Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Yara International ASA (YARIY, Financial) reported a strong EBITDA of $513 million for the second quarter, reflecting improved margins in a stable price environment.
- The company successfully increased deliveries by 3%, driven by higher demand in Europe and lower curtailments compared to the previous year.
- Yara International ASA (YARIY) is initiating a cost and CapEx reduction program, targeting a $150 million reduction in fixed costs and CapEx by the end of 2025, which is expected to improve financial performance.
- The company has a strong strategic position in the ammonia market, with the largest ammonia system globally, providing flexibility and resilience.
- Yara International ASA (YARIY) is well-positioned to benefit from tightening nitrogen markets, which are expected to support margins and drive value-accretive growth.
Negative Points
- Return on invested capital for the quarter was 6.1%, below the company's mid-cycle target of 10%, indicating a need for improved returns.
- The company faced a $126 million currency loss, primarily due to euro-denominated internal funding positions, impacting earnings per share.
- Flooding in Brazil negatively impacted the Americas segment, resulting in a volume impact of approximately 140,000 tonnes.
- The effective tax rate for the quarter was high at 92%, mainly due to unrecognized tax losses in Brazil.
- Despite improved earnings, the return on invested capital remains below satisfactory levels, prompting the need for cost and CapEx reductions.
Q & A Highlights
Q: Can you elaborate on the impact of the flooding in Brazil on Yara's operations and financials?
A: Svein Holsether, CEO: The flooding in Brazil affected our operations significantly, particularly in Rio Grande, where Yara Brazil has its largest production facility. We incurred an inventory write-down of approximately $17 million, classified as a special item, and additional costs related to lost volumes and other expenses amounting to approximately $8 million for the quarter.
Q: What measures is Yara taking to improve its return on invested capital (ROIC)?
A: Thor Giaever, CFO: We are initiating a cost and CapEx reduction program aiming to reduce fixed costs by $150 million and CapEx by $150 million by the end of 2025. This involves focusing on core business areas and scaling down activities where returns are not materializing as planned. We expect these measures to improve our ROIC by 2 percentage points by the end of 2025.
Q: How is Yara addressing the high effective tax rate reported this quarter?
A: Thor Giaever, CFO: The high effective tax rate of 92% is primarily due to tax losses in Brazil that have not been recognized as deferred tax assets. Excluding this effect, the effective tax rate would be 20%. We are working on optimizing our tax strategy to mitigate such impacts in the future.
Q: What is Yara's strategy for handling the tightening nitrogen market?
A: Svein Holsether, CEO: We are focusing on leveraging our ammonia system, which is the largest in the world, to increase volumes at a low investment level. This, combined with our cost reduction efforts and strategic partnerships, positions us well to capitalize on the tightening nitrogen market and improve margins.
Q: Can you provide more details on Yara's partnership with PepsiCo Europe?
A: Svein Holsether, CEO: Yara has partnered with PepsiCo Europe to supply low-carbon crop nutrition products to their farmers. This collaboration aims to reduce the carbon footprint of crops and increase nutrient use efficiency. The initiative has already started with potato farmers in Continental Europe, and products grown using Yara's low-carbon nitrate will be available in supermarkets this fall.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
