Agrium Reports Robust 2nd Quarter Results; Delivers Record Retail 1st Half Earnings

CALGARY, AB—(Marketwired – August 09, 2017) –

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today its 2017 second quarter results, with net earnings to equity holders of Agrium of $557–million ($4.03 diluted earnings per share) compared to net earnings to equity holders of $564–million ($4.08 diluted earnings per share) in the second quarter of 2016. The slight reduction in net earnings was driven by weaker nitrogen and phosphate benchmark prices, which were partially offset by higher Retail earnings, strong potash results and lower fixed costs across our Wholesale business.

Highlights:

  • 2017 second quarter guidance relevant earnings were $566–million or $4.09 diluted earnings per share1.
  • Our Retail business achieved a first half EBITDA2 record of $821–million supported by strong margins, with EBITDA to sales of 10.3 percent, compared to 9.8 percent last year and the highest since 2008.
  • Wholesale grew its second quarter sales volumes and reduced costs across our operations to achieve EBITDA similar to last year, despite a 7 percent decline in North American nitrogen prices this quarter. Record first half potash production achieved with successful post expansion ramp–up.
  • Our new urea facility at Borger, Texas was successfully commissioned and reached designed operating rates in the second quarter.
  • Agrium has updated our 2017 annual guidance to a range of $4.75 to $5.25 diluted earnings per share (see page 4 for guidance assumptions and further details).

“Agrium continued to deliver robust results this quarter due to our integrated business model and focus on operational improvements and execution. Retail set a first half earnings record with the highest EBITDA to sales in almost a decade while Wholesale delivered strong operational results, which together allowed us to generate $1.2–billion of EBITDA in the first half of 2017,” commented Chuck Magro, Agrium's President and CEO. “We look forward to the completion of our merger with PotashCorp which is anticipated near the end of the third quarter of this year and continue to make significant progress on integration preparations,” added Mr. Magro.

1 Effective tax rate of 28.5 percent for the second quarter of 2017 was used for the adjusted net earnings, guidance relevant earnings and per share calculations. These are non–IFRS measures which represent net earnings (loss) adjusted for certain income (expenses) that are considered to be non–operational in nature. We believe these measures provide meaningful comparison to our guidance by eliminating share–based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non–qualifying derivative hedges and significant non–operating, non–recurring items. Our guidance is forward–looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward–looking information. 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.

2 Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization and net earnings (loss) from discontinued operations. This is a non–IFRS measure. Refer to section “Non–IFRS Financial Measures” in the Management's Discussion and Analysis.

ADJUSTED NET EARNINGS AND GUIDANCE RELEVANT EARNINGS RECONCILIATIONS

             
    Three months ended     Six months ended  
    June 30, 2017     June 30, 2017  

(millions of U.S. dollars, except per share amounts)

 

Expense

    Net earnings
(loss) impact
(post–tax)
   

Per share (a)

   

Expense

    Net earnings
impact
(post–tax)
   

Per share(a)

 
          558     4.03           548     3.95  
Adjustments:                                    
  Share–based payments   (3 )   (2 )   (0.01 )            
  Foreign exchange loss (gain) net of non–qualifying derivatives   (2 )   (1 )   (0.01 )   4     3     0.03  
  Merger and related costs   15     11     0.08     31     22     0.16  
  Impact of Egyptian pound devaluation on investee earnings               (16 )   (11 )   (0.08 )
Adjusted net earnings (b)         566     4.09           562     4.06  
  Gain on sale of assets               (7 )   (5 )   (0.04 )
Guidance relevant earnings (b)         566     4.09           557     4.02  
(a) Diluted per share information attributable to equity holders of Agrium  
(b) Second quarter and year to date effective tax rate of 28.5 percent was used for the adjusted net earnings, guidance relevant earnings, and per share calculations.  
   

MARKET OUTLOOK

Agriculture and Crop Input Outlook

  • 2017 started with excellent growing conditions in Brazil, which produced record yields and depressed international crop prices. However, wet weather across North America impacted crop input applications this spring, and since then dry conditions across much of North America and in Australia have lowered crop yield potential and lent support to crop prices.
  • U.S. corn and soybean condition ratings are the lowest since the 2012 drought, which has led some analysts to reduce yield forecasts. Furthermore, global wheat prices have risen due to the reduction in wheat acreage and dry conditions in the U.S. and drought in parts of Australia. Higher wheat prices are expected to result in increased winter wheat planting in the fall of 2017 and are expected to support crop input demand for wheat, which has been pressured by the acreage loss over the past two years.
  • The current United States Department of Agriculture (“USDA”) forecast of global grain yields for 2017/18 is near trend–levels, which would be a reduction from the record yields of 2016/17. Based on industry yield estimates, there is likely more downside to the current 2017/18 projections.
  • There are indications that pest pressure may be elevated this growing season in parts of the U.S., while in the Western U.S. the season has been delayed. These factors are expected to support demand for crop protection products in the third quarter. However, in regions where dry weather persists, there may be some impact on demand for fungicides.

Nitrogen Outlook

  • Global nitrogen capacity additions, and lower than expected demand in China and India so far this year, have weighed on global nitrogen markets. However, nitrogen supplies have been impacted by continued low operating rates in China. The year–over–year reduction in production in these two countries has more than offset increased production in the U.S. and other countries this year.
  • Indian urea demand started 2017 relatively weak. However, the strong start to the monsoon season and the decision by the Indian government to apply a 5 percent sales tax on fertilizer, rather than the 12 percent implemented on the sale of most goods, should lend support to domestic demand in the second half of the year.
  • North American urea prices were the lowest benchmark in the world throughout the second quarter. This led to a significant reduction in imports and even led to some exports offshore. This in turn has tightened the North American nitrogen inventory levels which should support a strong summer fill season. A normal fall application season, weather permitting, would be a significant improvement over last year across much of the Corn Belt and Western Canada.
  • Nitrogen prices are expected to continue to be cost–driven in the second half of 2017. Costs for most marginal nitrogen production are flat to higher than year–ago levels, which should limit any downside in prices from current levels.

Potash Outlook

  • The global potash supply and demand balance was tight throughout the first half of 2017. Despite high producer shipments this year, we believe there has been little build–up in downstream inventories, which is expected to support the continued strong demand in the second half of the year.
  • Year–over–year, potash imports increased by 15 percent in Brazil, 95 percent in India and 17 percent in China in the first half of 2017, adding 2.7 million tonnes of trade in total. In the U.S., offshore imports were more than double the same period last year.
  • There has been limited growth in global potash supply so far in 2017, outside of increased production by existing Saskatchewan producers. The additional supply in the second half of the year is expected to be relatively small.

Phosphate Outlook

  • Global phosphate prices have been pressured from increased availability from Morocco, China and Russia in 2017, which more than offset increased import demand in Brazil, the U.S. and Pakistan. Furthermore, capacity additions in Morocco and Saudi Arabia are expected to add to global supplies in the second half of the year.
  • Global demand in the third quarter is expected to be strong, due to a seasonal increase in the pace of imports into India and Brazil, the key diammonium phosphate (DAP) and monoammonium phosphate (MAP) import destinations, respectively.
  • Declining raw material prices have also weighed on finished phosphate prices, particularly the price of ammonia, which has traded as much as 45 percent below April 2017 levels in recent weeks.

2017 ANNUAL GUIDANCE

Based on our assumptions set out under the heading “Market Outlook”, Agrium expects to achieve annual diluted earnings per share of $4.75 to $5.25 in 2017 compared to our previous estimate of $4.75 to $5.75 per share. We have lowered the upper end of our annual guidance range due to an expected weak nitrogen pricing environment and the challenging weather conditions this spring which impacted North American Retail crop nutrient margins and sales volumes. We have also narrowed the range width encompassing approximately $100–million of EBITDA variability. Second half earnings for 2017 are expected to have a similar quarterly earnings profile to 2016.

