Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (November 2007)
70 slides from Yara International Asa's investor day presentation, Nov 20, 2007
Slide 1: Yara Capital Markets Day
Yara Capital Markets Day Delivering D li i growth th in i an attractive industry 20 November 2007
Slide 2: Content
Content z Yara strengths & track record Yara strengths & track record z Fertilizer market attractiveness z Energy and sourcing strategy z Downstream strategy z Industrial strategy z Kemira GrowHow integration z Financial performance & scenarios z Conclusions & Outlook IR - Date: 2007-11-20 IR - Date
Slide 3: Yara's 5-year average return significantly above cost of capital
A chemical company with Yara’s 5-year average return* fertilizer application as its biggest market significantly above cost of capital Cash Return On Gross Investment** Percent Fertilizer Nitric 16 14.1% 14.4% 14.2% acid 13.9% 14 Average = 12.7% Energy Ammonia 12 10.6% 10 9.2% Urea Industrial 8 6 4
Slide 4: Yara achievements in 2007 / unique business model
Yara achievements in 2007 Yara has a unique business model Kemira GrowHow acquisition Business concepts that HoA for Libya JV Downstream / Industrial exploit Upstream combined strength First step in India ”Added-value market pull” ”Low-cost product push” JV with Wilhelmsen for maritime deNOX Scale a
Slide 5: Three segments mitigate cyclicality; global optimization creates value
Three segments mitigate cyclicality and create value for Yara Global optimization creates value EBITDA, pro forma until 2005 Yara and Kemira GrowHow 2006 fertilizer and nitrogen chemicals volumes in million tons . Product sourcing* Global Marketing and Sales USD millions Knowledge Margin optimizatio
Slide 6: Unique global fertilizer sales and distribution network
Unique global fertilizer sales and distribution Yara is the global leader in ammonia network Trade (2006) • Strong positions in all key regions: 6.0 5.1 Europe, Americas, Asia 5.0 Million tons 4.0 2.8 ~80 • Strategic co-operation with BW Gas 3.0 2.0 2.0 2.0 1.7 1.7 supports Yara’s core business 1.1
Slide 7: Natural scale in ammonia trade and shipping
Natural scale in ammonia trade and shipping 2006 volumes in million tons, excluding Kemira GrowHow Profitable ammonia trade and shipping EBITDA NOK million Trinidad Upstream External Burrup Trinidad purchases & sourcing production production 600 commission Europe volume 515 506 495 500 2.6 0.4 0.3 1
Slide 8: Upstream quality of operations and production growth
Upstream quality of operations Upstream production growth - key for attracting JV partners Fixed costs per ton (fully-owned plants) 100 Benchmarking LTI-rate Ammonia* Thousand Finished fertilizer* (excl. blends) Thousand tons tons 90 0 2 4 6 16,000 6,000 5,493 5,589 13,660 80 Shell (05) 0.9 5,205 5,
Slide 9: Production base creates economies of scale; European low cost leader
Our production base creates economics of scale Yara – the European low cost leader Production cost index: 100 = European EFMA average excl. Yara Global no 1 in NPK Global no 1 in ammonia Global no 1 in nitrates* complex fertilizer Production capacity* (mill t) Production capacity (mill t) Production
Slide 10: Global drivers support our business; sourcing flexibility
Global trend and global drivers support our Sourcing flexibility Sales volumes last 12 months incl. Kemira GrowHow business Million tons 12 Fertilizer demand drivers Population growth / hunger reduction 10 Economic growth 1.6 – More protein consumption in developing countries 8 – Higher consumption
Slide 11: Yara is part of the solution
Yara is part of the solution Fertilizer production and climate gases Feeding the world Environmental Care Bioenergy Production CO2 N2O • Balanced fertilization • Energy-efficient plants • Adding biomass (carbon dioxide) (nitrous oxide) essential for global food with low emissions production for rene
Slide 12: Climate gas emissions from ammonia and nitric acid
50% of Yaras climate gas emissions come from New technology from Yara reduce climate gas ammonia production (CO2) emissions from nitric acid production (N2O) Energy consumtion per ton of ammonia (relative index) Possible reduction: Yara Possible reduction: The industry 140 122 Mill. ton CO2-e pr. ye
