Yara to pay extra dividend as earnings soar above expectation

© Reuters. FILE PHOTO: A general view of the Yara ammonia plant in Porsgrunn, Norway August 9, 2017. Picture taken August 9, 2017. REUTERS/Lefteris Karagiannopoulos

By Victoria Klesty

OSLO (Reuters) -Norwegian fertiliser maker Yara on Thursday proposed to pay an extra dividend to shareholders after third quarter earnings topped forecasts as soaring prices offset higher gas costs that forced the company to cut output in Europe.

Yara's shares rose 6.9% to a four-month high on the results which come amid tight global supply of fertiliser, adding to growing concerns about food security.

It is one of several European companies that curbed production of ammonia, which plays a key role in the manufacturing of fertiliser, as energy prices surged following Russia's invasion of Ukraine. It has had to import ammonia from cheaper overseas sources to meet customer demand in Europe.

"Our returns are up, with strong margins more than offsetting lower deliveries," Chief Executive Svein Tore Holsether said.

But he told Reuters that Yara has no immediate plans to restart the curtailed production even though European spot gas prices have fallen steadily in recent weeks.

"We can't decide to ramp up production based on just a day-ahead (gas) price, we have to look at the expectations ... and the expectations for the forward prices are still high both in November and December," he said.

Buying ammonia, a key input factor, on the global spot market and importing it to Europe was far cheaper than to produce it locally, said Arctic Securities analyst Axel Jacobsen.

"What we have seen with Yara in recent years is that they can get a superprofit from buying ammonia and upgrade it - high gas prices have been advantageous for Yara because they have such good flexibility," he said.

July-September earnings before interest, tax, depreciation and amortisation (EBITDA), excluding one-off items, rose to $1.0 billion from $765 million a year ago, while analysts in a company-provided poll had expected EBITDA of $768 million.

Revenue rose 39% to $6.2 billion, in spite of the production curtailments, while analysts on average had expected 18% growth in revenue.

The board proposed an extra dividend of 10 Norwegian crowns ($0.9435) per share, and will also consider further cash returns including share buy-backs in the coming quarters, the company said in a statement.

Weighed down by soaring energy prices, Yara in August said it had slashed capacity utilisation at its European ammonia plants to just 35%, raising questions about the continent's ability to produce enough fertiliser for its crops.

Yara said it expects to pay $540 million more for natural gas in the fourth quarter than a year earlier.

Fertiliser prices have risen sharply over the past year, tracking higher energy costs. [UREA-GRMEA-INX]

($1 = 10.5988 Norwegian crowns)