Yara International ASA · OSL:YAR
Yara International ASA — Investor Day (November 2005)
40 slides from Yara International ASA's investor day presentation, Nov 30, 2005
Slide 1: Strong performance in turbulent markets
Strong performance in turbulent markets Summary from Yara Capital Markets Day 30 Nov 2005
Slide 2: Strong peer group performance
2 Strong peer group performance Gross return on assets*, percent 2003 2004 YTD 3Q 2005 Yara** 17.4 BASF 21.7 Agrium 18.6 Agrium 17.4 Yara** 21.4 Yara 17.6 BASF 16.2 Agrium 20.2 PCS 17.3 Air Products 15.2 Air Products 16.6 BASF 16.3 K+S 13.7 K+S 14.9 Dow 14.4 Kemira 12.6 PCS 14.1 Air Products 13.4 Sy
Slide 3: Competitive strength in cash flow and reduced volatility
3 Competitive strength in cash flow and reduced volatility USD millions 1,200 EBITDA 1,000 800 600 1109 1037 866 400 724 799 664 687 537 564 455 478 478 465 200 348386 396 418 351 222172 264 226212 272 274 0 2001 2002 2003 2004 L12M K+S Agrium Mosaic* PCS Yara Note: EBITDA excludes non-recurring ite
Slide 4: Leading financial performance
4 Leading financial performance 2004 revenues* 2004 net income* Market cap. Nov 15, 2005 Yara 6.4 Yara 560 Yara 5.1 Mosaic 4.7 Mosaic 108 Mosaic 5.2 PCS 3.2 PCS 299 PCS 8.9 K+S 3.2 K+S 175 K+S 2.7 Agrium 2.5 Agrium 276 Agrium 2.6 0 2 4 6 8 0 200 400 600 0 5 10 USD billion USD million USD billion * R
Slide 5: Drivers of increased demand for Yara's products
5 Drivers of increased demand for Yara’s products Fertilizer demand drivers Population growth/Reduction of hunger Economic growth – More meat consumption in developing countries – Focus on diets rich in proteins – Higher consumption of fruit and vegetables Biofuels – High energy prices increase dema
Slide 6: Grain stocks-to-use at 30-year low supporting high demand for fertilizer
6 Grain stocks-to-use at 30-year low supporting high demand for fertilizer Million tonnes Stocks 700 40% Percent 600 35% 30% 500 25% 400 20% 300 15% 200 10% 100 5% 0 0% 2006E 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Source: US Department of Agriculture (USDA), Novem
Slide 7: Increasing grain forward prices due to low inventories
7 Increasing grain forward prices due to low inventories Approximate nitrogen consumption per hectare in the United States Index 130 Corn (150 kg N/ha) 125 120 Wheat (75 kg N/ha) 115 Rice (150 kg N/ha) 110 Soybeans (30 kg N/ha) 105 100 95 90 85 80 Jun-06 Jul-06 Nov-06 Jan-06 May-06 Aug-06 Dec-05 Apr
Slide 8: Fertilizer prices above historical averages, mainly reflecting high energy prices
8 Fertilizer prices above historical averages, mainly reflecting high energy prices 10-year fertilizer prices – yearly averages until 2004 Ammonia fob Caribbean CAN cif Germany USD/tonne USD/tonne 300 200 250 150 200 150 100 100 50 50 0 0 1995 1997 1999 2001 2003 9M05 1995 1997 1999 2001 2003 9M05 U
Slide 9: New natural gas price regime in US lifts floor prices of nitrogen fertilizer
9 New natural gas price regime in US lifts “floor prices” of nitrogen fertilizer 350 300 250 Urea fob US Gulf (granular) USD/tonne 200 Cash cost 150 US Gulf* 100 50 0 1999 2000 2001 2002 2003 2004 9M05 2006 2007 * Future cash costs based on Henry Hub forward price for gas as of 9 November 2005 Sourc
Slide 10: Yara has favorable gas cost due to production in low-cost gas areas and Europe
10 Yara has favorable gas cost due to production in low-cost gas areas and Europe Yearly averages 1995 – 2004, forward prices after 3Q 2005* USD/MMBtu 12 US spot gas (Henry Hub) 10 8 European spot gas 6 (Zeebrugge Hub) 4 Yara’s global 4.2 3.2 3.5 energy cost 2 2.6 2.5 2.3 (weighted average) 0 1995 1
Slide 11: Chinese urea exports 60% below last year
11 Chinese urea exports 60% below last year 4,500 4,000 2004 3,500 3,000 2,500 kt product 2,000 2003 1,500 1,000 2005 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -500 Source: BOABC Date: 2005-11-30 Page: 11
Slide 12: No dramatic change in global capacity utilization expected next few years
12 No dramatic change in global capacity utilization expected next few years Urea capacity utilization* 100% Technical constraints, 95% imprecise data etc. ~90-95% 90% Excluding obsolete plants 85% 84% 80% 75% 70% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E 2009E * Forw
Slide 13: Yara creates value in three different ways
13 Yara creates value in three different ways EBITDA, pro forma until L12M . The Knowledge Margin USD millions Local market knowledge Deep customer relations 1,200 Agronomic and application competence 1,000 117 Differentiation and branding 104 . The Logistics Leverage 800 339 319 Scale in distributi
