Hello, and welcome to Yara's Second Quarter Results Conference Call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. I'd now like to hand the call over to Maria Gabrielsson, Head of Investor Relations in Yara. Please go ahead.
Hello, and welcome to everyone to this conference call for our second quarter results. We hope you all watched today's presentation hope that kind of frustrating this Q and A, but I'm here in the room together with our
Your first question comes from the line of Christian Faitz of Kepler Cheuvreux. Yes.
I hope you can hear me. For taking my two questions, please. First of all, can you please share some thoughts on the Yara blue ammonia project planning in The U. S, particularly in the context of the big beautiful doe? And my second question would be, would you attribute any demand destruction in Europe in Q2 to adverse weather conditions, I.
E, the extended drought? Or is it simply the prebuying effect on the back of an early spring last year?
So this is Jose. Could you just repeat the second part of your first question here? Is that the last bit?
So yes, I mean, your blue ammonia project, where you still have to do an FID at some point. My understanding is either late this year or early next year. But with the IRA kind of being phased out with a big, beautiful bill by Mr. Trump, How is your thinking around that blue ammonia project or these blue ammonia projects going forward?
Yes. Okay. I understand. So I think, first of all, the project when we make project decisions, of course, we look at the fundamentals for ammonia production and whether those are in place and marketplace if and we give a profitable project that one. Number two, of course, which is relevant, wanted to point to, are the tax credits.
And specifically for the projects that we are looking at is Section 40 five(two) of the Internal Revenue Code. That is a tax credit that was present long before the Inflation Production Act. It was increased by the IRA and it was continued with the new budget or the new bill that was passed in Congress and signed by the President now a few weeks ago. 45Q is maintained and actually expanded a little bit as well. So our thinking around that has not changed per se.
It has, if anything, it's been confirmed or improved. But of course, we watch that and no longer give medical assumptions very closely. And for the second question, I'll hand over to Doctor. Kuruvann.
Yes. As we mentioned, we think that the season deliveries in Europe went up a little bit compared to last season, one percent to two percent perhaps or something as we let months of fairly normal development. And so most of them are facing as we indicated between the second and the first quarter. Also, fourth quarter was relatively strong last year. So on wet weather issues, the initial drought problems improved quite a bit across, let's say, Germany, Sweden, Poland, etcetera.
So that looks quite good. So the latest estimates I've seen from the European Union, for instance, is a rather positive yield outlook in Europe and that's much better than last year, but even above average. And this current heat wave, I have not seen or picked up anything specific as to serious problems at least, nothing that I have observed on that.
Your next question comes from the line of Lisa Denis of Morgan Stanley. Your line is now open.
Hi. Thank you for taking my questions. I have two. The first question is, the EU has now put in place import duties on nitrogen based fertilizers from Russia. I mean, how do you see the shaping European market from here, especially as it relates to nitrates and NPKs?
And what do you think it means for your European farmers? That's my first question. And then secondly, can you share what you're seeing on current demand dynamics, especially in Brazil, given the expectation for a strong U. S. Corn crop?
Yes. As you said, as we indicated, there is no about €40 and already import duty on Russian nitrogen products from July 1 and €45 on phosphate products. We haven't seen much kind of shifts yet. The Russians are still active in the European market. Of course, I'm taking this, like, in some of netbacks compared to earlier, but, of course, large market they have, like, more a question for the Russian of optimizing their exports by market anyway.
So the so far, no huge effect on this. One interesting element that we have yet to see is this threshold of triggering a much tighter duty, if that is 1,800,000 tonnes across all products, as many seem to believe, then there will be a reduction eventually in the Russian exports into Europe. We'll probably see that later in the season in that case. As to nitrogen in particular, there are of course a lot of resources of imports into Europe that is not far away. And Egypt and Algeria are duty free and are already seeing Europe as almost like their own market
So there's no lack of sources of securing that into Europe, maybe a little bit higher prices would be logical to assume in order to shift those trade costs accordingly.
Just to add, it is that we are on the the Russian exports to Europe. We even I'm pleased to to to see that you being commissioned as a press that is that not only the exports of Russian urea into Europe continue, but it's an increase compared to prewar numbers. And there are two of us. This one is the level of playing field when it comes to competition. The other one is important to that.
And that's a lesson that Europe has learned the hard way when it comes to energy, natural gas, and it should be avoided in the future on other sectors as well. And that's what is now recognized. And then with the tariffs in place from July 1, that's one step. And then as I would have mentioned, there are some volume triggers, but there are also some calendar triggers here as well.
So it starts now at one level, and then it will gradually increase in the years to come. Of course, are other import sources as well. And so the price impact is limited, but at the same time, this is also you're really or Europe protecting against the dependencies from Russia as well. And then it's it's to be seen how it's interpreted in terms of the volume triggers, but there is a volume trigger as well. As I said, if if the import continues or increase.
