Good morning. Good morning, and welcome to the presentation of Yara's Second Quarter Results. Our presentation today will be by our CEO, Svein Tore Holsetter and our CFO, Peter Roestberg. And it's now my pleasure to introduce Iara's CEO, Svein Tore Holsetter.
Our Thank you very much, Tor, and good morning to all of you. As our. Usually, we're going to start with safety. And the picture that I'm showing you right here is from our annual Safety Day that we had for the 3rd consecutive year, and it took place on April 26. And our this is an event that really demonstrates how we work our safety in Yara.
Safety is not something that you can dictate. It's about involvement. It's about engagement. Our end of the day. And the way we conduct the safety day is that we have certain themes that are in common for all locations, but how we execute is different from each location and then with Aarken with sending messages from New Zealand and then going from time zone to time zone throughout the day.
And our with hands on engagement, we take the corporate management team and the direct reports, we were present at 70 locations this our end of the year. And again, very happy to see the engagement in the whole organization around this. Our outlook. Looking then at our total recordable rate, which is a lagging indicator, but it's still a good our indication of how our performance has been on safety. Our And what we see here is that at the end of the second quarter, we're at 1.4 on a rolling 12 month our basis, which is the lowest level we've been to so far.
Behind these numbers are real accidents. We had EUR 40,000,000 in the first half of this year, but it's down from EUR 57,000,000 in the same period last year. So we can say that the improvement has meant that our 17 fewer people who have been injured. But still, we have had 40 accidents and we've had some serious accidents. And we do believe that it's possible our goal and our ambition.
Turning then to the results. And before I go into the details here, I would like to look at some of the fundamentals, our and then we'll come back to most of this during the presentation. But in short, we'll look at the demand side and here on the our to your left side on the grain price index, we can see that our the stock levels are falling and are expected to continue to fall and that the price index is our improving, although I should also note that this is from a low level. On the supply side, the our projected production increase for 2018 is well above the demand growth, but after 2018. The picture is more positive.
The energy price picture is challenging with our strong LNG demand in Asia, and this is causing an increase in gas cost in all regions. And as you see our here to your right hand side, you see the increase in imports of LNG, where you see that in Asia, it's gone from 106.2 to 121 our and that's mainly driven by South Korea and by China. And in Europe, it's pretty much our stable, but the result of this is significantly increased gas price. Looking then our at the 2nd quarter deliveries, starting with the European deliveries. They're up by 6% for the industry compared to a year our end of the year.
And keep in mind also that this Q1 was quite slow in demand. So we see some picking up here in the second quarter. Our the global urea price did rebound in June with a significant increase through the month, our but this has had limited impact in the 2nd quarter results. And this is normal due to time lags from order taking until delivery. And I want to highlight or to stress that we're mentioning these points to our separate the uncontrollable parts that impact our results from the controllable parts of our results and that we're our not satisfied with the absolute financial performance, and we're working hard on all the controllable part to improve those.
Our and first among those are is capturing the Yara Improvement Program, which is on track, and I will come back to that later on in the presentation. Our our total fertilizer deliveries were up by 11% compared to a year earlier, and our that's with increases in all markets except in Brazil. The acquisition in India and the acquisition in Brazil accounts for about 5 percentage points. When we look at Brazil, the fertilizer deliveries are actually 19 a percent lower than same period last year. And this is a result of the truck drivers our strike that took place in the quarter.
And looking at the financial impact of that, that's approximately $15,000,000 and we expect a similar impact in the Q3. Delivers in Europe are up by 18% and the larger increase compared to the industry deliveries of 6%, our it's partly because of lower import, which again is mainly urea our and also due to the agronomic benefit of nitrates that are supporting than the demand for nitrates our customers in the late spring as what we've seen in Europe this year. I should also say that the our industry deliveries that I showed on the previous page at 6%. That's an estimate. So we don't have the final numbers for June yet.
