Good morning, good afternoon all and welcome to Yara's Q3 results conference call. I'm sure most or all of you have seen our important presentation from this morning, so I will My opening comments. The EBITDA excluding special items in IFRS 16 increased by 49% in the quarter? And the results reflect lower energy costs, higher production and strong premium deliveries in line with our strategy where we Prioritize value over volume.
We are delivering on our long term targets operationally with higher production, Reliability and Energy Efficiency and commercially with strong premium product sales and realized prices, Improving sales and marketing EBITDA per tonne. As you may also have seen, we this morning also announced the share buyback program. This is the Q1 where we are within our targeted range of 1.5 to 2 times net debt EBITDA, which we announced as part of our capital allocation policy at the Capital Markets Day in June. And the announced buy program would, by the 30 September numbers, bring our net debt EBITDA back to approximately 2x. This means that we will buy back approximately 0.5% of our outstanding shares by the end of the year, But this represents 0.8% of our shares outstanding when we also include the proportional redemption of shares owned by the Norwegian state or equivalent to approximately NOK800 1,000,000 at today's share price.
With these
Operator, it looks from
As of the moment, sir, No questions that I'm seeing on the queue. Okay, sir. We now have our first question. And this comes from the line of Thomas
3, if I may. Firstly, on the share buyback, how should we think about this going forward? Is it each quarter you're going to Renew the buyback? Or will it be as we get towards the end of the year, you'll make a decision about top ups for How should we think about the continuity of a share buyback program? The second is We've focused on near term earnings.
Obviously, you've started the Q4. We've seen a little bit of weakness in new prices, but I wonder if you could give us an overall picture for the Q4 because it looks to me that the consensus is still Relatively light on a full year basis versus if you were to kind of repeat the same level of 3rd quarter performance again in the Q4, which So you highlight with your data on the supply growth that we've seen a very significant amount of capacity addition In India, over this year and last year, and yet production is weaker in India year over year in 2019, I wonder if you Any insights as to what you think is happening with regards to the Indian level of production given that we all probably thought that was going to be a positive
Start on the question on the buyback. As I alluded to in the start of the call, we have a New capital allocation policy from the Capital Markets Day in June where our target range of net debt EBITDA is to be within 1.5 to 2. And this quarter, we are at 1.9%, a little bit above that. And as such, what we're doing now is announcing A buyback program, which by the 39,000,000 will bring us back up to 2. Going Forward, we will base our decisions on this capital allocation policy.
But what we have said is that under this Policy, the current improved market fundamentals combined with the extended improvement program and the increased hurdle rate for new investments may lead to increased Dividend capacity beyond the ordinary payout ratio going forward.
This is Ferg Knutson, Sales and Marketing. On the market side for Q4, Obviously, the Northern Hemisphere is in the low season. So it's quite normal that This is a quarter which is cubes are above both ways, either weight and have a relatively heavier weight in Q1 or we could see renewed buying now during Q4? So far, quite normal season. A lot of markets still remaining in Europe, Relatively low urea positioned in the market in Europe, which is positive.
But exactly how this will play out between Q4 and Q1, obviously, remains to be seen. Brazil, I think you will see that we will continue what we have tried to do, which is to Optimizing our portfolio and partly step out of the most marginal sales that would typically be low margin blends. And we are continuously trying to position ourselves in segments where we can Grow our premium product range. This has been successful during Q3, and We expect that we will continue this strategy into Q4, which obviously is in season Quarter in the Southern Hemisphere.
On your India question, it's correct and that The table with new capacity has done not our own assessment. It's the CRU assessment that we use due to our own guiding policy. That a large part of the presumed capacity growth for 2019 would be in India, while the facts Our production in India is stable. So far this year compared to last year, it was actually lagging quite a bit
Due to
relatively strong production in August September, it's kind of more or less caught back to equal same period last year. There are a number of issues. There is actually a new plant that has started up. So that's not a wrong assessment, but they have had problems on the production side, Partly due to technical issues with some other plants, partly due to weather issues. 1 has to Closed due to lack of water, for instance, etcetera, because of very hot and dry summer they had initially until the monsoon really hit.