Slide 13: Fertilizer as catalyst for solar energy; Sluiskil urea upgrade
Fertilizer is a catalyst for solar energy Yara upgrades urea capacity in Sluiskil Optimal use of fertilizer gives: Description: 1) More biomass and and absorpsion of solar energy Increase urea capacity from 2,400 to 3,500 tons/day 2) Better use of agricultural areas 3) Lower CO2 emissions (when biom
Slide 14: Qafco-5 expansion and Kemira GrowHow strategic move
Kemira GrowHow – Qafco-5 expansion an important strategic move Letter of Intent signed for construction, total cost Kemira GrowHow USD 3.2 billion Supporting Yara’s global growth strategy Revenues 2006 Eastern Additional 4,600 tpd ammonia and 3,850 tpd urea Phosphate: attractive complementary platfo
Slide 15: Components in Yara's Growth Strategy
Components in Yara’s Growth Strategy Yara’s growth ambitions remain firm Mature Markets Reach 10% global market share nitrogen fertilizer over a business North America Europe Distribution cycle (from 2005) Growth Markets Create additional value from strong China India Brazil Other growth (10-15% ann
Slide 16: Grain forward prices give incentives to more planting
Grain forward prices give incentives to more planting and higher yield Maize Wheat USD/bu USD/bu 5.0 10.0 4.0 8.0 6.0 3.0 Fertilizer market attractiveness 4.0 2.0 2.0 1.0 0.0 0.0 2007 2008 2009 2010 2007 2008 2009 2010 USD/bu Soybeans 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2007 2008 2009 2010 Average prices
Slide 17: Grain stocks to drop further; demand drivers for grain
Grain stocks to drop further through June Demand drivers for grain 2008 Population growth Million tons 2,200 1.17% a year, according to UN forecasts for 2005-2010 35% 2,150 2001-2008: 1.7% growth/year 115 days inventory 30% Diet change, linked to economic growth. Even higher effect on other crops 2,
Slide 18: World calorie consumption shifting; biofuel production increasing
World calorie consumption shifting towards meat, fruits and vegetables 2005 consumption relative to 1990 Biofuel production increasing strongly 70% Ethanol Biodiesel million barrels/day million barrels/day 60% Average calorie consumption per person per day in 2005 was 2899kcal, up 5.7% since 1990 50
Slide 19: US ethanol profitable; urea consumption growth restricted by supply
US ethanol production still profitable Urea consumption growth restricted by supply Ethanol versus Gasoline Profitability rebounding with oil Urea consumption ex.China Urea fob Black Sea USD/gallon USD/gallon Million tons USD/ton 3.0 Gasoline (NY RBOB) Ethanol (NY) 1.0 Ethanol cash margin 95 350 2.8
Slide 20: Chinese urea export necessary; delays to new urea capacity
38 Chinese export necessary to cover 10% increase in urea import demand Further delays to new urea capacity 1H 2007 compared to 1H 2006 Global urea capacity Year Driving regions 3.0 DEMAND INCREASE SOURCING growth estimate* World Excluding China World Ex. China 0.6 1.1 2007 4.4% (5.0%) 2.7% (3.0%) C
Slide 21: Main phosphate processing routes; global phosphoric acid capacity
Main phosphate processing routes Global phosphoric acid capacity ex. China 2006 production and exports, million tons P2O5 38 Phosphate rock Production: 52 (72% BPL*, 33% P2O5 ) Export: 10 37 Sulphur** 36 35 million tons P2O5 Phosphoric acid Production: 34 34 (100% P2O5) Export: 5 Ammonia 33 ( 82% N)
Slide 22: Strong increase in value of phosphate production
Strong increase in value of phosphate Strong demand for phosphates, but limited production* supply Value of phos.acid production Value of DAP production USD/ton USD/ton DAP/MAP/TSP consumption ex.China DAP fob Morocco 600 500 Million tons P2O5 DAP price USD/ton Phos.acid 450 20 450 500 price 400 400
Slide 23: China becoming a net phosphate exporter; limited new capacity
China fast becoming a significant net phosphate Limited new phos.acid expansions exporter Global phos.acid capacity DAP net export MAP net export Year Driving regions Million tons Million tons growth estimate* 1.0 1.2 World Excluding China World Ex. China 2007 1.0 0.5 0.8 2007 2007 1.4% -2.2% China
Slide 24: Energy and sourcing strategy
