Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Era Second Quarter Results twenty seventeen. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Tuesday, 07/18/2017.
I would now like to hand the conference over to your speaker today, Mr. Zane Tori Vossetek. Thank you. Please go ahead, sir.
Thank you very much, and welcome to the Yara's second quarter results conference call. Before we open up for questions, some brief comments on our results. Lara delivered results reflecting lower commodity fertilizer margins. Our cash return on gross investment or Kroger was up 7% for the quarter, which is well below our target of 10% or more through the cycle. On the positive side, we delivered increased fertilizer production and continued growth in industrial product deliveries.
Our ammonia production was lower, underlying the need for our ongoing efforts to improve operations. The high improvement program is on track and has already delivered 120 of the targeted two of the targeted $500,000,000 of annual earnings improvement within 2020 measured at 2015 conditions. In addition, Yara has a pipeline of growth projects focused on premium and industrial products, and these projects will generate a further USD $650,000,000 of annual EBITDA improvement by 2020, again, applying 2015 market prices. We have corrected our quarterly report on Page nine, which initially stated that EUR $650,000,000 was at current prices, and really apologize for any confusion around that. So with these introductory remarks, we're now ready for your questions.
So operator, can you please now open up
And your first question comes from the line of Ehed Parekh. This
is Fahad on for Bill Jackson. My first question was around urea prices for next year. You talked a bit about how you think urea prices will be expected based on additional capacity in 2018. Can you talk about what you expect for the range of prices next year? Specifically, do you think urea prices, the highs will be higher than this year and the lows will be, you know, higher than the lows this year, if that makes sense?
Just trying to compare the range you expect for next year versus this year.
Maybe I should start and just commenting upon that with at the area, we have never given specific price guiding. As such, what we do is try to explain how we see the market function and maybe to those comments about who they can say a little bit of how we see the supply side going forward over the next year and elements on the demand side. Yes. I guess, we have kind of implied in what we have said that we don't believe in the very return to any kind of demand driven market conditions for 2018. So that prices will, in general, be cost driven.
And of course, also to what extent the industry rates is, of course, important as well. But at least we believe that there will be basically a supply driven on cost driven pricing. And then, of course, the high margin and what is happening in China with coal and gas prices, environmental issues, currency developments, all the costs, etcetera. And also to what extent the producers kind of as they were at lower negative margins over time, to what extent capacity has been taken out to more permanent, which is more difficult to say. So the lighting is not a thought to give a kind of a price forecast, but we we we we expect, let's say, current cost driven price logic to continue over next year.
Okay.
The other question I had was in Brazil, maybe you could give some more color on what the outlook is for the rest of the year. I know that Yara is gaining market share, particularly in premium products, it seems. You know? But we've also heard reports of elevated stocks and, you know, inventories being high in the channel. Maybe talk a bit about what the outlook is for the rest of the year.
Thanks.
I could say that so far this season, first half of the season, the delivery has been in line with last year. Going forward, it will, of course, depend on crop prices, which has for many crops in a positive development. And of course, we believe over time that fertilizer demand in Brazil will continue to grow. Still, there are huge potentials to increase intensity and productivity in Brazilian agriculture. So typical forecast of what we can grow year over year longer term varies, I would say, between 3% to 5% annually.
But what happens in the second year is more dependent on future price development, including currency. But would you like to be more specific on that? No. I think we have no particular reason to be negative or anything about the Brexit. I mean, it's always a bit of a phasing issue that we have see how it develops.
And as you said, we just looking at the numbers, when you add production and imports, you get to a higher number than the delivery rates. And we did obviously have an inventory increase by on the producer level in Brazil during the first half stronger than last year. But, of course, that that is not a problem as as we get into the peak season later.
Okay. Great. And my last question is just on margins. This quarter, crop nutrition margin is low single digits in terms of operating income margin and low margins and also in the production business. I'm just trying to like how should we be thinking about margins for the rest of the year?
Is it similar to the levels we're seeing in Q2 given that gas prices are expected to be flat? Any commentary on that would be helpful on operating income margin.
Yes. As you said, if you look at the forward prices for gas, they are quite flat over the next couple of quarters. So your question on margins come back to what will be deliverable pricing then. And as you said, we don't give guidance specifically on price estimates. But as Tore said, over the next year or so, we would presume or actually at least plan for a supply driven market on the commodity side.
