SOURCE: Agrium Inc.

Agrium Inc.

August 03, 2016 17:30 ET

Agrium Reports Solid Second Quarter Earnings

August 3, 2016 - ALL AMOUNTS ARE STATED IN U.S.$

CALGARY, AB--(Marketwired - August 03, 2016) - Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today its 2016 second quarter earnings, with net earnings attributable to equity holders of Agrium of $564-million ($4.08 diluted earnings per share) compared to $674-million ($4.71 diluted earnings per share) in the second quarter of 2015. The reduction in net earnings this quarter was driven primarily by continued weakness in global nutrient prices. This was partially offset by solid demand for crop inputs, lower costs and strong margins within our ag-retail distribution business.

Highlights:

  • Second quarter adjusted net earnings were $578-million or $4.18 per share (see page 2 for adjusted net earnings reconciliation)1.
  • Retail earnings results were the second highest in history and in line with our guidance, due to strong margins which were supported by our proprietary product lines, lower costs and an increase in normalized comparable store sales.
  • Wholesale delivered solid operational results due to industry-leading nitrogen margins, higher overall production and sales volumes and lower costs.
  • Agrium has acquired 33 retail locations with expected annual sales in excess of $230-million on a year-to-date basis. In addition to these completed transactions, Agrium is currently working on the completion of the Cargill and another retail acquisition which together would add over 30 locations and represent over $300-million of expected annual sales. As a result, Agrium will easily surpass the pace of retail acquisitions over the past couple of years.
  • Agrium has invested $15-million into Finistere Ventures Fund II, a leading AgTech venture fund focused on identifying and investing in early-to-growth stage companies within plant nutrition, biologicals, seed technology, digital agriculture and novel farm systems.
  • Annual guidance range has been revised to $5.00 to $5.30 diluted earnings per share due to the weak outlook for nutrient prices (see page 3 for guidance assumptions and further details).

"Agrium reported solid second quarter results driven by lower costs and strong margins across most of our business portfolio, supported by a stable cash flow from our retail operations. Our steadfast focus on operational excellence continues to deliver results and we believe our strategy and assets will create long-term shareholder value," commented Chuck Magro, Agrium's President and CEO.

"We also made excellent progress on our growth and innovation strategy this quarter. We surpassed the number of retail locations acquired annually over the past couple of years and have a full pipeline of acquisitions and new build opportunities remaining in 2016," added Mr. Magro. "Our recent investment in Finistere supports our agricultural innovation and technology strategy which will be instrumental in meeting the challenge of feeding a growing global population, providing our customers with new products and solutions, and generating future earnings growth for shareholders," concluded Mr. Magro.

1 Effective tax rate of 27.5 percent for the second quarter and first half of 2016 used for the adjusted net earnings and per share calculations. These are non-IFRS measures which represent net earnings adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to the earnings of other companies by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. These should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS and may not be directly comparable to similar measures presented by other companies.

ADJUSTED NET EARNINGS RECONCILIATION

    Three months ended  Six months ended  
    June 30, 2016  June 30, 2016  
(millions of U.S. dollars, except per share amounts) Expense  Net earnings
impact
(post-tax
)Per share (a )Expense  Net earnings
impact
(post-tax
)Per share (a )
     565  4.08     568  4.09  
Adjustments:                   
  Share-based payments 13  9  0.07  17  12  0.09  
  Foreign exchange loss  net of non-qualifying derivatives
6
 
4
 
0.03
 
8
 
6
 
0.04
 
Adjusted net earnings (b)    578  4.18     586  4.22  
(a) This represents diluted per share information attributable to   equity holders of Agrium.             
(b) Effective tax rate of 27.5 percent for the second quarter and   first half of 2016 was used for the adjusted net earnings and per share   calculations.             

MARKET OUTLOOK

Agricultural and Crop Input Fundamentals

  • Agricultural prices were volatile over the past quarter. Crop prices increased through mid-June, driven by declining South American corn and soybean production estimates, but crop prices declined again in July due to higher than expected planted acreage and very favorable growing conditions across North America. There is potential for production of U.S. corn and soybeans to set record highs, barring a significant deterioration in growing conditions in August and September.
  • While this has pressured crop prices, grower sentiment has been supported by the potential for strong crop yields and we expect robust fungicide and nutritional demand in order to preserve yield potential.
  • Wet conditions across most North American growing regions have created an ideal environment for disease development and delayed herbicide applications. This factor and the desire by growers to protect strong yield potential are expected to support strong fungicide and herbicide demand this summer.
  • Strong crop development this year is likely to result in high levels of nutrient removal from soils and is expected to support fall application demand.

Nitrogen

  • Nitrogen prices have been pressured due to slow demand from India and seasonal pricing pressure. Indian urea imports in 2016 have been 19 percent below last year's levels; however, the import pace is expected to improve in the second half of the year.
  • Chinese urea exports were down 25 percent in the first half of 2016, as Chinese export prices have been uncompetitive with most international markets and domestic production has been declining continuously since March 2016.
  • U.S. offshore urea imports over the past three months are down approximately 30 percent compared to a year ago as North American prices have been below import parity levels.
  • Nitrogen buyers have managed inventories carefully entering a period when there is the potential for new capacity to come on-stream. We expect this will lead to pent-up demand becoming apparent closer to the North American seasonal application period.

Potash

  • End users have managed inventories carefully over the past year, which has pressured potash producer shipments but depleted inventory levels among end users globally.
  • Deliveries in the second half of 2016 are expected to be supported by a number of positive factors, including the normal seasonal upturn in demand and the recent supply agreements with China and India which have provided increased certainty to the market. In Brazil, firm domestic crop prices have supported stronger than expected demand so far in 2016 and North American retail inventories are believed to be below average levels.
  • We do not expect any additional capacity to come on-stream in the second half of 2016. Global effective potash capacity is now more than 2 percent below where it was in 2014, largely due to the recent capacity closures.

Phosphate

  • Indian diammonium phosphate (DAP) imports are down close to 40 percent in the first half of 2016, due partly to high domestic inventories at the beginning of the year. The weak Indian demand has been a source of pressure on the market; however, the demand outlook for the remainder of 2016 is more positive as the monsoon season progresses and reductions in the maximum retail price are expected to be positive for grower demand.
  • Another source of pressure has been Brazilian phosphate imports, which have not improved from depressed 2015 levels. The demand outlook for the second half is positive given the firm crop price environment in Brazil and the fact that import demand for other nutrients has increased year-over-year.
  • Chinese exports of DAP and monoammonium phosphate (MAP) were down 31 percent in the first half of 2016. We expect that the pace of Chinese phosphate exports will increase in the second half of 2016, but continue to be below 2015 levels.
  • In the first half of 2016, the U.S. phosphate market was pressured by exports being down 15 percent and imports into the U.S. up more than 40 percent year-over-year. This was partly offset by production being lower and domestic shipments being higher than the first six months of last year. Similar to other products, we expect a return to a more normal fall application window to support strong second half U.S. phosphate shipments.

2016 ANNUAL GUIDANCE

Based on our Market Outlook, Agrium expects to achieve annual diluted earnings per share of $5.00 to $5.30 in 2016 compared to our previous estimate of $5.25 to $6.25. We have lowered our annual guidance range due to an expected weak pricing environment for all nutrients, partially offset by expected continued strong performance by our Retail business and lower year-over-year costs. The second half 2016 diluted earnings per share range based on the annual guidance range is weighted over 80 percent to the fourth quarter.

Our estimates of nitrogen and potash production remain between 3.5 million to 3.7 million and 2.3 million to 2.4 million tonnes, respectively.

