In the recent earnings call, Yara International ASA (OL:YAR.OL) CEO Svein Tore Holsether provided an overview of the company's performance in the first quarter. Despite a decrease in EBITDA by 11% and an increase in net debt, Yara highlighted its strategic focus on a nature-positive food future and its commitment to decarbonization.
Safety performance has improved, although there were 16 reported accidents. The company has seen a reduction in greenhouse gas emissions, contributing to cost savings, and is adjusting its portfolio through strategic divestments. Although the digitized hectares and premium generation have decreased, the company reports strong historical performance and improved operational rates. The European nitrogen industry's deliveries surged by 20%, and the global supply-demand balance for nitrogen products is expected to tighten, which may bode well for Yara's future performance.
Key Takeaways
- Yara's EBITDA fell by 11% due to increased deliveries offset by lower margins.
- Safety performance improved, with 16 accidents reported in the quarter.
- Greenhouse gas emissions have been reduced, equating to an annual cost saving of about $40 million.
- Net debt increased, with a net debt-to-EBITDA ratio of 2.38.
- The company is focusing on strategic investments, particularly in decarbonization, and has divested some businesses to reduce costs.
- The European nitrogen industry experienced a 20% increase in deliveries, and the global urea supply-demand balance is expected to tighten.
Company Outlook
- Yara is prioritizing nature-positive food solutions and decarbonization in its strategic ambitions.
- The company expects the global supply-demand balance for nitrogen products to tighten, indicating potential growth opportunities.
Bearish Highlights
- The company's EBITDA has decreased, and net debt has risen.
- There was a decline in the number of digitized hectares due to a portfolio sale, and premium generation was down from the previous year.
Bullish Highlights
- Operational performance has improved, with higher operating rates compared to the previous year.
- The company has made significant strides in reducing greenhouse gas emissions.
- Divestments have resulted in a cost reduction of $40 million in fixed costs.
Misses
- Finished product output is down 4%, with mixed performance across different sites.
- A slight dip in the first quarter for female senior managers, despite an average annual increase of 5% over the past three years.
Q&A highlights
- The CEO addressed questions regarding the company's strategic focus on tackling the food crisis and climate change.
- Discussions included the impact of recent divestments on the company's financials and operational efficiency.
- The call highlighted the positive farmer incentives indicated by the urea to grain price index.
Yara's first quarter has been a period of strategic transformation, with the company actively adjusting its portfolio and reinforcing its commitment to sustainable agriculture and decarbonization. While financial metrics like EBITDA and net debt have seen less favorable movements, operational improvements and market dynamics suggest potential for a more positive outlook in the future. The company's focus on cost-saving environmental initiatives and strategic investments aimed at addressing global challenges are central to its plans moving forward.
InvestingPro Insights
Yara International ASA (YAR.OL) has been navigating a challenging market, but certain metrics and InvestingPro Tips shed light on the company's financial health and future prospects. With a market capitalization of $7.29 billion, Yara's financial scale remains significant despite recent headwinds.
InvestingPro Tips suggest that Yara has a high shareholder yield and is expected to see net income growth this year. This aligns with the company's strategic initiatives and could signal a potential rebound in profitability. Moreover, the valuation implies a strong free cash flow yield, which is promising for investors looking for companies with the ability to generate cash.
From the real-time data available, a few key metrics stand out:
- The P/E Ratio (Adjusted) for the last twelve months as of Q1 2024 stands at 79.8, indicating a high valuation relative to earnings, which could suggest expectations of future growth.
- Revenue for the same period was $14.6 billion, despite a decline of 33.99% year-over-year, reflecting the challenges faced in the market.
- The Dividend Yield as of the latest data point in 2024 is 1.24%, demonstrating Yara's commitment to maintaining dividend payments for 20 consecutive years, a sign of stability that income-focused investors often appreciate.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available, including insights on stock volatility, trading positions, and profitability predictions for the year. There are 9 more tips on InvestingPro for Yara, which can be accessed by visiting their page at https://www.investing.com/pro/YARIY. To get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24.