So that's our still an estimate, so that there could be revisions to that if you react to the big difference in our increase our sales compared to industry sales. Turning then our to the prices. And as I already mentioned, we've seen a global urea price pickup in June, but it had limited impact on 2nd quarter prices. Yara's nitrate prices were up by 4%, while our NPK prices were up by 7%. However, higher energy prices more than offset the higher selling prices.
Our the nitrate premium towards the end of the quarter, as you see towards the enders to your left hand side was about $25 our end of Q2. And since then and that's also due to increased urea prices through the quarter and new nitrate season our prices. So at the end, dollars 25. Since then, the urea prices have improved further, but so have nitrate prices. So our today, the equivalent would have been approximately $50 for Germany.
Our then on the Yara Improvement Program. So far, it has delivered $310,000,000 of sustained benefits, our And we are on track on reaching our revised target of USD 350,000,000 As you might recall, when we launched the program, our ambition level for 2018 was to reach $300,000,000 So we already reached that and we increased this at the beginning of this year to 3 our 2015. We are doing quite well in all projects and particularly strong reliability improvements on within the NPK production and also our procurement excellence project is delivering good results. We've rolled out the program now to 21 of 29 sites. And by the end of 2018, this year, we will only have 3 sites left.
But I still our want to emphasize that implementing this way of working will take time. We will see volatility. We've had production setbacks as well in the Q2 and this year. But we are moving overall in the right direction, and that's what you see our capture here in the improvement program where we reached then $310,000,000 now. And our Then looking at the impact in the last 12 months.
And as you're I'm sure you're aware of, we have been hit hard with our lower selling prices for fertilizer and by higher gas costs. And when we take that combined effect, that's approximately our $900,000,000 negative if we compare with where we're at in 2015. Our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And
even if
the Yara Improvement Program is a long term value driver, it is also helping us in the short term to our improved EBITDA results also for the last 12 months as you see indicated here. And our We'll try to put numbers on that. That's approximately $260,000,000 impact from this. So 24% our EBITDA in the last 12 months is driven by impact from the Yara Improvement Program. Our end of the year.
And the program will continue to deliver results and we will have even more benefit as the cycle our recovers. Then I will now hand you over to Peter, and he will take you through the financial results in more detail.
Our Thank you, Sven Tore. So I note that the stock is up 5% on these results. So they must be very good results compared to expectations. Our Svein Tore just talked about the $260,000,000 actual improvement that improvement program delivered our using last 12 months prices. In spite of that, the EBITDA and the earnings per share are somewhat down.
Our This is mainly due to the energy costs, but also that the depreciation from our new assets has started to come as well as the interest rates from the higher debt. Our So year on year, the reported EBITDA was 16% lower or 5% if you look at the underlying our EBITDA. On the EPS side, that was about half. If you look at the reported EBITDA sorry, earnings, that's, of course, our results, which is a currency translation loss, about 2 thirds, so NOK 192,000,000 of that concerns the value of the dollar denominated debt and our SEK140,000,000 of that concerns intra Yara debt. And this is caused by a weaker our stronger dollar, which is fundamentally good for Yara.
So this effect, although it shows very negative in the accounts, it's actually good for the cash earnings of Yara our. This also includes a $44,000,000 negative special item. Our The majority of that is a provision for restructuring, which is a part of the Yara Improvement Program, but it also includes a tax adjustment for Kafka our. If you look at the variations on the our EBITDA side. As mentioned, that was about 5% year on year.
The price was up quite a bit on the margin as well. The volumes our Fundamentally positive, which reflects the season catch up in Europe. Svetore mentioned that Europe was up about 18% year on year, our Of course, partly offset by the truck strike in Brazil, which meant 19% lower volumes in Brazil. Our We guided for an energy cost increase of about SEK 90,000,000. It ended up about SEK 86,000,000.
