Yara International Asa

Hello and welcome to Yara's second quarter results conference call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Maria Gabrielson, 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. So, I'm going to go straight into Q&A, but I'm here in the room together with our CEO, Svein Kudimur Sete, our CEO, Magnus Kors Ankerstrand, and also Head of Marketing and Intelligence, Svein Kudimur, and other representatives from Jagra.

So, with that, please operate. If you open the first slide, I will give you the

Thank you. Your first question comes from the line of Christian Feitz of Kepler-Cherveau. Your line is now open.

Yes, I hope you can hear me. Thanks 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 pre-flying effect on the back of an early spring last year?

Yeah, could you just repeat the second part of your first question here, if that's allowed a bit?

So, yeah, 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, you know, with the IRA kind of being phased out with a big beautiful bill by Mr. Trump, how is your thinking around this blue ammonia project or these blue ammonia projects going forward?

Yeah, okay, I understand. I think, first of all, when we make a project decision, of course, we look at the fundamentals for ammonia production, and whether those are in place, and if we give a possible project that one. Number two, of course, which is relevant to point two, are the tax credits. And specifically for the project that we are looking at, is section 45Q of the Internal Revenue Code. That is a tax credit that was present long before the Innovation and Production Act. It was increased by the IRA, and it was continued with a new budget, with a 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 watched that and no other geopolitical assumptions very closely. And for the second question, I'll give the word to Dr. Budva.

Yeah, as we mentioned, we think that the season is in Europe, and that's a little bit compared to last season. One to two percent, perhaps, or something like that. So fairly normal development, and so most of them are facing, as we indicated, between the second and the first quarter. Also, the fourth quarter was relatively strong last year. So on the weather issues, the initial drought problems... improved quite a bit across Germany, Sweden, Poland, etc. 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 definitely much better than last year, but even above average. This current speed wave, I have not seen or picked up anything specific as to as to serious problems, nothing that I have observed on that.

Okay. Thanks very much, both.

Your next question comes from the line of Lisa Deneve 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 put in place import duties on nitrogen-based fertilizers from Russia. I mean, how do you see this shaping the European market from here, especially as it relates to nitrates and MPKs? 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?

Thank you.

Yes, as you indicated, there is now a 40 euro duty on Russian nitrogen products from July 1st and 45 euros on phosphate products. We haven't seen much kind of shift yet. Russians are still active in the European market, of course, and they their exports by market anyway. So far, no huge effect on this. One interesting element that we have yet to see is this threshold of figuring out if that is 1.8 million tons 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 other sources of imports into Europe that is not far away. Egypt and Algeria are duty-free and are already seeing Europe as almost like their home market, and Nigeria as well. So there is no lack of sources of securing nitrogen into Europe, but Maybe a little bit higher prices would be logical to assume in order to shift those trade flows accordingly.

I'm pleased to see that the European Commission has addressed exports of Russian urea into Europe was in it, but it increased compared to pre-war levels. And there are two of us. One is the level playing field when it comes to competition, and the other one is avoiding dependence. And that's a lesson that Europe has learned the hard way when it comes to energy and natural gas. And it should be avoided in the future on other sectors as well. And that's That's what is now recognized, that the tariffs are placed on July 1st. That's one step. And then, as I mentioned, there are some volume triggers, but there are also some calendar triggers here as well, which starts now at one level, and then it will gradually increase in the years to come. Of course, there are other import sources as well, so the price impact is limited, but at the same time, this is also European market. or Europe protecting against, against dependencies from Russia as well. And then it remains to be seen how it's interpreted in terms of the voluntary triggers, but there is the voluntary trigger as well.

If the import continues or increases. so that we have seen quite supportive conditions for crop production in general in the world. Now there are fewer issues around than what we normally see in a year, is my impression from the latest outlooks from USDA and FAO and others. So yes, that is kind of putting a little bit of a limit on grain prices, which are kind of related to food price commodities or food commodities. What we observed 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. There was a shift away from urea towards ammonium sulfate from China, but the total nitrogen around the same, and then on phosphate similarly. So it feels like it's running fairly smoothly and quite normal, and they are actually quite Today, you may have observed that the CFR price to Brazil and Hungary has picked up a little bit recently. So, there's nothing dramatic. I would say it's fairly normal. This is like the most focus this week. It's on this coffee. Coffee-ish. Trying to get as much Brazilian coffee in the U.S.

market before there is potential to do this.