We are anticipating strong demand for Retail crop nutrient sales tonnes this fall and have narrowed our expectation for Retail EBITDA1 between $1.1-billion to $1.15-billion, and Retail nutrient sales tonnes between 9.8 million to 10.2 million tonnes.

Our estimates for the Canada/U.S. foreign exchange rate and NYMEX for 2016 have been updated based on current market conditions.

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. Volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.

1 Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.

2016 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS

  Annual  
  Low  High  
Diluted EPS (in U.S. dollars) $5.00  $5.30  
Guidance assumptions:       
Wholesale:       
 Production tonnes:       
  Nitrogen (millions) 3.5  3.7  
  Potash (millions) 2.3  2.4  
Retail:       
 EBITDA (millions of U.S. dollars) $1,100  $1,150  
 Crop nutrient sales tonnes (millions) 9.8  10.2  
Other:       
 Tax rate 28 %27 %
 Sustaining capital expenditures (millions of U.S. dollars) $500  $550  
 Total capital expenditures (millions of U.S. dollars) $800  $900  
 Canada/U.S. foreign exchange rate $1.30  $1.34  
 NYMEX gas price ($/MMBtu) $2.65  $2.25  

MANAGEMENT'S DISCUSSION AND ANALYSIS

August 3, 2016

Unless otherwise noted, all financial information in this Management's Discussion and Analysis (MD&A) is prepared using accounting policies in accordance with International Financial Reporting Standards (IFRS) and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the second quarter of 2016 (three months ended June 30, 2016) and for the six months ended June 30, 2016 are against results for the second quarter of 2015 (three months ended June 30, 2015) and six months ended June 30, 2015. All dollar amounts refer to United States (U.S.) dollars except where otherwise stated. The financial measure cash operating coverage ratio used in this MD&A is not prescribed by IFRS. Our method of calculation may not be directly comparable to that of other companies. We consider this non-IFRS financial measure to provide useful information to both management and investors in measuring our financial performance. This non-IFRS financial measure 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 such measure to its most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of August 3, 2016 and should be read in conjunction with the Consolidated Interim Financial Statements for the three months and six months ended June 30, 2016 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2015 included in our 2015 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.

2016 Second Quarter Operating Results

CONSOLIDATED NET EARNINGS

Financial Overview  
                          
  Three months ended June 30,  Six months ended June 30,  
(millions of U.S. dollars, except per share amounts and where noted) 2016  2015  Change  % Change  2016  2015  Change  % Change  
Sales 6,415  6,992  (577 )(8 )9,140  9,864  (724 )(7 )
Gross profit 1,525  1,708  (183 )(11 )2,079  2,292  (213 )(9 )
Expenses 677  682  (5 )(1 )1,156  1,191  (35 )(3 )
Earnings before finance costs and income taxes
848
 
1,026
 
(178
)
(17
)
923
 
1,101
 
(178
)
(16
)
Net earnings 565  675  (110 )(16 )568  689  (121 )(18 )
Diluted earnings per share 4.08  4.71  (0.63 )(13 )4.09  4.78  (0.69 )(14 )
Effective tax rate (%) 27.5  30  (2.5 )N/A  27.5  29  (1.5 )N/A  
Sales and Gross Profit        
                    
  Three months ended June 30,  Six months ended June 30,  
(millions of U.S. dollars) 2016  2015  Change  2016  2015  Change  
Sales                   
 Retail 5,791  6,160  (369 )8,081  8,423  (342 )
 Wholesale 882  1,174  (292 )1,531  2,041  (510 )
 Other (258 )(342 )84  (472 )(600 )128  
  6,415  6,992  (577 )9,140  9,864  (724 )
                    
Gross profit                   
 Retail 1,279  1,264  15  1,681  1,635  46  
 Wholesale 201  409  (208 )354  643  (289 )
 Other 45  35  10  44  14  30  
  1,525  1,708  (183 )2,079  2,292  (213 )
  • Retail's sales decreased primarily as a result of lower crop nutrient prices. Retail's gross profit increased for both the second quarter and first half of 2016 despite lower sales due to an increase in higher-margin proprietary product sales.
  • Wholesale's sales and gross profit decreased compared to the second quarter and first half of last year primarily due to lower realized selling prices, which were consistent with weak benchmark prices.

Expenses

  • General and administrative expenses decreased by $4-million (6 percent) and $16-million (12 percent) for the second quarter and first half of 2016, respectively, compared to the same periods last year as a result of reduced payroll and office expenses.
  • Our share-based payments expense increased by $7-million and decreased by $34-million in the second quarter and first half of 2016, respectively, compared to the same periods last year due to the movements in our share price.
  • We completed the sale of our non-core Purchase for Resale terminals resulting in a gain on sale of assets of $38-million in the first quarter of 2015.
  • Earnings from associates and joint ventures increased in the second quarter and first half of 2016 as we recorded our share of Profertil S.A. ("Profertil")'s reversal of a gas tariff provision. We also recorded a $6-million loss related to our share of the losses in Canpotex Limited ("Canpotex") as it cancelled its plan to build an export terminal in British Columbia. Additionally, we terminated a distribution agreement with one of our U.S. distributors and incurred costs of $8-million in the second quarter of 2016.
  • For further breakdown on Other expenses see table provided below:
Other expenses breakdown                 
  Three months ended  Six months ended  
  June 30,  June 30,  
(millions of U.S. dollars) 2016  2015  Change  2016  2015  Change  
Loss on foreign exchange and related derivatives 6  1  5  8  -  8  
Interest income (16 )(16 )-  (29 )(33 )4  
Gain on sale of assets -  -  -  -  (38 )38  
Environmental remediation and asset retirement obligations
3
 
-
 
3
 
5
 
9
 
(4
)
Bad debt expense 21  25  (4 )29  32  (3 )
Potash profit and capital tax 5  5  -  8  10  (2 )
Other 32  11  21  41  13  28  
  51  26  25  62  (7 )69  

Depreciation and Amortization

Depreciation and amortization breakdown

    Three months ended June 30,
  2016 2015  
    Cost of       General       Cost of       General      
    product       and       product       and      
(millions of U.S. dollars) sold   Selling   administrative   Total   sold   Selling   administrative   Total  
Retail 1   67   -   68   2   64   -   66  
Wholesale                                
  Nitrogen 23   -   -   23   20   -   -   20  
  Potash 31   -   -   31   13   -   -   13  
  Phosphate 13   -   -   13   11   -   -   11  
  Wholesale Other (a) 6   -   1   7   3   -   2   5  
    73   -   1   74   47   -   2   49  
Other -   -   3   3   -   -   4   4  
Total 74   67   4   145   49   64   6   119  
    Six months ended June 30,
    2016 2015  
    Cost of       General       Cost of       General      
    product       and       product       and      
(millions of U.S. dollars) sold   Selling   administrative   Total   sold   Selling   administrative   Total  
Retail 3   130   2   135   3   118   2   123  
Wholesale                                
  Nitrogen 36   -   -   36   38   -   -   38  
  Potash 51   -   -   51   27   -   -   27  
  Phosphate 23   -   -   23   24   -   -   24  
  Wholesale Other (a) 7   -   1   8   8   -   2   10  
    117   -   1   118   97   -   2   99  
Other -   -   6   6   -   -   8   8  
Total 120   130   9   259   100   118   12   230  
(a)This includes product purchased for resale, ammonium sulfate,Environmentally Smart Nitrogen® (ESN) and other products.
  • Depreciation and amortization expense increased in second quarter and first half of 2016 as we increased our sales volumes from the ramp-up of production at our Vanscoy potash facility.

