Yara International Asa · OSL:YAR
Yara International Asa — Q2 2006 Earnings Presentation
54 slides from Yara International Asa's earnings presentation, Jul 18, 2006
Slide 1: Yara International ASA Second quarter results
Yara International ASA Second quarter results 18 July 2006
Slide 2: Summary second quarter 2006
2 Summary second quarter 2006 Strong financial results Slow demand in Europe but improved market position for Yara Increased energy costs partly offset by profit on energy arbitrage Continued strong earnings from JV companies Fertibras acquisition strengthens market position in Brazil IR - Date: 200
Slide 3: Net income after minority interest
3 Net income after minority interest NOK millions 1,400 1,251 1,200 985 1,041 917 1,000 853 846 846 800 759 800 588 600 400 200 0 2004 2005 2006 Accumulated NOK mill 3,794 3,198 1,894 USD mill 564 500 294 IR - Date: 2006-07-18
Slide 4: Earnings per share
4 Earnings per share* NOK 4.50 3.94 4.00 3.42 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 6.19 * Average number of shares for 2Q 2006: 304.7 million (2005: 316.2 million) IR - Date: 2006-07-18
Slide 5: Earnings per share adjusted for foreign exchange gain / (loss)
5 Earnings per share adjusted for foreign exchange gain / (loss)* NOK 4.50 4.00 3.31 3.50 3.18 3.06 2.98 3.00 2.65 2.57 2.46 2.53 2.27 2.50 2.18 2.00 1.50 1.00 0.50 0.00 2004 2005 2006** Accumulated NOK 10.31 11.36 5.55 * After tax ** Average number of shares for 2Q 2006: 304.7 million (2005: 316.2
Slide 6: Net interest-bearing debt / equity ratio
6 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 0.34 0.31 0.30 0.20 0.10 0.00 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2004 2004 2004 2004 2005 2005 2005 2005 2006 2006 IR - Date: 2006-07-18
Slide 7: Overall fertilizer market development
7 Overall fertilizer market development Global fertilizer market demand-driven due to Asia West European fertilizer volumes down 5% on last season Chinese exports down, due to higher export tax this year Strong demand from the Indian subcontinent North American demand slower than expected IR - Date:
Slide 8: Fertilizer price development during quarter
8 Fertilizer price development during quarter Declining urea prices as fertilizer season came to an end in the northern hemisphere, but upgrading margins from ammonia remain high Average ammonia price slightly higher than same quarter last year, but not compensating for the increased production cost
Slide 9: Yara gaining market share in Europe
9 Yara gaining market share in Europe* Nitrogen fertilizer Reduction in imports 25% 24% Imports act as swing suppliers in the market 23% Capacity reductions in Europe Market share 22% offset decline in consumption 21% 20% Strong Yara position and commercial performance 19% 18% 01/02 02/03 03/04 04/0
Slide 10: Yara acquires controlling stake in Fertibras S.A.
10 Growth initiative Yara acquires controlling stake in Fertibras S.A. Yara acquires: 99.95% of voting shares 48.09% of total shares Equity acquisition price USD 126 million Fertibras has a net debt of USD 77 million end of 2005 Fertibras owns 15.3% of Fosfertil Yara Brazil takes a clear number 2 po
Slide 11: Acquisition provides good strategic fit
11 Acquisition provides good strategic fit Brazil is the fourth biggest fertilizer market in the world with a growth rate of 6% for past 10 years Fosfertil is the largest upstream supplier of fertilizers Gives a good supply balance for Yara’s operations in Brazil Gives a strategic foothold for furth
Slide 12: Growth potential in Brazil
12 Growth potential in Brazil Max potential farm land (million ha) Fertilizer consumption per harvest area Kg/ha Brazil 58 160 300 277 272 United States 188 81 250 Russia 132 88 EU 116 60 200 149 India 169 150 China 96 42 100 Canada 45 31 50 Argentina 27 44 0 0 100 200 300 China France Brazil Used P
Slide 13: Qafco to build melamine plant
