Agrium Reports Strong Results Despite Challenging Market Conditions
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 08/05/15 -- ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today 2015 second quarter net earnings from continuing operations of $675-million ($4.71 diluted earnings per share), compared to $625-million ($4.34 diluted earnings per share) in the second quarter of 2014. The increase in earnings was supported by higher Wholesale volumes and lower production costs for most products. Retail results were impacted by lower crop prices, drought in Western Canada and wet conditions in the U.S. Corn Belt, which affected growers' decisions and limited the opportunities for use of certain crop inputs and services.
Highlights:
"Agrium's solid second quarter earnings were supported by the strong competitive advantages across our product portfolio, the diversity of our product and geographic mix and our continued focus on operational excellence. Wholesale delivered impressive results across all products, supported by lower costs and higher volumes. Retail earnings held up well despite approximately a 5 percent decline in crop input expenditures across the North America market and the impact of the severe weather conditions across this region. We believe we outperformed against our U.S. retail peers achieving an increase in U.S. normalized comparable store sales in a down market, a demonstration of the strength of our business model and market position," commented Chuck Magro, Agrium's President and CEO.
"Agrium is committed to delivering on our capital allocation vision as we execute our Operational Excellence initiatives, optimize our portfolio and continue to return capital to shareholders through future dividend growth and share repurchases," added Mr. Magro.
(1) Forecasted annual effective tax rate of 28 percent used for adjusted net earnings and per share calculations. These are non-IFRS measures which represent net earnings adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to the earnings of other companies by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange, gains (losses) on non-qualifying derivative hedges and other one-time adjustments. These should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS and may not be directly comparable to similar measures presented by other companies.
ADJUSTED NET EARNINGS RECONCILIATION
UPDATED ANNUAL 2015 GUIDANCE
Based on our Market Outlook, Agrium expects to achieve annual diluted earnings per share of $7.00 to $7.50 in 2015 compared to our previous estimate of $7.00 to $8.25 per share. We have narrowed the guidance range due primarily to the impact of low crop prices on grower decisions and lower expected potash and phosphate pricing in the second half of the year relative to our previous guidance. We are assuming a normal fall season, recognizing there is risk to fall nutrient applications in regions impacted by drought or a delay in the North American harvest. As a result, our Retail EBITDA(4) for 2015 is now expected to be from $1.00-billion to $1.05-billion. This incorporates challenges that our Canadian retail operations face in 2015 due to the drought and lower crop prices, while our U.S. Retail operations is expected to achieve earnings in-line with 2014 levels.
Our annual nitrogen and potash production targets remain unchanged. However, strong sales in the second quarter resulted in low beginning inventories to start the third quarter, which will impact sales volumes in this period.
We have updated our finance costs range for 2015 to $240-million to $255-million to reflect a higher than anticipated cost of financing for our customer pre-payment programs. Our estimates of the Canada and U.S. foreign exchange rates and NYMEX for 2015 have been narrowed from our previous estimates based on current market conditions.
We have also updated the range for our annual effective tax rate for 2015 to 28 percent to 29 percent to reflect the impact of the recently announced increase to the Alberta corporate income tax rate effective July 1, 2015, increasing from 10 percent to 12 percent. As a result, we had a one-time deferred tax liability charge in the second quarter, which contributed to the increase in our annual effective tax rate for 2015.
This guidance and updated additional measures and related assumptions are summarized in the table on page 3. Guidance excludes the impact of share-based payments expense (recovery), gains (losses) on foreign exchange and non-qualifying derivative hedges.(5)
(1) Represents diluted per share information attributable to equity holders of Agrium.
(2) One-time adjustment mainly relates to the increase in current and deferred taxes due to an increase in the Alberta corporate income tax rate.
(3) Forecasted annual effective tax rate of 28 percent used for adjusted net earnings and per share calculations.
(4) Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. This is a non-IFRS measure. Refer to section "Additional IFRS and non-IFRS Financial Measures" in the Management's Discussion and Analysis.
