Yara’s Q2 net income rises by 5.35% amid lower energy costs

(adds stock performance, analyst valuation and outlook from paragraph 6)

LONDON (ICIS)–Yara’s net income rose by 5.35% year on year to Norwegian kroner (NKr) 3.07bn (€328m) in the second quarter of this year, buoyed by lower energy prices and a stronger US dollar, the fertilizer major said on Thursday.

The company’s revenue and other income fell by 7.39% year on year to NKr25.9bn in the second quarter, while earnings before interest, tax, depreciation and amortisation (EBITDA) were up by 5.99% at NKr5.49bn, the company said in a statement.

“Yara reports strong deliveries and production, but margins declined due to lower fertilizer prices globally. The challenging market situation underlines the need to further strengthen our operations,” Svein Tore Holsether, Yara’s president and CEO said.

Yara’s spot-priced gas and oil costs for third and fourth quarter of 2016 are expected to be lower than a year earlier, the company said in the statement.

“Lower gas prices have improved the relative competitiveness of European nitrogen fertilizer plants compared with a year ago,” it added.

Yara’s positive second-quarter results presentation boosted its stock on the Oslo Stock Exchange, with shares up 6.75% to NKr292.50 by 10:15 London time. The stock had closed on 20 July at NKr274.

Chemical equity analysts were less bullish than investors. Bernstein Research said it was keeping its 12-month share price target forecast at NKr270, with a “Market-perform” valuation on Yara’s stock, or ‘neutral’ in most investment banks’ terminology.

Having described market conditions as challenging, Yara’s CEO said his intended strengthening of operations might all come from cost cutting as the company has identified large potential annual savings.

“As communicated earlier, we are establishing a programme to drive and co-ordinate existing and new improvement initiatives. I am pleased to announce that we have so far identified at least $500m of annual improvement potential,” said the CEO.

Although the CEO did not specify when the annual savings could be achieved, Bernstein Research said they would be achieved only by 2020.

Yara said the margins for farmers globally remain supportive overall on the back of the general fall in fertilizers prices, adding it had observed a strengthening of its European operations as pre-buying incentives had improved, also on the back of lower prices, especially nitrogen.

“Yara enters the third quarter with a stronger order book than a year ago. Yara sees continued fertilizer demand growth in Brazil, where improved agricultural export competitiveness and credit availability have positively impacted fertilizer demand in 2016,” it said.

The Norwegian major forecast that its energy bill in the next two quarters will be NKr900m lower than in the same period a year earlier, taking into account current forward markets for oil products and natural gas.

Additional reporting by Nurluqman Suratman

(€1 = NKr9.37)