Good morning, good afternoon, everyone, and welcome to the Yara fourth quarter results conference call. This is Lars Røsæg. I am the CFO of Yara International, and I'm joined by my colleagues today for this Q&A session. I'm sure most of all, or 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 $62 per ton. Production-wise, we are benefiting from lower gas costs by NOK 170 million saving this quarter. On the other hand, we saw an unsatisfactory performance in some of our plants, while others had improvements in the quarter. New business saw continued earnings growth, and our free cash flow improved NOK 850 million compared with a year earlier.
In addition to that, we are delivering on our capital allocation policy with a 50 NOK per share dividend proposed and a 0.8% buyback during the first quarter of 2020. In a minute, we will invite everybody for questions. We did have one follow-up item from this morning, namely a question on the progress of the project in Brazil. For that follow-up, I leave it to our EVP Production, Tove Andersen. Tove, please.
Thank you, Lars. The question we received during the presentation was to give some explanations on why we are experiencing a delay at our Brazilian project. If I start with the Rio Grande project. It's a fairly straightforward project from a technical perspective. However, we have experienced issues with our 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 optimal performance by our contractors, so less productivity than what we have estimated and normally see, and we have worked very closely, especially 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 Salitre project is a different situation. In Salitre, we have two main parts. We have the beneficiation plant, and you have the chemical plant. The beneficiation plant was ready since last year and has been operated since then. The issue that we are focusing on there is to increase the P recovery. That means how much phosphate you're taking out of the raw material. We have a target to reach between 60% and 70% recovery, and we have been up on 50%. We are then working on different both process optimization, but also re-engineering solutions to increase the recovery. 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 2014.
As we have been working on it, we have realized that it will take longer time to realize the chemical plant versus initially estimated to make sure that it is accordance to our standards and procedures. 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.
Thank you. Participants on the phone, if you would like to ask a question, it's star and one on your telephone keypad. If you wish to cancel, it's the hash key. Once again, that's star and one to ask a question. 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 one at a time. You've obviously had some production hiccups in the fourth quarter 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? Thanks.
Yeah, Joel , thanks for that. What we've said is that while we have improvements in several plants, we also have some outages which will impact the 2020 performance but not the impact of 2023 targets. For ammonia, we've estimated that to 360,000 tons, and for finished products, we've estimated that to 760,000 tons. As you will recall, we have moved to follow up on the underlying value drivers, which then at any point in time can be valued at the concurrent margins in the market.
Thank you for that. Are those numbers net of any other improvements, and is that mostly a first half year impact?
That's the impact on 2020 from these outages and the project which we described this morning.
Okay. Thank you for that.
Joel, just to follow up, so in case of any doubts, you can then compare these to the 2020 numbers that we put out in connection with the capital markets day and you also find in our second quarter report.
Thank you. Two more for me. NPK premium is at five-year highs, was up in the fourth quarter from middle of the year. Should we expect a drop back and add a more normal premium? Would it be gradual? Would it be sharp in the first quarter? How should we model the next little while?
I think some adjustment is probably to be expected. To explain a bit why we come into this situation, first of all, we have a very thorough segmentation in our downstream operation. That means that we target segments that are depending on a strong input and less volatile in terms of pricing. We also work deeper in the market and deep in the market. Normally, we have 1 level between ourselves and the farmer. In some markets, we even go direct. That means that we, in a way, can be on the pulse in a different way than maybe other players that are much further back in the value chain. I think it's also fair to say that the price elasticity is 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. For that reason, we choose to hold. We're taking some hit on volume by doing that, but we have evaluated a much stronger impact on the market. Over time, there might come some, let's say, more correlation between the commodity drivers. We think we have a quite resilient model, and we think this quarter really demonstrates the resilience of that model.
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. I think 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 and things.
It's Terje Knutsen , Chief Marketing again. I'm not sure we should comment too much on the specifics of, let's say, the more extensive crop market in the U.S. because that is a market where we are relatively not so strong. 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. It is a much more higher volatility in terms of when the market is ready to buy and the delivery pattern. We see 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.
We think we have played this, so to say, tactically quite well and been able to taken out a margin so far, which has been healthy. 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.
Thank you very much.
Thank you. Our next question comes from the line of Lisa De Neve from Morgan Stanley. Please go ahead.
Hi. Hi, everyone. Thank you for taking my question. I have two questions, and the first one is a bit similar to the one of Joel Jackson just now. Specifically on Europe, which is an important market for you. We sort of observed a shift in buying patterns in the fourth quarter, as well as ammonium nitrate, calcium ammonium nitrate price adjustments, and it was partially due to lower urea prices and unfavorable weather for planting. Regarding this year, I would expect the sales that were foregone to come back. You just mentioned that you're seeing more just-in-time buying, which may suit you commercially. On the webcast this morning, you said actually not all sales may come back in the first half.