13 Growth initiative Qafco to build melamine plant Qafco has established a joint venture company to produce melamine (60,000 ktpa), with 60% ownership Construction planned to commence fourth quarter 2006 with completion in early 2009 The melamine plant will be integrated with the urea and ammonia pr
Slide 14: Energy arbitrage this quarter
14 Energy arbitrage this quarter Yara has sold forward gas for 4Q 2006 and 1Q 2007 accounting for 3% of its annual European energy consumption Yara has sold rights to utilize energy optimization opportunities for parts of 2006 Yara has booked a positive EBITDA gain of NOK 300 million related to the
Slide 15: Yara has increased focus on energy arbitrage
15 Yara has increased focus on energy arbitrage Challenge for European chemical industry from high energy prices with concentrated supply side Yara’s energy strategy focuses on: Expansion in low-cost gas regions Global leadership in ammonia trade and shipping enable energy optimization efforts Ferti
Slide 16: US natural gas forward prices versus estimated energy costs for Yara
16 US natural gas forward prices versus estimated energy costs for Yara Yearly averages 2000 – 2005, quarterly averages for 2006 with forward prices 3Q – 4Q 2006* USD/MMBtu 10 9 8 US spot gas price (Henry Hub) 7 6 6.0 5.6 5.6 5.8 5 4 4.4 Yara’s global energy cost 3 3.5 (weighted average) 3.2 2.6 2 2
Slide 17: Estimated European energy cost increases continue into next two quarters
17 Estimated European energy cost increases continue into next two quarters NOK millions 1,000 900 Cost increase on previous year 800 700 600 616 600 500 500 400 350 300 200 100 0 1Q 2006* 2Q 2006* 3Q 2006 4Q 2006 * Actual for the quarter IR - Date: 2006-07-18
Slide 18: Urea price compared to production cost in US Gulf
18 Urea price compared to production cost in US Gulf Yearly averages 2000 – 2005, quarterly averages for 2006 with forward prices 3Q – 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 * Fut
Slide 19: Fertecon has revised future capacity growth estimates due to plant delays
19 Fertecon has revised future capacity growth estimates due to plant delays Global urea capacity Year Driving regions growth estimate* World Excluding China World Ex. China 2005 3.1% (3.0%) 2.3% (2.2%) China 52% Oman 45% Oman 22% Qatar 29% 2006 5.0% (5.7%) 3.2% (3.6%) China 58% Oman 22% Oman 9% Egy
Slide 20: Another 30-year low for grain stocks-to-use supports high demand for fertilizer
20 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 So
Slide 21: Maize use and US ethanol production
21 Maize use and US ethanol production Global use of maize 2005/06 U.S. industrial use of corn Million tonnes Million bushels for ethanol per crop year 500 2,400 450 400 2,100 350 1,800 300 1,500 250 200 1,200 150 900 100 600 50 0 300 Food Industrial Feed 2001- 2002- 2003- 2004- 2005- 2006- 2002 200
Slide 22: Increasing grain forward prices
22 Increasing grain forward prices Approximate nitrogen consumption per hectare per crop in United States Index 140 +35% Corn (150 kg N/ha) 130 Wheat (75 kg N/ha) +23% 120 Rice (150 kg N/ha) +12% Soybeans (30 kg N/ha) 110 100 90 80 Jul-06 Nov-06 Jul-07 Nov-07 Jul-08 Nov-08 May-07 May-08 Jan-07 Jan-0
Slide 23: Agriculture-based energy value chain
23 Agriculture-based energy value chain Free solar energy FARM Crop A FOOD Energy Fertilizers Crop B FUEL Free solar energy refinery FARM ~400 l oil Energy Capital IR - Date: 2006-07-18
Slide 24: Earnings before interest, tax, depreciation and amortization (EBITDA)
24 Earnings before interest, tax, depreciation and amortization (EBITDA) NOK millions 2,000 1,866 1,868 1,800 1,682 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 3,173 USD mill 909 1,033 494 IR - Date: 2006-07-18
Slide 25: EBITDA and operating income
25 EBITDA and operating income Individual operating segments EBITDA (NOK millions) 2Q 2006 2Q 2005 Downstream 441 628 Industrial 165 173 Upstream 926 988 Other and eliminations 149 80 Yara total 1,682 1,868 Operating income (NOK millions) 2Q 2006 2Q 2005 Downstream 224 404 Industrial 119 119 Upstrea
Slide 26: Net interest-bearing debt YTD 2006
