Much-lower fertilizer prices were cited for pushing down Yara International ASA third-quarter net income some 79 percent. Net income after non-controlling interests was NOK821 million (NOK3.00 per share) on revenues of NOK23,924 million, down from the year-ago NOK4,004 million (NOK14.56 per share) and NOK30,479 million, respectively. EBITDA was NOK3,004 million, down from NOK7,884 million.
Nine-month net income was NOK6,693 million (NOK24.46 per share) on revenues of NOK74,843 million, down from NOK7,649 million (NOK27.79 per share) and NOK86,176 million, respectively. EBITDA was 11,975 million, down from NOK15,412 million.
“Yara reports a weaker result than a year earlier, reflecting supply-driven prices for fertilizer globally,” said President and CEO Svein Tore Holsether. “But although production margins were significantly lower, our Crop Nutrition and Industrial earnings were broadly stable, demonstrating the strength and resilience of Yara’s integrated business model.
“The over-supply situation in our industry is expected to last for some time, underlining the need for the Yara Improvement Program which we have announced earlier. Parts of the program have entered the implementation phase, and we are confident we will deliver at least US$500 million of annual EBITDA improvement by 2020,” continued Holsether.
Despite the lower earnings, analysts reacted positively to the news, as Yara results were better than they had expected. Some noted that third-quarter EBITDA excluding special items was not as low as expected at NOK2,968 million, down from NOK 4,614million. In addition, analysts were buoyed by Yara’s saying that it is executing significant expansion activity, which it said based on current market prices, is expected to generate approximately NOK5 per share of incremental earnings by 2020, when fully operational.
Yara shares gained as much as 6.6 percent in Oslo, its biggest intraday rise since July 21, according to Bloomberg. CFO Torgeir Kvidal told analysts that the company still has room for further investments. “Now, at this stage or at this part in the cycle, there are opportunities for acquisitions,” he said, noting the company’s recent acquisition in India (GM Aug. 12, p. 1). “So when opportunities arise, we will look at them, but it has to be based on fundamentals that have to be value-creating and not just growing for the sake of growing.”
He noted to date that the company has invested in upgrading existing projects, NPKs, sales and marketing, and Latin America. “We haven’t invested in a lot of projects largely exposed to the urea market, where you have seen the biggest slide,” said Kvidal.
Global Yara fertilizer deliveries were 4 percent higher than in third-quarter 2015, with deliveries of Yara-produced products up 10 percent, driven by continued strong growth in Brazil and higher deliveries of compound NPK in all regions.
In Europe, fertilizer deliveries were one percent higher than a year earlier, with deliveries of Yara-produced nitrates marginally lower than a year ago, while compound NPK deliveries were up 16 percent.
Yara said its fertilizer deliveries to Brazil (excluding trade) were 11 percent higher than year-ago figures, with two-thirds of the growth coming from premium products, especially NPK. It said much of NPK growth relates to crop-specific grades.
Yara said third-quarter sales prices fell more than input costs. Yara’s average realized urea and nitrate prices decreased around 25 percent, while compound NPK premiums increased compared with a year ago as realized NPK prices decreased only 15 percent. The company’s average global gas costs were 25 percent lower than a year ago.
Yara noted that while Chinese urea exports are down, new production in Egypt, Algeria, the FSU, and the U.S. has come online. Noting lower ammonia prices, it cited new capacity in Saudi Arabia, Russia, and the U.S.
In the U.S., it said third-quarter nitrogen deliveries are estimated to be down 10-15 percent, as buyers stepped out of the import market in anticipation of increased domestic supplies.
Yara said the global farm margin outlook and incentives for fertilizer application remain supportive overall, and while grain prices are lower, prices for several key crops like sugar, coffee, and oils are higher than a year ago.
In Europe, Yara said pre-buying incentives are improved given significantly lower nitrogen prices and premiums, although some markets are impacted financially by poor harvests. In Brazil, fourth-quarter industry deliveries are expected to be broadly in line with a year earlier, but Yara sees continued growth longer term.
| Sales (000 mt) |
3Q-16 |
3Q-15 |
YTD-16 |
YTD-15 |
| NH3 trade |
426 |
504 |
1,536 |
1,653 |
| Fertilizer |
7,248 |
6,936 |
20,397 |
20,391 |
| Industrial |
1,694 |
1,755 |
5,155 |
5,271 |
| Total |
9,369 |
9,194 |
27,088 |
27,315 |