And then as we mentioned, there has been a pickup in crop prices, which could give a positive momentum to some more and more premium products. And we have had quite a, I would say, good start of the market season in Europe and also quite a good start on NPAs, where we continue to move up prices in some markets.
Great.
And Thank your next question comes from the line of Oliver Rowe. Thank you. Please ask your question.
Yes. Thank you for taking my question. So we've seen some Chinese capacity shutting down over the past couple of years on both economic and environmental reasons. And we're now hearing that some of the environmental shutdowns are actually being retrofit in order to get them back up and running. So I'm just wondering what your view is on that?
And how much capacity you think could actually come back to the market as a result?
Yes. Well, according to the nitrogen association in China, the capacity reduction through 2015 was in the magnitude of 4,000,000 tonnes. If they cover their official numbers, they say it's a reduction to 77,000,000 tonnes is the number from the license application. Of course, we don't know exactly how that goes through 2017. But as also said in the presentation, we believe that most, if not all, the curtailments that are taking place on the urea side is purely economically driven.
We do not think that many producers have been, let's say, forced to close all environmental reasons. So I think that those issues that you raised there with bringing back capacity that's been closed Or in our financial rates, it's not something you've seen in the in the urea industry. It's it's it's mostly or or almost exclusively margin driven.
Right. Okay. Makes sense.
I think the market negotiation probably have a good overview of it and they give them the annual updates on this into the New Year.
Okay. And then looking at your capacity outlook chart on Slide 19, and I realize that this is from a consultant and not necessarily your internal outlook, but it looks like some of the tail end projects in twenty twenty plus have been removed, specifically Iran and Russia. So I'm just wondering what's changed to take some thoughts on the outlook.
I think all of them, most of them are included here and those that have been on the list in and out a little bit are And of course, the current pricing is not positive for the development of these projects.
Great. Thank you.
Thank you. And your next question comes from the line of Stephanie Buntwell. Can you please ask your question?
Thank you very much. I have a couple of questions. I'll start by taking them one by one. On the EBITDA improvement program, you've obviously set the guidance based on 2015 market prices. And since then, we've obviously seen quite a decline in the market environment.
I wonder if you could share with us, if you keep current spot prices today, whether or not that EBITDA improvement program would have actually driven net cost savings through to the bottom line during the course of H1, given that a relatively large portion of that savings program is from variable costs? That's my first question.
Yeah. I think quite difficult about the, the improvement program is based on, on 2015 figures, as we we have our our basis for when we have the set and put together all the initiatives, and we are rolling this out now. And based on where we're at through the second quarter, we're at $120,000,000 and that also includes sort of negative impact that we have from the fire in Pokkien, which negatively impacted our figures by NOK 150,000,000 in the quarter. So we are progressing quite well. And still, this is based on 2015 prices, which are higher than the current prices.
And I think we made an estimate that about half of our program, if you look towards 2020, is impacted by price development. And I the don't exact figures in front of me now on the impact year to date, but I think you could estimate that about $60,000,000 would be the impact of current prices.
Okay. And that $50,000,000 includes the 150,000,000 impact from the fire?
Yes. That's also including that impact.
Okay. And the second question was on the If I look at the H1 cash flow statement, you're actually negative at a free cash flow level. I wondered if perhaps you could take us through some of the moving parts in that cash flow, in particular, GBP 1,000,000,000 cash outflow at the other line, Just to give us some color in terms of what's in there.
Yes, can do that. 1,000,000,000 on the other line is cash elements in the operating results. And in the second quarter, we paid off quite a lot of holiday salary and holiday pays and also last year's bonus, both of which have been provided for through the year then. And there are also some adjustments on the pension funding then. So those are the major elements in the whole line.
Okay. But generally speaking then, we should expect the similar salary adjustments every year?
Yes. You could say in the second, it's
a seasonal effect in the
second quarter. But hopefully, hopefully, we will have holiday payments also in the second quarter next year. With the current profitability, bonus schemes may be lower next year.
Okay. That's clear. And the final question was just on the Chinese export situation. You obviously flagged in your release that China exports are dying, but it's been replaced by low cost tonnes from elsewhere in the world. I wonder if perhaps you could give us some sort of indication in terms of where you saw the next marginal urea producer in terms of their cost base outside of China.
So whether that be Eastern Europe or elsewhere, could you give us some sense of where that cost of production is?