We have updated our Retail EBITDA range from $1.150–billion to $1.20–billion compared to our previous guidance of $1.125–billion to $1.250–billion.

Based on our expected utilization rate for our nitrogen assets, we are updating our nitrogen production range to between 3.5 and 3.6 million tonnes. Our earnings per share guidance assumes NYMEX gas prices will average between $3.00 and $3.30 per MMBtu for 2017.

Agrium's potash production in 2017 is now expected to range between 2.5 and 2.7 million tonnes.

Total capital expenditures are expected to be in the range of $650–million to $700–million, of which approximately $450–million to $500–million is expected to be sustaining capital expenditures.

Agrium's annual effective tax rate for 2017 is expected to range between 27 and 29 percent.

This guidance and updated additional measures and related assumptions are summarized in the table below. Guidance excludes the impact of share–based payments expense (recovery), gains (losses) on foreign exchange and non–qualifying derivative hedges, and merger related costs. Volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.

2017 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS

     
    Annual
    Low   High
Diluted EPS (in U.S. dollars)   $4.75   $5.25
Guidance assumptions:        
Wholesale:        
  Production tonnes:        
    Nitrogen (millions)   3.5   3.6
    Potash (millions)   2.5   2.7
Retail:        
  EBITDA (millions of U.S. dollars)   $1,150   $1,200
  Crop nutrient sales tonnes (millions)   10.0   10.4
Other:        
  Tax rate   29%   27%
  Sustaining capital expenditures (millions of U.S. dollars)   $450   $500
  Total capital expenditures (millions of U.S. dollars)   $650   $700
         

August 9, 2017

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) as issued by the International Accounting Standards Board and is presented in accordance with International Accounting Standard 34 – Interim Financial Reporting. All comparisons of results for the second quarter of 2017 (three months ended June 30, 2017) and for the six months ended June 30, 2017 are against results for the second quarter of 2016 (three months ended June 30, 2016) and six months ended June 30, 2016. All dollar amounts refer to United States (U.S.) dollars except where otherwise stated. The financial measures net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations (EBITDA), cash margin per tonne, cash cost of product sold and cash selling and general and administrative expenses used in this MD&A are not prescribed by IFRS. Our method of calculation may not be directly comparable to that of other companies. We consider these non–IFRS financial measures to provide useful information to both management and investors in measuring our financial performance. These non–IFRS financial 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 “Non–IFRS Financial Measures” of this MD&A for further details, including a reconciliation of each such measure to its most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of August 9, 2017 and should be read in conjunction with the Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2017 (the “Condensed Consolidated Financial Statements”), and the annual MD&A and financial statements for the year ended December 31, 2016 included in our 2016 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 except for material information since the date of our annual MD&A. In respect of Forward–Looking Statements, please refer to the section titled “Forward–Looking Statements” in this MD&A.

2017 Second Quarter Operating Results

CONSOLIDATED NET EARNINGS

   
Financial Overview  
                                         
(millions of U.S. dollars, except per share amounts and where noted)   Three months ended June 30,     Six months ended June 30,  
  2017   2016   Change     % Change     2017   2016   Change     % Change  
Sales   6,319   6,415   (96 )   (1 )   9,039   9,140   (101 )   (1 )
Gross profit   1,527   1,525   2         2,085   2,079   6      
Expenses   671   677   (6 )   (1 )   1,172   1,156   16     1  
Net earnings before finance costs, income taxes and net earnings (loss) from discontinued operations   856   848   8     1     913   923   (10 )   (1 )
Net earnings   558   565   (7 )   (1 )   548   568   (20 )   (4 )
Diluted earnings per share   4.03   4.08   (0.05 )   (1 )   3.95   4.09   (0.14 )   (3 )
Effective tax rate (%)   28.5   27.5   1     N/A     28.5   27.5   1     N/A  
                                         
               
Sales and Gross Profit              
                                     
    Three months ended June 30,     Six months ended June 30,  
(millions of U.S. dollars)   2017     2016     Change     2017     2016     Change  
Sales                                    
  Retail   5,707     5,791     (84 )   7,947     8,081     (134 )
  Wholesale   848     882     (34 )   1,523     1,531     (8 )
  Other   (236 )   (258 )   22     (431 )   (472 )   41  
    6,319     6,415     (96 )   9,039     9,140     (101 )
                                     
Gross profit                                    
  Retail   1,299     1,279     20     1,733     1,681     52  
  Wholesale   196     201     (5 )   338     354     (16 )
  Other   32     45     (13 )   14     44     (30 )
    1,527     1,525     2     2,085     2,079     6  
                                     
  • Retail's sales primarily decreased in the second quarter and first half of 2017 due to lower crop nutrient prices. Despite this, Retail's gross profit increased as a result of higher sales volumes in the quarter and increased sales of proprietary products, which have higher margins.
  • Except for higher selling prices for potash, we realized lower selling prices for all Wholesale product lines resulting in lower sales and gross profit in the second quarter and first half of 2017. This was partially offset by higher nitrogen and potash sales volumes and lower cost of product sold for potash.

Expenses

  • Selling expense was consistent for the second quarter compared to the same period last year. For the first half of 2017, selling expenses increased by $38–million as a result of the recent Retail acquisitions but remained consistent as a percentage of sales.
  • We had lower share–based payments expense of approximately $15–million in the second quarter and first half of 2017 due to decreases in our share price.
  • Earnings from associates and joint ventures decreased by $18–million in the second quarter primarily due to a reversal of gas provision in Profertil S.A. (“Profertil”) in the prior year. In the first quarter of 2017, we recognized a foreign exchange gain in Misr Fertilizers Production Company S.A.E. (“MOPCO”) from the devaluation of the Egyptian pound. In combination, these two factors resulted in consistent year–over–year results.
  • Other expenses decreased by approximately $10–million for the second quarter and first half of 2017. In 2016, we incurred losses from the termination of a distribution agreement and cancellation of a Canpotex terminal. There were no similar losses in 2017. We incurred merger and related costs of $15–million in the second quarter and $31–million for first half of 2017.

For further breakdown on Other expenses, see table below:

                                 
Other expenses breakdown                                
    Three months ended     Six months ended  
    June 30,     June 30,  
(millions of U.S. dollars)   2017     2016     Change     2017     2016     Change  
(Gain) loss on foreign exchange and related derivatives   (2 )   6     (8 )   4     8     (4 )
Interest income   (13 )   (16 )   3     (26 )   (29 )   3  
Environmental remediation and asset retirement obligations       3     (3 )   (1 )   5     (6 )
Bad debt expense   22     21     1     29     29      
Potash profit and capital tax   3     5     (2 )   6     8     (2 )
Merger and related costs   15         15     31         31  
Other   18     32     (14 )   10     41     (31 )
    43     51     (8 )   53     62     (9 )
                                     

Depreciation and Amortization

                                 
Depreciation and amortization breakdown
    Three months ended June 30,
    2017   2016

(millions of U.S. dollars)

  Cost of
product
sold
 

Selling

  General
and
administrative
 

Total

  Cost of
product
sold
 

Selling

  General
and
administrative
 

Total

Retail   1   69   1   71   1   67     68
Wholesale                                
  Nitrogen   26       26   23       23
  Potash   32       32   31       31
  Phosphate   17       17   13       13
  Wholesale Other (a)   4     1   5   6     1   7
    79     1   80   73     1   74
Other       5   5       3   3
Total   80   69   7   156   74   67   4   145
                                 
                                 
    Six months ended June 30,
    2017   2016
(millions of U.S. dollars)   Cost of
product
sold
 

Selling

  General
and
administrative
 

Total

  Cost of
product
sold
 

Selling

  General
and
administrative
 

Total

Retail   3   136   3   142   3   130   2   135
Wholesale                                
  Nitrogen   42       42   36       36
  Potash   61       61   51       51
  Phosphate   33       33   23       23
  Wholesale Other (a)   7     1   8   7     1   8
    143     1   144   117     1   118
Other       9   9       6   6
Total   146   136   13   295   120   130   9   259
(a) This includes ammonium sulfate, Environmentally Smart Nitrogen® (ESN) and other products.
 
