Yara International Asa · OSL:YAR
Yara International Asa — Q1 2006 Earnings Presentation
45 slides from Yara International Asa's earnings presentation, May 18, 2006
Slide 1: Strong earnings in turbulent energy markets
Strong earnings in turbulent energy markets Presentation for First Securities May 18 2006
Slide 2: Overall fertilizer market development
2 Overall fertilizer market development Global fertilizer market demand-driven due to Asia, whereas nitrogen consumption in North America and Europe declined West European fertilizer volumes season to date 7% lower than last season Chinese exports stable, following reduced export tax in November and
Slide 3: China, India and USA have contributed strongly to a tight global urea market
3 China, India and USA have contributed strongly to a tight global urea market July 2005-February 2006 compared to July 2004-February 2005 6.0 5.0 1.6 million tonnes urea 4.0 1.5 3.0 5.0 2.0 1.9 1.7 1.0 0.0 China reduced USA increased India increased Capacity increase export import supply deficit De
Slide 4: Accumulated Indian urea deficit: Strong increase in 2005/06
4 Accumulated Indian urea deficit: Strong increase in 2005/06 kt urea 2,500 Sales - Production 2005/06 2,000 1,500 1,000 500 2004/05 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar -500 -1,000 -1,500 -2,000 Source: Indian Statistics IR - Date: 2006-04-21
Slide 5: Accumulated Chinese urea export: similar to last year
5 Accumulated Chinese urea export: similar to last year kt urea 4,500 4,000 2004 3,500 3,000 2003 2,500 2,000 2005 1,500 1,000 500 2006 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -500 Source: BOABC IR - Date: 2006-04-21
Slide 6: Strong urea import into USA this season
6 Strong urea import into USA this season kt urea 6,000 2003/04 2005/06 2004/05 5,000 2002/03 4,000 3,000 2,000 1,000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: US Trade Commision IR - Date: 2006-04-21
Slide 7: Accumulated Brazilian urea import: in line with last year so far
7 Accumulated Brazilian urea import: in line with last year so far kt urea 2,000 2004 1,800 2003 1,600 2005 1,400 1,200 1,000 800 600 400 200 2006 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Global Trade Information Services (GTIS) IR - Date: 2006-04-21
Slide 8: US natural gas forward prices versus estimated energy costs for Yara
8 US natural gas forward prices versus estimated energy costs for Yara Yearly averages 2000 – 2005, quarterly averages for 2006 with forward prices 2Q – 4Q 2006* USD/MMBtu 10 9 8 5 April 2006 US spot gas price 7 (Henry Hub) 6 5.9 6.0 5 5.6 Yara’s global 4 4.4 energy cost (weighted average) 3 3.5 3.2
Slide 9: Urea price compared to production cost in US Gulf
9 Urea price compared to production cost in US Gulf Yearly averages 2000 – 2005, quarterly averages for 2006 with forward prices 2Q – 4Q 2006* 300 280 260 Urea fob US Gulf 240 (granular) 220 USD/tonne 200 Cash cost 180 US Gulf* 160 140 120 100 2000 2001 2002 2003 2004 2005 1Q06 2Q06 3Q06 4Q06 * Futu
Slide 10: Fertecon has reduced future capacity growth estimates due to plant delays
10 Fertecon has reduced future capacity growth estimates due to plant delays Global urea capacity Year Driving regions growth estimate* World Excluding China World Ex. China 2005 3.0% (2.7%) 2.2% (2.1%) China 53% Oman 47% Oman 22% Qatar 31% 2006 5.7% (6.7%) 3.6% (4.4%) China 59% Oman 20% Oman 8% Egy
Slide 11: Another 30-year low for grain stocks-to-use supports high demand for fertilizer
Another 30-year low for grain stocks-to-use supports high demand for fertilizer Million tonnes Stocks 700 40% Percent 600 35% 30% 500 25% 400 20% 300 15% 200 10% 100 5% 0 0% 2007F 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Sourc
