro set a precedent as the first company in the world to start a partnership project with this UN agency entitled the Green Chemistry for Life. It is a grant program aimed at students and scientists under 25 who are working on creating less technogenic, environmentally safer processes and technologies in the field of chemical production. Besides, thanks to Bokova we started thinking systematically about the issues of sustainable development, which is one of the 17 UN development goals until 2030. Thus, we started to change our company in this direction.
Without exaggeration, this brought new quality to our business. In the modern world with such risks as hunger, lack of clean water or pollution of agricultural soils, it is suicide for a global company not to follow the the principles and criteria of sustainable development. Irina Bokova made us realize it. No matter what strategy you draw, if you do not ask these questions, you ignore the biggest risk factors that can lead to dramatic changes on this planet, in every country.
Bokova has greatly helped us pay more attention not only to shareholders, but to stakeholders, to everyone involved. This means being inclusive in terms of your growth and harmonization of your business. You understand that your production has a certain effect on the environment, on people, on your staff, and on the cities of presence. And that doing this business means changing the environment for the better. The returns that your employees need to see should not be limited to the salary in their pockets, but involve the company’s participation in the public and social life. The Russian public companies that ignore such things today are in a bind. We are not. As an independent member of the board of directors, since 2018, Irina Bokova has been helping us resolve these issues.
In 2019 Xavier Rolet, with whom we got acquainted in 2011 during the preparation of PhosAgro for the London IPO, became the new Chairman of our Board of Directors. It is an honor that such a respected person, who ruled one of the largest stock exchanges in the world for many years, accepted our proposal. Specifically, if we take into account the fact it happened at the height of anti-Russian hysteria in the West, caused by the notorious Skripal case and so on. What motivated him to make this image decision? Definitely not money. I believe that Xavier was able to appreciate PhosAgro. Like Roger Shappened and Bokova, he saw our assets, our fully modernized production, billions of dollars of investments into development and growth. In short, he saw a modern, high-quality, well-managed supercompany from Russia, one of the best in terms of cost, production and sustainability in the world.
There is another reason that makes such people as Xavier, Jim, and Irina Bokova important for the board. Do not forget that PhosAgro is a multinational. Global markets account for about 70% of our sales. Global risks are the expertise we must understand. It is a tragedy not to. And our board members are world-class experts in these issues. They are the ambassadors of Russia and our company abroad. We need to be trusted. And this is the only way to create trust in the investment market. There are very few companies concerned about that in Russia. But we think about it all the time. If at some point Russia is re-evaluated by the international investment community, it will happen quickly. And we, PhosAgro, will be ahead.
I am an heir to my father in every sense of the word. He and the businessmen of his generation were workaholics immersed in the process. Very responsible, demanding and critical people. Probably twice more critical of their close ones. I guess, this is why I never led a so-called bohemian lifestyle. Since I was fourteen, my father kept saying: if you want money, go and work.
In addition to my first job at my father’s company, where I worked in his secretariat, which means, I helped answer phone calls, delivered mail and worked on other small assignments, there were numerous joint trips to enterprises across the country. These gave me the first notions of the company, which I would head much later. And, no doubt, my father – one of the most professional and honored judokas of the USSR – was my most important example in sports. Sport is an essential element in any boy’s education, and I was no exception.
Right after school I went to England to study economics at the University of London, Greenwich. It was a modest life without any excesses — I lived in an ordinary dorm, and I had just enough cash to live and eat normally. There were very few Russians there – only two. We had an international and quite ragtag party. Communication, life and studies abroad altogether expanded my horizons greatly.
Besides, education immediately builds up an understanding of your future career: from the first year at university about two dozen companies conduct an employment exchange twice a year. Thus, you can look for a perspective. In my situation, though, it had never been a question to make a career abroad or return to Russia – of course, I was planning to go back.
It was not only the case that ‘by default’ I had to return to my father’s company. Actually, in the early 2000s Russia offered enormous opportunities – its economy was booming. You could become a CFO in five years, which would normally take two decades in the West. Being a Russian with your understanding of Russia and with a Western education, meant you were coming back with two pistols.
When I returned to Moscow in 2003, I started working in the financial department of PhosAgro as an ordinary economist, and over the next ten years I moved up all the steps of the career ladder in the company. Thus, by the time I was elected CEO, I knew the entire business thoroughly. My attitude to this process is deeply professional and I believe that any person who graduates from a university is obliged to go through all the initial stages, and learn how to build communication with different people, departments, branches and so on. Of course, my father monitored my progress, gave some advice, but never intervened.