Of course, in general, you could say that the fact that the gas prices around the world have been much are much closer now than some the year fact that it's much more uneven playing seems that Eastern Europe, as you mentioned, and in Ukraine, there's hardly any nitrogen production producing at the moment, only for domestic demand, telecom and some other European countries as well, because it's net pricing into LNG export price and so on. Relatively expensive assets. And they chose to import some new reais instead. And then of course, it's more And and we also see that China has become a trader that served us over urea in the North, but there's a deficit in the South. And and there are talks now about payment of producers that that is kind of taken in line after the Chinese.
Okay. That's clear. Thank you very much.
Thank you. And next question comes from the line of Thomas Wrigglesworth. Thank you. Please ask your question.
Hi. Thank you very much for your presentation. Just focusing on margins and the specialty products. Could you just unravel the fact that your chart for NTK premiums says the NTK premium went up? And yet when I look at volumes, they're unchanged.
And I'm guessing that in your what's happened is you've sold more in Brazil and Europe. So is there a margin effect? Can you can you explain the margin effect that's the mix effect that's rolling through on on that basis? That's my first question. Thank you.
Yes. On the mix effect, you're right that you're selling more in Brazil, but you're also in the second quarter selling more in Europe. That's seasonal effect here. Second quarter tends to be a peak season. And we have, on average, better netbacks for some of our NPK sales close to our plants in Europe.
So with the European peak is also tend to lift a little bit and to pay premiums. But as you also have good sales in overseas market in addition to the team, our Head of Proposition mentioned China, where we have had the destocking of NPK earlier in the season in China, and they have been struggling with some of the cash crops there, but that has come back. They have increased significantly sales China over the last half year, which has good, very good margins. And we also have markets like Thailand, that's done quite well. So in general, the turnaround in crop prices has been helpful for MTA premiums as well as seasonality and continuous growth in markets work.
That's it.
Thank you. And a second question, if I may. Obviously, there was a it looks like you've lost market share in North America. Those volumes that you think you'll have to, know, effectively ship elsewhere forever, given the growth in supply in North America? Noticing the market was down 3% and your volumes were down 16% in
the quarter. And if you are
expecting not to ship to North America, where will
those volumes go? And what can pricing
should we expect?
I could say the development in North America over the last half year has been the average of two worlds, you could say. On commodity products, meaning UEI, UAM, we have seen quite depressed prices due to all the new capacity coming on in North America. So what we have done there is to have been selling less urea into North America. Quite a large part of the urea retail is based on third party products. So you have just reduced our sourcing on that.
And what we have been able to do, and this is the other part of North America, that there are quite a lot of premium product sales. We have NPKs and nitrate and calcium nitrate into the East and West Coast, more for cash crops. And they have done pretty well. So we mentioned in our Red Cross this morning that if you look at North America, we saw the crop position in North America, they actually have a slightly better result this year than last year due to continuous improvement in premium products. For instance, California, which were more affected by both last year have gone better this year on nitrates and SDKs.
Okay. Thank you very much.
Thank you. And next question comes from the line of Paul Walsh. Thank you. Please ask your question.
I'll take them one by one as well, if that's okay. My first question is back to what Stephanie was asking before. Given where current prices sit, two questions. That $60,000,000 that you referred to, is that on the 500,000,000 or just simply the 120,000,000 annualized in the quarter? That's my first question.
The
60,000,000 is based the 120,000,000 annualized in the that you see where we're at the first half.
Okay. So if I was to extrapolate at current prices, the net savings would be more like $250,000,000 versus the 500,000,000 Is that the way to think about it?
No, no, not really because the timing of the various parts of the improvement program would be different over the whole period. So at the end in '20 the mix of the different components, selling up to 500,000,000 will be different than what is sitting under
120,000,000
now. And in the beginning of this program, there will be more on the pricing side of this.
Yes. Okay. Fine. And just maybe the same question on the CapEx plans. You talked about seven of earnings contribution from that.
Again, maybe you don't have the numbers to hand, but if I was to run current prices, I'd be interested to know what that seven would be. I don't know if you have that now or maybe someone could get back to me.
Yes. With the current prices, that would be approximately SEK 4. About 4. Okay.
My second question is just a sort of conceptual one around the business and the nitrates premium and the NPK premium. It doesn't look like this at the moment. Is there any evidence that farmers are increasingly reluctant to take to pay for premium product given how weak crop markets have been and stock to use ratio sitting at relatively high levels? Like I said, it doesn't look like we've seen any evidence of that yet, but are you picking up any signals that farmers increasingly reluctant to pay that premium just because they don't need the yield advantage it brings?
