Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (November 2013)
47 slides from Yara International Asa's investor day presentation, Nov 26, 2013
Slide 1: Capital Markets Day 2013
0 Capital Markets Day 2013 26 November 2013 IR – Date: 2013-11-26
Slide 2: Content
Content e Track record and strategy e Commodity market focus « Downstream focus e Supply & Trade focus e Upstream focus e Financial performance & scenarios ome monies Track record and strategy J@rgen Ole Haslestad, President & CEO 2
Slide 3: Strong safety culture and the safe by choice framework
A strong safety culture is a prerequisite for a strong performing company. Yara works hard to The «safe by choice» framework is a long-term way of working to achieve a sustainable develop sound attitudes and promote safety awareness at all levels in the organization. This work improvement in safety
Slide 4: Responding to global trend developments
Responding to global trend developments and adapting the Yara business and product offering The above statements explain briefly what Creating Impact is all about – bringing together our accordingly is key to sustainable value creation. ambitions for our business, our customers and society at large
Slide 5: Working with the value chain to create pull for products
Although Yara is selling primarily to distributors, we are working actively with stakeholders further out in the value chain to create a pull for our products and solutions. By assisting food companies in developing concepts that improve quality and yield for their contract farmers, we are able to r
Slide 6: CROGI and reliability investments
With the exception of 2009, Yara has consistently delivered a CROGI (cash return on gross In recent years, Yara has increased the level of reliability investments, resulting in a investment) close to or above 15%. significant improvement in production. Altough weaker urea prices in 2012 and 2013 hav
Slide 7: Developing NPK markets outside Europe
Yara has worked actively the last years to develop markets outside of Europe for our high quality The share of the contribution generated by European and overseas commodity business has NPK products. By identifying crop niches, typically fruits and vegetables growers in Asia or Latin decreased over
Slide 8: Target of 8 million ton sales increase
As previously communicated, Yara sees profitable market opportunities to target an 8 million ton By acquiring the Abocol Group, Yara will secure a value-added nitrogen production company increase in own-produced and joint venture product sales. Yara has made significant progress situated in Latin Am
Slide 9: Burrup ammonium nitrate plant joint venture
Yara, Orica and Apache are together building a 330,000 metric tons ammonium nitrate (TAN) plant on the Burrup peninsula and distribute ammonium nitrate and other explosives products to mining customers in the Pilbara region. The joint venture is owned 45% by Yara, 45% by Orica and 10% by Apache. Con
Slide 10: 8 million ton increase in own-produced and JV sales
As previously communicated, Yara sees profitable market opportunities to target an 8 million ton increase in own-produced and joint venture product sales. Yara has made significant progress towards this target during 2012 and 2013. 17 18
Slide 11: Grain and fertilizer demand prospects
The trend growth for global grain consumption is 2% per year. Unless further depletion of already Apparent urea consumption ex. China increased by 3.4% in 2012, slightly above the 10 year low stocks, production need to set new records going forward. annual growth rate at 3.0% Demand prospects for fe
Slide 12: Global urea supply and trade
Global trade of urea has continued strongly into 2013, with a significant increase during first half of the year. A significant increase in export supply is still coming from China, but the largest single The majority of the increase in global urea supply in 2012 came out of China. contributor is Qa
Slide 13: Indian urea production and new capacity
Since the increase in production to 22 million tons in 2011, Indian urea production has been According to Fertecon estimates, quite a lot of new capacity is scheduled for completion during stable. 2015 and 2016. Consumption has continued to develop strongly, increasing the need for imports. India is
Slide 14: China as swing supplier of urea
Over the last few years, China has been the major swing supplier to the world market. So Urea production in China has still been gaining year on year, but has recently slowed. Capacity is domestic urea prices in China, plus the restrictions in place for exports, correlate strongly with increasing, b
Slide 15: China export price scenario
This scenario is based on a domestic price ex. works at RMB 1,650/mt in main export provinces, like Shanxi and Shandong. A cost of RMB 200/mt is added to cover transport, bagging operations, port costs etc. At the moment, market followers are expecting a RMB 50/t tax in the low tax period (July thro
Slide 16: Downstream safety, productivity and working capital
