Yara Shares Fall on 4Q Earnings Miss; Writedown Taken on Potash Investment

Yara International ASA, Oslo, reported a negative net income of $26 million for the fourth-quarter versus a positive $246 million net income for a year earlier, as the company recognized impairment losses of $250 million. Of these, $232 million is related to the Dallol potash mining project in Ethiopia.

Excluding currency effects and special items, fourth-quarter basic earnings per share were $1.19, compared with the year-ago $0.76 per share.

However, fourth-quarter EBITDA excluding special items increased by 50 percent to $765 million, up from $511 million, boosted by increased prices which more than offset lower deliveries and the impact of higher energy cost.

The quarter’s revenue grew by 72 percent to $5.03 billion, up from the year earlier $2.93 billion.

The fourth-quarter earnings missed estimates, and Yara shares tumbled by as much as 7 percent following the results publication, the most since March 2020. But analysts saw the miss as due to the time lag of high nitrogen prices filtering through to results, and not reflective of the company’s fundamentals, according to a Bloomberg report.

Ammonia production in the quarter was 6 percent down on a year ago at 1.76 million mt, while ammonia trade volumes were 9 percent lower on the year at 489,000 mt.

Output of total finished products (fertilizer and industrial, but excluding bulk blends) dipped by close to 2 percent, to 5.17 million mt.

Fertilizer (Crop Nutrition) deliveries in the fourth quarter were 4 percent lower year-over-year, dropping to 6.79 million mt from 7.12 million mt a year ago.

For Europe, fourth-quarter EBITDA excluding special items was 54 percent higher than a year earlier, as higher prices more than offset lower deliveries and increased feedstock costs. Deliveries decreased 7 percent to 2.17 million mt, mainly reflecting a strong period last year and customers reluctant to take positions in a volatile price environment, Yara reported.

In the Americas, EBITDA excluding special items in the quarter was 160 percent higher than the prior year, as increased nitrogen prices more than offset higher energy costs, inventory writedowns, and increased logistical costs. Yara highlighted the strong production margins in particular for ammonia and urea.

Total deliveries increased 6 percent year-over-year to 3.62 million mt, with the company reporting strong growth in premium products.

In Asia and Africa, fourth-quarter EBITDA excluding special items was 78 percent higher than a year earlier, mainly reflecting improved production margins on ammonia. Total deliveries were 27 percent lower on the year, at 999,000 mt, as higher prices impacted demand.

Yara reported a 60 percent EBITDA excluding special items increase in its Global Plants and Operational Excellence (GPOE) division for the fourth-quarter compared with the same prior-year period, reflecting higher nitrogen and phosphate prices which more than offset increased energy costs.

But the company’s Clean Ammonia business saw EBITDA excluding special items drop 43 percent on the year in the quarter, which it attributed to increased ammonia sourcing at higher prices. Yara said the price increases are passed on to the company’s production plants, but with a time lag of approximately one month.

Yara’s Industrial Solutions division posted a 56 percent drop in fourth-quarter EBITDA excluding special items, with the company citing higher production costs and lower reliability only partially offset by higher deliveries (up 8 percent on a year ago), higher selling prices and temporary surcharges.

The company recognized impairment losses in the fourth quarter totalling $291 million. Of the $232 million impairment loss related to the Dallol potash mining project in Ethiopia recognized in the fourth quarter, Yara said the recoverable value of the project is considered lower than its carrying value, and with significant capital expenditures remaining, the project is exposed to “significant uncertainties.”

The project is currently on hold while working on “a structural solution for the next stage of development,” Yara said. The updated assessment has determined that the fair value less cost of disposal of the project is close to zero in the current environment.

In response to the surprise of some analysts at a company earnings call on Feb. 8 about the impairment on the Dallol potash project, given the global potash commodity price trajectory, Yara International President and CEO Svein Tore Holsether said it was not about the global potash market, but more specifically about that the project and the location, with the situation in Ethiopia “highly uncertain.” In addition to war, other issues include geology and a railway to the port that never got built.

But Holsether said the Dallol project remains “an attractive project,” and that Yara still intends for this project to go ahead, but reiterated Yara is looking for structural solutions to limit the capex it puts in going forward

Yara was last reported to have a 51.8 percent stake in the Dallol project and had been looking at a potential production capacity of approximately 600,000 mt/y of sulfate of potash (SOP) utilizing solution mining (GM Feb. 14, 2020; Nov. 10, 2017).

Other impairment losses recognized in the fourth quarter included $32 million related to the fertilizer assets at the Paulínia site in São Paulo, Brazil.

However, some $41 million of impairment losses were reversed in the quarter, including the reversal of $23 million related to production assets in Italy and $18 million of the third-quarter 2021 impairment of the phosphates mining project in Salitre, in Ceará, Brazil, which is being acquired by EuroChem Group AG (GM Sept. 10, 2021;Aug. 6, 2021). This latter impairment reversal is mainly due to currency development (USD/BRL).

For full-year 2021, Yara reported a 44 percent drop in net income, to $384 million, down from the previous year $690 million. Excluding currency effects and special items, FY2021 basic earnings per share were $4.73 compared with the year-ago $3.08 per share.