(5) For further assumptions related to our guidance, see disclosure in the section "Market Outlook" in our 2015 second quarter Management's Discussion and Analysis.
2015 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS
(1) Nitrogen production tonnes reduced to reflect disposal of West Sacramento upgrade facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 5, 2015
Unless otherwise noted, all financial information in this Management's Discussion and Analysis ("MD&A") is prepared using accounting policies in accordance with International Financial Reporting Standards ("IFRS") and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the second quarter of 2015 (three months ended June 30, 2015) and for the six months ended June 30, 2015 are against results for the second quarter of 2014 (three months ended June 30, 2014) and six months ended June 30, 2014. All dollar amounts refer to United States ("U.S.") dollars except where otherwise stated. The financial measures EBITDA, Adjusted EBITDA, and cash cost of product manufactured used in this MD&A are not prescribed by IFRS, or in the case of EBIT, is an Additional IFRS financial measure. Our method of calculation may not be directly comparable to that of other companies. We consider these non-IFRS and additional IFRS financial measures to provide useful information to both management and investors in measuring our financial performance and financial condition. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS. Please refer to the section entitled "Additional IFRS and Non-IFRS Financial Measures" of this MD&A for further details, including a reconciliation of such measures to their most directly comparable measure calculated in accordance with IFRS.
The following interim MD&A is as of August 5, 2015 and should be read in conjunction with the Consolidated Interim Financial Statements for the three and six months ended June 30, 2015 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2014 included in our 2014 Annual Report to Shareholders. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit Committee, comprised exclusively of independent directors. The Audit Committee reviews, and prior to publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. No update is provided to the disclosure in our annual MD&A where there has been no material change from the discussion in our annual MD&A. In respect of Forward-Looking Statements, please refer to the section entitled "Forward-Looking Statements" after the "Market Outlook" section of this MD&A.
2015 Second Quarter Operating Results
CONSOLIDATED NET EARNINGS
Agrium's 2015 second quarter net earnings from continuing operations were $675-million or $4.71 diluted earnings per share from continuing operations compared to net earnings from continuing operations of $625-million or $4.34 diluted earnings per share from continuing operations for the same quarter of 2014.
Sales and gross profit
Expenses
Share-based payments
Other Expenses (Income)
Effective Tax Rate
BUSINESS SEGMENT PERFORMANCE
Retail
Crop nutrients
Crop protection products
Seed
Merchandise
Services and other
Wholesale
Nitrogen
Natural gas prices: North American indices and North American Agrium prices
As of January 1, 2015, we have designated all of our natural gas derivatives as hedges(1), with realized gains and losses now recorded to cost of product sold (which also includes transportation and administration costs).
(1) In the prior year, unrealized and realized gains and losses on derivatives not designated as hedges were included in other expenses.
Potash
Phosphate
Wholesale Other
Other
EBITDA for our Other non-operating business unit for the second quarter of 2015 had net earnings of $3-million, compared to a net expense of $6-million for the second quarter of 2014. The variance was due to the following:
FINANCIAL CONDITION
The following are changes to working capital on our Consolidated Balance Sheets for the six-month period ended June 30, 2015 compared to December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Consolidated Statements of Cash Flows
Below is a summary of our cash provided by or used in operating, investing, and financing activities as reflected in the Consolidated Statements of Cash Flows:
Short-term Debt
Capital Management
NORMAL COURSE ISSUER BID
In January 2015, the Toronto Stock Exchange ("TSX") accepted Agrium's notice of intention to make a normal course issuer bid ("NCIB") whereby Agrium may purchase up to 7,185,866 common shares on the TSX and New York Stock Exchange during the period from January 26, 2015 to January 25, 2016. During the six months ended June 30, 2015, we purchased 952,053 shares at an average share price of $104.99 for total consideration of $100-million. There were no share repurchases subsequent to June 30, 2015. Shareholders can obtain a copy of the NCIB notice submitted to the TSX from Agrium without charge upon request.
