Yara International ASA (YAR) Earnings Call Transcript & Summary

Thank you for standing by. My name is Bhavesh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Yara Capital Markets Day Q&A conference call. [Operator Instructions] Silje Nygaard, you may begin your conference.

Thank you very much, and hi, everyone. Thank you for joining this conference call on the Yara Capital Markets Day. I'm Silje Nygaard with Yara Investor Relations team. The topic for the Capital Markets Day was delivering growth and the carbonization with capital discipline. We'll assume that everyone have watched the webcast, so we will go straight to Q&A today. And with me today, I have the following representatives from Yara's management team. We have Svein Tore Holsether, our CEO; Thor Giæver, our CFO; Lars Rosaeg, our Deputy CEO; Magnus Ankarstrand, CEO of Yara Clean Ammonia. We also have Rejane Souza the SVP for Global Innovation; Bernard Stormyr, VP, Sustainability Governance as well as other colleagues from the company. And together with us digitally, we have Chrystel Monthean, our EVP for Americas and Fernanda Lopes Larsen, EVP of Africa and Asia. Operator, we're ready then to take the first question. Could you please open the line?

[Operator Instructions] Our first question comes from the line law Christian Faitz from Kepler Cheuvreux.

Two questions, if I may. First of all, can you please elucidate your blue ammonia projects in the U.S. at the plant ones. Thanks for giving us the basic figures during today's CMD. I still have a couple of questions on that, though. First, who is your partner for sequestering this CO2? And can you already also share who's doing the engineering at least for project YaREN? And second, on that topic, would it have been possible to turn your existing Freeport facility blue and as such, also benefit from Inflation Reduction Act or are any benefits out of that strictly limited to new investments? And then my second real question is also, since we have the benefit of discussing with management, could you please share with us your current insights into trading conditions? As, for example, Brazil started well into the season? And what is your own view on the currently depressed pricing environment given the probably sustainably higher farmer profitability. Thank you. That's it from my side.

Yes. No, [indiscernible] I can start regarding the questions for -- in the U.S. So as presented in the material, we have one named project together with Enbridge in Corpus Christi. And then we are also planning for a second project and reviewing options, and we'll get back to more detail around that and in terms of partners, et cetera, when the time is right. When it comes to concrete partners for CCS, so will that depend on the market or on available suppliers in respective regions. As we did announce -- when we announced the one in Corpus Christi is that Enbridge themselves with their joint venture is one potential candidate for that in that region, and we also, of course, evaluate all potential suppliers there, and the same will be the case for the second project when that's more confirmed. And in terms of engineering and also construction partners and so on, that we typically do not announce until we sign a final contract for the construction of the plant. So we will hold back with that until we know. In terms of the question for Freeport, yes, it's possible to [ decarbonize ] freeport as well. We are looking into various options for that. There is, as you know, today, an external supply of hydrogen into that plant, which offers some flexibility in that regard.

No, I was just going to ask, I mean, excuse my ignorance on the Inflation Reduction Act, but would it be possible to also take advantage of some IRA measures by turning Freeport Blue?

Yes.

And then Christian, this is Thor Giæver. I'll try to address your last question, which I think had three parts. It was Brazil. It was general trading conditions and [Technical Difficulty]

Hello? Hello?

Ladies and gentlemen, please stand by. We have this technical difficulties. The call will recommence in just a moment. We'll place you back on the call while you wait. Thank you so much.

First of all, in terms of the sort of recent developments in the regions within our business. We'll come back to that in our results presentation in a few weeks. But generally speaking and referring to my presentation earlier on my section of the presentation that we have had a lot of new urea supply over the last couple of years, well above normal trend demand growth, and that's -- that has influenced the picture in particular in the last 6 months or so as energy prices fell. So if you like, despite quite strong farmer incentives, price developments have been muted, but with a positive trends in recent weeks and really focusing on the long-term picture, we are then quite positive given the drop in new urea supply that is projected going forward and still with strong farmer incentives. And of course, this is linked to also the broader picture that we paint and our strategy and that there are -- if you look at urea from a decarbonization point of view, it's quite a challenging case because the product actually does contain CO2 as opposed to nitrates and NPKs that is part of our strong strategic fit here that we can decarbonize that production through clean ammonia that could be -- can be sourced from outside Europe and also be through carbon capture in Europe. So yes, thank you. So then, operator, back to the next question.

