Yara International ASA
OSE:YAR
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Yara International ASA
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Good morning, and welcome to the presentation of Yara's Second Quarter 2020 Results. Today's presentation will be by our CEO, Svein Tore Holsether; CFO, Lars Røsæg; our EVP for Global Plants & Operational Excellence, Pal Hestad; and our EVP for Farming Solutions, Terje Knutsen. And we'll have a Q&A session after the presentation.And with that, it's my pleasure to hand over to CEO, Svein Tore Holsether.
Thank you, Thor. And good morning, good afternoon, and good evening, depending on where you're calling in from. We will, as always, start with safety. And as you can see on the screen, our TRI rate is stable at low and also industry-leading level, despite the COVID-19 challenges. We see a material impact or improvement year-over-year and a stable development from the first quarter. Our long-term target of zero injuries remain the long-term ambition. I do believe that our Safe by Choice way of working has been key to our rapid response to the COVID-19 situation. Through our already systematic work over several years on health and safety, we were able to quickly roll out the additional health measures required to operate our business with resilience in this new situation.Now let's take a look at the results. Our EBITDA increased by 8%, mainly through improved margins and lower fixed cost. I'm pleased to see that our organization is performing well in a demanding situation. Although second quarter saw weaker pricing and somewhat lower volumes, first half deliveries were in line, despite weaker industrial nitrogen demand due to COVID-19. We continue to show strong cash flow at $1 billion for the rolling 4 quarters. The Qafco transaction closing is expected within the next 2 to 3 weeks, and we are initiating a 5% buyback upon the completion and the receipt of the proceeds. Further cash returns will be considered in connection with the third and fourth quarter results in line with our capital allocation policy.Before we go further into the result, let me provide some comments on the market developments this quarter. And we start with urea, where we see a significant drop from last year when Chinese producers had fairly good margins. This quarter, they are low or zero, but it is positive that the floor has held through demand this quarter. Turning then to gas. There's been a drop of 60% in gas prices in Europe compared to the same quarter a year ago. And this more than compensates for the urea price fall. Nitrates and NPK prices are lower as well, but more resilient. As you can see, they are falling less. We will come back to nitrate performance later on in the presentation.EBITDA, excluding special items, increased roughly $40 million compared to the same quarter last year as improved margins and lower gas costs more than offset the effect of lower deliveries. We have a $42 million positive currency effect, mainly due to our fixed costs in euro, Norwegian kroner and Brazilian reals translating then into a lower U.S. dollar amount. As already mentioned, we have continued to reduce fixed cost. The negative $19 million portfolio effect reflects operations no longer in our results, such as the Trinidad plant that we closed at the end of 2019.I'm pleased to see that we're continuing our improved cash flow trend, improving both above and below the line, better operations, lower investments. And this is a $1.2 billion improvement last 12 months compared to where we were 12 months earlier. We recently announced a new organizational structure with a regional setup, replacing our operating segment structure. This is to sharpen customer focus and empower regional and Industrial Solution units to run operations in a fully integrated setup with production, supply chain and commercial operations.The Global Plants & Operational Excellence unit will operate Yara's largest production plants and optimize global product allocation. And Farming Solutions has a global mandate to drive the transformation of our core crop nutrition business. Our corporate strategy is unchanged. And we will continue to leverage our global production and market presence. Restated the 2019 and first half 2020 financials will be made available to you before the third quarter results. Regional EVPs will be presented in the -- present in the future quarterly presentations and other events.I'll now hand over to CFO, Lars Røsæg, after which you will hear from the status from Pal Hestad and Terje Knutsen. Many of you know Terje from earlier. This time, he will be giving you a status both from his outgoing Sales and Marketing role and also on the way forward for Farming Solutions. Pal Hestad has long experience from Yara's production operations and also has been heading up and still heads up our COVID-19 crisis response team.But first, over to you, Lars.