Full-year EBITDA excluding special items increased by 34 percent, to $2.89 billion, up from $2.16 billion the previous year. Revenue increased by 42 percent, to $16.61 billion from the year-ago $11.73 billion.

Responding to an analyst’s question at a company earnings call whether Yara had been able to fill its potash requirements for NPK production in both Europe and Brazil following its decision to wind down sourcing of the nutrient from Belarus, announced last month, and targeted to be completed by April 1 (GM Jan. 14, p. 1). Holsether reminded that the company has a number of suppliers and that it had prepared a contingency plan given that the risk factor with regard to Belarus had been evidenced for some time.

“So, yes, we are able to source from other suppliers to be able to operate our NPK plants and that is working well,” he told analysts.

Looking ahead, Yara sees its market environment as supportive, with higher nitrogen prices globally reflecting strong demand and a tight supply situation.

But it warned high and volatile natural gas prices continue to pose a challenge for the nitrogen industry in Europe, “adding to global food security concerns in a situation with already tight supply across the main nutrients.”

As a result of the high gas prices, Yara curtailed production at several of its European ammonia production facilities in September and the fourth quarter. At the time, the company estimated that some 40 percent of its ammonia production capacity was coming offline (GM Sept. 17, 2021). In mid-December, it said that including planned maintenance and unscheduled outages, its European ammonia production was approximately 30 percent (around 370,000 mt) below capacity from September to November (GM Dec. 17, 2021).

Holsether put the cost of ammonia sourcing in the fourth quarter at “in the region of $50 million to $60 million.” He said most of Yara’s ammonia production is running normally now, although the company is always importing ammonia [into Europe] because the company is “structurally short” in Europe and “long” outside of Europe.

Yara reiterated that it is committed to supplying its customers “provided sufficient margins are available.”

It said the situation going forward will depend on market developments, especially for ammonia globally and natural gas in Europe.

Yara said its gas cost for the first and second quarters of 2022 would be respectively $900 million and $700 million higher than a year earlier.

The Yara Board will propose a NOK30 per share dividend to the AGM, bringing the company’s total cash dividend to shareholders for 2021 to NOK 58 per share.

Yara Production and Deliveries

‘000 mt 4Q-2021 4Q-2020 FY2021 FY2020
Production1        
Ammonia 1,759 1,866 7,261 7,606
Finished fertilizer products (excluding bulk blends)1 5,170 5,270 20,856 21,047
         
Yara Deliveries        
Ammonia trade 489 539 2,007 1,966
Fertilizer 6,788 7,107 28,376 29,291
Industrial product 1,903 1,773 7,430 6,920
Total deliveries 9,180 9,419 37,814 38,177

1 Including Yara share of production in equity-accounted investees, excluding Yara-produced blends

Yara Deliveries

‘000 mt 4Q-2021 4Q-2020 FY2021 FY2020
Crop Nutrition Deliveries        
Urea 1,281 1,567 5,745 6,051
Nitrate 1,390 1,427 5,477 5,826
NPK 2,735 2,672 10,400 10,444
CN 390 370 1,745 1,594
UAN 237 253 1,295 1,405
DAP/MAP/SSP 142 189 904 991
MOP/SOP 335 320 1,534 1,462
Other products 277 309 1,275 1,519
Total Crop Nutrition Deliveries 6,788 7,107 28,376 29,291
         
Europe Deliveries        
Urea 180 253 940 1,009
Nitrate 955 981 3,770 4,333
NPK 631 705 2,582 2,769
CN 75 89 440 446
Other products 329 299 1,500 1,559
Total Deliveries Europe 2,170 2,327 9,232 10,116
         
Americas Deliveries        
Urea 643 667 2,683 2,700
Nitrate 371 321 1,336 1,170
NPK 1,749 1,504 6,104 5,939
CN 247 219 1,096 962
DAP/MAP/SSP 133 173 820 869
MOP/SOP 312 296 1,432 1,374
Other products 164 232 991 1,240
Total Deliveries Americas 3,620 3,411 14,463 14,275
Of which:        
North America 800 832 3,465 3,481
Brazil 2,245 2,099 8,801 8,814
Latin America excluding Brazil 575 480 2,198 1,979
         
Africa & Asia Deliveries1        
Urea 458 647 2,121 2,342
Nitrate 64 125 371 322
NPK 355 463 1,714 1,735
CN 68 62 209 186
Other products 53 71 265 314
Total Deliveries Africa & Asia 999 1,368 4,681 4,900
Asia 730 1,066 3,499 3,730
Africa 269 302 1,182 1,169
         
Industrial Solutions Deliveries        
Ammonia2 155 142 563 543
Urea2 418 407 1,645 1,577
Nitrate3 318 240 1,234 1,069
CN 56 49 201 182
Other products4 355 408 1,636 1,605
Water content in industrial ammonia and urea 601 528 2,152 1,944
Total Industrial Solutions Deliveries 1,903 1,773 7,430 6,920

1 The Africa and Asia business also includes Oceania

2 Pure product equivalents

3 Including AN Solution

4 Including sulfuric acid, ammonia, and other minor products