26 Net interest-bearing debt YTD 2006 NOK millions 8,000 7,584 7,000 6,000 5,232 1,968 5,000 509 4,527 855 281 4,000 687 618 3,000 111 2,000 Net Interest- Net Interest- Cash Dividends Net operating Investments Yara dividend Foreign Other Net Interest- Bearing Debt Bearing Debt earnings* received** c
Slide 27: Variance analysis Yara group
27 Variance analysis Yara group NOK millions USD millions* EBITDA 2Q 2006 1,682 270 EBITDA 2Q 2005 1,868 293 Variance EBITDA in NOK (187) - Currency conversion (NOK vs. USD) 45 - Variance EBITDA (142) (23) Volume & mix (26) (4) Price/Margin 120 19 Energy arbitrage 300 48 Energy cost in Europe (616)
Slide 28: Special items
28 Special items* EBITDA (NOK millions) 2Q 2006 2Q 2005 - Køping restructuring (4) Contract derivatives - - Downstream (4) - Køping restructuring (38) - Contract derivatives 28 - Industrial (10) - Additional costs Le Havre gas sales - - Contract derivatives 8 - Upstream 8 - Total (7) - * Köping impa
Slide 29: Downstream – second quarter
29 Downstream – second quarter Satisfactory financial results considering a record 2Q 2005 Increased European sales volumes despite market decline Firm commercial policy keeping European prices stable throughout the quarter Planned reduction of low-margin sales in Asia and Africa Lower production vo
Slide 30: Downstream – EBITDA
30 Downstream – EBITDA NOK millions 700 665 628 573 600 566 526 518 477 500 441 373 400 319 300 200 100 0 2004 2005 2006 Accumulated NOK mill 2,142 1,984 959 USD mill 319 311 148 IR - Date: 2006-07-18
Slide 31: Downstream – sales volume fertilizer
31 Downstream – sales volume fertilizer Europe Outside Europe Thousand tonnes 5,098 4,956 4,934 4,996 4,890 5,000 4,726 4,742 2,559 4,588 4,688 4,540 2,195 2,564 2,664 2,285 2,171 2,094 2,324 2,130 1,852 4,000 3,000 2,762 2,648 2,688 2,555 2,539 2,558 2,605 2,370 2,332 2,000 2,264 1,000 0 2004 2005
Slide 32: Downstream – variance analysis
32 Downstream – variance analysis Second quarter NOK millions USD millions* USD/tonne** EBITDA 2006 441 71 14 EBITDA 2005 628 98 20 Variance EBITDA in NOK (187) Conversion (NOK vs. USD) 14 Variance EBITDA (173) (28) (6) Volume & mix (74) (12) (2) Margin (92) (15) (3) Margin excluding ammonia effect
Slide 33: Nitrate price stable in euro in the second quarter, increased in USD
33 Nitrate price stable in euro in the second quarter, increased in USD 220 220 2005/06 USD 200 200 2004/05 USD 180 180 2005/06 EUR USD/tonne EUR/tonne 160 160 140 2004/05 EUR 140 120 120 100 100 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: The Market IR - Date: 2006-07-18
Slide 34: Industrial – second quarter
34 Industrial – second quarter Strong financial results Nitrogen chemicals and environmental products volumes up 14% Higher ammonia prices impacted margins Re-positioning of Köping plant as a world-scale TAN plant IR - Date: 2006-07-18
Slide 35: Industrial – EBITDA
35 Industrial – EBITDA NOK millions 250 211 207 195 200 173 164 165 166 165 156 146 150 100 50 0 2004 2005 2006 Accumulated NOK mill 696 720 332 USD mill 104 112 51 IR - Date: 2006-07-18
Slide 36: Industrial – variance analysis
36 Industrial – variance analysis Second quarter NOK millions USD millions* EBITDA 2006 165 26 EBITDA 2005 173 27 Variance EBITDA in NOK (7) Conversion (NOK vs. USD) 4 Variance EBITDA (4) (1) Volume & mix 23 4 Margin (10) (2) Margin excluding ammonia effect 12 2 Ammonia effect on margin (22) (4) Spe
Slide 37: Upstream – second quarter
37 Upstream – second quarter Strong financial results Profit on energy arbitrage partly offsets energy cost increase Strong production development, with greatest improvements in JV companies Production in Le Havre temporarily stopped due to high energy cost IR - Date: 2006-07-18
Slide 38: Upstream – EBITDA
38 Upstream – EBITDA NOK millions 1,200 1,004 988 987 961 965 1,000 910 944 926 797 800 738 600 400 200 0 2004 2005 2006 Accumulated NOK mill 3,573 3,922 1,723 USD mill 531 611 268 IR - Date: 2006-07-18
Slide 39: Upstream – production volume
