Good morning, good afternoon, everyone, and welcome to the Yara 4th Quarter Results Conference Call. This is Claus Seltzig. I am the CFO of Yara International, and I'm joined by my colleagues yesterday for this Q and A session. I'm sure most of all of you have seen our report and presentation from this morning, so I will limit my opening comments. Our strategy execution is driving improved commercial margins and bottom line.
As an example, our NPK premiums were at $52 per tonne. Production wise, we are benefiting from lower gas costs by $170,000,000 saving this quarter. And on the other hand, we saw so CapEx deposits in some of our plants, while others had improvement in the quarter. New business saw continued earnings growth, and other free cash flow improved $850,000,000 compared with a year earlier. In addition to that, we are delivering on our capital allocation policy with a NOK 50 share dividend proposed an 0.8% buyback during the Q1 of 2020.
In a minute, we will invite everybody for questions. First, we did have one follow-up item from this morning, namely a question on the progress of the project in Brazil and for that follow-up by lead it to our EVP production for the Amishin. So forward, please.
Thank you, Lars. So the question we received during the presentation was to give some explanations on why we are experiencing a delay at our Brazilian project. So if I then start with the Rio Grande project. It's a fairly straightforward quarter from a technical perspective. However, we have experienced issues with other contractors.
We have had to change contractors during execution, which has caused delay and that has been due to both performance, but also financial situation of the contractor. We have also experienced not performance by our contractors, so less Productivity than what we have estimated on our mix fee, and we have worked very closely with our construction contractor to increase now the productivity Of them, and this is now in line with our expectations and also in line with meeting now our Estimated completion by second half of this year. The Solitra project, it's a different situation. In Solitra, we have 2 main you have the beneficiation plant and you have the chemical plant. The beneficiation plant was ready last year and has been upgraded since then.
The issue that we are focusing on there is the increased CP recoveries. That means how much cost that you're taking out of the raw material? We have a target to reach between 60% 70% recovery, and we have 50%, but we are then working on different both process optimization, but also reengineering solutions to increase the Recovery. And this is very typical actually in this kind of project. Different raw materials have different qualities, and it's very normal that you need to do quite some fine tuning before you get the intended recovery.
On the chemical plant, we entered into this project in 20 14. And as we have been working on this, we have realized that it will take longer time to realize the chemical plant versus So initially estimated to make sure that it is in accordance to our standards and procedures. So that's why we're also then seeing a delay on that. I hope that answered the questions, but also there could be follow-up questions. So if there was anything else, please let me know.
Okay. Operator, then I suggest you open up for questions as normal.
Our first question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.
Hi, good afternoon, everyone. I had a few questions. I'll do them 1 at a time. Can you maybe quantify you've obviously had some production hiccups in the Q4 at a number of plants. Can you maybe quantify what you think the volume impact Will be on 2020 and maybe what the EBITDA impact will be with whatever sensitivity you want to give.
Yes, Joe, it's Werner. Thanks for that. So what we've said is that while we had improvements in segment accounts, we also have some which will impact the 2020 performance, but not to impact the 2023 targets. For ammonia, we've estimated that to 300 and 50,000 tonnes. And for finished products, we have estimated excess 750,000 tonnes.
As you will recall, we have moved to follow-up on the underlying value drivers, which Dennis, at any point in time, can be valued at the concurrent margins in the market.
And is that net are those thank you for that. Are those numbers net of any other improvement? And is that Mostly a first half year
impact? That's the impact on 2020 from these outages and the projects which we described this morning.
Okay. Thank you for that. So the
So the follow-up, so you can in case of any doubt, I mean, you can then compare these to the 2020 numbers that we put out in connection with the Capital Markets Day and the author signed in our 2nd quarter report.
Thank you. Two more for me. So MBK premium is at 5 year highs and was up in The Q4 from middle of the year, is should we expect a drop back and add a more normal premium? Would it be gradual? Would it be sharp in the Q1?
And how should we model the next for the while?
Yes. So I think some adjustment is probably to be expected. But to explain a bit why we come into this situation. First of all, we have a very thorough segmentation in our downstream operation. And that means that we target segments that are depending on the strong input and less volatile in terms of pricing.
We also work deeper in the market and deep in the market, normally, we have one level between ourselves and the farmer. In some markets, we even go direct. And that means that we, in a way, can be on the products out in a different way and then maybe other players that are much further back in the value chain. Fair to say that the price elasticity such that we have had now for a while a quite clear price strategy in the sense that if we would really compete with, let's say, pure commodities, we would need to shift price very significantly in order to get volume. And for that, we see we choose to hold.
