"More and more growth in the market will take place through agreements with third party producers," said executive vice president Thorleif Enger on Tuesday, Hydro's Capital Markets Day. Following its successful turnaround operation, Hydro Agri is all set for "asset-light growth".
Capital Markets Day - presentations, conference call
Hydro Agri Turnaround was concluded at the year-end. The cost-saving and workforce reduction goals were met by a wide margin, with both elements reduced by 30 per cent compared to 1998 levels. The program speeded up productivity development and culminated in the previous growth in fixed costs per tonne being turned into a solid NOK 2.3 billion reduction compared to 1998. The manning reduction in the same period was 3,600 persons.
The European fertilizer industry has reduced production capacity by three million tonnes over the last couple of years. Combined with the effect of a simplified organization, the new measures that have been implemented and a stronger position also outside of Europe, this gives Hydro Agri a new platform for continued creation of value.
"At the same time as we focus on production improvements, we are also trying to utilize the business opportunities that often arise at the bottom of the business cycle. We have purchased the fertilizer companies Trevo in Brazil and Kynoch in South Africa, and we have started an extensive market collaboration in the Philipines and with the Chilean specialty fertilizer company SQM. We have also given the go-ahead for the extension of production capacity through our partner company Qafco in the Persian Gulf.
Enger underlines that Hydro is in the best quartile in the fertilizer industry in terms of cash return on gross investment (CROGI).
"The growth in the fertilizer market is not spectacular, but it is steady. We expect a two to three percent growth per year. Hydro is the only really global company in this industry. We have operations all over the world, and our production range of nutrients is a close match to the demand in the market."
He also pointed out that the strategic links to the Danish animal feed and plant nutrition company KFK are looser than they were. Hydro therefore intends to reduce its present ownership interest of 62 percent in this company and will try to find a purchaser that has more to offer the company than Hydro has.
"The greatest threat facing the fertilizer industry is the risk of unnecessary capacity increases. The industry has previously shown a tendency to overinvest," says Thorleif Enger.