Okay. Good morning, and welcome to the presentation of Yara's First Quarter Results, which will be made by Yara's CEO, Svein Tore Holsetter and CFO, Peter Oster. And after that, we will have a Q and A session as well. So I would like to then introduce Sven Tore Wolfsetter.
Thank you very much, Cor, and good morning to all of you. And As usual, we will start the presentation with going through our safety as this is our number one priority in Yara. And in the Q1 this year, we had 21 recordable Accidents, that's a reduction of 25% compared to the same quarter last year. And that takes us to a total recordable rate of 1.6%. This is the lowest level we've been at and thank to all our employees as well for all the work that they put into making Yara a safer place to be.
We work on safety according to our Safe by Choice program, and That's a systematic way of working with safety, much in line with how we do on continuous improvement. And when you combine that with passion And we're looking after each other and ourselves. We get real results as we see right here. But we still have accidents. We still have serious accidents, and we're working relentlessly to bring this number down to 0 because now I've been talking about numbers, and it is important to remember that behind these numbers are real people that get injured at work.
And it's someone's father, someone's mother, someone's sister, someone's brother. And that's the approach that we need to have at it. And every accident that we have is unacceptable. Moving then to the Q1 results that do reflect the business environment. And we will come back to most of these topics during the presentation.
But in short, the nitrogen market, as you see here to your left, is still impacted by an oversupply situation. Food prices are starting to improve, but not yet to an extent that has any impact on nitrogen demand. And in Europe, both nitrogen deliveries and producer input costs are impacted this quarter by colder weather. So we get a double impact, both because more gas is required for heating, which dries up gas prices and then also due to colder weather, which means a later spring. I want to stress that we're highlighting these topics only to separate the uncontrollable factors that are impacting our results and also that we are not satisfied with our absolute financial results for the quarter.
And we're working hard on all controllable parts of the operation, all levers in order to sustainably improve our results. Our operational improvement program, the Yara Improvement Program, is on track at $275,000,000 at the end of first quarter, and that's up from $240,000,000 at the end of 2017, and we'll come back to more on that in our presentation. A positive aspect of the results this quarter is that the nitrate margins have improved compared with a year ago. And on the left hand side here, we have highlighted the European Nitrate margin picture. And you can see that the positive impact on the nitrate prices more than offset the increase in gas prices in the same period.
However, as you also can see here on the right hand side, our deliveries are impacted. So the industry deliveries are down by 7% for the 1st 9 months of the season, and they're down 22 percent compared to the same quarter last year. And for Iara, we've had a reduction of 18% of our European deliveries in the first quarter, so somewhat better than the overall European market. In Brazil, 1st quarter deliveries are down by 1% in the industry, and the other deliveries are down 12%. However, our premium product deliveries are up by 2%.
The margins are weak in the broader Brazilian commodity and blend fertilizer market, and we have chosen not to compete in the lowest margin segments in this Q1. We do continue to focus on our premium products and to ensure growth there. And in that segment, the value creation per tonne and the value added per tonne is significantly higher. For the second half of the year, and as you know, the main season in Brazil, the demand outlook is more positive given the stronger soybean prices that we're seeing now. Moving then to production.
We have an increase in ammonia production of 13% for the quarter. But that also includes the impact of our acquisition in of the Babrala plant in India, which was completed on January 12. And if we exclude that, the underlying improvement is 6% compared to Q1 last year due to higher reliability. Moving then to finished goods production. We were up 2% in absolute numbers.
But in underlying numbers, it's 2% lower than the same period last year, and it's lower for two reasons: a somewhat more complicated product portfolio, meaning that it takes more to produce the tonnes, which we have not adjusted for and also due to somewhat lower reliability on finished goods production in the Q1, but then we're also comparing to our other strong Q1 last year compared to Q4 last year, we're in line with that quarter. I also want to say that we haven't sustainably achieved a higher reliability on our total portfolio in Yara yet. This is something that will take more time implementing continuous improvement and lean operation. It's not something that is done overnight. We have to expect volatility in the implementation.
