Yara International ASA · OSL:YAR
Yara International ASA — Citi Basic Materials Conference 2018
60 slides from Yara International ASA's conference presentation, Nov 27, 2018
Slide 1: Yara International ASA
Yara International ASA Terje Tollefsen, EVP Strategy & Business Development Citi Basic Materials Conference 27 November 2018
Slide 2: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets and prospects 2
Slide 3: Safe operations is our first priority
Safe operations is our first priority TRI1 (12-month rolling) 5 4.5 1.4 0 Jan'16 Sep'18 1 TRI: Total recordable injuries, lost time (absence from work), restricted work and medical treatment cases per one million work hours. 3
Slide 4: Yara's leading global position and differentiated product portfolio
Yara’s leading global position and differentiated product portfolio represent key sources of competitive edge Global #1 in Nitrates1 7.7 9.2 4.2 3.0 2.9 2.3 3.0 4.7 2.2 1.1 Europe 40.4% Yara Eurochem Ostchem Uraichem Borealis 0.2 North America 12.0% Asia 7.1% Global #1 in NPK2 6.2 1.3 3.3 2.7 2.7 2.
Slide 5: Yara's integrated business model is unique within the fertilizer industry
Yara’s integrated business model is unique within the fertilizer industry 5
Slide 6: Profitable growth through the cycle
Profitable growth through the cycle Average annual shareholder return of 20%1 Average cash return on gross investment (CROGI) well above the Yara CROGI target of 10% NOK/share BUSD 400 0 20 18 350 0 16 300 14 250 0 12 200 10 10% target 0 8 150 6 100 0 4 50 2 0 0 0 IPO 05 06 07 08 09 10 11 12 13 14 1
Slide 7: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets and prospects 7
Slide 8: Improving market environment
Improving market environment Grain prices rising slowly, and stocks are falling as production Slow-down in nitrogen is expected to fall short of consumption supply growth Grain price index Global grain consumption and production Global capacity additions ex China Mill. Index tonnes 6.7 200 140 2,700
Slide 9: Higher urea prices with no Chinese supply response so far
Higher urea prices with no Chinese supply response so far, but LNG price increases impact several regions Higher global urea prices No supply response from Tight LNG market drives gas China so far prices higher Urea price development (USD/t) Chinese production and export (million tonnes) Spot gas pr
Slide 10: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets and prospects 10
Slide 11: Yara's mission and vision guides our strategy
Yara’s mission and vision guides our strategy Our Mission Our Vision Responsibly feed A collaborative society; the world and a world without hunger; protect the planet. a planet respected. 11
Slide 12: The Crop Nutrition Company for the Future
The Crop Nutrition Company for the Future We will grow responsible solutions Advance to farmers, industry and society, while delivering superior return Operational on capital Excellence Create Drive Scalable Innovative Solutions Growth 12
Slide 13: Advance Operational excellence; Improved safety, increased savings
Advance Advance Operational excellence; Improved safety, increased savings Safe operations is our first priority 5 TRI (Total recordable injuries 12-month rolling)1 4.5 1.4 0 Jan'16 Jun'18 1) TRI: Total recordable injuries, lost time (absence from work), restricted work and medical treatment cases p
Slide 14: Yara Improvement Program on track
Advance Yara Improvement Program on track Start: 2016 2017 2018 2019 2020 End: 2020 Today Annual impact, USD million, vs. 2015 baseline, at 2015 margins 500 450 330 350 2018 EBITDA benefits on track (in Sustained 242 2015 terms): EBITDA improvement 84 Yara Productivity System on track and in fin
Slide 15: Market depth
Create Scalable Solutions; Create Closer collaboration with the Food Industry Food Industry Farmer Crop Product Sell benefits of our Market depth Asset solutions Farmer centric solutions and • Deliver required crop Build crop tools quality to processor and ensure reliable solutions raw material supp
Slide 16: Precision fertilization made simple - atfarm
Precision fertilization made simple - atfarm Create • 10x10m precision application of fertilizer • Quantitative recommendation “in only 5 clicks” • Empowered by 20 years of Yara precision fertilization R&D • Benefits for farmers - Higher yield - Reduced waste - Higher protein content 16