So I would say that maybe increasingly willing again to pay somewhat higher premiums on those products. And you're right, of course, that food prices influence these premiums because what the farmer gets is higher crop quality. In addition, that also gets a lower environmental footprint. But and nitrates, which is predominantly in the European products, is quite heavily influenced by OE, but also, I would say, grassland fertilization. And real prices, as you certainly have seen, has improved quite significantly over the last couple of weeks.
So I think that will support nitrate demand. And also dairy products is doing quite well, which is helpful for Northern Europe and nitrates So it's a more perhaps any different negative element the previous year on beef prices. But this is expected that it's maybe starting to turn around a little bit now. And that's also for a nitrate order to come first.
And based on that, it sounds like you're expecting higher nitrates and NPK premium for the second half versus the first half. Is that fair?
As I said earlier on this call, we don't give price guiding. We're just trying to give some facts. And of course
I was talking about premium guiding, not price guiding.
Of course, we are now by the beginning of the European season, and we are aiming to have a price increase normally through the season to motivate distributors and farmers to take early. So I think it goes without saying that expectation wise, you should expect an increase over the season. But it will, of course, depend on commodity prices also. But we are increasing prices. Also, I think some of you maybe picked up that you made a slight price increase in France as you made us yesterday.
Now we have increased, but we pushed off prices another percentage. I mean, if there is now opening up for September, it shows that we have a good order book, and we are able to gradually lift prices as we did that.
Okay. Last question, if I may. Industry is it's certainly the upstream. So the ammonia urea market, they look somewhat oversupplied now for the foreseeable future. So I know that I'm obviously trying to get more positive on the outlook, but it doesn't feel to me like there's any real incentive for pricing to move higher given the supply and demand dynamics that are in place.
So I just wondered if you guys were seeing anything in the upstream business that could give you more optimism medium term. I'm struggling to see it. But also whether or not we've seen a lot of M and A in chemicals globally, both on the agricultural side, fertilizer side has really yet spark up. But could the kind of market conditions we're seeing here now lead to further M and A? And at what point would you guys actually consider closing upstream capacities given the current supply dynamics?
Well, when it comes to the capacity situation, I think that is quite well illustrated by the CRU numbers that we presented. And as you see in 2017 and 'eighteen, there will be more capacity additions than underlying demand growth. However, let me look further up, mean, touched upon earlier in the call as well that there are fewer projects and the certainty of these projects are much less. And of course, it has to be like this with the current prices for urea if we use a U. S.
Plant as a proxy to look at the business case. Let's say that if you set up a 1,000,000 tonne urea plant, it would probably cost about $2,000,000,000 And if you also say that there should be a 10% capital return on this, that's $200 per tonne of urea. And then it doesn't matter what your gas cost is or labor cost, it doesn't make more sense. And I suppose this is what we see reflected in the lack of new announcements at the moment. So at some point, this needs to come back in balance.
But again, as we indicated in 'seventeen and 'eighteen, it's still an oversupply situation. When it comes to consolidation, and certainly, in the broader space,
there has been a lot
of consolidation with ChemChina acquiring Syngenta by Monsanto. We have the DuPont merger the Dow. And within the fertilizer space, the merger between ACS and Agrium and Mosaiq's acquisition of the Wallace business. So there is a lot of activity. And on our side, it's always shareholder value first.
We have made one acquisition, our hospital acquisition in India with the acquisition of the Bodhara plant that we expect to close in third quarter. But of course, we are evaluating options. But again, it needs to make sense from a shareholder value point of view. When it comes to strategic closures, on our side, we do look through our portfolio, and we have made an announcement that we're looking at our options when it comes to the Far East site in France. And then we are doing whatever we can to improve our operational performance and reducing our costs all over our portfolio.
That's really comprehensive guys. Thank you.
Thank you. And next question comes from the line of Neil Tyler. Please ask your question.
Good afternoon. A couple more for me, please. Firstly, speaking with the topic that Paul just asked about, perhaps with M and A while we're on that. Given your outlook for that you mentioned on the webcast this morning for more better availability of gas worldwide and I suppose unstranding of a lot of previously stranded gas. Presumably, that then leads to a much flatter global production cost curve.