Good morning. Good afternoon, everybody. It's my pleasure to take you through some more details on the financial results. As mentioned, EBITDA increased by around 8% year-over-year, which was driven by higher margins and also lower fixed costs. The EPS, excluding currency and special items, also increased in the quarter, driven by the higher operating result. Capital discipline and focus on free cash flow is a key focus area for Yara as a basis for efficient capital allocation and shareholder returns. In the quarter, net operating capital decreased, driven by lower receivables as the season ended in Europe, and we also saw that investments were lower in the quarter.Cash flow from operations increased compared to last year. And this is continuing the trend over the past year with a significant higher level of cash generation in the business. Given the improved operating results, lower investments and lower operating capital, our return on capital has also shown a significant improvement, representing a step on our improvement journey. If we then turn to the results by segment. The production output was in line with the year earlier, and Pal will get a little bit back to this. We saw somewhat higher margins as the gas price improvement more than offset the decline in nitrogen and phosphate prices.For new business, the COVID-19 impacted the industrial demand and activity, mainly in maritime. And as far as Sales and Marketing is concerned, I will leave that for Terje to go through a little bit later. If we then turn to the CapEx profile, there is no change to the committed CapEx. As we also communicated in the first quarter, our focus on sustaining operations amid COVID-19 and enhance our focus on optimizing timing of turnarounds to avoid prolonged outages may lead to some phasing into 2021.The improved operating margin saw cash earnings more than fund the dividend payment of NOK 15 per share in the second quarter. There was also a positive effect from receivables in Europe and seasonal prepayments in Brazil, resulting in the net debt-to-EBITDA coming down from 1.7 to 1.6 during the quarter. This places us in the lower end of our mid- to long-term target range of 1.5 to 2 in our capital allocation policy. And as you will have seen, we have announced a buyback, fully utilizing the AGM mandate. And we'll, in line with this policy, evaluate further cash returns at Q3 and Q4.In line with our mission and focus on sustainable value creation, it has been natural to say concurrent measures to further broaden governance and performance management, in particular with regard to nonfinancial parameters. Concretely, the Board Audit Committee has been expanded to the scope of Board Audit and Sustainability Committee. And Sustainability Governance is now reporting directly to the CFO, utilizing existing reporting and control mechanisms to increase quality of nonfinancial reporting further. We're also driving a holistic performance management approach covering financial, environmental, social and operational performance. And we have integrated reporting, as you will have seen in our annual report, and a TCFD framework under implementation.And by that, it is my true pleasure to hand over to you, Pal.
Thank you, Lars. Good morning. Good afternoon. First of all, let me give you an update on the Yara improvement program, starting with the production volume performance. Top priority has been and is to sustain the operation through the still challenging COVID-19 situation. Production and operation have been running without material disruption. However, in our Babrala plant in India, we have had temporary rate reduction due to lockdown leading to raw material shortages. The overall Q2 COVID-19 effect is around 30 kiloton ammonia and about 75 kiloton finished product. So if we compare the last 12-month production to the status 1 quarter ago, ammonia has been stable, while finished product are up 35 kiloton.Now an update on the reliability on our production plants, which remains a top priority. Current status. Last 3 years growth of 1 million tonnes of ammonia and 2.4 million tonnes of finished products. We see improvements in several plants, but others continue to struggle. There is a clear link between the best-performing plants and YPS maturity level. YPS is the Yara Productivity System or a system for continuous improvement. Our overall performance is in line with peers, but we strongly believe we can further improve and looking further outside the industry, our own industry, for higher benchmarks and more ideas.Focus going forward, people and organization. We have: created operational excellence unit by merging 3 units into 1 to ensure increased focus and better prioritization; launched an Operational Committee to drive performance management; continued to build competence through our community of practice. We do not believe we need more investment funds to improve reliability, but we do see further potential in competence building. Move to the plant. We want to move more central functions to the plants to ensure proper support at plant level.Program and tools. Reliability Continuous Improvement Program. For the sites where we struggle, we see that we need to go deep with central team to ensure learning both from own and other plant's problems. We want to strengthen the rotating competence as we see it as one of the main area for outages. Within engagement and enrollment, we also see we have potential for further engage our workforce in the improvement journey, learning from what we have successfully done in safety or within Safe by Choice.Then if I take status on the non-volume improvement KPIs, energy efficiency. Improvement compared with 2019 mainly reflects the Yara Trinidad closure at end of the year. Within fixed costs, recent reduction in central fixed costs account for improvement versus 2019. We are on track, but important to recognize we still have cost inflation going forward. This is why we need to take out the cost now in order to achieve the 2023 target, which is basically to beat inflation.Within operating capital, as you can see, we have a bigger gap to close here. However, we are comfortable having somewhat higher operating capital right now as we have strong margins, both on inventory and receivables. One additional comment for those who are into the details on this topic. We do not include customer prepayment at this operating capital KPI.This concludes my part of this presentation. And I will now hand you over to Terje Knutsen, who will update you on the Sales and Marketing activities.
