Yara International Asa · OSL:YAR
Yara International Asa — Q2 2008 Earnings Presentation
60 slides from Yara International Asa's earnings presentation, Jul 15, 2008
Slide 1: Yara International ASA Second quarter 2008 results
Yara International ASA Second quarter 2008 results 15 July 2008
Slide 2: Summary second quarter 2008
1 Summary second quarter 2008 Strongest quarterly results so far Strong demand-driven fertilizer prices more than offset raw material cost increases Continued strong growth in industrial applications Saskferco acquisition strengthens North American position IR - Date: 2008-07-15
Slide 3: Net income after minority interest
2 Net income after minority interest* NOK millions 5,000 4,415 4,500 4,000 3,500 3,000 2,808 2,500 2,044 2,000 1,403 1,422 1,487 1,500 1,041 1,085 853 891 1,000 500 0 2006 2007 2008 Accumulated NOK mill 4,188 6,037 7,224 USD mill 657 1,045 1,398 * Kemira GrowHow included from 4Q 2007 IR - Date: 2008
Slide 4: Earnings per share
3 Earnings per share* NOK 16.00 15.14 14.00 12.00 9.63 10.00 8.00 7.01 6.00 4.68 4.85 5.10 3.42 3.67 4.00 2.77 3.01 2.00 0.00 2006 2007 2008 Accumulated NOK 13.86 20.60 24.77 * Average number of shares for 2Q 2008: 291.6 million (2Q 2007: 293.4 million). Kemira GrowHow included from 4Q 2007 IR - Dat
Slide 5: Earnings per share adjusted for foreign exchange gain / loss and special items
4 Earnings per share adjusted for foreign exchange gain / loss and special items* NOK 13.33 12.00 10.00 8.98 8.00 6.00 4.56 3.59 3.90 3.86 4.00 3.00 2.69 2.35 1.79 2.00 0.00 2006 2007 2008 Accumulated NOK 9.80 15.91 22.31 * After tax, Kemira GrowHow included from 4Q 2007. Average number of shares fo
Slide 6: Overall fertilizer market development during quarter
5 Overall fertilizer market development during quarter Increase in Chinese fertilizer export tax drives up prices Strong urea import demand globally, not limited to a few countries Grain prices stay strong as global grain stocks expected to remain unchanged through June 2009 Higher phosphate prices
Slide 7: Fertilizer price development during quarter
6 Fertilizer price development during quarter Strong increase in urea prices due to increased import demand, no new production capacity, and increase in the export tax from China Ammonia prices dropped close to floor, due to a small global surplus. The balance improved towards the end of the quarter
Slide 8: Grain stocks recovery slower than before
7 Grain stocks recovery slower than before Million tonnes 700 40% Stocks Percent 600 35% 30% 500 25% 400 20% 300 15% 200 10% 100 5% 0 0% 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source: USDA, July 2008 IR - Date: 200
Slide 9: Increased Chinese urea exports in 2007 went to Americas and India
8 Increased Chinese urea exports in 2007 went to Americas and India… 2007 compared with 2006 7.0 1.0 0.6 6.0 1.4 0.3 Gas 0.7 curtailment /domestic demand 0.7 5.0 Million tons urea Demand suppressed 4.2 2.0 4.0 3.0 2.1 2.0 1.0 0.0 Latin India US Rest of Rest of Egypt Saudi Indonesia China America wor
Slide 10: This year other regions are back in the market
9 …while this year other regions are back in the market 1Q08 compared with 1Q07 1.8 0.2 1.7 1.6 0.1 0.2 1.4 0.3 Million tons urea 1.2 1.0 0.4 0.8 0.7 0.3 0.6 0.4 0.2 0.0 India Iran Rest Asia Africa Oceania Rest of world Rest of world China IMPORTS EXPORTS Source: IFA Quarterly Survey of World Trade,
Slide 11: Strong increase in value of phosphate production
10 Strong increase in value of phosphate production* Value of phos.acid production Value of DAP production USD/ton USD/ton Latest: 2,000 $ 2,065 1,400 DAP price 1,800 Phos.acid 1,200 price 1,600 1,400 1,000 Value above raw materials 1,200 800 1,000 600 800 600 400 Ammonia 400 Value above raw materia
Slide 12: Chinese phosphate exports needed to cover import demand growth