Safe by choice promotes a clear and consistent focus on safety at all levels in the organization. Maintaining a competitive cost structure remains an important objective for Downstream. For Downstream the target is zero accidents and to ensure that all incidents and hazardous Increased sales volumes
Slide 17: Differentiated and specialty products portfolio
Currently more than 50% of Yara’s portfolio consist of differentiated and specialty products. Pure Yara’s offers a complete portfolio of fertilizer products to optimize quality and yields for a range of urea accounts for approximately 25% of sales volume. Yara combines leading marketing, crops. A ke
Slide 18: YaraVita and ZIM Plant Technology
YaraVita is Yara’s micro nutrient/foliar specialty range, a business acquired in 2006 enabling Yara The German water sensor company ZIM Plant Technology sells the most advanced and reliable to offer a complete plant nutrition portfolio. Revenues have increased with a compound average crop water sens
Slide 19: Procote and Brazil agriculture potential
Procote is a technique for application of a micronutrient coating to standard fertilizer, achieving: Brazil has an unique combination of land, water, climate and stable economic growth. - Greater uniformity in Micronutrient distribution According to a 2010 FAO-OECD report, agriculture in Brazil is e
Slide 20: Brazil agricultural technology and production
The scale and use of technology in agriculture in Brazil is world-class. Over the last 25 years, Brazil has emerged as a major agricultural producer and exporter, with grain production rising 143% percent between 1992 and 2011. Economic stability, government investments in infrastructure, agricultur
Slide 21: Brazil fertilizer consumption
The main planting and application for soy and corn is during third/fourth quarter which makes up Brazil is the 4th largest fertilizer consumer in the world, representing 6% of world demand and ~45% of fertilizer consumption. Sugarcane takes 16-17% of fertilizer consumption and is important expected
Slide 22: Brazil import market and Bunge Fertilizer acquisition
Brazil is an import market for fertilizer, requiring approximately 78% of nitrogen, 50% of With the acquisition of Bunge Fertilizer, Yara takes over 22 blending units, two SSP production phosphate and 90% of potash to be imported. units, approximately 1,300 employees, 100 sales representatives and 5
Slide 23: Bunge Fertilizer integration and synergies
The integration of Bunge Fertilizer and Yara Brazil is well underway, with the legal merge already The Bunge Fertilizer acquisition will also increase Yara’s Brazilian footprint for value-added completed as of 1 November, and operations fully merged by year end. Minimum annual product sales. Low cos
Slide 24: Becoming a fully integrated player in Brazil
The acquisition of Bunge Fertilizer is a first step to becoming a fully integrated player in Brazil. By acquiring the Abocol Group, Yara will secure a value-added nitrogen production company situated in Latin America, in addition to several distribution assets which will increase Yara’s market prese
Slide 25: Abocol Group in Latin America
The Abocol Group controls NPK blending and storage capacities in various Latin American The main production site is in Cartagena, Colombia with nitrate-based NPK, calcium nitrate AN- markets. solution. The transaction will give Yara a strong foothold and growth platform in Latin America, which is co
Slide 26: Transaction rationale; Downstream focus and priorities
Transaction rationale e Secure value-added fertilizer production facility in Latin America with NPK, CN and nitrate capacity e Strong foothold in attractive and growing Latin American cash-crop focused fertilizer markets e Platform for further growth in the region, complementary to strong position i
Slide 27: Supply & Trade role in Yara
Supply & Trade plays an important role in Yara as it is responsible for optimizing the sourcing of all the key input factors into Yara’s global production and downstream systems. In addition, the Supply & Trade organization is responsible for a sizable trading activity. Yara is the biggest industria
Slide 28: Ammonia footprint and flexibility
Yara's ammonia footprint covers the world's most important regions, Americas, Europe/Med and The flexibility of Yara’s ammonia position in Europe is significant due to: Asia. Although Yara is net long overall, we import more than 1 million tons annually into Europe to serve both own nitrate and NPK
Slide 29: Ammonia sourcing access and fleet
Although nitrate and NPK production technically does not need to be integrated with ammonia Yara is currently exploring options to replace part of its chartered ammonia fleet with new vessels, production, for a plant to have ammonia sourcing flexibility in practice, it must be in a location most lik
Slide 30: Bunge acquisition and maritime logistics scale
12/4/2013 The Bunge Fertilizer acquisition more than doubles Yara’s fertilizer shipments to the country, creating increased scale within maritime logistics, through larger shipments, trade flow optimization and other scale benefits. The optimization and synergy harvest linked to the Bunge Fertilizer
Slide 31: Safe by choice framework and competitive advantage
