Yara International Asa

Welcome to Jara's first quarter results presentation. Today's presentation will be held by our CEO, Svein Tore Holsetter, and our CFO, Magnus Krogh Angarstad. There will be a conference call at 1 p.m. Oslo time where you can dial in and ask questions to management. You can find login details on our website under investors. With that, it's my pleasure to hand over to Svein Tore Holsetter.

Thank you, Maria, and good morning, good afternoon, good evening, depending on where you're calling in from, and thank you for joining our first quarter results presentation. As always, we start by looking at our safety performance. Yara must be a safe place to work for our colleagues and contractors. Unfortunately, the start of this year has not shown the continued strong progress that we've aimed for, and we saw an increase in the accidents across several of our sites. I take this personally, and I'm not satisfied with my performance on safety. We have addressed this immediately within the organization, and we've taken action on this to strengthen our focus on execution on Safe by Choice, making sure that the basics and routines are in place. This negative trend clearly demonstrates that safety requires continuous focus, and we still have accidents that could and should have been avoided. This has unfortunately also continued into the second quarter, and at our current rate, we will see a negative trend in the next quarter as well. While the real severity and also the potential severity of the accidents remain low, this is something I will continue to have on top of my agenda to reverse the trend and to achieve our ambition of zero accidents. Moving then to the results in the first quarter, Yara reports an EBITDA excluding special items up 47% compared to last year. And this reflects both strong volumes in the quarter and improved margins. We're continuing to deliver on our cost program, and the fixed cost reported this quarter are $150 million down from the launch of the cost program, of which $50 million is currency, so real reduction is $100 million. We're continuously looking to improve returns by taking active measurements in our portfolio, and we're making strong progress on this and have initiated actions for several marginal assets during the recent year. Progress on both cost program and on the portfolio is a clear demonstration of our commitment to increase returns and also cash flow. On the market side, we see increasingly demand-driven nitrogen markets as urea prices cover production costs of the marginal producers. With limited capacity additions and lower European gas prices in the coming years, this is supportive for nitrogen upgrading margins. A global asset footprint, downstream presence, and our people are a key competitive advantage. We have demonstrated the ability to successfully navigate through volatility over the recent years. Operational flexibility is at the core of how Yara continues to position itself in the face of volatile markets and also geopolitical instability. Let me also express my thanks to all my colleagues in Yara for their commitment and strong performance. Turning now to EBITDA variance for the quarter. Total volumes are up 10% compared to one year ago, with most of the volume increase within premium products. Yara has delivered a strong commercial performance in the quarter, delivering strong price realization above global commodity price developments, more than offsetting gas costs. We have continued with a strong production performance with underlying reliability improvement at our most profitable plants. Fixed costs are $34 million lower than a year earlier, reflecting the progress on our cost program. We are well on track to achieve our 2025 target, which Magnus will come back to later on in the presentation. We also have a positive impact from currency and also from other income. Quarterly return on invested capital is at 8.6%, a significant increase since last year. And if we exclude restructuring costs to recognize the special items in the quarter, return on invested capital would have been above 10%. As mentioned, sales volumes are strong this quarter. Deliveries of premium products have increased in all regions, while we have somewhat lower urea volumes in total. In Europe, we have particularly strong deliveries with an increase of 15% compared to a year ago. This mainly reflects higher nitrates and NPK deliveries, which for the quarter are back to pre-war levels. In America, volumes are up 12%, mainly reflecting higher NPK deliveries in Brazil. Africa and Asia saw increased premium deliveries offset by lower urea volumes in India. Volumes in industrial are slightly lower than a year ago, mostly reflecting lower volumes from Sluyskill and Ferrara, where the latter has been through a turnaround this quarter. Yara has realized better margin in the quarter than suggested by commodity price development and Yara's sensitivities. This reflects the benefits of Yara's global premium-focused product portfolio and the strong commercial performance. In Europe, strong order book management has balanced volume growth with margin optimization. Orders were taken on good premiums in a rising urea price environment. As nitrogen prices spikes and demand typically then softens, especially with the just-in-time buying pattern we've seen in recent years, but