Effective Tax Rate

  • The effective tax rate of 27.5 percent for both the second quarter and first half of 2016 was lower compared to the effective tax rates of 30 percent and 29 percent for the second quarter and first half of 2015, respectively, due to a decrease of income earned in high-taxed jurisdictions.

BUSINESS SEGMENT PERFORMANCE

Retail            
             
  Three months ended June 30,  
(millions of U.S. dollars, except where noted) 2016   2015   Change  
Sales 5,791   6,160   (369 )
Cost of product sold 4,512   4,896   (384 )
Gross profit 1,279   1,264   15  
EBITDA 744   713   31  
Selling and general and administrative expenses 598   612   (14 )
  • Retail reported near-record second quarter and first half gross profit and EBITDA, despite total sales being lower year-over-year as a result of depressed nutrient prices. The increase in gross profit was due to strong margins across most product lines and a reduction in selling, general and administration costs contributed to this quarter's results.
  • Total Retail selling and general and administrative expenses were down $14-million from the second quarter of last year. Our continued focus on operational excellence resulted in our cash operating coverage ratio being down 4 percentage points on a rolling four quarter basis over the same period last year and strong results for the current quarter.
  • U.S. operations experienced solid demand this quarter for all major crop inputs and benefited from higher sales of proprietary products. This resulted in a $35-million increase in our U.S. EBITDA. Our Canadian operations achieved a slightly higher EBITDA over the second quarter of last year, as lower general and administrative expenses more than offset a slight reduction in gross profit.
  • Internationally, South American EBITDA increased by $7-million due to strong crop protection gross profit and lower general and administrative expenses, while Australian EBITDA was down $9-million compared to the prior year, primarily due to lower fertilizer volumes in the region.
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) 2016   2015   Change  2016   2015   Change  2016   2015  
Crop nutrients 2,190   2,608   (418 )433   454   (21 )20   17  
Crop protection products 2,250   2,169   81  471   457   14  21   21  
Seed 926   982   (56 )181   164   17  20   17  
Merchandise 162   174   (12 )28   27   1  17   16  
Services and other 263   227   36  166   162   4  63   71  

Crop nutrients

  • Total crop nutrient sales were 16 percent lower this quarter compared to the same period last year due primarily to significantly lower prices across all nutrients.
  • Total crop nutrient volumes were slightly lower this quarter, compared to the same period last year, primarily as a result of the early spring in the U.S., which resulted in strong volumes in the first quarter. Year to date, nutrient sales volumes are 3 percent higher in the U.S. compared to the prior year. In Canada, second quarter nutrient sales volumes were up 5 percent compared to the same period last year. However, they were down 3 percent when compared to the first six months of the year, after a slow first quarter and a large increase in pulse crop acreage this year which requires less nitrogen fertilizer. In South America, nutrient volumes were up 26 percent during the quarter and 19 percent for the first six months of the year due to an improved political environment in Argentina which is supportive of the agricultural industry.
  • Total crop nutrient gross profit was lower by 5 percent this quarter due to a slight reduction in per tonne nutrient margins this year and to an early start to the spring season which shifted volumes into the first quarter. North American nutrient margin per tonne was similar to last year, despite average nutrient selling prices being 16 percent lower this year. As a result, gross profit as a percentage of sales rose to 20 percent this quarter, compared to 17 percent in the second quarter of 2015.

Crop protection products

  • Total crop protection sales were up 4 percent this quarter, and were higher in all regions as weather conditions supported crop protection applications.
  • Crop protection margins as a percentage of sales this quarter were similar to last year's levels, supported by a higher proportion of proprietary product sales this quarter.
  • Proprietary crop protection sales as a percentage of total crop protection sales this quarter increased 2 percent over the prior year.

Seed

  • Seed sales were down 6 percent this quarter compared to the same period last year, as significant seed volumes were drawn into the first quarter due to the early start to spring seeding.
  • Total seed margins as a percentage of sales this quarter increased 3 percentage points compared to the same period last year. The significant increase in margins was due to strong volumes and margins for our proprietary seed products and increased sales of treated seed. The acreage shift to corn and cotton in 2016 also resulted in higher volumes of these seeds this year, which have higher margins than other crops.

Merchandise

  • Merchandise sales decreased 7 percent compared to the same period last year primarily due to lower fuel volumes and pricing in Canada.
  • Gross profit as a percentage of sales increased 1 percent this quarter, primarily due to a reduction in the lower-margin Canadian fuel business.

Services and other

  • Sales for services and other was up 16 percent this quarter, primarily due to higher livestock marketing sales in Australia as a result of higher cattle prices.
Wholesale            
             
  Three months ended June 30,  
(millions of U.S. dollars, except where noted) 2016   2015   Change  
Sales 882   1,174   (292 )
Sales volumes (tonnes 000's) 2,736   2,644   92  
Cost of product sold 681   765   (84 )
Gross profit 201   409   (208 )
EBITDA 254   429   (175 )
Expenses 21   29   (8 )
  • Total sales were lower than the same period last year due to lower global fertilizer prices across all nutrients. Lower prices were partially offset by higher sales volumes, primarily from increased potash availability resulting from the post expansion ramp-up of production at the Vanscoy facility.
  • Lower sales were further offset by a reduction in fixed costs this quarter compared to the same period last year as a result of our ongoing cost review process.
Wholesale NPK product information  
  Three months ended June 30,  
  Nitrogen  Potash  Phosphate  
  2016   2015   Change  2016   2015   Change  2016   2015   Change  
Gross profit (U.S. dollar millions) 148   270   (122 )16   68   (52 )5   29   (24 )
Sales volumes (tonnes 000's) 1,168   1,223   (55 )697   509   188  305   290   15  
Selling price ($/tonne) 337   451   (114 )194   327   (133 )526   665   (139 )
Cost of product sold ($/tonne) 210   231   (21 )172   193   (21 )508   563   (55 )
Gross margin ($/tonne) 127   220   (93 )22   134   (112 )18   102   (84 )

Nitrogen

  • Nitrogen gross profit was down 45 percent compared to the same period last year primarily due to significantly lower global benchmark nitrogen prices, partially offset by lower cost of production.
  • Sales volumes were slightly lower than the same period last year due primarily to an extended planned outage at the Borger facility, and a strong pull of ammonia volumes in the first quarter of 2016. UAN sales volumes were also lower due to the divestiture of the West Sacramento upgrade facility at the end of 2015.
  • Realized selling prices per tonne were down 25 percent compared to the same period last year due to lower international and domestic nitrogen prices.
  • Cost of product sold per tonne was 9 percent lower than the same period last year due to lower natural gas prices.
Natural gas prices: North American indices and North American Agrium prices
  Three months ended June 30,  
(U.S. dollars per MMBtu) 2016   2015  
Overall gas cost excluding realized derivative impact 1.28   2.34  
Realized derivative impact 0.48   0.05  
Overall gas cost 1.76   2.39  
Average NYMEX 1.95   2.67  
Average AECO 0.97   2.16  

Potash

  • Potash gross profit declined 76 percent compared to the same period last year due to downward pressure on potash benchmark prices.
  • Lower selling prices were partly offset by higher sales volumes this year. Sales volumes were 37 percent higher than the same period last year, as second quarter volumes last year were impacted by the ramp-up of our Vanscoy potash facility expansion. International sales volumes were 47 percent higher than the second quarter of last year, due to Agrium's higher Canpotex allocation in 2016 and higher product availability.
  • Realized selling prices have contracted sharply over the past year, with international selling prices down 37 percent period-over-period and an even larger decline of 41 percent in North American markets.
  • Cost of product sold per tonne was 11 percent lower than the same period last year. The lower costs are predominately due to the higher production volumes associated with the ramp-up of our Vanscoy facility expansion and a weaker Canadian dollar.