We're taking some hits on volume by doing that, but we have evaluated much stronger impact on the market. Over time, there might come some, let's say, more correlation between the commodity drivers. That we think we have a quite resilient model. And we think this quarter really demonstrates the resilience of that knowledge.
Okay. One more for me. Maybe just a sense of how to characterize what's going on in the seasons here in Q1 in the different markets, South America, Europe, North America. So. It seems like the quarter has started out slower than usual for these different regions.
Certainly, the U. S. Had a late harvest. Can you maybe talk about that? Are we moving to a model of more just in time purchasing closer to planting?
How that changes in the different markets?
Yes. I don't think more extensive crop market in the U. S. Because that is a market where we are relatively not so strong. But if I take Europe, and I believe actually U.
S, to some extent, is same kind of development that we see, as you say, a bit more just in time. There is a kind of given pattern that we maybe had several years back. Now it is a much more higher volatility in terms of when the market is ready to buy and within delivery pattern. So we've seen, to some extent, a more just in time, and that means that commercial tactics is important. Right now, we sit with a quite comfortable order book.
So we think we have played this, so to say, tactically quite well and been able to take out a margin so far, which has been healthy. And now it's more an execution game where, to some extent, the price is given for a certain period of time in Europe before we kind of get the reset for the new season.
Settled. Thank you very much.
Thank you. And our next question comes from the line of Liisa Denise from Morgan
I have two questions. And the first one is a bit similar to the one of Joel Jackson just now. So I mean, specifically on Europe, which is an important market for you, we sort of observed the shift in buying patterns in the 4th quarter as well as Ammonium nitrate, calcium ammonia nitrate price adjustments. And it was partially due to lower urea prices and unfavorable weather for planting. But regarding this year, I would expect these deals to just that were foregone to come back.
And you just mentioned that you're seeing more just in time buying, Which may suit you commercially. But on the webcast this morning, you said actually not all sales may come back in the first half. So just wondering if you can give us some more Color on the European market dynamics and appetite for specialties and sort of the timing across different geographies within Europe, different Countries where we can expect some movement, if that's possible.
So specifically to Europe, I'm not sure I agree with the statement you had that we saw buying in 4th quarter. 4th quarter in isolation was a quite slow quarter for us as well as for the total market, where the season to date total market is down 9%. After a fairly good start of the season, early in the season. I would hope I neither said that we expected big deviation from a season point of view this morning. I think at least what we see is that we believe that there will be demand and there will be a catching up not only during the spring.
There might be some deviation for from the previous season, but we see that quite minimal. And I expect that spring will come again this year and otherwise, it will be applied.
Okay. I mean that clarifies for the spring season. So. And the other question is a bit more of a structure one. The European Green Deal called in its form to FERC strategy for a healthier agricultural system, including reduction of fertilizers.
I'm aware that Yara has a number of including CO2 reduction and green hydrogen projects. But how can you give us a bit more granularity on how you actually are going to respond potentially Significant reduction in fertilizer demand within Europe simply because of regulatory drivers. And how are you going to evolve your strategy as a business?
Also we think that it's very important that we have an end to end view on this and that we in cooperation with the regulatory authorities and other players are looking at how we can improve the total from production to harvest and consumption of the food being produced. And we do think that we have quite an insight on that whole value chain, and we will play an active part making sure that this is developing in for a more sustainable farming future. Exactly how much that would reduce mineral fertilizer or even if would reduce mineral fertilizer. I think it's too early to say. We see business opportunities in this year churn that will fall for the new reality, so to say, because we do think that's actually quite in the genes of the company to do more with us and to do it in a very responsible way, which is also linked to our mission of responsibly feeding the world and protect the planet.
So we do see that this is an environment that can become also positive for
so.
Our next question comes from the line of Thomas Wrigglesworth from Yara. Please go ahead.
From the Art of Winpromosius. Good afternoon. One question, if I may. Just about the Indian Yes. Obviously, that was a big missing component.
You've got operations on the ground. Could you give us a little bit of an update as to your thoughts on Indian supply and demand, particularly on the supply side. I think I read an article that said that Indian production was increasing in the April to January period. Is that something that you can confirm that actually Indian nudge in production is higher now? And then secondly, on the around that, how is your what can we expect from the kind of your development Specialties in India going forward into 2020 and late into 2021.