Estimated European energy cost (excl KGH) NOK millions Actual for quarter October 2007 estimate (Yara 3Q report) 600 Energy and sourcing strategy 500 550 Cost change on previous year 400 300 250 200 100 0 (23) (100) (104) (200) (300) (258) 1Q07 2Q07 3Q07 4Q07 1Q08 IR - Date: 2007-11-20 IR - Date: 20
Slide 25: High-cost producers' position improved; energy sourcing flexibility
High-cost producers’ competitive position has improved Improved energy sourcing flexibility in Europe Low-cost gas (LCG) High-cost gas (HCG) Yara’s European energy contract links (pre-GrowHow in brackets): Million tons NH3* Million tons NH3 * Higher energy costs Hub Gas ~35% (~35%) Qafco 1-4 0.5 Slu
Slide 26: LNG expansion fundamental for energy market trends
Increased European forward energy prices LNG expansion is fundamental for the energy Quarterly averages for 2006 and 2007 with forward prices for 2008* market trends and assumed beneficial for Yara USD/MMBtu 14 Yara Europe oil & gas cost (weighted average) 12 11.4 11.4 11.3 11.6 LNG expansion to cre
Slide 27: Strong LNG expansion; globalisation of the gas market
Strong LNG expansion Towards a globalisation of the gas market High rate of expansion in LNG industry 10,00 Even stronger growth projected for • Ongoing expansion in LNG next 5 years capacity will lead to a 9,00 globalisation of the gas market 8,00 $ / M M b tu Fastest growing demand in the • Europe
Slide 28: Gradually more efficient markets in Europe; global gas via LNG
Gradually more efficient markets also in Europe Global gas market through LNG Full cost for development of new LNG capacity should limit the long Substantial increase in LNG market share 8 % in 2005 to 21% in 2015 (IEA, BP, Rabobank) term price differential between Low Cost Gas Regions and High Cost
Slide 29: Gas for power – crude for transport
Gas for power – crude for transport World power generation 1973 - 2004 NG use Europe: Gas for power to increase: World power generation • Oil reduced by 23 % and Hydro Other •Substitutes 1973 21% ”market share” has declined •Coal (Oil) Gas price by more than 70% Coal Resid./ 38% Nuclear Industry Com
Slide 30: Crude premium high; increased decoupling in gas market
Increased decoupling in efficient gas market Crude premium high and at record level today 100 90 Crude vs gas on a calorific value basis 80 Avg. crude1 premium 24% $ / ba rre l oe 70 80% 60 60% 50 40% % p r e m iu m c r u d e 40 20% 30 0% 20 -20% 10 -40% Feb. 2003 Feb. 1996 Oct./Dec. 0 -60% 2005 Nov
Slide 31: Evolution of gas supply-demand balance in EU
Evolution of gas supply-demand Balance in EU Improved energy sourcing flexibility in Europe Assuming that gas demand will grow on average by 2.5% per year BCM 900 12 Increased competition in European Current Supply (incl. Projects) 11 LSFO 1% natural gas markets due to new 800 Current Supply + Under
Slide 32: Scope for increased gas-to-gas contracts
Crude prices to increase relative to gas with Scope for increased gas-to-gas contracts implications for wanted contract structure Expiry of existing oil-linked natural gas contracts Existing oil-linked contracts 60% 48% of European gas Crude linked to transport feedstock contracts linked to 50% 48%
Slide 33: Overall raw material strategic platform including Kemira GrowHow
Overall raw material strategic platform The acquisition of Kemira GrowHow extended including Kemira GrowHow the P2O5 strategic scope for Yara A. External sourcing of raw materials for Yara owned plants Before KGH Yara’s focus was exclusively on rock and phosphoric acid 1,400 kT of phosphate rock (50
Slide 34: Strong recent improvement in P2O5 market; impact for Yara
Strong recent improvement in P2O5 market Impact for Yara The demand for all P2O5 products has increased significantly as a result of higher crop prices and reduced inventory levels of grain We have to expect high sourcing costs for phosphate rock for the coming years Supply of P2O5 products has not
Slide 35: Sokli phosphate rock status / Downstream strategy
Sokli phosphate rock status Still uncertainties related to infrastructure and permits, but ambition for Yara to make mining decision early 2009 1.5 mill tons p.a. phosphate rock concentrate production over 20 years+ Downstream strategy Investment costs tentatively estimated to USD 600-1,000 mill Exp