Phosphate

  • Phosphate gross profit was 83 percent lower than the same period last year due predominately to lower realized selling prices. Higher sales volumes and lower cost of product sold per tonne partially offset the impact from the significant decline in prices.
  • Sales volumes were up 5 percent compared to the second quarter of 2015, as phosphate sales were slightly delayed this year.

Wholesale Other

Wholesale Other: gross profit breakdown  
  Three months ended June 30,  
(millions of U.S. dollars) 2016  2015   Change  
Ammonium sulfate 20  21   (1 )
ESN 12  14   (2 )
Product purchased for resale (1 )1   (2 )
Other 1  6   (5 )
  32  42   (10 )
  • Gross profit from Wholesale Other was 24 percent lower than the same period last year due predominately to lower realized selling prices for all Other products, partially offset by higher ammonium sulfate and ESN sales volumes.

Expenses

  • Wholesale expenses decreased by $8-million in the current quarter. This was primarily due to a reversal of a gas tariff provision in Profertil, resulting in a $21-million increase to our earnings from associates and joint ventures. This was partially offset by a $6-million loss related to our share in Canpotex's losses from the cancellation of its export terminal in British Columbia.

Other

EBITDA for our Other non-operating business unit for the second quarter of 2016 had a net expense of $5-million, compared to net earnings of $3-million for the second quarter of 2015. The variance was primarily due to a higher share-based payments expense of $7-million as a result of the movement in our share price.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the six months ended June 30, 2016 compared to December 31, 2015.

(millions of U.S. dollars, except where noted) June 30, 2016  December 31, 2015  $ Change  % Change   Explanation of the change in balance
Current assets               
 Cash and cash equivalents 307  515  (208 )(40 %) See discussion under the section "Liquidity and Capital Resources".
 Accounts receivable 3,638  2,053  1,585  77 % Sales during the spring season resulted in higher Retail trade and vendor rebates receivable.
 Income taxes receivable 95  4  91  2,275 % First half tax installments paid exceeded the first half tax provision in Canada.
 Inventories 2,605  3,314  (709 )(21 %) Inventory drawdown due to increased seasonal sales activity.
 Prepaid expenses and deposits 131  688  (557 )(81 %) Drawdown of prepaid inventory due to increased seasonal sales activity in the spring.
 Other current assets 124  144  (20 )(14 %) -
Current liabilities               
 Short-term debt 1,069  835  234  28 % Increased financing for working capital requirements.
 Accounts payable 3,830  3,919  (89 )(2 %) -
 Income taxes payable 128  82  46  56 % First half tax provision exceeds the first half tax installments paid in the U.S.
 Current portion of long-term debt 107  8  99  1,238 % Increase relates to $100-million 7.7 percent debentures due in 2017.
 Current portion of other provisions 74  85  (11 )(13 %) -
Working capital 1,692  1,789  (97 )(5 %)  

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, 2016, 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) 2016  2015  Change  
Cash provided by operating activities 438  796  (358 )
Cash used in investing activities (574 )(914 )340  
Cash used in financing activities (25 )(89 )64  
Effect of exchange rate changes on cash and cash equivalents (47 )6  (53 )
Decrease in cash and cash equivalents (208 )(201 )(7 )
Cash provided by operating activities $176-million decrease in cash resulting from greater taxes paid in the first six months of 2016 compared to 2015.
 $50-million decrease in cash due to higher interest payments made in the first half of 2016 resulting from the timing of interest paid on debt.
Cash used in investing activities Lower capital expenditures compared to the first half of 2015 due a decreased spending on our Vanscoy potash facility and Borger expansion projects.
Cash used in financing activities Lower cash used in financing as $100-million share repurchases were made in the first half of 2015.
Capital Spending and Expenditures (a)        
    Three months ended  Six months ended  
    June 30,  June 30,  
(millions of U.S. dollars) 2016  2015  2016  2015  
Retail             
  Sustaining 28  38  75  92  
  Investing 10  8  19  17  
    38  46  94  109  
  Acquisitions(b) 81  24  175  84  
  119  70  269  193  
Wholesale             
  Sustaining 102  87  151  127  
  Investing 87  206  155  501  
    189  293  306  628  
Other             
  Sustaining 1  1  2  2  
  Investing 2  1  2  1  
    3  2  4  3  
Total             
  Sustaining 131  126  228  221  
  Investing 99  215  176  519  
    230  341  404  740  
  Acquisitions(b) 81  24  175  84  
  311  365  579  824  
(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 investing capital expenditures decreased in the second quarter and first half of 2016 compared to the same periods last year due to the ramp-up of our Vanscoy potash facility in the second quarter and first half of 2015 combined with decreased spending for the Borger project.
  • Subsequent to June 30, 2016, we entered into a binding purchase agreement with Cargill AgHorizons (U.S.) to acquire 18 ag-retail locations located across the northern U.S. Corn Belt region. The acquisition is expected to close by the end of the third quarter of 2016 subject to customary closing conditions and regulatory clearances.
  • We expect Agrium's capital expenditures for the remainder of 2016 to approximate $220-million to $325-million. We also expect to require approximately $175-million to complete our previously announced acquisitions. 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-billion at June 30, 2016 is outlined in note 5 of our Summarized Notes to the Consolidated Financial Statements.
  • Our short-term debt increased by $234-million during the first half of 2016, which in turn contributed to a decrease in our unutilized short-term financing capacity to $1.8-billion at June 30, 2016.

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, 2016. Our ability to comply with these covenants has not changed since December 31, 2015.

SHARE REPURCHASES

We are allowed to purchase for cancellation, on the Toronto Stock Exchange (TSX) or New York Stock Exchange an aggregate of 6,908,450 common shares (5 percent) of our outstanding shares. Repurchases may be made under a Normal Course Issuer Bid (NCIB) approved by the TSX until February 18, 2017. The actual number of shares purchased will be at Agrium's discretion and will depend on market conditions, share prices, Agrium's cash position and other factors.

There were no shares repurchased under the NCIB for the first half of 2016 or the period from July 1, 2016 to August 3, 2016.

Shareholders can obtain a copy of the NCIB notice submitted to the TSX from Agrium without charge upon request.

OUTSTANDING SHARE DATA

Agrium had 138,175,400 common shares outstanding at July 29, 2016. At that date, the number of common shares issuable pursuant to stock options outstanding (issuable assuming full conversion, where each stock option granted can be exercised for one common share) was 937,528.

SELECTED QUARTERLY INFORMATION  
                                  
(millions of U.S. dollars, 2016   2016   2015   2015   2015   2015   2014  2014  
except per share amounts) Q2   Q1   Q4   Q3   Q2   Q1   Q4  Q3  
Sales 6,415   2,725   2,407   2,524   6,992   2,872   2,705  2,920  
Gross profit 1,525   554   900   696   1,708   584   732  665  
Net earnings from continuing operations 565   3   200   99   675   14   70  91  
Net loss from discontinued operations -   -   -   -   -   -   (19 )(41 )
Net earnings 565   3   200   99   675   14   51  50  
Earnings per share from continuing operations attributable to equity holders of Agrium:                               
  Basic and diluted 4.08   0.02   1.45   0.72   4.71   0.08   0.46  0.63  
Loss per share from discontinued operations attributable to equity holders of Agrium:                               
  Basic and diluted -   -   -   -   -   -   (0.13 )(0.28 )
Earnings per share attributable to equity holders of Agrium:                               
  Basic and diluted 4.08   0.02   1.45   0.72   4.71   0.08   0.33  0.35  
Dividends declared 122   121   121   120   125   112   112  107  
Dividends declared per share 0.875   0.875   0.875   0.875   0.875   0.780   0.780  0.750  

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 measure, its definition and why management uses the measure.