This is about incremental improvements over time. But in total, they will add up to significantly better production and also a significantly better impact to our bottom line. So expect volatility, but we're off to a very good start. And that can be seen in our improvement program, which I mentioned, was at $275,000,000 now. And as you recall from the Capital Markets Day back in February, we did increase our target rate for this year from $300,000,000 to $350,000,000 to be achieved this year, and we are well on our way to achieve that.
Moving on to EPS. Our underlying earnings for the quarter are 29% down compared to Q1 in 2017. And that decline reflects both lower deliveries and also a higher depreciation. Our reported earnings included an $8,000,000 foreign exchange gain and a $7,000,000 of negative special items, which is mainly the impact of the stamp duty for our acquisition in India. Last year's reported earnings included a $69,000,000 exchange gain and fourteen $1,000,000 of negative special items.
Both reported earnings and EPS, excluding currency and special items, are impacted by higher depreciation. It's about $0.10 per share impact from this, and this is due to new expansions that are now coming on stream. 2018 is a very important year of execution for Iara, and we're then talking about our growth pipeline. A total of 7 major projects are coming on stream this year, including M and A, greenfield expansions and also brownfield expansions. So we'll now take a look at these products, which are going to give us an additional 1,400,000 tons of ammonia production and 3,100,000 tons of finished fertilizer production in our portfolio.
3 of the 7 projects are have started or are in the start up phase now, starting with Babrala, as mentioned, that we acquired on from Tata Chemicals on January 12, which is giving a very strong production asset to our portfolio then in India, but also a very strong footprint in India that we can build on to create a larger market for premium fertilizer. In Postkund, we're now ramping up our largest premium products plant and with additional capacity, and the ramp up is progressing very well. Last week, we inaugurated the ammonia plant in Freeport in Texas that we own 68% of, together with BASF, who own 32% of this plant. It's a very efficient plant, both from an investment perspective, where we buy hydrogen or source hydrogen straight into the plant, which eliminates the whole front end CapEx of the plant. It also means that it has a very good variable cost performance.
And then when you include that it's within the BASF facility, we also get synergies that's a highly efficient plant. Moving then to the 4 other major projects that are coming on in 2018, Sloyskiel, and I know several of you attended the Investor Day that we had in Sloyskiel late Last year, we are now approaching finalization of that project. It's a revamp of the plant. It's a decommoditization of the product portfolio and also improving the product mix. In Salitre in Brazil, we are continuing production of our mining operation in phosphate to have a stronger integration with the rest of our operations in Brazil.
And we will get a larger and stronger impact from this when the chemical operation opens next year. Then Cubatao, the nitrogen assets that we are about to acquire from Vale. We're then integrating our Brazilian position, strengthening both the production and industrial footprint in Brazil, and we expect that to be done by midyear. And then lastly, Koping, where we it's a revamp and also an increase of TAN production capacity for the mining sector. In January, I had the pleasure of attending the opening of a smaller but still very important growth project in Brunsbitel in Germany, and I will now show you a film about this project.
The DEF market is basically growing in every segment you will imagine Having a diesel cylinder. Any diesel cylinder in Europe and US, its NOx emission needs to be treated. And the best way to treat it, there is no other is to go through the SCR technology that will require AdBlue. AdBlue is the key reagent for the technology, it's also known as DF, diesel exhaust fluid in North America.
Having a new and upgraded facility here at Brunsbuttel will facilitate and support that ever increasing demand, not only from the point of view of capacity, but also in terms of safety and security of supply.
For Shell, it's great news to see that our partner Yara invests significantly in AdBlue and further strengthen the AdBlue supply in Europe.
From a supply chain perspective it was very important to create this facility.
The Abloy facility here in Brunsbytel has a very high capacity with its tank of 17,500 cubic meters. The total capacity can add about as much as 1,100,000 tons per year.
Well, the loading facility for the deep sea vessels This advantage that we can also load different grades whether the customer wants 50% solution or 32 point 5 percent solution. We can do the in line blending while we are loading the vessels.
The Yara Brunsbitel Facility will mean more DEF for us in North America, greater supply, greater stability and reliability of supply.