On the Brazilian side, as you mentioned, I mean, corn, US corn, acreage, and all element of. And as mentioned in the presentation, also that we have seen quite supportive conditions for crop products in general in the world. Now there are fewer issues around than what we normally see in a year. It's my impression from the latest outlooks from USDA and FAO and others. So so yes, so that's kind of putting a little bit of a of a limit to on on driving grain prices, which are kind of late, like, the most volatile price commodities or commodities.
Then what we observe in Brazil is relatively flat, I would say. They have been importing roughly the same amount of nitrogen so far as they did last year. They've been able to shift away from urea towards ammonium sulfate from China, but the total nitrogen around the around the same and then on phosphate, similarly. So it seems like it's running fairly smoothly and quite normal, and then they are actually quite active buyers today. You may have observed that the CFR price to Brazil and urea, we got a little bit little bit recently.
So there's nothing dramatic, I would say, fairly normal. This is is, like, the most focus this week is for coffee. Coffee is trying to get as much Brazilian coffee in The U. S. Market before there is potential.
Your next question comes from the line of Arun Giacarelli of Berenberg. Your line is now open.
Hello. Hi, good afternoon. Thanks for taking my two questions. The first one is on your volume mix. What is the main reason for the lack of positive contribution on your EBITDA from volume and mix in Q2?
And when you look at your Q3 order book, how should we be thinking about volume and mix going into the next quarter? The second question is around your blue ammonia projects in The U. S. In your call earlier today, if I understood correctly, you mentioned that you are not evaluating any equity issuance. Perhaps can you elaborate a little bit around that, please? Yes.
Thank you. On the volume side, the main drivers behind that being flat on the EBITDA level is that we had a strong Q1, particularly in Europe on the volume side, that's now in Q2, but overall for the season up. And last year, it was a little bit the other way around. So that's basically the main difference there.
So the increase in volume, especially in Brazil, a little bit lower margin volume, and it's on the higher margin. With
regards for the third quarter, I think John said in the presentation, we don't guide specifically on the mix approach. On the Bravonia project, as was said in the presentation, when we evaluate those, in addition, of course, that we need to expect double digit return. We're also not planning to invest at level where we would plan for doing an equity raise, that is correct.
What would you say is the best setup or structure for these type of deals?
I think, as we also pointed to in the presentation, all of our ammonia projects historically have been partnership. Believe that that is the best structure. I mean, obviously, mean, sharing equity with others. It means complementary skills with others. I think that's all in all of our ammonia joint venture, they are a job taker and our capabilities and strong synergies or strong infrastructure in that area brings a lot of synergies to the projects that increases around the value of the project.
So there are really partnerships and complementary skills that is able to increase the underlying value and return of the project and also better share equity and share risk. Those are sort of the main principles that we follow when we think about it, as we have done in the past, most recently with our Freeport Pneumonia plant that we completed in 2018.
Your
next question comes from the line of Elliot Schultz of Deutsche Bank.
Yes. Good afternoon, guys. Thank you for taking my questions. The first one is just on the market. So kind of how are you viewing volumes and deliveries kind of going forward?
There's also been some supply side shocks that have driven urea prices up. So I'm just kind of wondering what you're seeing in terms of the volume side of things. And then secondly, a question just on CapEx. So yes, I know the decrease in growth CapEx projections for this year. Just any color as to what sort of project that was?
And if we should expect that project to maybe return to next year, for example? And then kind of a more general question in terms of CapEx of Bloemenya facilities. I'm just wondering how much CapEx inflation you've seen from other kind of blue ammonia plants in the last couple of years? Any kind of color on that would be very helpful. Thanks.
On supply outlook, it's of course not possible for us to get on the utilization rate in general. As you mentioned, there are a lot of events that happened that are unforeseen like how much we reproduced in Egypt. One thing about the gas curtailment from Israel during the conflict, then they're there.
You have also had their power needs, which they are prioritizing their gas for. And we also had Iran, and you have even had some drone attacks on Russia. That's not a couple of Russian plans for some life. So of course, all of these events scheduling or maintenance, all other things are not possible to do to to forecast. What we we can see is that we've limited the number of plants in the pipeline, new capacities for the utilization rate and the Chinese export levels are in a way the two most important supply side factors.
What we seem to think, see now for 2025 is that it will be surprising if the world ex China managed to produce anything more than 2024 based on what has happened so far in the year, which means that if China exports around 3,000,000, 4,000,000 tons, that is pretty much where the supply growth may come from. Offsetting that is, of course, a stronger need for Indian imports. So we don't really need that much demand growth in order to balance the market. And I think that is what we are seeing that prices are at $450 to $500 because the market is tight and you actually need some demand rushing in order to balance. So that seems to be how 2025 looks.