Non-IFRS financial measure  Definition  Why we use the measure and why it is useful to investors
Cash operating coverage ratio  Cash operating coverage ratio represents gross profit excluding depreciation and amortization less EBITDA, divided by gross profit 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.
Retail cash operating coverage ratio      
  Rolling four quarters ended June 30,  
(millions of U.S. dollars, except as noted) 2016   2015  
Gross profit 2,774   2,791  
Depreciation and amortization in cost of product sold 6   6  
Gross profit excluding depreciation and amortization 2,780   2,797  
EBITDA 1,116   1,016  
Operating expenses excluding depreciation and amortization 1,664   1,781  
Cash operating coverage ratio (%) 60   64  

CRITICAL ACCOUNTING ESTIMATES

We prepare our 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 2015 annual MD&A, which is contained in our 2015 Annual Report. Since the date of our 2015 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 Consolidated Financial Statements for the three and six months ended June 30, 2016 are the same as those applied in our audited annual financial statements in our 2015 Annual Report.

BUSINESS RISKS

The information presented in the "Enterprise Risk Management" section on pages 63 - 66 in our 2015 annual MD&A and under the heading "Risk Factors" on pages 23 - 34 in our Annual Information Form for the year ended December 31, 2015 has not changed materially since December 31, 2015.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2016 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 2015 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: updated 2016 annual guidance, including expectations regarding our diluted earnings per share; capital spending expectations for the remaining two quarters of 2016; expectations regarding performance of our business segments in 2016; expectations regarding completion of previously announced acquisitions; and our market outlook for the remainder of 2016, 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. 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 2016 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; and our receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the projects' approach. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in our 2015 annual MD&A and under the heading "Market Outlook" in this document, 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 Borger nitrogen expansion project and the ramp-up of production following the tie-in of our Vanscoy potash expansion project; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the U.S. including those disclosed under the heading "Risk Factors" in our Annual Information Form for the year ended December 31, 2015 and under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in respect of Forward-Looking Statements" in our 2015 annual MD&A.

The purpose of our expected diluted earnings per share guidance range is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes.

Agrium disclaims any intention or obligation to update or revise any forward-looking statements in this document as a result of new information or future events, except as may be required under applicable U.S. federal securities laws or applicable Canadian securities legislation.

OTHER

Agrium Inc. is a major 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 nine 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 fibre. Agrium retail-distribution has an unmatched network of over 1,400 facilities and over 3,800 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 2016 2nd Quarter Conference Call will be available in a listen-only mode beginning Thursday, August 4th, 2016 at 8:00 a.m. MT (10:00 a.m. ET). Please visit the following website: www.agrium.com.

AGRIUM INC.  
Consolidated Statements of Operations  
(Unaudited)  
                
    Three months ended  Six months ended  
    June 30,  June 30,  
(millions of U.S. dollars, unless otherwise stated) Notes 2016  2015  2016  2015  
          
Sales   6,415  6,992  9,140  9,864  
Cost of product sold   4,890  5,284  7,061  7,572  
Gross profit   1,525  1,708  2,079  2,292  
Expenses               
 Selling   574  585  988  1,015  
 General and administrative   62  66  117  133  
 Share-based payments   13  6  17  51  
 Earnings from associates and joint ventures   (23 )(1 )(28 )(1 )
 Other expenses (income) 4 51  26  62  (7 )
Earnings before finance costs and income taxes   848  1,026  923  1,101  
 Finance costs related to long-term debt   50  50  102  87  
 Other finance costs   20  18  38  37  
Earnings before income taxes   778  958  783  977  
 Income taxes   213  283  215  288  
Net earnings   565  675  568  689  
 Attributable to               
  Equity holders of Agrium   564  674  566  686  
  Non-controlling interest   1  1  2  3  
Net earnings   565  675  568  689  
                
Earnings per share attributable to equity holders of Agrium              
 Basic and diluted earnings per share   4.08  4.71  4.09  4.78  
 Weighted average number of shares outstanding for basic and diluted earnings per share (millions of common shares) 
138
 
143
 
138
 
143
 
See accompanying notes.  

Basis of preparation and statement of compliance

These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on August 3, 2016. 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 2015 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 2015 Annual Report.

AGRIUM INC.  
Consolidated Statements of Comprehensive Income  
(Unaudited)  
                        
            Three months ended  Six months ended  
            June 30,  June 30,  
(millions of U.S. dollars) Notes 2016  2015  2016  2015  
                        
Net earnings   565  675  568  689  
  Other comprehensive (loss) income               
    Items that are or may be reclassified to earnings               
      Cash flow hedges 3             
        Effective portion of changes in fair value   17  (4 )(6 )(20 )
        Deferred income taxes   (4 )1  3  5  
      Share of comprehensive (loss) income of associates and joint ventures  
(1
)
-
 
1
 
(5
)
      Foreign currency translation               
        (Losses) gains   (26 )57  153  (238 )
        Reclassifications to earnings   -  1  -  1  
            (14 )55  151  (257 )
    Items that will never be reclassified to earnings               
      Post-employment benefits               
        Actuarial losses   (24 )-  (24 )-  
        Deferred income taxes   7  1  7  1  
            (17 )1  (17 )1  
  Other comprehensive (loss) income   (31 )56  134  (256 )
Comprehensive income   534  731  702  433  
Attributable to               
  Equity holders of Agrium   533  730  700  431  
  Non-controlling interest   1  1  2  2  
Comprehensive income   534  731  702  433  
See accompanying notes.  
AGRIUM INC.  
Consolidated Balance Sheets  
(Unaudited)  
                     
          June 30,    December 31,  
(millions of U.S. dollars) Notes 2016  2015    2015  
Assets              
  Current assets              
    Cash and cash equivalents   307  647    515  
    Accounts receivable   3,638  3,556    2,053  
    Income taxes receivable   95  3    4  
    Inventories   2,605  2,868    3,314  
    Prepaid expenses and deposits   131  119    688  
    Other current assets   124  138    144  
        6,900  7,331    6,718  
  Property, plant and equipment   6,832  6,506    6,333  
  Intangibles   635  669    632  
  Goodwill   2,023  2,004    1,980  
  Investments in associates and joint ventures   665  603    607  
  Other assets   52  68    54  
  Deferred income tax assets   44  65    53  
      17,151  17,246    16,377  
Liabilities and shareholders' equity              
  Current liabilities              
    Short-term debt 5 1,069  681    835  
    Accounts payable   3,830  4,038    3,919  
    Income taxes payable   128  110    82  
    Current portion of long-term debt   107  1    8  
    Current portion of other provisions   74  88    85  
      5,208  4,918    4,929  
  Long-term debt   4,412  4,533    4,513  
  Post-employment benefits   162  146    124  
  Other provisions   338  329    336  
  Other liabilities   54  81    85  
  Deferred income tax liabilities   491  446    383  
      10,665  10,453    10,370  
  Shareholders' equity              
    Share capital   1,762  1,812    1,757  
    Retained earnings   5,839  5,864    5,533  
    Accumulated other comprehensive loss   (1,119 )(891 )  (1,287 )
    Equity holders of Agrium   6,482  6,785    6,003  
    Non-controlling interest   4  8    4  
    Total equity   6,486  6,793    6,007  
      17,151  17,246    16,377  
See accompanying notes.  
AGRIUM INC.  
Consolidated Statements of Cash Flows  
(Unaudited)  
                  