So maybe I start and then Head of Marketing Intelligence, Bartolome, will take more the macro level of what is happening around us. On a more micro level. We see so we have, as you know, acquired Tata Chemicals. And on the back of that intensified our downstream operation with feet on the ground. We are very encouraged with that development in the sense that we see very significant gaps in productivity.
And almost wherever we go with our crop concepts, we see quite significant increase in both quality and productivity. So, so far, we have seen have strong development in our premium products, and we continue to grow that. Of course, lately that has helped been helped by German Monsoon, where also for EUGENIA, December was a very strong month, very strong consumption. And part of our strategy is to leverage on the position we has been a player in the U. S.
Sector and grow both our more premium NPKs and other products as well as the so called Yara Luta range, the full year market nutrient range, which also is growing fast in India due to, among others, a big zinc deficiency. So on the micro level, developing according to plan. For the macro level, I'll leave it to Darcurumo. On the urea balance itself, it's developed positively through 2019. And as Helge mentioned, very, very strong monsoon.
They have had a lot of demand growth in the region, also some shortages in some areas, and India despite some increase. So the latest numbers through January now, from April through January. The season in that goes from April through March, shows some decreases in around 9,000,000 tons, which is quite considerably up from earlier. So a very strong development in India. Production up 400,000 tons, so we're rather stable, a little bit down early, a little bit up late.
1 new plant for Proton 3 has been producing almost a year, but that is somewhat offset by some production problems elsewhere in India, several incidents. And going forward, clearly, India is one of the 2 kind of, let's say, important uncertainties when it comes to supply of urea. And the other one is Nigeria. That India, they have plans to they are basically rebuilding or constructing 3, 4 new plants. That there are questions, Mark, about gas supply, gas pipeline connection and other uncertainties.
So let's see whatever that if you leave the consulting or publisher's news, you will see that, that India is one of the kind of hot topics on the supply side due to the uncertainty that our how much the actual is produced going forward.
Very good. And just as a follow-up, sorry, I missed the beginning of the call. Have you made any comments around what Yara thinks the impact might be from China's extended holiday and the impacts going forward from that. If you could share any insights that you're hearing from the ground, that would be very much appreciated.
Yes. It's very, very, very, very too early to conclude on that. I think you have factors mentioned both on the supply and the non side. We have supply factors like plants having extended closures either due to lack of manpower because people are asked not to move around. So if they went home for their holidays, they are encouraged to stay home, for instance.
That's complicated making those logistics a bit complicated loading, unloading of ships, other logistics. So we haven't seen any hard facts Yes. But the expectations are that production is still down following the holiday and looks to remain down for a while, the way it now looks. Now the global market doesn't have a huge need for Chinese exports at the moment. That could maybe be a good thing for the global market because it's other than this is our plant that is located on Hainan Island.
There is that both ships in and out of China have loading and unloading difficulties due to these problems. And then you have the demand factors that, that I also mentioned that this year on just the complication of getting the product around the country might lead to a consumption drop as well for nutrients and other type of products. So I think the need to kind of to judge what the next fiscal this will be is very hard at these stage.
Great. Thank you very much.
Thank you. And there are no further questions at this time. We've got one more question come through from the line of Thomas Law from Arctic. Please go ahead.
Hi, good afternoon. I missed the start of the call, but I just have one A question related to the realized nitrate price in the quarter. That seems to be $20 above kind of the average of from publications is also down by $20 year on year relative to $40 year on year for publication prices. Should this be part of due to the fact that you have sold more volumes at the start of the quarter? Or is that not an issue?
I think this is where, yes, we all need to make our pricing strategies and tactics. And that is, of course, built partly on our market intelligence in terms of when we sell volume and how we price volumes. We had a good start with a good hit on the price, which triggered volume. Then we have basically had, I would say, constant drop of nitrogen price continuously after that. In spite of that, we have been able to balance the situation and trigger some demand at key points in that journey.
As I said, we have now a situation where we have a new order book and where we are quite comfortable with where the pricing is sitting now in the European season. So out how and when and what reason. I hope this is a total of experience and pricing tactics that we can see a bit wet in also in the numbers. Okay. Thank you.
Thank you. And there are no further questions at this time. So I'd like to hand back to Saul for closing remarks.
Okay. Thanks very much to everyone for joining the call, and hope to keep the conversation going. So thanks for your time. Thank you. Bye.
That does conclude our conference. Thank you for participating. You may now disconnect.