And I don't know if you've also seen now that one producer, so I just announced that they are closing down everything. So Temporarily, because they do not have cash basically because of the delays in the subsidy payments From the government. So that's also a kind of a power gain that's ongoing. So I think it's important to see the whole India situation a little bit beyond just those Plants that have been revitalized, to put it that way. There are 2 more in the pipeline that are struggling with gas pipelines Actually, and it's a little bit unclear exactly when they will be able to produce.
So India is with a strong demand development. They've been very active buyers and you've probably seen that just today they got approval from the Department of Fertilizer to buy 1,100,000 tons of urea. And at least some of the consultants are actually think they actually they were actually looking for more, so which could also be positive going forward?
Okay. Great. Thank you very much.
Thank you. And we'll now take our next question. And this comes from the line of Ben Isaacson. Your line is now open. Please go ahead.
Hi, this is Ziyad Sada
in for Ben. Thanks for taking our So just on Slide 30 of your presentation, you show how nitrogen supply growth is going to go down, but you are excluding China.
So could you just please talk
a bit about how you see the development of the Chinese nitrogen market? Specifically, could you comment on their policy for negative demand growth domestically? How you see permanent versus temporary plant closures? How much new capacity you think is coming online? And then what that all means for exports?
Thank you.
Yes. There's a lot of issues. Of course, I mean, they China On the policy side, on the demand, they initiated a zero growth policy a couple of years back, which Which you could say is already a little bit outdated, you might say, because the supply issues they've had over the last Yes. They produced 70,000,000 tons of urea in 2015 and now just above 50,000,000 tons at the moment. They are the usual rationalization because of cost pressures and even more important maybe the environmental concerns from a lot of these plants.
So they have on nitrogen, they have basically achieved these political targets on the demand side and more. So I think that is the market forces that is going to be the most important. And there is very little New capacity in the pipeline and there are still plants that are, we think, due to close. And a couple of key provinces. Again, reiterated that there is going to be curtailment also this winter going forward as there has been in the past.
So, yes, so it doesn't look like there is a lot of kind of the dynamics on the neither the demand versus the supply side. But, course. What you're probably wanting to kind of assess is how the kind of availability from China would kind of match The need for Chinese exports from the rest of the world is, of course, you don't have to tweak parameters too much to get quite a wide range of, let's say, outcomes. So, yes, it's a key question.
And I think domestically in China, this is positive for a company like Yes. We tried to do more with less, as we say, and this is very much what Also the Chinese government would like to see in agriculture. So our more, you could say, high end Way of producing with premium products and not at least the knowledge Base, we have will open up opportunities for Yara going forward.
Okay. Thank you. And we will now take our next Question and this comes from the line of Joel Jackson. Your line is now open. Please go ahead.
Hi, good morning. Joel Jackson from BMO. I had a few questions. I'll ask 1 by 1. Typically, in the last few years, we've seen Nitrate prices or CN prices to be strong in the Q3 and hold that strength in the Q4.
This is a bit of a different year. Maybe you can comment a little bit about that nitrate pricing and a little bit different now than we've seen in the last couple of years.
Yes. First, I think we as we said this morning, we feel that we got Off on a good foot, so to say, in Europe on the pricing. I think we have seen a Somewhat falling price trend on nitrogen during the second half of the quarter, Which obviously influences the buying pattern. I think we are, As was said in the introduction, looking at value over volume, and we keep I believe that there is a lot of market left in Europe, and we try to price our products according to the, Let's say, return for the farmer on grain in Europe. And there we have had a quite stable pricing on the hybrids versus green?
So we look at many parameters when we are pricing our product, And we will continuously look at both the commodity underlying prices, but also for sure The farm economy in Europe.
Okay. And the NBK premium was, I think, strong again in the 3rd quarter, similar to 2nd quarter and these are some of the strongest MBK premiums you've had in a few years. What is the trend on the premium there and what's affecting the market in the 4th quarter? Thanks.
Yes. Obviously, on NPK, we have had a falling price trend on particularly P and K. And we are, as you are, in many segments, which are much less We are also working very deep in the markets, deep into the value chain where some of the volatility is, let's say, being less Radical or less. There is more slowness in it. So I think it is a part Our business model that we would see less volatility in our NPK than in the general commodities.
And in periods When commodities fall like they do now, we would typically benefit. And there is a slowness in the adjustments, which obviously is by design. So we feel that we have had a good balance between Margin and volume, this is always something we look at very carefully. And right now, we have felt we can hold price and continue to focus on those market segments that allow us to take out that premium.