      Three months ended  Six months ended  
      June 30,  June 30,  
(millions of U.S. dollars) 2016  2015  2016  2015  
                  
Operating             
  Net earnings 565  675  568  689  
  Adjustments for             
    Depreciation and amortization 145  119  259  230  
    Earnings from associates and joint ventures (23 )(1 )(28 )(1 )
    Share-based payments 13  6  17  51  
    Unrealized (gain) loss on derivative financial instruments (61 )(13 )22  13  
    Unrealized foreign exchange loss (gain) 83  (51 )(41 )(10 )
    Interest income (16 )(16 )(29 )(33 )
    Finance costs 70  68  140  124  
    Income taxes 213  283  215  288  
    Other (7 )6  (1 )(19 )
  Interest received 15  16  29  33  
  Interest paid (51 )(48 )(140 )(90 )
  Income taxes (paid) received (24 )(7 )(165 )11  
  Dividends from associates and joint ventures 1  1  2  2  
  Net changes in non-cash working capital (828 )(947 )(410 )(492 )
Cash provided by operating activities 95  91  438  796  
Investing             
  Business acquisitions, net of cash acquired (81 )(24 )(175 )(84 )
  Capital expenditures (230 )(341 )(404 )(740 )
  Capitalized borrowing costs (7 )(8 )(12 )(23 )
  Purchase of investments (18 )(43 )(41 )(85 )
  Proceeds from sale of investments 46  27  64  45  
  Proceeds from sale of property, plant and equipment 6  4  10  54  
  Other (5 )6  (8 )11  
  Net changes in non-cash working capital (8 )(74 )(8 )(92 )
Cash used in investing activities (297 )(453 )(574 )(914 )
Financing             
  Short-term debt 426  422  222  (738 )
  Long-term debt issued -  -  -  1,000  
  Transaction costs on long-term debt -  -  -  (14 )
  Repayment of long-term debt (4 )(2 )(6 )(15 )
  Dividends paid (122 )(114 )(241 )(223 )
  Shares issued -  -  -  1  
  Shares repurchased -  (100 )-  (100 )
Cash provided by (used in) financing activities 300  206  (25 )(89 )
Effect of exchange rate changes on cash and cash equivalents (67 )23  (47 )6  
Increase (decrease) in cash and cash equivalents 31  (133 )(208 )(201 )
Cash and cash equivalents - beginning of period 276  780  515  848  
Cash and cash equivalents - end of period 307  647  307  647  
See accompanying notes.  
AGRIUM INC.
Consolidated 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
interest
 

Total
equity
 
December 31, 2014 144  1,821  5,502  (27 )(11 )(605 )(643 )6,680  7  6,687  
  Net earnings -  -  686  -  -  -  -  686  3  689  
  Other comprehensive income (loss), net of tax                               
    Post-employment benefits -  -  1  -  -  -  -  1  -  1  
    Other -  -  -  (15 )(5 )(236 )(256 )(256 )(1 )(257 )
  Comprehensive income (loss), net of tax -  -  687  (15 )(5 )(236 )(256 )431  2  433  
  Dividends ($1.655 per share) -  -  (237 )-  -  -  -  (237 )-  (237 )
  Non-controlling interest transactions -  -  -  -  -  -  -  -  (1 )(1 )
  Shares repurchased (1 )(12 )(88 )-  -  -  -  (100 )-  (100 )
  Share-based payment transactions -  3  -  -  -  -  -  3  -  3  
  Reclassification of cash flow hedges, net of tax -  -  -  8  -  -  8  8  -  8  
June 30, 2015 143  1,812  5,864  (34 )(16 )(841 )(891 )6,785  8  6,793  
                                    
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  
See accompanying notes.

AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the three and six months ended June 30, 2016
(millions of U.S. dollars, unless otherwise stated)
(Unaudited)

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 through the following businesses:
    • Nitrogen: Manufacturing in Alberta and Texas
    • Potash: Mining and processing in Saskatchewan
    • Phosphate: Mining and production facilities in Alberta and Idaho
    • Wholesale Other: Purchasing and reselling crop nutrient products from other suppliers to customers in the Americas and Europe; producing blended crop nutrients and Environmentally Smart Nitrogen® (ESN) polymer-coated nitrogen crop nutrients; and operations of 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,  
      2016   2015  
      Retail  Wholesale  Other (a )Total   Retail  Wholesale  Other (a )Total  
Sales - external 5,780  635  -  6,415   6,144  848  -  6,992  
   - inter-segment 11  247  (258 )-   16  326  (342 )-  
Total sales 5,791  882  (258 )6,415   6,160  1,174  (342 )6,992  
Cost of product sold 4,512  681  (303 )4,890   4,896  765  (377 )5,284  
Gross profit 1,279  201  45  1,525   1,264  409  35  1,708  
Gross profit (%) 22  23     24   21  35     24  
Expenses                          
  Selling 570  8  (4 )574   580  9  (4 )585  
  General and administrative 28  8  26  62   32  6  28  66  
  Share-based payments -  -  13  13   -  -  6  6  
  (Earnings) loss from associates and joint ventures (3 )(21 )1  (23 ) (3 )-  2  (1 )
  Other expenses 8  26  17  51   8  14  4  26  
Earnings (loss) before finance costs and income taxes 676  180  (8 )848   647  380  (1 )1,026  
  Finance costs -  -  70  70   -  -  68  68  
Earnings (loss) before income taxes 676  180  (78 )778   647  380  (69 )958  
  Depreciation and amortization 68  74  3  145   66  49  4  119  
  Finance costs -  -  70  70   -  -  68  68  
EBITDA (b) 744  254  (5 )993   713  429  3  1,145  
(a) Includes inter-segment eliminations. 
(b) EBITDA is earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. 
Segment information by business unit Six months ended June 30,  
      2016  2015  
      Retail  Wholesale  Other (a )Total  Retail  Wholesale  Other (a )Total  
Sales - external 8,058  1,082  -  9,140  8,404  1,460  -  9,864  
    - inter-segment 23  449  (472 )-  19  581  (600 )-  
Total sales 8,081  1,531  (472 )9,140  8,423  2,041  (600 )9,864  
Cost of product sold 6,400  1,177  (516 )7,061  6,788  1,398  (614 )7,572  
Gross profit 1,681  354  44  2,079  1,635  643  14  2,292  
Gross profit (%) 21  23     23  19  32     23  
Expenses                         
  Selling 980  16  (8 )988  1,003  20  (8 )1,015  
  General and administrative 50  16  51  117  58  16  59  133  
  Share-based payments -  -  17  17  -  -  51  51  
  (Earnings) loss from associates and joint ventures (7 )(22 )1  (28 )(4 )3  -  (1 )
  Other expenses (income) 5  45  12  62  (4 )(8 )5  (7 )
Earnings (loss) before finance costs and income taxes 653  299  (29 )923  582  612  (93 )1,101  
  Finance costs -  -  140  140  -  -  124  124  
Earnings (loss) before income taxes 653  299  (169 )783  582  612  (217 )977  
  Depreciation and amortization 135  118  6  259  123  99  8  230  
  Finance costs -  -  140  140  -  -  124  124  
EBITDA 788  417  (23 )1,182  705  711  (85 )1,331  
(a)Includes inter-segment eliminations.
Segment information - Retail Three months ended June 30,  
      2016    2015  
 
