Yara International Asa · OSL:YAR
Yara International Asa — Investor Day (December 2008)
46 slides from Yara International Asa's investor day presentation, Dec 9, 2008
Slide 1: Capital Markets Day 2008
Capital Markets Day 2008 9 December 2008
Slide 2: Content
1 Content z Track record and strategy z Fertilizer market attractiveness z Business uniqueness and flexibility z Financial performance and scenarios Track record & strategy z Conclusions and outlook IR - Date: 2008-12-09 1 2
Slide 3: Immediate CEO agenda; Unique business model
3 4 Immediate CEO agenda Unique business model Industrial z Meet challenging market situation with action-oriented approach z Drive productivity and optimization Downstream Business concepts that Upstream exploit combined strength Industrial z Volatility creates growth opportunities z Financial disc
Slide 4: Six pillars of strength for global leadership
5 6 Six pillars of strength for global leadership Yara has shown a return* Global #1 in: significantly above cost of capital Ammonia z Leadership in ammonia value chain and large scale ammonia/ Cash Return On Gross Investment** urea production base also in low-cost natural gas regions 35% Nitrates z
Slide 5: Step growth with financial discipline remains a key virtue in Yara
7 8 Step growth with financial discipline Yara has a strong financial position remains a key virtue in Yara Million tons Established product ~10% market Net interest-bearing debt / equity ratio USD credit lines share z Yara will be ready for step billions 1.20 40 growth beyond current 6 1.06 5.5 5.3
Slide 6: Distribution – Market Pull; Yara has executed successful step growth
9 10 Yara’s targeted step growth categories unchanged Distribution – Market Pull Yara has executed successful step growth Consolidation in Mature Markets North America West Europe z Yara has executed several major step growth initiatives: Growth Markets Fertibras (2006) Brazil China India FSU Othe
Slide 7: Kemira GrowHow and Saskferco integration
11 12 Kemira GrowHow: Saskferco: Good timing and quick integration Already integrated with attractive profit NOK Kemira GrowHow EBITDA Alberta, Henry hub and Zebrugge gas z Well on track to reach fixed cost savings of millions z Strong synergies with Agrico Canada USD/ MMBtu YTD 2008 EUR 25-30 milli
Slide 8: Attractive project pipeline without need for additional financing
13 14 Attractive project pipeline without need for additional financing Current market slow-down z Libya JV closing expected December / January z We currently see a substantial slow-down in the global economy, also influencing fertilizers z Siilinjärvi 150 kt rock expansion ready 4Q 2009 z Yara fert
Slide 9: Actions taken; Fertilizer market attractiveness
15 Actions taken z Nearly all purchases from third party producers stopped z Desired inventory level reached through selected production cuts z Increased financing capacity to manage wanted inventory build-up before peak season Fertilizer market attractiveness z Modified commercial strategy adapting
Slide 10: Will new capacity come on stream as planned?
17 18 Topics to be covered Will new capacity come on stream as planned? Global urea capacity Year Driving regions growth estimate* z Limited number of new projects World Excluding China World Ex. China z Grain stocks are close to minimum historical levels, and demand relatively 2007 4.5% 2.4% China
Slide 11: Only 25% of historic urea projects realized as planned
19 20 Only 25% of historic urea projects realized as 5 year typical construction time for nitrogen planned fertilizer projects* 4–6 years Project list as of January 2003 Number of projects No delay 1 year 2 years or more Disappeared 3 4 13 4 2 Business development Concept Prepare Feasibility selecti
Slide 12: Lower volatility in nitrogen demand; grain stocks close to minimum
21 22 Current grain stocks are close to minimum Lower volatility in nitrogen demand levels, based on empirical evidence 8% Million tons 6% 2,300 35% Year-on-year consumption growth 4% 115 days inventory 2,200 30% 2001-2008: 1.7% growth/year 2% 25% 2,100 0% 20% 2006/07 2007/08 2008/09 2009/10 2,000 C
