Yara International Asa · OSL:YAR
Yara International Asa — Hydro Agri — Investor Day (December 2002)
37 slides from Yara International Asa's investor day presentation, Dec 9, 2002
Slide 1: Capital Markets Day Hydro Agri
Capital Markets Day Hydro Agri Executive Vice President Thorleif Enger Oslo, December 9, 2002
Slide 2: Hydro Agri perspectives
2 Hydro Agri perspectives ● From Turnaround to industry leadership ■ Debunking myths ■ Our ability to deliver ● Hydro Agri’s unique business model and areas of global strength ● Opportunities ahead 36207_5H - 12.2002 - * 2 - Hydro Media
Slide 3: Strongly improved performance
3 Strongly improved performance CROGI % 14 12 10 8 6 4 2 0 1999 2000 2001 Actual CROGI Normalised CROGI 36207_5H - 12.2002 - * 3 - Hydro Media
Slide 4: Debunking myths
4 Debunking myths Concerns Industry facts Hydro Agri today Industry Competitive returns Leading player attractiveness European Improved outlook Regional balance performance Nitrogen Position not product Leading position attractiveness important Nitrogen cyclicality Equal other Cyclicality mitigated
Slide 5: Industry attractiveness – Competitive returns
5 Industry attractiveness – Competitive returns Average annual total shareholder return* across the business cycle (1990-2001) PCS 20.5 Agrium** 11.9 Kali & Salz 11.7 Dow Chemicals 11.5 DuPont 11.2 0 5 10 15 20 25 Annual TSR (%) * TSR = Share price appreciation + dividends to shareholders Source: BC
Slide 6: West European performance – Improved outlook (1999-2002)
6 West European performance – Improved outlook (1999-2002) ● Total closures of 5 million tonnes of capacity (incl. IFI) ● Hydro Agri actions ■ Closed/sold 11 plants ■ Closed 12 sales offices ■ Sold around 25 businesses Greatly simplified Hydro Agri business 36207_5H - 12.2002 - * 6 - Hydro Media
Slide 7: Good regional balance and global presence
7 Good regional balance and global presence All fertilizer products Agri sales tonnes NorthAmerica Europe 25 2 million 9.8 million Million tonnes products 20 sold 2001 * 15 Asia 10 2.9 million Latin 5 America 2.8 million Africa 0 2.1 million m ro lz S C iu PC IM Sa yd gr i+ H A al K Hydro Overseas A
Slide 8: Nitrogen attractiveness – Position more important than product
8 Nitrogen attractiveness – Position more important than product Gross return on assets* 1998 YTD 3Q 2002 Agrium 17.9 Hydro Agri 14.3 Kali & Salz 15.2 Kali & Salz 11.8 PCS 14.0 Kemira 9.3 Kemira 13.0 IMC 7.6 IMC 12.2 Agrium 6.9 Hydro Agri 6.5 PCS 6.2 0 5 10 15 20 0 5 10 15 20 Percent Predominantly N
Slide 9: Hydro Agri cyclicality mitigated
9 Hydro Agri cyclicality mitigated ● Plants are not cost based swing producers ● Global market presence and product flexibility provide hedging ● Growth overseas and in speciality/ industrial applications is less exposed Target: NOK 3 billion EBITDA at bottom of business cycle 36207_5H - 12.2002 - *
Slide 10: Drivers of Hydro Agri value
10 Drivers of Hydro Agri value Drivers Effect on Gas price USA ➨ Ammonia price Ammonia price Urea price Income ➨ Grain prices ➨ Urea price European market balance ➨ Nitrate margin Market segmentation ➨ Value added margins Oil price ➨ Gas costs Europe Production volume Cost ➨ Unit cash cost Productiv
Slide 11: Reduced fixed costs and working capital
11 Reduced fixed costs and working capital Accumulated fixed cost reductions * Net working capital days** NOK million Days 3 000 120 2 500 100 2 572 105 2 362 97 99 2 000 80 87 1 500 1 730 60 1 000 40 500 20 493 0 0 1999 2000 2001 Act. 3Q 1999 2000 2001 Act. 3Q 2002 2002 * Total fixed cost reduction
Slide 12: Large productivity improvements
12 Large productivity improvements European plants Production per employee Fixed cost per tonne * (NOK) Tonnes 5 000 300 4 500 4 000 3 500 250 3 000 2 500 2 000 200 94 95 96 97 98 99 00 20 1 E 94 95 96 97 98 99 00 20 1 E 0 02 0 02 19 19 19 19 19 19 20 20 19 19 19 19 19 19 20 20 * Excluding non-recur