 
 
 
 
 
North
America
 
 
International  
 
Retail (a  
)
 
 
North
America
 
 
International  
 
Retail  
 
Sales - external 5,038  742  5,780    5,405  739  6,144  
    - inter-segment 11  -  11    16  -  16  
Total sales 5,049  742  5,791    5,421  739  6,160  
Cost of product sold 3,893  619  4,512    4,286  610  4,896  
Gross profit 1,156  123  1,279    1,135  129  1,264  
Expenses                     
  Selling 484  86  570    489  91  580  
  General and administrative 20  8  28    23  9  32  
  Earnings from associates and joint ventures (2 )(1 )(3 )  (2 )(1 )(3 )
  Other expenses (income) 16  (8 )8    15  (7 )8  
Earnings before income taxes 638  38  676    610  37  647  
  Depreciation and amortization 63  5  68    57  9  66  
EBITDA 701  43  744    667  46  713  
(a)Included within the Retail business unit is a separate Financial Services operating segment with total sales of $4-million and EBITDA of $4-million.
Segment information - Retail Six months ended June 30,  
      2016    2015  
      North
America
 International  Retail (a )  North
America
 International  Retail  
Sales - external 6,835  1,223  8,058    7,178  1,226  8,404  
    - inter-segment 23  -  23    19  -  19  
Total sales 6,858  1,223  8,081    7,197  1,226  8,423  
Cost of product sold 5,399  1,001  6,400    5,789  999  6,788  
Gross profit 1,459  222  1,681    1,408  227  1,635  
Expenses                     
  Selling 821  159  980    834  169  1,003  
  General and administrative 35  15  50    40  18  58  
  Earnings from associates and joint ventures (6 )(1 )(7 )  (3 )(1 )(4 )
  Other expenses (income) 22  (17 )5    12  (16 )(4 )
Earnings before income taxes 587  66  653    525  57  582  
  Depreciation and amortization 124  11  135    109  14  123  
EBITDA 711  77  788    634  71  705  
(a)Included within the Retail business unit is a separate Financial Services operating segment with total sales of $4-million and EBITDA of $4-million.
Segment information - Wholesale Three months ended June 30,
      2016   2015  
                Wholesale                  Wholesale     
      Nitrogen   Potash  Phosphate  Other (a )Wholesale   Nitrogen   Potash   Phosphate   Other (a )Wholesale  
Sales - external 296   85  110  144  635   415   112   118   203  848  
    - inter-segment 98   50  50  49  247   138   54   74   60  326  
Total sales 394   135  160  193  882   553   166   192   263  1,174  
Cost of product sold 246   119  155  161  681   283   98   163   221  765  
Gross profit 148   16  5  32  201   270   68   29   42  409  
Expenses                                    
  Selling 3   2  1  2  8   4   2   1   2  9  
  General and administrative 3   1  1  3  8   2   1   1   2  6  
  Earnings from associates and joint ventures -   -  -  (21 )(21 ) -   -   -   -  -  
  Other expenses (income) 16   14  (1 )(3 )26   8   6   1   (1 )14  
Earnings (loss) before income taxes 126   (1 )4  51  180   256   59   26   39  380  
  Depreciation and amortization 23   31  13  7  74   20   13   11   5  49  
EBITDA 149   30  17  58  254   276   72   37   44  429  
(a) Includes product purchased for resale, ammonium sulfate, ESN and other products.
Segment information - Wholesale Six months ended June 30,  
      2016  2015  
                  Wholesale                 Wholesale     
      Nitrogen   Potash   Phosphate   Other (a )Wholesale  Nitrogen   Potash   Phosphate   Other (a )Wholesale  
Sales - external 469   133   190   290  1,082  633   137   228   462  1,460  
    - inter-segment 175   93   100   81  449  235   96   145   105  581  
Total sales 644   226   290   371  1,531  868   233   373   567  2,041  
Cost of product sold 401   196   265   315  1,177  455   158   299   486  1,398  
Gross profit 243   30   25   56  354  413   75   74   81  643  
Expenses                                     
  Selling 7   4   2   3  16  8   3   2   7  20  
  General and administrative 7   3   2   4  16  5   3   3   5  16  
  (Earnings) loss from associates and joint ventures -   -   -   (22 )(22 )-   -   -   3  3  
  Other expenses (income) 22   20   3   -  45  6   11   13   (38 )(8 )
Earnings before income taxes 207   3   18   71  299  394   58   56   104  612  
  Depreciation and amortization 36   51   23   8  118  38   27   24   10  99  
EBITDA 243   54   41   79  417  432   85   80   114  711  
(a)Includes product purchased for resale, ammonium sulfate, ESN and other products.
Gross profit by product line Three months ended June 30,   Six months ended June 30,
    2016    2015   2016    2015  
       Cost of          Cost of         Cost of          Cost of     
       product  Gross       product  Gross      product  Gross       product  Gross  
    Sales  sold  profit    Sales  sold  profit   Sales  sold  profit    Sales  sold  profit  
Retail                                          
  Crop nutrients 2,190  1,757  433    2,608  2,154  454   3,029  2,462  567    3,519  2,939  580  
  Crop protection products 2,250  1,779  471    2,169  1,712  457   3,081  2,489  592    2,962  2,397  565  
  Seed 926  745  181    982  818  164   1,302  1,070  232    1,290  1,086  204  
  Merchandise 162  134  28    174  147  27   279  232  47    316  269  47  
  Services and other (a) 263  97  166    227  65  162   390  147  243    336  97  239  
    5,791  4,512  1,279    6,160  4,896  1,264   8,081  6,400  1,681    8,423  6,788  1,635  
Wholesale                                          
  Nitrogen 394  246  148    553  283  270   644  401  243    868  455  413  
  Potash 135  119  16    166  98  68   226  196  30    233  158  75  
  Phosphate 160  155  5    192  163  29   290  265  25    373  299  74  
  Product purchased for resale 52  53  (1 )  104  103  1   149  145  4    296  288  8  
  Ammonium sulfate, ESN and other 141  108  33    159  118  41   222  170  52    271  198  73  
    882  681  201    1,174  765  409   1,531  1,177  354    2,041  1,398  643  
Other inter-segment eliminations (258 )(303 )45    (342 )(377 )35   (472 )(516 )44    (600 )(614 )14  
Total 6,415  4,890  1,525    6,992  5,284  1,708   9,140  7,061  2,079    9,864  7,572  2,292  
                                             
Wholesale share of joint ventures                                         
  Nitrogen 40  37  3    45  39  6   65  58  7    66  61  5  
  Product purchased for resale -  -  -    12  12  -   -  -  -    38  37  1  
    40  37  3    57  51  6   65  58  7    104  98  6  
Total Wholesale including proportionate share in joint ventures
922
 
718
 
204
  
1,231
 
816
 
415
 
1,596
 
1,235
 
361
  
2,145
 
1,496
 
649
 
(a)Includes financial services products.
Selected volumes and per tonne information Three months ended June 30,  
        2016   2015  
              Cost of            Cost of     
        Sales  Selling  product      Sales  Selling  product     
        tonnes  price  sold  Margin   tonnes  price  sold  Margin  
        (000's )($/tonne )($/tonne )($/tonne ) (000's )($/tonne )($/tonne )($/tonne )
Retail                          
  Crop nutrients                          
    North America 4,133  462  361  101   4,144  550  446  104  
    International 715  390  366  24   722  454  421  33  
  Total crop nutrients 4,848  452  363  89   4,866  536  443  93  
                                 