These insights and metrics provide a nuanced view of Yara's current position and future outlook, complementing the article's discussion of the company's strategic focus and operational adjustments.
Full transcript - Yara International ASA (YARIY (OTC:YARIY)) Q1 2024:
Operator: Welcome to Yara's First Quarter Results Presentation. Today's presentation will be held by our CEO, Svein Tore Holsether; and our CFO, Thor Giaever. There'll be a conference call at 1:00 p.m. Oslo Time, where you can dial-in and ask questions. And with that, it's my pleasure to hand over to Svein Tore Holsether.
Svein Tore Holsether: Thank you very much, Maria, and good morning, good afternoon and good evening, and thank you very much for joining our first quarter results presentation. As always, we start by looking at our safety performance where we see that the trend in the last few quarters is stable and not continuing the damage trend from previous years. Still, at a TRI of 1.1, we are at an industry-leading level and close to 80% below the average for Norwegian industry. Through the first quarter in 2024, we've had 16 accidents. That's 16 accidents affecting our colleagues and contractors. 16 accidents that could have been avoided. Although we've made significant improvements, we cannot stop here. Safe by Choice is our way of working. It has given great results, but these numbers show that we can never take things for granted. Turning then to the main elements of the first quarter. EBITDA is down 11% from last year, mainly reflecting increased deliveries of 12% that have been offset by lower margins. In Europe alone, we see an increase of -- in volumes of 37% compared to 1 year ago. This increase can mainly be explained by high level of curtailments due to unfavorable production economics in the first quarter of 2023. With lower gas costs, European production margins have improved year-over-year, supporting increased deliveries in Europe. Our strategic ambition of growing in nature-positive food future stays firm, while we navigated a volatile business environment. And I'm pleased to see that the efforts we put in are now materializing in a significant reduction in our greenhouse gas emissions. We have a strong pipeline of greenhouse gas emission reducing projects and when all of these will be fully reflected in our numbers, we will be on a very good track to achieve our 2025 target. This will enable us to meet the growing demand for low carbon solutions and preparing us for a phasing in of CBAM in Europe. On the outlook side, the supply growth has been strong recently, especially in China and also in India. However, demand fundamentals are also healthy combined with the limited capacity additions, this indicates tightening markets when recent supply growth is absorbed. Turning then to the EBITDA analysis, increased volumes with a positive effect of $105 million are offset by lower margins, mainly as nitrogen prices have fallen compared with a year ago. Both first quarter this year and first quarter in 2023 saw price volatility, especially last year when prices fell strongly throughout the quarter. This resulted in large inventory write-downs and excluding last year's inventory write-downs of $190 million. The year-on-year negative price impact is approximately $615 million. In addition to the year-on-year impact of lower nitrogen prices, which can be estimated using our published price sensitivities, we have some further negative margin effects within other products. The most significant such effect is for CN, which typically has a more stable pricing, but where prices fell substantially through 2023. So this amounted to a negative delta of approximately $60 million compared to first quarter 2023. Provided prices stay close to current levels throughout 2024, this effect will be reduced throughout the year. The other variance of $47 million consists of approximately $20 million increase in fixed costs, $12 million lower other income and the remainder due to lower interest income from customer prepayments and impairment of trade receivables. As mentioned, the production economics in Europe have improved compared to a year ago as lower gas prices more than offsets the decline in nitrogen prices. At this time of the season last year, upgrading margins from gas to ammonia and urea were negative in Europe. NPK and nitrate premiums have seen significant fluctuations in recent years, and this is linked to European production economics and as a response to reduced product availability in the European market with significant industry curtailments. As nitrogen prices are returning some -- to some more normal levels, premiums are also following. And for first quarter, both NPK and the nitrate premiums were above the average of the last few years. This illustrates the premium position of nitrates and NPKs with better agronomical qualities than commodity alternatives. And in a future low carbon demand market, premium products will have -- or will be even more important. Total crop nutrition deliveries were up by 13% with increases in all segments except the Americas, and last year's European deliveries, as already mentioned, were strongly impacted