Slide 14: Global optimization creates value
14 The Logistics Leverage Global optimization creates value 2004 fertilizer and nitrogen chemicals volumes in million tonnes Global Marketing and Sales Product source* optimization Fertilizer Europe Yara production 13.1 9.7 Europe Latin America 3.2 Yara production 2.4 outside Europe Sourcing Busines
Slide 15: Our ammonia sources and shipping fleet cover all key markets
15 The Logistics Leverage Our ammonia sources and shipping fleet cover all key markets • Global multi-functional: producer, trader and shipping manager • Balanced regional presence • Committed sourcing and customers in all regions • Storage capacity in every region • Inter-regional trade arbitrage a
Slide 16: Our production system creates economies of scale
16 The Global Commodity Game Our production system creates economies of scale Global no 1 in NPK Global no 1 in ammonia Global no 1 in nitrates complex fertilizer Production capacity* (mill t) Production capacity (mill t) Production capacity* (mill t) 6 6 6 5.1 4.6 4.2 4 4.0 3.3 4 4 3.0 3.0 2.1 2.1
Slide 17: Increasing proportion of gas purchases in low-cost regions
17 The Global Commodity Game Increasing proportion of gas purchases* in low-cost regions 100% 90% 80% 70% Europe 60% Australia 50% Future capacity Russia growth in low- 40% cost regions Middle East 30% Caribbean 20% 10% 0% 2003 2004 2005 2006 * Equity share of joint ventures included Date: 2005-11-3
Slide 18: Good balance between Upstream and Downstream/Industrial
18 Good balance between Upstream and Downstream/Industrial EBITDA, pro forma until 2004 Downstream + Industrial Upstream USD millions USD millions 900 900 800 800 700 700 621 600 600 531 500 456 500 422 400 358 117 364 400 346 344 104 320 289 98 95 300 300 99 209 72 200 200 141 260 319 339 269 100 2
Slide 19: Downstream and Industrial assumed stable
19 Downstream and Industrial assumed stable Business • Development of margin and scale in key markets objective Model • L12M EBITDA maintained for period 2006-2009 assumptions Upsides • Improved supply-demand balance in our market segments • Organic growth • Step growth Downsides • Deteriorated supp
Slide 20: Upstream cash flow assumed supply-driven based on US swing producer costs
20 Upstream cash flow assumed supply-driven based on US swing producer costs Business • Maintain competitiveness of today’s assets and objective grow in regions with low-cost natural gas Model • Two fertilizer price scenarios 2006 – 2009 assumptions a. Inland US swing producers b. Coastal US swing p
Slide 21: Coastal plants in US Gulf vulnerable, but inland capacity remains
21 Coastal plants in US Gulf vulnerable, but inland capacity remains Urea prilled fob Black Sea: USD 182/t ~10m tonnes of US ammonia ~7.5m capacity is tonnes equivalent to ammonia ~18m tonnes of urea capacity Ammonia capacities per year: Less than 250kt 250kt to 750 kt More than 750kt ~2.5m tonnes P
Slide 22: Simplified P&Ls for scenarios
22 Simplified P&Ls for scenarios Last 12 US Gulf months 10-year price NOK millions coast Inland swing* ending 3Q history Swing* 2005 (IFRS) EBITDA 6,804 5,850 4,450 5,570 Depreciation (1,427) (1,300) (1,300) (1,300) Net finance (454) (200) (200) (200) Income before tax 4,923 4,350 2,950 4,070 Tax (1
Slide 23: Growth opportunities are many …
23 Growth opportunities are many … Organic growth Downstream fertilizer: E.g. Brazil and China Industrial: E.g. environmental products, nitrogen chemicals and CO2 Market alliances and smaller acquisitions Step growth Bolt-on acquisitions and equity shares in existing production Restructuring/consoli
Slide 24: Growth objective: 10% global market share within a business cycle
24 Growth objective: 10% global market share within a business cycle Simplicity Volume Productivity 10% market share Growth ~6% But: Financial discipline maintained Present Within a business cycle Date: 2005-11-30 Page: 24
Slide 25: Prospects 2006
25 Prospects 2006 Food and Agriculture Organization of the UN expects global grain production to decline in 2006 and be lower than consumption, leading to reduced grain inventories supporting fertilizer demand High forward price for US gas supports fertilizer prices Higher urea capacity growth in 20
Slide 26: Yara – the Industry Shaper
26 Yara – the Industry Shaper The global no. 1 fertilizer company Strong platform Market and product for leadership profitable growth Cyclicality management Profitability above peers Financial discipline Date: 2005-11-30 Page: 26
