Yara International Asa · OSL:YAR
Yara International Asa — Goldman Sachs conference 2017
56 slides from Yara International Asa's conference presentation, Mar 29, 2017
Slide 1: Yara International ASA
Yara International ASA Torgeir Kvidal, CFO Thor Giæver, IR 29 March 2017
Slide 2: Strong growth and profitability track record
Strong growth and profitability track record Average cash return on gross investment (CROGI) Average annual shareholder return of 23%1 well above the Yara CROGI target of 10% NOK/share 400 0 160 22.8% 20.9% 350 140 0 300 17.4% 17.3% 120 16.1% 14.4% 100 250 0 14.1% 14.1% 13.3%14.0% 12.6% 80 200 9.5 %
Slide 3: Steady growth in grain consumption, and pick-up in food prices
Steady growth in grain consumption, and pick-up in food prices Steady growth in grain consumption FAO food price index increase L12M Million tons Index 2,600 220 2,500 200 2,400 180 2,300 160 2,200 140 2,100 120 2,000 100 07 08 09 10 11 12 13 14 15 16E 17F Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 J
Slide 4: Projected capacity additions outside China
Projected capacity additions outside China Capacity additions, excl. China 8.0 (mill. tonnes urea1) Nigeria 0.7 Iran 1.5 5.7 Indonesia 0.7 5.3 Malaysia 0.6 Algeria 1.2 Nigeria 1.3 Russia 0.2 Egypt 0.6 Saudi Arabia 0.5 Bangladesh 0.2 Romania -1.8 3.6 Russia 1.0 3.8 3.5 Vietnam -0.2 Iran 1.9 ~3 Mt = 1
Slide 5: Higher production and logistical costs have significantly reduced Chinese urea production and exports
Higher production and logistical costs have significantly reduced Chinese urea production and exports Increasing urea pricing Chinese exports and urea price Black Sea USD/t Kilotons USD/t 450 2,400 550 430 2,200 500 410 2,000 450 390 1,800 370 400 1,600 350 350 330 1,400 300 310 1,200 290 250 1,000
Slide 6: Integrated business model creates value through scale, flexibility and value chain presence
Integrated business model creates value through scale, flexibility and value chain presence IR – March 2017 6
Slide 7: Differentiated product portfolio represents a key source of competitive edge
Differentiated product portfolio represents a key source of competitive edge Fertilizer product portfolio (2015/16 season volume) NPK blends Standard products 19% (Urea, UAN, Ammonia) 36% 24% Specialty 21% (CN, Compound NPK, Differentiated products Fertigation) (CAN, AN) IR – March 2017 7
Slide 8: Sustaining profitable growth and competitive edge within three focus areas
Sustaining profitable growth and competitive edge within three focus areas Implications of market outlook Strategic response 1 • Increased relative strength of integrated Organic growth and Shape the markets where we are business model market development present, and grow our positions • Reduced tra
Slide 9: Yara has invested for the long term in Brazil; Bunge acquisition brought critical mass
Yara has invested for the long term in Brazil; Bunge acquisition brought critical mass in distribution Volume (MM tons) 9.3 8.2 7.8 3.2 3.3 2.8 2.7 2.4 2.2 2.2 1.8 2.0 1.7 1.8 1.3 1.5 0.8 0.5 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Acquisition Acquisition Acquisition Divestment Acquisi
Slide 10: Yara Brazil today: unrivalled market presence and farmer-centric strategy
Yara Brazil today: unrivalled market presence and farmer-centric strategy Unrivalled presence: 28 sites in 11 states Farmer-centric strategy drives growth > 20,000 growers using Yara solutions Yara (offices, production, blending > 200 Yara agronomists and 600 sales and distribution of fertilizers, p
Slide 11: Crop Value Index – a key guide to our approach
