Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (December 2011)
46 slides from Yara International Asa's investor day presentation, Dec 6, 2011
Slide 1: Capital Markets Day
Capital Markets Day 6 December 2011
Slide 2: Content
Content Knowledge grows e Track record and strategy e Fertilizer market attractiveness Le =, e Downstream business model af Track recor nd strategy 1 © Industrial business model Jargen Ole Haslestad, Président & CEO e Financial performance and scenarios . ] y noe mee
Slide 3: Yara influenced by megatrends of income growth, globalization and urbanization
Yara is directly and indirectly influenced by the megatrends of income growth, globalization To close the gaps that exist within resources, food and environment, we need to apply all andd urbanization. b i ti G Growth, th off economies i and d populations, l ti generates t increased i d demand d d f
Slide 4: Yara creates impact at strategic, operational and formal level
Yara creates impact at the strategic, operational and and formal level, setting a higher Yara creates impact at the strategic, operational and and formal level, setting a higher standard t d d off performance f t create to t competitive titi edge. d standard t d d off performance f t create to t com
Slide 5: Global grain consumption continues to grow steadily
Global grain consumption continues to grow steadily, while production of grains is The strong development in grain prices reflects the productivity challenge the world is struggling t li tot keep k up with ith consumption, ti even when h price i incentives i ti are att record d levels. l l f faced d
Slide 6: Recent results confirm strength of business model
Yara’s recent results confirm the strength of its business model and the value of increased A sustained strong cash flow has enabled a considerable strengthening of Yara’s balance agricultural i lt l productivity. d ti it sheet, h t giving i i us significant i ifi t flexibility fl ibilit tot manage
Slide 7: Sluiskil urea expansion was a success
The Sluiskil urea expansion was a success, delivering increased capacity targeted at the Yara’s strategy seeks to maximise long-term shareholder value by focusing on areas of environmental i t l solutions l ti b i business, i addition in dditi tot significant i ifi t efficiency ffi i i improvements
Slide 8: Yara increased sales of own-produced and joint venture volumes
Yara increased sales of own-produced and joint venture by almost 3.5 million tons from Profitable growth initiatives represent a significant share of Yara’s value generation to date. 2006 to t 2010, 2010 primarily i il as a resultlt off the th Kemira K i GrowHow G H and d Saskferco S kf acquisitions
Slide 9: Synergies in Yara's profitable growth track record
Synergies represent a significant share of Yara’s profitable growth track-record, as our We operate in a competitive investment environment, where any attractive asset is global l b l Downstream D t presence delivers d li added dd d value l and d additional dditi l growthth leads. l d normally ll co
Slide 10: Yara will pursue growth opportunities internally and externally
Yara will pursue growth opportunities both internally and externally, as productivity Yara monitors growth opportunities across all regions of the world through its unrivalled i improvements t andd brownfield b fi ld expansions i can be b att least l t as profitable fit bl as acquisitions i iti or g
Slide 11: 8 million ton increase in sales from 2010 to 2016
With profitability through synergies and well-timed execution as pre-requisites, Yara b li believes an 8 million illi t ton i increase i own-produced in d d and d joint j i t venture t product d t sales l from f 2010 to 2016 is realistic. 2 million of these tons are already executed on in execution
Slide 12: Agricultural commodity prices remain high versus historic levels
Despite the recent drop in most of the agricultural commodity prices, prices remain high The relatively small price decline for corn is even more impressive in view of the compared to historic levels, levels and the drop has so far been relatively small. small Solid demand substantial b t ti l reduc
Slide 13: 2012 grain production must exceed 2011 to avoid drawing down stocks
Assuming continued consumption growth, 2012 grain production must exceed 2011 in Fertilizer prices for all nutrients increased in 2011, but the increase compared to 2010 has order d tot avoidid drawing d i d down stocks. t k AndA d while hil stocks t k are nott att extremely t l low l l levels, l b
Slide 14: Farmer margins have expanded well in excess of fertilizer prices
Farmer margins globally have seen an expansion well in excess of the price of fertilizer 2010 saw a strong rebound in purchasing (production adjusted for net trade with China) of nutrients, t i t here h ill t t d for illustrated f wheat h t in i Europe. E nitrogen it outside t id China. Chi Th incre
Slide 15: Additional 8.1 million tons of nitrogen supply in 2010
The additional 8.1 million tons of nitrogen supply was made possible by higher utilization in Due to higher urea prices in China and a stricter export policy, 2011 urea export is areas where h production d ti ran att relatively l ti l low l rates t ini 2009, 2009 like lik Europe E i l di Ukraine. in
Slide 16: US and Western Europe nitrogen consumption up 10%