  • Depreciation and amortization expense increased in the second quarter and first half of 2017 primarily due to the expansion at our Borger nitrogen facility and increased depreciation at the Conda phosphate mine.

Effective Tax Rate

  • The effective tax rate of 28.5 percent for each of the second quarter and first half of 2017 was higher than the tax rate of 27.5 percent for each of the same periods in 2016 due to a decrease in certain U.S. manufacturing tax deductions.

BUSINESS SEGMENT PERFORMANCE

Retail

     
    Three months ended June 30,
(millions of U.S. dollars, except where noted)   2017   2016   Change
Sales   5,707   5,791   (84)
Cost of product sold   4,408   4,512   (104)
Gross profit   1,299   1,279   20
EBIT   700   676   24
EBITDA   771   744   27
Selling and general and administrative expenses   602   598   4
             
  • Retail reported a record first half EBITDA, and the second highest ever second quarter EBITDA. EBITDA to sales increased to 10.3 percent for the first half of 2017 compared to 9.8 percent for the same period last year. These results were in part driven by strong performance from our higher margin proprietary product lines. Total proprietary product sales as a percentage of total product line sales grew to 19 percent this quarter compared to 17 percent in the same period last year.
  • Retail selling, general and administrative expenses were up slightly over last year due to acquisitions made over the prior year.
  • Retail North America EBITDA increased in the second quarter despite the impact from challenging weather conditions this spring, with excess moisture impacting the application season in many areas, and drought conditions in the U.S. southern plains. On a regional basis, EBITDA in the U.S. this quarter was up 4 percent over the same period last year, while Canadian results were slightly lower. EBITDA for our Retail International operations also increased for the current quarter, as Australia continued to deliver strong performance with EBITDA up 27 percent over last year, despite dry conditions across most of Australia this year. South American results were down slightly primarily due to lower crop protection product margins.
                   
Retail sales and gross profit by product line
    Three months ended June 30,
    Sales     Gross profit     Gross profit (%)
(millions of U.S. dollars, except where noted)   2017   2016   Change     2017   2016   Change     2017   2016
Crop nutrients   1,989   2,190   (201 )   419   433   (14 )   21   20
Crop protection products   2,236   2,250   (14 )   485   471   14     22   21
Seed   1,080   926   154     199   181   18     18   20
Merchandise   175   162   13     27   28   (1 )   15   17
Services and other   227   263   (36 )   169   166   3     74   63
                                     

Crop nutrients

  • Total crop nutrient sales decreased by 9 percent compared to the prior year, due to the decline in nitrogen and phosphate prices this quarter. Nutrient sales volumes were up 3 percent in North America this quarter due the acquisitions made over the past year, as well as a catch up in sales volumes that had been delayed from the first quarter. International volumes were lower primarily due to dry weather conditions in Australia.
  • Total nutrient gross profit declined by 3 percent due to lower fertilizer margins this year. North American crop nutrient margins on a per tonne basis were down 7 percent this quarter due to localized pricing pressure in key U.S. growing regions this spring, partly associated with adverse weather conditions during the application and seeding season.

Crop protection products

  • Total crop protection sales were similar to last year's level. Sales were impacted by the delays in applications as growers were more focused on completing seeding than on applying crop protection products this quarter. The reduction in U.S. wheat acreage, combined with the late spring snowfall, followed by drought conditions in the southern U.S. wheat crop, negatively impacted crop protection product applications this quarter.
  • Gross profit was 3 percent higher than the prior period due to higher proprietary product line sales and strong margins. Gross margin as a percentage of sales increased by 1 percent, due to new products and strong demand for our Loveland proprietary product line.

Seed

  • Total seed sales increased significantly — up 17 percent compared to the second quarter of 2016. After normalizing for program changes on technology fees and agency revenues, the increase in sales was approximately 10 percent. The improvement was due to increased wholesale seed sales, higher volumes and the increase in soybean acres in the U.S., which tends to favor Agrium's proprietary seed sales.
  • Total gross profit increased 10 percent or $18–million this quarter. Seed gross profit as a percentage of sales declined by 2 percent due to additional technology fees, an increase in wholesale seed sales and the switch out of corn into soybeans.

Merchandise

  • Merchandise sales increased 8 percent, due to strong general merchandise sales in Australia.

Services and other

  • Sales for services and other decreased due to lower livestock export shipments in Australia compared to the same period last year.
               
Wholesale              
               
    Three months ended June 30,  
(millions of U.S. dollars, except where noted)   2017   2016   Change  
Sales   848   882   (34 )
Sales volumes (tonnes 000's)   2,751   2,736   15  
Cost of product sold   652   681   (29 )
Gross profit   196   201   (5 )
EBIT   175   180   (5 )
EBITDA   255   254   1  
Expenses   21   21    
               
  • Wholesale gross profit this quarter was marginally lower than the same period last year due to lower global prices for nitrogen and phosphate products and higher reported depreciation related to the recent expansion at our Borger nitrogen facility and higher depreciation at the Conda phosphate mine. This was partially offset by overall cost reductions, as well as stronger results from our potash operations, which benefited from higher selling prices, higher sales volumes and lower cost of product sold per tonne. EBITDA in the current quarter was similar to 2016.
   
Wholesale NPK product information  
    Three months ended June 30,  
    Nitrogen     Potash     Phosphate  
    2017   2016   Change     2017   2016   Change     2017   2016   Change  
Gross profit (U.S. dollar millions)   113   148   (35 )   44   16   28     8   5   3  
Sales volumes (tonnes 000's)   1,181   1,168   13     714   697   17     279   305   (26 )
Selling price ($/tonne)   312   337   (25 )   210   194   16     492   526   (34 )
Cost of product sold ($/tonne)   216   210   6     149   172   (23 )   464   508   (44 )
Gross margin ($/tonne)   96   127   (31 )   61   22   39     28   18   10  
                                           

Nitrogen

  • Nitrogen gross profit was down 24 percent compared to the same period last year due to lower North American nitrogen prices and higher average natural gas input costs. Average realized selling prices for urea and ammonia were down 7 percent compared to the same period last year.
  • Total sales volumes were up 1 percent over the same period last year, despite wet conditions across Western Canada and portions of the U.S. during the quarter. Sales volumes for ammonia and other nitrogen products were higher than last year, while urea sales volumes declined slightly due to strong first quarter 2017 demand in Western Canada.
  • Cost of product sold per tonne increased slightly compared to the same period last year due to higher natural gas input costs, which were partly offset by overall lower fixed costs.
  • In the second quarter of 2017, we successfully commissioned and have achieved designed operating rates of the new urea facility at our Borger nitrogen operations. The new facility has a 610,000 tonne urea production capacity, including 100,000 tonne urea equivalent of Diesel Exhaust Fluid. Further, commissioning of both rail and truck load out systems was completed this quarter, including shipment of multiple unit trains.
         
Natural gas prices: North American indices and North American Agrium prices
    Three months ended June 30,
(U.S. dollars per MMBtu)   2017   2016
Overall gas cost excluding realized derivative impact   2.34   1.28
Realized derivative impact   0.48   0.48
Overall gas cost   2.82   1.76
Average NYMEX   3.13   1.95
Average AECO   2.05   0.97
         

Potash

  • Potash gross profit almost tripled compared to the same period last year, due to a combination of higher selling prices and higher production and sales volumes.
  • Sales volumes were 2 percent higher in the current period, with international volumes up 31 percent on strong global demand. The strong demand from international markets this quarter led to lower product availability for domestic markets, resulting in domestic volumes being 14 percent lower than the same period last year.
  • Average realized selling prices increased 8 percent over the past year with realized North American prices up 16 percent on strong demand and tighter inventories.
  • Our cost of product sold per tonne was 13 percent lower than the same period last year due to higher production and sales volumes, reducing fixed costs on a per tonne basis, and a higher proportion of sales to Canpotex, which do not incur freight charges. Gross margins were up $39 per tonne or almost 3 times higher than last year's levels, while cash margins came in at $106 per tonne this quarter.

