Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (December 2010)
48 slides from Yara International Asa's investor day presentation, Dec 7, 2010
Slide 1: Capital Markets Day 2010
Capital Markets Day 2010 7 December
Slide 2: Global food supply challenges and tight food markets
During 2007 and early 2008 global food supply challenges got a lot of media attention as strong t global l b l economici growth th and d accelerating l ti diet di t improvements i t in i emerging i countries ti boosted food demand. The situation was topped with the increase in biofuel production fol
Slide 3: Global wheat and corn balances have tightened
The global wheat balance has tightened considerably with global production dropping 6% The global corn balance has also tightened as global production only increased 0.7% while hil consumption ti i estimated is ti t d to t increase i 2% Two-third 2%. T thi d off the th production d ti d drop i is wh
Slide 4: Strong agricultural demand and fertilizer price relationship
Global demand for agricultural products has remained strong throughout the last years’ There is a strong relationship between the prices of major agricultural products and economici slow-down. l d Th continued The ti d strong t grain i demand d d has h over the th previous i t two f tili fertilizer
Slide 5: Year to date NPK and Industrial sales growth
Year to date NPK sales increased 5% with European volumes up 29% from last year. Yara’s sales to non-fertilizer applications have grown 8% on average over the last eight In 2010, Yara production has been running close to full capacity while during 2009 Yara years. The Th strongest t t growth th has
Slide 6: Debt/equity ratio decline and food security contribution
Yara’s debt/equity-ratio has declined sharply after 2008 due to reduced working capital as According to the FAO, world food production must rise 70% by 2050 to cope with i inventories t i were brought b ht down d t optimal to ti l levels, l l improved i d earnings i and d the th profitable fit bl es
Slide 7: Fertilizers, greenhouse gas emissions and sustainability
Production, transportation and use of mineral fertilizers contribute directly and indirectly to The cooperation started in 2009 as Yara and PepsiCo-Tropicana met to discuss citrus emissions i i off greenhouse h gases. At the th same time,ti f tili fertilizers enhance h agricultural i lt l sustainabi
Slide 8: Basis for Yara's growth ambitions
The basis for Yara’s growth ambitions is that: Yara is constantly looking for investment opportunities creating value either through • We have delivered strong earnings through the cycle attractive tt ti entry t costt and/or d/ attractive tt ti cashh flow. fl Th price The i will ill eventually t ll
Slide 9: Strategy defined for global growth opportunities
A global business model gives Yara potential growth opportunities in many regions, Based on our legacy and how we see the world developing, a strategy has been defined opportunities t iti which hi h will ill compete t for f realization li ti b based d on relative l ti synergies, i d degree off b the
Slide 10: Fragmented nitrogen industry offers consolidation opportunities
The nitrogen industry is fragmented, giving consolidation opportunities. Yara will continue t take to t k advantage d t off its it global l b l presence and d number b one position iti in i the th nitrogen it i d t industry to take a major role in this consolidation. 17 18
Slide 11: Nitrogen supply and demand curves are steep
Both the supply and the demand curve for nitrogen fertilizer are relatively steep. The Since second quarter 2010, both nitrogen and phosphate prices have moved up sharply, d demand d curve is i inelastic i l ti because b th need the d for f food f d isi fundamental. f d t l The Th supply l curve is
Slide 12: Agricultural commodity prices have increased substantially
Most agricultural commodity prices have increased substantially over the last few Not only have spot prices increased, but also the forward prices for several seasons months. th ahead are well above historic average. average Grains and oilseed prices have not reached the peak in 2008, but are higher
Slide 13: Falling global grain stocks and fertilizer application optimum
Due to continued above-trend consumption growth, the expected drop in production of Higher output prices increase the optimum level of fertilizer application. This example is 2 4% mainly 2.4% i l in i FSU, FSU has h led l d to t a sharp h reduction d ti off global l b l grain i stocks. t k Particula
Slide 14: Nitrogen consumption trend growth and demand response
Trend growth for nitrogen fertilizer consumption is currently 2% per year. But the variation The demand response to the improved agricultural conditions has already started, as f from year to t year is i substantial. b t ti l For F the th short h t term t b l balance d developments, l t this thi var
Slide 15: Fertilizer use and agricultural output correlation; China urea
There is naturally a positive correlation between fertilizer use and agricultural output. Of Urea production in China has declined since July/August due to several factors, of which th four the f years with ith the th strongest t t nitrogen it consumption ti growth, th only l one year did nott hi h
Slide 16: Chinese urea supply and export cost drivers
Declining production combined with stronger exports has led to a 20% drop in domestic The Chinese nitrogen fertilizer industry is very fragmented, and the cost structure is not supply l during d i theth first fi t third thi d off this thi season. t transparent. t It is i hard h d to t give i any exp