And our next question comes from the line of Alexander Jones from Bank of America.

First on the CapEx outlook. You said a ceiling of $1.2 billion per year, but this is in real terms and also after disposals. On your current plans, can you give us any indication of nominal gross CapEx for 2024 and 2025, please? And then second question around disposals, actually, given that you've highlighted it's a net number, can you give us any sort of indications on how you're thinking about what assets in the portfolio might be considered noncore?

Yes. Thanks, Alex. I'll have a stab at both of those. First of all, in terms of CapEx, we do not have guidance at this stage for '24 and '25, but you can expect it to be in line with our policy, which -- and I should add to your recap there that it's not a ceiling per year, but it's an average maximum over time so as you see with our guidance this year, we're above that level, but we've been below in recent years. But also, as we indicated for the potential larger growth CapEx that we have in the pipeline, as we mentioned in connection with YCA, is that we do not foresee major expenditures before 2025. In terms of what assets, that could be subject to portfolio optimization, we would come back to that when we have specific cases. But in general, as you hopefully in line with the messaging today, there are a few key elements that will typically be part of consideration. One is decarbonization opportunities. We talk when we talk about [indiscernible] for future assets. That's an important part of it. It's about operational flexibility. That would include both on the sourcing raw material side, in terms of market access, whether you have many options sort of both domestic and export wise, and also in terms of the scale can be a factor as well. So I mean, if you are strong on all those factors, then you have a head start [ continuing a ] -- in being a fit for future assets.

Our next question comes from the line of Rikin Patel of BNP Exane.

I have two. Firstly, on M&A, you said your target bolt-on are smaller deals within the space. Just curious what sort of targets you're looking for, whether this would be more orientated towards the nutrition side, i.e., in fertilizers or whether you look at industrial assets maybe to increase your leverage to green ammonia, for example. And secondly, just on the demand side of the equation, you covered a fair bit in your presentation and the impact that bio stimulants, biologics and more efficient fertilizer use could have on the markets going forward. Just curious what impact you think this could have for the demand for chemical nitrogen fertilizers going forward and whether this could actually materially disrupt demand for synthetic fertilizers like ammonia and urea.

Yes. Rikin. This is Thor again -- I'll turn for this and [indiscernible] others now that's needed. First of all, on the M&A part. This is part of the [indiscernible] for our strategy. Now the last part of your question was around clean ammonia and that is very much where we intend to focus our resources and capital in the coming years. And as we mentioned, we're aiming for two world-scale projects in the U.S. that we hope to pass FID in the coming year or so. And then the bolt-on M&A is more as you mentioned, towards the crop nutrition side of the business. So -- and we've done some of this in recent years. We've made smaller acquisitions, for example, within organic fertilizer. There could be more of that, but with the larger focus near term on the clean ammonia site, the world-scale assets. And then your question about sort of improving efficiency across the ag space from a wide range of sources, bio stimulants, improved seed technology, improved fertilizer products and use but I would describe this more as a long-term plan, but we have been both living with and promoting ourselves and to make very clear that our objective is not to maximize the tons of fertilizer produced and sold and used in the world, but rather a bit the opposite to provide the most efficient of the package to farmers and industrial customers and our whole portfolio. And that is -- so I mean, the answer to your question is yes, over time, this will and has already made the world more efficient, but that's exactly the business we're promoting and [indiscernible] we hope to work for both in the [ Ari terms ] and in terms [indiscernible] to continue doing that because it's an important part of continuing our footprint resource wise environmentally and across all the other [ systems ]

