Fertilizer International 502 May-June 2021
31 May 2021
Fertilizer financial scorecard
COMPANY RESULTS
Fertilizer financial scorecard
We compare and contrast the 2020 financial performance of selected major fertilizer producers, following the publication of fourth-quarter results.
Norway’s Yara International is investing in promising future growth areas such as green ammonia, partnering with Statkraft and Aker on Europe’s first large-scale green ammonia project.
Nutrien – a year like no other
Nutrien is the world’s largest crop nutrient company with a market capitalisation of more than $31 billion (Figure 1). From operations and investments in 14 countries, this fertilizer industry giant produces around 27 million tonnes of potash, nitrogen and phosphate products annually, distributing these to agricultural, industrial and feed customers across the globe. The Canadian company’s agriculture retail business also serves over 500,000 farmers worldwide.
The Covid-19 pandemic had a limited impact on Nutrien’s results, according to the company. Revenues grew by more than four percent year-on-year (y-o-y) in 2020 to $20.1 billion (Figure 2). Yet earnings (adjusted EBITDA) for the year fell by almost nine percent to $3.7 billion (Figure 3). Free cash flow – still impressive at $1.8 billion (Figure 5) – also declined by 15 percent on the previous year.
“2020 will go down in the history books as a year like no other,” commented Chuck Magro, Nutrien’s outgoing president and CEO. “While virtually every person, community and sector of the economy has been impacted by Covid-19, demand for agriculture products and crop inputs has shown incredible resilience.”
Nutrien primarily attributed the decrease in 2020 earnings to lower crop nutrient prices in comparison to the previous year. This negative factor more than outweighed the positive contributions to earnings, including strong growth in Nutrien’s retail business, acquisitions and greater operational efficiencies.
Nutrien is the world’s largest potash producer with a 21 percent share of global production capacity. The company achieved strong potash sales of 12.8 million tonnes in 2020, an 11 percent improvement on 2019 and the company’s second highest annual total. Some 8.0 million tonnes of this volume was destined for overseas markets with the remaining 4.8 million tonnes being sold within North America.
Nutrien’s 2020 potash earnings were 25 percent lower y-o-y, despite higher sales, due to lower realised selling prices. The company did, however, manage to reduce its average potash manufacturing costs ($59 per tonne) by $4 per tonne, relative to 2019.
Similarly, nitrogen earnings also decreased by 13 percent in 2020, despite a 700,000 tonne increase in sales volumes to 11.0 million tonnes and lower production costs, with lower selling prices being mainly responsible.
“Nutrien reported excellent results across our entire business. Our Retail Ag Solutions business delivered a record fourth quarter and we also reported higher potash and nitrogen sales volumes and lower production costs. Agriculture fundamentals began to improve in late 2020 and we are starting to see the benefit to our business from this cyclical recovery,” commented Chuck Magro.
The rise in Nutrien’s fourth-quarter earnings signalled improving market conditions during the last three months of 2020, being linked to strong retail growth, improving prices and higher potash sales volumes in particular.
“Global potash demand surpassed expectations in late 2020 and we now estimate world potash shipments reached record levels at approximately 68 million tonnes. Potash prices also improved considerably in late 2020, with US Midwest prices up nearly $100 per tonne at the end of 2020 compared to mid-year levels,” commented Nutrien.
The company also benefitted from the sale of its stake in Egypt’s Misr Fertilizers Production Company (MOPCO) during 2020. This generated net proceeds of $540 million. Nutrien says it will redeploy these proceeds to generate higher shareholder returns. The investment in MOPCO, valued at $300 million, had generated around $1520 million in annual earnings previously.
Yara’s earnings grow despite the annus horribilis
Norway’s Yara International – the world’s second largest fertilizer company based on market capitalisation (Figure 1) – managed to growth its earnings (EBITDA) by six percent to $2.2 billion in 2020 (Figure 3). Lower gas prices, higher premium product deliveries and a stronger US dollar during the year helped the company offset weaker commodity prices and a slight rise in underlying fixed costs.
Higher earnings were achieved despite a nine percent y-o-y fall revenues to $11.7 billion in 2020 (Figure 2), the latter reflecting lower fertilizer market prices compared to 2019.
Yara’s annual product deliveries rose to 38.1 million tonnes, a three percent improvement on 2019. This total included:
- 29.0 million tonnes of fertilizers
- 7.1 million tonnes of industrial products
- 2.0 million tonnes of traded ammonia.