2026, there are still not many plants in the pipeline, new capacity. So it's still also, I think, depends on your assumptions for what the global utilization rate is able to do and how much will it support.
On the question on CapEx, so if we go a year back, I mean, what we were looking at for the year was the CapEx of $1,350,000,000 which we then committed to taking down through the COVID project. Now we think, as we pointed out, taking down further. There's a mix of things here. As you've seen, we've done changes to our asset portfolio that has a cost effect, but of course, it also has an impact on maintenance costs. We have also looked at our growth project portfolio.
There was some uncommitted CapEx there that we do not plan to spend this year. And then there are also some projects that we canceled given profitability not being strong enough. We expect the profitability not being strong enough. But there are also a few minor things that have started to have very high return and very short or in the return in a short time frame as well, such as some key expansions for ammonia, receiving ammonia vessels, as an example, that are very small investments with a very, very high return. So I think all in all, it reflects a strict capital discipline where we plan to prioritize the CapEx that we reinvest for the highest paying projects and projects very strictly according to that.
With regards to the Greomotive project, yes, we've seen CapEx inflation. I think that's also been quite clear in the market based on other projects out there and other announcements as well. I think what is very important for us in that context is, I mean, in addition, of course, to have a CapEx level that fits to our capital structure and balance sheet is, of course, also to look at CapEx per tonne, which is, of course, crucial for the profitability of a project and trying to find solutions and opportunities where we are at the competitive level there, in addition to other synergies as well that will enhance project value.
That's helpful. Thanks very much.
Your next question comes from the line of Bank Johnson of ABG Sundal Collier. Your line is now open.
Thank you very much. Thank you for taking my questions. I have three, if I May. Two questions on the operations. Quite weak volumes within the industrial segments.
Any high level comments on that? The second question would be on key ammonia division, which seems to have a weak quarter. Any comments there? And the third question would be, if I remember correctly, you got a quite significant boost from improved margins on third party distribution, particularly in Brazil last year. Could you give some high level comments on current profitability compared to that quarter?
Yes. Thank you for your question. On the volumes in IndustrialSet, mostly pertains to volumes in our assets in Brazil that we closed. And those the impact the EBITDA impact of that is very minor. Otherwise, industrial has performed quite well.
There's been a slight reduction as well due to a outage in Binsbettin, but the main impact comes from the closure of the Brazilian assets. With regards to European ammonia, there was a particular, I would say, onetime cost event on the project side this quarter, which explains that, and that's the I mean, that's the one off to be seen. When it comes when it comes to the GPT margins in Brazil, CPP was being roughly at the same level as last year and slightly higher than our leverage.
Thank you.
Your next question comes from the line of Angelina Glazova of JPM. Your line is now open.
Hello. Thanks very much for taking my questions. I have two, please. The first one is regarding the market share in Europe. It was good to see that you were reporting market share gains both in the first and the second quarter this year.
And I'm just wondering how you see the setup there for the rest of the year with regards to maintaining those market share gains? Maybe you see scope for additional gains? And what measures you would need to take to achieve that in case you see such a scenario? And then the second question is a follow-up on the CapEx guidance comment for this year. So you have mentioned that the reduction in guidance effectively came from removing a project a growth project where CapEx was not committed.
So could you confirm if out of the remaining growth portion in the CapEx guidance, if all of that is committed for this year? Or there is still some uncommitted portion in that? Yes.
I mean, I think you start with the last question first. Our guidance on CapEx this year is our guidance. So I mean that's as we stand now, that's what we expect to spend. When it comes to the changes now from the growth CapEx side now from past guidance, that not the one particular project, it's a growth project that we for different reasons and then mostly sort of not testing enough or not making the profitability special that we have that we're not that we didn't proceed with in this quarter. So it's not sort of something that we expect to move into next year.
When it comes to the market share question, you're correct that with the decent growth, We I mean, obviously, we look at European markets and also opportunities overseas and, of course, optimize finance as we can. But of course, Europe is a core market for us, and this market is very important for us to be strong and have a nice role, and and we're very focused on that as well.
Thank you.
Very much. Did not want to hear your question. I did not ask that. There is around $50,000,000 as of now on the growth side.
Great. Thank you very much.
Your next question comes from the line of Magnus Rasmussen of SEB. Your line is now open.
Hi, thank you for taking my question. I have a question on the NPK margins. Correct me if I'm wrong, but it seems like they have now for a year or two been about twice as high as they have been historically. Can you explain a bit what's going on there? And whether you think this is a new normal that we can expect also going forward?
Yes. I think you're correct on your observation. I think that's partly driven by strong commercial work, also prioritizing the highest paying end markets. And the premiums that are both in the margins, that's important decision to keep in mind. The reason for those are some fluctuations depending on how the most amount the values go, but we have seen a very strong commercial effort in particularly Asia last few quarters, but also in The Nordics as an example. So from that perspective, the commercial job that's done, the underlying performance there is strong. And then of course, premiums to our, to some extent, by
Thank you. Your next question comes from the line of Tristan Lamott of Deutsche Bank. Your line is now open.
