Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (December 2009)
46 slides from Yara International Asa's investor day presentation, Dec 10, 2009
Slide 1: Capital Markets Day
Capital Markets Day 10 December 2009
Slide 2: Content
Content e Track record and strategy ° Fertilizer market attractiveness | Track record &*strategy e Agricultural productivity and environmental contribution | Jorgen Ole Haslestad, President and CEO « Financial performance and scenarios * Conclusions and outlook xh oy
Slide 3: 2009 has been a transitional year
2009 has been a transitional year. We came from a situation up till third quarter 2008 with strong economical growth boosting the demand for food, feed and energy. The global fertilizer prices increased to record levels to balance the market as production was running at full capacity while d demand
Slide 4: Global fertilizer prices and deliveries drop after financial turmoil
Global prices of nitrogen, phosphate and potash fertilizer improved in Yara’s fertilizer deliveries dropped 43% year-over-year in third quarter parallel from 2005 and up to third quarter 2008, all driven by increasing 2008. We have never before seen such a sharp and deep drop in demand for food and
Slide 5: Industrial segment mitigates cyclicality
The Industrial segment mitigates cyclicality by having less volatile prices In order to protect Yara and its stakeholders from the consequences of the than fertilizer. finance crisis, a number of important steps were taken when deliveries slowed down second half last year. Nitrogen fertilizer is mai
Slide 6: Third-party sourcing and production curtailments
Yara normally sources 15-20% of fertilizer sales from third parties, mainly Yara’s production curtailments in 2009 have mainly been for NPKs. The on spot terms. This increases scale in our distribution system, broaden our NPK plant closures reflect slower demand for phosphate and potash as end-user
Slide 7: Cost reduction drive and net debt/equity ratio
A renewed cost reduction drive was initiated. Part of the reductions in Yara’s net debt/equity-ratio increased following the Saskferco Downstream and HQ costs are synergies realized from the Kemira acquisition beginning of third quarter 2008 and higher operating GrowHow acquisition. capital, mainly
Slide 8: Yara as the industry shaper
Yara is the world’s leading nitrogen fertilizer company and we are in the The global challenge for agriculture has not disappeared during the position to be the industry shaper. last year’s financial turmoil, even if media attention is lower. The recent Royal Society Policy document 11/09; October 2
Slide 9: Production activities and growth objectives
Yara’s main production activities are based on continuous chemical Yara’s management team is committed to continue to deliver step growth. production processes. The majority of these processes build on nitrogen, which represents Yara’s primary knowledge base. Yara has set 10% global market share as
Slide 10: World class production platform and scale advantages
Belle Plaine is well located to serve the huge Mid-West nitrogen fertilizer Yara has a world class production platform and structure allowing for scale market. This market has to take up to half of it’s supply from overseas advantages. Yara is the global leader in ammonia, nitrate and NPK capacity.
Slide 11: Global fertilizer consumption and prices
According to the latest estimate by IFA, global fertilizer consumption during the 2008/09 season declined by 1.6% for nitrogen, 10.5% for phosphate and 19.8% for potash. Substantially larger declines in Europe and North America, being key regions for Yara. Nitrogen and phosphate prices have been rel
Slide 12: Grain consumption and biofuels growth
Global grain consumption growth is continuing at a higher than average Growth in biofuels has been very strong over the last years, particularly in rate, despite the difficult macroeconomic conditions. Without support from USA. Going forward, growth in USA will slow, but globally it will continue. i
Slide 13: Agricultural commodity prices
Over the last couple of months, prices for key agricultural commodities As of today, cash margins in corn production in USA looks good for 2010, have increased substantially, and gives the signal to farmers to maintain better than 2009. yields in 2010. The weaker USD versus most other currencies imp
Slide 14: IFA fertilizer demand forecast
International Fertilizer Association (IFA) has recently updated their short So far this season, nitrogen deliveries is lagging last season both in term fertilizer demand forecast. The forecast for this season is increased Western Europe and in North America. nitrogen and phosphate demand, and a cont
Slide 15: Global trade statistics and urea imports
The second quarter detailed global trade statistics from IFA clearly Strong increase in urea import in Latin America and India during the third illustrates the market development in 2009. Most regions imported less quarter2009. This increase has been sourced mainly from China. urea than in 2008, and
Slide 16: Chinese urea exports and production costs
The world outside China has become dependent on several million tons of Production costs are gradually increasing in China. Coal prices are moving urea export from China, in order to avoid price spikes. Not surprisingly, the up, so are electricity tariffs, transport etc. And at current urea prices,