nevertheless, in total, we realized prices above commodity increases on average for a quarter. MPK premiums have remained strong with especially strong pricing performance in Asia. MPK premiums have also been supported by positive price effects on phosphate and potash. We also had strong price realization in industrial, reflecting that these are premium products and the pricing is therefore less volatile than the underlying commodity prices. Looking forward, Yara's strategic focus is to improve returns on invested capital and focusing on core operations. And we will do this by utilizing scale and flexibility to increase margins while also reducing fixed cost. Capital deployment will be subject to strict capital discipline and cash conversion to reduce maintenance capex per ton of volume produced. Returns will be further increased through value-creative growth subject to strong double-digit returns, excellent strategic fit, and what can improve Yara's structural competitiveness. We're making significant progress on this and have initiated improvements across the entire organization. Once they're all fully implemented, this will contribute to a net cash flow increase of more than $400 million from 2026 and onwards. And this includes a reduction of cost and CapEx, according to our targets communicated in second quarter 2024, but also further improvements from adjustments to our portfolio. And we're not stopping here. We're continuously assessing further improvement opportunities, and we're driving improvements with the aim of maximizing shareholder returns. I will now hand over to our CFO, Magnus Krogh Ankarstrand.

Thank you, Svent-Ore. As you've already seen, EBITDA is up 47%, excluding special items, compared to last year, affecting increased volumes, strong price realisation and cost reductions. We're also happy to report that this benefits our shareholders by increased earnings per share and improved return on invested capital. The latter is 6% on a 12-month rolling basis compared to 2.5% a year ago. Return on invested capital for the quarter in isolation, however, is 8.6% compared to 4.6% one year ago. And this largely reflects improved performance, but Yara aims to increase the return on invested capital and EPS further as the improvement programs takes more and more effect. Operating capital reflects a seasonal increase with increased receivables due to both higher market prices and higher volumes. This results in an operating cash flow increase of $271 million compared to the same period last year, mainly driven by the stronger earnings and a lower increase in net operating capital compared to last year. Yara's investing cash outflow decreased by $54 million compared to last year, reflecting our strict capital discipline. Turning to the segment results for the quarter, we see a particularly strong recovery for Europe, which reflects regaining of market share compared to pre-war levels and a strong positioning of the portfolio in a relatively early spring. Both Asia and industrial solution report significant improvements driven mainly by increases in margins and premiums, whereas our ammonia business benefited from increased volumes, higher margins and good portfolio management. Our global plants EBTA is down, reflecting tighter production margins given the heightened gas prices in Europe in quarter one. And while returns are improving, we maintain laser focus on further increasing returns through our improvement work, aiming to reach our through the cycle, heroic target of 10%. As mentioned earlier, volumes were especially strong in Europe this quarter, and it's a key driver of the improved EBTA. Nitrates and NPK deliveries for the quarter are back to pre-war levels, as Jara's plant portfolio has largely run uninterrupted through Q4 and Q1, combined with a very strong commercial performance in the market. All in all, our European delivery of premium products is up 20% this quarter compared to a year ago, partly offset by somewhat lower urea deliveries. And season to date, Jaro's total European deliveries are up 9% compared to a year ago, whereas for the fertiliser industry in general, total deliveries were up only 2%, reflecting an increased market share for our European market. Let's take a look at the status of our cost and capex reduction program, which we announced in the second quarter of last year. The cost program is progressing according to plan, and with most of our targeted cost reduction actions implemented or under implementation, we are well on track to realize the target that we set last year. For the last 12 months, we have realized a reduction of approximately 150 million US dollars, However, 15 million US dollars of this represents currency effects. Our target, as previously communicated, is to be at the run rate level of 2.38 billion US dollars per year by the end of 2025, which means that remaining cost measures that are now under implementation will counter the inflation that we expect on our fixed cost base for the rest of the year. And this, we believe, will ensure a 2026 fixed cost level of 2.38 billion US dollars or lower prior to the inflation in 2026. We also expect to see the full effect of the reduced fixed cost reflected in our EBTA once the program is completed. And we have for this quarter recognized 68 million US dollars of restructuring cost. JAR will continue to