Both the US and Western Europe experienced a 10% increase in nitrogen consumption Due to the strong Chinese exports in 2010, Asia had a larger surplus than usual. No FSU d i during th 2010/11 season. Key the K regions i with ith main i application li ti d i during secondd half h lf 2011 urea was nee
Slide 17: Nitrogen apparent consumption and new urea capacity
From 2009 to 2010, a 9% increase in nitrogen apparent consumption was possible due to After the latest Fertecon Urea Update, Fertecon has postponed two of the three production spare capacity, it a few f new plants, l t andd exportt increase i f from Chi China. Th volume The l i increase li lines t c
Slide 18: Growth in Chinese urea production has slowed
The growth in Chinese urea production has slowed, with 2010 production down on 2009. The sustained increase in anthracite coal prices in China has lifted the break-even costs of S far So f in i 2011, 2011 production d ti i up a modest is d t 3% from f same periodi d last l t year. China Chi h has Ch
Slide 19: Value of phosphate rock has increased from 2010
As for nitrogen, apparent phosphate consumption has also rebounded to above trend, with The value of phosphate rock has increased from 2010, with current prices at USD200/mt 2010 global l b l rock k production d ti 16% higher hi h than th in i 2009. 2009 f b Morocco. fob M Ph Phosphoric h i acid id
Slide 20: China has increased phosphate exports in 2011
Contrary to urea, and despite stronger export restrictions on DAP/MAP exports, China has i increasedd its it phosphate h h t exportst in i 2011. 2011 Partly P tl due d t the to th very strong t global l b l phosphate h h t markets allowing continued DAP/MAP exports, but also as TSP and “Other NP’s”
Slide 21: Yara's global and European sales development over last 3 seasons
Yara’s global and European sales have seen a positive development over the last 3 seasons. In Europe, nitrogen fertilizer sales and consumption is typically stable from season to season, even as crop prices and input prices vary. However, since most of the consumption takes place from February to Ap
Slide 22: European nitrate industry has seen strong demand
The European nitrate industry has seen strong demand over the last 3 seasons, reflecting In addition to developing markets for value-added products, maintaining a competitive cost i increasing i farmer f margins. i St k levels Stock l l have h b been wellll managed, d with ith significantly i ifi tl
Slide 23: Key competitive advantage of Downstream
The key competitive advantage of Downstream lies in the combination of a reliable source The Yara Crop Nutrition concept focuses on nutritional management of the crop. off high hi h quality lit value-added l dd d products d t andd a global l b l marketing k ti organization i ti with ith unrivalled i
Slide 24: Yara Crop Nutrition working with food companies; Vietnam coffee
Previously Yara has mainly worked with distributors to communicate our Yara Crop Vietnam is today the second largest coffee exporter globally and the number 1 Robusta N t iti approach Nutrition h to t the th growers. In I some countries t i we also l workk directly di tl with ith growers. producer d
Slide 25: Local field trials show improvement using Yara Crop Nutrition
The local field trials have shown a significant improvement by using the Yara Crop Local trials have been carried in key regions in Vietnam to demonstrate the benefits of the N t iti program. There Nutrition Th i an improved is i d and d more even ripening i i taking t ki place l supporting ti Y Yar
Slide 26: PepsiCo potato quality project in Vietnam
PepsiCo’s project to improve potato quality in Vietnam is another example that illustrates Urea is the global price reference for nitrogen, and the nitrate price is therefore correlated th value-added the l dd d for f a farmer f t adopt to d t a Yara Y crop nutrition t iti program. t the to th urea
Slide 27: Trials confirm benefits of Yara NPKs and Nitrates
Trials and demonstrations in the markets confirm the benefits from using Yara NPKs and Field trials confirm the advantages of applying nitrates instead of a commodity nitrogen Y Yara Nit t Nitrates. Th higher The hi h yields i ld provided id d by b these th products d t compared d to t more traditio
Slide 28: Nitrate is a more efficient fertilizer than urea
Nitrate is a more efficient fertilizer than urea. While ammonium and nitrate are readily In 2010, together with 350 British farmers, PepsiCo launched an important initiative to cut available il bl to t plants, l t urea needs d to t be b transformed t f d in i the th soilil first fi t to t ammonium i
Slide 29: Potential in extending collaborations to other regions and crops
There is a significant potential for Yara in extending the existing collaborations to other Yara Downstream will in the coming years build on its unique market and product position regions i or crops or working ki withith other th food f d companies.i F example For l Coffee C ff represents t a t bec
Slide 30: Industrial creates value from upstream commodity products
Industrial creates value from upstream produced commodity products by providing the comfort f t off high hi h product d t quality, lit supply l reliability li bilit and d technical t h i l services. i Th These activities ti iti provide Industrial a premium over commodity pricing. The business is org
Slide 31: Yara's products in daily life; Industrial business units