And then you have the currency effect, which our reflects the year on year weaker dollar, which is fundamentally negative for Yara in this case. We put our new investments and M and A in the other category, our So Cubatao, Freeport and Babrala is in that category, our But the earnings from those sides are more than offset by additional fixed costs, in particular from the digital venture that we have kicked off. Our So the analyst expectations, the consensus, that was about SEK 329,000,000, which might become came in some 2 our So we do not give guidance on results, but again, we think it makes sense to have a look at the energy costs for the next two quarters. And if you take the 10th July forward prices and you apply that to the number of MMBTUs we buy in Europe our you will end up with something like $100,000,000 $70,000,000 higher gas costs year on year, our investors, respectively, for the 3rd Q4. So of course, we hope we're wrong and that it will be lower, but that's what the current estimates show.
And this, of course, changes our. So that's the gas price. If we look at the investments, on the left side, you will see the investments our that we have planned and committed for the peak of the investment cycle. So the peak of this our chart on SEK 2,300,000,000 is for 2018 and the peak of the peak, so to say, has already been in the first half of twenty eighteen, our Where the majority of the growth investments and M and As came in. For the second half, the majority of these investments as well, the SEK 1,000,000,000 planned our yet to do.
They are in the early part of that and mainly concern turnarounds that we have coming up. Our For 2019 2020, there is a lower investment level plan, and there's a pretty high threshold to consider new projects and new M and A. So the focus will clearly be on delivering what we already have in the pipeline. As for the debt, the 10% increase on the net debt is driven primarily by the investments. And just a comment in the last page of our report, the majority of the net operating capital change is driven by seasonal prepayments in Brazil as well.
So that's the CapEx. Some details on the improvement program. Our Whereas the CapEx now is coming off, the improvement program is still ramping up. So Antoine mentioned that we have Delivered $310,000,000 so far this year in recurring benefits. Our If you look at the Q1, we said that you would have to take down about 30% if calculated on current prices.
Our With the current prices and costs, the equivalent of those $310,000,000 is about $300,000,000 So we are closer to the 2015 our levels of savings but from different factors. So of course, costs are higher now and margins are lower. Our Still another thing worth to mention here is that the investments we plan to have at about SEK140 1,000,000, we have so far invested SEK18 1,000,000 our and it's likely that we will be able to capture the benefits without investing all of those SEK140. So you have high hopes for reaching the SEK350 without those investments. You will also notice that most so far comes from production volume, reduction in consumption of gas our customers and variable costs.
And the fixed costs will increasingly start coming in as of end of this year and next year. Our So that's on the improvement program. I'd like to hand back to Sartorius then to take us through a little bit of the outlook.
Our Thank you, Pette. Our So then in terms of prospects, demand growth is likely to pick up compared to the last three years as global grain stocks our relatively low and especially if we look at them outside China. And our there is a need for increased production in order to keep pace with the demand growth. Our but remember that for Yara, grain is it is important for the whole fertilizer industry. Our portfolio, we are impacted by a number of crops operating in 60 countries and across a lot of different crops our cash crops such as coffee, cocoa, citrus to name a few.
And this is due to our presence and our crop nutrition strategy. But certainly, we are impacted by the fundamentals in the fertilizer industry, and this is important for that. Our On the supply side, although new capacity additions are almost our half compared to last year. Higher utilization of existing facilities is our impact in the production level, and that's mainly due to North Africa. And our that means that also in 2018, we see a production increase that is above trend demand growth.
Our outlook. Beyond 2018, the urea demand supply demand balance looks set to be our gradually improving and nitrogen supply growth is, as you see here, forecasted to be reduced significantly after 2018. And current nitrogen price levels our investors and investors. Our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Speaking of the need to increase food production globally, Yara's our solutions, improve food production per hectare through products that help lowering emissions and increasing the yields and that perform better than the industry average. Our Yara's products have higher efficiency and promote a more optimal way of fertilizing.