In 2003 PhosAgro was very different from what it is today. It used to be much smaller in size, and we had only started to build it up as a modern holding. We bought up assets, structured the company and my professionalism grew simultaneously. Trading became the next important stage and the whole system was radically restructured later.
Fertilizer trading is a global issue. For successful trading, you need to see the flows from all manufacturers everywhere in the world. You need to observe how unbalanced the business is along the supply and demand curves in individual countries and in the world as a whole. At the same time, you must not forget another specific factor of our industry – ‘God’s will,’ that is, the weather. Moreover, the weather on different continents.
All these involves a huge number of unpredictable factors that strongly affect both PhosAgro’s business and the global agricultural business as a whole. It influences whether people are starving or not, the cost of freight, delivery, and so on. These factors need to be taken into account. It is hard to teach this; you have to live in it. My colleagues say I was doing pretty well.
By 8% which means PhosAgro’s fertilizer and feed phosphate production increased to 9 million tons in 2018. Apatite concentrate output increased by 5.5% and reached 10.7 million tons. According to the new strategy fertilizer production should increase up to 11.5 million tons by 2025
When building up a new sales system at PhosAgro, we did another important thing: we refused to rely on the services of all intermediaries or brokers and created the necessary expertise within our own company instead. Besides, we learned to work in the debt market – today PhosAgro can borrow at 3.5% in rubles, cheaper than most market participants. Similarly, we learned to mitigate managerial risks, and today at PhosAgro wee see professional international management.
In 2011 we made another important step by undertaking an IPO. Making a public offering in London was important for several reasons. Firstly, it was for the shareholders who invested in the company at earlier stages. Secondly, we really wanted to become a public company. This gives many advantages in the eyes of third-party investors and ultimately leads to an increase in capitalization. You get a market assessment of your business, the ability to buy and sell any asset at any time. Thus, your company turns into your currency.
Another important factor in the placement of PhosAgro that we should not underestimate is linked to the work we did to introduce the company to potential investors. Not only we had to explain what PhosAgro was, but also what phosphorus is – before us, the only manufacturers explicitly present on the market produced nitrogen and potash fertilizers. We explained who we are and what our business segment is. In fact, we taught the whole world.
It would be an exaggeration to say that since it was founded the PhosAgro group has been an asset that effectively generates a stable cash flow. In the early years, we were a set of rather scattered, morally and technically outdated poorly coordinated enterprises. To turn the company into the present-day world-class corporation, a lot of long and painstaking work and hundreds of billions of investments were required. Dividend returns came much later – around the time I became the CEO.
The past six years have also brought many changes. We worked in several key areas simultaneously. Thus, we focused on improving manageability and straightened out many connections. I think that today PhosAgro is one of the most effective companies in terms of management: we make a decision and it is put into practice. At the same time, we reduced staff, got rid of unnecessary people and increased efficiency and productivity.
We entered some new markets and started new businesses. For example, we started making microadditives, such as bisolbifit, which is microspores of microorganisms that improve the digestibility of fertilizers and reduce the dose required for application by about 20%. This gives our business additional benefits: the volume of fertilizer products that are released as the result can be exported.
Having reconstructed the trading system at earlier stages, over the past six years we have completely changed the very concept of sales. Previously, we traded ‘from the market’, that is, we sold what the consumers demanded. Today we are building the infrastructure to help educate the farmers and sell the products that they really need.
This is a huge paradigm shift from the PhosAgro business perspective. Previously, the phosphorus market was a commodity market, which means we traded standard raw materials – carbamide, nitrate, etc. Now it is a comprehensive market where we already sell almost four dozen brands of fertilizers, and this number will only grow in the future. Basically, this means that for each fruit of the land we can or will produce and sell to the farmer a customized product with all the necessary individual properties. To accomplish this we – literally – had to go to the farmers, to every farm. And this introduces another qualitative change – we have personalized our relationships with customers.
Finally, major investments were made into the modernization of the production process. Therefore, today PhosAgro does not have a single non-reconstructed enterprise or asset. We also invested in logistics and infrastructure – in ports, hubs, and terminals. Now we can flexibly work with different markets, and quickly respond to prompt and unpredictable changes in the situation. Provided, PhosAgro products are sold in more than 100 countries on all continents it is very important. At the same time Russia remains our main market: every third ton of fertilizers purchased by Russian farms is produced by our enterprises.
Russian agriculture is booming: over the past 10-15 years due to the efforts of the state, and recently, devaluations and counter-sanctions, a tremendous breakthrough was made. The industry is still supported by the state, but now it also enjoys the arrival of private money. The potential of Russian agriculture is enormous. We have everything – the land, clean water, fertilizers and transport infrastructure. Russia is a country that can become an agricultural superpower and feed the whole world. I believe, the agriculture is our new oil.