Slide 27: Additional information
YARA Additional information
Slide 28: The basis for mineral fertilizer: Energy, ammonia and natural minerals
28 The basis for mineral fertilizer: Energy, ammonia and natural minerals Nitrogen (N) from air Finished products: Ammonia Urea UAN Nitrates (CAN, AN) Natural NPK gas Specialty fertilizers Industrial products Natural minerals: Phosphorus (P) Potassium (K) Date: 2005-11-30 Page: 28
Slide 29: Yara – three business segments with strong synergies
29 Yara – three business segments with strong synergies Financials last 12 months up to Sept 2005 Downstream Distribution and ammonia-based fertilizer production Unique global distribution network Sales: USD 5.1 bn Global no. 1 in calcium nitrate and potassium EBITDA: USD 0.3 bn nitrate specialty fe
Slide 30: Unique global network, now also including production in Russia and Australia
30 Unique global network, now also including production in Russia and Australia 62 46 15 18 22 Major plant Sales office No. of plants/ “On the ground” in ~50 countries, terminals/ sales to more than 120 countries, warehouses more than 160 plants/terminals/warehouses Date: 2005-11-30 Page: 30
Slide 31: Grain prices close to historical averages
31 Grain prices close to historical averages 10-year grain/oilseed prices – yearly averages Wheat (HRW US Gulf) Rice (Thailand) USD/tonne USD/tonne 220 350 200 300 180 160 250 140 200 120 100 150 95 96 97 98 99 00 01 02 03 04 95 96 97 98 99 00 01 02 03 04 05 05 19 19 19 19 19 20 20 20 20 20 19 19 19
Slide 32: Key value drivers – 10-year history
32 Key value drivers – 10-year history Ammonia fob Caribbien (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 300 200 187 181 180 167 163 175 165 253 180 160 146 250 160 139 197 185 203 140 124 119 140 117 110 111 200 120 103 160 120 101 96 148 137 94 100 86 150 100 84 117 110 80 9
Slide 33: New capacity 2004-2009 is similar to historic consumption growth rates, except for China
33 New capacity 2004-2009 is similar to historic consumption growth rates, except for China Global urea capacity Year Driving regions growth estimate (excluding closures) World Excluding China World Ex. China 2004 2.9% 1.2% China 73% Qatar 49% Qatar 13% Indonesia 39% 2005 2.9% 2.3% China 49% Oman 45
Slide 34: Market consultants differ on future capacity expansions in China
34 Market consultants differ on future capacity expansions in China Year Chinese urea capacity growth estimate (excluding closures) Fertecon British Sulphur 2005 4.2% (2,080kt) 7.2% (3,020kt) 2006 10.7% (5,487kt) 5.4% (2,438kt) 2007 3.2% (1,827kt) 2.2% (1,050kt) 2008 9.3% (5,425kt) 3.8% (1,810kt) 20
Slide 35: Price and currency assumptions in scenarios
35 Price and currency assumptions in scenarios Last 12 US Gulf Coast US Inland months Supply-driven Supply-driven Historical Ending 3Q scenario scenario 10-year average 2005 2006-2009* 2006-2009* Ammonia fob Caribbean 265 307 252 160 (USD/t) Urea prilled fob Black Sea 218 212 182 124 (USD/t) CAN cfr
Slide 36: Yara cash distribution policy: 40 – 45% cash return over the cycle
36 Yara cash distribution policy: 40 – 45% cash return over the cycle Yara’s average profitability and return on capital is well above investors’ cost of capital Cash distribution must be balanced against opportunities for profitable growth Financial discipline will be the basis for the development
Slide 37: Yara sensitivities updated
37 Yara sensitivities updated EBITDA EBITDA EPS** USD million NOK million* NOK CAN + 10 USD/t 63.1 410 0.91 Urea + 10 USD/t 26.2 170 0.41 Ammonia + 10 USD/t 6.2 40 0.13 Oil price + 1 USD/boe (cost effect) - 15.4 - 100 - 0.22 Currency + 0.1 NOK/USD at an 6.2 110 0.27 EBITDA of USD 700 million ... of
Slide 38: Income statement Last 12 months vs. 2004
38 Income statement Last 12 months vs. 2004 Actual Pro Forma NOK millions L12M 3Q05 Year 2004 Operating revenues 45,424 43,226 Operating income 4,084 3,708 Share of net income in non-consolidated investees 1,054 768 Interest income and other financial income 239 171 Interest expense and other financ
Slide 39: Consolidated balance sheets
39 Consolidated balance sheets Actual Actual NOK millions 30 Sep 2005 30 Sep 2004 Deferred tax assets 1,605 1,145 Property, plant and equipment 7,229 7,353 Other non-current assets 4,683 3,450 Inventories 6,360 5,688 Receivables 6,947 7,158 Other current assets 1,450 1,380 Cash and cash equivalents
Slide 40: www.yara.com
40 More information can be found at … www.yara.com Date: 2005-11-30 Page: 40