For the truck loading, It's a fully digitized loading facility where you could do the training, the registration and everything 20 fourseven. The customer can get whatever concentration they would like, whatever volume at whatever time.
We consider Yara a strategic partner of ours in North America. We collaborate on both supply and demand challenges that we face, and we are growing our businesses
together. We see the opening of the production facility at Yara Poolspruitl as a lighthouse to secure supply security.
This project contributes to the mission and the vision of Yara because we want to protect the planet, And the AdBlue product is exactly doing that. With the 1,000,000 tons of AdBlue that we can produce out of this
It is indeed a very interesting and exciting product where you combine good business, but also doing something that is meaningful for the environment. And AdBlue is definitely part of the solution to clean air in Europe and in European cities because it dramatically reduces NOx emissions. And with the SCR technology and AdBlue, you can take out up to 95% of NOx emissions from trucks and cars and provide for more healthy urban areas. Jarabronspittel will then produce 1,100,000 tons of AdBlue annually, 20 fourseven operation, meaning that we will have stronger reliability, stronger flexibility and even better quality to our customers in Europe and overseas. The AdBlue at this plant alone will reduce NOx emissions equivalent to the NOx emissions from the transport sector in Germany, Switzerland and Austria combined.
So it has some real big impact. And When you look at the totality, this really works because even if you have a larger increase in the number of cars in Europe compared to 1990, the NOx emissions in Europe have been reduced by 57%. So we see a positive future for AdBlue for two reasons. Even though fewer diesel cars are produced in Europe now, the number that are sold with FVR technology that uses ADBLUE has increased. And also stricter EU legislation than elsewhere in the world is still being implemented, which will further improve air quality and increase the need for AdBlue due to higher consumption as a result of this.
Then I will hand over to our CFO, Petter Ospberg, who will take you through more details on our results and also our improvement program. So over to you, Thad.
Thank you, Sven Tore, and good morning. As Wainte Ori talked about, AdBlue business has gone quite well. And I would say overall, industrial has delivered Impressive results. Their EBITDA was €53,000,000 which is 17% up on last year's €45,000,000 which is an external result, which I guess we wish we could have across the portfolio. Overall, the EBITDA was down 3% year on year.
So even though it was higher than Q4 last year, comparable quarter, it was down. If you adjust for special items, it was down a total of 5%. And looking at the EBITDA bridge, it mirrors what Svein Tore says. The main effect for this was an increase in the prices and margins, which sadly were more than offset by lower deliveries, higher energy cost as well as currency translation of the fixed costs. So if we jump into this, we saw that the analyst expectations for the variance and the scale of the variance more or less matched ours.
The consensus estimate was $393,000,000 compared to ours of 3.77, which is 4% below.
That's okay.
Volume differences, again, Svetura talked about it. The Brazilian reductions were were almost offset by higher deliveries in Latin America. And the main impact here was nitrates and NPKs in Europe, 21% for nitrates and 14% for NPKs, lower than Q1 last year. On the price side, it was also predominantly nitrates and EDKs, but this time on a global level. For energy costs, again, we can blame the cold spell.
We guided the $27,000,000 increase, but sadly, it ended up €46,000,000 higher in Europe and the U. S, and the remaining €4,000,000 came from outside. Currency, as I said, was mainly U. S. Versus euro and Brazilian reals and a translation of the fixed costs.
On the special items side, we have a positive variation of SEK 7,000,000,000, but that was due to a negative effect of SEK 14,000,000 last year. The actual sum is minus 7, and that's due to the stamp duty in India, the Vabrala acquisition and the positive effect from Derivatives. On the other side, we have 2 things, main things. We have white certificates, which is linked to energy reduction initiatives in Italy. And we have the underlying EBITDA of the acquisition in India.