Crop Value Index – a key guide to our approach What is CVI: Crop revenue High value, Low volume Fertilizer costs Double price premium for high quality 2% yield increase= +1200 USD/ha Take the position in cash crop – but not enough scale Key parameters: Quality and yield Build positions for crop with
Slide 12: Brazil: focus on premium products and solutions drives growth
Brazil: focus on premium products and solutions drives growth Brazil 2016 fertilizer deliveries Yara premium product deliveries Kilotons Kilotons 40,000 +13% 1,800 Thousands 30,000 1,600 +57% 20,000 1,400 10,000 1,200 0 1,000 Kilotons 2012 2013 2014 2015 2016 10,000 800 Thousands 8,000 +14% 600 6,00
Slide 13: The program is organized into concrete projects across the company
The program is organized into concrete projects across the company Improve safety, customer Support function Standardize processes in supply Yara Productivity responsiveness, reliability, cost, chain and finance to improve efficiency and EBITDA target1 System productivity and quality on our customer
Slide 14: Sustained improvement of $500MM EBITDA, plus cash benefits
Sustained improvement of $500MM EBITDA, plus cash benefits USD$MM, vs. 2015 baseline and 2015 prices 500 ~450 Production volume ~30% Sustained ~300 Consumption factor ~15% EBITDA ~150 ~30% Variable unit cost improvement 641 Fixed cost ~25% Sustained capex Sustained capex improvement: Target under de
Slide 15: Roll-out at Sluiskil uncovered almost 50% more improvement potential
Roll-out at Sluiskil uncovered almost 50% more improvement potential, including additional savings from ‘new’ areas Estimated potential YPS roll-out potential EBITDA CAPEX Total Contribution Fixed cost Variable cost CAPEX Total increase reduction reduction reduction IR – March 2017 15
Slide 16: …and we have good examples that the approach works
…and we have good examples that the approach works OFD HOLDING IR – March 2017 16
Slide 17: Significant on-going growth capex; returns mainly from 2018
Significant on-going growth capex; returns mainly from 2018 Capex plan1 Production growth 2015 - 20202 NOK bn 17.8 Finished products3 Ammonia 1.7 Cost&capacity improvements 23.7 Mill.tons 14.4 M&A 9.0 13.9 3.3 Committed growth 0.9 2.2 1.5 Maintenance 1.2 3.3 0.4 1.2 0.3 6.5 9.1 0.7 7.0 0.4 19.2 0.2
Slide 18: Yara growth project pipeline adds ~6 NOK earnings per share by 2020
Yara growth project pipeline adds ~6 NOK earnings per share by 2020 at current market prices Profitable growth through expansions and M&A Incremental earnings at current prices1 (NOK/share) CN/NPK expansion Porsgrunn (2H 2017) 6.0 4.6 Expand premium products NPK expansion Uusikaupunki (2H 2016)
Slide 19: Improvement Program and Growth pipeline
Improvement Program Growth pipeline Fit for the future & Meeting growing market demand at positioned for sustainable growth competitive capital expenditure Incremental earnings by 2020: Incremental earnings by 20201: Minimum NOK 10 per share ~NOK 6 per share (500 MUSD EBITDA) (~600 MUSD EBITDA) 1 At
Slide 20: Additional information
Additional information IR – March 2017 20
Slide 21: Safe operations is our first priority
Safe operations is our first priority 14.0 12.0 10.0 8.0 6.0 4.2 4.0 2.5 2.0 0.0 1) TRI: Total recordable injuries, lost time (absence from work), restricted work and medical treatment cases per one million work hours 2) OFD and Galvani included in statistics from January 2016 IR – March 2017 21
Slide 22: Summary fourth quarter