And so I wonder if you could talk around sort of point of thoughts around potential M and A and whether between production assets and distribution in both regions, whether the opportunities on the former of those two are likely to be much less attractive now for some time because of the the the flatter cost curve? That's that's the first question, please.
Well, if if I am just a a quick summary of what is it that we we we have done in in Yarden in in the recent years. I think what what we have we have seen for some time that the amount of new builds in the upstream part of the business has been, say, significant and higher than underlying demand growth. And for that reason, we have avoided making significant increase to our upstream production rather being being an integrated company. We we we we have opportunities through the whole value chain from, say, from from mine to to to pharma. We have focused our m and a within the the downstream part of the business with the acquisition of of Bunge and and and also, of course, in in the rest of Latin America.
And you start as a basis for expanding our reach to the farmers. And I think this has paid off quite quite well and we demonstrate this especially through the results that we're demonstrating in in Brazil now and how we've been able to build a premium offering on top of of for large scale to to begin with commodity commodity base. Also, lot of our investments in in the upstream part of the business has been tailored to to differentiate products and and and also to to create a supply going into these these markets. Now with the, let's say, a a flatter, let's say, group or more equal prices across the regions for for from gas means that there are less geographic differences
when it comes
to the production cost. And and that means that it's that commodity new builds that are in need of exports are now less attractive than the ones that have a home market. But still, again, we are positioned to to to make acquisitions across the value chain and and our latest large scale acquisition was actually on on absolutely acquisition of the production plant in in Bodhala in in India.
Thank you. Second question, I suppose two two parts to it. More financial, so probably one for Tore here. In the variance analysis for the second quarter, the €200,000,000 of other, it seems to me that there's lots of moving parts in both directions within that. Can you give me an indication or help us understand what the sort of underlying fixed cost inflation component was?
Because I understand that there's probably a negative £50,000,000 from the sale of the CO2 business, pounds 150,000,000 from the fire. And then going the other way, efficiency savings. So so what what you know, when when I strip all those things away, what what do you think the underlying cost inflation is? And then second part of that, when this morning you talked about your digital ag strategy, can you just clarify whether there we should expect or anticipate additional CapEx or OpEx as a consequence of that? Or is that all ready wrapped up in both your savings
plan and your CapEx plan? Yes.
It is part of the ultra relevance of the Varian Sandlifes.
And as
you say, one part of it is the sale of the CO2 business and the EBITDA that was included from that business previous year. So we have said that you indicated over the last couple of quarters that there was roughly an EBITDA from that business of NOK 50,000,000 per quarter. But we sold that by June 1. So second quarter last year only included two months, so it's roughly about NOK 30,000,000 in that order, which is explained by the sale of the CO2 business then. And as you may get in an older element, there are lots of pluses and minuses.
But the biggest plus in it or what is taking down the results is fixed cost development. And we have an increase in fixed costs in the quarter year over year of about NOK 120,000,000. That is lower than inflation. If you look at the countries where you are, it's an increase between 2.53% of total fixed costs. So you can say that we our fixed cost is increasing, but we are able to beat inflation on it, and we are growing because of those numbers of roughly 120,000,000 also includes the increased fixed cost that we take on as part of the improvement program.
Whereas said that so far, we're taking on 60 sorry, $36,000,000, roughly half of it half of it this year. So that's the main explanation.
On that, so just to make sure I understand that those additional fixed costs of $36,000,000 that's within the €120,000,000 that you just split out of currently, you just split out, those presumably will that component will leave as you get further through the efficiency program. Is that right?
That's true. So the part of all $36 which was in this quarter, let's say, that cost cost of the
will
And cost on costs this year and next year, and then then it will be ease down. You also mentioned that we also offer both cost curve and the cost curve effect is not in the order band. That is mainly actually a margin effect because what happened there is that we have more ammonia instead of producing it ourselves. So that your improvement program benefits are not in the order.
It is in
the volume element due to increased volume. It is in the energy part due to energy savings, and it's in the margin part due to a deficit of you
in Mazda. Perfect.
Then your question on digital, then we have this is not a evolution, it's an evolution and very, very continued to work on digital tools. But we are also, as Head of the opposition indicated, now doing some step up in that and employing also more resources to get that. So that will, over time, be some more some more growth. But in your context, it's not huge. And we'll into our.
I mean, do this step by step as is part also to to to see benefits of it.
Thank you. That's very helpful. Thank you.