Slide 17: Nitrogen production in China and Ukraine
Over the last decade, nitrogen production has grown rapidly in China, as Ukraine did not export much ammonia in 2009. Average 2009 ammonia has consumption. Urea has explained almost the entire increase, leading prices were below Ukrainian supply costs, due to lack of need for to a particularly high
Slide 18: Gas prices and LNG supply
During 2009, hub based gas prices (Henry Hub, USA, Zebrugge, Europe Global gas demand is still suffering from the economic crisis. During 2009 and others) have been at roughly half the price level of European oil linked 1011, large quantities of additional LNG will become available. contracts. The
Slide 19: Capacity project delays and phosphate trade
Projects continue to be postponed. Based on the track record of the past World trade of phosphate fertilizer is basically back to normal level, in part years, a large share of the capacity for 2010-2012 could be further due to strong import demand in India. delayed. A major j p part of new capacity
Slide 20: Phosphate rock trade and potash deliveries
But phosphate rock trade is still well down on previous years. During the first half of 2009, global potash deliveries were roughly half the normal level. This illustrates the dynamics in the phosphate market in 2009 from the second quarter and onwards. onwards The non non-integrated integrated prod
Slide 21: PK application rates and soil nutrient levels
Farmers determine PK fertilizer application rates based on crop demand The map shows the large regional differences in how rich soils are in their and on P and K levels in the soil. nutrient content. For example European and North American soils are often relatively rich on potash, while Latin Ameri
Slide 22: Global challenge for agriculture
The global challenge for agriculture has not disappeared during the last year’s financial turmoil, even if media attention is lower. The recent Royal Society Policy document 11/09; October 2009 “Reaping Reaping the benefits: science and the sustainable intensification of global agriculture” states:
Slide 23: Mineral fertilizer and food production
Mineral fertilizer contribute almost half of the nitrogen taken up by the Total energy used in fertilizer production and consumption (including world's crops. These crops in turn provide about three quarters of the transportation and application) is less than the energy derived from higher nitrogen
Slide 24: GHG emissions from agriculture
GHGs emissions from agricultural activity, including land use change for When new acreage is converted to cropland, above ground carbon is agricultural purposes, represent 26% of global GHG emissions (IPCC immediately removed and converted to CO2, whereas carbon stored in the 2007). ground will leak
Slide 25: GHG mitigation potential of efficient agriculture
When IPCC (2007) presented potential GHG mitigation measures, they Biomass contains nitrogen primarily in the form of proteins. When biomass concluded that a more efficient agriculture could contribute significantly to is removed from the field through harvesting, nitrogen must be the needed emissio
Slide 26: Life cycle perspective on GHG footprint
When measuring GHG footprint from agricultural production it is important A life-cycle perspective on fertilizer is important : to deploy a life cycle perspective, and relate emissions to amount of • in order to ensure a fair comparison of different nitrogen forms and food/biomass being produced. •
Slide 27: GHG regulation and nitrogen prices
China has stated that ”carbon intensity” (GDP divided by carbon In a swing scenario GHG regulation is likely to yield increased nitrogen emissions) would be reduced by 40-45% by the year 2020. This could lead price . The price increase will benefit entire production base to curbing of inefficient N
Slide 28: Diversified production portfolio and energy efficiency
Yara has a well diversified production portfolio. Yara’s ammonia plants are Global GHG emissions would most likely increase if emission costs were among the most energy efficient globally. unilaterally put on European fertilizer industry. A major part of new ammonia capacity is built in China with c
Slide 29: Knowledge transfer and innovation
Knowledge transfer is specifically important for the small hold farmer Innovation is key to improve yield and agricultural productivity above the which represent today the vast majority of all agricultural operations. levels that we have seen historically. To provide those growers with efficient fer
Slide 30: Plant nutrition advice and global agronomic network
A key component of our ability to manage knowledge transfer and Our ambition in plant nutrition is to provide better crop nutrient innovation is the global presence of Yara. In most markets Yara management advise than existing average fertilizer recommendations. We agronomists provide advice and kno
Slide 31: Crop approach and optimal fertilization
Yara’s Crop Approach becomes visible for example in the PlantmasterTM Modern intensive agriculture with optimal fertilization give the maximum Booklets which provides all agronomic information on a specific crop on a return on investment in fertilizer for the grower. In addition it has lowest the gl