Summary fourth quarter Weaker results reflecting lower prices Strong production and deliveries Strong Industrial result Improvement program established Proposed dividend NOK 10 per share, 43% of net income IR – March 2017 22
Slide 23: Earnings per share
Earnings per share* EPS excluding currency and special items 14.56 7.41 10.59 11.23 10.51 10.22 8.52 8.17 9.58 6.37 7.97 8.26 7.62 2.65 9.14 8.04 7.03 7.74 6.74 6.69 5.66 6.18 6.40 5.62 2.65 3.97 3.46 0.23 1.58 3.00 1.66 -1.22 2013 2014 2015 2016 Annual NOK 20.67 27.59 29.38 23.25 *Average number of
Slide 24: EBITDA development
EBITDA development NOK millions 3,504 1,170 454 2,407 22 2,015 335 109 EBITDA 4Q15 Special Volume Price/Margin Energy costs Currency Other EBITDA 4Q16 items translation IR – March 2017 24
Slide 25: Strong production and deliveries
Strong production and deliveries Deliveries (kilotons) Production (kilotons)1 +9% 1,775 1,759 +11% 5,042 4,560 +12% 6,858 6,147 +17% 1,612 1,885 +13% 450 507 4Q 2015 4Q 2016 4Q 2015 4Q 2016 Ammonia Fertilizer Industrial Ammonia Finished products 1) Including share of equity-accounted investees IR –
Slide 26: Projects established with clear activity plans
Projects established with clear activity plans Project driven Integrated in the business 2016 2017 2018 2019 2020 Yara Productivity Preparation and first Roll-out Yara Production System to Continued training and sustaining System pilot production plants and terminals activities Procurement Preparati
Slide 27: Benefits are realized through improvements to core value drivers
Benefits are realized through improvements to core value drivers Value driver How we improve How we know Increase production in our existing plants by ~400 kt additional ammonia and ~700 Volume1 improving reliability kt additional finished fertilizer production by 20206 Reduce spend on consumption f
Slide 28: Sustained improvement of $500MM EBITDA, plus cash benefits
Sustained improvement of $500MM EBITDA, plus cash benefits USD$MM, vs. 2015 baseline and 2015 prices 500 ~450 ~30% Production volume Sustained ~300 ~15% Consumption factor EBITDA ~150 improve- ~30% Variable unit cost ment 641 ~25% Fixed cost 2016 2017 2018 2019 2020 Cash • Sustained capex improvemen
Slide 29: YPS roll-out plan
YPS roll-out plan Sep Dec Jan Mar May Jul Oct Dec Jan Apr Jun ‘16 ‘16 ‘17 ‘17 ‘17 ‘17 ‘17 ‘17 ‘18 ‘18 ‘18 Big site transformations Small/ medium site forum & field transformations Mining site transformations IR – March 2017 29
Slide 30: Indicative volume and energy consumption improvement targets
Indicative volume and energy consumption improvement targets Ammonia production, Finished fertilizers production, thousand tonnes thousand tonnes 6,471 ~18,7001 ~700 Production ~400 17,961 volume ~6,4001 5,755 17,348 2015 2016 2020 2015 2016 2020 Energy consumption, Mmbtu (HHV2) per tonne Ammonia Am
Slide 31: Proposed dividend NOK 10 per share
Proposed dividend NOK 10 per share Dividend and buy-backs1 per share Share of net income 15.5 64% 0.5 14.1 13.8 57% 1.1 0.8 16% 53% 6% 11.9 48% 48% 48% 47% 6% 11.0 1.9 6% 1.0 41% 12% 6% 32% 25% 7.4 30% 15.0 0.4 7% 13.0 13.0 26% 5.4 5.5 23% 51% 5.3 21% 48% 47% 7% 19% 43% 4.5 0.8 10.0 10.0 6% 4.0 1.4
Slide 32: Lower European nitrate premiums in new season
Lower European nitrate premiums in new season Nitrogen upgrading margins1 European nitrate premium2 USD/t (monthly publication prices) USD/t (quarterly Yara realized) 700 100 90 600 80 500 70 60 400 Nitrate premium 50 300 above urea 40 Value above 200 ammonia 30 Value above gas 20 100 Yara EU gas co
Slide 33: Lower commodity phosphate margins, solid compound NPK premiums
