Yara International Asa

Hello and welcome to Jara's second quarter results presentation. The presentation today will be held by our CEO Svein Tore Holsether and CFO Magnus Krogh Ankarstrand. I would like to remind you that once the presentation is done, we will move straight into the Q&A session. I will come back with instructions on how to ask questions in the Q&A. But first, let's start the presentation. It's my pleasure to hand over to our CEO Svein Tore Holsether.

Thank you Maria and good morning, good afternoon and thank you for diving into our second quarter earnings call. As always I will start with our safety performance and in first quarter we reported an increase in accidents and this is also reflected in our second quarter numbers and this is something that I take very seriously and We've been working diligently across the entire organization to continue emphasizing the importance of our safety culture. And we had our annual safety day on April 28, which engaged colleagues across the world to increase the awareness and the commitment to the safe by choice approach. because we know how to improve safety and I am pleased to see that we have seen improving numbers towards the end of the quarter and hope that we're able to continue to turn the negative trend that we've seen in the recent year. This is our license to operate. Every accident is avoidable and we will bring are TRI down to zero. Let's then look at the key elements for the quarter. We report an EBITDA excluding special items of $906 million. That is an increase of 39% from last year, driven by increased margins. In addition, we did sell parts of our surplus EUA quotas with a gain of $153 million, and that is a special item to our EBITDA. This is the highest quarterly EBITDA in the last decade except for 2022. Return on invested capital is 14.3%, reflecting strong quarterly margins, further supported by sale of EUA quotas. While margins have been strong, continued market uncertainty impacted demand in off-season markets, particularly in the northern hemisphere, and as a result, demand was deferred to third quarter, and we report crop nutrition deliveries 17% below same quarter last year. Since late last week, we have, however, seen an uptick in buying activity again, with demand resurfacing and prices gradually moving upwards. Earlier this month, we announced the acquisition of the Gulf Coast Ammonia Plant in Texas. The acquisition strengthens Yara's position on the global cost curve, enhances portfolio flexibility, and represents an important step in delivering on our strategic priorities. Looking at the EBITDA variance for the quarter, the 39% increase compared to last year mainly reflects increased nitrogen margins. And this is Jara's highest quarterly EBITDA since 2022, driven by increased market margins, but also solid underlying finances. Prices have increased, and this is more than offsetting higher gas costs. We do report a negative volume impact in the quarter of $240 million, and approximately half of this reflects lost volumes due to reliability issues in our Pilbara ammonia plant. In addition to lost volumes due to the planned maintenance at our Belle Plaine plant. On top of that, we report $120 million volume impact due to demand deferral, reflecting the 17% lower fertilizer volumes reported in the quarter. Fixed costs continue to reflect the cost reduction measures that we delivered on in 2025. And as presented at the capital markets day and the quarter increase then of eight million dollars, that is a strong beat of inflation for the quarter. Return on invested capital has increased from 7% last year to 14.3%, also supported by the $153 million gain from selling EUAs, which contributes to approximately one percentage point of return on invested capital. The volatility in the quarter has had a profound and also unusual impact on the market dynamics. The closure of the Strait of Hormuz led to a supply shock, driving prices sharply upwards and then peaking when India purchased 2.5 million tons of urea at over $900 per ton in April. However, this occurred at a point in time when the European season was largely complete and the combination of high prices and significant volumes going into India and among others Australia meant that demand was reduced dramatically elsewhere in the world. Simply put, customers and farmers who did not need nitrogen for prompt application delayed regular purchasing for the next season to avoid buying at peak prices. This market uncertainty led to delay of the new season in Europe and also deferred demand elsewhere. As the graph in our presentation here shows, there were large variations between regional price references, clearly illustrating the demand volatility across markets during the quarter. In recent days, demand for the new season has significantly resurfaced and prices have rebounded in many key markets with the urea F.O.B. Egypt prices increasing from around $410 per ton at the end of July with the latest reported sale well above $500 per ton and this is reflecting increasing demand and Europe now being willing to pre-buy for the next season again. Market to supplier risk is also resurfacing now with an unresolved situation in the Middle East. As mentioned already, JARA announced the acquisition of the Gulf Coast ammonia plant earlier this month, and this represents a significant milestone and largely fulfills our ammonia strategy. The acquisition will strengthen our ammonia cost position and enhance flexibility across our integrated production and distribution network. The plant is located in Texas and will have a nameplate capacity of 1.3 million tons per year. Yara will own the ammonia plant and the air products will supply hydrogen, nitrogen and utilities under a long-term agreement. The purchase price of 1.3 billion dollars will be paid upon closing and represents an attractive entry point into a highly competitive US ammonia production. The asset is expected to generate strong cash flows and deliver solid returns, fully aligned with the RAS-disciplined and returns-focused capital allocation framework. Bringing this plant into our portfolio really structurally improves our competitive position while also increasing our flexibility for ammonia optimization. Acquisition demonstrates how IATA can leverage our global platform, our market position and operational flexibility to capture attractive opportunities and strengthen long-term value creation. I will now then hand over to Magnus who will take a closer look at the financials for the quarter. So with that, over to you, Magnus.

