PhosAgro, Moscow, plans to further expand its fertilizer and feed phosphates production capacity, targeting around a 25 percent increase in capacity by 2025 to 11.7 million mt, the group said in a statement on its Capital Markets Day in London on Sept. 25, as it outlined its new development strategy to 2025.
The building of a new plant in Russia’s Leningrad region with a capacity of 630,000 mt/y, as well as the modernization of production facilities in the Saratov region, will form an important component of these expansion plans, the group said.
It is also targeting to increase its fertilizer sales to European markets to 3.1 million mt/y by 2025, up from 1.9 million mt in 2018. This target will be helped through the competitive advantages afforded the company by the new E.U. regulations limiting the cadmium content in phosphate-based fertilizers.
The new E.U. regulations set a maximum limit of 60 mg/kg P2O5 for cadmium in fertilizers from the date of application of the regulation (i.e., three years after its entry into force), as part of an effort to limit the presence of the hazardous substance in soil and its potential uptake by crops (GM May 24, p. 1; March 29, p. 25; Dec. 14 & Nov. 21, 2018). A review clause requires the European Commission to review the limit values, with a view to assessing the feasibility of reducing them, four years after the date of application of the new rules (i.e., seven years after entry into force).
Starting this year, in accordance with E.U. legislation, PhosAgro said its fertilizers will be sold with green labeling.
It also aims to increase fertilizer sales to its priority domestic market, Russia, to 3.7 million mt (including third-party products) from an expected 2.5 million tons this year.
“The strategy to 2025 aims to further expand PhosAgro’s presence in its priority domestic market, as well as in premium export markets that offer the best netback prices,” said PhosAgro CEO Andrey Guryev.
Compared to 2018 levels, the group plans to grow its fertilizer sales volumes by 50 percent in Russia and by 60 percent in Europe by 2025. It said the share of direct export sales will be maintained at a level of at least 90 percent with the help of the group’s 10 existing foreign trading offices located in its key sales regions.
“We hope that foreign regulators will remove trade restrictions – such as import duties and customs ratios – for the cleanest fertilizers from Russia,” said the CEO. “Farmers will benefit from this in terms of both price and the absence of a risk of soil contamination, and the group could potentially earn up to an additional $100 million, depending on market conditions.”
Guryev highlighted that the authorities in Argentina and Brazil recently abolished import duties on “environmentally-friendly” phosphate fertilizers from Russia.
The group also plans to expand its range of fertilizer grades from 39 in 2018 to 50 by 2025, including new high-performance grades with bio-additives.
It also aims to expand the capacity of its own railway and port infrastructure, as well as increasing and upgrading its fleet of railcars, to reduce transportation costs.
Altogether, PhosAgro will invest around $3 billion in growth and modernization by 2025. Once completed, the investments are expected to provide an EBITDA uplift of $450 million, increase cash flow, and further increase the group’s self-sufficiency in feedstocks, it said.
It plans to maintain its net debt/EBITDA ratio at 1.0x-1.5x, it said.
PhosAgro’s board has also approved a new dividend policy linked to free cash flow instead of net profit, with the amount varying depending on the company’s debt levels. Under this new dividend policy, it said payouts may exceed 75 percent of free cash flow.