Phosphate

  • Phosphate gross profit was slightly higher than the same period last year due to lower input costs. This was partially offset by lower realized phosphate prices and a reduction in total sales volumes.
  • Sales volumes were down 9 percent compared to the same period last year. This is mostly due to lower opening inventory levels this quarter resulting from strong demand pull in the first quarter of 2017.
  • Overall gross margin per tonne this quarter improved by $10 compared to 2016. This was related to a 9 percent decline in cost of product sold per tonne due to lower input costs and fixed cost improvements.

Wholesale Other

               
Wholesale Other: gross profit breakdown  
    Three months ended June 30,  
(millions of U.S. dollars)   2017   2016   Change  
Ammonium sulfate   20   20    
ESN   9   12   (3 )
Other   2     2  
    31   32   (1 )
               
  • Gross profit from Wholesale Other was lower than the same period last year driven by a combination of lower realized selling prices and slightly higher input costs for ESN.

Expenses

  • Wholesale expenses remained flat in the second quarter compared to last year as lower earnings from associates and joint ventures were offset by lower expenses. Lower earnings from associates and joint ventures were due to a reversal in 2016 of a gas provision in Profertil, while lower expenses were due to cost savings initiatives and one–time expenses, which include the losses from the termination of a distribution agreement and cancellation of a Canpotex terminal, incurred in 2016.

Other

EBITDA for our Other non–operating business unit for the second quarter of 2017 was a net expense of $14–million, compared to a net expense of $5–million for the second quarter of 2016. The variance was primarily due to:

  • Lower gross profit recovery of $13–million as a result of a lower decrease in intersegment inventories held by Retail at the end of second quarter.
  • Merger and related costs of $15–million.
  • This is partially offset by a lower share–based payments expense of approximately $15–million primarily due to a decrease in Agrium's share price.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the six months ended June 30, 2017 compared to December 31, 2016.

(millions of U.S. dollars, except where noted)   June 30,2017   December 31, 2016   $ Change     % Change     Explanation of the change in the balance
Current assets                        
  Cash and cash equivalents   319   412   (93 )   (23 %)   See discussion under the section “Liquidity and Capital Resources”.
  Accounts receivable   3,803   2,208   1,595     72 %   Sales during the spring season resulted in higher Retail trade and vendor rebates receivable.
  Income taxes receivable   62   33   29     88 %   The first half tax installments paid exceeded the first half provision.
  Inventories   2,846   3,230   (384 )   (12 %)   Inventory drawdown due to increased seasonal sales activity.
  Prepaid expenses and deposits   112   855   (743 )   (87 %)   Drawdown of prepaid inventory due to increased seasonal sales activity in the spring.
  Other current assets   130   123   7     6 %  
Current liabilities                        
  Short–term debt   1,227   604   623     103 %   Increased financing for working capital requirements.
  Accounts payable   4,155   4,662   (507 )   (11 %)   Reductions in customer prepayments during the spring application season and reductions in accruals related to Wholesale capital expansion projects more than offset increased Retail balances related to seasonal inventory purchases.
  Income taxes payable   4   17   (13 )   (76 %)  
  Current portion of long–term debt   10   110   (100 )   (91 %)   Decrease relates to $100–million 7.7 percent debentures paid in 2017.
  Current portion of other provisions   48   59   (11 )   (19 %)  
Working capital   1,828   1,409   419     30 %    

LIQUIDITY AND CAPITAL RESOURCES

Agrium generally expects that it will be able to meet its working capital requirements, capital resource needs and shareholder returns through a variety of sources, including available cash on hand, cash provided by operations, short–term borrowings from the issuance of commercial paper, and borrowings from our credit facilities, as well as long–term debt and equity capacity from the capital markets.

As of June 30, 2017, we have sufficient current assets to meet our current liabilities.

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:

       
    Six months ended June 30,  
(millions of U.S. dollars)   2017     2016     Change  
Cash provided by operating activities   63     438     (375 )
Cash used in investing activities   (432 )   (574 )   142  
Cash provided by (used in) financing activities   269     (25 )   294  
Effect of exchange rate changes on cash and cash equivalents   7     (47 )   54  
Decrease in cash and cash equivalents   (93 )   (208 )   115  
                   
     
Cash provided by operating activities   • Lower cash provided by operating activities from net changes in non–cash working capital of $516–million, primarily due to the timing of payments to suppliers related to our Retail business unit. This was partially offset by lower final tax payments made in comparison to the prior year.
Cash used in investing activities   • Lower cash used in investing activities due to reduced business acquisition activity in our Retail business unit and lower spending on Borger expansion project in comparison to the prior year.
Cash provided by (used in) financing activities   • Cash provided by financing activities from increased borrowings of short–term debt to finance seasonal working capital requirements, partially offset by repayment of long–term debt.
     
         
Capital Spending and Expenditures (a)        
    Three months ended   Six months ended
    June 30,   June 30,
(millions of U.S. dollars)   2017   2016   2017   2016
Retail                
  Sustaining   37   28   84   75
  Investing   29   10   42   19
    66   38   126   94
  Acquisitions (b)   44   81   74   175
    110   119   200   269
Wholesale                
  Sustaining   55   102   81   151
  Investing   37   87   92   155
    92   189   173   306
Other                
  Sustaining   2   1   2   2
  Investing   4   2   6   2
    6   3   8   4
Total                
  Sustaining   94   131   167   228
  Investing   70   99   140   176
    164   230   307   404
  Acquisitions (b)   44   81   74   175
    208   311   381   579
                 
(a) This excludes capitalized borrowing costs.
(b) This represents business acquisitions and includes acquired working capital; property, plant and equipment; intangibles; goodwill; and investments in associates and joint ventures.
 
  • Our total capital expenditures decreased in the second quarter and first half of 2017 compared to the same period last year as we completed the construction of our Borger expansion project at the end of 2016. In 2017, pre–commissioning and commissioning costs were incurred related to this project.
  • We expect Agrium's capital expenditures for the remainder of 2017 to approximate $350–million to $400–million. We anticipate that we will be able to finance the announced projects through a combination of cash provided from operating activities and existing credit facilities.

Short–term Debt

  • Our short–term debt of $1.2–billion at June 30, 2017 is outlined in note 5 of our Summarized Notes to the Condensed Consolidated Financial Statements.
  • Our short–term debt increased by $623–million during the first half of 2017, which in turn contributed to a decrease in our unutilized short–term financing capacity to $2.2–billion at June 30, 2017.

Capital Management

  • Our revolving credit facilities require that we maintain specific interest coverage and debt–to–capital ratios, as well as other non–financial covenants as defined in our credit agreements. We were in compliance with all covenants at June 30, 2017. Our ability to comply with these covenants has not changed since December 31, 2016.

OUTSTANDING SHARE DATA

Agrium had 138,177,162 outstanding shares at August 4, 2017. At August 4, 2017, the number of shares issuable pursuant to stock options outstanding (issuable assuming full conversion, where each option granted can be exercised for one common share) was approximately 1,380,868.