Thank you. As mentioned by Svein Tore, EBITDA is up 39% on a strong second quarter 2025, predominantly driven by increased nitrogen-oxygen margins. This is translated into an 84% increase in earnings per share, and we clearly see the effect of increased earnings on a stable capital base, and better utilization of our installed capital is core to our improvement potential. This also translates into a significant increase in return on invested capital, 14.3% for the last 12 months versus 7% at the same time last year. However, please also note that this number includes the sale of EUAs, which had a cash effect of 153 million US dollar, which is classified as a special item. Looking towards the cash side, the delayed start to the season, as well as the increased price environment, has led to a small buildup in operating capital compared to what is usually a release in the second quarter. And this will subsequently be released when prices stabilize and volumes catch up. This impacts cash from operations, which is lower than second quarter 2025, which benefited from a normal operating capital release. Finally, our net investments are down to US$100 million, as the US$152 million divestment of parts of our surplus EUAs is booked here. That leaves us with a free cash flow of the quarter of US$583 million. As mentioned, the price surge in the second quarter came at a point where sales for the ongoing seasons in the Northern Hemisphere was at the very end. The deliveries for the ongoing season went on as normal, but there has been a significant delay of the new season where deliveries usually pick up end of May. And as I went to mention, this is linked to low willingness to participate at elevated price levels for customers not in an immediate need of product, particularly when India purchased 2.5 million tons at more than $900 per ton of urea, significantly over market prices everywhere else. and consequently, our deliveries are down, especially in Europe. The majority of other reduction of own produced products is linked to the scheduled turnaround in Belle Plaine and the Brava. And beyond that, we have a reduction in third party traded volumes in the Americas and Africa Asia, but these are volumes with more limited EBTA impact. Looking closer at Europe and the season as a whole, we see a much more stable picture than the tail end of the seasons. Jara's deliveries in Europe for the season as a whole are stable on a season-to-date basis. Imports of urea to the European market, however, are also significantly down for the season, and this is a trend that has continued into the second quarter, and that increases Jara's relative market share considerably. As mentioned, Jara's Q2 deliveries in isolation reflect a slow start to the new season. However, there is a significant pickup in market activity in the European market in July. And as you will have noted, global nitrogen prices are on the rise as well. And renewed tensions in the Middle East cast further uncertainty about nitrogen and phosphate availability for the third quarter and the upcoming season in the Northern Hemisphere. And while demand is deferred, Yara remains focused on maximizing and increasing the utilization of our assets. Looking at actual production tons and including the effect of turnarounds, Yara has had a solid organic production growth over the last years. And also during the current volatility, Yara has been able to profitably uphold production, which is critical. The quarter in isolation saw some reduction in produced volumes due to the scheduled turnarounds in Belplain and Babrala, as well as the previously reported outage in Pilbara ammonia production. Both Babrala and Belplain are now back producing, while Pilbara has been taken offline in July for the scheduled maintenance. As the Strait of Hormuz was blocked in March, significant demand rationing was required to meet more than a 20% reduction in available nitrogen trade. And this was exacerbated by India's purchase of 2.5 million tons above $900 in April. And this also is illustrated at the top of this slide, showing major reductions in imports to key consumption regions, with Europe and Brazil lagging the most. Europe, of course, affected by the very strong imports in Q4 ahead of CEBA. and consequently a lot of buying remains to happen despite demand reduction in nitrogen application. Application as a whole for the season cannot be skipped and the renewed tensions in the Middle East also adds uncertainty to the supply picture. Chinese supply, currently quota being 3 million tons, will be a key factor to balance the market and India consumption will also be another important factor to monitor. Looking to the medium term, the urea balance remains tight with a limited number of projects coming over the next years compared to historical demand growth. It remains unclear to what extent projects have been further delayed by the ongoing war in the Middle East. As mentioned, the significant increase in EBTA in the quarter is driven by increased margins. Looking at Nitrate's operating margins from both our TTF and Henry Hub linked gas cost exposure, margins have expanded significantly as nitrogen prices increased more than TTF and Henry Hub stayed below $3 per million BTU. A similar expansion in margin is seen in our MPKs, also helped by the phosphate upgrading margin. This is particularly relevant for Jara as two-thirds of our MPK production does not require sulfur in the production process of upgrading phosphates, and sulfur shortage has been a major driver of phosphate price increases in the last two quarters. This also erodes significant production margins for producers using the phosphoric acid route, but as mentioned, Yara does not require sulfur for two-thirds of its production. At the very high price levels during the quarter, premium calculations become less of a driver for our earnings, particularly given the high increase in overall margins. And I recognize that this makes it challenging for analysts to forecast margins, particularly given that our sensitivities are based on global urea references. For the current quarter, both the large gap between global and local references, as well