Slide 17: Delayed new capacity and urea curtailments
During the downturn in 2009, the swing urea producers outside China were mainly in New capacity continues to be delayed. Two new plants in Pakistan may be ready to E Europe. El Elsewhere, h th there were hardly h dl any market k t related l t d urea curtailments. t il t produce, d b t there but th a
Slide 18: European nitrate capacity decline and price levels
With the exception of some plants dedicated to industrial applications, new nitrate plants Even the sharp drop in demand following the financial crisis did not bring prices back to are nott constructed t t d ini Europe E or elsewhere. l h hi t i lower historic l l levels, l due d to t curtailed t il
Slide 19: Phosphate capacity additions outside China
Outside China, additional capacity has been modest over the last three years. Some As capacity outside China is running at full speed, and is not sufficient to satisfy demand, producers d are also l struggling t li to t source rock k to t the th existing i ti capacity. it additional Chinese exports
Slide 20: Phosphate value chain returning good value
All legs of the phosphate value chain are currently returning good value. • Phosphate rock prices are three times their historic average before 2007 • Phosphoric acid producers are making good margins based on purchased rock • DAP producers are making good margins based on purchased acid For Yara th
Slide 21: Yara Downstream business model and focus
The set up of Yara Downstream’s business model and our focus is based on Yara’s Global trends in agriculture and the fertilizer industry have implications for Yara generall view i on the th fertilizer f tili market. k t D Downstream’s t ’ business b i model d l and d focus f areas. Yara Y i wellll p
Slide 22: Downstream fertilizer demand and sales improvement
Yara Downstream supplies low emission fertilizers for a sustainable, intensive Global fertilizer demand improved from the 2008/09 season to 2009/10 and Yara’s agriculture i lt which hi h enables bl efficient ffi i t land l d use and d thus th preserves biodiversity. bi di it WeW f tili fertilizer sa
Slide 23: Downstream cost reductions and working capital
Downstream’s sales, general and administration costs have year to date been reduced During the financial crisis of 2008/09 the industry’s nitrate stocks grew to historically high 10% The 10%. Th decrease d i mainly is i l due d to t efficiency ffi i i improvements t in i Yara’s Y ’ regional i l busi
Slide 24: Nitrate efficiency versus urea; Yara NPK products
Nitrate is a more efficient fertilizer than urea. While ammonium and nitrate are readily Yara NPKs (YaraMilaTM) are designed for a balanced nutrition of crops. Many of them available il bl to t plants, l t urea needsd tot be b transformed t f d in i the th soilil first fi t to t ammonium i andd then
Slide 25: Brazil business model and Tanzania terminal
The Brazilian market has traditionally been considered a blend market and all major Yara is investing in an import terminal for fertilizer in Dar es Salaam, Tanzania, as part of di t ib t distributors t d today workk primarily i il with ith blends. bl d Before B f 2010 Yara’s 2010, Y ’ business b i
Slide 26: Doubling food production by 2050 and R&D projects
The world may need to double food production by 2050 to meet demand from a growing One ongoing R&D project is fertilization of algae for biofuel production. andd more prosperous population. l ti Th fulfillment The f lfill t off this thi need d should h ld be b sustainable t i bl taking t ki climate,
Slide 27: Water availability and fertigation
Water availability is the main constraint on agricultural production in many important Transpiration makes up only 15% of the total water use, but it is the fraction that is directly growing i areas. related l t d to t growth, th and d therefore th f it is i the th „productive d ti water“. t “ The T
Slide 28: Downstream building on market and product position
Yara Downstream will in the coming years build on its unique market and product position t become to b even better b tt att serving i existing i ti andd new customers. t 53 54
Slide 29: Yara Industrial reorganized into five business units
Yara Industrial has recently been re-organized in five business units. The re-organization Chemicals is the largest business unit in Industrial, delivering special grade urea, reflects fl t the th segment’st’ ambition biti t grow the to th business b i globally l b ll using i a strong t E European a
Slide 30: Industrial core products and total service provider concept
The core products for Industrial are urea, ammonia and nitric acid. These products often Industrial creates value in its markets using the well-established production base of Yara representt a key k element l t in i the th manufacturing f t i chain h i off the th processing i i d t industry, where h
Slide 31: Industrial growth and environmental legislation opportunities
Industrial’s growth during the past five years has vastly outpaced world GPD growth and Environmental legislation (mainly to control emissions) provides opportunities for margins i h have also l outpaced t d volume l growth th in i theth same period. i d Industrial I d t i l activities ti iti I d t
Slide 32: NOx emission reductions and Industrial growth pace
The European Environment Agency (EEA) states in its latest report published in August The pace of growth in nitrogen chemicals for Industrial applications is almost double that 2009 that th t between b t 1990 and d 2007, 2007 NOx emissions i i h have b been reduced d d by b 36% in i EU-27. EU 27 off