Hi, thanks for taking my questions. Two, please. The first is, could you please talk about the kind of levers that you can still do to improve costs and where you are in that cost cutting journey? And to what extent that's likely to support 2026 too at this point? And then secondly, you mentioned strong premium products for the quarter.
What do you think is driving this? And could you comment on how long that's likely to last? Thank you.
I think for the first question on cost, as we pointed out in the presentation, we believe that we will be ahead of our original target by around $30,000,000 as we communicated. Of course, we also gave a number of where we believe sort of the actual cost for 2025 will be. And then we have measures that have been implemented in 2025, and we still have measures that are under implementation, and of course, the full year effect of those we typically don't see before we have twelve months after. So that's why we say that the run rate is lower than what the cost for 2025 will be and will be an additional effect in that 2026 as well.
And then if I may add there, and and we're very pleased with the engagement across the the whole organization. We spent a lot of time on on on detailing out and anchoring cost improvement progress. And here, the organization has stepped up and move faster than maybe expenses. We're setting a new and a higher target, but it doesn't mean that we're gonna end focusing on cost, but then it's more continuous improvement that goes on the cost side, but also what we're seeing in terms of productivity as as well as as yeah. But but but when we set the program, that was, like, what we needed to achieve in next eighteen months in terms of the step change in in cost base, and we're basically progressing and how the organization has worked for government.
And your second question just has to be always behind the growth in premium product volumes. There are generally two drivers for that. I think the first one is high asset utilization. And there are two drivers for that. I think number one is what we pointed to in the presentation today that we have through our improvement program in production, increased production I mean, our production of premium products or finished fertilizer in our assets, very close to our 2025 target now.
And that is kind of they would measure that is sort of operational performance. So that doesn't include sort of market curtailments things like that. But in addition to that, we have during the last twelve months had a very strong focus and also maximizing utilization of our assets in addition to sort of the operational uptime they provide. Particularly going into this season, we kept assets running in Q4, which gave us more product to sell in particularly Q1, but also in Q2, and that's what the key focus areas for us. In addition to the operational performance, also on the commercial performance side, so that we can maximize utilization of our assets.
And that's, of course, the cheapest way of increasing our ROIC and making sure that capital creates value.
That's helpful. Thanks a lot.
Your next question comes from the line of Andrew Noelle of Chemical ESG.
I've got a couple, please. I just wanted to get your feedback on on ammonium nitrate. I understand there's I understand there's sort of some pull from the defense side, and that's affecting market supplies. And I so I just wondered if you're having to sort of adjust for that. And, you know, I don't suppose I think the answer is probably going to be no.
But is there a way for you to get on the bandwagon by producing military grade products? I understand there's there's quite a lot of interest in in in making that conversion. Yeah. Any any feedback on that? And then just an update on the asset footprint optimization plans that you have and, you know, in some of the areas where there seems to be quite a lot of appetite among your peers to asset swap and so on.
So if there's any sort of what the outlook for that is?
On the first one, I think we don't see sort of a particular growth for technical non igniter for the defense industry as such, I'm going sort of underwrite product per se, but that's more into the traditional areas of mining operations, it's both for those purposes. But in general, of course, the defense industry demands lots of different industrial projects. There are base chemicals. It's a component to the intermediary chemicals that is also reflected by the. So I think it's fair to say that the growth we see on the defense industry side helps the industrial demand in general, even though not necessarily specifically, you know, directly consume our product.
And Martin said, then again, I it's it's growing, but but but but but not not to a level that will have a meeting or big impact to the industry.
On the asset footprint, we have, as we've talked about earlier this quarter, done quite a lot of measures, some larger closures have been performed, the combination of newer assets in Brazil. We're also restructuring or in the cost of restructuring in Montoir and our most advanced in Canada. On top of that, we also are doing quite a lot of smaller changes that when you add it up, it becomes a meaningful contribution as well. And we will continue to do that optimize as we go forward. We didn't see it this call, but that quarter we did show an overview of our European asset base. Quite a significant portion of that asset base is actually quite well positioned going forward with high or sorry, with the ability to import ammonia.
And our ammonia exposure in Europe is predominantly in size with our larger plant, which is by scale and from that perspective on the European cost curve, quite competitive. But I think as we alluded to in the previous quarter, we have those assets that equates to around $70,000,000 of annual CapEx avoidance from
Thanks very much.
Thank you. I'd now like to hand the call back to Maria for final remarks.
Thank you to everyone for listening in and have a good weekend.
Thank you for attending today's call. You may now disconnect. Goodbye.