Slide 13: 2009 margin outlook for US corn farmers
23 24 2009 margin outlook for US corn farmers lower Agricultural commodity prices at 2007 levels than record 2008, but better than 2006 USD/ bu Corn Wheat 5.5 Corn price 5.0 4.5 Corn price 4.0 Corn price 3.5 3.0 Corn price 2.5 Soybeans Rice Logistics 2.0 Other variable 1.5 K P 1.0 N 0.5 0.0 2006 200
Slide 14: Food consumption in Asia crisis; US ethanol production
Food and protein consumption little affected in 25 26 Asia crisis US Ethanol production still growing % Indonesia Thailand 9 9 7 7 5 5 3 3 1 1 -1 -1 Mandatory blending target 2009=614 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2
Slide 15: Industrial nitrogen demand affected by financial crisis
27 28 Industrial nitrogen demand is affected by the US ethanol production still profitable, but financial crisis, particularly ammonia blending is not Ethanol versus Gasoline Profitability still positive 22.2 million tons N 6.8 million tons N as urea USD/ USD/ gallon gallon Other Environment 4.0 1.0
Slide 16: AdBlue development; China as buffer on nitrogen pricing
29 30 AdBlue developing as predicted in Europe, strong market China has acted as a buffer on nitrogen pricing development expected also in North America Million USD/t European Yara sales development North American Market* tons Chinese exports Fob urea Black Sea Kt Kt 6 600 product product 250 6,000
Slide 17: Chinese urea export tax and margins
31 32 Chinese urea export tax impacts the urea Chinese urea margins squeezed by declining market urea prices and increased energy costs USD/ Export ton tax 900 200% RMB/ RMB/ ton Coal price in main coal producing provinces ton 800 180% 3,000 1,000 700 160% 900 2,500 140% 800 600 Export tax 120% 700
Slide 18: Indian urea inventories; urea trade down in 3Q 2008
33 34 Indian urea inventories reduced: higher imports necessary? Urea trade down 22% in 3Q 2008 3Q 2008 compared to 3Q 2007 Kt 7,000 0 07/08 -200 6,000 Sales - Production -400 5,000 -600 -800 -603 kt urea 06/07 4,000 -1,000 08/09 -1004 3,000 -1,200 -517 -185 -1,400 -1763 2,000 -142 05/06 -320 -124 -
Slide 19: At least 10% of global urea capacity closed; Summary
35 36 At least 10% of global urea capacity closed Summary List of announced urea closures: Achema (Lithuania) z At least 12 million tons of annual Acron Novgorod (Russia) z Due to: Acron Dorogobuzh (Russia) capacity closed outside China Amonil (Romania) Low income elasticity of demand Azomures (Ro
Slide 20: Multiple sources of flexibility; Business uniqueness and flexibility
38 Multiple sources of flexibility z Most costs are variable, not fixed z Flexible sourcing of energy, raw material and dry bulk freight z Flexibility to import or produce ammonia Business uniqueness and flexibility z Flexibility on product grades in production z Third-party products give a buffer t
Slide 21: Operating cash costs mainly variable; spot natural gas exposure
39 40 Yaras operating cash costs are mainly variable Increased spot natural gas exposure in Europe NOK Operating cash costs NAT. billions L12 M GAS OIL- 35% 80 z Temporary plant closures can be LINKED 45% made speedy and with limited 70 stop/start costs 70% 60 SPOT 45% z Example for ammonia/urea pla
Slide 22: Yara ammonia flexibility better than European industry
41 42 Yara can choose whether to produce or import Yara ammonia flexibility better than European ammonia industry Million tons 6 5.1 3.2 5 z Yara can swing 2/3 of European Yara’s flexibility is ammonia production without enhanced by its 4 affecting fertilizer production position as the global leader
Slide 23: European gas volatility and production curtailments
43 44 High volatility in European natural gas market Yara production curtailments mitigate current increases arbitrage opportunities slow-down and low ammonia price USD/ Million Global production capacity* MMBtu European energy cost Higher gas price seasonality tons 18 8.0 7.6 16.3 December* 12 in E
Slide 24: Ammonia curtailments and natural gas flexibility savings