Maybe I'll ask 2 more questions. So how much of your gas is locked in right now In both the Q4 and the Q1?
Yes. So our policy and our exposure It's spot. So what you have is you have a delay by 1 month to the spot prices into our system. But We are and we have always been spot on the gas prices.
Just making sure can change into the Q1. And then my final question would be, where what is your view on consolidation in the nitrogen industry right now? Do you think another wave of consolidation is needed? We've seen some interesting moves in the last weeks that have been finalized here. Do you think another way of consolidation is needed?
And what might that look like if you're able to comment?
Yes. So as we've said at our Capital Markets Day and many times before, our focus now is on Increasing our returns through delivering on our strategy and delivering on our committed investments and our improvement program. That is really the main priority that Yara has and which we believe is really what is the most Important
priority for us
to have as a company. And then we, of course, we are in the industry as everybody else, but That is our priority to deliver on that strategy.
Thank you.
Thank you. And your Next question comes from the line of Andrew Stott. Your line is now open. Please go ahead.
Good afternoon, gents. A couple of questions, one short term, one medium term. Can I come back to the mix comment? I listened to the webcast this morning and you explained gross margin improvement and the limited impact from the 5% drop in volumes is the NPK element. Is that Just a reference to blends versus compounds, is that what's happening there?
Even then, I struggle a bit with the maths, if you can help me, just if it's the case that selling 50,000 more compound material gives you that uplift in gross margin, Just anything you can help me on there? I'm just struggling a bit squaring that. Secondly, the NEL JV on the clean hydrogen. Just wonder where you are with that from a chronological standpoint, from a capital commitment standpoint. And I'm also interested Anything you can tell me about the process because it wasn't particularly clear to me?
Thank you.
Yes. So NPK for us consists of the compound NPK, but also some of the blended NPKs. And typically, we would be much more exposed to the commodity pricing in our blended NPKs versus the compound MPKs, that has to do with the market segments that we serve. With our compounds, we typically position them into cash Crops or higher value crops, where again, the farmers are more after productivity and quality Of the end produced than necessarily, let's say, fighting for the cheapest input on the NPK? And I think you can find in the report the split between compound and and blended?
Yes.
But that was really my question because you've only sold an extra 50,000 tonnes, 3% growth. And your total NPK portfolio is down 5%, which is in line with your total deliveries. So I'm just surprised about the I mean, if you tell me that margins are so good in compounds, then fine. But otherwise, I struggle a bit with the math.
So Andrew, hi, this is Thor here. Hi, Thor. We have linked the NPK Strength to this, but the mix effect more broadly is describing that We have had a better development for our own produced products, which we normally have higher margins on compared to The more trade and commodity side. And so there is quite a wide range of, let's say, dollar per ton margin, Let's say between a 3rd party sourced sale, trade sale and a high margin NPK or for that matter Urea produced in Bell Plains. So it's a broader comment, which is about decayed.
And maybe just for the second question, Andrew, would you mind repeating because we picked up it was about the NEL Corporation, but could you repeat the full question?
Yes. Just looking for more background on it, that would be helpful. Just what the production process is? What sort of CapEx would you be looking at? Just Where we are with the current JV?
Because I wasn't too familiar with it.
Yes. This is Lars. Thanks for asking. As you will recall from the Capital Markets Day, reducing our CO2 footprint, the look at Decarbonization is one of our strategic priorities. And this is not essentially joint venture.
This is a collaboration agreement, which is really Looking into different pilot technologies around decarbonization and a renewable production of hydrogen? And there's no material capital associated with that collaboration.
And would you put it on a timeframe that's meaningful? So are we looking at The next few years or the next decade? Or is it too early to know?
Yes. No. So what we've said is a 10% reduction towards the 2025 when it comes to CO2 equivalents and for us to be climate neutral By 2,050. And this is one of many initiatives that we have within that space to sort out and support that journey.
Okay. Thank you. Thank you. And your next question comes from the line of Lisa Denis. Your line is
So most of my questions have been asked, but 2 So one, could you walk us through the change in net operating capital for the quarter and in your net in your improvement program, a little bit more granularity And that and the main movements. And I'm not talking about the prepayments, which are unwinding, but the other changes. And then back to the sales and marketing department, which was up 24%. I'm just wondering, you discussed the NPK side, but there are other movements that are worth mentioning in that?