Thank you. And next question comes from the line of Andrew Todd. Please ask your question.
Yes. Afternoon. Thanks for taking the questions. First one is on second half production schedules. If I look at Q2, in fact, the whole of the first half, clearly, production is running well ahead of your deliveries.
And equally, I could take your balance sheet measures as well when I divide eventually by last six to twelve month sales, you've got quite an elevated level of inventory. So is it right to think that you need to sort of, I guess, reduce your operating rates as you go through Q3, Q4? Should we say abnormally? So we're looking at more pronounced move down, and therefore, I need to think about your fixed costs. So that's the first question.
Second one is on nitrates, you've obviously signaled a more positive move into the newer season for Europe. I'm trying to understand what's behind that. Is it is it that you just discounted too much and this is a a consumption response to that pricing regime? Is it that the weak price recovery we've seen is starting to dictate order books? Is it is it both?
Or, you know, just sort of get a better feel as to why you're confident now about nitrate. And my final question is on urea. Looks like India is going to dictate a lot of the next six months in terms of import demand. There's been a lot of reports about too much inventory in India. I just wondered if you had any thoughts on that.
We
probably start with the inventory then. You're right. We have a higher inventory by end of this quarter than we have by end of first quarter or last year, it's an increase of 6%. But if you look at where half is that increase, that increase is to less blame for Estrasimza, which is sourced by third party products to a large extent. So it means when it comes to our own production, it doesn't really influence it that much.
It's quite a conflict. If you think about own production, for instance, like NPK, where there are, I would say, a more slow market a year ago and reduced inventories, we have been able to sell more of those inventories due to a good takeoff in many markets. That's like very thoughtful about before. So it the increase is mainly to Brazil, and also it is mainly to third party products, so it wouldn't touch our key influence directly or or on production. When it comes to to nitrates and and as you say, why do you why are you a bit more forward leaning and and sounding more comfortable now than a couple of quarters ago, I would say that a couple of quarters ago, we clearly have negative, I would say, phasing effects where we sold both automotive late last calendar year and our media prices increased.
They ended up with quite slim market premiums in the first and into the second quarter. Another element is that in Europe and the previous season, the season ending summer twenty sixteen with quite high inventory levels as urea prices were dropping and farmers ended up buying slightly more urea than nitrates. You haven't had the same development this year, we are ending this season with much more historical normal inventory levels on nitrates. And then the last one is on crop prices, which we already mentioned also, wheat and grassland products with a positive effect on this. And last, we can mention also, which is more a structural ongoing process is that we continue to grow our live trade market also in Europe, which is also helpful on the on the European balance, mostly in Brazil, but we also see a positive development in many other markets on live trades.
Okay. Thanks very much.
Thank you. And next question comes from the line of Patrick Lombard. Can you please ask your question?
Thank you. Good afternoon, everybody. Three questions on my side. The first one pretty easy. Could you update us on all the short term projects, the Pilbara Tan ramp up the ammonia in The U.
S. In terms of start up if everything is on track for either the end of this year or beginning of next year? That's the first question. Maybe you want to answer that first.
Yes. Before I start with Timbarajan and the TAN plant there, it has started off in the quarter. It produced roughly about 25,000 tonnes of TAL. So that is telling you also that it's not running through blast. It will take some time to ramp it also commercially A big part of that sale is to give the contract to mining companies and tenders gradually come up, sir.
But it is up and running that. All the all the Freeport. On the Freeport and And We have we have, like, a 10 commissioning of the plant around end of this year.
And start up next year?
Yes. End of this year.
Second question, again, coming back on Brazil and outlook for the new season in Brazil. Could you give us any of your views on acreage on costs being discussed at the moment? And also, do you see any issue with the meat production bans and scares around the safety of what's going be affecting the grain business? That's question number two.
Yes. I'm going say that I don't we don't have any clear figures. I mean, it's all seasonal, and it's they are busy harvesting their grain crop or corn crop, etcetera. So I think for us, it's a little bit early days yet to be very clear guidance on, So I am I don't know if said that I am I wonder in I don't really have much information there either that that that.
But that that hasn't come up at all in terms of of discussion with farmers?
No. My knowledge.
No. Okay. And I think that the the last one is is, again, on European and nitrates markets. Do you see increased pressure from Eastern EuropeMost Russian imports going into Europe? Or are the duties still in place and protecting you?