Slide 17: Yara is delivering on its growth pipeline
Drive Innovative Growth; Drive Yara is delivering on its growth pipeline 1 Jan 1Q 2Q 4Q 1 Jan 3Q 2018 2019 Babrala (India) Cubatao (Brazil) Sluiskil (NL) Köping (Sweden) Acquisition of urea plant and distribution N and P production facility acquisition Revamp and urea+S expansion Nitric acid revamp
Slide 18: Yara has invested for the long term in Brazil
Yara has invested for the long term in Brazil; Bunge acquisition Drive brought critical mass in distribution Volume (MM tons) 9.3 9.0 8.2 7.8 3.2 3.3 2.8 3.0 2.7 2.4 2.2 2.2 1.8 2.0 1.8 1.5 1.7 1.3 0.8 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 1H18 Acquisition Acquisition Acquisition Acq
Slide 19: Yara combines large-scale local market presence with leading global product portfolio
Yara combines large-scale local market presence with leading Drive global product portfolio and crop nutrition expertise Main growing area in Cerrado, target area for Galvani expansion Yara Brasil operations Galvani operations (mining, fertilizer plant and port) • Optimization of asset footprint • M
Slide 20: Acquisition of Tata Chemicals' fertilizer business expands our footprint
Acquisition of Tata Chemicals’ fertilizer business expands our Drive footprint, enabling accelerated premium product growth Integrated world scale urea plant in Babrala, Uttar Pradesh • ~0.7 million tons ammonia production • ~1.2 million tons urea production • Commissioned in 1994 World-class operat
Slide 21: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets and prospects 21
Slide 22: Major improvement and growth investments in 2018; earnings improvement from 2019
Improvement program Major improvement and growth investments in 2018; Committed expansions + M&A main earnings improvement from 2019 onwards1 Improvement and growth capex2 (BUSD) EBITDA improvement3 USD Billions 1.5 USD Millions 1,100 0.1 900 Improvement program: 500 450 + 350 MUSD cost improvement
Slide 23: Attractive Yara prospects
Attractive Yara prospects Cycle improvement Focused and sustainable Cash flow improvement underway long-term strategy • Improving grain prices and • Operating cash flow improving • Crop nutrition focus fertilizer demand with cycle • Further advance operational • Slow-down in nitrogen supply • Furthe
Slide 24: Additional information
Additional information
Slide 25: Market
Market 25
Slide 26: Yara's margins contain both commodity and premium elements
Yara’s margins contain both commodity and premium elements Urea is the key commodity Both crop and fertilizer markets are … however Yara margins also Nitrogen product1 key margin drivers for Yara … contain premium elements • The majority of Yara’s business is • Premium products are key in Other rela
Slide 27: Nitrogen supply growth is forecast to reduce significantly
Nitrogen supply growth is forecast to reduce significantly Global urea capacity additions excl. China (mill. tonnes) India Iran USA Others Russia Algeria Nigeria Production 6.7 4.7 4.1 3% consumption growth 3.4 3.2 2.2 2.2 2.3 1.1 1.2 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: CRU Sep
Slide 28: Chinese domestic supply starting the new season slightly down
Chinese domestic supply starting the new season slightly down on last year Chinese urea production down vs last year (million tons) Production decline exceed export decline (million tons) 5.2 16 13.9 -4% 14 13.1 12.6 13.0 12 0.8 10 0.4 17/18 8 6 18/19 4 2 0 Production Production Domestic Domestic Ex
Slide 29: Global grain stocks are now in decline
Global grain stocks are now in decline Grain consumption and production Days of consumption in stocks Million tons Days 2,700 125 115 105 95 85 75 65 2,000 55 09 10 11 12 13 14 15 16 17 18E 19F 09 10 11 12 13 14 15 16 17 18E 19F Consumption Production Source: USDA November 2018 29
Slide 30: Grain prices up from last year
Grain prices up from last year Corn Mar 2019 contract France (EUR/tonnes) Wheat (milling) Mar 2019 contract France (EUR/tonnes) 30
Slide 31: Improving grain economics
Improving grain economics – the cereal index at 5-year average, the food index 5% below Index FAO price index 300 250 200 150 100 50 0 1/2010 1/2011 1/2012 1/2013 1/2014 1/2015 1/2016 1/2017 1/2018 Cereals Price Index Cereals 5 year avg. Food Price Index Food 5 year avg. Source: FAO 31