 
SELECTED QUARTERLY INFORMATION
                                     
(millions of U.S. dollars,
except per share amounts)
  2017
Q2
  2017
Q1
    2016
Q4
  2016
Q3
    2016
Q2
  2016
Q1
  2015
Q4
  2015
Q3
Sales   6,319   2,720     2,280   2,245     6,415   2,725   2,407   2,524
Gross profit   1,527   558     748   568     1,525   554   900   696
Net earnings (loss)   558   (10 )   67   (39 )   565   3   200   99
Earnings (loss) per share attributable to equity holders of Agrium:                                    
  Basic and diluted   4.03   (0.08 )   0.49   (0.29 )   4.08   0.02   1.45   0.72
Dividends declared   121   120     121   120     122   121   121   120
Dividends declared per share   0.875   0.875     0.875   0.875     0.875   0.875   0.875   0.875
                                     

The agricultural products business is seasonal. Consequently, year–over–year comparisons 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 concentrated in December and January.

NON–IFRS FINANCIAL MEASURES

Financial measures that are not specified, defined or determined under IFRS are non–IFRS measures unless they are presented in our Consolidated Financial Statements. The following table outlines our non–IFRS financial measures, their definitions and why management uses the measures.

         
Non–IFRS financial measure   Definition   Why we use the measure and why it is useful to investors
Cash margin per tonne
Cash cost of product sold, cash selling and general and administrative expenses
  Selected financial measures excluding depreciation and amortization   Assists management and investors in understanding the costs and underlying economics of our operations and in assessing our operating performance and our ability to generate free cash flow from our business units and overall as a company.
EBITDA   Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations   EBITDA is frequently used by investors and analysts for valuation purposes when multiplied by a factor to estimate the enterprise value of a company. EBITDA is also used in determining annual incentive compensation for certain management employees and in calculating certain of our debt covenants.
         
     
Wholesale potash cash gross margin per tonne    
    Three months ended
    June 30, 2017
(millions of U.S. dollars)    
Potash gross margin per tonne   61
Depreciation and amortization in cost of product sold per tonne   45
Potash cash gross margin per tonne   106
     
 
Cash selling and general and administrative expenses
    Three months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Consolidated
    2017   2016   2017   2016   2017   2016
Selling   574   570   6   8   575   574
Depreciation and amortization in selling expense   69   67       69   67
Cash selling   505   503   6   8   506   507
General and administrative   28   28   7   8   61   62
Depreciation and amortization in general and administrative   1     1   1   7   4
Cash general and administrative   27   28   6   7   54   58
                         
Cash selling and general and administrative expenses
    Six months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Consolidated
    2017   2016   2017   2016   2017   2016
Selling   1,022   980   13   16   1,026   988
Depreciation and amortization in selling expense   136   130       136   130
Cash selling   886   850   13   16   890   858
General and administrative   53   50   13   16   121   117
Depreciation and amortization in general and administrative   3   2   1   1   13   9
Cash general and administrative   50   48   12   15   108   108
                         
Cash cost of product sold
    Three months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Consolidated
    2017   2016   2017   2016   2017   2016
Cost of product sold   4,408   4,512   652   681   4,792   4,890
Depreciation and amortization in cost of product sold   1   1   79   73   80   74
Cash cost of product sold   4,407   4,511   573   608   4,712   4,816
                         
                         
    Six months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Consolidated
    2017   2016   2017   2016   2017   2016
Cost of product sold   6,214   6,400   1,185   1,177   6,954   7,061
Depreciation and amortization in cost of product sold   3   3   143   117   144   118
Cash cost of product sold   6,211   6,397   1,042   1,060   6,810   6,943
                         
     
Consolidated and business unit EBITDA   Three months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Other     Consolidated
2017                  
Net earnings                 558
Finance costs related to long–term debt                 52
Other finance costs                 24
Income taxes                 222
EBIT   700   175   (19 )   856
Depreciation and amortization   71   80   5     156
EBITDA   771   255   (14 )   1,012
2016                  
Net earnings                 565
Finance costs related to long–term debt                 50
Other finance costs                 20
Income taxes                 213
EBIT   676   180   (8 )   848
Depreciation and amortization   68   74   3     145
EBITDA   744   254   (5 )   993
                   
Consolidated and business unit EBITDA   Six months ended June 30,
(millions of U.S. dollars)   Retail   Wholesale   Other     Consolidated
2017                  
Net earnings                 548
Finance costs related to long–term debt                 99
Other finance costs                 47
Income taxes                 219
EBIT   679   306   (72 )   913
Depreciation and amortization   142   144   9     295
EBITDA   821   450   (63 )   1,208
2016                  
Net earnings                 568
Finance costs related to long–term debt                 102
Other finance costs                 38
Income taxes                 215
EBIT   653   299   (29 )   923
Depreciation and amortization   135   118   6     259
EBITDA   788   417   (23 )   1,182
                   

CRITICAL ACCOUNTING ESTIMATES

We prepare our Condensed Consolidated 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 2016 annual MD&A, which is contained in our 2016 Annual Report. Since the date of our 2016 annual MD&A, there have not been any material changes to our critical accounting estimates.

CHANGES IN ACCOUNTING POLICIES

The accounting policies applied in our Condensed Consolidated Financial Statements for the six months ended June 30, 2017 are the same as those applied in our audited annual financial statements in our 2016 Annual Report.

BUSINESS RISKS

The information presented in the “Enterprise Risk Management” section on pages 52 – 56 in our 2016 annual MD&A and under the heading “Risk Factors” on pages 23 – 38 in our Annual Information Form for the year ended December 31, 2016 has not changed materially since December 31, 2016.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2017 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 2016 Annual Information Form is filed with the Canadian securities regulatory authorities through SEDAR at www.sedar.com and with the U.S. securities regulatory authorities through EDGAR at www.sec.gov.

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 news release 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: 2017 updated annual guidance, including expectations regarding our diluted earnings per share and Retail EBITDA; capital spending expectations for 2017; expectations regarding performance of our business segments in 2017; expectations regarding completion of previously announced expansion projects (including timing and volumes of production associated therewith) and acquisitions; our market outlook for 2017, including nitrogen, potash and phosphate outlook and including anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of currency fluctuations and import and export volumes; and the proposed merger with PotashCorp, including timing of completion thereof. 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.

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, including 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 2017 and in the future; 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; the 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 projects' approach; the receipt, on a timely basis, of regulatory approvals in respect of the proposed merger with PotashCorp and satisfaction of other closing conditions relating thereto. Also refer to the discussion under the heading “Key Assumptions and Risks in Respect of Forward–Looking Statements” in our 2016 annual MD&A and under the heading “Market Outlook” herein, 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 global economic, market and business conditions; weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, 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; gas supply interruptions at the Egyptian Misr Fertilizers Production Company S.A.E. nitrogen facility expansion in Egypt; the risk of additional capital expenditure cost escalation or delays in respect of our expansion projects; the risks that are inherent in the nature of the proposed merger with PotashCorp, including the failure to obtain required regulatory approvals and failure to satisfy all other closing conditions in accordance with the terms of the proposed merger with PotashCorp, in a timely manner or at all; 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, 2016 and under the headings “Enterprise Risk Management” and “Key Assumptions and Risks in respect of Forward–Looking Statements” in our 2016 annual MD&A.

The purpose of our expected diluted earnings per share and Retail EBITDA 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 global producer and distributor of agricultural products, services and solutions. Agrium produces nitrogen, potash and phosphate fertilizers, with a combined wholesale nutrient capacity of over 11 million tonnes and with significant competitive advantages across our product lines. We supply key products and services directly to growers, including crop nutrients, crop protection, seed, as well as agronomic and application services, thereby helping growers to meet the ever growing global demand for food and fiber. Agrium retail–distribution has an unmatched network of approximately 1,500 facilities and over 3,300 crop consultants who provide advice and products to our grower customers to help them increase their yields and returns on hundreds of 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: www.agrium.com.

A WEBSITE SIMULCAST of the 2017 2nd Quarter Conference Call will be available in a listen–only mode beginning Thursday, August 10, 2017 at 8:00 a.m. MT (10:00 a.m. ET). Please visit the following website: www.agrium.com.