Yara’s products are involved in our daily lives in so many ways. Here are just a few Chemicals is the largest business unit in Industrial, delivering special grade urea, ammonia examples, l th t also that l reflect fl t the th diversity di it off Industrial’s I d t i l’ growing i client li t base. b
Slide 32: Core products rely on Yara assets around the world
The core products and solutions we deliver rely on the Yara assets around the world. Growth in demand for nitrogen chemicals will amount to 10 MT N in the next decade. Y ’ unique Yara’s i production d ti and d distribution di t ib ti backbone b kb i a key is k assett Thi comes from This f economical
Slide 33: NOx abatement market started from zero in 2005
This market started from zero in 2005. According to our estimates and a specialized SCR is used in case where very low NOx emission limits must be reached. With emission research h agency Integer, I t thi market this k t is i to t reach h 14 million illi product d t tonnes t i 2020, in 2020 li it be
Slide 34: Power generation growth and NOx legislation
Power generation is expected to grow significantly over the next 10 years, with The first wave of legislation was introduced between 2006 and 2010 with Europe as the Chi China b i being th front the f t runner. This Thi coupled l d with ith more stringent ti t legislation l i l ti t reduce to d th t
Slide 35: Working with Petro Miljö on NOx abatement projects
Yara has been working with Petro Miljö since 2008 on common projects for clients. We share h th same commitment the it t and d understanding d t di off this thi market k t and d have h b ilt a position built iti tot bring a comprehensive non-catalytic NOx abatement solution to customers. After the a
Slide 36: CROGI used to measure business performance
Yara uses CROGI (Cash Return On Gross Investment) to measure the performance of its b i business. Th goall is The i to t maintain i t i a CROGI att or above b 10% as an average over the th business cycle. Measured on a 12-month rolling basis, CROGI remained well above 10% for 20 consecutive quarters
Slide 37: Cash return policy stays firm
Yara’s cash return policy stays firm. Yara expects to return 40–45% of net income to its Yara will use share buy-back programs when certain conditions are met. Share buy-backs shareholders h h ld measured d as the th sum off dividends di id d and d share h b b k averaged buy-backs, d over the th are
Slide 38: Business model value in commodity and value-added categories; sensitivities
Yara’s business model generates value both in the commodity and value-added category, The basis for the nitrogen sensitivity is Yara’s nitrogen capacity expressed in urea and d margins i have h expanded d d for f both b th off these th over the th pastt year. equivalents. i l t The Th sensitivities
Slide 39: Scenarios are what-if cases, not predictions
The scenarios presented are not predictions of Yara’s earnings development. They are China has supplied approximately 5% of nitrogen consumption outside China over the last what-if h t if scenarios i stating t ti h how earnings i are estimated ti t d to t develop d l under d a given i sett off 2 yea
Slide 40: Factors lifting break-even export price for Chinese producers
2 factors have lifted the break-even export price for Chinese producers over the past year: Although the supply-driven Chinese domestic urea price in first half 2011 implies a producer d cashh costt average around d RMB 1,950 1 950 per ton t and d currentt prices i are above b RMB Firstly, anthracit
Slide 41: Current Chinese domestic price implies export price; US-Europe gas spread
Based on the logic described on the previous pages, the current domestic price in China Yara’s decision to maximise spot energy exposure in Europe remains highly profitable. i li an exportt price implies i off USD 450 per ton t fob. f b F th Furthermore, th currentt spread the d between b t US and d
Slide 42: 5-year average and Chinese swing scenarios
The location of swing urea production has varied over the past decade, from the US Gulf, The “5-year average” scenario assumes fertilizer prices, energy prices and currency rates via i Ukraine Uk i andd now China. Chi H However, urea prices i h have only l been b supply-driven l di f for equall to t
Slide 43: Updated swing scenario versus last year's Capital Markets Day
The resulting cash flows and earnings in the various scenarios exclude special items A swing scenario was also presented at last year’s Capital Markets Day giving an lik foreign like f i exchange h effects, ff t position iti gains i etc. t EBITDA off NOK 9,500 9 500 million illi and d NOK 18 EPS. EP
Slide 44: Demand-driven scenario
A demand-driven scenario would represents tight markets for agricultural products. Yara’s cash h flow fl i substantially is b t ti ll higher hi h in i such h a situation. it ti 85 86
Slide 45: Global grain and fertilizer markets are tight
Global markets for grains and fertilizer are tight, with a declining grain stocks-to-use and the global l b l nitrogen i f ili fertilizer i d industry outside id China Chi runningi at full f ll capacity. i Planned new capacity outside China is limited and continues to be delayed. The price level nee
Slide 46: Why Yara is the world's leading nitrogen fertilizer company
Throughout the presentation we have demonstrated why Yara is the world’s leading nitrogen it f tili fertilizer company and d why h we are in i a position iti tot deliver d li continued ti d strong t results lt and profitable growth. The world is facing increased challenges to feed a growing and pros