Slide 32: 10-year fertilizer prices – monthly averages
10-year fertilizer prices – monthly averages USD/t Ammonia fob Black Sea USD/t CAN cif Germany 1,000 500 800 400 600 300 400 200 200 100 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 USD/t Urea prilled fob Black Sea/Urea granular fo
Slide 33: Key value drivers – quarterly averages
Key value drivers – quarterly averages TTF day ahead (USD/MMBtu) Urea prilled fob Black Sea (USD/t)/Urea CAN cif Germany (USD/t) granular fob Egypt (dotted line, USD/t) 8.4 7.7 7.3 272 293 6.6 261 260 245 5.5 234 244 229 227 247 239 241 207 205 211 3Q17 4Q17 1Q18 2Q18 3Q18 3Q17 4Q17 1Q18 2Q18 3Q18 3
Slide 34: Business model and strategy
Business model and strategy 34
Slide 35: Three operating segments supported by a global supply chain function
Three operating segments supported by a global supply chain function cover the value chain Production Crop Nutrition Industrial Runs large-scale production of nitrogen- Provides worldwide sales, marketing and Develops and markets environmental Description based products, the starting point for our c
Slide 36: Supply Chain creates global scale in raw material purchases and optimization
Supply Chain creates global scale in raw material purchases and optimization Global scale in raw material purchasing Global optimization of value potential • A major buyer of key raw materials and one of the • Large number of plant, product and market combinations largest buyers of phosphate and pot
Slide 37: Production scale advantage and variable cost flexibility
Production scale advantage and variable cost flexibility due to asset set-up and product mix Diversified product portfolio1 High ammonia flexibility Yara’s operating cash costs are mostly variable Mill tonnes 2017FY Mill tonnes 2017FY BNOK, 2017FY Ammonia 7 Nitrates 6 2.7 NPK 6 Variable costs (84%)
Slide 38: Crop Nutrition creates resilience in earnings
Crop Nutrition creates resilience in earnings through distribution of crop nutrition solutions in response to farmer needs Distributor Food Industry Consumer Market segmentation Yara capabilities Crop, channel, farmer pains, gains and behaviors. Market needs Knowledge, people, assets, Focus and inve
Slide 39: Industrial segment delivers opportunities for growth
Industrial segment delivers opportunities for growth and offsets fertilizer cyclicality and seasonality Base Chemicals Environmental Solutions Mining Applications Industrial Applications1 Chemical applications used in CN and associated solutions for Key product and paints and packaging, glues, NOx a
Slide 40: Yara's solutions improve food production per hectare with lower emissions
Yara’s solutions improves food production per hectare, delivered through products with lower emissions per ton Yara crop nutrition practices enables farmers to Yara’s product mix has significant less emissions optimize application – and thus lower emissions than most of our competitors’ Yara Industr
Slide 41: Growth & Improvement
Growth & Improvement 41
Slide 42: Yara Improvement Program – 2017 status
Yara Improvement Program – 2017 status Program progress Financial benefits 2017 2018 2019 2020 Production volume Variable unit cost2 Annual impact, USD million, vs. 2015 baseline, at 2015 margins Consumption factor Fixed cost Start: Today End: 2016 2020 500+ 450 350 ~35% 2017 EBITDA benefits ahead
Slide 43: Benefits are realized through improvements to core value drivers
Benefits are realized through improvements to core value drivers Value driver How we improve How we know Increase production in our existing plants by ~400 kt additional ammonia and ~700 Volume1 improving reliability kt additional finished fertilizer production by 20206 Reduce spend on consumption f
Slide 44: Yara has focused its growth pipeline on premium & industrial products
Yara has expected commodity nitrogen oversupply, and has focused its growth pipeline on premium & industrial products Growth focused on premium & industrial Expected start up Pipeline EBITDA (2015 prices, USDm)1 Uusikaupunki NPK 3Q 2016 190 160 180 Expand premium products Porsgrunn/Glomfjord CN/NPK
Slide 45: Yara is delivering on its growth pipeline