Slide 36: Downstream key characteristics and role in business model
Downstream key characteristics Downstream’s role in the Yara business model EBITDA, pro forma until 2005 Key financials (USD million) Knowledge Margin USD millions Local market knowledge 500 7,000 Sales, marketing and distribution, plus 1,400 Strong customer relations 444 local production sites clos
Slide 37: Evolution of the Downstream concept; KGH product integration
The evolution of the Downstream concept Kemira GrowHow products integration into From production outlet to business in its own right Yara’s domestic marketing concepts From Product push… …to Market pull Production push Crop specific marketing Leading Product Reposition of KGH overseas brand portfoli
Slide 38: Downstream concept: combining scale and knowledge
Downstream concept: Combining scale and knowledge Yara enjoys an unrivalled global presence Premium Offering focus - depth Global presence... Yara Yara Front Front “Mainstream” focus - breadth office • Limits seasonality office Importer / Importer / Competing Wholesaler Competing Wholesaler • Asset
Slide 39: Sales volumes by market and product
Sales Volumes by Market and Product Components in Yara’s Growth Strategy Volumes last 12 months (ex. Kemira GrowHow) 20.1 million tons Mature Markets North America Europe Distribution Northern Europe 5.6 NPK 7.7 Growth Markets Latin America 4.6 Nitrate 4.8 China India Brazil Other Southern Europe 3.
Slide 40: Growth market Brazil and mature market North America
Growth Market initiative: Brazil Mature Market initative: North America Combining organic and step growth Scale and knowledge in a high tech market Itaqui 1% 9% Recife Aratu The The centre centre is is where where 74% Yara Fertibras Fertibras is is strongest strongest Yara owns owns the the Vitoria
Slide 41: Downstream concept and Premium Offering concept
The Yara Downstream concept – balancing end The Premium Offering concept - Creating shared user needs with competitive strengths value Understanding Shared benefits farmers needs Match needs = with Yara Increased profit competitive strength Identification of value chain Optimize local business model
Slide 42: Downstream value drivers / Industrial strategy
Downstream value drivers Supply/demand balance in local markets Industrial strategy Continuing growth in wealth and dietary habits – focus on food quality Customer and supplier alliances Scale in local distribution and marketing Cost effectiveness in local production Operating capital and risk manag
Slide 43: Industrial products improve production economics
83 Industrial products improve production Three ways to market economics and have stable margins 2006 figures in NOK million Sales revenues by product category (2006) Key financials Downstream EBITDA: 1,960 Scandinavian NOK Million Percent Upstream gases OI: 1,107 800 791 16 EBITDA: 3,563 OI: 1,552
Slide 44: Industrial has effective growth with low capex
Industrial has effective growth Industrial applications add value with low Capex Industrial applications constitute Industrial applications contribute approximately 60% of revenues approximately 75% of EBITDA Selected competitors and Industrial Capex 2005 Capex/Gross sales 15% 12.5% 12% 11.5% 11.4%
Slide 45: Combining product and application strengths
87 Combining product and application strengths Nitrogen business in Europe – steady growth Europe: “Old” EU15, Switzerland and Norway Nutriox® Nutriox® Petrocare® Cleaning Reduktan® Reduktan® Air 1® 1® Fertilizers scrubbing 12000 Nitcal® Tech. nitric acid Industrial Acq. AdBlue 11000 Dipcal® Concent
Slide 46: Industrial strategy based on strong production platform
Industrial strategy – based on strong production Our blue planet faces three main dilemmas platform and end-user applications or challenges… …and Yara is part of the solution Strong growth and competitive position Relationship Application margins margins Nitrogen explosives (Technical AN) Environmen
Slide 47: Yara Industrial structured for growth; YaraPraxair partnership