Lower commodity phosphate margins, solid compound NPK premiums Phosphate upgrading margins NPK premium over blend1 USD/t USD/t 600 700 600 500 500 400 Weighted average global premium above blend cost 400 300 Value above Nitrate premium, CIF inland Germany raw material 300 NH3, fob Black Sea *0.22 Ur
Slide 34: Natural gas cost in Europe
Natural gas cost in Europe Yara European gas & oil cost Change in spot energy cost USD/ NOK MMBtu millions 7.0 800 700 600 6.5 600 6.0 400 5.5 200 5.0 0 4.5 (200) 4.0 (400) (251) 3.5 (600) 3.0 (800) (588) (704) 2.5 (1,000) (923) 2.0 (1,200) (1,042) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 4Q15 1Q16 2Q16 3
Slide 35: Production
Production Ammonia1 Finished fertilizer & industrial products1 Kilotons Kilotons 2,500 6,000 2,000 5,000 4,000 1,500 3,000 1,000 2,000 500 1,000 0 0 2013 2014 2015 2016 2013 2014 2015 2016 Urea Nitrates NPK CN UAN SSP - based fertilizer 1) Including share of equity-accounted investees IR – March 201
Slide 36: Yara 4Q fertilizer deliveries by market and product
Yara 4Q fertilizer deliveries by market and product Kilotons 4Q15 4Q16 2,293 2,274 2,448 2,084 801 510 533 549 445 520 286 263 Europe Brazil Latin America North America Asia Africa 1,464 1,330 1,342 1,448 1,263 1,230 1,243 1,006 923 835 203 291 200 227 Compound NPK1 Blend NPK Nitrate Urea Other prod
Slide 37: Fertilizer deliveries
Fertilizer deliveries Kilotons 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2009 2010 2011 2012 2013 2014 2015 2016 Europe Outside Europe IR – March 2017 37
Slide 38: Fertilizer deliveries by product and source
Fertilizer deliveries by product and source Kilotons 1,448 1,464 1,342 1,330 1,230 1,243 1,263 1,123 1,062 1,006 291 203 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 4Q15 4Q16 Nitrate NPK compounds NPK blends Urea UAN Other Yara-produced deliveries Joint venture & third party sourced IR – March
Slide 39: YaraMila and YaraBela deliveries
YaraMila (compound NPK) and YaraBela (nitrate) deliveries Yara-produced YaraMila deliveries Yara-produced YaraBela deliveries Kilotons Kilotons 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 - 4Q12 4Q13 4Q14 4Q15 4Q16 4Q12 4Q13 4Q14 4Q15 4Q16 Outside Europe Europe
Slide 40: Strong premium product deliveries
Strong premium product deliveries Value-added fertilizer deliveries1 Value-added fertilizer deliveries1 3,500 514 3,000 2,500 370 329 318 2,000 287 281 268 242 1,500 224 CAGR 10% 1,000 122 108 81 93 500 62 56 0 4Q12 4Q13 4Q14 4Q15 4Q16 Asia Brazil Latin Africa North America excl. America Outside Eur
Slide 41: Value-added and distribution make up larger part of Yara's contribution
Value-added and distribution make up larger part of Yara’s contribution NOK millions Total Yara contribution 11,000 10,000 9,000 8,000 7,000 Trade 6,000 5,000 4,000 Upgrade & distribution 3,000 2,000 Commodity overseas 1,000 Commodity Europe 0 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2
Slide 42: AdBlue deliveries
AdBlue deliveries Kilotons 500 450 400 350 300 250 200 150 100 50 0 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 IR – March 2017 42
Slide 43: Industrial volume development
Industrial volume development Kilotons 912 892 900 866 849 852 864 859 847 866 816 815 829 663 577 571 572 540 541 538 511 482 432 456 438 367 382 361 380 364 385 339 346 333 328 310 299 177 152 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Industrial N-chemicals Environmental pro
Slide 44: Debt/equity ratio
Debt/equity ratio Net interest-bearing debt / equity ratio (end of period) 0.22 0.20 0.17 0.17 0.16 0.15 0.14 0.13 0.13 0.12 0.12 0.11 0.08 0.08 0.07 0.06 0.06 0.06 0.06 0.06 0.05 0.02 0.01 -0.04 2011 2012 2013 2014 2015 2016 IR – March 2017 44