Question comes from the line of Aaron Chakarelli of Bernberg. 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 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 issues.

Perhaps can you elaborate a little bit around that, please? Thank you.

Thank you.

On the volume side, the main drivers behind that being fast on the UK 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 was a little bit the other way around. So that's basically the main difference there.

The increase in volume in Brazil with a bit lower March volume. the higher margin.

With regards to the third quarter, I mean, John said in the presentation, we don't decide specifically on the mix at first. On the Brearbonia 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 a level where we would plan for doing an equity rate. That is correct.

What would you say is the best setup or structure for this type of deal? Thank you.

I think, as we also pointed to in the presentation, all of our ammonia projects historically have been partnerships. We truly believe that that is the best structure. That, I mean, obviously means sharing equity with others. It means complementary skills with others. I think that's all in All of our ammonia joint ventures, they are a job taker and our capabilities and strong synergies or strong infrastructure in that area brings a lot of synergy to a project that increases the value of a project. So, really, you know, partnerships and complementary skills that, you know, is able to increase the underlying value and return of the project, and also that share equity and share risk. Those are sort of the main principles that we follow when we take projects. As we have done in the past, most recently with our three-quarter model plan that we completed in 2018.

Thank you very much. All the best.

Your next question comes from the line of Elliot Jones of Dansk Bank. Your line is now open.

Yeah, good afternoon, guys. Thank you for taking my questions. The first one's just on the market. So kind of how are you viewing volumes and deliveries kind of going forward? There's obviously been some supply side shocks that have driven urea prices up. 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 Yeah, and 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 blue ammonia 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 the supply outlook, it's, of course, not possible for us to guess on the utilization rate in general.

As you mentioned, there are a lot of events that happen that are unforeseen, like how much we've reproduced in Egypt. One thing was the gas curtailment from Israel during the conflict. We also have their power needs, which they are prioritizing their gas for. And we also had Iran, and we even had some growth So, of course, all of these events, scheduling or maintenance, are not possible to forecast. What we can see is that there is a limited number of plants in the pipeline, new capacities. Of course, the utilization rate and the Chinese export levels are, in a way, the two most important supply-side factors. What we seem to think in August 2025 is that it would be surprising if the world, if 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 3-4 million tons, that is pretty much where the supply growth will come from. Offsetting that is, of course, the stronger need for Indian imports. you don't really need that much demand growth in order to balance the market and i think that is what we are seeing that the prices are at 450 to 500 dollars because the market is tight and you actually need some demand rationing in order to balance so that that seems to be how 2025 looks 2026 there are still not many plants in the pipeline new capacity so it is still also i think depends on your assumptions for what the global cessation rate is able to do and how much it will export.

On the question on capex, so if we go a year back, what we were looking at for the year was a capex of $1.35 billion, which we then committed to taking down through the post-project. And now we're thinking that we want to find it out, take it down further. There's a mix of things here. As you've seen, we've done changes to our asset portfolio as an exhaust 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 didn't plan to spend this year, and then there are also some given the probability of it not being strong enough. But there are also a few minor things that have started with a very high return and a very short, or a return in a short timeframe as well, such as some key expansions, for example, that are very small investments with a very, very high return. All in all, it reflects a capital discipline where we plan to prioritize the capping that we invest for the projects and prioritize very strictly according to that. With regard to the Blue Emoji project, yes, we've seen capping inflation. I think that's also, you know, in quite clear in the market based on, you know, 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 we, you know, fits to our capital structure balance sheet is, of course, also to look at the capex per ton, which is, of course, crucial for the profitability of a project. And, you know, trying to, you know, find solutions and opportunities where we are at the competitive level there, in addition to other synergies as well that would enhance project value.

That's helpful. Thanks very much.

Your next question comes from the line of Ben Johnson of ABG Sando 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 clean 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.

Thank you.

Thank you for your question. On the volumes in industrial, that mostly pertains to volumes in our assets in Brazil that we close. And those, the impact, the UK impact of that is very minor. Otherwise, industrial has performed quite well. There's been a size reduction as well due to the But the main impact comes from the cost of the Brazilian assets. With regards to the particular events on the project side, this quarter, which explains that. When it comes to TPC margins in Brazil, you can see those 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 Grasova 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 or 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 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? Thank you.