We have already made a breakthrough in grain production. Meat is next. We are the net beneficiary of the trade war between the West and China. The Chinese have stopped importing pork and chicken from abroad and are already opening these markets to Russian producers. In the next few years we will make our way to China, to Asia in general, which will bring the new golden age of Russian agriculture, this time export oriented.
PhosAgro is a direct participant in all these processes. Over the past five years the company has been growing faster than the market, and the production increased by an average of 10% per year. We are hoping to maintain these rates, but at the same time we will start introducing other products. In the future, a specific type of fertilizer will be developed for each region, each type of plant and each type of soil. Therefore, instead of today’s 39 brands, we will make 100 or more. We will make fertilizers with bioadditives, insecticides for each specific field, crop here and now. This is a move towards smart agriculture, which will also require complete digitalization of the country’s land fund. It is an important and very expensive task which requires mutual participation of the state, PhosAgro and a number of other Russian companies.
“I am a graduate of the famous Sambo-70 school. And Judo has given me a lot. But it is important to be able to quit the sport right on time, especially if we are talking about professional sport. There are few people who become world champions or win the Olympics, and it can ruin a potential business career. Therefore, one must leave on time, before they are broken, and go learn English, as I did”
It is not only a path to a radical increase in the efficiency of agricultural production, but also to its maximum purity – nothing extra goes onto the fields. Moreover, the environmental cleanliness will become more and more relevant in the future. And Russia’s position here is also extremely strong. Today we have the most environmentally friendly agriculture in the world — in the two post-Soviet decades, due to a failure in agricultural production, the land was unexposed to any chemicals. Besides, we have the cleanest fertilizers in the world – without heavy metals. This means that the food produced in Russia is the most environmentally friendly on our planet.
This is absolutely true, even though it is not well-known in the world yet. And we are actively working on it. I am probably one of the most important ambassadors of the idea. This spring not without our participation, the EU decided to limit and later prohibit the circulation of phosphorus fertilizers with a high cadmium content. I will not say that we are engaged in lobbying, however, it is a fact: Europe introduced these directives in the context of anti-Russian sanctions, clearly understanding that Russia is becoming the main beneficiary. Why would they do that? The answer is simple: because they understand that we are talking about people. The health of current and future generations, and sustainable development is the issue here. Such cards cannot be beaten.
At the beginning of 2019 President Putin ordered to develop the Green Mark national brand of organic agricultural products in Russia. Basically, we are talking about an increased environmental standard that will allow to trace the entire agricultural production chain ‘from ore to the food’.
As part of a common project with the Ministry of Agriculture PhosAgro is participating in the implementation of this initiative. We want to show that it is possible to obtain environmentally friendly products without increasing the cost of production, even if we use certain chemical fertilizers and insectofungicides, pesticides – permitted and understandable not only in Russia, but all over the world. In general, our goal in the long term is to make the Green Mark a universally recognized world standard. We, as a country, should not be associated only with ‘Kalashnikov’ or oil, but with ecology – green earth, blue sky, clear blue water. We, PhosAgro, want and will play one of the key roles in this process.
No matter what, Christian values are the foundation of the Russian society. A good or a bad one, but it is the one we have. They provide the fundamental principles of public morality and communication between people. And they are a part of my personal value system, too. What the Bible says, and the Ten Commandments.
Together with this comes the principle seen in business, which has become my life credo: I never say or promise what I cannot do. This is how I learnt to say no. Although it is incredibly difficult to pronounce this word, I often do it – both in business and in life.
39 brands of fertilizers are produced by PhosAgro enterprises today against three titles five years ago
I never yell at people. I think this is useless. This what makes people stop hearing you and listening to you. You want to fire someone, do it. But shouting is no instrument. Financial motivation and personal incentives work much better. Sometimes shaking hands is important enough. Sometimes, this personal contact can be even more valuable and pleasant than a bonus.
I am a strong supporter of direct human communication. It is a big problem in all companies in the world that today everyone is staring at the computer screens. Even people who have neighboring work desks prefer to communicate through social networks. This deprives us of normal communication. Going for a coffee and a five-minute talk can be a thousand times more effective than writing posts and emails. Some time ago I gave up reading letters that are longer than one standard sheet: if you can’t summarize your idea, go and reformulate.
The establishment of direct communication is very important. Especially for the head of a large company. It is impossible to get to know the country or find out how the employees of your regional branch work and live by watching TV. Therefore, I still travel and fly a lot.