It's more profitable and at the same time also with less pollution. Today, the farmers our customers are paid mostly based on quantity. And we'd like to continue to our influence that in the direction where farmers actually get paid also for how sustainable they run their farms, our also to get paid for the environmental footprint of the production. Today, 25% of greenhouse gas emissions our from agriculture and half of that again is due to deforestation. Our it is possible to do something about it, but we have to have the incentives in place and the incentives in place for the farmers as well.
And we'd like to have our CO2 footprint labeling on the food, which in turn would help the farmers to get paid for sustainable production. Our and promoting sustainable and efficient farming is very much at the heart of Yara's mission and vision, and that forms the basis of our strategy. And we have a strategy update by every summer, where we go through parts of our operation. This year, we've done a full revision of our strategy and the overall conclusion is that we'll focus even more on the crop nutrition activity. Our Yara will be the crop nutrition leader.
We will grow responsible solutions to the farmers, our to the industry and to society while delivering superior return on the capital. And we'll our through advanced operational excellence, through developing a culture of continuous improvement, by creating scalable solutions. We will sharpen our focus on farmers and the whole food chain and create differentiation our 4 industrial customers and then drive innovative growth by growing profitably within existing and new business areas when we will position ourselves to continue to shape the industry. Then turning to examples of that. When we look at advanced operational excellence.
It's as we already touched upon, it's the Yara Improvement Program, the journey towards continuous improvement. Our focus on safety. And in reality, these 2 go hand in hand. There is no such thing our as a good operation or a profitable operation over time that is not also a safe one. So these 2 are very much linked, but examples of what we are achieving within this our area.
Then on creating scalable solutions, we will sharpen our focus on the whole our food value chain and create differentiation also for industrial customers. Our we have already created and we can create even more shared value for farmers, food producers our Yara in this way. For farmers, this is about access to fertilizer technology end services that create higher quality, efficiency and crop revenues. And for the food industry, our it's to support the food industry on traceability, productivity, environmental footprint and our also to get reliable supply. And for Yara, this means better access to professional farmers, reduced financial risk and increased value pricing potential.
Our as part of our focus on strengthening our position in crop nutrition, solution our selling includes digital farming tools and services. These will be important growth vehicles for Yara going forward. Our and we have this year launched for the first time a planned digital farming solution called our At Farm in Germany and in France. And I'll pause now and show you a video of that application.
Our
our
our investors, geologists and chemists.
And as you shouldn't have our become
a computer scientist as well. We developed the most simple digital tool to make your work easier
and more efficient. Our a tool that is
the most simple digital solution for fertilization and the creation of application cards. Our a tool that increases yield and brings higher quality harvest. A tool that analyzes relevant data that is unbelievably easy to use our and creates recommendations powered by the Yara M sensor algorithm, enabling you to make the smartest decisions possible. Our
our end of Q2 presentation last year, we launched our efforts going into our digital, which is really about transforming our agronomic knowledge into the digital age. And our in this last year, we spent tremendous efforts to create this momentum. And I'm really pleased when I see the speed at which this is happening and also the reception that this has had with the farmers that have already implemented. Then on driving innovative growth. We will grow profitably within existing and new business areas, our and we will position ourselves to shape the industry.
Yara's growth investments and as our as Peter already highlighted, reached their peak in this year our with the products that we have listed up here, both with the Babrala acquisition in India, we have the Cubatao acquisition our production in Brazil and then also we opened the free pork ammonia plant that we have together with BASF our and then also investment in our existing locations. Our they will show a strong earning contribution, but mainly then from 2019. And as these growth investments in our common stream in 2018. The annual improvement or increase from this would be our 1,400,000 tons of ammonia production and 3,100,000 tons of finished fertilizer production. Our next question.