45 46 Current ammonia curtailments are significant Natural gas flexibility gives significant savings compared to traded volumes Effect of ammonia Lower 4Q energy USD/ purchase flexibility NOK cost due to Million MMBtu (December est.) millions spot exposure tons 12 1,200 30 1,100 400 ~10 Curtailments
Slide 25: Lower freight rates and no price commitments on 2009 P&K supply
47 48 Yara positioned to benefit from lower freight No price commitments on 2009 P&K supply rates for dry bulk H a n d y m a x in d e x 2 0 0 3 ‐2 0 0 5 S u p ra m a x in d e x 6 T / C 2 0 0 6 ‐ Million Raw material purchases 2008E USD/ 80000 tons ton 70000 3.0 z Approx. 60% old COAs* and 40% spot i
Slide 26: Productivity track record; third-party sourcing flexibility
49 50 Productivity track record Third-party sourcing gives flexibility ‘000 tons 7,000 Production - ammonia* Fixed costs per ton 6,000 5,759 Index (fully-owned plants) 5,493 Kt 4,927 4,908 4,991 5,205 5,296 5,000 4,768 120 4,206 300 4,000 z Third-party sourcing 3,000 100 250 reduced to mitigate sale
Slide 27: Yara the nitrate and NPK low-cost leader; Kemira GrowHow synergies
51 52 Increased NPK production by Kemira GrowHow Yara – the nitrate and NPK low-cost leader synergies, an example Production cost index: 100 = European EFMA average excl. Yara 2007: Ammonia cost position Nitrate cost position NPK cost position * z Lack of of nitric acid for NPK in Index Index Index
Slide 28: NPK synergies example (cont.); Downstream concept
53 54 Increased NPK production by Kemira GrowHow Downstream concept combines scale and synergies, an example (cont.) knowledge 2008: Increased Importer / Importer / export Wholesaler Mainstream focus - BREADTH Wholesaler z Denmark nitric acid deliveries from Porsgrunn ilo Uusikaupunki Finland Premiu
Slide 29: Premium offerings: sustainable benefits and lower volatility
55 56 Premium offerings: sustainable benefits and Most fertilizer companies are regional with lower volatility limited product portfolios Kt 50 Calcium nitrate in Brazil 44 41 Paulo Reghin 40 Grower – Brazil 34 ‘I expect to harvest 30 28 25 20 18% more this year because of Yara Nutrition program, an
Slide 30: Global production system supports Downstream network
57 58 Yara global production system supports Downstream network Storage capacity increases flexibility Yara Global 36% Europe Plants 2.05 million tons North America 15% 0.83 million tons Supply & Trade Downstream Asia 18% 1.05 million tons Latin America 22% 1.25 million tons Africa 9% 0.52 million t
Slide 31: Optimization opportunities throughout the value chain
59 60 Optimization opportunities throughout the Downstream business creates partnerships value chain Raw material Asset Commercial Market Crops QAFCO optimization optimization optimization development Production site 1 NPK Rock Rossosh Burrup Gas CN Production site 2 SQM NH3 Nitrates Production site
Slide 32: Stable nitrate market share in Europe
61 62 Stable nitrate market share in Europe European nitrate deliveries have continued European nitrogen consumption and market share by product June 1998 – July 2008 Kt N EUR/t Kt 300,000 400 361 368 12,000 60% 342 313 350 250,000 298 10,000 50% 300 200,000 8,000 40% 250 150,000 200 6,000 30% 150 4
Slide 33: Financial highlights 2008
64 Financial highlights 2008 Earnings per share adjusted for foreign z Strong financial results exchange gain / loss and special items NOK z Substantial demand-driven 16 15.19 Financial performance & scenarios margin improvement three first quarters 14 12 13.33 10 8.98 z Sales slow-down in fourth 8
Slide 34: US dollar debt and special items
65 66 US dollar debt is natural in an industry where revenues and costs are mostly dollar-based Special items October and November 2008 Currency gain/loss reported in Yara’s profit&loss statement is mainly a result of z Inventory write-down USD 140 million the following positions: z Kedainiai closur
Slide 35: Competitive with lower earnings volatility; high replacement cost