OUTSTANDING SHARE DATA
Agrium had 142,791,278 outstanding shares at July 31, 2015. At that date, under our stock option plans, shares expected to be issued for options outstanding were negligible.
The agricultural products business is seasonal in nature. Consequently, comparisons made on a year-over-year basis are more appropriate than quarter-over-quarter comparisons. Crop input sales are primarily concentrated in the spring and fall crop input application seasons. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections from accounts receivables generally occur after the application season is complete and our customer prepayments are mostly concentrated in December and January.
ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
Certain financial measures in this MD&A are not prescribed by IFRS. We consider these financial measures discussed herein to provide useful information to both management and investors in measuring our financial performance and financial condition.
In general, an additional IFRS financial measure is a measure relevant to understanding a company's financial performance that is not a minimum financial statement measure mandated by IFRS. A non-IFRS financial measure generally either excludes or includes amounts not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation is unlikely to be directly comparable to that of other companies. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
The following table outlines our additional IFRS financial measure, its definition and why management uses such measure.
The following table outlines our non-IFRS financial measures, their definitions and why management uses each measure.
RECONCILIATIONS OF ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
CRITICAL ACCOUNTING ESTIMATES
We prepare our financial statements in accordance with IFRS, which requires us to make judgments, assumptions and estimates in applying accounting policies. For further information on the Company's critical accounting estimates, refer to the section "Critical Accounting Estimates" in our 2014 annual MD&A, which is contained in our 2014 Annual Report. Since the date of our 2014 annual MD&A, there have not been any material changes to our critical accounting estimates.
BUSINESS RISKS
The information presented in the "Enterprise Risk Management" section on pages 64 - 68 in our 2014 Annual Report and under the heading "Risk Factors" on pages 22 - 31 in our 2014 Annual Information Form has not changed materially since December 31, 2014.
CONTROLS AND PROCEDURES
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PUBLIC SECURITIES FILINGS
Additional information about our Company, including our 2014 Annual Information Form is filed with the Canadian securities regulatory authorities through SEDAR at and with the U.S. securities regulatory authorities through EDGAR at .
MARKET OUTLOOK
Prospects for global crop prices have improved since June due to less than ideal weather conditions across a number of geographies. Excessive moisture in the U.S. Corn Belt has led to the deterioration in crops and led to lower than anticipated planted acreage in some areas. Severe drought across much of Western Canada has also reduced yield expectations. While new crop futures prices have recently declined, the rally in crop prices in late June and early July is evidence of how sensitive global crop supply and demand is to relatively small changes in yield expectations.
In areas with excessive moisture, it has been difficult to get equipment into the fields to apply crop nutrients and crop protection products, which in some cases has led to missed applications. In drought areas growers have in some cases sought to reduce crop nutrient and crop protection applications on struggling crops. The prospects outside of drought impacted areas are more positive for the remainder of 2015 as stronger prices in early July offered growers higher priced selling opportunities and improved grower sentiment. Furthermore, in areas with excess moisture, the wet conditions tend to lead to increased disease pressure, supporting fungicide demand.
Following the end of the northern hemisphere's spring application season, crop nutrient prices have generally weakened, driven by the seasonal slow-down in demand. Tightened Chinese urea export supplies and seasonal demand fuelled an increase in urea prices in-season. However, the expectation of a return of increased Chinese supply to the export market, combined with new exportable supply in Algeria, Saudi Arabia and the U.S. in the second half of the year have pressured global prices. We expect Chinese anthracite-based urea costs to continue to provide a floor to the urea market in the second half of 2015, and that Indian import demand will be strong, particularly in light of the strong start to the monsoon season.