Then I'd like to round off with a summary of growth and improvement program our earnings effect that lie ahead for Yara. On the left side, we have added together the investments we're making both in the Yara Improvement Program and for our committed expansion projects and growth projects. And on the right hand our side. You can see the projected earnings from this on a 2015 baseline, our totaling $1,100,000,000 within 2020, equivalent to $2 per our share. So with this closing summary, I'd like to hand back to Thor, who will then facilitate the Q and A session.
So Thor?
Our okay. So we will then get ready for the Q and A session, where our presenters are joined by our Head of Market Intelligence, Dag Toore Moo. So if you have a question, please raise your hand and my colleague Nina will bring the microphone to you. Our please your name and company as you present the question.
Bruce Deason, Fearnley Securities. Germany our is passing stricter fertilizer rules that increase the time for following and make it our harder to apply fertilizer, for instance, on frozen ground. And Schleswig Holstein's passed the first implementation of these new rules. Our. Will this have some noticeable impact on demand for fertilizer in Germany next year?
Our
I think we already see a slight decline in Germany already this season. Our And of that, the late spring accounts for some of it. But we also think that these moves our to more stricter regulations on nitrogen application also already have an effect. And it's our This season at least it's to the benefit of nitrates application. There's been a sharp drop in urea consumption our according to our preliminary estimates, because I mean, urea without any form for additional inhibitors or something.
It's kind of getting kind of more or less out of the question. So we actually had a very good our seasonal nitrates in Germany because of these changes. Okay.
I have one more question. Praxair came with our force majeure declaration on carbon dioxide. And there seems to have been a shortage across Northern Europe, partly tied to your porcelain factory. Our Is this something that will have a negative impact or any impact on your Q3 results if you haven't been able to deliver the volumes our
So
our the
entire ammonia production in Europe has been impacted in Q2. Our and as you pointed out, we had an unplanned outage in Porchkren, which further restricted the access our to CO2 in Europe. The plant is back up and running now, our and the financial impact to us from this is minimal.
Our. Is there a next question? Should we go to DNB perhaps?
Our
Thank you. Evan Mading, DNB. Just following up on nitrates in Europe. Our We have seen very strong price increases for nitrates in Europe. We can also see in your slides that inventories for nitrates are quite low by our Is this just a catch up from a late spring or is there something else going on?
And I can also see that our French prices are up significantly while we haven't announced something for a while in Germany. Can you please elaborate on that please? And maybe second question our And also in other part of the world, in Brazil, you said the $15,000,000 EBITDA effect in Q2, guiding for the same in Q3. Our Can you share some additional thoughts on what's going on with the minimum freight increase and how volumes and demand is faring?
Our I can start on Brazil, and then I'll hand over to Dank Tore on our Lighttrades Europe. And clearly, the strike had a significant impact our operations in Q2, both in terms of getting the volume out, but also the financial impact. Our from that, we expect that this will take some time to sort out, and that's why we're expecting also an impact of this in the 3rd our as well. But beyond that, we are expecting that this will come back to normal operations. So at the moment, we expect that once we get through the Q3 that the impact of this will be limited.
Our Yes. On the European nitrate situation, let's see, I mean, as was said earlier, we had a weak Q1 because our So the late spring, we had very good sales in the first half of the season before Christmas, very strong interest in buying early, our But then it slowed down because of the weather issues in the Q1. So then we got very good phase in April, May, say, where we our very strong deliveries on the nitrates and basically everything as a catch up because of the spring. Our And then towards the end, when we set the first new nitrate price for the season, our You had an Egyptian urea price at around $220,000,000 and a relatively negative sentiment in the urea market our. At that time when we came with the first price, of course, what happened then in a very short period where our Egyptian price increased from $2.20 to $2.30 to reach roughly $2.90 in a very in a matter of relatively our Q1 results.
Our presentation today will be by our Q1 results. So then we have got the subsequent our price increases, but it also led to, of course, a lot of sales.
Our Germany versus France.
Yes. There is some regional differences on short term basis between our In the countries, also in Europe. And we sometimes see a little bit more, let's say, a different buying pattern. Let's say, our U. K.