39 Upstream – production volume* Thousand tonnes Ammonia Finished fertilizer 3,500 3,253 3,286 3,246 3,247 3,312 3,134 3,180 3,100 3,011 2,976 1,915 1,940 1,889 2,010 1,983 3,000 1,834 1,866 1,965 1,760 1,786 2,500 2,000 1,500 1,339 1,346 1,356 1,329 1,251 1,266 1,190 1,268 1,215 1,237 1,000 500 0 2
Slide 40: Upstream – variance analysis
40 Upstream – variance analysis Second quarter NOK millions USD millions* USD/tonne** EBITDA 2006 926 149 45 EBITDA 2005 988 155 47 Variance EBITDA in NOK (62) Conversion (NOK vs. USD) 27 Variance EBITDA (34) (6) (2) Volume & mix (6) (1) - Price/Margin 228 37 11 Energy arbitrage 300 48 15 Energy cos
Slide 41: Share of net income in non-consolidated investees
41 Share of net income in non-consolidated investees NOK millions 2Q 2006 2Q 2005 YTD 2006 YTD 2005 Qafco 187 190 377 361 Tringen 38 59 90 88 Rossosh 44 35 87 44 Other 60 27 102 31 Total 329 310 656 524 IR - Date: 2006-07-18
Slide 42: Prospects third quarter 2006
42 Prospects third quarter 2006 Strong Asian demand and 30% Chinese export tax should continue to support supply-demand balance CAN prices currently substantially higher than last year roughly compensating for increased energy costs Urea price still demand-driven, but has not compensated for Europea
Slide 43: Prospects next twelve months
43 Prospects next twelve months Low global grain inventories and strong projected growth in biofuel production capacity Substantial increase in grain forward prices Positive global demand development reduces risk of over-supply Yara’s European energy costs expected to increase due to higher oil pric
Slide 44: Additional information
44 Additional information
Slide 45: Fertibras - basic facts
45 Fertibras - basic facts Fertibras has approximately 4-5% of the Brazilian fertilizer market Main activities are import, blending, distribution and marketing of fertilizers Main presence in central region that has close to 80% of fertilizer consumption Has good geographical fit with Yara Brazil, w
Slide 46: Brazil is a top ranking exporter of several crops and meat
46 Brazil is a top ranking exporter of several crops and meat Production Export Crop global rank global rank Soybeans 2 1 Corn 3 - Sugarcane 1 1 Coffee 1 1 Orange 1 1 Tobacco 2 1 Meat 1 1 Poultry 2 2 Brazil will replace US as the “bread basket” of the world in the 21st century Source: FAO IR - Date:
Slide 47: Key value drivers – quarterly averages
47 Key value drivers – quarterly averages Ammonia fob Caribbean (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) 400 363 250 250 330 242 350 209 240 188 198 274 274 287 200 176 177 300 229 230 227 250 221 150 200 220 212 150 100 210 100 200 50 50 0 190 0 2Q 05 3Q 05 4Q 05 1Q 06 2Q
Slide 48: Key value drivers – 10-year history
48 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 49: 10-year fertilizer prices – monthly averages
49 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 50: 10-year grain/oilseed prices – yearly averages
50 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 Q2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q1 Q2 Maize
Slide 51: Downstream – Net operating capital turnover
51 Downstream – Net operating capital turnover* External operating revenues / External net operating capital 6 5 4.6 4.6 4.6 4.6 4.5 4.5 4.4 4.4 4.3 4.3 4 3 2 1 0 2004 2005 2006 * 12-month rolling average IR - Date: 2006-07-18
Slide 52: Income statement
52 Income statement NOK millions 2Q 2006 2Q 2005 YTD 2006 YTD 2005 Revenue and other income 12,200 12,172 23,935 23,114 Operating income 924 1,117 1,682 2,388 Share of net income in non-consolidated 329 310 656 524 investees Interest income and other financial income 61 76 132 120 Interest expense a
Slide 53: Consolidated balance sheets
53 Consolidated balance sheets NOK millions 31 June 2006 31 June 2005 Deferred tax assets 1,323 1,609 Property, plant and equipment 7,435 7,254 Other non-current assets 4,882 4,353 Inventories 5,806 5,513 Receivables 7,133 6,903 Other current assets 2,020 1,492 Cash and cash equivalents 754 1,130 To
Slide 54: Definition of EBITDA and CROGI
54 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