SOURCE: Agrium Inc.

Agrium Inc.

August 10, 2017 18:49 ET

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

CALGARY, AB--(Marketwired - August 10, 2017) - In the news release, "Agrium Reports Robust 2nd Quarter Results; Delivers Record Retail 1st Half Earnings," issued Wednesday, August 9, 2017, by Agrium Inc. (TSX: AGU) (NYSE: AGU), we are advised by the company that in the "Natural gas prices" table under the first column the section "Realized derivative impact" should read "0.18" rather than "0.48" as originally issued, and the section "Overall gas cost" should read "2.52" rather than "2.82" as originally issued. Complete corrected text follows.

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

CALGARY, AB--(Marketwired - August 9, 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 to 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  0.18  0.48
Overall gas cost  2.52  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
(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  5,739   413   320   93   5,653   459   364   95  
  International  1,000   332   303   29   1,155   376   351   25  
 Total crop nutrients  6,739   401   318   83   6,808   445   362   83  
                                  
Wholesale                                 
 Nitrogen                                 
  North America                                 
   Ammonia  640   396           624   427          
   Urea  820   294           822   316          
   Other  493   230           463   256          
 Total nitrogen  1,953   311   214   97   1,909   338   210   128  
                                  
 Potash                                 
  North America  755   251           703   217          
  International  595   156           450   163          
 Total potash  1,350   209   151   58   1,153   196   170   26  
                                  
 Phosphate  567   479   452   27   525   553   505   48  
 Ammonium sulfate  199   276   115   161   171   294   118   176  
 ESN and other  918               904              
Total Wholesale  4,987   305   237   68   4,662   328   252   76  
                                  
Wholesale share of joint ventures                                 
 Nitrogen  159   439   347   92   216   301   270   31  
Total Wholesale including proportionate share in joint ventures  5,146   309   241   68   4,878   327   253   74  
                         

3. Risk Management

Commodity price risk

                            
Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)  
   June 30,   December 31,  
   2017   2016  
         Average  Fair value         Average  Fair value  
         contract  of assets         contract  of assets  
   Notional  Maturities  price (a)  (liabilities)   Notional  Maturities  price (a)  (liabilities)  
Designated as hedges                           
AECO swaps  42  2017 - 2019  2.97  (43 ) 48  2017 - 2018  2.90  (21 )
            (43 )          (21 )
                   

(a) U.S. dollars per MMBtu

              
   Fair value of assets (liabilities)  
Maturities of natural gas derivative contracts  2017   2018   2019  
AECO swaps  (16 ) (23 ) (4 )
          
     
Impact of change in fair value of natural gas derivative financial instruments June 30, December 31,
  2017 2016
A $10-million impact to other comprehensive income requires movement in gas prices per MMBtu 0.16 0.29
   

The underlying risk of the derivative contracts is identical to the hedged risk; 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,  
   2017   2016  
         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  220  2017  1.31  2   -  -  -  -  
 CAD/USD  132  2017  1.31  (1 ) 180  2017  1.34  -  
 EUR/USD  14  2017  0.91  (1 ) -  2017  0.94  -  
 USD/AUD  17  2017  1.33  -   14  2017  1.32  (1 )
 AUD/USD  46  2017  1.32  (1 ) 22  2017  1.34  1  
 CNY/AUD  16  2017  6.74  -   23  2017  7.16  -  
Options                           
 USD/CAD - buy USD puts  42  2017  1.30  1   -  -  -  -  
 USD/CAD - sell USD calls  56  2017  1.37  -   -  -  -  -  
 CAD/USD - buy USD calls  -  2017  1.33  -   -  -  -  -  
 CAD/USD - sell USD puts  -  2017  1.32  (6 ) -  -  -  -  
            (6 )          -  
                   

(a) Foreign currency per U.S. dollar

   June 30,  December 31,
   2017  2016
   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