by curtailments. However, as production economics have improved and demand catching up after a slow start to the season, Europe saw a 37% increase compared to a year earlier. The same trend can be seen for industrial volumes, with increased production and demand leading to a 5% volume increase. Americas saw slow off-season demand with the NPK deliveries lower than last year and an overall 10% decline in deliveries. Africa and Asia saw a 17% volume increase with higher deliveries in China and also in Thailand. For Yara, clean ammonia volumes are also up compared to a year ago, reflecting more volumes from Trinidad and also from Pilbara. Although volumes in Europe improved this quarter, the industry deliveries are still significantly lagging pre-war levels. The region faces increased competition from imports and also price pressure from producers with significantly lower feedstock costs. This includes Russian urea imports to Europe, which reached an all-time high in 2023. Europe is more food-dependent on Russia today than before the war. And to me, this is a great paradox, that we're substituting energy dependency with food dependency, and it would be wise for European leaders to reflect on how Putin may exploit Europe's increased dependency on Russia. Let's turn then to our decarbonization journey and demonstration of our commitment to reach our ambitious targets. As of first quarter this year, the greenhouse gas emission intensity for the last 12 months is at 2.92, reflecting a reduction of 4%. For the quarter in isolation, the figure is even better at 2.85, and we're on good track to achieve the target of 2.7 by 2025. The recent years have definitely been impacted by curtailments and as a result of that, unproductive gas. But under more normal utilization levels, we are now seeing the impact of the projects that we've implemented in recent years. As of first quarter, we have completed 65 of 90 projects across our plants and regions. And the collective impact of our project portfolio is expected to reduce Scope 1 emissions by approximately 1.7 million tonnes of CO2 equivalents by 2025. Of the total project portfolio in the pipeline, the vast majority of the total estimated CapEx of $200 million has already been taken. The remaining 25 projects are only approximately $30 million of the total CapEx frame. These are profitable projects. The average payback time for the portfolio is approximately 3 years. Continuing to reduce our emissions is part of our strategy to future-proof our business and also to be part of the low carbon future. Through these improvements, we are preparing our operations for the implementation of CBAM in Europe and also to meet the growing demand for low carbon solutions. And we're already actively pursuing these opportunities. One example is, of course, our efforts in clean ammonia. And then we're also working with partners to decarbonize food value chains. In Norway, we're working with REMA 1000, Felleskjopet and Norgesmollene to decarbonize bread. In Argentina, we're working with the El Parque Papas to decarbonize potatoes. And in the UK, we're working with Simpsons Malt to decarbonize malting barley. So things are moving and we are positioned to create value. And with that, I will now hand over to our CFO, Thor Giaever. Over to you, Thor.
Thor Giæver: Thank you, Svein Tore. As you've already seen, EBITDA is down compared to last year, mainly reflecting lower prices. The decline is stronger for earnings per share due to a currency loss on Yara's U.S. dollar-denominated debt positions as the U.S. dollar appreciated against most of Yara's other currencies during the quarter. Return on invested capital is down from 20.1% to 2.5% for the last 12 months. This mainly reflects the lower margin environment we've seen in 2023 compared to 2022. For the quarter in isolation, the ROIC is 4.6% compared with 5.7% 1 year earlier. This is clearly not an acceptable return level over time and underlines the need for our ongoing work with optimizing our portfolio of plants, markets and new business activities. For the cash flow in the quarter, a seasonal buildup of operating capital explains both the increase in net operating capital and the lower cash from operations compared to a year ago. Last year had a similar seasonal buildup, however, this was more than offset by a strong decrease in prices and resulting release of operating capital. Investments are slightly higher than 1 year ago, but in line with our guidance for the year. Turning to the results by segment. Lower margins are evident in most of our business areas. EBITDA in Europe improved following higher deliveries and last year being heavily impacted by inventory write-downs. ROIC for the quarter also improved somewhat but stayed in negative territory for 2 main reasons. Firstly, while deliveries improved compared with a year earlier, they were still below normal. And secondly, nitrate production was below normal for the Europe segment plants and a larger share of Europe deliveries were sourced from the global plant segment. In Americas, EBITDA and ROIC fell mainly due to lower production margins in North America and lower NPK deliveries