Premium product deliveries grew particularly strongly – up eight percent y-o-y to 14.8 million tonnes. This included improvements in compound NPKs (+530,000 tonnes) and nitrates (+320,000 tonnes). Higher ammonia and finished fertilizers production (+115,000 tonnes) was partially offset by the closure of Yara’s Trinidad plant.
“Thanks to the dedication and efforts by our more than 16,000 employees, we managed to keep our plants running and made sure our lifesaving products reached farmers at a crucial point in time,” said Yara’s president and CEO Svein Tore Holsether. “I was both proud and very satisfied when we closed the books on a year that will go down in history as an annus horribilis.”
Svein highlighted major improvements in free cash flow (Figure 5) and the upward trend in return-on-investment capital (ROIC) over the last 30 months:
“[It] feels rewarding to continue to deliver improved prosperity through improving capital returns for 10 consecutive quarters and improving our free cash flow by $1.4 billion compared to 2019. This has enabled us to increase the level of dividend, even in such a challenging year.
“Through our strong focus on capital allocation and discipline, we are also able to invest in growth areas, such as green ammonia, utilizing our number one positions as ammonia producer, trader and transporter.”
Yara is uniquely well-placed in the ammonia market due to its leading positions across production, trade and shipping:
- Production: 8.5 million tonnes of capacity across 17 units.
- Trade: a global trader with more than 20 percent market share and around 3.7 million tonnes of global export capacity.
- Shipping & storage: more than 200,000 tonnes of maritime transport capacity (11 ships), 580,000 tonnes of ammonia storage capacity and 18 marine ammonia terminals.
Mosaic bounces back with strong results
Florida-headquartered Mosaic is a leading international phosphate and potash producer, being responsible for around 13 percent and 11 percent, respectively, of global phosphate and potash output. The company sold more than 28 million tonnes of products in 2020, with sales volumes split between three business segments:
- Potash segment: 9.4 million tonnes
- Phosphates segment: 8.5 million tonnes
- Mosaic Fertilizantes (Brazil): 10.6 million tonnes.
Mosaic described 2020 as a year of strong results. The company certainly bounced back in 2020 with a 16 percent rise in annual earnings (adjusted EBITDA) to $1.6 billion (Figure 3). This followed a difficult 2019 in which earnings tumbled by 36 percent to $1.3 billion (Fertilizer International 496, p14).
This earnings improvement was achieved despite a slight fall back in 2020 revenues to $8.7 billion, a couple of percent lower than in 2019 (Figure 2).
In another positive sign, Mosaic also generated net earnings of $666 million in 2020 – compared to a net loss of $1.1 billion in the previous year.
Mosaic’s 2020 performance was boosted by improved operational efficiency and higher sales across its phosphate, potash and Mosaic Fertilizantes business segments. Potash and Mosaic Fertilizantes sales volumes for the year both grew by over 10 percent, while the phosphates business segment delivered record MicroEssentials sales.
The company calculates that operational savings and efficiencies (‘transformation benefits’) across its businesses amounted to $318 million in 2020. In Brazil, Mosaic Fertilizantes alone achieved savings of $115 million last year. In Canada, meanwhile, shifting potash production from the idled Colonsay mine to the new Esterhazy K3 mine delivered a further cost saving of $100 million in 2020.
Mosaic reported an improving fertilizer market situation during the second half of 2020 – reflecting a tightening supply and demand balance for both potash and phosphates. In the US market, falling inventories and limited supply led to improvements in phosphate and potash prices during 2020’s third- and fourth-quarters.
“Our actions to optimize our portfolio of assets and invest in efficiencies, along with our reduced inventories and expected strong global fertilizer demand, position the company well for 2021,” said Mosaic’s president and CEO Joc O’Rourke.
In a major milestone, MOP production from Mosaic’s new Esterhazy K3 potash mine reached 1.3 million tonnes in 2020, and is expected to increase further to 3.2 million tonnes this year.
Record earnings at EuroChem
In a year of significant business growth, Swiss-headquartered EuroChem Group posted record earnings of $1.8 billion in 2020, a sector-leading jump of 17 percent y-o-y (Figure 3). This was achieved against the backdrop of the pandemic, lower average fertilizer prices and flat revenues (Figure 2).
Among the key contributors to the earnings rise at the Russian- and European-based fertilizer manufacturer were an increase in production output, strong iron ore concentrate prices (a key by-product) and favourable currency exchange rates.