Yara Industrial is structured for YaraPraxair - solid case for a strong aggressive growth partnership Revenue development YaraPraxair is a truly complementary Industrial Gases Scandinavia partnership NOK million Yara Geographical fit TAN ESP CO2 Praxair 1,000 Technology support Growth opportunities
Slide 48: Strong margin growth for nitrogen explosives
Strong margin growth for nitrogen explosives By targeting the open pit mining segment Yara pursues the key market for ammonium nitrate Volumes EBITDA Kt NOK million 700 200 World market for industrial Ammonium nitrate key value explosives: USD 8 billion ingredient in open pit mining 180 600 160 500
Slide 49: Nitrogen explosives – enhanced platform for growth
96 Nitrogen explosives – enhanced platform World primary energy demand by fuel for growth Mtoe** Coal 2,500 Strong market-driven growth Oil Gas 2,000 Nuclear Increased third-party sourcing Hydro 1,500 Biomass New market positions for nitrogen explosives Other renewables 1,000 New emulsion factories
Slide 50: Growth in environmental and specialty applications
Growth in environmental & specialty applications Cleaning air by removing NOx and H2S Volumes EBITDA Kt NOK million 900 140 Sales volume (kt) 900 800 ~ 22%* 120 800 700 700 100 Sulphide 600 600 abatement 500 80 500 (Calcium Nitrate) 400 60 400 300 300 NOX 40 200 200 abatement 100 20 100 (Ammonia & U
Slide 51: Total solution provider in NOx abatement; PetroCare
Yara – total solution provider in NOX abatement PetroCare – a new oilfield application • Power plants • Industrial Mitigation of hazardous sulphides in the oil industry Total Solutions Offerings Kt Basic MEOR Potential New Segments Total PetroCare™ sales have increased 15% pa during last 3 years 120
Slide 52: Enormous potential for nitrogen-based NOx abatement
Enormous potential for nitrogen-based NOX NOX emissions at sea - a major abatement environmental concern Legislation is the key driver of growth Million tons Million tons • NOx (nitrogen oxides) originate during urea solution urea solution engine combustion. 10 70 Stationary Mobile 60 • Results in a
Slide 53: Yarwil benefits from WMS worldwide network
Yarwil benefits from WMS worldwide network Yarwil solution : ready here and now A leading maritime service company with global network Contract management Design and Production and and customer follow-up Engineering installation on board Able to serve 2200 ports in 116 countries and 389 offices in 7
Slide 54: Dureal acquisition – leader in European AdBlue market
Dureal Acquisition – Yara will be the clear leader in the European AdBlue market Yara signs Letter of Intent with Univar to acquire Dureal Dureal is a division of Univar, offering a complete service for AdBlue Dureal is the clear number three in Europe in market share Kemira GrowHow integration Dure
Slide 55: Integration process; fixed cost synergies identified
GrowHow acquisition GrowHow acquisition Integration process Fixed cost synergies identified Process started following European Commission clearance 21 Main areas for identified synergies/rationalization are: September Overlapping sales and marketing functions Overlapping support functions Current sc
Slide 56: Other synergies and savings; financial reporting structure
GrowHow acquisition GrowHow acquisition Other synergies and savings identified Financial reporting structure Main areas for identified synergies/rationalization are: Yara Optimization of product streams Optimization of logistics Upstream Downstream Industrial Increased production in existing facilit
Slide 57: GrowHow EBITDA by Yara segment; financial scenarios
GrowHow acquisition GrowHow EBITDA by Yara segment (preliminary) EUR millions YTD 3Q07 2006 Downstream 17.2 9.2 Industrial 3.2 7.3 Financial scenarios & sensitivities Upstream 80.7 41.3 Other and eliminations (9.6) (9.2) Total 91.5 48.6 IR - Date: 2007-11-20 IR - Date: 2007-11-20 111 112
Slide 58: Financial highlights 2007; leading fertilizer company
Financial highlights 2007 Yara – a leading fertilizer company 2006 revenues* 2006 net income* Market cap 15 Nov 2007 Strong financial results Yara 7.6 Yara 656 Yara 9.9 Significant volume growth, primarily Brazil Mosaic 5.3 -121 Mosaic Mosaic 27.4 PCS 3.8 632 Robust demand-driven margin PCS PCS 34.7
Slide 59: Energy prices reflected in 2006 returns; segment performance