Slide 13: Trevo (Brazil) takeover: From bankruptcy to healthy business
13 Trevo (Brazil) takeover: From bankruptcy to healthy business Tonnes Percent 1 600 10 1 400 9 8 1 200 7 1 000 6 800 5 600 4 3 400 2 200 1 0 0 1997 1998 1999 2000 2001 2002 Sales Volume Market Share 36207_5H - 12.2002 - * 13 - Hydro Media
Slide 14: Top performance
14 Top performance Gross return on assets* YTD 3Q 2002 Hydro Agri 14.3 Air Products 13.2 Kali & Salz 11.8 BASF 11.4 DuPont 9.9 Kemira 9.3 IMC 7.6 Agrium 6.9 Dow Chemicals 6.8 PCS 6.2 0 2 4 6 8 10 12 14 16 Percent * Gross return on assets defined as EBITDA (excluding Source: company quarterly reports
Slide 15: We have a unique fertilizer position
15 We have a unique fertilizer position ● The largest player ● The only truly global company ● Balanced product portfolio (N,P,K) ● Strong sourcing power ● Unique brands 36207_5H - 12.2002 - * 15 - Hydro Media
Slide 16: Our six areas of global strength
16 Our six areas of global strength Ammonia ● Leading position Nitrates ● Leading position Balanced fertilization ● Leading position (high value crops) (NPK) Speciality fertilizers ● Leading position with SQM (cash crops) Selected industrial applications ● Leading West European position Distribution
Slide 17: Positive market outlook
17 Positive market outlook ● Growth in fertilizer consumption ■ Cereal stocks diminishing rapidly ■ Increasing grain prices last months ■ Historically, fertilizer prices correlate well with grain prices ● Limited new capacity globally next 2-3 years ● Global supply/demand balance looks good 36207_5H
Slide 18: World urea supply/demand balance
18 World urea supply/demand balance Million tonnes USD/mt 5.0 235 4.0 215 3.0 195 2.0 175 1.0 155 0.0 135 -1.0 115 -2.0 95 -3.0 75 -4.0 55 -5.0 35 2002E 2003E 2004E 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Consumption growth minus added capacity Price fob Middle East Source: CRU, Ferte
Slide 19: Possible opportunities and threats
19 Possible opportunities and threats Opportunities ● Increased exports to China and India ● Russian WTO membership expected to establish gas prices reflecting real costs ■ Reduce Government impact ■ Intermediate EU antidumping measures linked to gas price Threats ● Improved US cost position ● Impor
Slide 20: Future growth opportunities
20 Future growth opportunities ● Organic growth ■ Continued productivity improvements in our plants ■ Scale and synergy effects in our global logistics and marketing network ● Potential opportunities ■ North America (nitrogen) ■ Low cost ammonia capacity (Trinidad, Middle East...) ■ Distribution cha
Slide 21: Key messages
21 Key messages ● Market outlook positive ● Unique business position ● Global leadership in key strategic areas ● Industry leadership after Turnaround ● Strong platform for profitable growth 36207_5H - 12.2002 - * 21 - Hydro Media
Slide 22: Additional Information
Additional Information
Slide 23: Hydro Agri – indicative sensitivities
23 Hydro Agri – indicative sensitivities EBITDA CROGI NOK million % points Urea + 10 USD/t 170 0.33 CAN + 10 USD/t * 500 0.97 Oil price + 1 USD/bbl - 110 - 0.21 Currency + 0.1 NOK/USD 60 0.12 * Reference price for nitrogen sales in Europe CAN prices are influenced by urea Underlying assumptions: Oil
Slide 24: Position and strength reduce the impact of cyclicality on results
24 Position and strength reduce the impact of cyclicality on results EBITDA Backcast, 2001 Base year NOK million 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 1996 1997 1998 1999 2000 2001 "Agri 2001" EBITDA Agri EBITDA Actual "Agri 2001" average Actual average Backcast is estimated perfor
Slide 25: Qafco – a successful ammonia/urea investment
25 Qafco – a successful ammonia/urea investment Return on Equity (ROE) ● Qatar Fertilizer Company, one of the most cost efficient 35% nitrogen plants in the world. 30% ● Hydro ownership 25% 25% ● Hydro marketing agreement of 0.6 million tonnes 20% (1.4 million tonnes)* urea p.a. 15% 10% 5% 0% 1993 1