11 Chinese phosphate exports needed to cover import demand growth and lower US exports 2007 compared with 2006 1.6 0.7 1.5 1.4 0.3 0.3 1.2 Million tons P2O5 1.0 0.3 1.0 0.8 0.0 0.1 0.6 0.4 0.2 0.0 Latin America West Europe South Asia East Asia Rest of world Rest of world USA China IMPORTS EXPORTS So
Slide 13: Further delays to new urea capacity
12 Further delays to new urea capacity Global urea capacity Year Driving regions growth estimate* World Excluding China World Ex. China 2007 4.5% (4.3%) 2.4% (2.5%) China 66% Egypt 51% Egypt 17% Iran 26% 2008 2.5% (4.4%) 2.4% (3.8%) China 41% Iran 53% Iran 32% Egypt 15% 2009 6.3% (4.7%) 4.5% (2.5%)
Slide 14: Yara's growth strategy remains firm
13 Yara’s growth strategy remains firm Distribution – Market Pull Consolidation in Mature Markets North America West Europe Growth Markets Brazil China India FSU Other Industrial Growth Markets Environmental and Mining Applications Low Cost Sourcing (all raw materials) Product Push Middle East North
Slide 15: Growth strategy execution well under way
14 Growth strategy execution well under way Consolidation in mature markets Kemira GrowHow Agrico Saskferco Growth in emerging markets Fertibras Deepak Olmeca Industrial growth markets TAN Burrup TAN Deepak JV Maritime deNOx JV deNOx China Low-cost sourcing Qafco 5 JV Libya Burrup Rossosh Balderton
Slide 16: Saskferco: a world-class fertilizer plant
15 Saskferco: a world-class fertilizer plant Saskferco Plant The plant fulfills three key success criteria: Access to competitively priced natural gas proximity to major supply Proximity to market products mostly sold within a ~500 mile radius from plant Production efficiencies most efficient plant
Slide 17: Saskferco: manufacturing and logistical assets
16 Saskferco: manufacturing and logistical assets Carman, MB Storage: • 80 kT urea storage warehouse SK MB Services to Manitoba, South Dakota, Eastern North Dakota MT ND SD MN IA Belle Plaine, SK Belle Plaine, SK Manufacturing: Storage: • Ammonia plant • 123 kT Warehouse for urea • Urea granulation
Slide 18: Saskferco: strong geographic fit with existing Yara activities
17 Saskferco: strong geographic fit with existing Yara activities 5.7 mill.t Saskferco Plant SK AB WA ON QC MB MT ND OR SD MN WI NY 1.8 mill.t I CA A PA MD Transport cost/ton from VA NOLA ~USD 70 A NC 1.9 mill.t R SC AL GA FL XXX = Consumption of urea and nitrogen solutions (as UAN32) in million ton
Slide 19: Earnings before interest, tax, depreciation and amortization (EBITDA)
18 Earnings before interest, tax, depreciation and amortization (EBITDA)* NOK millions 7,000 6,300 6,000 5,000 3,988 4,000 3,000 2,531 2,222 1,947 1,787 1,901 2,000 1,492 1,682 1,351 1,000 0 2006 2007 2008 Accumulated NOK mill 6,472 8,441 10,288 USD mill 1,014 1,450 1,991 * Kemira GrowHow included f
Slide 20: EBITDA and operating income by segment
19 EBITDA and operating income by segment EBITDA (NOK millions) 2Q 2008 2Q 2007* Downstream 2,885 804 Industrial 276 205 Upstream 3,165 1,202 Other and eliminations (26) 12 Yara total 6,300 2,222 Operating income (NOK millions) 2Q 2008 2Q 2007* Downstream 2,564 496 Industrial 221 158 Upstream 2,017
Slide 21: Variance analysis Yara group
20 Variance analysis Yara group Second quarter NOK millions USD millions* EBITDA 2008 6,300 1,240 EBITDA 2007 2,222 370 Variance EBITDA in NOK 4,078 Conversion (NOK vs. USD) 345 Variance EBITDA 4,423 871 Kemira GrowHow 2007 (pro forma)** 238 47 Volume & mix 17 3 Price/Margin 4,938 972 Energy arbitra
Slide 22: Special items
21 Special items EBITDA effect (NOK millions)* 2Q 2008 2Q 2007 Sale of shares SQM 440 Restructuring Kemira GrowHow (5) Downstream 435 Sale of business to Brenntag 90 Restructuring Kemira GrowHow 8 Startup Argon plant (47) Contract derivatives 24 32 Industrial 122 (16) Sale of shares China BlueChemic
Slide 23: Net interest-bearing debt