Yes. Thanks. This is Lars answering your first question. As we said this morning, in the quarter in isolation, then from Q2 to Q3, The increase is actually lower than last year. But of course, seasonal prepayments In Brazil, a reduction in that and also related then to the gas subsidy payments in India, Where there is a time lag.
If you look at the KPI where we are measuring operating capital base on a rolling 12 month basis, The main driver behind that is an increase on the inventory side where we made, as Thijs has been talking about earlier, Deliberate commercial decisions about the trade off between value and volume in the marketplace in line with our strategy?
Okay. So you're actually saying that
sorry, on the first question. So the change in inventories is mainly due by the That is higher own produced inventories rather than 3rd party inventories. Is that correct?
Yes.
Yes.
And your next question Yes. So the next question Sorry,
there was a follow-up operator to that question.
And I think it was a question on Prices, whether this was only NPK or also in other areas. I think if you look at Page 5, You will also see that the realized price on nitrates is clearly up from a year ago, As is our NPK. So I would basically say that all our nitrate based products Generally, we have had a good margin increase. Also in a falling nitrogen Markets, we tend to get premium on the more differentiated urea products that we have like Urea Plus S. So generally, we have been able to have a lift in our margin on most of our premium products?
And Lisa hi, this is Thor. Just To add, just be aware that when you're looking at the sales and marketing results in isolation, there's kind of the flow through external factor here, which is, As Thade describes, higher realized prices relative to most of the reference, but there's also an internal pricing Elements because when the production segment sells to sales and marketing, it's at a fixed premium. So that if you like the variation in premiums goes to sales and marketing.
And it's also an element here of the higher value products like the growth in YaraVita, which brings A quite interesting margin element, although volume wise, it is a small product.
Okay. Thank you, operator. We're ready for the next question.
Yes, sir. Thank you. And the next one comes from the line of Tanu Adeshi, your line is now open. Please go ahead.
Yes, hi, thanks. A couple of questions from my side. First is just going back to the discussion on NPK Compound. Is it fair in your view to assume that given the decline in potassium and phosphate pricing, You benefit from that in the short run given that your NCA prices on a compound side tend to be More sticky, I guess. And is there a way you can quantify that impact at all in the next few quarters?
If possible, maybe it would be Easier if you could give us how much potash and phosphate you buy from 3rd party suppliers annually. Maybe that might be useful. Second question is, on your committed growth, I'm struggling to see where is that visible in the numbers in 3rd Because if I look at your overall deliveries are down. You said it's value over volume strategy. But even the premium deliveries, when I look at Q3 versus last year is essentially flat.
So maybe can you help us understand where is the benefit from the committed growth program visible in Q3? Thank you.
So in the K, I think we have Commented in the sense that we are in segments that are less exposed to the commodity nutrients We have also said that we have balanced value versus volume. So we have, to some extent, Prioritized to get out value. But it's also important to say that obviously over Fine. There is a price correlation. And over time, I think we will see that we are able to Continuously take out the margins that we typically have seen.
There is, For us, short term an advantage when P and K is dropping in the sense that we tend to be able to extract More of a fixed price policy, if you like, in periods where the commodities, the underlying commodities or dropping? So it depends a bit on now the development the further development of P and K, whether we will Hold price and we'd see that we can go through this period of decline in P and K. That really depends a bit now on the continuation of the P and K market.
Okay. Seitan, hi, this is Tore. I'll try to answer your second question. I think the first disclaimer in that I think when you're looking at an individual quarter, You will be normally more impacted by your Sales rate and how the market what volumes the market can absorb that quarter. And it's not I would say given the flexibility we will normally have on inventory, it's not normally whether an individual growth project Started up or not that impacts what you sell in the quarter.
But having said that, I think when you look at our for example, On Slide 4 in the presentation, we have increased NPK sales. Of course, we have been expanding our NPK plants, so you can make the link there. We also have some urea expansions. We have higher urea sales. On nitrates, it's down a bit, but as we in the presentation, Q3 last year was a record quarter.
So I think there we sold more than we produced. We will we recognize the kind of Need to make this link more strongly. And I think you can expect us to do that in particular in connection with the full year results. So but that's probably about what we can say right now.
Thank you.