And As we have done earlier for the remaining 1st year of that acquisition, those earnings will be put into the other category for the Varens. All right. If you look into the cash position, the main impact This quarter was due to investments, and the main impact of the investments was the $435,000,000 acquisition of Babrala, but the total impact and net impact was an increase in the net debt of $500,000,000 in the quarter. If you go into the individual items, the investments, as I mentioned, was chiefly Babrala, but it was also linked to the maintenance investments going on and to the expansion projects. The main investments here were the Freeport ammonia plant, which, as Sventuri said, is in start up now.
It was the Salitra Mining Project and the Rio Grande expansion. Net operating capital change, both due to the cost of the stock and the increased stock that we have and also seasonal receivables increase. And then we had a dividend from Cofco, which together with the cash earnings netted out the debt. If you look at or that increased to SEK0.5 billion. If you look at the CapEx plan, this year's estimate is SEK2.2 billion, partly due to the acquisition of Babrala, as mentioned, but also the Cubatao complex, which we now believe will be consumed in the Q3 of the year.
In addition, we need to mention that we have 5 major ammonia plant turnarounds. They will have an impact to have higher than regular maintenance CapEx but also to reduce the overall production by about 200,000 tonnes, a little bit more, mostly ammonia, but a little bit also urea on that side. And they have already started. So in the Q1, you will have Tringen 2 in Trinidad, and you will have Belpe. Then in the next quarter, you will have Tertre, and you will have check it out.
And at least we have sorry, you will have the Dutch plant in the 4th quarter. Thank you. Thank you. Thank you for that. Yes.
What we say is guidance for the future is a little bit higher, but we will focus strongly on executing the projects we have already started. And there's a pretty high threshold to come in with new projects at this point in time. At the same time, as Svenn Tore mentioned, we will focus on delivering on the improvement program. So you said the SEK 275,000,000 we have already captured, and we believe we will deliver on the SEK 350,000,000. This is caused by basically all the projects in that improvement program, but the main positive deliveries are from the Yara productivity system, chief of which has been in ammonia but also the procurement excellence program.
I want to mention that we are less halfway through the program. So of course, we need to work on sustainability but also completing the rollout. And so at this point in time, we have completed the rollout of the YPS 15 plants. We're currently rolling it out to 7 more, and we will do all of the plants by the end of the year. So at that time, you will see more of the continuous improvement journey.
Also notice that we have reduced the CapEx. We estimate to use for the program this year by about $50,000,000 but retained the upside, and that's driven primarily by the program we have to be more better at spending CapEx. Good. With this, I hand back to Svein Svein to a little bit about the future.
Thank you, Peter. Then I will move to the prospects. And I want to repeat the urea supply situation that we touched on at the beginning of this presentation. And as you can see here in the forecast capacity expansions. This is according to the industry consultant CRU that these are lower this year than last year and roughly in line with historic trend consumption growth of 3%.
But in addition to the forecast, CRUs also has this black line where you the actual production increase forecast. And due to higher utilization in existing plants, you can see that, that will be higher this year, and this is primarily driven by increased utilization in Algeria. On this basis, we do not expect a fundamental improvement in the demand supply balance outside China until after 2018. Looking further ahead, many of the projects that are included here and foreseen for the period 2019 to 2022 do carry a lot of uncertainty. I want to round up with a reminder of the growth and improvement program and the earnings effects that lie ahead for Yara.
On the left hand side, we have added together the investments we're making both in the Yara Improvement Program and also for our committed expansion and growth projects. And on the right hand side, you We'll then see the combined projected earnings improvement from this on a 2015 baseline. That's totaling $1,100,000,000 of EBITDA within 2020, which is equivalent to about $2.1 per share. So with this closing summary, I'm going to hand it back to you, Thor, and then you coordinate the Q and A session.
Okay. Thank you, Sven Tore. So for the Q and A session, we will have our CEO, CFO and also our Head of Markets Intelligence, Dag Tooele Moore. So if you have a question, please raise your hand and we will bring a microphone to you, Probably one of these. My colleague Nina Clive will come to you.
Shall we start with Nordea? Is the microphone on? Hans Erik, I think the
Hans Erik Jacob from Nordea. Yes. I have a question for Dactore, maybe a leading question. But since we are now entering a period where supply growth will be below demand growth and China is completely out of the market. Could you draw some conclusions where we are likely to go And the possibility of China entering the export market again, I guess, a couple of years, we're going to need Chinese exports again and the impact that will have on price levels as Chinese feedstock costs remain very high.