The «safe by choice» framework is a long-term way of working to achieve a sustainable Yara’s global scale and technological competence represents a significant competitive advantage. improvement in safety performance. 59 60
Slide 32: Safety, reliability and cost performance
Safety, reliability and cost performance are all key to long-term competitive performance. Yara is one of the best performing companies for safety in the chemical industry. However, we are not satisfied as we believe that all accidents can be avoided. 61 62
Slide 33: Centralised safety performance and reliability investments
Centralised and standardised safety performances are a key aspect of «safe by choice». Increased reliability investments have delivered tangible results within Yara’s NPK plants in particular. 63 64
Slide 34: Capital expenditure allocation to sustainable plants
Yara’s capital expenditure allocation is targeted to plants with the most sustainable long-term Benchmarking is a key contributor to achieving continuous performance improvement asset position. 65 66
Slide 35: Global production system and benchmarking
Yara’s global production system provides significant opportunities for internal as well as external benchmarking. 67 68
Slide 36: Soaring construction cost in North America
Soaring construction cost in North America, but significant regional differences US shale gas driving re-start of industrial sites and new builds, putting pressure on the construction market. Regional differences in construction cost: '* Canada: Foreign labour restrictions and Alberta tar sand proje
Slide 37: CROGI performance measure
Yara uses CROGI (Cash Return On Gross Investment) to measure the performance of its business. The goal is to maintain a CROGI at or above 10% as an average over the business cycle. Measured on a 12-month rolling basis, CROGI remained well above 10% in 2013 and Yara’s balance sheet has strengthened s
Slide 38: Earnings scenarios and sensitivities
The scenarios presented are not predictions of Yara’s earnings development. They are The basis for the nitrogen sensitivity is Yara’s nitrogen capacity expressed in urea equivalents. what-if scenarios stating how earnings are estimated to develop under a given set of The EBITDA sensitivity reflects
Slide 39: Currency exposure revision and Chinese cost scenario
Main reasons for the currency exposure revision: The scenario based on assumed Chinese cost follows the same logic as the one presented in Yara’s 2012 Capital Markets Day, with updated assumptions for cost, logistics and tax. • Yara revenues more USD exposed, especially in a supply-driven market • S
Slide 40: 5-year average scenario assumptions
The “5-year average” scenario assumes fertilizer prices, energy prices and currency rates Average nitrate over the last 5 years is 85 USD/t. A situation with continued strong food equal to the average over the last five years. prices and supply driven urea market justifies strong nitrate premiums du
Slide 41: Scenario cash flows and earnings
The cash flows and earnings in the various scenarios exclude special items like foreign A swing scenario was also presented at last year’s Capital Markets Day giving an EBITDA exchange effects, position gains etc. of NOK 11,400 and 16,700 and EPS of NOK 20 and 35. The updated swing scenarios give an
Slide 42: Chinese urea prices and demand driven scenario
Chinese urea prices often, but not always, set the level of global urea pricing. The demand driven scenario illustrates the effect of a demand driven margin of USD 150 on top of the average price in the two swing scenarios. 81 82
Slide 43: Variable cost base and downside protection
Most of Yara’s costs are variable. Combined with the significant sourcing flexibility of Yara’s European nitrate and NPK plants, this represents a significant downside protection. 83 84
Slide 44: Payout objective for dividends and buy-backs
Yara’s Board has set the objective to pay out an average 40-45% of net income over the business cycle to shareholders in the form of dividends and share buy-backs. Within this objective, a minimum 30% of net income shall be paid in the form of dividends, while share buy-backs make up the balance. 85
Slide 45: Cash return policy; maintaining BBB credit rating
Cash return policy 40-45% of net income, minimum 30% dividend 2005 (2008 Numbers reflect cash returns executed in a calendar year relative to net income the year before. 2005 number ‘eflects buy-backs and redemptions carried out in 2004 and 2005. i 87 Maintaining BBB credit rating and ability to exe
Slide 46: Conclusions and outlook: Prospects 2014
Knowledge grows Conclusions and outlook 89 Prospects 2014 © Continued strong demand fundamentals and value-added premiums e Chinese domestic urea and coal price development likely to influence commodity nitrogen fertilizer markets. e Limited nitrogen capacity growth outside China LG Rae 20-0828 90
Slide 47: Well positioned for further profitable growth
Well positioned for further profitable growth e Increasing need for sustainable improvements in agricultural productivity e Yara's value-added products and differentiated business create impact and provide sustainable strong returns e Yara is committed to delivering sustained shareholder value, thro