Slide 26: Market leadership – and balanced sales
26 Market leadership – and balanced sales 2001 sales 135.8 million tonnes* 7.5 million tonnes* 100% Potash (K) Potash (K) 80% Phosphate (P) Phosphate (P) 60% 40% 20% Nitrogen (N) Nitrogen (N) 0% Global fertilizer Hydro sales consumption Average global Hydro market share ~ 6% * Nutrient tonnes Source
Slide 27: Growth in non-European markets
27 Growth in non-European markets Est. 2002 Agri sales overseas Sourcing higher than sales in Europe Million tonnes 14 25 12 20 10 Europe 15 J/V and key suppliers 8 6 Overseas 10 4 Own production 5 2 0 0 1991 1993 1995 1997 1999 2001 1991 1993 1995 1997 1999 2001 36207_5H - 12.2002 - * 27 - Hydro Me
Slide 28: Increased focus on growth markets
28 Increased focus on growth markets 100% 80% Growth markets European fertilizer 60% operations 40% 20% 0% EBITDA Capital base 36207_5H - 12.2002 - * 28 - Hydro Media
Slide 29: Historical and average fertilizer prices
29 Historical and average fertilizer prices Ammonia CAN Germany Fob Caribbean Bulk delivered warehouse USD/tonnes USD/tonnes 250 250 200 200 150 150 100 100 50 50 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Urea DAP Bulk fob Middle East Bul
Slide 30: European nitrate prices are strongly influenced by the global urea price
0 100 200 300 400 500 600 700 Jan. -88 USD/mt N Jul. -88 Jan. -89 Jul. -89 CAN Ger Jan. -90 Jul. -90 Jan. -91 Jul. -91 Jan. -92 Jul. -92 Jan. -93 Urea fob ME Jul. -93 Jan. -94 Jul. -94 Jan. -95 Jul. -95 Jan. -96 Jul. -96 Jan. -97 Jul. -97 Jan. -98 Jul. -98 Jan. -99 Jul. -99 Jan. -00 influenced by th
Slide 31: Fertilizer prices linked to grain prices
31 Fertilizer prices linked to grain prices - USD/bushel corn USD/tonne urea 6 300 5 250 4 200 3 150 2 100 1 50 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002E 2004E Corn Chicago cash Urea fob ME Predicted urea price trend Source: Blue-Johnson, CBT 36207_5H - 12.2002 - * 31 - Hydro
Slide 32: Grain prices increasing
32 - grain prices increasing USD/mt Wheat ( fob US Gulf ) Corn ( fob US Gulf ) 250 200 150 100 50 0 Jul. 97 Jan 98 Jul. Jan 99 Jul. Jan 00 Jul. Jan 01 Jul. Jan 02 Jul. Source: International Grain Council 36207_5H - 12.2002 - * 32 - Hydro Media
Slide 33: Ammonia Value Chain (2001)
33 Ammonia Value Chain (2001) Ammonia use Third Party Urea purchase 26% 1.0 deficit Ammonia and Nitrate 1.4 integrated 53% ATS* production plants 3.8 pool 2.5 (own production + JV Trinidad) surplus NPK 2.1 18% Ammonia sale Industrial Application 3% * Ammonia Trade & Shipping 36207_5H - 12.2002 - * 3
Slide 34: Fertilizer Value Chain (2001)
34 Fertilizer Value Chain (2001) Production Global Supply Distribution & Sales Chain Optimization Own Products 10.8 Europe Key Accounts Business ● Sourcing Units (10) 1.2 19.6 20.2 JV Products ● Allocation & ● Logistics Front Offices (60+) Spot sales Third Party 7.6 Products 36207_5H - 12.2002 - * 3
Slide 35: Product Value Chain
35 Product Value Chain Finished Products Intermediate Raw materials products Main Other Ammonia/nitric Natural Gas/Air (N) Urea acid ● Nitrates ● Compounds NPK Rock (P) Phosphoric acid DAP ● Straights ● Blends Salts (K) - MOP 36207_5H - 12.2002 - * 35 - Hydro Media
Slide 36: References for analysis of fertilizer markets
36 References for analysis of fertilizer markets ● News, price references and short term developments ( 1 - 2 months ) ■ The Market www.decyfer.com ■ Fertilizer Week www.britishsulphur.com ■ Fertecon www.fertecon.com ■ FMB www.fmb-group.co.uk ■ Green Markets (USA) http://greenmarkets.pf.com ● Medium
Slide 37: Hydro Agri structure
37 Hydro Agri structure EVP Hydro Agri Thorleif Enger Chief Operating Finance & Strategy Human Resources Treka Officer Hallgeir Storvik Harald Aasheim Jan Stranges Daniel Clauw 36207_5H - 12.2002 - * 37 - Hydro Media