22 Net interest-bearing debt NOK millions 9,000 7,879 3,990 355 7,879 8,000 49 1,094 7,000 478 2,154 6,000 5,000 42 4,000 3,000 Net interest- Cash Dividends Net Other Yara Foreign Other Net interest- bearing debt earnings* received** operating investments dividend and exchange bearing debt Mar08 cap
Slide 24: Downstream segment
23 Downstream segment Strong results driven by improved margins European market rebound Continued NPK margin expansion Further growth for North American distribution IR - Date: 2008-07-15
Slide 25: Downstream – EBITDA
24 Downstream – EBITDA* NOK millions 3,500 3,000 2,885 2,500 2,049 2,000 1,500 1,000 804 847 724 661 518 441 490 511 500 0 2006 2007 2008 Accumulated NOK mill 1,960 3,035 4,934 USD mill 305 521 954 * Kemira GrowHow included from 4Q 2007 IR - Date: 2008-07-15
Slide 26: Downstream – fertilizer sales volume
25 Downstream – fertilizer sales volume* Europe Outside Europe Kt 6,104 6,284 6,017 6,000 2,835 2,575 3,015 5,256 5,179 4,883 4,763 5,000 4,786 4,685 2,388 2,827 4,437 2,697 2,275 2,507 2,629 1,848 4,000 3,710 3,000 3,269 2,868 3,002 2,589 2,511 2,000 2,352 2,178 2,186 2,135 1,000 0 2006 2007 2008 A
Slide 27: Nitrate and NPK margin increase
26 Nitrate and NPK margin increase Nitrate Premium NPK price 1,300 70% 950 1,200 850 60% 1,100 750 50% 1,000 EUR/ton nitrogen 650 Average 40% differential has USD/ton 900 increased by 550 ~$110/ton 800 30% 450 700 20% 350 600 10% 250 500 400 0% 150 Jul Feb Jun Feb Jun Feb Jun Jan 2006 Jan 2007 Jan 2
Slide 28: Industrial segment
27 Industrial segment Continued volume growth for all product groups Contract time lags reduced nitrogen chemical margins Joint venture for NOX abatement in China IR - Date: 2008-07-15
Slide 29: Industrial – EBITDA
28 Industrial – EBITDA* NOK millions 1,200 1,007 1,000 800 600 400 252 258 276 205 166 165 153 174 200 139 0 2006 2007 2008 Accumulated NOK mill 736 1,645 415 USD mill 115 290 80 * Kemira GrowHow included from 4Q 2007 IR - Date: 2008-07-15
Slide 30: JV for NOX abatement in China
29 JV for NOX abatement in China 60/40 JV with Sinofert Sinofert is China’s largest fertilizer company and a key fertilizer import partner Yara brings expertise on NOX abatement for truck and power plant applications Sinofert brings wide sourcing network and business relations Beijing has imposed Eu
Slide 31: Upstream segment
30 Upstream segment Strong results driven by higher prices Energy cost in line with expectations Increased raw material cost IR - Date: 2008-07-15
Slide 32: Upstream – EBITDA
31 Upstream – EBITDA* NOK millions 3,500 3,165 3,000 2,500 1,994 2,000 1,500 1,202 1,168 926 911 956 1,000 797 728 673 500 0 2006 2007 2008 Accumulated NOK mill 3,563 3,797 5,158 USD mill 560 646 999 * Kemira GrowHow included from 4Q 2007 IR - Date: 2008-07-15
Slide 33: Upstream – production volume
32 Upstream – production volume* Kt Ammonia Finished fertilizer 5,000 4,589 4,362 4,500 2,895 4,027 2,738 4,000 3,437 3,443 2,615 3,312 3,357 3,500 3,247 3,175 3,256 1,999 2,053 2,051 2,010 1,983 1,994 3,000 1,914 2,500 2,000 1,500 1,694 1,624 1,329 1,358 1,384 1,392 1,412 1,000 1,237 1,262 1,262 50
Slide 34: Productivity improvements during Tertre plant maintenance stop
33 Productivity improvements during Tertre plant maintenance stop 8.5% increase in ammonia capacity (from 1,150 to 1,250 tons/day) 5% reduction in energy consumption per ton (EUR 7 million annual saving based on today’s energy cost) Investment cost EUR 10 million IR - Date: 2008-07-15
Slide 35: Estimated European energy cost
34 Estimated European energy cost Actual for quarter July 2008 estimate NOK millions 2,000 1,900 1,500 Cost change on previous year 1,500 1,306 1,001 1,000 500 266 0 (104) (500) 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 IR - Date: 2008-07-15
Slide 36: Share of net income in non-consolidated investees
35 Share of net income in non-consolidated investees NOK millions 2Q 2008 2Q 2007 YTD 2Q08 YTD 2Q07 Qafco 359 205 627 382 Tringen 105 56 153 114 Rossosh 141 40 223 75 Burrup 39 33 83 42 Other 278 141 402 183 Total 922 475 1,488 796 IR - Date: 2008-07-15