And China currently do not export because of the very high cost compared to the low price levels we are seeing outside China.
Yes. It's a central question. Yes. As we've been talking about now also for some time that we have kind of expected more price volatility in the global market because of the lower volumes that are required from China has been required from China due to the capacity expansions elsewhere. We had a quite a low very strong volatility in 2017 where you could say that prices went from let's say and import logic into China in somewhere in the $200 to $2.50 range, while if you then turn to an export Logic pricing logic from China, you're maybe more around 300 has been at the moment.
So because of the VAT on imports, switch on the logistical costs etcetera there is probably a $50 $70 at least spread between whether you are in an export logic or you are in an import logic. We are very close to that import logic at the moment and we see that through Q1 there hasn't been a need for Chinese urea exports. A number of factor has kind of coincided I think. There's been a very strong production generally across the world, I believe. Most plants are running.
In addition, you have a fairly slow Brazilian quarter. As we mentioned, urea imports down from 1,900,000 to 1,300,000 tons. And then you got get a late on the Northern Hemisphere in addition reducing the import need for Q1. So we kind of went through this spring without really a strong spike as you can get sometimes. So and but of course, I totally agree with you given that this sensitivity now we are so close to a situation where we have 0 Chinese exports.
That's just a fraction I mean just Small, small deviations in the main parameters, demand growth, production rates Outside China, small variations in those have quite huge substantial price effects in the global market. Because it's really key what will the success be on bringing these new capacities to the market. And as Sainte Orest says, a lot of them are very Uncertain. And what will the demand growth be? And I totally agree with you.
It's the big factors for next years.
Okay. So we move to DNB.
Nadeem, DNB Markets. Two questions, one for Doug Ford and one for Petter. 1 on gas. European gas prices, they remain high, and you have guided up quite substantially for Q2 and Q3. And I just wanted to hear your thoughts on if this is a structural change we're seeing now with high European gas prices or if it's just the aftermath of the cold European winter?
And secondly for Petter, the recorded P and L effect year on year in Q1 of the improvement program? Or to phrase it otherwise, what would EBITDA in Q1 been if you did not have this improvement program?
Yes. On the gas side, it's not entirely It's not just the cold winter. It's also the fact that it's driven partly by the environmental developments more focus on environmental developments in China, for instance, also a big factor where they have cut down heating boilers based on coal, switch through as much gas they can acquire basically, have taken, I think, much more imported, much more LNG than most people expected. In addition, South Korea has also had a quite substantial increase in their imports. So let's say there has been more there has been less LNG available for Europe than what we would have hoped, let's say, from a just purely gas market standpoint.
So and also higher coal prices globally has also increased the trigger point between the gas and coal switching in Europe and also CO2 costs have gone up quite a bit risky. So and then with this lower availability and relatively low stocks, of course, with that whole spike in March got so much more influential than it would have done if it was, let's say, a couple of years back when the supply situation was easier. So yes, so but that's where you can say that those same factors have been positive in the sense that they've also raised Urea prices in China, but unfortunately then as Hans Erik was alluding to earlier, there has been a reduction in the need for that. So it haven't got full effect of that improvement in the global market for urea. And going forward, let's say it's hard to say, but at least Yes, the Europe is ending the winter with very low stocks.
So there is now a competition for buying gas for direct usage and for storage for next winter. And I guess that's what keeps, let's say, the forward curve over summer fairly flat at around current levels. So let's see how that supply situation develops, because there's Still more LNG coming and gas storage is primarily available in Europe. So it's that's still an interesting element to follow going forward.
And we should add that when we give the prices or the outlook for gas prices, that's based on the forward curves and over time, they tend to be higher than the actual prices. But as we saw in the Q1, we guided was $27,000,000 higher energy cost, and it turned out to be $50,000,000 because of a colder weather than expected. And then we have a 1 month time lag on our gas prices in Europe, so meaning that we will have some impact from higher gas prices also coming into second quarter.