Thank you. And the next question comes from the line of Christian Schlim. Your line is now open. Please go ahead.
Yes. Good afternoon. Two questions from my side. The first one is the dividends from associates. I noticed they were flat broadly flat on a 9 month basis whilst your own EBITDA is sharply up.
I'm not aware of an investment project at Cascog. So could you maybe explain why distribution hasn't gone up? And the second thing is I'm missing a bit in the regional market comments any color on North American market. You have de emphasized reporting
a bit on the U.
S. Market. So A bit on the U. S. Market.
So any input on season to date deliveries and Imports, etcetera, would be helpful. Thanks.
No, it's Heidi. Can you maybe comment on our position with the variable plane in Canada? It might be really different than the total North American market. But we struggle, as you know, with the Expansion in North America and the fact that we don't really know how much nitrogen they have produced until, let's say, 5 months after the end of the quarter when TI announced their numbers. Of course, we follow trade and so long we follow some export, and so far, let's say, in the for the 2 months this season that is reported, July August, imports of nitrogen is roughly Similar to same period last year, but that rounds in what was produced and those numbers are not public yet.
So we don't feel like there is any point in kind of for us to make kind of short term comments on the developments in a North American market and It will be so much guesswork.
Yes. And this is Lars on the other question. If I look then through our notes on Page 14 of the reported dividends from equity accounted industries are indeed In line with last year of €97,000,000 this year versus €98,000,000 last year.
Yes. And why is that?
Was your yes, could you please Repeat the question, Christian, because
Yes. I mean, I'm wondering why that is given that everywhere else you are posting profit increases And we don't see it doesn't seem to be reflected at Cascos. So is there any other Going on offsetting that or?
I think that's of course, a acquired CapEx business is quite different to Yara's business overall. So We are kind of mainly exposed to the urea price and producing and selling about the same as they did last year. Syara has, of course, many other products, many other markets, which in some have improved. And for example, the European gas Situation has been a big positive for us and has not impacted. So I don't know if others would add to that.
And I think
I can also add to that that
the share of net income in equity accounted in the States is also indeed in line with last year of $52,000,000 this year versus $54,000,000 last year.
For that line, yes, 1 month, Yes. We are quite basically the same.
Yes. So again, if you look at Page 5, you will see that there we are Using FOB, Egypt, but it's practically exactly the same. And given that gas cost Probably it is pretty stable as well. In Qatar, it is to be expected that the number is pretty much the same.
Okay. Thank you. Thank you. And we'll now take our next question. And this comes from the line of Saarz, your line is now open.
Please go ahead.
Hi, Saarzyn from DIMBLE. Just Two questions. 1 on the gas forecast for Q4. In Q2, you said you had $160,000,000 expected benefit in Q4. You repeat that now in Q3.
However, looking at The details in your slide pack, it seems like the underlying gas price assumption for Europe is roughly $1.80 lower. What's driving that, please?
Ivan, I think that's one we'll Probably need to follow-up separately.
Yes. As I can say, the amounts we specify each quarter are just Mechanically following our sensitivities on the forward price, but we're happy
to follow-up with that formula separately to clarify.
Okay. Thanks. Second question is on the market side in Europe. We have heard a lot Of press releases and talks lately about Romania restarting up to 1,500,000 tonnes. To my knowledge, these are assets that have been prepared for more than 5 years.
Have you seen any increased sales from Romania? Or what's your thoughts on these restarts?
Yes. I mean, generally, I think you understand can understand the logic when And gas the way gas prices in Europe has collapsed that people are looking at, are there something that we can way of exploiting this? And Okay. Here we are. There are some more some plants that have been done for some years.
Can we try to get them back into production? I guess that's a logical thing. I think a bit too early yet to say how successful it will be in the end. As you say, they have been all down for many years. And sometimes there are you don't just find, let's say, skilled labor and so forth easily.
So that's, of course, not That's never easy to put it that way. So but that's right. There are ongoing efforts.
And when it comes to the Yara side of that, we haven't seen much movement yet. We as we always do, we balance out globally our position and we play with the stock position we have and we play with the overseas opportunities we have to try to balance out the market As best we can, and that's also what we are doing presently.
That is clear. Thank you.
Thank you. No further questions have came through at this time, sir. Please continue.
Okay. Then I think thank you to everyone for participating and look forward
Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.