I just wonder 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?
Specifically to Europe, I'm not sure I agree with the statement you had that we saw buying in fourth quarter. Fourth 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 our leader 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 from the previous season, but we see that quite minimal and expect that spring will come again this year and fertilizers will be applied.
Okay, thank you. That clarifies for the spring season. The other question is a bit more of a structure one. The European Green Deal called in its Farm to Fork strategy for a healthier agricultural system, including reduction of fertilizers. I'm aware that Yara has a number of initiatives, including CO2 reduction and green hydrogen projects, but 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? How are you going to evolve your strategy as a business?
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. We do think that we have quite an insight on that whole value chain, and we will play an active part in making sure that this is developing in for a more sustainable farming future. Exactly how much that would reduce mineral fertilizer or even if it would reduce mineral fertilizer, I think is too early to say.
We see business opportunities in this future that will call for the new realities, as you say, because we do think that's actually quite in the genes of the company to do more with less 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. We do see that this is an environment that can become also positive for Yara.
Okay, great. Thank you very much for that.
Thank you. Our next question comes from the line of [Thomas Wrigglesworth] from [Yara]. Please go ahead.
From [Yara]? Well, don't promote us. Good afternoon. One question, if I may. It's just about the Indian market. 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 nitrogen production is higher now? Secondly, around that, what can we expect from your development of specialties in India going forward into 2020 and maybe into 2021?
Maybe I start and then Head of Market Intelligence, Dag Tore Mo, will take more the macro level of what is happening around us. On a more micro level, 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 productivity. Far we have seen a strong development in our premium products, and we continue to grow that. Of course, lately that has been helped by a good monsoon, where also for urea, December was a very strong month, very strong consumption.
Part of our strategy is to leverage on the position we have being a player in the urea sector and grow both our more premium NPKs and other products as well as the so-called YaraVita range, the foliar micro-nutrient range, which also is growing fast in India due to, among others, a big zinc deficiency. On the micro level, developing according to plan. For the macro level, I leave it to Dag Tore Mo.
Yeah, on the urea balance itself, it's developed positively through 2019. As Terje mentioned, a very strong monsoon they have had led to a lot of demand growth, but in the region, also some shortages in some areas in India, despite an increase. The latest numbers through January now from April through January, the season in India goes from April through March, show some deficit in around 9 million tons. Which is quite considerably up from earlier. A very strong development in India. Production up 400,000 tons. We're rather stable, a little bit down early, a little bit up late. One new plant was brought on three, has been producing almost a year, but that is somehow offset by some production problems elsewhere in India, several incidents.
Going forward, clearly India is one of the two kind of, let's say, important uncertainties when it comes to supply of urea. The other one is Nigeria. India, they have plans to They are basically rebuilding or constructing three, four new plants. There are question marks about gas supply, gas pipeline connection, and other uncertainties. Let's see. If you read other consultancy or publishers' views, you will see that India is one of the hot topics on the supply side due to the uncertainties about how much they actually want to produce going forward.
Very good. 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 forwards from that? If you could share any insights that you're hearing from the ground, that would be very much appreciated.
Yeah. It's very too early to conclude on that. I think you have factors mentioned both on the supply and demand side. You have supply factors like plants having extended closures, either due to lack of manpower because people are asked not to move around. If they went home for their holidays, they are encouraged to stay home, for instance. That complicated making both logistics complicated, loading, unloading of ships, other logistics. We haven't seen any hard facts yet, 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. 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 other than the [Sisal] plant that is located on Hainan Island, both ships in and out of China have loading and unloading difficulties due to these problems. You have the demand factors that are also mentioned, that the sheer of 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. I think to judge what the net effect of this will be is very hard at this stage.
Great. Thank you very much.
Thank you. There are no further questions at this time. As a final reminder, star and one if you would like to ask a question. We've got one more question come through from the line of Thomas Lorck from Arctic. Please go ahead.
Hi. Good afternoon. I missed the start of the call. I just have one question related to the realized nitrate price in the quarter. That seems to be NOK 20 above kind of the average observed from publications and is also down by NOK 20 year-on-year relative to NOK 40 year-on-year for publication prices. Should this be partly due to the fact that you have sold more volumes at the start of the quarter, or is that not an issue? Thank you.
I think this is where we all need to make our pricing strategies and tactics. That is, of course, built partly on our marketing 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. We have basically had a, 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 good order book and where we are quite comfortable with where the pricing is sitting now in the European season.
Exactly how and when and what reason, I hope this is a total of experience and pricing tactics that we can see reflected also in the numbers.
Okay. Thank you.
Thank you. There are no further questions at this time. I'd like to hand back to Thor for closing remarks.
Okay. Thanks very much to everyone for joining the call, hope to keep the conversation going. Thanks for this time. Thank you. Bye.
Thank you. That does conclude our conference. Thank you for participating. You may now disconnect.