Contact us at: www.agrium.com

   
AGRIUM INC.  
Condensed Consolidated Interim Statements of Operations  
(Unaudited)  
                           
                           
      Three months ended
June 30,
    Six months ended
June 30,
 
(millions of U.S. dollars, unless otherwise stated) Notes   2017     2016     2017     2016  
               
Sales     6,319     6,415     9,039     9,140  
Cost of product sold     4,792     4,890     6,954     7,061  
Gross profit     1,527     1,525     2,085     2,079  
Expenses                          
  Selling     575     574     1,026     988  
  General and administrative     61     62     121     117  
  Share–based payments     (3 )   13         17  
  Earnings from associates and joint ventures     (5 )   (23 )   (28 )   (28 )
  Other expenses 4   43     51     53     62  
Earnings before finance costs and income taxes     856     848     913     923  
  Finance costs related to long–term debt     52     50     99     102  
  Other finance costs     24     20     47     38  
Earnings before income taxes     780     778     767     783  
  Income taxes     222     213     219     215  
Net earnings     558     565     548     568  
Attributable to                          
  Equity holders of Agrium     557     564     546     566  
  Non–controlling interests     1     1     2     2  
Net earnings     558     565     548     568  
                           
Earnings per share attributable to equity holders of Agrium                        
Basic and diluted earnings per share     4.03     4.08     3.95     4.09  
Weighted average number of shares outstanding for basic and diluted earnings per share (millions of common shares)     138     138     138     138  
See accompanying notes.                          

Basis of preparation and statement of compliance

These condensed consolidated interim financial statements (“interim financial statements”) were approved for issuance by the Audit Committee on August 9, 2017. We prepared these interim financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting. These interim financial 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 2016 Annual Report, available at www.agrium.com.

The accounting policies applied in these interim financial statements are the same as those applied in our audited annual financial statements in our 2016 Annual Report.

   
AGRIUM INC.  
Condensed Consolidated Interim Statements of Comprehensive Income  
(Unaudited)  
                           
                           
      Three months ended     Six months ended  
      June 30,     June 30,  
(millions of U.S. dollars) Notes   2017     2016     2017     2016  
                           
Net earnings     558     565     548     568  
Other comprehensive income (loss)                          
  Items that are or may be reclassified to earnings                          
    Cash flow hedges 3                        
      Effective portion of changes in fair value     (7 )   17     (30 )   (6 )
      Deferred income taxes     3     (4 )   8     3  
    Associates and joint ventures                          
      Share of comprehensive (loss) income     (22 )   (1 )   (51 )   1  
      Deferred income taxes     2         10      
    Foreign currency translation                          
      Gains (losses)     100     (26 )   165     153  
      Reclassifications to earnings     1         6      
      77     (14 )   108     151  
  Items that will never be reclassified to earnings                          
    Post–employment benefits                          
      Actuarial losses         (24 )   (3 )   (24 )
      Deferred income taxes         7     1     7  
          (17 )   (2 )   (17 )
  Other comprehensive income (loss)     77     (31 )   106     134  
Comprehensive income     635     534     654     702  
Attributable to                          
  Equity holders of Agrium     633     533     651     700  
  Non–controlling interests     2     1     3     2  
Comprehensive income     635     534     654     702  
See accompanying notes.                          
                           
   
AGRIUM INC.  
Condensed Consolidated Interim Balance Sheets  
(Unaudited)  
                     
                     
         June 30,     December 31,  
(millions of U.S. dollars) Notes   2017     2016     2016  
Assets                    
  Current assets                    
    Cash and cash equivalents     319     307     412  
    Accounts receivable     3,803     3,638     2,208  
    Income taxes receivable     62     95     33  
    Inventories     2,846     2,605     3,230  
    Prepaid expenses and deposits     112     131     855  
    Other current assets     130     124     123  
      7,272     6,900     6,861  
  Property, plant and equipment     7,028     6,832     6,818  
  Intangibles     561     635     566  
  Goodwill     2,115     2,023     2,095  
  Investments in associates and joint ventures     513     665     541  
  Other assets     55     52     48  
  Deferred income tax assets     20     44     34  
      17,564     17,151     16,963  
Liabilities and shareholders' equity                    
  Current liabilities                    
    Short–term debt 5   1,227     1,069     604  
    Accounts payable     4,155     3,830     4,662  
    Income taxes payable     4     128     17  
    Current portion of long–term debt 5   10     107     110  
    Current portion of other provisions     48     74     59  
      5,444     5,208     5,452  
  Long–term debt 5   4,400     4,412     4,398  
  Post–employment benefits     134     162     141  
  Other provisions     336     338     322  
  Other liabilities     51     54     68  
  Deferred income tax liabilities     601     491     408  
      10,966     10,665     10,789  
  Shareholders' equity                    
    Share capital     1,770     1,762     1,766  
    Retained earnings     5,939     5,839     5,634  
    Accumulated other comprehensive loss     (1,116 )   (1,119 )   (1,231 )
    Equity holders of Agrium     6,593     6,482     6,169  
    Non–controlling interests     5     4     5  
    Total equity     6,598     6,486     6,174  
      17,564     17,151     16,963  
See accompanying notes.                    
                     
   
AGRIUM INC.  
Condensed Consolidated Interim Statements of Cash Flows  
(Unaudited)  
                           
                           
      Three months ended     Six months ended  
      June 30,     June 30,  
(millions of U.S. dollars) Notes   2017     2016     2017     2016  
                           
Operating                          
  Net earnings     558     565     548     568  
  Adjustments for                          
    Depreciation and amortization     156     145     295     259  
    Earnings from associates and joint ventures     (5 )   (23 )   (28 )   (28 )
    Share–based payments     (3 )   13         17  
    Unrealized loss (gain) on derivative financial instruments     12     (61 )   7     22  
    Unrealized foreign exchange loss (gain)         83         (41 )
    Interest income     (13 )   (16 )   (26 )   (29 )
    Finance costs     76     70     146     140  
    Income taxes     222     213     219     215  
    Other     4     (7 )   (7 )   (1 )
  Interest received     14     15     27     29  
  Interest paid     (63 )   (51 )   (147 )   (140 )
  Income taxes paid     (15 )   (24 )   (54 )   (165 )
  Dividends from associates and joint ventures     4     1     9     2  
  Net changes in non–cash working capital     (1,062 )   (828 )   (926 )   (410 )
Cash (used in) provided by operating activities     (115 )   95     63     438  
Investing                          
  Business acquisitions, net of cash acquired     (44 )   (81 )   (74 )   (175 )
  Capital expenditures     (164 )   (230 )   (307 )   (404 )
  Capitalized borrowing costs     (4 )   (7 )   (12 )   (12 )
  Purchase of investments     (17 )   (18 )   (50 )   (41 )
  Proceeds from sale of investments     21     46     49     64  
  Proceeds from sale of property, plant and equipment     12     6     21     10  
  Other     (4 )   (5 )   (8 )   (8 )
  Net changes in non–cash working capital     (45 )   (8 )   (51 )   (8 )
Cash used in investing activities     (245 )   (297 )   (432 )   (574 )
Financing                          
  Short–term debt 5   551     426     615     222  
  Repayment of long–term debt 5   (2 )   (4 )   (105 )   (6 )
  Dividends paid     (120 )   (122 )   (241 )   (241 )
Cash provided by (used in) financing activities     429     300     269     (25 )
Effect of exchange rate changes on cash and cash equivalents     (12 )   (67 )   7     (47 )
Increase (decrease) in cash and cash equivalents     57     31     (93 )   (208 )
Cash and cash equivalents – beginning of period     262     276     412     515  
Cash and cash equivalents – end of period     319     307     319     307  
See accompanying notes.                          
                           
   
AGRIUM INC.  
Condensed Consolidated Interim Statements of Shareholders' Equity  
(Unaudited)  
                                                         