Yeah. I think I can start with the last question first.

So, our guidance on capping this year is our guidance. So, I mean, as it stands now, that's what we expect to spend. When it comes to the changes now on the growth capping side, now from last guidance, that's not a world-particular project. It's a world project that we, for different reasons, and then mostly sort of those projects or not making the profitability threshold that we have, that we're not going to proceed with in this portion. So it's not something that we expect to move into next year. When it comes to the market share question, your break time for the season were up, even though we were slightly down in the second quarter. I think it's difficult to predict the expectations for the next season. Obviously, we look at European markets, but also opportunities overseas, and of course, optimize our netbacks as best as we can. But of course, Europe is a core market for us, and this market is very important for us to be

and have a dark role, and we're very focused on that as well. Thank you.

The last part of your question, there is around 50 million committed as of now. 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 MCK 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?

Yeah, I think

You're correct on your observation. I think that's partly driven by strong commercial work, also prioritizing the highest-paying market. It is the premiums that are both enough to margin. Of course, that's an important distinction to keep in mind. There is, of course, also some speculation on this, depending on how the locomotive analysis goes, but we have seen a very strong commercial effort in particularly Asia in the last three quarters, but also in the Nordics, as an example. So, from that perspective, the commercial job that's done underlying performance there is strong. And then, of course, premiums do are to some extent impacted by the development of the economy.

Thank you.

Your next question comes from the line of Tristan Lamotte 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 on 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 million. Of course, we also believe

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 if you don't see before we have 12 months after so that's why we say that the run rate is lower than what was for 2025 will be an additional thing in that 2026 as well.

And if I may add there, and we're very pleased with the engagement across the whole organization. We spent a lot of time on detailing out and anchoring post-improvement programs, and here the organization has stepped up and moved faster than we expected. We're setting a a new and a higher target, but it doesn't mean that we're going to end focusing on cost, but that is more continuous improvement that goes on the cost side, but also what we're seeing in terms of productivity as well across the island. When we set the program, that was like what we needed to achieve in the next 18 months in terms of the step change in the cost space, and we're basically doing that now. progressing and how the organization has worked for a long time.

The second question is 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 I pointed to in the presentation today, that increase production, I mean, production of premium products or finished products in our assets that vary close to our 2025 target now. And that is kind of, maybe we measure that, is sort of operational performance. So that doesn't include sort of market attainments, things like that. In addition to that, we have, during the last 12 months, had a very strong focus on also maximizing utilization of our apps, in addition to the operational off-time they provide. Particularly going into this season, we kept assets running in Q4, which gave us more products as well, in particularly Q1, but also Q2. And that's what the key focus areas were 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.

question, please press star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your next question comes from the line of Andrew Noel of Chemical ESG. Your line is now open.

Hi, thanks for taking my questions. I've got a couple, please. I just wanted to get your feedback on ammonium nitrate. I understand there's I'm saying there's sort of some pull from the defense side, and that's affecting market supplies. So I just wondered if you're having to sort of adjust for that. And 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 quite a lot of interest in making that conversion possible. Yeah, 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. Thank you.

Yes. On the first one, I think, you know, we don't see a particular

you know, growth for technical ammonium nitrate for the defense industry as such. I'm not sure it's the right product per se, but that's more into the traditional areas of mining operations and so forth, but for those purposes. But in general, of course, the defense industry demands lots of different industrial projects where our base chemicals is a component to the intermediary chemicals that, you know, is also requested by the defense industry. So I think it's fair to say that the growth we see on the defense industry side, you know, helps the industrial demand in general, even though not necessarily specifically, you know, directly consuming our products. And

This is growing, but not to a level that would have a meaningful or big impact to the industry.

On the asset footprint, we have, as we've talked about earlier in this quarter, done quite a lot of measures. Some larger co-authors have been performed, the hibernation of our assets in Brazil. We're also in the process of restructuring in Montauk and around most of France. On top of that, we also are doing quite a lot of smaller changes that when you have it added up, it becomes a meaningful contribution as well. And, you know, we will continue to do that and optimize as we go forward. We didn't bring in this call, but last quarter we did show an overview of our European asset base and 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, you know, predominantly in , which is high 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 steps

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. Have a good weekend.

Thank you for attending today's call. Goodbye.