Thank you, Pal. A very good morning and good afternoon to all of you from me as well. Sales and Marketing delivered a strong quarter financially, with an EBITDA increase of 24%, driven primarily by higher margins, lower fixed costs and currency effects. The latter is primarily linked to weaker Brazilian real, which improves our competitiveness in what is basically a U.S. dollar margin business.Total deliveries were 2% lower than a year ago, while premium products deliveries were 3% lower, both of which reflect early spring phasing in Europe. Revenues declined 14%, reflecting a combination of lower deliveries and lower commodity nutrient values. As already mentioned, the phasing of the deliveries in Europe reflects an early spring with higher-than-normal deliveries in Q1 and is somewhat lower in second quarter. Full season fertilizer deliveries in Europe were 3% higher than the previous season. I will comment on the commercial performance of the season now ending in Europe in a minute.We are also satisfied with how the new season has started in Europe in June. The strong first quarter development in Latin America continued into the second quarter, and we also had a strong development in Brazil, partly offsetting the development in Europe. As mentioned, full season fertilizer deliveries in Europe were at 3% higher than the previous season. We're also happy with our overall commercial performance in Europe over the season. And this chart shows the cumulated realized nitrate premium over the season, accounting for both price and volume. And as you can see, we performed better in the '19/'20 season than we have done in any of the previous 3 seasons.All in all, we remain confident in our strategic direction and our medium- to long-term ambition communicated at our Capital Markets Day. Fact that we have improved the EBITDA margin per tonne by 30% since 2018 illustrates that we are well on our way to deliver on our ambition. Over the last 12 months, our premium deliveries have increased with almost 1 million tonnes. COVID-19 has had limited impact on our traditional business as we have been able to engage customers and end users digitally. However, growth of our YaraVita deliveries have suffered somewhat during the COVID period as this is a product range that requires demand creation to a larger extent and that has been more challenging in the recent months.Yara's digital journey started 3 years ago, and we are so far very satisfied with what we have achieved. It will continue to play an important role in our transformation, which I will come back to shortly. But before doing so, I would like to recap a bit what we have achieved so far. The first step in capturing value is to prove the concepts and get adoption, which has been our focus so far. As illustrated, we have managed to get very good traction in the market for what we have launched. In the professional markets, the number of hectares where farmers have signed up is almost 3x higher than a year ago, and we have reached 120,000 users. We have also started to test out commercial models. And although numbers are still small, we see clear signs of willingness to pay for services. In the smallholder markets, the number of smallholders that have downloaded our FarmWeather app passed more than 2 million in May, tripling only since December. The number of active users has passed more than 1 million, and we are starting to build an ecosystem around this, adding new features that over time will enable value capture. We have, for instance, just launched a concept called FarmCare, which is an end-to-end production support for rice farmers. The concept includes in-field sensing using a smallholder N-clip that helps the smallholder farmer to apply just the right amount of nitrogen.2 weeks after launch, more than 12,000 farmers in India signed up, and we have, in addition, been contacted by 4 local banks interested in collaboration. We believe this is just the start, and we are very excited about this future. The agriculture and food landscape is changing rapidly. Technology clearly opens up new opportunities. And the realization that food production needs to become more sustainable creates both opportunities but also risks that we need to deal with as legislation will impact how farming is done in the future.Food companies are responding to changes in consumer behavior by integrating more backwards. All these changes create significant opportunities but also risks that Yara should mitigate. And this requires a transformation of Yara, where the transformation is not a goal in itself, but we see it as an enabler to mitigate risks and, more importantly, capture value where new opportunities arise. By changing to a regional model, we have taken a conscious decision that we want to drive this transformation through the regions but with Farming Solutions as an incubator with a purpose to facilitate and lead that transformation.To position Yara in this evolving landscape, we want to firstly take a leading position in farm sustainability. Secondly, we want to secure connectivity between Yara and the farmer. We want to become the preferred partner for food chain players. And last but not least, take a leading position in the digital channel disruption. So what does this mean in practice? I will now give you some examples of the transformation and explain how you should think of this in the financial context, although without going into numbers.Our transformation will happen along 2 dimensions. Firstly, we will shift or transform existing revenue streams. The product we deliver can remain the same, but we will transform both how we monetize the product and the channel we use to do so. Rather than selling a tonne, we will transition towards selling outcomes and thereby capture more of the value we add for the farmer. In addition, we will drive the channel disruption and go more directly and thereby shortening the channel to capture a bigger portion of the value. The channel transformation is also a key enabler in realizing the transformation on the business model changes. We see, for instance, Brazil as a key market for this kind of channel transformation.Secondly, we will add new revenue streams by creating new offerings where physical products are not necessarily part of the offering at all. Much of that will be digitally enabled. Examples are digital subscription services such as Atfarm or Irix, as already mentioned. Bringing such solutions into platform concepts will open up opportunities where value can be captured by monetizing the data towards third-party players such as insurers or banks. These are just examples. We have a long list of models that we are presently working on.By combining these new service offerings with potentially a product concept that is easier to handle and be competitive from a logistical point of view, we will also move into new geographies where Yara previously has not been present. So in conclusion by shifting or creating new revenue streams, we will add new earning opportunities for Yara. So with this, I hand over to Svein Tore, who will give his closing remarks.