Slide 33: Multiple applications for simple molecules
Europe continues to be the core market for Industrial, where Yara is the clear market Developing multiple applications for simple molecules is a hallmark of Industrial’s l d leader. H However, th future the f t growth th off the th business b i i global. is l b l Already, Al d the th USA is i b i bu
Slide 34: NOx abatement and AdBlue environmental solutions
NOx emissions producing smog are toxic and legislators tackle the air quality issue by The ‘Environmental Solution Automotive’ business is deeply integrated into the customer i imposing i NOx emission i i limits. li it Yara Y was att the th forefront f f t when h we createdt d a new product d t valu
Slide 35: Industrial growth based on innovation
Industrial growth is based on innovation that meets the needs of the market. The segment h grown over the has th years with ith the th supportt off Yara’s Y ’ assett base, b th t brings that bi b th reliability both li bilit and quality of service to the client. Future profitable growth will still r
Slide 36: CROGI performance measure and special items
Yara uses CROGI (Cash Return On Gross Investment) to measure the performance of its Some companies have been criticized for adjusting results with “special items” and b i business. Th goall is The i tot maintain i t i a CROGI att or above b 10% as an average over the th th b showing thereby h i b tt
Slide 37: Debt/equity ratio and cash return policy
Yara’s debt/equity-ratio peaked at 0.82 at the end of 2008 following the Saskferco Yara’s cash return policy stays firm. Yara expects to return 40–45% of net income to its acquisition i iti andd higher hi h operating ti capital it l due d tot increased i d inventories i t i following f ll i the th l
Slide 38: Fertilizer peer profitability 2004-2008
Several large fertilizer companies delivered strong earnings in 2004-2007, a period when During the strongly demand-driven fertilizer markets through most of 2008, Yara and all th global the l b l fertilizer f tili markets k t could ld be b characterized h t i d as partly tl supply-driven l di andd
Slide 39: Peer profitability 4Q08-4Q09
During the period from fourth quarter 2008 until end of 2009 the global fertilizer markets Yara in total shows a lower profitability than most peers in 4Q08-4Q09. The lower were temporarily t il over-supplied, li d with ith a decline d li i fertilizer in f tili consumption ti andd negative ti profit
Slide 40: Earnings sensitivities and Downstream support of Upstream
Yara Downstream is a profitable business in itself, but also supports Yara Upstream The basis for the nitrogen sensitivity is our nitrogen capacity expressed in urea which hi h would ld nott be b able bl to t show h it reported its t d profitability fit bilit over time ti without ith t the th suppor
Slide 41: Scenario assumptions and China urea exports
The scenarios presented are not predictions of Yara’s earnings development. They are China has over the last years been one of the biggest urea exporters globally, exporting 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 3 3
Slide 42: European energy contracts and Chinese coal prices
Cal prices in China have showed a long-term upward trend with increased focus on Since 2006, we have worked actively to convert our European energy contracts away energy savings, i safety f t andd emission i i reductions. d ti H However, th latest the l t t increase i i in f from t diti traditional
Slide 43: Nitrate premium and NPK margin assumptions
Nitrate fertilizers achieve a premium over the urea price adjusted for nitrogen content due The drop in volumes, phosphate upgrading margin and negative position effects t their to th i agronomic i efficiency. ffi i A farmer f will ill secure greater t yields i ld and d economici returns t b by subs
Slide 44: Urea price scenarios: 5-year average, Chinese swing, demand-driven
The “5-year average” scenario assumes fertilizer prices, energy prices and currency rates The last 3-4 years, the urea price has been volatile but with the lows at a higher level than equall to t the th average over the th last l t five fi years. th lows the l experienced i d previous i years. The s
Slide 45: Urea price development and scenario basis
Since bottoming out in June 2010 at USD 220/t, the urea price has increased The resulting cash flows and earnings in the various scenarios exclude special items substantially b t ti ll tot USD 380/t reflecting fl ti a demand-driven d ddi nitrogen it market. k t lik foreign like f i exchange h effect
Slide 46: Updated swing scenario versus last year's
A swing scenario was also presented at last year’s Capital Markets Day giving an A demand-driven scenario would typically be triggered by tight markets for agricultural EBITDA off NOK 9,000 9 000 million illi and d NOK 15 EPS. EPS The Th updated d t d swing i scenarioi gives i an products. d t Yara’
Slide 47: Tight global markets for Yara's main products
The global markets for Yara’s main products are tight. The global nitrogen fertilizer industry outside id China Chi i today is d running i at full f ll capacity i except for f technical h i l limitations. li i i Wi h a With substantial increase in demand, global nitrogen fertilizer prices will be se
Slide 48: Summary: leading nitrogen fertilizer company and growth platform
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 t continue to ti t deliver to d li strong t results and profitable growth. The world is facing increased challenges to feed a growing and pros