Slide 32: Efficient compound NPK fertilizer products
An important building block of increased agricultural productivity are The photo on the left shows a typical blended NPK product. The different efficient fertilizer products. The Yara range of compound NPK fertilizers is ingredients that are physically mixed have often a wide variation of particle a
Slide 33: Nitrate performance versus urea and UAN
Trials to compare different sources of nitrogen confirm the better Trials and demonstrations in the markets confirm the benefits from Yara performance of nitrates as compared to urea or UAN. Ammonia recommendations, which are often a combination of application volatilization losses after urea applic
Slide 34: Climate gas emissions and environmental applications
Yara production units emit two climate gases: carbon dioxide (CO2) from The industrial market for nitrogen will grow substantially in environmental ammonia plants and nitrous oxide (N2O) from nitric acid plants. applications driven by legislation Yara s ammonia plants are among the most energy effic
Slide 35: NOx abatement markets in North America and China
The business concept for Air1 in Europe is now copied in North America Yara has also a JV with Sinofert for NOx abatement in China. as US legislation opens a market for NOx abatement for trucks from 2010. China is expected to strengthen its DeNOx regulations during the 12th 5 The US is expected to
Slide 36: Industrial segment business areas
The industrial segment comprises several businesses areas, and each of these have different drivers and different success factors. The biggest part measured in volumes comprises sales of urea and ammonia to the European chemical industry. This business is closely linked to Yara’s European production
Slide 37: CROGI performance measure and industrial results
Yara uses CROGI (Cash Return On Gross Investment) to measure the Our industrial business partly mitigates cyclicality and the industrial performance of its business. The goal is to maintain a CROGI at or above results are therefore less volatile than the rest of Yara’s business. 10% as an average ov
Slide 38: Earnings sensitivities
When fertilizer prices plummeted in second half of 2008, Yara deliberately We have replaced the urea and CAN sensitivities with one nitrogen built inventory as we assumed that part of the drop was only a delay till sensitivity and a nitrate premium sensitivity. later in the season as buyers delayed
Slide 39: Scenario assumptions
The scenarios presented are not predictions of Yara’s earnings During 2009, hub based gas prices (Henry Hub, USA, Zebrugge, Europe development. They are what-if scenarios stating how earnings are and others) have been at roughly half the price level of European oil linked estimated to develop under
Slide 40: Phosphate and potash deliveries and NPK margins
Global deliveries of phosphate and potash dropped 10% and 20% The drop in volumes, phosphate upgrading margin and negative position respectively the last fertilizer season. In Europe, consumption of both effects substantially reduced NPK margin in third quarter 2009. nutrients are estimated to have
Slide 41: Nitrate premium and energy contracts
Nitrate fertilizers achieve a premium on top of urea price adjusted for Since 2006, we have worked actively to convert our European energy nitrogen content due to their agronomic efficiency. A farmer will secure contracts away from traditional oil linked contract to hub based contracts greater yield
Slide 42: Gas sourcing and scenario definitions
During the last years Yara has changed a major part of its European gas The “5-year average” scenario assumes fertilizer prices, energy prices sourcing from oil-linked to hub based contracts. We have chosen to stay and currency rates equal to the average over the last five years. spot on the hub exp
Slide 43: Swing scenario EBITDA and EPS
The resulting cashflows and earnings in the various scenarios exclude A swing scenario was also presented at last year’s Capital Markets Day special items like foreign exchange effects, position gains etc. giving an EBITDA of NOK 9,300 million and NOK 14 EPS. The updated swing scenario gives an EBIT
Slide 44: Demand-driven scenario and funding
A demand-driven scenario would typically be triggered by a tighter grain During second half of 2008 Yara secured substantial new short and market as robust grain demand makes continuous improvements in medium term funding and credit lines. During 2009 part of the new short agricultural productivity
Slide 45: Market outlook
Long-term fundamentals for fertilizer demand are strong as global grain consumption growth remains robust, requiring continued improvements in agriculture productivity. Global nitrogen demand has picked up from last season, but the market was supply driven until November as distributors in Europe an
Slide 46: Conclusions
Throughout the presentation we have demonstrated why Yara is the world’s leading nitrogen fertilizer company and why we are in a position to be the industry shaper. The world is facing increased challenges to feed a growing and prospering population in a sustainable way. Yara is part of the solution