Thank you, Terje. Running off then, we continue to consider our prospects attractive. Firstly, the industry fundamentals where growing population and agriculture's resource and environmental challenges continue to create business opportunities for Yara. In addition, the market cycle is improving, primarily due to easing of supply-side pressure. Our cash flow is improving. And this is both due to cyclical improvement and that our strategy execution is delivering improved cash flow. Finally, we have a strong, competitive position with a focused and sustainable long-term strategy to deliver improved returns.Finally, and on the subject of agriculture's resource and environmental challenges that are creating business opportunities for Yara. This is from the Food and Land Use Coalition report that I very much urge you to read. And as you can see, the market value of the global food system is at $10 trillion, which is a large number. But as you can also see, the externalities or hidden cost of our global food system exceed its current market value.Today, the farmer is only paid for her or his crop. And let me highlight one of many examples and opportunities related to this. If farming is done right, 40% of existing farmland could be turned back to nature with a huge carbon sequestration impact. There's a lot of talk about carbon capture and storage technologies today. But the best technology is already invented. It's called a tree. And when you put several of those together, it's called a forest, using nature to solve climate challenges.So simply by moving cost to society that it's already paying for environmental damage today to incentives to the farmers to farm more efficiently we would create an additional revenue stream for the farmer, we would create additional business opportunities for Yara, and we're doing something that is very positive for the environment. It's a triple win. And Yara is collaborating with food value chain players and tech companies to drive this development. And you can definitely expect to hear more from us on this topic going forward.And -- but at this point, I'll hand back to Thor, who will manage the Q&A session. Thank you.
Thank you, Svein Tore. Before we go into the questions, just a quick word on the format. We have with COVID-19 had a different format on both the presentation and the Q&A with e-mail questions. And I know that probably most of you out there prefer a more interactive format. And just to say that we expect to go to a more interactive format from the next results presentation. So having said that, thanks to everyone who sent in questions. We've received quite a few. So we will cover, I think -- if not all of them, I think, we'll cover most of the topics. And we will also look through at the end for those that came in a bit later and make sure that we respond to those separately. So I'm going to start.We have 3 questions from Bank of America, Alex Jones. I think the first 2 are for our CFO. I can read them both. The first one is on cash returns. We've stated in the past that buybacks will be a supplementary lever of shareholder returns rather than the main driver. Is this still the case despite the announced buyback being bigger than this year's dividend? Or would you consider seeking EGM, Extraordinary General meeting, approval to do even more buybacks over the next few quarters? So that was the first question. And the second was CapEx guidance. Our spend in the quarter was very low. Do we still expect to spend $1.2 billion this year? Or is some of this delayed and/or capital discipline allowing us to keep the budget lower than guided?
Yes. Thanks a lot, Alex, for your questions. So to your first question, we're always guided by our capital allocation policy from the CMD last year. And dividend is still our main lever, in line with that policy. So what we're doing now is that we're fully utilizing the buyback mandate from the AGM, which then runs until April next year. And then we have been clear that we will consider further cash returns in Q3 and Q4, in line with our policy and the mid- to long-term target range of 1.5 to 2. I think your second question was on CapEx spend in the quarter. So we've indicated also in the presentation that there may be some phasing. I do, at the same time, think it's useful to remember that we normally seasonally have a higher spend in the second half of the year, but, indeed, phasing may occur.
Okay. And the third question from Alex, I think, we'll go to Terje Knutsen. It's on the demand outlook. It says you mentioned in the report that some of the strong demand recently in some regions may be caused by inventory buildup due to fears of COVID-19 disruption. Do you see a risk of corresponding destocking in the second half of the year? Or has this effect been relatively minor?