Is the star example of a market where large professional farmers
our
make their decision. They want to buy a certain part of their needs early as a kind of a hedge. And they realize over time, as long as they our As let's say 7, 8 seasons out of 10, it makes sense to buy early. They automatically just buy early. And you have a little bit of the same pattern also our Developing elsewhere like in France, but we also see it like in Scandinavia and some also.
But let's say Germany is sometimes a little bit our less focus on the early buying patterns in maybe a little bit different farming structures also. Our And that combined with also sometimes a little bit more competitive environment with Polish producers, other producers our in the neighborhood as well. So you can get on short term a little bit different dynamics in the also in the various European
markets. Okay,
we move to ABG.
Our
Yes. Good morning. Benk Thunhausen from ABG. A couple of questions. It seems like that there will be a higher than normal maintenance stops during Q3.
How should we think about volumes and EBITDA effects of that? Our And secondly, at the last quarter report, we saw that CRU introduced several plants from India. Our could you give a little since you have now Gauss on the ground there, could you give a little bit update on that if you think they are progressing according
our So let me our start saying something about India and then I'll let Thao Turje give further information our On that, but yes, there are plants in India in the CRU forecast. And yes, the indications our that at least some of these are being constructed. Our struggling a bit to understand the profitability on an LNG based our greenfield urea plant in India at the moment, but it seems that some of these will our actually happened, but there are more than that included in the forecast, Dror. So I don't know if you want to add a further 2,
when we look a little bit
further out in time on India.
Yes. I don't know. It's hard to be specific. I mean there are 4 plants our That CRU has in that their capacity table at the moment. Our I don't know how much detail, but one of them, the Mattix plant, which has been constructed already but has run into problems with their feedstock.
Our We are now waiting for an LNG gas pipeline to be constructed. So when difficult, I guess, to assess the exact timing of that, but that plant is actually constructed. And then we understand there is particular activity on one other plant, our the one that CRU has for 2019 that seems to be running where the construction seems to be running relatively well and where there actually is our gas in the area. The 2 remaining ones also reported some activity, but more our remarks from our side to whether everything is kind of set up to function well with the feed from the feedstock and everything. Our So I mean our kind of assessment in general is that we would be surprised if our This capacity is brought on stream according to the time line that CRU has indicated.
That would I mean and you can say that also Truly based on empirical evidence in what usually happens to the developments of this nature.
Our Yes. So if you go back in time as well, there have always been quite a few Indian plants in the forecast and very few of them actually happening. But you should take into account that some of this will actually happen.
Yes. And on the turnarounds, we have this year 5 major turnarounds, our And 2 of them are completed, 1 is ongoing and 2 will start. And the longest time line, 1 is about to start. Our And in that context, the 2 that are completed are the most, let's say, profitable plants, the ones with the lowest gas cost, Berplena and Trinidad. Our.
So in that context, I do not think that the monetary impact will be stronger in the 3rd
our. We have another question from DNB.
Our
Yes. There's 2 questions, please. Our Apologies for many questions, but new expansions projects heading into the second half of our 2018. Should we expect a considerable contribution from the new expansion project that ramped up in Q2? Our And also on industrial, on scrubbers, we are seeing Wartsila Malouf Lawal and the others talking about very solid order our.
Have you seen anything similar for the industrial business? Thank you.
Our Yes. So as for the current projects, I mean, all the expansions that have been and will come online by our current price guidance there is about $90,000,000 EBITDA impact for this year, our Which is slightly down from earlier guidance of SEK150 1,000,000. So I guess that's the short on that. Our
And comment on the scrubbers. First of all, I'm really happy that there was legislation put in place. It did take some time our activity started to pick up, but yes, there is significantly higher activity level in that area, and we are experiencing the same thing.
Our Are there more questions? Our If not, there is also another opportunity at 2 p. M. Oslo time today when we will have a conference call. But until then, thank our