Slide 37: Prospects third quarter 2008
36 Prospects third quarter 2008 Urea prices increased early July as India started to contract Chinese domestic/export price differential still favours domestic sales New season in Europe started with stronger nitrate price increases than previous years Demand curtailment on phosphate and potash may
Slide 38: Prospects next twelve months
37 Prospects next twelve months Historically high grain prices continue to support fertilizer demand Current corn prices motivate substantial switch from soy in US providing additional nitrogen demand Urea price development from fourth quarter depends on China’s export willingness Yara benefits from
Slide 39: Big global trends support our future growth
38 Big global trends support our future growth Feeding the world Protecting the environment Producing renewable energy Globalization and economic growth IR - Date: 2008-07-15
Slide 40: Strong delivery on key performance measures
39 Strong delivery on key performance measures Development since IPO Financial Yara share with average 73%* return p.a. Average CROGI 14.9% Gross cash flow growth average 38% p.a. Operational Plant productivity Safety Operating capital turnover Growth Approx. 20 million tons (2005) => approx. 30 mil
Slide 41: Additional information
cg YARA Additional intormation
Slide 42: Business model and global presence support profitability and growth
41 Business model and global presence support profitability and growth EBITDA*, pro forma until 2005 USD millions . 3,000 Knowledge Margin Local market knowledge 308 Strong customer relations 2,500 Agronomic and application competence 2,000 Differentiation and branding . 1225 Sourcing & logistics le
Slide 43: Global optimization creates value
42 Global optimization creates value 2007 fertilizer and nitrogen chemicals volumes in million tonnes* Global Marketing and Sales Product source** optimization Fertilizer Europe Yara production 17.9 13.5 Europe Latin America 4.7 Yara production 2.9 outside Europe Sourcing Business Asia 28.2 2.5 Allo
Slide 44: Yara fertilizer sales by market and product
43 Yara fertilizer sales by market and product* 1H08: 12.3 million tons (2007: 23.6 million tons) 14 12.5 Million tons product 12 2007 1H08 10 8 6.7 6 4.7 4 2.3 2.5 2.1 1.8 2 1.2 1.1 1.0 0 Europe Latin America Asia North America Africa Million tons product 9.4 10 8 2007 1H08 6.1 6 4.7 3.0 3.7 4 2.3
Slide 45: Downstream – variance analysis
44 Downstream – variance analysis Second quarter NOK millions USD millions* USD/ton** EBITDA 2008 2,885 568 94 EBITDA 2007 804 134 22 Variance EBITDA in NOK 2,082 Conversion (NOK vs. USD) 126 Variance EBITDA 2,207 435 72 Kemira GrowHow 2007 (pro forma)*** 85 17 3 Volume & mix 17 3 1 Margin 1,718 338
Slide 46: Industrial – variance analysis
45 Industrial – variance analysis Second quarter NOK millions USD millions* EBITDA 2008 276 54 EBITDA 2007 205 34 Variance EBITDA in NOK 71 Conversion (NOK vs. USD) 30 Variance EBITDA 101 20 Kemira GrowHow 2007 (pro forma)** 18 4 Volume & mix 89 18 Margin (68) (13) Special items 127 25 Yara Praxair
Slide 47: Upstream – variance analysis
46 Upstream – variance analysis Second quarter NOK millions USD millions* USD/ton** EBITDA 2008 3,165 623 153 EBITDA 2007 1,202 200 49 Variance EBITDA in NOK 1,963 Conversion (NOK vs. USD) 187 Variance EBITDA 2,150 423 104 Kemira GrowHow 2007 (pro forma)*** 181 36 9 Volume & mix 228 45 11 Price/Marg
Slide 48: Strong balance sheet after Kemira GrowHow completion
47 Strong balance sheet after Kemira GrowHow completion Net interest-bearing debt / equity ratio (end of period) 0.45 0.42 0.41 0.40 0.39 0.37 0.35 0.34 0.34 0.35 0.34 0.35 0.33 0.31 0.30 0.27 0.28 0.25 0.20 0.15 0.10 0.05 0.00 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2005 2005 2005 2006 2006 2006 200