Slide 45: Yara stocks
Yara stocks Kilotons Finished fertilizer Bunge Fertilizer included from 3Q 2013 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Urea Nitrates Compound NPK Other IR – March 2017 45
Slide 46: Strong deliveries in Europe, slow in USA
Strong deliveries in Europe, slow in USA Million tons nitrogen Million tons nitrogen West Europe USA +7% 4.0 10.0 -10% 3.5 9.0 8.0 3.0 7.0 2.5 6.0 2.0 5.0 1.5 4.0 3.0 1.0 2.0 0.5 1.0 0.0 0.0 2H12 2H13 2H14 2H15 2H16 2H12 2H13 2H14 2H15 2H16 Domestic production Imports Domestic Production Imports Sou
Slide 47: Chinese urea production suffering from increased production costs
Chinese urea production suffering from increased production costs Chinese urea production Domestic urea balance Million tons Million tons 7.0 45 15/16 39.5 40 14/15 -12% 6.5 35 32.5 32.3 30 7.0 28.5 6.0 25 3.8 20 5.5 15 5.0 10 16/17 5 4.5 0 Export Export Domestic Domestic Production Production Jul A
Slide 48: Coal price development
Coal price development South China coal (April 2017 contract, ($/mt) China anthracite and urea prices January 2017 (RMB/mt) Source: Ice, China Fertilizer Market Weekly IR – March 2017 48
Slide 49: Reported utilization rates
Reported utilization rates Source: China Fertilizer Market Weekly IR – March 2017 49
Slide 50: European producers' nitrate stocks
European producers’ nitrate stocks Index June 2007 = 1 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 16/17 12/13 13/14 14/15 15/16 Source: Fertilizers Europe, Yara estimate for December IR – March 2017 50
Slide 51: Energy cost
Energy cost Yearly averages 2009 – 2014, quarterly averages for 2015-16 with forward prices* for 1Q17 and 2Q17. 11.0 11.4 10.7 10.5 9.1 9.2 9.4 7.6 7.6 7.5 8.1 7.0 6.6 6.5 6.6 8.2 8.0 8.0 7.0 6.2 6.6 6.8 5.3 6.9 5.7 6.5 5.0 4.6 4.9 5.9 5.4 4.7 5.7 5.7 5.4 5.3 5.2 4.2 5.4 5.2 4.8 4.2 4.4 4.3 4.4 4.4
Slide 52: Balanced grain market forecasted for this season
Balanced grain market forecasted for this season, stable stock-to- use ratio, despite a record crop Grain consumption and production Days of consumption in stocks Million tons Days 2,600 95 2,550 90 2,500 2,450 85 2,400 2,350 80 2,300 75 2,250 2,200 70 2,150 2,100 65 2,050 60 2,000 1,950 55 07 08 09
Slide 53: Non-commercials' net long position in corn
Non-commercials’ net long position in corn Thousand contracts 500 400 300 200 100 0 -100 -200 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: US Commodity Futures Trading Commission IR – March 2017 53
Slide 54: Weak grain production economics, affecting particularly P and K demand
Weak grain production economics, affecting particularly P and K demand Index FAO price index 300 250 200 150 100 50 0 1/2006 1/2007 1/2008 1/2009 1/2010 1/2011 1/2012 1/2013 1/2014 1/2015 1/2016 Cereals Price Index Cereals 5 year avg. Food Price Index Food 5 year avg. Source: FAO IR – March 2017 54
Slide 55: Key value drivers – quarterly averages
Key value drivers – quarterly averages TTF day ahead (USD/MMBtu) Urea prilled fob Black Sea (USD/t)/Urea CAN cif Germany (USD/t) granular fob Egypt (dotted line, USD/t) 5.5 5.4 4.1 4.3 4.2 250 270 233 233 255 249 207 198 208 183 193 206 197 184 166 4Q15 1Q16 2Q16 3Q16 4Q16 4Q15 1Q16 2Q16 3Q16 4Q16 4
Slide 56: 10-year fertilizer prices – monthly averages
10-year fertilizer prices – monthly averages USD/t Ammonia fob Black Sea USD/t CAN cif Germany 1,000 500 800 400 600 300 400 200 200 100 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 USD/t Urea prilled fob Black Sea/Urea granular fob Egypt US