Long European winter weighs on Yara Q1 profits

20 April 2018 10:43 Source:ICIS News

LONDON (ICIS)--Yara’s first-quarter net income dropped 42% year on year to $116m as a result of the protracted European winter delaying the planting season and increasing production costs, the Norway-headquartered fertilizer specialist said on Friday.

Unsettled weather in the region, which saw freezing temperatures continued in some places through the end of the quarter, led to a late start for the fertilizer application season, cutting sales volumes and increasing energy costs, the company said.

Revenue and other income rose by 6.4% year on year to $2.86bn in the first quarter, while EBITDA (earnings before interest, tax, depreciation and amortisation) fell by 2.9% to $370m, the company said in a statement.

Raw materials, energy costs and freight expenses widened to $2.11bn in the first quarter of this year from $1.98bn in the same period of last year.

Depreciation costs rose $30m during the quarter, a trend likely to continue through the rest of the year as a result of the slate of seven new project start-ups expected this year.

The company brought its 750,000 tonne/year joint venture ammonia plant with BASF onstream in Texas last week.

Fertilizer market conditions are likely to remain challenging for producers for the foreseeable future, CEO Svein Tore Holsether said, leading the company to focus on reducing costs and developing growth projects.

“The operating environment for our business remains tough, and we expect fertilizer markets to stay supply-driven for some time yet,” said Holsether.

“We therefore continue to focus on improving our operations and delivering our committed growth projects,” he added.

Grain consumption is projected to outpace consumption in the 2017-18 period after four consecutive seasons where supply exceeded demand, but strong harvests have kept grain pricing low, the company said.

Urea and ammonia pricing fell 2% and 5% to $261/tonne FOB (free on board) and $287/tonne FOB during the quarter, while phosphate prices rallied 14% year on year to $403/tonne FOB US Gulf as a result of strong demand and Mosaic’s production curtailment in Florida.

Analyst Bernstein noted that adjusted EBITDA for the company was over 29% below its forecast for the company and 13% below consensus estimates, but that strong progress continues to be made by management on earnings improvement programmes .

Company shares were trading down 2.35% compared to Thursday’s close as of 9:49 BST.

(Update re-leads, adds company, analyst comment, division performance)

Pictured: Agricultural fields with snow in Germany, library picture
Source: Hans Blossey/imageBROKER/REX/Shutterstock

By Tom Brown