evaluate further cost optimization opportunities on an ongoing basis. And the fixed cost and capex reduction program is a top priority for our organization and part of several actions to future prove our core operations and increase our shareholder returns. We're also doing progress on portfolio and maintenance CapEx optimization, key to improving our cash conversion and returns to our shareholders. We are continuously evaluating our portfolio to ensure CapEx is prioritized towards the fit for futures assets and maximized returns. We have taken significant action across our portfolio during the last year. This is an ongoing process, and we continuously review the portfolio and implement changes, exemplified by the actions that you can see on the right-hand side here. In sum, these assets would have required an annual average capex of 70 million US dollars after 2026, which is now avoided. The decisions on these assets were based on expected future returns, market attractiveness, and strategic fit. And we anticipate to see the full drop-through effect from our fixed cost and capex reductions through our P&L. This brings our annual maintenance capex level needed to sustain our current asset portfolio, to between 700 and 850 million US dollars in real terms, depending on the schedule of turnarounds for each year. For 2025, CapEx guidance remains unchanged at $1.2 billion for 2025. Of this, approximately 300 million US dollars is growth capex, mainly focused to our Sløjskyld CCS project and our new Jaravita plant that both aim to complete in 2026. And we have a strong focus on the implementation phase of these projects, ensuring that we deliver according to plan and budget, but also that these projects deliver the expected returns through strict commercial follow-up. Beyond 2025, we have limited committed growth investments, and we will continue with our strict investment discipline and limit allocation of growth CapEx to double-digit profitability projects with high strategic fit. The portfolio changes in implementations aim at strengthening the competitiveness of Yara's asset footprint. Ensuring competitiveness in Europe is of particular importance in that context, considering the energy cost exposure and combined with our ammonia import capability, our asset footprint is fairly strong in Europe, as also demonstrated in 2022. It is very important to keep in mind that scale and fixed cost in capex per ton of production capacity is also crucial for competitiveness in ammonia. Our main exposure in ammonia in Europe is Fløyskyll, who has very high scale and high energy efficiency. And this is why we also here invest in our CCS project to reduce the future burden of ETS carbon costs. Looking at other ammonia production in Europe, our Porsgrunn plant is flexible on switching between imported ammonia and ammonia produced on imported natural gas liquids. And that means that after our intention to transform our titrate ammonia plant, our nitrate production capacity in Europe is either well positioned on the European cost curve or capable of running on imported ammonia. And this represents a very strong value and protection against volatility as well as future carbon costs. Looking at our three European ammonia urea plants, they largely serve our industrial segments, which both has a different seasonality and different premium potential than regular urea, particularly through our AdBlue and AirOne sales. And we will monitor future profitability of these assets closely. However, with the expected increase in LNG capacity in the coming years and lower European gas prices, as well as a tightening urea market, these plants do have the potential to significantly benefit from attractive market conditions in the years to come. Yara's European asset portfolio is therefore strong and perhaps better than its reputation, and with a high degree of flexibility to face energy volatility while capitalizing on improving marketing conditions over the next years, we feel very comfortable about our portfolio. With this premium product asset portfolio and Yara's global scale in Monia, Yara sees value creation potential from upstream US projects. We believe that equity investments in the US is an opportunity for significant shareholder return and enhancing Yara's scale and flexibility as a large ammonia player. Yara is the only player able to offtake significant amounts from a new ammonia project at sufficient scale and is thus an attractive project partner for any low carbon ammonia project. will therefore continue to mature our portfolio, ensuring we maximize our flexibility to pursue the most value accretive path. And FID is still slated for first half in 2026. We will not sanction any project unless we see a double-digit return, and we will take the time needed to advance these projects at the right pace to ensure the best outcome for our shareholders. And over the next year, we will particularly monitor both market developments, regulatory developments, and geopolitical developments before making any decisions. Returning to the nitrogen markets, we see attractive fundamentals both short-term and medium-term. In the US, we see that the low opening inventory combined with the strong corn acreage continues to make the market tight. In India, we see lower production, higher sales and lower imports that indicate lower inventory coverage