Energy prices reflected in nitrogen players’ All segments have shown 2006 returns solid performance in the last five years Gross return on assets*, percent 2004 2005 2006 Yara** 21.4 Agrium 24.3 PCS 19.6 Average CROGI over last five years*: 13.4% Agrium 20.2 PCS 22.3 Air Products 17.9 Air Products 1
Slide 60: Financial scenarios; increased European forward energy prices
Financial scenarios Increased European forward energy prices Quarterly averages for 2006 and 2007 with forward prices for 2008* • L12M EBITDA excluding special items and adjusted for USD/MMBtu Model concluded portfolio changes 14 Yara Europe assumptions oil & gas cost • Kemira GrowHow included with
Slide 61: Urea price required to motivate new capacity
Financial scenarios Urea price required to motivate new capacity Fuel oil and natural gas forward price increases has increased substantially OIL PRODUCTS NATURAL GAS USD/ton Construction costs are escalating 2008 average Full-cost urea Qafco-5 estimated to cost USD 3.2 billion => capital cost 600 1
Slide 62: Price and currency assumptions; simplified P&Ls
Financial scenarios Financial scenarios Price and currency assumptions in scenarios Simplified P&Ls for scenarios Last 12 months Today’s prices L12M ending 3Q07 Today’s prices Europe swing** Europe swing*** ending 3Q 2007 + energy forward* Incl. GrowHow* + energy forward** Ammonia fob Black Sea (USD
Slide 63: Swing scenario improved versus CMD 2006
Financial scenarios Financial scenarios Today’s fertilizer prices more than offset Swing scenario improved versus CMD 2006 forward energy cost increases NOK millions NOK millions 12,000 12,000 6,360 1,670 6,360 1,670 10,000 780 9,300 4,280 10,000 780 9,300 4,280 120 120 8,230 4,280 8,230 4,280 8,000
Slide 64: Current price scenario and European swing earnings
Financial scenarios Financial scenarios Current price scenario improved from demand- European swing earnings slightly improved vs. driven scenario in CMD 2006* last year’s scenario in NOK, stronger in USD EPS estimate NOK USD EPS estimate NOK USD • This year’s current prices 19 3.6 • This year 9 1.7
Slide 65: Yara sensitivities; tax assumptions in scenarios
Yara sensitivities: Updated to include Kemira GrowHow Tax assumptions in scenarios EBITDA EBITDA Op. Income EPS** USD million NOK million* NOK million* NOK CAN + 10 USD/t 106 560 560 1.36 The European swing scenario gives a tax rate of 15% Urea + 10 USD/t 24 130 100 0.32 Most of the earnings in asso
Slide 66: Yara capital expenditures; conclusions and outlook
Yara capital expenditures NOK millions 2004 2005 2006 Est. 07 Productivity and Organic growth 1,574 1,525 2,287 ~2,000 Step Growth: - Rossosh 318 Conclusions & outlook - Burrup 610 - Fertibras 1,645 530 - Balderton 355 - Phosyn 156 - Kemira GrowHow 6,550 - Loan to increase SQM ownership 203 (185) TO
Slide 67: Prospects 2008; our uniqueness and global strength
Prospects 2008 Our Uniqueness and Global Strength Grain markets to remain tight, further drop in global grain stocks forecast. Grain Our Business Model creates opportunities prices at historical high levels Global presence European Commission has released the 10% set-aside land in EU15 Sourcing flex
Slide 68: Yara – The Industry Shaper
Yara – The Industry Shaper World-scale production Market and product Positioned leadership for Additional information industry leadership Strong and stable financial performance Business strength from environmental sustainability Solid growth foundation IR - Date: 2007-11-20 Throughout the presentat
Slide 69: Yara value drivers and cash distribution policy
Yara value drivers Yara cash distribution policy: 40 – 45% cash return over the cycle Drivers Effect on Yara’s average profitability and return on capital is well above investors’ US / European gas prices Supply-driven price for urea cost of capital Grain inventories/prices Urea demand Cash distribu
Slide 70: Ambitious targets
Ambitious targets More information can be found at … Solid profitability CROGI over the cycle > 10% as average New investment profitability Ambition: IRR real, after tax > 10% Hurdle rate: IRR real, after tax > 7% Relative competitiveness Gross Return (EBITDA/Total assets) Financial strength Best qu