                                                         
                  Other comprehensive income (loss)                    
 
 
 
(millions of U.S. dollars, except per share data)
 
 
 
 
Millions
of
common
shares
 
 
 
 
 
 
Share
capital
 
 
 
 
 
 
Retained
earnings
 
 
 
 
 
 
 
 
 
Cash
flow
hedges
 
 
 
 
 
 
 
 
Comprehensive
loss of
associates and
joint ventures
 
 
 
 
 
 
 
 
 
Foreign
currency
translation
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
Equity
holders of
Agrium
 
 
 
 
 
 
 
 
 
Non–
controlling
interests
 
 
 
 
 
 
 
 
 
 
Total
equity
 
 
 
 
December 31, 2015   138   1,757   5,533     (56 )   (17 )   (1,214 )   (1,287 )   6,003     4     6,007  
  Net earnings       566                     566     2     568  
  Other comprehensive income (loss), net of tax                                                        
    Post–employment benefits       (17 )                   (17 )       (17 )
    Other           (3 )   1     153     151     151         151  
  Comprehensive income (loss), net of tax       549     (3 )   1     153     151     700     2     702  
  Dividends ($1.75 per share)       (243 )                   (243 )       (243 )
  Non–controlling interest transactions                               (2 )   (2 )
  Share–based payment transactions     5                       5         5  
  Reclassification of cash flow hedges, net of tax           17             17     17         17  
June 30, 2016   138   1,762   5,839     (42 )   (16 )   (1,061 )   (1,119 )   6,482     4     6,486  
                                                         
December 31, 2016   138   1,766   5,634     (25 )   (51 )   (1,155 )   (1,231 )   6,169     5     6,174  
  Net earnings       546                     546     2     548  
  Other comprehensive income (loss), net of tax                                                        
    Post–employment benefits       (2 )                   (2 )       (2 )
    Other           (22 )   (41 )   170     107     107     1     108  
  Comprehensive income (loss), net of tax       544     (22 )   (41 )   170     107     651     3     654  
  Dividends ($1.75 per share)       (241 )                   (241 )       (241 )
  Non–controlling interest transactions       2             (2 )   (2 )       (3 )   (3 )
  Share–based payment transactions     4                       4         4  
  Reclassification of cash flow hedges, net of tax           10             10     10         10  
June 30, 2017   138   1,770   5,939     (37 )   (92 )   (987 )   (1,116 )   6,593     5     6,598  
See accompanying notes.  
                                                         

1. Corporate Management

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.

We categorize our operating segments within the Retail and Wholesale business units as follows:

  • Retail: Distributes crop nutrients, crop protection products, seed and merchandise and provides financial and other services directly to growers through a network of farm centers in two geographical segments:
    • North America including the United States and Canada
    • International including Australia and South America
  • Wholesale: Produces, markets and distributes crop nutrients and industrial products as follows:
    • Nitrogen: Manufacturing in Alberta and Texas
    • Potash: Mining and processing in Saskatchewan
    • Phosphate: Production facilities in Alberta and production and mining facilities in Idaho
    • Wholesale Other: Producing blended crop nutrients and Environmentally Smart Nitrogen® (ESN) polymer–coated nitrogen crop nutrients, and operating joint ventures and associates

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.

2. Operating Segments

                                                 
Segment information by business unit   Three months ended June 30,  
    2017     2016  
    Retail     Wholesale     Other (a)     Total     Retail     Wholesale     Other (a)     Total  
Sales                                                
    – external   5,694     625         6,319     5,780     635         6,415  
    – inter–segment   13     223     (236 )       11     247     (258 )    
Total sales   5,707     848     (236 )   6,319     5,791     882     (258 )   6,415  
Cost of product sold   4,408     652     (268 )   4,792     4,512     681     (303 )   4,890  
Gross profit   1,299     196     32     1,527     1,279     201     45     1,525  
Gross profit (%)   23     23           24     22     23           24  
Expenses                                                
  Selling   574     6     (5 )   575     570     8     (4 )   574  
  General and administrative   28     7     26     61     28     8     26     62  
  Share–based payments           (3 )   (3 )           13     13  
  (Earnings) loss from associates and joint ventures   (4 )   (3 )   2     (5 )   (3 )   (21 )   1     (23 )
  Other expenses   1     11     31     43     8     26     17     51  
Earnings (loss) before finance costs and income taxes   700     175     (19 )   856     676     180     (8 )   848  
  Finance costs           76     76             70     70  
Earnings (loss) before income taxes   700     175     (95 )   780     676     180     (78 )   778  
  Depreciation and amortization   71     80     5     156     68     74     3     145  
  Finance costs           76     76             70     70  
EBITDA (b)   771     255     (14 )   1,012     744     254     (5 )   993  
                                                 

(a) Includes inter–segment eliminations

(b) EBITDA is net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.

                                                 
Segment information by business unit   Six months ended June 30,  
    2017     2016  
    Retail     Wholesale     Other (a)     Total     Retail     Wholesale     Other (a)     Total  
Sales                                                
    – external   7,921     1,118         9,039     8,058     1,082         9,140  
    – inter–segment   26     405     (431 )       23     449     (472 )    
Total sales   7,947     1,523     (431 )   9,039     8,081     1,531     (472 )   9,140  
Cost of product sold   6,214     1,185     (445 )   6,954     6,400     1,177     (516 )   7,061  
Gross profit   1,733     338     14     2,085     1,681     354     44     2,079  
Gross profit (%)   22     22           23     21     23           23  
Expenses                                                
  Selling   1,022     13     (9 )   1,026     980     16     (8 )   988  
  General and administrative   53     13     55     121     50     16     51     117  
  Share–based payments                           17     17  
  (Earnings) loss from associates and joint ventures   (10 )   (19 )   1     (28 )   (7 )   (22 )   1     (28 )
  Other (income) expenses   (11 )   25     39     53     5     45     12     62  
Earnings (loss) before finance costs and income taxes   679     306     (72 )   913     653     299     (29 )   923  
  Finance costs           146     146             140     140  
Earnings (loss) before income taxes   679     306     (218 )   767     653     299     (169 )   783  
  Depreciation and amortization   142     144     9     295     135     118     6     259  
  Finance costs           146     146             140     140  
EBITDA   821     450     (63 )   1,208     788     417     (23 )   1,182  
                                                 

(a) Includes inter–segment eliminations

                                     
Segment information – Retail   Three months ended June 30,  
    2017     2016  
    North                 North              
    America     International     Retail (a)     America     International     Retail (a)  
Sales                                    
    – external   5,031     663     5,694     5,038     742     5,780  
    – inter–segment   13         13     11         11  
Total sales   5,044     663     5,707     5,049     742     5,791  
Cost of product sold   3,876     532     4,408     3,893     619     4,512  
Gross profit   1,168     131     1,299     1,156     123     1,279  
Expenses                                    
  Selling   486     88     574     484     86     570  
  General and administrative   21     7     28     20     8     28  
  Earnings from associates and joint ventures   (4 )       (4 )   (2 )   (1 )   (3 )
  Other expenses (income)   11     (10 )   1     16     (8 )   8  
Earnings before income taxes   654     46     700     638     38     676  
  Depreciation and amortization   67     4     71     63     5     68  
EBITDA   721     50     771     701     43     744  
                                     

(a) Included within the Retail business unit is a separate Financial Services operating segment with total sales of $8–million (2016 – $4–million) and EBITDA of $7–million (2016 – $4–million).