Yara is delivering on its growth pipeline; multiple plant expansions and M&A coming on stream in 2018 Production growth 2015 - 2020 Mill.tonnes (mt) Finished products Ammonia 25.1 9.2 0.5 0.2 0.8 0.5 Yara-operated plants 0.1 0.2 GrowHow UK (divested mid-2015) 1.2 0.7 Yara share of Qafco & Lifeco 0.4
Slide 46: Improvement and growth investments; earnings and sensitivities
Improvement and growth investments; earnings and sensitivities EBITDA improvement1 (MUSD) Improvement program: Impact2 of +100 USD/t price change (USD/share) 1,100 900 500 0.09 450 0.06 500 282 350 600 124 450 242 150 40 40 2016 2017 2018 2019 2020 Ammonia Urea Growth: Impact2 of +100 USD/t price ch
Slide 47: Financial
Financial 47
Slide 48: Yara's 3Q results: increased prices partly offset by higher gas costs
Yara’s 3Q results: increased prices partly offset by higher gas costs Increased realized nitrate and Higher premium product Tight LNG market drives gas NPK prices deliveries prices higher Realized NPK and CAN price1 (USD/t) Volume development (mill. tonnes) Global weighted average gas cost USD/MMBtu
Slide 49: Improving EBITDA and Earnings per share
Improving EBITDA and Earnings per share EBITDA Earnings per share USD millions xxx Excluding special items USD/share x.xx Excluding currency and special items xxx Reported x.xx Reported 402 395 377 359 350 0.59 338 347 0.57 321 0.47 296 0.42 0.41 0.42 0.73 0.34 0.19 0.42 0.36 427 0.38 0.17 0.36 0.33
Slide 50: EBITDA 16% higher YoY
EBITDA 16% higher YoY as higher sales prices and a stronger USD more than offset higher energy cost EBITDA, USD millions +16% 30 108 Main deviations compared 129 402 with applying Yara price 2 6 347 sensitivities to publication prices with 1-month lag: Urea -20 MUSD Mainly Industrial contracts Nitra
Slide 51: Increased nitrogen upgrading margins, but premiums compressed short term
Increased nitrogen upgrading margins, but premiums compressed short term Nitrogen upgrading margins1 NPK premium over blend2 USD/t (monthly publication prices) USD/t 500 450 95 225 106 Yara’s NPK price CAN 216 Weighted average global premium above blend cost Urea Egypt Nitrate premium, CIF inland Ge
Slide 52: Higher natural gas cost expected through this winter
Higher natural gas cost expected through this winter Yara European natural gas cost Y-o-Y change in Yara gas cost USD/MMBtu USD Millions 11.0 140 10.0 120 9.0 100 8.0 7.0 80 6.0 125 60 5.0 91 92 100 40 4.0 3.0 20 42 46 27 2.0 0 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 TT
Slide 53: Energy cost
Energy cost Yearly averages 2010 – 2015, quarterly averages for 2016-18 with forward prices1 for 4Q18 and 1Q19. 11.4 11.0 10.7 9.9 10.1 10.5 9.1 9.2 9.4 8.1 9.4 7.7 9.5 7.6 8.4 7.1 6.6 7.7 8.2 8.0 8.0 8.1 6.5 6.6 5.6 5.7 6.5 7.0 7.3 6.9 6.4 5.3 5.5 5.0 4.9 5.7 6.3 4.6 5.4 6.1 5.7 5.5 5.2 4.4 5.3 4.2
Slide 54: Production and Deliveries
Production and Deliveries 54
Slide 55: Increased ammonia and finished products production
Increased ammonia and finished products production Ammonia1 Finished fertilizer & industrial products1 Kilotons Kilotons +13% +10% 2,200 6,000 5,500 Urea 4,500 3,500 Nitrates 2,500 1,500 NPK CN 500 UAN 0 0 SSP MAP 2015 2016 2017 2018 2015 2016 2017 2018 1 Including share of equity-accounted investee
Slide 56: Yara 3Q fertilizer deliveries by market and product
Yara 3Q fertilizer deliveries by market and product Kilotons 3,650 3Q17 3Q18 3,167 2,145 2,157 1,041 652 635 655 470 557 404 322 Europe Brazil Latin America North America Asia Africa 1,657 1,545 1,743 1,473 1,484 1,484 1,509 1,338 1,319 1,193 281 238 284 308 Compound NPK Blend NPK Nitrate Urea Other
Slide 57: Strong premium product deliveries
Strong premium product deliveries Value-added fertilizer deliveries1 Value-added fertilizer deliveries1 4,000 704 3,500 618 3,000 517 2,500 440 384 2,000 332 354 300 302 CAGR 1,500 17% 1,000 128 118 108 74 77 84 500 0 3Q14 3Q15 3Q16 3Q17 3Q18 Asia Brazil Latin Africa North America excl. America Outs
Slide 58: AdBlue deliveries
AdBlue deliveries Kilotons 600 0 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 58
Slide 59: Yara stocks
Yara stocks Kilotons Finished fertilizer 8,000 Other Compound NPK Nitrates Urea 0 59
Slide 60: nowiledge,
sz nowiledge, os
Yara International — Citi Basic Materials Conference 2018 on 6ix