Release Date: February 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
-
Yara International ASA (YARIY) is progressing with its Clean Ammonia projects, with plans to make a final investment decision by the first half of 2026, indicating confidence in the project's profitability.
-
The company is targeting a $150 million cost reduction by the end of 2025, with significant savings expected from FTE reductions and external cost cuts.
-
Yara International ASA (YARIY) has a positive outlook on the nitrogen market, with expectations of tightening global nitrogen markets due to factors like delayed US import seasons.
-
The company is exploring various equity funding structures for its Clean Ammonia projects, indicating flexibility and strategic planning in capital management.
-
Yara International ASA (YARIY) is leveraging its global ammonia import capacity and fleet capacity, providing multiple options for strategic growth and value creation.
-
The decision to lower the dividend payout for 2024 reflects a cautious approach due to high leverage and low free cash flow in the current quarter.
-
Yara International ASA (YARIY) is facing challenges with its working capital, currently at 108 days, which is above the target of 90 days.
-
The company has mothballed its Hull plant in the UK, indicating operational challenges possibly related to gas costs.
-
There is uncertainty regarding Chinese export policies, which could impact global fertilizer market dynamics.
-
Yara International ASA (YARIY) is dealing with high tax rates due to unrecognized deferred tax assets in certain regions, affecting adjusted EPS figures.
Q: Can you explain the decision to perform the FID on the Clean Ammonia projects in the US and the importance of having partners in these projects? A: Magnus Ankarstrand, EVP of Corporate Development, explained that the decision to target the first half of 2026 for FID is primarily technical, reflecting natural project development. The fundamentals for profitability remain unchanged, focusing on low-cost gas and scale. Partnerships are crucial for building at scale, as Yara has a history of successful joint ventures in ammonia projects, which bring complementary interests and capital.
Q: Are you still targeting a $150 million cost reduction for 2025, and what measures are in place to ensure product delivery from the Belle Plaine plant to the US amid potential tariffs? A: Thor Giaever, CFO, confirmed the $150 million cost reduction target by the end of 2025. The initial savings are from reduced external costs and a hiring freeze, with more significant savings expected in 2025. Regarding Belle Plaine, less than 10% of deliveries are to the US, and current tariffs are not implemented. The net import of urea from Western Canada to the US is close to zero, minimizing tariff impact.
Q: Why did the Board decide to lower the dividend payout for 2024, and what are the considerations for equity funding structures for Clean Ammonia projects? A: Thor Giaever noted that the decision to lower the dividend was due to tracking towards the higher end of the leverage range and low free cash flow. The financial policy is based on cash flow, impacting debt. For equity funding, Magnus Ankarstrand mentioned that Yara is exploring various partnership opportunities and structures, leveraging its strong ammonia fundamentals and market interest.
Q: Are Clean Ammonia projects aimed at supplying new applications like shipping fuel or hydrogen carriers, and does this affect the FID timeline? A: Magnus Ankarstrand confirmed that while Yara's Clean Ammonia projects primarily support its own production, they also cater to new demand from sectors like shipping and refineries. However, the FID timeline is not influenced by this demand, as the projects are profitable based on Yara's own needs.
Q: What are the current fertilizer market fundamentals, and how do they impact 2025 margins compared to 2024? A: Dag Tore Mo, Head of Market Intelligence, explained that while some supply issues in 2024 were temporary, others, like gas supply in Egypt, may persist. Indian demand is normalizing, and without substantial capacity additions, market fundamentals remain supportive. Improved ag fundamentals, particularly in corn, are also noted, with grain stocks reducing, indicating a positive outlook.
Q: Can you provide an update on distribution margins in Brazil and actions to reduce working capital days from 108 to the target of 90? A: Thor Giaever stated that distribution margins in Brazil were lower this quarter at around $30 per tonne. For working capital, Yara is exploring further opportunities beyond the current cost program, considering operating capital as a commercial tool and aiming for positive cash contributions.
Q: What factors contributed to the high tax rate in Q4, and will this continue into 2025? A: Thor Giaever explained that the high tax rate was due to non-cash special items and currency losses. Deferred tax assets were not recognized in all subsidiaries due to uncertainty of recoverability, impacting the effective tax rate. This situation is driven by write-downs and currency losses.
Q: Is an IPO for Yara Clean Ammonia (YCA) still a possibility, and what is the risk of China resuming exports in Q2? A: Magnus Ankarstrand stated that an IPO for YCA is not off the table, as there is significant interest in the business case. Regarding China, Dag Tore Mo noted that while there is an expectation of resumed exports post-peak season, the exact timing and volume remain uncertain.
Q: What led to the decision to mothball the Hull plant in the UK, and is it a permanent closure? A: Maria Gabrielsen clarified that the Hull plant, operated by a third party, was mothballed due to the operator's decision to use hydrogen for their own production. The closure is not permanent, and Yara retains the option to restart if competitive hydrogen feedstock becomes available.
Q: What are the plans for European production reductions, and are there new clean ammonia projects in Europe? A: Thor Giaever mentioned that the 1 million-ton reduction in European production is due to plant optimization and restructuring, not new closures. Svein Holsether, CEO, added that Yara is progressing with existing clean ammonia projects in Europe, such as carbon capture and storage, but no new large-scale projects are planned.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
