Yara International ASA continues to deliver strong financial performance and execution of growth projects. As the company today meets with its major investors and analysts for Yara’s Capital Markets Day, CEO Thorleif Enger presents strong market fundamentals with profitable growth opportunities for the company.
“The global fertilizer market is tight with strong demand and limited new capacity, and fertilizer prices have strengthened to balance the market. Fundamentals are in place for a continued tight market. Even with the last year strong increase in grain prices and resulting increased plantings and fertilizer application, global grain inventories continue to drop. New production capacity is limited by escalating construction costs and increased gas cost in so-called “stranded gas” areas now being re-priced by LNG development. Yara should benefit from these development as our existing production in Europe and overseas will improve its competitiveness following cost increases for new capacity”, says President and CEO Thorleif Enger.
In 2007, Yara has continued to deliver strong results, with return on capital well above its 10 percent CROGI target. Fertilizer margins have increased substantially in a strong demand-driven market fuelled by higher grain prices. Fertilizer sales volumes are up 9%, with much of the growth in Brazil as a result of underlying market growth and our Fertibras acquisition. All Yara plants delivered a good production performance supporting the sales growth. The Industrial segment has continued to grow in all product areas, driven mainly by environmental legislation and strong demand from the mining industry.
Yara presents new scenarios for future earnings at the Capital Markets Day. The scenarios are not a prediction of future results, but are “what if” scenarios based on forward prices for energy and selected fertilizer price scenarios. The energy prices used are forward market prices as of 6 November 2007. Earnings from Kemira GrowHow are included in the scenarios with synergies realized. Yara targets total synergies from the Kemira GrowHow acquisition of EUR 85-110 million, excluding savings in the UK joint venture.
A scenario with current fertilizer prices and next year’s forward energy prices yields an estimated Earnings Per Share (EPS) of NOK 19. Assuming a supply-driven fertilizer market with a European swing scenario at the same energy price level translates into an estimated EPS of NOK 9. The latter swing scenario is relevant if the market turns oversupplied and Europe becomes the highest cost producer. The global fertilizer market is today strongly demand driven with lack of capacity.
Yara’s growth ambition remains firm to achieve a 10 percent market share, up from approximately 7 percent today, through organic and step growth. During the last year we have initiated several important growth initiatives. The largest step is the Kemira GrowHow acquisition, but we have also initiated expansions in Libya, Qatar, and the Netherlands, as well as expanding our environmental business in the Industrial segment through a joint venture with Wilhelmsen on abatement of NOx emissions from ships. The development of new investment opportunities for increased production with competitive gas, expansion of positions in high-growth markets and merger and acquisition opportunities in mature markets continue with full efforts. At the same time we will focus on execution of initiatives already launched, to secure successful completion and maximum benefits harvested, as we are now doing with the Kemira GrowHow synergies”, says Thorleif Enger.