This is Svein Tore, just to add Thor's comments. We should think about this as a major business opportunity for taking into the consideration the type of fertilizer [indiscernible] on our global footprint and reach and agronomic competence. And when we go through the whole value chain of the food companies and reaching the area that has the largest potential for emission reduction is really the [indiscernible] and that's where we can utilize our competence to drive that and we enclosed some examples in the presentation pack as well on what we can do in terms of emission reductions. But also think about water consumption YaraRega, what we can do there in terms of fertigation to reduce and 70% of freshwater in the world is used for agriculture. You can do a lot of improvements at that how nutritious is the food that you eat. It's about soil health, availability of micronutrients which makes a healthier food through the right practices at farm level. You have a soil that is more resistant to erosion, one that holds nutrients better, one that holds water, better one that secures biodiversity. If we produce more food in less land, we can free up farmland today back into nature with the carbon sequestration , biodiversity as well. So there are a number of elements here where we can create significant value for the planet, for society and farmers. Yet today, not enough of these are turned into revenue streams for farmers, and that's where we need to continue the drive. That makes a lot of sense from an investment point of view. So if you think now globally in farming in the same way as Inflation Reduction Act as in the U.S. that incentives are created to drive change in farming practices, this is a significant business opportunity, where I think Yara with our competence is particularly well positioned to both support, shape and drive this.

[Operator Instructions] Our next question comes from the line of [ Joakim Selquist ] from [indiscernible]

Sorry. I was wondering about the [ IRA ] with Yara clean ammonia. There's a risk that you guys get too carried away, given that there is a presidential election next year because I hear more and more complaints about elevated U.S. fiscal spending and how that will grow in [ Fed's inflation jump ]. So I was wondering, I mean, what is the IRA gets kind of rolled down significantly after the election? And how does that risk play into your business decisions with YCA?

Yes. [indiscernible] , I can answer that question. I think, first of all, it's important to outline that the reason we look for blue ammonia -- large scale blue ammonia project in the U.S. in the first place is the very advantageous energy [ nation ] and then energy pricing in the U.S . Combined with the ability to build at significant scale, which is important as well for profitability. And the fact that CCS in itself or the sequestration part is very competitive compared to other parts of the world, so the project there are inherently competitive to begin with compared to other places in the world. And then, of course, the Inflation Reduction Act is important. Also, it's very important to keep in mind that there was already a 45Q section in the Internal Revenue Code prior to the IRAs, which offered support for CCS, so our projects are as advanced as they are because we started that work before the Inflation Reduction act came along as well. But obviously, an important element to make these projects happen is that support, so there's no doubt it's important. And of course, the risk for a political change is, of course, a factor that we take into account when we analyze this. And also, important to keep in mind that these are not the only projects we have in our portfolio. So we also have [indiscernible] at other places in the world as well as also illustrated in the presentation. I think without going too deep into the political analysis of this, of course, the Inflation Reduction Act and particularly the elements that surrounds CCS and hydrogen seem to have a relatively strong support across the bench in Congress as well, both projects and is, of course, very important in many states, Texas, Louisiana, as an example, where -- which should matter for both sides of the political spectrum. So we monitor the situation very closely, obviously, and -- but we believe that this is very beneficial for the U.S. as well, particularly this part of the IRA in terms of attracting investments and future tax revenue. So we believe that this is a -- good both for the environment as well for the U.S. economy.

Okay. And just one more on -- given the large differences between U.S. and European natural gas prices, I was thinking about this and divestitures and things like that, is it a fair assumption that you will try to like migrate more towards the U.S. because the supply, I mean the situation is much more stable for natural gas.

Yes. Yes. So it's Svein Tore. That's what makes these investments, particularly interesting because with our structure where we have our assets and the flexibility that we have in our system are really in a unique situation that we can build capacity based on cheaper energy in the U.S. as well as a very supportive framework for capturing CO2. And at the same time, we can transport that ammonia over to Europe and utilize that in Production finished products. And with the [ adequate ] ammonia infrastructure with availability of -- among exports out of the U.S. and import points that we have in the -- in Europe, what we're doing now is transferring all the learnings and what we've seen now in the last 1.5 years in terms of flexing our production in Europe when energy prices are too high and turning that into normal operating models where volatility is the new normal. So I think we're well positioned to, so to say, best of both worlds here.

There appears to be no further questions at this time. Ms. Silje Nygaard, I'll turn the call back over to you.

Yes. Thank you, operator, and thank you for everyone for dialing into this call today and launching the Capital Markets Day presentation. Should you have any further questions, the Investor Relations team is, of course, available. So thank you for today, and speak again soon.

Thank you. This concludes today's conference call. You may now disconnect.