Slide 12: 10-year grain/oilseed prices – yearly averages
12 10-year grain/oilseed prices – yearly averages Quarterly averages for 2006 Wheat (HRW US Gulf) Rice (Thailand) USD/tonne USD/tonne 220 350 200 300 180 160 250 140 200 120 100 150 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q1 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q1 Maize (US Gu
Slide 13: Increasing grain forward prices
13 Increasing grain forward prices Approximate nitrogen consumption per hectare per crop in United States Index 115 Corn (150 kg N/ha) 110 Wheat (75 kg N/ha) Rice (150 kg N/ha) 105 Soybeans (30 kg N/ha) 100 95 90 85 80 Jun-06 Jul-06 Nov-06 May-06 Aug-06 Oct-06 Sep-06 Dec-06 Source: Chicago Board of
Slide 14: Nitrate price increases in euro offset by stronger US dollar
14 Nitrate price increases in euro offset by stronger US dollar 200 200 2005/06 USD 180 180 2004/05 USD 2005/06 EUR 160 160 USD/tonne EUR/tonne 140 2004/05 EUR 140 120 120 100 100 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: The Market IR - Date: 2006-04-21
Slide 15: 10-year fertilizer prices – monthly averages
15 10-year fertilizer prices – monthly averages Ammonia fob Caribbean USD/tonne 400 350 300 250 200 150 CAN cif Germany 100 USD/tonne 50 200 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 150 100 Urea prilled fob Black Sea 50 USD/tonne 300 0 250 1996 1997 1998 1999 2000 2001 2002 2003 2004
Slide 16: High energy prices increase the importance of biofuels going forward
16 High energy prices increase the importance of biofuels going forward World production Million gallons In USA, 13% of corn crop is used for 10,000 ethanol production this year 9,000 8,000 7,000 Ethanol is well-established in Brazil, 6,000 where roughly half of sugar production 5,000 is used for et
Slide 17: Prospects 2006
17 Prospects 2006 Low global grain inventories and increasing grain forward prices continue to support global fertilizer demand Expected urea capacity growth in 2006 reduced due to project delays 30% Chinese export tax from 1 January to 30 September European supply-demand balance positively influenc
Slide 18: Growth objective: 10% global market share within a business cycle
18 Growth objective: 10% global market share within a business cycle Simplicity Volume Productivity 10% market share Growth ~6% But: Financial discipline maintained Present Within a business cycle IR - Date: 2006-04-21
Slide 19: Additional information
19 Additional information
Slide 20: Yara creates value in three different ways
20 Yara creates value in three different ways EBITDA, pro forma until 2004 . The Knowledge Margin USD millions Local market knowledge Deep customer relations 1,200 Agronomic competence Differentiation and branding 1,000 112 104 . The Logistics Leverage 800 311 Scale in distribution 319 600 98 Third
Slide 21: Global optimization creates value
21 Global optimization creates value 2005 fertilizer and nitrogen chemicals volumes in million tonnes Global Marketing and Sales Product source* optimization Fertilizer Europe Yara production 12.7 10.1 Europe Latin America 2.9 Yara production 2.2 outside Europe Sourcing Business Asia 21.4 units 2.1
Slide 22: Yara value drivers
22 Yara value drivers Drivers Effect on US gas price Supply-driven price for urea Grain inventories/prices Urea demand New urea capacity vs. closures Urea supply Revenue Global urea demand vs. supply Urea price (above floor) drivers Urea price Most other nitrogen fertilizer prices Market segmentatio
Slide 23: Strong peer group performance
23 Strong peer group performance Gross return on assets*, percent 2003 2004 2005 Yara** 17.4 BASF 21.7 Agrium 24.3 Agrium 17.4 Yara** 21.4 BASF 23.9 BASF 16.2 Agrium 20.2 PCS 22.3 15.2 Air Air Products 16.6 Yara 21.6 Products K+S 13.7 PCS 14.1 Dow 18.8 Kemira Air Kemira 12.6 13.9 17.9 GrowHow Produc