I have quite a wide circle of direct communication in the company. And it is not limited to the top management. I try to take advantage of holidays to communicate directly with the team. I know this is very important for people. These meetings are also an additional motivational tool. Actually, investing in our work community is a very important part of management. A while ago social investments used to be seen as costs, but now they are considered to be the most important asset. We build swimming pools, and gyms. And this is a real investment in the living environment of people.
“I would like to think that I am able to progress together with the company. I have to come up with something new every time and apply non-standard solutions. My colleagues like to recall the following example. To reduce the cost of delivering fertilizers to Latin America, on my initiative, we made a deal with the suppliers of fruit from this region. We agreed to load fertilizers into their empty containers, which normally were empty when they returned to their home ports. We paid some symbolic amounts, enormously reducing their freight costs. Thus, it was both profitable for them and for us, since we reduced costs and won a number of tenders from our direct competitors. Nowadays, you have to do something like this more and more often”
In addition, we build schools, and organize PhosAgro classes, and we also provide grants to young scientists. We, as a company, are preparing our future, because Russia as a country is not. Basic education is not enough to start work at such a complex production as PhosAgro. As the head of the company, I want young people who come to our enterprises to receive skills that are tailored specifically for our needs. Therefore, the PhosAgro colleges in Cherepovets have the same equipment as our local enterprise, and girls and boys, who study there, understand the way it operates at the real production.
We have been doing this for 10 years. In 2019 we employed the first generation of graduates who went through the entire chain of our education – these kids studied in specialized classes at a school, college, and went on to the St. Petersburg Mining Institute, which is basic for us. All of them are very talented guys. At each stage, we select the best. In the PhosAgro class at PhosAgro school we offer the best chemistry, physics, special subjects and the competition is very high. Applying for this education is incredibly difficult. The same concerns studying at the Mining Institute and any other university in the country – we specifically monitor each of our students. They study and return to us. That is, we get the best graduates – those who went through our training system. To a certain extend most companies are engaged in similar activities, but we are definitely among the best. For example, our chemistry program is among the leading educational programs of the Sirius camp.
In fact, having traveled the whole country far and wide, I can say for sure that in Russia there is a huge number of incredibly talented people. However, to help them succeed it is necessary to change the environment. If you want, this is the eternal topic of the social responsibility of business: it’s not enough just to pay taxes in the regions of the company’s presence, you have to invest in development, in improving the social environment. I have to repeat, these are no costs, but investments that will pay off. We know this.
Record productivity growth is a direct result of PhosAgro’s major investments in new technologies, robotics and digitalization.
PhosAgro is the first company in the industry to launch a digital trading platform designed for the modern level of agricultural production. It will be a tool for farmers, like Alibaba, containing internal expertise for the precise selection of necessary items – fertilizers, agents and chemicals in accordance with a specific region, soil composition and quality, and climatic conditions. In the future, the platform will help obtain financial services, including attracting credit resources.
PhosAgro launched the industry’s first tracking system for the mineral fertilizer supply chain from the factory conveyor to the consumer field based on RFID and NFC technologies.
For the past years at the enterprises of the Kirov branch of AO Apatit there has been a running-in and widespread introduction of robotic production systems and digital technologies that have no analogues in the industry.
In particular, a remote underground drilling control system was introduced here, allowing one operator to control six drilling rigs at once. The transition to remote drilling allows to increase drilling productivity by 20% by reducing inter-shift downtime, and also significantly increases the safety of mining operations.
A conveyor system for delivering overburden to dumps has been launched at the Vostochny mine of the plant: three conveyors with a total length of about five kilometers will replace a whole fleet of dump trucks, which will reduce the cost of transporting overburden by 15%.
In the final stage, prior to the launch at the Vostochny mine of the plant, there is a project for the introduction of unmanned dump trucks and excavators, which involves loading equipment without human intervention, and its subsequent movement along the planned route from the quarry to the unloading site. There are no analogues of this system in Russia.
The UN Food and Agriculture Organization (FAO) Code of Fertilizers, adopted at the beginning of 2019, calls on governments of all countries to limit the sale and use of phosphorus fertilizers with a high content of heavy metals. Including cadmium, mercury and lead. In May of the same year, the European Union decided to ban the circulation of phosphorus fertilizers with a high (above 60 mg / kg) heavy metal content after 2022. Further tightening of restrictions is envisaged in the future and a special green labeling is introduced for fertilizers with a cadmium content below 20 mg / kg. Given that the PhosAgro product’s heavy metal content is several times lower than the stated limit, and the cadmium content of approximately 2/3 of the world’s phosphate reserves exceeds the threshold of 20 mg / kg, the Russian company is becoming the main beneficiary of these initiatives.