Yes. Thank you. I'm not sure that is actually an accurate interpretation of what we tried to say. And let me split a little bit by internal and external. Maybe most relevant is the external part. So I start with that. We actually see a rather firm market right now. And globally speaking, we do not see any special buildup of stock. Rather, that product is moving into the markets quite well. We can see in India, for instance, that had a very strong second quarter. We can see, which you also can see in our numbers, Brazil that has had a strong demand. So overall, I would say, that we do not see actually an inventory buildup in the external. Maybe the comment is a little bit related to our own situation, where, as we have commented, the demand or deliveries in Europe were somewhat lower than a year ago. That, combined with quite attractive production cost, has led to a situation where we, by design, in a way, run our plants full blast and consider this just, let's say, quarterly nuances that we see beneficial to have that product for delivering on our order book and into other markets. So all in all, I think we are really comfortable with the situation we have at hand.
Okay. Thanks to Lars and Terje. I'll move then to UBS, Andrew Stott. Firstly, asked what was the background for the organizational change? I think that one we've probably answered in the presentation. But Andrew, please reach out if you have -- to me afterwards if you have more questions. The second one, I think, goes to Lars again, our CFO. What percent of the $1 billion proceeds, I guess, this is Qafco, will Yara aim to return? Can you also confirm if there is any tax on those proceeds?
Yes. Thanks a lot. So we established, as I mentioned, our new capital allocation policy at the Capital Markets Day last year. And we're driven by that policy, which were hopefully also demonstrated over the past year. So now we are fully utilizing the buyback mandate, but we've also then been clear that we will consider further cash returns for Q3 and Q4. And as to Qafco, we'll have no tax effect on the proceeds.
Thank you, Lars. Next questions, 3 questions from Citi, Tom Wrigglesworth. First 2, I can do because I think they can both go to Terje Knutsen. One, what are your expectations for the nitrogen market in second half 2020? Do you see current spot prices as a fair reflection of the supply and demand balance? That was the first question. And the second is Sales and Marketing margins have improved. Do you see this as the new base for margins going forward? What further improvements are there that could support higher margins?
Yes. Thank you. So if we start with the expectation for second half. Again, if we look at the situation we have at hand, it has been fairly stable, but I would say, underlying, slightly positive. I guess, most of you are following the Indian tenders, one coming in today. And we see that the situation is such now that there is, again, need for the Chinese production, which we consider a positive. Some of the crop environment has been maybe price-wise on a downward trend, but so are input cost. So if we look at farm economy, it's actually fairly stable or even positive. So also from a demand side there, we do not see that we have any, let's say, significant negatives coming on the horizon. But -- and generally, I would say we have a slight positive outlook in the sense that we see now an increased need for Chinese nitrogen. On the second question, whether Sales and Marketing margins have improved. Yes. And I think we have been quite clear that we have a strategy for the whole area on how we position Yara going downstream, moving more towards the premium products and also adding more services and building truly crop solutions. I would say that the developments we see now are quite consistent and has been so over some time and are part of the strategy that we already went quite into depth during our Capital Markets Day, for instance. So I would say that the whole strategy is about building resilience and building a margin business where we move from volume to value. I can also add that we start to see more income streams that are not directly linked to volume as such. And as that increases, that will obviously also help as we still express our revenue as revenue and earning per tonne.
Thank you, Terje. One more question from Citi. I think could maybe start with Svein Tore, our CEO. It's on the EU Green Deal. As a large producer of hydrogen in the EU, how do you interpret the current ambitions of the EU? Will Yara incur higher CapEx in the coming years as you look to decarbonize your hydrogen production?
I think I partly addressed that on my final slide, and I see it's still up there. So let me use that as a reference as we go through or as I make some comments on this. There is definitely a huge movement now in Europe to reduce the overall carbon footprint and for the food system in particular. And that's also something that we see on the global arenas with some of the most innovative food companies out there really making big statements now and taking action to lower the carbon footprint of food.What I would like to emphasize is that this is not a burden that we need or should put on the shoulders of the farmers alone. We need to see this in a much broader context and create incentives for the farmers to support and to drive this change. The good news to that is really illustrated on this graph because we are already paying these costs to date. They're just in different categories like health and environment. So as I touched upon, if you can reduce the size of the farmland through higher productivity, we can do carbon capture through that. Health, for instance, I think in past years, we referred to the example from Finland, where the government realized that the selenium level in the Finnish population was too low. And looking at the various alternatives and supplements and so on they came to a brilliant idea to add that into the food system through fertilizers and through that was able to increase the selenium level in the Finnish population moving a huge cost on health through a small cost added to the food system.So that, in a way, tells the possibilities that can be done and realized through agriculture to solve challenges. And I could go on and on, on this topic. But it creates business opportunities for the farmers, and it would also support our business model. There's also a lot of focus on in-field emissions where I think we're particularly well positioned. When it comes to green ammonia or green fertilizers, we have already launched a project together with the Swedish food company, Lantmännen, to create the world's first-ever certified carbon neutral food chain. And we're looking at further opportunities to build on this at a bigger scale. How we do that is something that we'll get back to, to look at various structures on how we source or produce that hydrogen. But also here, our normal capital allocation and capital return requirements are the same as for all other investments in Yara.