67 68 Yara’s business has been highly competitive High replacement cost with lower earnings volatility for Yara’s nitrogen and NPK production Yara and peers net income 2003-2007 USD Production capacity* Investment cost* Replacement cost* millions 1,200 Million USD/ USD tons ton billions 25 1,000 8 7
Slide 36: Replacement cost of assets and Yara sensitivities
69 70 Total replacement cost of Yara’s assets Yara sensitivities overstate above NOK 500 per share actual volatility of Yara’s cash flow Operating Operating Income EBITDA Income EBITDA USD USD NOK NOK EPS** z Replacement cost for Yara nitrogen production cost approximately NOK million million millio
Slide 37: Fertilizer and energy prices strongly correlated
71 72 Fertilizer and energy prices strongly correlated Yara has an effective natural hedge on energy Urea fob Black Sea USD/t Index z Sensitivities overstate Yara’s real 900 600 energy cost exposure 800 z Positive relation between nitrogen 500 prices and energy prices in supply 700 driven periods 60
Slide 38: Financial scenarios are not forecasts; natural currency hedge
73 74 Financial scenarios are not forecasts, but Yara has a natural partial hedge on currency illustrate potential earnings in given situations Urea fob Black Sea USD/t Basis: 900 • Last 12 months (L12M) EBITDA excluding special items z Sensitivities tend to overstate Yara’s Model and position gains
Slide 39: Price and currency assumptions in scenarios
75 76 Financial scenarios Price and currency assumptions in scenarios Reduced European forward energy prices USD/ 5-year average MMBtu Quarterly averages for 2007 and 2008 with forward prices for 2009* 12 months to European Demand- to 30 Sep 2008 swing* driven** 14 Yara Europe 30 Sep 2008 12.5 oil &
Slide 40: Simplified P&Ls for scenarios
77 78 Financial scenarios Financial scenarios Simplified P&Ls for scenarios Stronger USD and Saskferco acquisition improve swing scenario earnings 12M to 30 Sep 5-year average European Demand- NOK NOK 2008 incl. to swing driven millions Saskferco* 30 Sep 2008** z Earnings improved by 18,000 EBITDA 1
Slide 41: Demand-driven scenario; limited earnings effect of lower volumes
79 80 Financial scenarios Demand-driven USD 100 per ton margin on urea Limited earnings effect of lower volumes improves EBITDA by approx. 75% NOK millions 18,000 z The scenarios assume sales volumes in line with last 12 months 6,800 16,100 16,000 14,000 z Lower urea- and ammonia volumes in Europe w
Slide 42: Potential operating capital release; satisfactory funding
81 82 Potentially large net operating capital release Satisfactory available funding after spring 2009 due to lower prices and maturity profile Net operating capital* Available NOK billions USD financing lines 25 billion z Significant new short- 21 6 5.5 5.3 term funding secured in 20 5.1 5.1 2. hal
Slide 43: Prospects 2009; Conclusions & outlook
84 Prospects 2009 z Grain inventories remain at historical lows despite strong 2008 harvest z Short-term slow-down in fertilizer deliveries due to credit crunch and wait-and-see attitude Conclusions & outlook with falling commodity prices z Food and fertilizer demand less exposed to lower global gro
Slide 44: Yara – The Industry Shaper
85 Yara – The Industry Shaper z Business uniqueness and flexibility z Market and product Positioned leadership for industry leadership Other information z Strong and stable financial performance z Business strength from environmental sustainability z Solid growth foundation IR - Date: 2008-12-09 Thr
Slide 45: Chinese export tax impacts the phosphate market
87 88 Chinese export tax impacts the phosphate Consolidated supply of phosphates market Kt USD/ P2O5 ton 1,400 160% 3,500 22% 21% World trade: 15.2 million tons P2O5 140% 1,200 3,000 16% Export tax 120% 1,000 2,500 100% 800 2,000 80% 600 DAP fob US Gulf 1,500 60% 400 1,000 40% 200 20% 500 0 0% 0 May
Slide 46: Yara cash distribution policy; corporate targets
89 90 Yara cash distribution policy stay firm: Corporate targets 40 – 45% cash return over the cycle z Solid profitability z Yara’s average profitability and return on capital is well above investors’ CROGI over the cycle > 10% as average cost of capital Cash distribution must be balanced agains