Nutrien rebounds in Q2; rebalances potash ops

Author: Andy Hemphill


LONDON (ICIS)--Global agribusiness giant Nutrien has reversed its fortunes since the start of the year, quashing lacklustre first-quarter results with a strong showing in Q2.

Canadian major reports $741m net income for Q2

- Operational synergies target hit six months early

MOP production costs cut by 3%/tonne

The Canadian major reported Q2 net earnings of $741m, overshadowing its Q1 net loss of $1m, and supporting Nutrien’s plans to “build a new company that is stronger and better equipped”.

Formed by the combination of muriate of potash (MOP) fertilizer producers PotashCorp (PCS) and Agrium, Nutrien began operations on 1 January with a total of 20,000 employees - 4,500 based in Canada’s Saskatchewan province.

Now the world’s single-largest provider of crop nutrients, Nutrien’s assets include 22m tonnes/year of MOP capacity in Canada alone - the largest volume globally - while Agrium’s contribution makes the firm the world’s third-largest nitrogen fertilizer producer, with sales of nearly 11m tonnes of product annually.

However, despite this apparent strength, Nutrien’s Q1 results left much to be desired, as the challenges of administering such an immense enterprise led to a somewhat mixed first few months.

At the time, CEO Chuck Magro attributed the loss to a vague grab-bag of issues, saying: “Nutrien's first quarter was affected by a late start to the spring season across North America, and west coast rail performance issues.”

These rail issues were subsequently resolved after a short-lived strike.

The $741m second-quarter return demonstrates “the value of our integrated business model and extensive supply chain capabilities, in what was a very compressed spring application season,” Magro said..

“We also advanced our strategic plan, making significant progress on selling the remaining equity investments, repurchasing our shares and growing our Retail business," he added.

Nutrien Q2 earnings ($m)

Q2 2018 Q2 2017* Change (%)
Sales 8,145 7,348 10.8
Freight, transport, distribution (214) (234) -8.5
Cost of goods sold (5,800) (5,323) 9
Gross margin 2,131 1,791 19
Net earnings from continuing operations 741 705 5.1
*2017 figures are historical combined results of legacy companies PCS and Agrium

However, despite appearances, it’s not all good news for Nutrien’s employees.

On the same day it released the Q2 figures, the producer also announced a “rebalancing” of its potash production, which will result in job losses at its Vanscoy operation.

A reduction in workforce of approximately 30 staff and 50 hourly positions will take effect from the fourth quarter, with approximately 585 employees expected to remain employed at the site.

The producer says these changes will position Vanscoy to operate more efficiently within Nutrien’s potash complex, and that it has provided opportunities for Vanscoy employees to transition to other roles since the start of the year.

The company expects to offer 50-70 positions at other Saskatchewan potash mines for the remainder of 2018.

With an enterprise of Nutrien’s size, growing pains are almost inevitable - and the company confirms it’s supporting Vanscoy employees through the transition.

In its potash segment, Nutrien reported net sales of $638m, $103m higher than PCS and Agrium’s combined Q2 sales.

Some 32% of Nutrien’s allocation to Canadian offshore marketing arm Canpotex was shipped to Latin America, while China and India received 21% and 9%, respectively. Other Asian markets accounted for 29% of the Canpotex cargoes.

The Canadian major also lauded a 3% reduction in production costs per tonne, thanks to “a larger proportion of supply produced at our lowest cost facilities and realized synergies”.

For nitrogen fertilizers, Nutrien’s Q2 net sales recorded a more modest $36m increase from the second quarter of 2017, totaling $856m in 2018.

Nutrien Q2 sales volumes (‘000 tonnes)

Product Q2 2018 Q2 2017* Change (%)
Ammonia 1,028 1,064 3.5
Urea 901 751 20
Solutions & nitrates 1,133 1,008 12.4
Potash 3,179 3,075 3.4%
*2017 figures are historical combined results of legacy companies PCS and Agrium

Ammonia sales volumes decreased due to the ramp-up of Nutrien’s urea expansion project at Borger, Texas, as well as higher urea production at its Trinidad facility, which reduced net ammonia available for sale.

The agri-giant announced it has “achieved synergies ahead of schedule, capturing $246 million in run-rate synergies as at June 30, 2018”.

Considering that Nutrien originally hoped to achieve the $250m mark by the end of the year, it is little surprise that “we now expect to achieve $350 million in run-rate synergies by the end of 2018”.

Eventually, Nutrien hopes to achieve $500m in annual synergy savings by the end of 2019.

Added to this milestone was the successful divestment of Nutrien’s remaining stake in Arab Potash Company (APC) - the last hurdle required by the Competition Commission of India and Ministry of Commerce in China in providing their clearance for the merger of Agrium and APC to form Nutrien.

The APC share will be sold to Chinese conglomerate SDIC Mining Investment, earning the Saskatchewan-based firm a healthy $502m.

By the end of 2018, Nutrien expects proceeds from its sale of its stakes in APC, Israel Chemicals (ICL), and Sociedad Química y Minera de Chile S.A. (SQM) to total $5bn.

From its first few weeks of operation, Nutrien’s leadership made clear that difficult choices lay ahead; adding that the “merger of equals” would work to “build a new company that is stronger and better equipped”.

From the look of the Q2 results, this determination appears to be paying off.

Additional reporting by Mark Milam