Maybe I can just add that very concretely in this season we have seen the first signs of shift from urea, UAN towards nitrate. So we have relatively been capturing market share for nitrates. And we believe this comes partly as a consequence of the regulations, for instance, introduced in Germany with broadcasting of urea, which both creates complication for the farmer, but, more importantly, as Svein Tore mentions, a lot of the focus now is on the in-field emissions. And we believe that with our position in nitrates, we have a good starting point to address some of the issues that now are being addressed through the EU Green Deal.
Thank you, Svein Tore and Terje. Moving to JPMorgan now, Chetan Udeshi. We have 3 questions there. I think the first one is probably mainly to Pal on production. I won't go into all the numbers here, but I think it's -- the gist of it is the improvement targets that we have for 2023 clearly involve a large volume step up, both on ammonia and finished fertilizer from where we are today on the last 12 months. And so the main question is how realistic are these targets? And then there's an associated question on assuming we reach these targets, is there a sufficient market there to sell that additional production? But maybe start with the realism part, Pal.
Thank you, Thor. Let's say, we absolutely believe they are achievable and also realistic. And you also see that our plants with the highest maturity in terms of implementing our productivity system also have a strong improvement. Significant portion of the volume is also linked to growth projects realizations. So clearly, there are some risk linked to the COVID-19 measures, for instance, in Brazil, which can curtail project execution. Just also want to underline that we also think that when we look to some of the longer outages, what we have had, for instance, in Babrala, that they are clearly avoidable.
And then on the market side, I think, we have commented on this, but we see relatively low growth on the supply side for the coming years. So we actually think that this volume will -- we will be able to absorb that volume, and we see room for that in what we have of plants on the market side.
Okay. Thanks, Pal, and Terje. Then the second 2 from JPMorgan can go to the CFO, although I think one has been answered because the third one was on tax on Qafco. But the second one is on CapEx wise, maintenance CapEx, $200 million higher in '21 versus '20. Is this a new run rate per year? And will there be additional growth CapEx over and above the $200 million indicated currently?
Yes. Thanks, Chetan, for your question. So to turnaround, so the main driver for variance is the number and size of turnarounds per year, which naturally will vary. As Pal mentioned also earlier, we believe that we are in line with our peers on a like-to-like basis, but as is also highlighted in today's presentation, we are continuously looking for opportunities to improve our performance further. To your point on growth, I believe we've been very clear that strong capital discipline and focusing on executing our current projects is our key priority.
Thank you, Lars. We'll move then to ABG Sundal Collier, Bengt Jonassen. 2 questions. I think the first one can go to Terje. It's on NPKs versus nitrate deliveries in the quarter. NPK held up better. Why is that? Is it -- any specifics on regions, crops or other factors?
I think we can say that, that has a quite simple explanation. It's basically a phasing of the European season. As you probably know, our relative volume for nitrate is stronger in Europe. So when we have seen the development now in second quarter of somewhat reduced volume on nitrates, that explains, let's say, the volatility on the nitrate. We see that purely as a phasing. While NPK is a product which we have positioned into many crop segments globally, and therefore, in a way, we see much less of this, let's say, seasonal fluctuations in NPK. So we don't think you should read any trend into this other than the typical seasonal swings that we have on the nitrates.
Thank you, Terje. And then the second question, I think, goes to Pal. It's asking about our production targets and basically the impact of the Qafco or the divestment of our share in Qafco.
Yes. The Qafco volumes have not been included in our YIP program. So from that, there is no effect on the YIP targets. Having said that, Qafco has also been a part of the rollout or on our YPS system. So they are working in the same method as we have.
Thank you, Pal. As I mentioned at the start, we have had a lot of questions. I know there are -- quite a few have come in also after the ones we've asked. But at this stage, we are going to round off this session. But as mentioned, we will make sure that all of you will -- we will respond to all of your questions. So hopefully, we've covered many of the main topics here. And I think with that, thanks to everyone for attending the call.