Highlights of the year for EuroChem included:
- 12 percent increase in fertilizer sales volumes to 25.6 million tonnes
- Doubling in potash sales year-on-year to two million tonnes – this accounting for 12 percent of total fertilizer revenues
- Fall in the net debt/earnings ratio to 2.53 (Figure 4)
- Free cash flow of $86 million (Figure 5)
- 23 percent increase in capital expenditure to $1.2 billion.
The capital expenditure increase was linked to the decision to proceed with the EuroChem Northwest 2 (ECNW2) project to build a new 1.1 million tonne capacity ammonia and 1.4 million tonne capacity urea complex. EuroChem is also pursuing key expansion projects at its Usolskiy and VolgaKaliy potash mine sites in Russia.
“Our ability to post record EBITDA and decrease our leverage ratio in the conditions of the most challenging global pandemic in modern times speaks to our resilience, flexibility and governance,” said EuroChem Group CEO Vladimir Rashevskiy. “With the help of meticulous planning, we have avoided any significant disruption to the business and kept our customers supplied with the nutrients they need to help feed the world.”
He continued: “These results underpin our growth ambition to reach the top of the fertilizer industry by maximizing our vertically integrated business model and forging ahead with highly promising expansion projects such as EuroChem Northwest 2.”
ICL – tough year with a strong finish
Israel’s ICL Group is a leading producer of potash, phosphates and speciality fertilizers with a market capitalisation of around $8.1 billion (Figure 1). The company’s annual revenues declined by four percent to $5.0 billion in 2020 (Figure 2). This decrease was mainly attributed to a $56/t fall in the average potash price, compared to 2019.
Full-year earnings also fell by 17 percent y-o-y to $990 million (Figure 3). Operating cash flow, at $804 million in 2020, was similarly down 19 percent on the previous year (Figure 5). ICL nevertheless described cash generation as “strong” due to its continuing focus on the “optimisation of capital expenditure, working capital as well as the implementation of efficiency measures”.
ICL’s potash ($1.3 billion) and phosphate ($1.9 billion) business segments contributed 27 percent and 39 percent, respectively, to overall company revenues in 2020. The company’s speciality fertilizer business, Innovative Ag Solutions, also generated 14 percent of revenues ($0.7 billion).
ICL’s potash sales at 4.7 million tonnes in 2020 were 548,000 tonnes higher y-oy. This was linked to production increases and higher sales to China, Brazil, India and the US.
Potash output from operations in Spain and Israel reached 4.5 million tonnes in 2020 – up almost nine percent on 2019 levels – with output at ICL’s Dead Sea plant reaching record levels following recent production upgrades. Polyhalite production (Polysulphate® ) at ICL’s Boulby mine in the UK was also up 12 percent y-o-y to 709,000 tonnes.
“To be certain, 2020 was a challenging year – for ICL, its employees, its customers and its communities – however, we are coming out of a tough year with a strong finish, and we believe we are well-positioned for 2021,” said Raviv Zoller, president and CEO of ICL. “In 2020, our focus on innovative products drove record operating income for specialty phosphates and Innovative Ag Solutions division. We also had a record year at our YPH joint venture in China… and we broke the annual potash production record at The Dead Sea.”
ICL’s recently commissioned a food-grade phosphoric acid plant in China, as part of its YPH joint venture with Chinese phosphate producer Yunnan Phosphate Chemicals Group (YPC). The new plant will provide up to 70,0000 t/a of food-grade acid when it ramps-up to full capacity.
Production and sales volume records at CF Industries
Full-year revenues ($4.1 billion) and earnings ($1.4 billion) both fell at North American nitrogen producer CF Industries, contracting by 10 percent and 16 percent, respectively, y-o-y (Figures 2 and 3).
CF linked the drop in annual revenues and earnings to a 14 percent fall in the average selling price for its products in 2020, at $203/t for the year versus $235/t in 2019. This in turn was connected to increased supply availability for nitrogen products, with lower energy costs driving operating rates higher. The effects of the decrease in the average selling price were, however, partially offset by an increase in CF’s annual sales volumes.
The Illinois-headquartered company was still able highlight a number of positives, including its cash flow generation and record operational performance in 2020:
- Free cash flow of $748 million (Figure 5)
- Four percent increase in total nitrogen product sales volumes to 20.3 million tons – a new company record
- Record annual and quarterly ammonia production figures of 10.4 million tons of 2.7 million tons, respectively, for the whole of 2020 and the year’s fourth-quarter.
