4th Dec 2012, by Agrimoney
Yara International signalled an appetite for fertilizer deals, particularly in higher-value products such as NPK, as it flagged the role of China, for now, in determining prices of commodity nitrogen nutrient markets.
Juergen Ole Haslestad, the Yara chief executive, said that the nitrogen giant's balance sheet "has never been stronger", reflecting "a deliberate effect to build financial flexibility for growth execution".
The Norwegian group's net debts, as a proportion of equity, had fallen to levels below 0.1, from a figure of 0.75 early in 2009.
Yara will exploit its low borrowing levels "to realise well-timed profitable growth", potentially including acquisitions, besides raising its dividends, which Torgeir Kvidal, the Yara finance director, acknowledged had fallen behind a policy of 40-45% payouts.
'More deal activity'
While making strides in commodity products towards increasing group sales of 32.5m tonnes in 2016, up from 24.5m tones in 2010, Yara had lagged in boosting volumes of value-added fertilizers, such as NPK, which had proved a key support to group profits, Mr Haslestad said.
Indeed, a 6.2% rise in volumes of nitrate and NPK products outside Europe in 2011-12 had "compensated" for a 6.1% drop in sales within the continent, Yara's core market,
Realising the group's 2016 ambitions was likely to mean "more merger and acquisition activity" with the value-added sector, an area in which Yara had "high potential" for reaping deal benefits, such as cost cuts, from takeovers.
Mr Haslestad cited South America and eastern Europe and the Black Sea as regions where "medium-sized" takeover deals "likely have the highest probability of success in the current environment", with partnerships favoured in Africa and development of existing sites in western Europe.
Yara's deal activity over the last couple of years includes expanding its stake in the Australian Burrup nitrogen plant, and entering a co-operation agreement with Moroccan phosphate giant OCP, while failing in the auction for US-based Terra Industries.
Urea vs NPK
Yara, which has developed a more soluble type of NPK being trialled in Brazil, flagged the advantages of the compound fertilizer - a mixture of nitrogen, phosphate and potash – in avoiding energy competition, in which the US is gaining an advantage through tapping into shale gas.
It was "important" to distinguish between urea, a basic nitrogen fertilizer, and "other products because urea requires vertical integration on ammonia, while nitrate and NPK plants do not require ammonia production to take place on site," Mr Kvidal told investors.
"This means that a urea plant is fully exposed to local energy costs, while nitrate and NPK plants are exposed to the upgrading margins from ammonia, and not necessarily to local energy costs."
Furthermore, premiums for nitrate and NPK fertilizers "are less volatile than those for urea", a function of the added value of these markets, besides their relative scarcity, given the highest upfront costs of building capacity.
Earnings forecast
The comments, which follow a day after UK potash miner Sirius flagged the potential for NPK, came as Yara flagged the importance of China's performance on urea exports in setting world prices, and determining the group's own importance.
Yara forecast its earnings per share in 2013 would come in between NOK20-57, depending on the margins allowed by Chinese exports.
The group a year forecast 2012 earnings of NOK28-55 per share, with analysts currently believing Yara is on track for a NOK37.89-a-share result.
Yara shares stood 0.5% lower at NOK277.00 in lunchtime deals in Oslo.
Yara International signalled an appetite for fertilizer deals, particularly in higher-value products such as NPK, as it flagged the role of China, for now, in determining prices of commodity nitrogen nutrient markets.
Juergen Ole Haslestad, the Yara chief executive, said that the nitrogen giant's balance sheet "has never been stronger", reflecting "a deliberate effect to build financial flexibility for growth execution".
The Norwegian group's net debts, as a proportion of equity, had fallen to levels below 0.1, from a figure of 0.75 early in 2009.
Yara will exploit its low borrowing levels "to realise well-timed profitable growth", potentially including acquisitions, besides raising its dividends, which Torgeir Kvidal, the Yara finance director, acknowledged had fallen behind a policy of 40-45% payouts.
'More deal activity'
While making strides in commodity products towards increasing group sales of 32.5m tonnes in 2016, up from 24.5m tones in 2010, Yara had lagged in boosting volumes of value-added fertilizers, such as NPK, which had proved a key support to group profits, Mr Haslestad said.
Indeed, a 6.2% rise in volumes of nitrate and NPK products outside Europe in 2011-12 had "compensated" for a 6.1% drop in sales within the continent, Yara's core market,
Realising the group's 2016 ambitions was likely to mean "more merger and acquisition activity" with the value-added sector, an area in which Yara had "high potential" for reaping deal benefits, such as cost cuts, from takeovers.
Mr Haslestad cited South America and eastern Europe and the Black Sea as regions where "medium-sized" takeover deals "likely have the highest probability of success in the current environment", with partnerships favoured in Africa and development of existing sites in western Europe.
Yara's deal activity over the last couple of years includes expanding its stake in the Australian Burrup nitrogen plant, and entering a co-operation agreement with Moroccan phosphate giant OCP, while failing in the auction for US-based Terra Industries.
Urea vs NPK
Yara, which has developed a more soluble type of NPK being trialled in Brazil, flagged the advantages of the compound fertilizer - a mixture of nitrogen, phosphate and potash – in avoiding energy competition, in which the US is gaining an advantage through tapping into shale gas.
It was "important" to distinguish between urea, a basic nitrogen fertilizer, and "other products because urea requires vertical integration on ammonia, while nitrate and NPK plants do not require ammonia production to take place on site," Mr Kvidal told investors.
"This means that a urea plant is fully exposed to local energy costs, while nitrate and NPK plants are exposed to the upgrading margins from ammonia, and not necessarily to local energy costs."
Furthermore, premiums for nitrate and NPK fertilizers "are less volatile than those for urea", a function of the added value of these markets, besides their relative scarcity, given the highest upfront costs of building capacity.
Earnings forecast
The comments, which follow a day after UK potash miner Sirius flagged the potential for NPK, came as Yara flagged the importance of China's performance on urea exports in setting world prices, and determining the group's own importance.
Yara forecast its earnings per share in 2013 would come in between NOK20-57, depending on the margins allowed by Chinese exports.
The group a year forecast 2012 earnings of NOK28-55 per share, with analysts currently believing Yara is on track for a NOK37.89-a-share result.
Yara shares stood 0.5% lower at NOK277.00 in lunchtime deals in Oslo.
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