The dynamics of the recent development of nitrates
in Europe. There, we have some more in place. No, it's opposite. So it's actually less in Europe, clearly evidenced through the first half of Europe numbers and Europe plus import numbers as well. And I think it's a good sign that the production or nitrogen consumption is increasing in in Eastern Europe while our production is relatively flat.
So so so then then so the more so the volatility Okay.
Thank you, guys.
Thank you. And next question comes from the line of Felicity Smith. Thank you. Please ask your question.
Thank you. I think I've just got one left, and this is technical, and I didn't want the table to dial into the webcast this morning. You talked in the presentation about the lower prices impacting the production segment mainly, which is, I think, what we've all expected. But when I look at the sort of drop in EBITDA between that and the production, I there isn't really that much difference. And I just wondered what else is going on there.
The the major explanation of the drop in in the crop nutrition ban is the lower sales in Europe, which is very much of a seasonal effect. And by the fact that Europe was quite far ahead of the three quarters of the season, and volumes are 10% down in the last quarter of the season. Where we also have to say good profitability than having sales of premium products closed or plants, where also not only production, also drop in business benefiting plants. So that's a major explanation that
Okay. So it's purely a a volume?
It's it's a it's mainly volume, but it's related to mainly Europe. Yeah.
Okay. And then my other question just relates to the improvements and investment program. You've given some clarification already on what we expect to see at current prices. And I just wondered whether given the movement in prices since 2015, as we progress into the coming quarters, will you be able to update us on what the effects are at prices prevailing at the time?
So I think also in the additional information in the the the slide pack that we sent out, that there are some some price sensitivities in included in in this. So we'll continue to give an update on the actual impact as we report by quarter, but I thought it would also make sense to give it the interest that you can make some sensitivities ahead of time.
Yeah. I just wanted to check on those sensitivities because, obviously, you've you've mentioned the effect of an increase in prices. It's it's it's the same effect the opposite way. It's just there's a decrease. Yeah.
Yeah. Linear. Yeah. Okay.
That's correct.
Well, thank you very much.
Thank you. And next question comes from the line of Martin Evans. Thank you. Please ask your question.
Yes. Just following up again on that profit improvement program and the 500,000,000. I remember when you announced it initially, there was a little
bit of confusion as to
what it might comprise and how you're going get to your DKK 500,000,000. You seem to be relatively on track for that. And I'm just looking at the slides, you're giving a little bit more detail. So talking about plants through their diagnostic phase and the second wave of category teams on procurement out to start. Can you give us some sort of real time examples of what this profit improvement is involving and how you're achieving these efficiencies?
And therefore, essentially, they're real and that you won't have to get some of the loss of this back given the current climate?
Yes. So where we're at, say, year to date, there are, say, main contributors. It's in production and it's within supply chain or procurement. And if we start with procurement, what we're doing here is using our scale in order to improve our conditions for purchasing. And then we're tracking that and seeing what we can achieve compared to reference prices so that it it should be independent of of spot price movements.
So that rather what we can achieve through scale. So that should be possible to sustain over over time. And I could argue that it's it's it's a bit easier to do this in in in challenging times than in in more positive times. But but still still, I I believe that this is systematic way of working and and where we are achieving significant results from that already in in the first phase. The other part is to becoming more efficient in our production, and it's it's mainly two two factors on this.
It's the consumption factor, meaning that we we we use less energy to to to to to produce, and and the other one is just getting more volume out of the existing facilities, and and and that's also what is happening. But we're we're doing this first, it was done through a top down analysis where we've made certain assumption of what we thought we could achieve at each of the plants, and then we spent we spent significant time at the plant with with the whole organization, with the operators to go through what this means in how we run the plants and how we do shift scheduling, how we do communications, cross shifts, how we do preventive maintenance and so on. It's really changing the way we're working. And this takes some time, but then we will have results that are much that we actually lost as well. And as we indicated in the first quarter, we saw significantly more upside potential in the three plants that we had completed at that point.
Now we take another five plants through the same process. And I would like to see that one progress is is very good in in in in all the parts we're going through this, but we will also see more potential after having done this bottom up and and top down, which is also quite promising.
Thanks very much.
Thank you. And no further questions at this time. Please continue.
Okay. Then I think we're we're at the end of the call, and thank you so much for listening in and also for for the questions. Thank you.
Thank you. And that does conclude your conference for today. Thank you for participating. You may all disconnect. You could please stand by.
Thank you.