Potash shipments to China and India have been robust in recent months and are expected to provide a solid base to global demand in the second half of 2015. In contrast, Brazilian demand has been relatively slow, down 21 percent year-over-year in the first half of 2015. However, we expect the pace of demand to improve in the third quarter, in advance of the domestic planting season. Following the spring season, North American potash prices declined, significantly narrowing the premium relative to other major global markets. The phosphate market has been relatively stable, with robust Indian demand offset by relatively weak Brazilian import demand and record Chinese DAP/MAP exports.
Forward-Looking Statements
Certain statements and other information included in this document constitute "forward-looking information" and/or "financial outlook" within the meaning of applicable Canadian securities legislation or constitute "forward-looking statements" within the meaning of applicable U.S. securities legislation (collectively, the "forward-looking statements"). All statements in this document other than those relating to historical information or current conditions are forward-looking statements, including, but not limited to, statements as to management's expectations with respect to: 2015 annual guidance, including diluted earnings per share and Retail EBITDA; estimated 2015 nitrogen and potash production volumes; capital spending expectations in 2015; and our market outlook for the remainder of 2015, including anticipated supply and demand for our products and services, expected market and industry conditions with respect to planted acres, prices and the impact of currency fluctuations and import and export volumes. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements. The purpose of the outlook provided herein is to assist readers in understanding our expected and targeted financial and operating results, and this information may not be appropriate for other purposes.
All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below and elsewhere in this document. Although Agrium believes that these assumptions are reasonable, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The additional key assumptions that have been made include, among other things assumptions with respect to Agrium's ability to successfully integrate and realize the anticipated benefits of its already completed and future acquisitions and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by Agrium, with respect to prices, margins, product availability and supplier agreements; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for the remainder of 2015; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and negotiate acceptable terms; our ability to maintain our investment grade rating and achieve our performance targets; and our receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the project's approach. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in our 2014 annual MD&A, with respect to further material assumptions associated with our forward-looking statements.
Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general economic, market and business conditions; weather conditions, including impacts from regional flooding and/or drought conditions; crop yield and prices; the supply and demand and price levels for our major products may vary from what we currently anticipate; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof, and political risks, including civil unrest, actions by armed groups or conflict, regional natural gas supply restrictions, as well as counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; the risk that work on the Egyptian Misr Fertilizers Production Company S.A.E. nitrogen facility expansion in Egypt may be interrupted again and may not be completed on the timelines currently anticipated or at all; the risk of additional capital expenditure cost escalation or delays in respect of our Borger nitrogen expansion project and the ramp-up of production following the recent tie-in of our Vanscoy potash expansion project; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the U.S. including those disclosed under the heading "Risk Factors" in our Annual Information Form for the year ended December 31, 2014 and under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in respect of Forward-Looking Statements" in our 2014 annual MD&A.
The purpose of our expected diluted earnings per share guidance range is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes.
Agrium disclaims any intention or obligation to update or revise any forward-looking statements in this document as a result of new information or future events, except as may be required under applicable U.S. federal securities laws or applicable Canadian securities legislation.
OTHER
Agrium Inc. is a major producer and distributor of agricultural products and services in North America, South America, Australia and Egypt through its agricultural retail-distribution and wholesale nutrient businesses. Agrium supplies growers with key products and services such as crop nutrients, crop protection, seed, and agronomic and application services, thereby helping to meet the ever growing global demand for food and fiber. Agrium produces nitrogen, potash and phosphate fertilizers, with a combined wholesale nutrient capacity of over nine million tonnes and with competitive advantages across all product lines. Agrium retail-distribution has an unmatched network of over 1,300 facilities and over 3,000 crop consultants. We partner with over half a million grower customers globally to help them increase their yields and returns on more than 50 different crops. With a focus on sustainability, the company strives to improve the communities in which it operates through safety, education, environmental improvement and new technologies such as the development of precision agriculture and controlled release nutrient products. Agrium is focused on driving operational excellence across our businesses, pursuing value-enhancing growth opportunities and returning capital to shareholders. For more information visit: .