Slide 24: Summary first quarter 2006
24 Summary first quarter 2006 Strong financial results Slow demand in Europe but improved market position for Yara Growth in joint venture earnings and planned reduction of low- margin sales outside Europe Energy cost increases only partly offset by higher fertilizer prices Strong cash flow IR - Dat
Slide 25: Earnings per share
25 Earnings per share* NOK 4.50 3.94 4.00 3.50 3.08 2.90 2.68 2.70 2.77 3.00 2.50 2.38 2.50 1.90 2.00 1.50 1.00 0.50 0.00 2004 2005 2006 Accumulated NOK 11.90 10.20 2.77 * Average number of shares for 1Q 2006: 307.8 million (2005: 316.4 million) IR - Date: 2006-04-21
Slide 26: Earnings before interest, tax, depreciation and amortization (EBITDA)
26 Earnings before interest, tax, depreciation and amortization (EBITDA) NOK millions 2,000 1,866 1,868 1,800 1,582 1,565 1,600 1,484 1,477 1,505 1,492 1,379 1,400 1,200 1,000 800 600 400 200 0 2004 2005 2006 Accumulated NOK mill 6,108 6,618 1,492 USD mill 909 1,033 224 IR - Date: 2006-04-21
Slide 27: Net income after minority interest
27 Net income after minority interest NOK millions 1,400 1,251 1,200 985 917 1,000 853 846 846 800 759 800 588 600 400 200 0 2004 2005 2006 Accumulated NOK mill 3,794 3,198 853 USD mill 564 500 128 IR - Date: 2006-04-21
Slide 28: EBITDA and operating income
28 EBITDA and operating income Individual operating segments EBITDA (NOK millions) 1Q 2006 1Q 2005 Downstream 518 665 Industrial 166 207 Upstream 797 1,004 Other and eliminations 11 (9) Yara total 1,492 1,866 Operating income (NOK millions) 1Q 2006 1Q 2005 Downstream 336 512 Industrial 120 152 Upstr
Slide 29: Variance analysis Yara group
29 Variance analysis Yara group NOK millions USD millions* EBITDA 2006 1,492 224 EBITDA 2005 1,866 297 Variance EBITDA in NOK (374) - Currency conversion (NOK vs. USD) (115) - Variance EBITDA (489) (73) Volume & mix (33) (5) Price/Margin 99 15 Energy cost in Europe (614) (92) Currency effect on net
Slide 30: Share of net income in non-consolidated investees
30 Share of net income in non-consolidated investees NOK millions 1Q 2006 1Q 2005 Qafco 190 171 Tringen 52 29 Rossosh 43 9 Other 43 4 Total 327 214 IR - Date: 2006-04-21
Slide 31: Variance analysis Yara group
31 Variance analysis Yara group NOK millions USD millions* EBITDA 2006 1,492 224 EBITDA 2005 1,866 297 Variance EBITDA in NOK (374) - Currency conversion (NOK vs. USD) (115) - Variance EBITDA (489) (73) Volume & mix (33) (5) Price/Margin 99 15 Energy cost in Europe (614) (92) Currency effect on net
Slide 32: Income statement
32 Income statement NOK millions 1Q 2006 1Q 2005 Revenue and other income 11,736 10,943 Operating income 758 1,271 Share of net income in non-consolidated 327 214 investees Interest income and other financial income 71 43 Interest expense and other financial items (110) (116) Net foreign exchange ga
Slide 33: Consolidated balance sheets
33 Consolidated balance sheets NOK millions 31 Mar 2006 31 Mar 2005 Deferred tax assets 1,368 1,376 Property, plant and equipment 7,305 7,300 Other non-current assets 4,802 3,574 Inventories 6,534 5,631 Receivables 6,670 7,357 Other current assets 1,487 1,590 Cash and cash equivalents 557 1,627 Tota
Slide 34: Yara's 5-year average return on capital significantly above cost of capital
34 Yara’s 5-year average return on capital significantly above cost of capital CROGI = (EBITDA – tax) / Gross Investment Cash Return On Gross Investment Percent 16 14.1% 14.4% 14 12 10.6% Average = 11.5% 10 9.4% 9.2% 8 6 4 2 0 2001 2002 2003 2004 2005 IR - Date: 2006-04-21
Slide 35: Both safety and productivity continue to show considerable improvement