as premium being consumed by the production margin, contributes to deviation between our outside-in model and reported results. Summarizing the quarter and the impact on the balance sheet, we see that net debt stays relatively stable despite the dividend payout in the quarter. This is sustained by strong cash earnings as well as the US$153 million gain from the sale of EUAs. This puts our balance sheet in a robust position in anticipation of the regulatory closing and subsequent payments of the Gulf Coast ammonia acquisition. And looking to this acquisition, it is not only a major strategic milestone, but should provide clarity to the capital markets on Yara's approach towards ammonia, which has been in development for some time. And with this acquisition, Yara achieves major strategic objectives in terms of lowering ammonia production costs with 100 hub linked gas and a larger production asset as a result. The acquisition represents a very attractive entry point with a capex significantly below other acquisitions in the US Gulf when adjusting for size and operating cost. And as previously mentioned, the plant consists only of the back end of the pneumonia plant and is supplied with hydrogen and nitrogen and certain other utilities from air products. Energy consumption is charged through directly and this will be among the most energy efficient plants in JARA's portfolio. For the hydrogen and the nitrogen, there is also a base fee paid to our products, as is normal in the industrial gas industry, also similar to the arrangement we have in our Freeport ammonia plant. This replaces what would otherwise have been a construction capex of the front end of the ammonia plant, as well as the sustaining capex and the fixed cost of operating a front end of an ammonia plant. And as such, this ammonia plant is among the most competitive in the US, seen from a total cash flow perspective. And also when looking at total cash costs per year, including the full operating costs, the plant is in the area of the first to second quartile on the cost curve. Post-closing, this acquisition will have a significant impact on Jara's energy exposure. Coming from a time before Freeport, when less than 15% of our gas purchases were in North America, our portfolio will now be close to 40% exposed to Henry Hub or AECO. Of the remaining European TTF exposure, half of the exposure is linked to nitrate production, where locally produced ammonia can be replaced by imports if the gas-to-ammonia spread is negative. The acquisition also adds considerable length to our internal balance of ammonia between equity-owned production and own consumption, which allows even greater flexibility on further portfolio adjustments. And this opens for adjusting the relative energy exposure further in favor of low-cost production. On the topic of decarbonization, Yara remains strongly positioned in the carbon taxed European market, also with this change of our portfolio. Firstly, because what the introduction of CBAM does is to expose imports to the same carbon costs as European produced products. This increases the price they have to take for their products of imports and levels the playing field. Yara's basis for carbon costs are average emissions intensity, and this is lower than the average of imports, leading to a margin gain for Yara. This is not by coincidence, but due to structural investments in energy efficiency and emission reductions over time, which, irrespective of accumulated free quotas, have had a very short payback time. JARA can also increase this positive delta further by replacing gray ammonia productions with low carbon ammonia imports and by reducing emissions further, like for example the CCS Sløyskil project. For JARA's imports into Europe, we expect to utilize inward processing mechanisms for re-exporting finished fertilizer, significantly reducing our import exposure to sebum. The financial benefit of having carbon intensity below benchmarks is illustrated by JAR's accumulated surplus of EUA quotas, equalling 5.2 million by year-end 2025. During the second quarter, we have divested 1.7 million of these, leading to a cash impact and gain of 153 million USD, reported as a special item in this quarter. This illustrates the added value of previous projects that have been done, and also how we can monetize reduced emissions in projects like CCS Sløyskil, as well as potential carbon reduction measures in our US plants. Moving to capital allocation, Jara maintains its policy after the Gulf Coast acquisition. Our overarching target is always to maximize returns to our shareholders through return on invested capital, and where this quarter is a big testimony to that. Delivering on our improvement program is the first priority in achieving that and, as previously mentioned, the GCA acquisition will also expand our EBIT margins further by significantly lowering our cost position. Beyond that, Yara will maintain our strict capital discipline, focusing on reprioritizing sustaining CapEx towards the highest return assets and ensuring realization of benefits from executed growth investments. Post-closing of the acquisition, it will be a priority to maintain a strong balance sheet, ensuring that we have the capability for high quality investment opportunities at the right timing, while of course maintaining attractive shareholder distributions. And concluding with the Improvement Programme, the successful and continued implementation of our COST Programme and adaption towards more flexibility puts Yara in a much stronger financial position than before 2024. The Improvement Programme extends from our COST Programme, covering a broader range of initiatives, with a significant portion focused around increased asset utilization and expanded production output. Additionally, ensuring cash flow delivered from completed growth investments such as our Yarra Vida plant in the UK and the BK expansion in Colombia are core focus areas. The program is in its early stages but currently delivering according to plan with 50-60 million USD of the 2027 target realized so far and continued follow-up remains our core priority. And with that, I give the word back to Svein Tore.