compared to a year ago. And IFA recently published a study estimating that the supply growth in 2024, excluding China, was actually very close to zero. That obviously means that hadn't it been for the large inventory stocks in India, markets would have been even tighter during 2024. China has not yet exported any volumes this year, and as always, remains the key supply factor to watch out for for the second half of 2025. Looking at the medium term, we also see strong fundamentals ahead. Nitrogen prices are currently higher than production costs of the marginal producer, indicating a demand-driven market. Expected capacity additions towards the end of the decade is also below historical consumption growth. And while the graph in the middle shows a potential peak of supply additions in 2027, the timing as well as the likelihood of future projects is highly uncertain and could very likely be phased out in the following years. Looking then at the total expected additions, these are below the average consumption growth for the next four years. And also looking at the forward TTF prices, which reflect increased LNG capacity coming into Europe, We see that an increasingly demand-driven market with tightening supply-demand balance combined with lower future European gas prices can increase European margin and improve profitability of European production. In particular, our nitrates portfolio, but also our urea portfolio in Europe. And then finally, let's take a brief look at our integrated scorecard. As mentioned in recent quarters, the cost and the capex reduction program and portfolio optimization to sustainably improve our returns are at the core of Yara's strategic focus. This is first and foremost done by continuing to exercise strict capital discipline and optimizing our product portfolio to maximize margins. However, as Fantoine mentioned, safety remains our key priority as well and important starting point to support our sustainable operational performance. JARA's target of increasing returns to our shareholders through our core whilst moving towards profitable decarbonisation remains our strategic priority. And it is self-evident that decarbonisation progress also needs to be profitable. Jara has maintained a very strict profitability requirement and capital discipline in evaluation of decarbonization opportunities, which nevertheless puts us en route to achieve our 2025 target for greenhouse gas emission intensity. And with that, I hand the word back to Sventura.

Thank you very much, Magnus. The world continues to face geopolitical volatility, and this is not new for JARA. We've been navigating through volatility for the past five years from pandemic outbreak in 2020 through sanctions being implemented on potash from Belarus and Russia's war on Ukraine. Throughout this period, Jara has demonstrated the strengths of its business model by successfully shifting sourcing patterns of key raw materials and optimizing our production rates in an extremely volatile market environment. Yeah, scale and that combined with our global presence is one of our key competitive edges. And with the recently announced tariffs from the US, we continue to face market instability and potential shift of trade flows. However, Yara's direct exposure to this is limited as our imports into the US are less than 5% of both revenues and volumes. And we actually import more from the US than what we export to the US. Looking more broadly at the nitrogen market in the US, this is a net import market. The U.S. needs approximately 3 million tons of nitrogen imports a year, as it consumes significantly more than what is produced domestically. And this is likely the key driver for why urea prices in the U.S. rose immediately following the 10% tariff announcement. Yara has already demonstrated how we can capitalize on our operational flexibility in volatile times. The only thing we know is that we don't know what will happen next. So it's important to position our business to be both robust and also flexible to adapt to different scenarios. While volatility leads to risks which we need to manage, it also represents opportunities for a company like Jaram. So to summarize, the key focus of the whole organization is to ensure a safe working place, to optimize our core operations, to increase free cash flow and generate high returns in order to fund improved shareholder returns and value accretive growth. We're progressing on improving returns in our core markets with improved results this quarter with strong volumes and prices. The cost reduction program and the portfolio optimization are both on track and we're delivering improvements. Both ammonia and premium product growth are key opportunities where we see potential for high returns and excellent strategic fit. Yara continues to mature our project portfolio, where navigating geopolitical volatility is naturally a key factor. But we're in no rush, and we will continue to mature our growth project portfolio. And the final investment decision for potential U.S. projects is still planned for the first half of 2026. So with that, I'll now hand back to Maria. Over to you.

Thank you, Svein-Tore. I would just like to give you another reminder about the conference call starting at 1 p.m. Oslo time where you can dial in and ask questions. That concludes today's presentation. Thank you for watching.