Yara reports best year, posts 4Q loss; fertilizer volumes off 43 percent

Yara International ASA reported its best year as an independent standalone company in 2008; however, extra charges and inventory write-downs put the company into the loss column for the fourth quarter. Yara reported a fourth-quarter loss of $325.5 million ($1.12 per share) on sales of $2.9 billion, versus the year-ago net income of $375 million ($1.29 per share) and $3.2 billion, respectively. EBITDA was a positive $250.9 million, versus the year-ago $464.4 million.

Fourth-quarter fertilizer sales volumes decreased 43 percent from the year-ago quarter. Yara said deliveries in all regions except North America were down, with the largest declines in Latin America and Asia. Deliveries in Europe dropped 40 percent, with NPKs and urea down by about 50 percent and nitrates by 24 percent. Inventories of third-party sourced products were written down by $262.3 million to reflect lower market prices. In addition, the company made a $55.4 million inventory adjustment due to its Saskferco Inc. acquisition Oct. 1, 2008.

“The fertilizer industry has since September experienced an unprecedented slow-down in deliveries and decline in international fertilizer prices,” said Jorgen Ole Haslestad, Yara president and CEO. “Despite challenging market conditions, we deliver a strong underlying performance excluding write-downs on third party sourced inventories and currency effects on debt, demonstrating the strengths in Yara’s flexible business model. We have taken action to mitigate the effects of the slow-down by reducing third-party sourcing and curtailing production, and we are benefiting from cheaper ammonia import.”

Yara said it has cut 29 percent of its global ammonia capacity and 43 of its European urea capacity. It has cut NPK production, though it continues to run nitrate production at full rates, preparing for a spring recovery and deliberately building inventory. However, it said it would cut production later in the spring for both NPK and nitrates if the recovery does not materialize.

Yara said its own global deliveries in January were down 40 percent compared to last year. It estimated that overall European and U.S. deliveries were down 15 percent in second half 2008.

Haslestad said farm economics should support strong fertilizer demand for the current season, and that Yara is well positioned to benefit from such a recovery. “Our flexible cost structure also protects us in the event of a further delayed recovery, should farmers choose not to apply optimum amounts of fertilizer this season. However, a drop in fertilizer application would negatively affect food production, thereby tightening grain markets further and requiring a stronger recovery in fertilizer demand next season.”

The company noted that urea prices started to improve in the past month.

Yara estimates that 10 percent of global urea and 15 percent of ammonia capacity was curtailed at the end of the fourth quarter, while phosphate and potash had been halved. On the urea side, it estimated that only 100,000 mt of Chinese urea was exported in the fourth quarter with a 10 percent export tax, versus the year-ago 2.9 million mt. Halsestad said that China, now with a 110 percent export tariff effective Feb. 1, will not likely send urea into the world market due to its internal demand. Likewise, he said their urea is not able to compete in the international market at current pricing, with as much as 8 million mt/y of their capacity currently curtailed.

“If we look at the Q4 results in isolation, we see that when we add back the special write-downs of that quarter, it was clearly better than the same quarter last year,” said Halsestad. The year-ago 2007 quarter also posted higher results due to a $145.9 million one-time gain from the sale of gas assets. Another positive going forward is lower energy costs. He noted that so far Yara hasn’t seen any considerable effects on the financial crisis on food consumption, which should mean that a normal amount of fertilizer will be spread. He said farmers in North America and Europe have acceptable margins and they can borrow money, whereas the impact of the financial crisis on South America is larger.

Yara posted a $383 million foreign exchange loss in the fourth quarter as the U.S. dollar appreciated 21 percent against the krone and up to 19 percent against emerging market currencies such as the Brazilian real.

For 2008, Yara reported net income after minority interest of $1.27 billion ($4.36 per share) on sales of $13.7 billion, versus 2007’s $1.11 billion ($3.78 per share) and $10.5 billion, respectively. Yara attributed the results to higher fertilizer prices. 2008 EBITDA was $2.76 billion versus 2007’s $1.55 billion.

Yara is proposing a dividend of $.69 per share compared to the year-ago $.73 per share.