Ken? Regarding the improvement program, of course, the baseline is 2015, and there are many effects which go up and down. But what we did is estimate if you took 1st quarter prices and costs, the program would have come in at around 230 $1,000,000 EBITDA, which is a little bit lower, but not that much. So if you want to kind of calculate a 4th of that, you can say a little bit above €320,000,000 and the results have been all else equal. It's a little bit speculative, but those kinds of numbers.
Okay. I think we have a question from ABG.
Are there any chances for or how much of the volumes can be recouped in Europe in the Q2 due to the late spring? The second question is related to the Q1 acquisition. I think I read that the competition authorities are looking more further into that. Is there any chances of it acquisition not happening at all or a delay? And I think that also from the CRU slide, the key change there are 2 is the Nigeria plants and also the India.
And we talked a little bit about that the last year that we've seen At least more press releases from India and it seems that CRU has now taken that into their forecast. What now you have guys on the ground there, what are your thinking about those plans?
Okay. I can start When it comes to deliveries going into 2nd quarter, as we showed before, we are or the whole industry is significantly behind last season in deliveries, I believe, was 7% lower season to date. And while some of that can be recouped, have to be prepared that a full recovery is unlikely. So we should a slight decrease in the volume for the season in full due to the colder weather. When it comes to the acquisition of Vale's Cubatao assets, you're as you rightly point out we did get a favorable ruling back in on March 19, and then it's a 15 day hearing period.
And there were some additional questions related to Petrobras' announcement that they would shut down some ammonia capacity in Brazil, which triggered an additional review of this. But in my view, these things should not impact our deals since it doesn't really it doesn't change the structure in Brazil, but it does mean a delay in the finalization of that acquisition. And then
maybe also worth mentioning on Europe that in, let's say, shorter season, there will be probably be a little bit more appetite for nitrates. It's not good for the global urea balance, of but that's something that we are quite happy with. So I think that's also something to take into account. On the supply side, yes, you're right. CRU has revised up their capacity additions for India and it's something we are following closely also.
And it's been normal that the Indian government is announcing kind of willingness to expand capacity to really reduce their reliance on imports. And we are also thinking that there could be some. I would be very surprised if the speed of this is as fast as what CRU is indicating in their current balance, but this is something to follow.
Are there further questions? Yes. Oh, 2. Yes. Okay.
We'll go back to Nordea first.
Jakob Srinho, Nordea. There has been a lot of changes in raw material prices due to the U. S. Sanctions against China and especially Russia. So far, we haven't seen any impact on the fertilizer market.
Do you see any potential for that happening?
I don't want to speculate on any impact. To that, Russia is, I believe the largest nitrogen exporter in the world. We've seen some sectors being targeted, but There has been none impacting the fertilizer sector, and I don't want to speculate on any impact to that.
Okay. We have another question out front.
Bruce Deason from Fearnleys. There were some weather forecasters that put out a forecast in the middle of February that there would be a long period of unusually cold weather in Europe, But you ended the quarter with $300,000,000 higher inventory. Don't you read the weather forecast? Or How can you have such built up so much inventory?
Well, Still the timing of when the shipments happen will vary from year to year and we have to take a long term view on this and also look at the financials, whether it makes sense to produce ore or not. And what we see, it still makes sense to produce and store for inventory and then be ready to ship out rather than reducing production. So but yes, we do read the weather forecast. And but At the end of the day, it is a financial calculation and we do what we think will create the largest value and that was still to continue to run the plants and have inventory ready for when the shipments will take place.
Are the inventories related to sales in Europe or also to exports to Brazil?
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]
This is mainly related to Europe. Well, the part of the I mean, 1st, Brazil, this is the lower part or slower part of the season. The main season is in the second half and a lot of The volume that we reduced in Brazil is 3rd party sourced materials, so it's not the Yara product.
Are there more questions? If you do think of any later on, we do have a phone conference at 3 this afternoon, Oslo time. But for now, thank you for attending our presentation.