Slide 49: Downstream net operating capital turnover
48 Downstream net operating capital turnover* Downstream external operating revenues / external net operating capital 5.1 5.3 5.0 4.9 4.8 4.8 4.6 4.5 4.4 4.3 4.3 4.3 4.0 3.5 3.0 2006 2007 2008 * 12-month rolling average IR - Date: 2008-07-15
Slide 50: Grain stocks to remain stable at a low level
49 Grain stocks to remain stable at a low level Million tons 2,200 35% 2001-2008: 1.7% growth/year 115 days inventory 30% 2,100 25% 2,000 20% Consumption 1,900 15% 10% 59 days inventory Production 1,800 5% 1995-2001: 0.8% growth/year 1,700 0% 1995 1997 1999 2001 2003 2005 2007 2009F 1995 1997 1999 2
Slide 51: Agricultural commodity prices strong
50 Agricultural commodity prices strong… Corn Wheat Soybeans Rice Source: Chicago Board of Trade, 08 July 2008; November/December 2008 contracts IR - Date: 2008-07-15
Slide 52: Increased Chinese exports in April and May
51 Increased Chinese exports in April and May Net urea exports Kt 6,000 2007 5,000 4,000 2004 2008 3,000 2,000 2005 1,000 2006 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: BOABC IR - Date: 2008-07-15
Slide 53: Spot natural gas versus Yara average
52 Spot natural gas versus Yara average* Yearly averages 2000 – 2006, quarterly averages for 2007 and 2008 with forward prices for 2008** USD/MMBtu Yara European oil & gas cost 20 (weighted average) 18 16.9 16 14.0 14 European spot 12.3 13.3 12 US spot gas price gas price 11.2 (Henry Hub) (Zeebrugge
Slide 54: Key value drivers – quarterly averages
53 Key value drivers – quarterly averages Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 600 700 500 464 507 573 404 500 466 600 400 500 400 291 400 364 359 300 291 233 228 300 249 254 293 281 300 200 200 200 100 100 100 0 0 0 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 2
Slide 55: Key value drivers – 10-year history
54 Key value drivers – 10-year history Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 300 350 264 308 300 229 240 245 300 245 250 250 212 185 250 220 223 186 200 200 200 175 165 138 146 150 121 139 150 119 111 110 100 150 110 103 100 84 101 96 94 86 100 84 1
Slide 56: 10-year fertilizer prices – monthly averages
55 10-year fertilizer prices – monthly averages Ammonia fob Black Sea USD/t 600 500 400 300 CAN cif Germany 200 USD/t 100 500 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 400 300 200 Urea prilled fob Black Sea USD/t 100 700 0 600 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 500
Slide 57: 10-year grain/oilseed prices – yearly averages
56 10-year grain/oilseed prices – yearly averages Wheat (HRW US Gulf) Rice (Thailand) USD/t USD/t 400 800 350 700 300 600 250 500 200 400 150 300 100 200 50 100 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 TD08 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 TD08 Corn (US Gulf) USD/t Soyb
Slide 58: Income statement
57 Income statement NOK millions 2Q 2008 2Q 2007 Revenue and other income 24,038 13,775 Operating income 4,749 1,329 Share of net income in non-consolidated investees 922 475 Interest income and other financial income 177 66 Interest expense and other financial items (68) (125) Foreign exchange gain
Slide 59: Consolidated balance sheet
58 Consolidated balance sheet NOK millions 30 Jun 2008 30 Jun 2007 Deferred tax assets 1,335 1,009 Property, plant and equipment 10,569 7,520 Other non-current assets 17,335 9,366 Inventories 13,182 6,886 Receivables 11,395 7,215 Other current assets 2,656 1,746 Cash and cash equivalents 1,442 932 T
Slide 60: Definition of EBITDA and CROGI
59 Definition of EBITDA and CROGI Operating income before financial items Total assets + Share of net income in non-consolidated investees - Cash and other liquid assets + Interest income - Deferred tax assets + Net gain/loss on securities - Other current liabilities + Dividends received from 0-20 c