Investor Relations

2010 - Financial message: Record results in an expanding market

In 2010, Yara achieved its best results ever, with a net income of NOK 8.7 billion after non-controlling interests. Yara’s production facilities ran at optimal capacity, as commodity prices rose sharply, particularly during the second half.
CEO message
Jørgen Ole Haslestad, President and CEO

The company performed well in a demand-driven market, recording higher margins for most products. Yara’s debt/equity ratio improved from already healthy levels in 2009, reaching an all-time low at the end of year. The company is now in a stronger position to execute its growth strategy, building on its results in 2010.

Yara’s growth ambitions are underpinned by its consistently strong earnings.  The company has outperformed its target of producing a minimum of 10 percent cash return on gross investment, recording a return of 17.4 percent in 2010. Another strength is Yara’s disciplined approach to investment, which was demonstrated in 2010 by our withdrawal when a counterbid eroded the attractiveness of the Terra deal.

Furthermore, Yara’s global presence means that the company is positioned to gain synergy effects from acquisitions and other step growth initiatives. This has been demonstrated in Yara’s history of profitable acquisitions, a track record that is unrivalled in the fertilizer industry.

In several markets, Yara continued to reposition itself, reflecting a stronger emphasis on own-produced product. This was reflected in Thailand, where Yara began direct distribution of its own products in 2009 and pushed on in 2010, building on the strength of its brands. In Brazil, Yara divested its non-integrated minority position in Fosfertil in 2010, instead entering into a new business model that highlights the company’s premium offerings and global strengths.

2010 represented another year with fertilizer consumption developing at a healthy rate. In order to serve this market, increased tonnage was needed from traditional swing producers that historically have set the floor for the urea price. We estimate that a record volume of 9.6 million tons of urea was exported from Ukraine and China in 2010. This volume was driven by consumption development and limited new production capacity. The increase in energy costs in China seems to have lifted the floor price of urea significantly in 2010, which could be important in the event that markets return to supply-driven pricing for nitrogen fertilizers.

The fertilizer markets

The fertilizer markets showed unprecedented volatility, as the food crisis of 2008 was followed by the financial crisis. Between 2009 and 2010, we witnessed another significant swing that underlined the unpredictable nature of our business. The droughts in Russia and other Black Sea countries; heavy rains in Canada, India and Pakistan; and low temperatures and rainy weather across the US were all important factors driving commodity food price levels.

The Intergovernmental panel on Climate Change (IPCC) has presented research that pinpoints human activity as an important cause of climate change. It is anticipated that global warming will continue, resulting in adverse effects on food production in most regions.

Yara has consistently strived for improved environmental performance, primarily through reductions in greenhouse gas (GHG) emissions. In 2010, we successfully broadened our approach to this area. Yara’s new concept of Climate-Compatible Agricultural Growth (CCAG) represents significant progress towards uniting the issues of food security and climate change on the global arena.

“A New Vision for Agriculture”

I personally participated in presenting the World Economic Forum’s (WEF) new strategy document, titled “A New Vision for Agriculture,” in which Yara and other global corporations across the entire agricultural value chain have pledged to contribute to ambitious goals: Each decade, greenhouse gas emissions from agriculture will be reduced by 20 percent, rural poverty will be reduced by 20 percent and production will increase by 20 percent.

Yara is particularly pleased with the outcome of this strategy process in the WEF. The need to increase agricultural productivity and reduce deforestation supports the need to develop fertilizer use, particularly combined with Yara’s knowledge, which represents an opportunity for the company. 

Apart from the obvious yield failures linked to unfavorable climates, there is ample reason to investigate other limiting factors in the agricultural markets. The substantial price hikes in other commodities such as coffee, cotton and sugar indicate that there is limited spare land available and that increasing market demands must be met mostly by using existing fields.

In my view, the volatile prices indicate that the underlying factors of the 2008 food crisis haven’t been resolved.  The markets will need to focus on agricultural productivity to a much greater extent.

Feeding a future population of nine billion people in 2050 is a momentous global challenge. While food production must increase, it needs to do so without expanding crop land, if it is to avoid worsening the global warming situation. This means that our future food supplies depend on improved productivity: Closing the gap between a stagnating yield growth and potential yield.

This challenge impacts Yara’s business, providing considerable business opportunities. Knowledge, innovation, improved land management and optimized levels of fertilization are some of the key issues we are addressing. With changing dietary habits, population growth and increased prosperity added to the setting, the long-term outlook for Yara’s products is positive.

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