“Our team’s outstanding execution in 2020 produced multiple records for safety, production and sales volume, and delivered strong results in a challenging environment,” said Tony Will, president and CEO, CF Industries Holdings, Inc. “Nitrogen industry dynamics entering 2021 are the most favorable we’ve seen in nearly a decade, as rising grain values and higher global energy prices are driving significant price appreciation for nitrogen products. We expect that these conditions will provide a very positive backdrop for the year.”
K+S drives down costs and debt
In a difficult year, revenues at German potash and salt producer K+S fell by nine percent y-o-y to e3.7 billion (Figure 2), while earnings (EBITDA) for the year declined by more than 30 percent to e445 million (Figure 3).
Lower potash prices and a very mild winter had a particular negative impact on the company’s earnings in 2020. Earnings were also hit by one-off costs. Administrative restructuring linked to the sale of its American salt business and measures introduced to deal with the Covid-19 pandemic both hit earnings by about e40 million each, according to the company.
“The recovery in potash prices in the course of 2020 was weaker than expected. The mild winter in North America and Europe also negatively impacted sales volumes of de-icing salt,” commented K+S.
The company described the general operating conditions in 2020 as challenging. “Despite the difficult conditions, we are not satisfied with the earnings [EBITDA] achieved in 2020,” said Burkhard Lohr, the chairman of K+S. “On the other hand, we made good progress with the measures we could take ourselves.”
Dr Lohr was referring to the successful implementation of operational improvements, business efficiencies, and a package of debt reduction measures at the company.
K+S was able to increase fertilizer production to 7.3 million tonnes in 2020, for example, an improvement of more than 15 percent on 2019. Some e2.5 billion in divestment proceeds, expected from sale of the company’s salt business in the Americas, should significantly drive down company debt. K+S also anticipates a 30 percent reduction in administrative costs (60 million) in future due to the restructuring associated with this sale. These savings add to the e150 million cost reductions (synergies) already achieved in 2020 in areas such as procurement, logistics, production, and sales and marketing.
PhosAgro takes advantage of favourable conditions
PhosAgro is one of the world’s leading integrated phosphate fertilizer producers. The Russian company was the only major fertilizer producer to deliver growth in both revenues and earnings in 2020.
PhosAgro’s full-year revenues at RUB 25.9 billion ($3.5 billion) were two percent higher y-o-y (Figure 2), while earnings (EBITDA) rose by 12 percent to RUB 84.3 billion ($1,168 million) (Figure 3). Free cash flow was also up by 150 percent on 2019 to reach RUB 42.5 billion ($582 million) in 2020, a new record (Figure 5).
Revenue growth was driven by higher fertilizer sales volumes in 2020, as well as being linked to higher fertilizer prices and beneficial foreign exchange changes in the year’s fourth-quarter.
PhosAgro’s full-year fertilizer sales and production both increased by five percent y-o-y to around 10 million tonnes. The company was able to raise output to meet higher demand in key markets, thanks to the construction of new plant capacity and plant upgrades. The domestic Russian market accounted for 29 percent of the company’s total 2020 fertilizer sales – almost the same share as in 2019.
“The rise in Nutrien’s fourth-quarter earnings signalled improving market conditions during the last three months of 2020.”
2020 earnings were boosted by a fourth-quarter improvement of 64 precent y-o-y to RUB 18.4 billion ($241 million). This end-of-year hike was driven by “an increase in fertilizer prices while global prices for raw materials remained low”, said PhosAgro.
The company also managed to reduce both net debt and its net debt/earnings ratio during the year to RUB 156.9 billion ($2.1 billion) and 1.86, respectively, by the end of December 2020 (Figure 4).
PhosAgro CEO Andrey Guryev said: “We experienced favourable market conditions during the year. Excellent demand and the affordability of fertilizers, on the one hand, and restrictions on the production of phosphate-based fertilizers in global markets, on the other, enabled us to increase sales of these products by more than five percent year-on-year.”
He added: “All the investments in the development of production facilities that the company made in previous years were instrumental in this. Increased production of fertilizers – and an improvement in our brand structure in favour of high-margin complex fertilizers – enabled us to strengthen our position in the Russian market and increase sales to Russian farmers by almost 10 percent.”