A WEBSITE SIMULCAST of the 2015 2nd Quarter Conference Call will be available in a listen-only mode beginning Thursday, August 6, 2015 at 7:30 a.m. MST (9:30 a.m. EST). Please visit the following website: .
AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the six months ended June 30, 2015
(Millions of U.S. dollars, unless otherwise stated)
(Unaudited)
1. Corporate Information
Corporate information
Agrium Inc. ("Agrium") is incorporated under the laws of Canada with common shares listed under the symbol "AGU" on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Our Corporate head office is located at 13131 Lake Fraser Drive S.E., Calgary, Canada. We conduct our operations globally from our Wholesale head office in Calgary and our Retail head office in Loveland, Colorado, United States. In these financial statements, "we", "us", "our" and "Agrium" mean Agrium Inc., its subsidiaries and joint arrangements.
Agrium operates two business units:
Additional information on our operating segments is included in note 2.
Seasonality in our business results from increased demand for our products during planting seasons. Sales are generally higher in spring and fall.
Basis of preparation and statement of compliance
These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on August 5, 2015. We prepared these interim financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting. These statements do not include all information and disclosures normally provided in annual financial statements and should be read in conjunction with our audited annual financial statements and related notes contained in our 2014 Annual Report, available at .
The accounting policies applied in these interim financial statements are the same as those applied in our audited annual financial statements in our 2014 Annual Report, with the exception of the accounting changes described in note 8 to our interim financial statements for the six months ended June 30, 2015.
2. Operating Segments
Debentures issued during the three months ended March 31, 2015
6. Financial Instruments
Commodity price risk
Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)
For our natural gas derivatives designated in hedging relationships, the underlying risk of the forward contracts is identical to the hedged risk, and accordingly we have established a hedge ratio of 1:1. Due to a strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of natural gas forward contracts designated as hedges to other comprehensive income.
Currency risk
Foreign exchange derivative financial instruments outstanding (notional amounts in millions of U.S. dollars)
There have been no transfers between Level 1 and Level 2 fair value measurements in the six months ended June 30, 2015 or June 30, 2014. We do not measure any of our financial instruments using Level 3 inputs.
7. Additional Information
Property, plant and equipment
At the end of 2014, we completed a major turnaround to tie in the expansion project at our Vanscoy potash facility and the assets related to the expansion project became available for use in 2015. During the six months ended June 30, 2015 we transferred $2.6-billion related to the Vanscoy expansion project from assets under construction to buildings and improvements, and machinery and equipment.
During the six months ended June 30, 2015, we added $192-million to assets under construction related to the expansion project at our Borger Nitrogen facility.
In May 2015, our Board of Directors approved an increase to our dividend to $3.50 U.S. per common share on an annualized basis.
Normal course issuer bid
In January 2015, the Toronto Stock Exchange accepted our Normal Course Issuer Bid ("NCIB"). Under the NCIB, we may purchase for cancellation up to 5 percent of our currently issued and outstanding common shares until January 25, 2016. The actual number of shares purchased will be at Agrium's discretion and will depend on market conditions, share prices, Agrium's cash position and other factors. During the six months ended June 30, 2015, we purchased 952,053 shares at an average share price of $104.99 for total consideration of $100-million.
8. Recent Accounting Pronouncements
The International Accounting Standards Board deferred the effective date of IFRS 15 Revenue from Contracts with Customers by one year. Accordingly, Agrium expects to apply IFRS 15 for the annual reporting period beginning on January 1, 2018. We are continuing to evaluate the impact on adoption.
Contacts:
Agrium Inc.
Investor/Media Relations:
Richard Downey
Vice President, Investor & Corporate Relations
(403) 225-7357
Agrium Inc.
Todd Coakwell
Director, Investor Relations
(403) 225-7437
Agrium Inc.
Louis Brown
Analyst, Investor Relations
(403) 225-7761
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Datum: 05.08.2015 - 21:30 Uhr
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