                                     
Segment information – Retail   Six months ended June 30,  
    2017     2016  
    North                 North              
    America     International     Retail (a)     America     International     Retail (a)  
Sales                                    
    – external   6,789     1,132     7,921     6,835     1,223     8,058  
    – inter–segment   26         26     23         23  
Total sales   6,815     1,132     7,947     6,858     1,223     8,081  
Cost of product sold   5,327     887     6,214     5,399     1,001     6,400  
Gross profit   1,488     245     1,733     1,459     222     1,681  
Expenses                                    
  Selling   850     172     1,022     821     159     980  
  General and administrative   39     14     53     35     15     50  
  Earnings from associates and joint ventures   (9 )   (1 )   (10 )   (6 )   (1 )   (7 )
  Other expenses (income)   4     (15 )   (11 )   22     (17 )   5  
Earnings before income taxes   604     75     679     587     66     653  
  Depreciation and amortization   133     9     142     124     11     135  
EBITDA   737     84     821     711     77     788  
                                     

(a) Included within the Retail business unit is a separate Financial Services operating segment with total sales of $14–million (2016 – $4–million) and EBITDA of $15–million (2016 – $4–million).

                                                     
Segment information – Wholesale   Three months ended June 30,  
    2017     2016  
                Wholesale                           Wholesale        
    Nitrogen   Potash   Phosphate   Other (a)     Wholesale     Nitrogen   Potash     Phosphate     Other (a)     Wholesale  
Sales                                                    
    – external   277   116   86   146     625     296   85     110     144     635  
    – inter–segment   91   34   51   47     223     98   50     50     49     247  
Total sales   368   150   137   193     848     394   135     160     193     882  
Cost of product sold   255   106   129   162     652     246   119     155     161     681  
Gross profit   113   44   8   31     196     148   16     5     32     201  
Expenses                                                    
  Selling   3   2   1       6     3   2     1     2     8  
  General and administrative   3   1   1   2     7     3   1     1     3     8  
  Earnings from associates and joint ventures         (3 )   (3 )             (21 )   (21 )
  Other expenses (income)   6   5   2   (2 )   11     16   14     (1 )   (3 )   26  
Earnings (loss) before income taxes   101   36   4   34     175     126   (1 )   4     51     180  
  Depreciation and amortization   26   32   17   5     80     23   31     13     7     74  
EBITDA   127   68   21   39     255     149   30     17     58     254  
                                                     

(a) Includes ammonium sulfate, ESN and other products

                                                 
Segment information – Wholesale   Six months ended June 30,  
    2017     2016  
                Wholesale                       Wholesale        
    Nitrogen   Potash   Phosphate   Other (a)     Wholesale     Nitrogen   Potash   Phosphate   Other (a)     Wholesale  
Sales                                                
    – external   459   206   176   277     1,118     469   133   190   290     1,082  
    – inter–segment   149   76   95   85     405     175   93   100   81     449  
Total sales   608   282   271   362     1,523     644   226   290   371     1,531  
Cost of product sold   418   203   256   308     1,185     401   196   265   315     1,177  
Gross profit   190   79   15   54     338     243   30   25   56     354  
Expenses                                                
  Selling   6   3   2   2     13     7   4   2   3     16  
  General and administrative   5   2   2   4     13     7   3   2   4     16  
  Earnings from associates and joint ventures         (19 )   (19 )         (22 )   (22 )
  Other expenses (income)   15   7   4   (1 )   25     22   20   3       45  
Earnings before income taxes   164   67   7   68     306     207   3   18   71     299  
  Depreciation and amortization   42   61   33   8     144     36   51   23   8     118  
EBITDA   206   128   40   76     450     243   54   41   79     417  
                                                 

(a) Includes ammonium sulfate, ESN and other products

                                                                 
Gross profit by product line   Three months ended June 30,   Six months ended June 30,
    2017   2016   2017   2016
   

Sales

    Cost of
product
sold
    Gross
profit
 

Sales

    Cost of
product
sold
    Gross
profit
 

Sales

    Cost of
product
sold
    Gross
profit
 

Sales

    Cost of
product
sold
    Gross
profit
Retail                                                                
  Crop nutrients   1,989     1,570     419   2,190     1,757     433   2,703     2,143     560   3,029     2,462     567
  Crop protection products   2,236     1,751     485   2,250     1,779     471   3,108     2,493     615   3,081     2,489     592
  Seed   1,080     881     199   926     745     181   1,462     1,209     253   1,302     1,070     232
  Merchandise   175     148     27   162     134     28   309     260     49   279     232     47
  Services and other (a)   227     58     169   263     97     166   365     109     256   390     147     243
    5,707     4,408     1,299   5,791     4,512     1,279   7,947     6,214     1,733   8,081     6,400     1,681
Wholesale                                                                
  Nitrogen   368     255     113   394     246     148   608     418     190   644     401     243
  Potash   150     106     44   135     119     16   282     203     79   226     196     30
  Phosphate   137     129     8   160     155     5   271     256     15   290     265     25
  Ammonium sulfate, ESN and other   193     162     31   193     161     32   362     308     54   371     315     56
    848     652     196   882     681     201   1,523     1,185     338   1,531     1,177     354
Other inter–segment eliminations   (236 )   (268 )   32   (258 )   (303 )   45   (431 )   (445 )   14   (472 )   (516 )   44
Total   6,319     4,792     1,527   6,415     4,890     1,525   9,039     6,954     2,085   9,140     7,061     2,079
                                                                 
Wholesale share of joint ventures                                                            
  Nitrogen   46     36     10   40     37     3   70     55     15   65     58     7
Total Wholesale including proportionate share in joint ventures   894     688     206   922     718     204   1,593     1,240     353   1,596     1,235     361
                                                                 

(a) Includes financial services products

                                                 
Selected volumes and per tonne information   Three months ended June 30,  
    2017     2016  
 
 
 
 
 
 
 
 
 
Sales
tonnes
(000's)
 
 
 
 
 
 
 
 
 
Selling
price
($/tonne)
 
 
 
 
 
 
 
 
Cost of
product
sold
($/tonne)
 
 
 
 
 
 
 
 
 
 
Margin
($/tonne)
 
 
 
 
 
 
 
 
 
Sales
tonnes
(000's)
 
 
 
 
 
 
 
 
 
Selling
price
($/tonne)
 
 
 
 
 
 
 
 
Cost of
product
sold
($/tonne)
 
 
 
 
 
 
 
 
 
 
Margin
($/tonne)
 
 
 
 
Retail                                                
  Crop nutrients                                                
    North America   4,249     415     321     94     4,133     462     361     101  
    International   648     351     323     28     715     390     366     24  
  Total crop nutrients   4,897     406     320     86     4,848     452     363     89  
                                                 
Wholesale                                                
  Nitrogen                                                
    North America                                                
      Ammonia   414     412                 394     443              
      Urea   459     281                 503     303              
      Other   308     223                 271     249              
  Total nitrogen   1,181     312     216     96     1,168     337     210     127  
                                                 
  Potash                                                
    North America   377     254                 440     219              
    International   337     161                 257     152              
  Total potash   714     210     149     61     697     194     172     22  
                                                 
  Phosphate   279     492     464     28     305     526     508     18  
  Ammonium sulfate   111     290     109     181     114     296     120     176  
  ESN and other   466                       452                    
Total Wholesale   2,751     308     237     71     2,736     322     248     74  
                                                 
Wholesale share of joint ventures                                                
  Nitrogen   82     556     434     122     133     305     285     20  
Total Wholesale including proportionate share in joint ventures   2,833     315     242     73     2,869     322     251     71  
                                                 
                                                 
Selected volumes and per tonne information   Six months ended June 30,  
    2017           2016     
 
 
 
 
 
 
 
 
 
Sales
tonnes
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)
 
 
 
 
 
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)
 
 
 
 
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)
 
 
 
 
 
 
Margin
($/tonne
 
 
 
)
 
 
 
 
 
Sales
tonnes
(000's
 
 
 
)
 
 
 
 
 
Selling
price
($/tonne
 
 
 
)
 
 
 
 
Cost of
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sold
($/tonne
 
 
 
)
 
 
 
 
 
 
Margin
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)
Retail                                                
  Crop nutrients