35 Both safety and productivity continue to show considerable improvement Safety at production sites (LTI*) Productivity 150 125 128 123 125 111 % of 2000 performance 106 100 100 90 75 65 68 50 40 40 25 0 2000 2001 2002 2003 2004 2005 * Lost Time Injuries IR - Date: 2006-04-21
Slide 36: Net interest-bearing debt / equity ratio
36 Net interest-bearing debt / equity ratio End of quarter 0.80 0.69 0.70 0.60 0.50 0.45 0.46 0.38 0.37 0.39 0.40 0.36 0.35 0.31 0.30 0.20 0.10 0.00 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2004 2004 2004 2004 2005 2005 2005 2005 2006 IR - Date: 2006-04-21
Slide 37: Net interest-bearing debt 2006
37 Net interest-bearing debt 2006 NOK millions 8,000 7,584 7,000 6,000 5,232 898 5,000 567 89 183 4,296 92 101 241 4,000 3,000 Net Interest- Net Interest- Cash Dividends Net operating Investments Yara dividend Foreign Other Net Interest- Bearing Debt Bearing Debt earnings* received** capital (Net) &
Slide 38: Increasing proportion of gas purchases in low-cost regions
38 Increasing proportion of gas purchases* in low-cost regions 100% 90% 80% 70% Europe 60% Australia 50% Future capacity Russia growth in low- 40% cost regions Middle East 30% Caribbean 20% 10% 0% 2003 2004 2005 2006 * Equity share of joint ventures included IR - Date: 2006-04-21
Slide 39: Continued strong growth in specialties
39 Continued strong growth in specialties Yara specialty fertilizer sales Acquisition USD millions Global 1,000 880 Sales & 900 Marketing 773 Agreement 800 Downstream 700 646 Integration 600 533 initiated 500 Global Sales & 400 Marketing 300 Agreement 200 100 0 Nov 2001 Jan 2002 May 2005 Mar 2006 20
Slide 40: Prospects second quarter 2006
40 Prospects second quarter 2006 Fertilizer prices currently slightly higher than last year Strong Asian demand and 30% Chinese export tax should continue to support supply-demand balance Most US nitrogen production is now back on-stream and the likelihood that markets will stay demand-driven has in
Slide 41: New technology for climate gas reductions
New technology for climate gas reductions Yara's emmisions of climate New technology for N2O reduction for nitric gases acid plants ready in 2005 25 Developed by Yara over more than 10 years 20 m ill. tonnes CO 2-equiv alents Installed in three Yara plants in France 15 Plan to install it in all Yara
Slide 42: Key value drivers – quarterly averages
42 Key value drivers – quarterly averages Ammonia fob Caribbean (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 400 363 300 250 350 330 242 250 227 201 198 274 274 212 221 200 177 188 300 200 176 250 233 200 150 200 150 150 100 100 100 50 50 50 0 0 0 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06
Slide 43: Key value drivers – 10-year history
43 Key value drivers – 10-year history Ammonia fob Caribbien (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 350 250 200 186 220 300 286 163 165 253 200 181 175 146 250 150 203 124 119 111 185 150 139 110 200 117 103 160 148 137 101 96 100 86 150 84 94 117 110 100 91 67 100 50 50
Slide 44: Yara sensitivities updated
44 Yara sensitivities updated EBITDA EBITDA EPS** USD million NOK million* NOK CAN + 10 USD/t 63.1 410 0.91 Urea + 10 USD/t 26.2 170 0.41 Ammonia + 10 USD/t 6.2 40 0.13 Oil price + 1 USD/boe (cost effect) - 15.4 - 100 - 0.22 Currency + 0.1 NOK/USD at an 6.2 110 0.27 EBITDA of USD 700 million ... of
Slide 45: Yara cash distribution policy: 40 – 45% cash return over the cycle
45 Yara cash distribution policy: 40 – 45% cash return over the cycle Yara’s average profitability and return on capital is well above investors’ cost of capital Cash distribution must be balanced against opportunities for profitable growth Financial discipline will be the basis for the development