for the segment. In Asia and Africa, higher crop nutrition deliveries and margins in Asia were offset by lower ammonia margins in Pilbara, leading to a flat overall development both for earnings and returns. For global plants, improved production margins and higher capacity utilization amid lower European gas prices led to a significant improvement in results and returns. For industrial solutions, lower selling prices more than offset the improved volumes and European production margins, leading to somewhat lower earnings. For clean ammonia, lower margins resulting from lower ammonia prices led to a 21% decline in EBITDA. Our net debt increased approximately $260 million this quarter as the operating capital and investment increases more than offset cash earnings. The change in other is mainly related to new leases, fair value adjustments of liabilities and currency effect on debt due to strengthening of the U.S. dollar versus Norwegian kroner through the quarter. This brings our net debt to equity ratio to 53% and the net debt-to-EBITDA ratio to 2.38. Turning to our integrated scorecard. We had good progress on our female senior managers KPI in 2023, but saw a slight dip in the first quarter. However, our longer term trend is positive with an average 5% annual increase over the past 3 years. Digitized hectares saw a drop during the quarter following a sale of part of the portfolio. And finally, premium generation is down from an exceptionally strong level in 2023, but still strong in a historical context. Turning to our operational performance, we have higher operating rates compared with a year earlier when significant curtailments were in place due to the energy situation in Europe. For ammonia, we've seen consistent performance across most assets. In total, 2% improved year-over-year, while for finished products we are down 4% with underlying improvements at several key sites like Porsgrunn and Belle Plaine, but setbacks in others. And as already mentioned, we've made significant improvements in GHG emission intensity. The underlying improvements over the past year is equivalent to approximately $40 million annualized based on the current EUA prices. However, as we keep these quotas in an internal bank, this has not impacted the EBITDA for the quarter. Strict capital discipline is a top priority and will continue to optimize our portfolio and footprint to the current operating environment. As part of this portfolio optimization, we have recently made smaller divestments, Yara Marine and our Cameroon crop nutrition business, reducing fixed costs by approximately $40 million. The operating capital days ratio declined in the first quarter, mainly due to lower inventory days following higher sales in Europe and lower inventories in Brazil. So now let's take a look at developments for the European nitrogen industry. As for Yara, the European industry saw a strong pickup in deliveries in the first quarter with a 20% increase from a year earlier. Deliveries for the season are on a par with recent years but below the average of the last 4 years. However, the season has seen volatile urea pricing and just-in-time buying patterns. And in addition, the first quarter was impacted by wet weather which postponed application for farmers. This means that there is still significant current season business to be done in Europe during the second quarter. Turning to the global picture, the urea to grain price index shows that farmer incentives during the first quarter were close to normal. And as of today, they're on the positive side from the farmers' point of view. Also, for 2023, the incentive picture was good, with average nitrogen prices above swing costs despite increased urea production of almost 8 million tonnes. And of this, more than half is increased production in China and India. Looking at urea capacity additions for the coming years, the pipeline is historically low. The higher activity estimated for 2027 and 2028 is highly uncertain as construction has not started for most of these projects. So with a trend consumption growth of 1.9%, low value chain inventories and limited new capacity in the pipeline, this clearly indicates a tightening supply-demand balance longer term. Rounding up with Yara's prospects, we'll continue to create business opportunities in tackling the food crisis and climate change, while enabling the energy transition. Our transition will be achieved through optimization of our existing portfolio and by prioritizing strategic and value-creating investments. Through our focused strategy, we'll prioritize capital allocation to where both value creation and decarbonization can be maximized. Only investments with attractive risk-adjusted returns will be prioritized as decarbonization cannot be achieved without satisfactory financial returns. With that, I want to thank you for your time, and we'll now hand back to Maria.
Operator: Thank you, Thor. A final reminder that we have an audio conference starting at 1:00 p.m. Oslo Time. You can find log-in details on our page under Investors. That concludes today's presentation. Thank you.
End of Q&A:
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