Wholesale                          
  Nitrogen                          
    North America                          
      Ammonia 394  443         441  584        
      Urea 503  303         471  419        
      Other 271  249         311  313        
  Total nitrogen 1,168  337  210  127   1,223  451  231  220  
                                 
  Potash                          
    North America 440  219         334  371        
    International 257  152         175  243        
  Total potash 697  194  172  22   509  327  193  134  
                                 
  Phosphate 305  526  508  18   290  665  563  102  
  Product purchased for resale 192  272  277  (5 ) 282  369  367  2  
  Ammonium sulfate 114  296  120  176   96  386  164  222  
  ESN and other 260            244           
Total Wholesale 2,736  322  248  74   2,644  444  289  155  
                                 
Wholesale share of joint ventures                          
  Nitrogen 133  305  285  20   114  395  338  57  
  Product purchased for resale -  -  -  -   32  351  341  10  
    133  305  285  20   146  386  339  47  
Total Wholesale including proportionate share in joint ventures
2,869
 
322
 
251
 
71
 
2,790
 
441
 
292
 
149
 
Selected volumes and per tonne information Six months ended June 30,  
        2016   2015  
              Cost of            Cost of     
        Sales  Selling  product      Sales  Selling  product     
        tonnes  price  sold  Margin   tonnes  price  sold  Margin  
        (000's )($/tonne )($/tonne )($/tonne ) (000's )($/tonne )($/tonne )($/tonne )
Retail                          
  Crop nutrients                          
    North America 5,653  459  364  95   5,579  540  442  98  
    International 1,155  376  351  25   1,174  431  400  31  
  Total crop nutrients 6,808  445  362  83   6,753  521  435  86  
                                 
Wholesale                          
  Nitrogen                          
    North America                          
      Ammonia 624  427         616  569        
      Urea 822  316         819  420        
      Other 463  256         549  316        
  Total nitrogen 1,909  338  210  128   1,984  437  229  208  
                                 
  Potash                          
    North America 703  217         483  378        
    International 450  163         211  240        
  Total potash 1,153  196  170  26   694  336  228  108  
                                 
  Phosphate 525  553  505  48   572  652  522  130  
  Product purchased for resale 489  304  297  7   830  356  347  9  
  Ammonium sulfate 171  294  118  176   178  362  150  212  
  ESN and other 415            420           
Total Wholesale 4,662  328  252  76   4,678  436  299  137  
                                 
Wholesale share of joint ventures                          
  Nitrogen 216  301  270  31   166  399  367  32  
  Product purchased for resale -  -  -  -   117  321  309  12  
    216  301  270  31   283  367  343  24  
Total Wholesale including proportionate share in joint ventures
4,878
 
327
 
253
 
74
 
4,961
 
432
 
301
 
131
 

3. Risk Management

Commodity price risk                
                        
Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)  
    June 30,    December 31,  
    2016    2015  
       Average  Fair value       Average  Fair value  
       contract  of assets       contract  of assets  
   Notional  price (a )(liabilities )  Notional  price (a )(liabilities )
Designated as hedges                     
  AECO swaps 61  2.97  (46 )  74  2.78  (56 )
          (46 )        (56 )
(a)U.S. dollars per MMBtu.
  Fair value of assets (liabilities)  
Maturities of natural gas derivative contracts 2016  2017  2018  
Designated as hedges (11 )(17 )(18 )
Impact of change in fair value of natural gas derivative financial instruments June 30,    December 31,  
  2016    2015  
A $10-million impact to other comprehensive income requires movement in gas prices per MMBtu 0.23    0.28  
Use of derivatives to hedge exposure to natural gas market price risk          
Term (gas year - 12 months ending October 31) 2016  2017  2018  2019     
Maximum allowable (% of forecast gas requirements) 75  75  75  25  (a )
Forecast average monthly natural gas consumption (millions of MMBtu) 9  9  9  9     
Gas requirements hedged using derivatives designated as hedges (%) 25  25  21  -     
(a)Maximum monthly hedged volume may not exceed 90 percent of planned monthly requirements.

For our natural gas derivatives designated in hedging relationships, the underlying risk of the derivative contracts is identical to the hedged risk, and accordingly we have established a ratio of 1:1 for all natural gas hedges. Due to a strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of natural gas derivative contracts designated as hedges to other comprehensive income.

Currency risk

Foreign exchange derivative financial instruments outstanding (notional amounts in millions of U.S. dollars)

  June 30,  December 31,  
      2016  2015  
            Average  Fair value        Average  Fair value  
            contract  of assets        contract  of assets  
Sell/Buy Notional  Maturities  price (a )(liabilities )Notional  Maturities  price (a )(liabilities )
  Forwards                         
    USD/CAD 87  2016  1.30  -  190  2016  1.38  (1 )
    CAD/USD 1,911  2016  1.29  12  1,805  2016  1.35  45  
    USD/AUD 75  2016  1.43  5  73  2016  1.42  2  
    AUD/USD 55  2016  1.41  (3 )143  2016  1.43  (3 )
  Options                         
    USD/CAD - buy USD puts 55  2016  1.30  2  -  -  -  -  
    USD/CAD - sell USD calls 96  2016  1.40  (1 )-  -  -  -  
    USD/AUD - buy USD puts -  -  -  -  59  2016  1.38  (1 )
               15           42  
(a)Foreign currency per U.S. dollar.
      June 30,   December 31,
      2016   2015
      Fair value         Fair value      
      Level 1  Level 2   Carrying value     Level 1  Level 2   Carrying value  
Financial instruments measured at fair value on a recurring basis                        
  Cash and cash equivalents -  307   307     -  515   515  
  Accounts receivable - derivatives -  23   23     -  48   48  
  Other current financial assets - marketable securities 21  100   121     20  122   142  
  Accounts payable - derivatives -  39   39     -  29   29  
  Other financial liabilities - derivatives -  15   15     -  33   33  
Financial instruments measured at amortized cost                        
  Current portion of long-term debt                        
    Debentures -  104   100     -  -   -  
    Floating rate debt -  7   7     -  8   8  
  Long-term debt                        
    Debentures -  4,809   4,371     -  4,464   4,469  
    Fixed and floating rate debt -  41   41     -  44   44  

There have been no transfers between Level 1 and Level 2 fair value measurements in the six months ended June 30, 2016 or June 30, 2015. We do not measure any of our financial instruments using Level 3 inputs.

4. Expenses

  Three months ended  Six months ended  
Other expenses June 30,  June 30,  
  2016  2015  2016  2015  
Loss on foreign exchange and related derivatives 6  1  8  -  
Interest income (16 )(16 )(29 )(33 )
Gain on sale of assets -  -  -  (38 )
Environmental remediation and asset retirement obligations 3  -  5  9  
Bad debt expense 21  25  29  32  
Potash profit and capital tax 5  5  8  10  
Other 32  11  41  13  
  51  26  62  (7 )

5. Debt

         June 30,     December 31,  
          2016     2015  
    Maturity  Rate (%) (a )         
Short-term debt                
  Commercial paper 2016  0.94  950     632  
  Credit facilities    4.82  119     203  
          1,069     835  
(a)Weighted average rates at June 30, 2016.

Contact Information

  • FOR FURTHER INFORMATION:
    Investor/Media Relations:
    Richard Downey, Vice President, Investor & Corporate Relations
    (403) 225-7357

    Todd Coakwell, Director, Investor Relations
    (403) 225-7437

    Louis Brown, Analyst, Investor Relations
    (403) 225-7761
    Contact us at: www.agrium.com