Yara International ASA. Torgeir Kvidal, Head of Supply & Trade BofA-Merrill Lynch conference London, 7 December 2011

Transcription

1 Yara International ASA Torgeir Kvidal, Head of Supply & Trade BofA-Merrill Lynch conference London, 7 December 211

2 A business strategy geared for global optimization Downstream Upstream Industrial Supply & Trade Scale advantages + Unique + flexibility Unrivalled presence

3 Yara the leader in nitrogen fertilizers Global no 1 in ammonia Global no 1 in nitrates Global no 1 in NPK complex fertilizer Production capacity* (mill t) Production capacity* (mill t) Production capacity* (mill t) Yara CF GDF Agrium PCS Yara Euroc. GDF Acron Agrofert Yara* Euroc. Acron ZAT Rossosh * Incl. companies shares of JVs Source: Yara & Fertecon Source: Fertilizer Europe Source: Fertilizer Europe

4 Yara production capacities Million tons product Outside Europe Europe 2.. Ammonia Nitrate NPK Urea

5 Nitrate-based fertilizers are superior to urea both agronomically and environmentally The agronomical efficiency of nitrates is superior to urea The carbon footprint is lower than for Urea 1 Nitrogen recovery (% of AN) 12 Lifecycle carbon footprint (kg CO 2 eq/kg N) AN Urea UAN AN Urea Urea requires up to 2% higher N application to achieve same cereal crop yield and quality as AN Although urea is more CO 2 efficient in production, CO 2 emissions and ammonia volatilization on application more than offset for this Source: DEFRA (26), NT26 project report; Fertilizer Europe; 2EMEP/EEA air pollutant emission inventory guidebook (27); Yara

6 Nitrate premium is mainly a function of crop prices and proper marketing CAN price, USD/t Wheat price, USD/t /3 3/4 4/5 5/6 6/7 7/8 8/9 9/1 1/11 Adjusted urea* Nitrate premium, USD/t Wheat price * Urea fob Black sea adjusted for import costs into Europe and nitrogen content similar to CAN

7 Long-term grain price development underlines productivity challenge 22-24=1 3 FAO Food price index Food Price Index Cereals Price Index Page 6

8 Grain stocks in exporting regions below average Grain production and consumption Global stocks Million tons 2,4 2,3 2,2 2,1 2, 1,9 1, F Million tons F Consumption Production Main exporters Others Source: USDA, November 211

9 Strong demand in regions that are in season Record Indian import need Brazilian urea import Kilotons Kilotons 8, 3, 7, 6, 2,5 5, 4, 2, 3, 1,5 2, 1, 1, -1, 5-2, Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 211/12 21/11 29/1 28/ Source: Indian Statistics Source: GTIS

10 Significant margin expansion for nitrogen and phosphate fertilizer Nitrogen upgrading margins Phosphate upgrading margins NPK blend premium USD/t 7 USD/t 8 USD/t Nitrate premium above urea Value above gas Yara EU gas cost *25 1 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q Value above raw material NH3*.22 Rock* Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q Margin above blend cost 3 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 Urea CFR proxy CAN proxy (46% N) DAP Blend cost T17 del France

11 Chinese urea cost and domestic price established at higher level in 211 RMB/t 2,4 2,2 2, 1,8 1,6 1,4 1,2 1, Higher coal price lifts floor Demand-driven price during export window 8 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Urea price ex works Anthracite price Source: China Fertilizer Market Week Higher coal prices and focus on emission control and energy efficiency has led to higher domestic urea prices

12 211 net urea export from China ~5% lower Kilotons 8, 7, 6, 5, 4, 3, 2, 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: BOABC

13 Chinese swing price USD 15 higher compared with 28/9 USD/t China swing 8/9 Swing CMD 21 Anthracite price - 21 tariff system Anthracite price tariff system Domestic price tariff system Cash cost Inland transport Tax Producer margin Page 12

14 Projected nitrogen capacity additions in line with historical consumption growth Year 21 China 52% Trinidad 7% 211 China 53% Driving regions Urea capacity growth relative to nitrogen capacity World Excluding China World Excluding China Pakistan 15% 212 China 61% Algeria 1% 213 China 27% Algeria 19% 214 India 16% Indonesia 14% Trinidad 15% Iran 12% Pakistan 31% Iran 15% Algeria 26% Qatar 21% Algeria 27% UAE 17% India 16% Indonesia 14% 2.5% (2.5%) 1.9% (2.%) 2.% (2.%) 1.5% (1.5%) 3.9% (4.2%) 2.5% (3.1%) 2.3% (2.%) 2.7% (2.2%) 1.% (.9%) 1.5% (1.4%) Gross annual addition ~2.1% Assumed annual closures ~.5% Net annual addition ~1.6% Trend consumption growth from % 2.% Source: Fertecon urea update October Algeria capacity aligned with Fertecon ammonia update November 211. Consumption data source is IFA.

15 Last 4 quarters EBITDA exceeds record 7/8 season NOK millions EBITDA 18, 16, Excluding special items 14, 12, 1, 8, 6, 4, 2, 6/7 7/8 8/9 9/1 1/11 L12M

16 Prospects 212 Current agricultural prices provide healthy farm economics, with good incentives for continued strong fertilizer demand Limited new capacity outside China, roughly in line with trend consumption growth Urea prices likely to operate between demand-driven pricing and Chinese price floor around USD 36 fob Black Sea At current grain prices, rebound in European deliveries likely during first half

17 Price and currency assumptions in scenarios Last 4 quarters 5-year avg. to 3 Sep 11 Chinese swing* Demanddriven** Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) Nitrate premium, USD/t Phos rock fob North Africa (USD/t) DAP fob Morocco (USD/t) Zeebrugge natural gas (USD/MMBtu) Henry hub natural gas (USD/MMBtu) Yara s European energy price (USD/MMBtu) Brent blend crude oil price (USD/bbl) NOK/USD * Ammonia and urea prices equal to marginal producers cash cost, energy prices are forward prices as of 21 November ** Given example to illustrate effect of urea price USD 15 per ton above marginal cost.

18 Demand-driven USD 15 per ton margin on urea improves EPS by close to NOK 3 NOK Swing CMD 1 Price/margin Energy Currency Swing CMD 11 Price/Margin Demand-driven scenario

19 Well positioned for profitable operations and growth Strong need for sustainable improvements in agricultural productivity Yara s premium products provide additional productivity while also addressing climate change and water scarcity challenges Committed to delivering sustained shareholder value generation, through profitable growth and cash returns

20 Growth in production has resulted in significantly improved earnings Million tons In five years Yara s OPP/JV sales grew by almost 3%

21 We aim to increase own-produced and JV volumes by 8 million tons by 216 Million tons External OPP/JV sales In the five years to 216, Yara s OPP/JV sales will grow by 4% 21 Qafco, Sluiskil and Porsgrunn expansions Remaining 216

22 More information can be found at

23 Yara sensitivities *Assuming 3% marginal tax rate on underlying business and million shares ** Net fixed costs in EUR and NOK Operating Income USD million EBITDA USD million Urea sensitivity +1 USD/t 944 1, of which pure Urea of which Nitrates of which NPK Nitrate premium +5 USD/t EPS* of which pure Nitrates Hub gas Europe + 1 USD/MMBtu (9) (11) (.3) Ammonia + 1 USD/t Phos rock + 5 USD/t Hub gas North Am + 1 USD/MMBtu (27) (27) (.1) Crude oil + 1 USD/brl (8) (8) (.2) Currency + 1 USD/NOK ** USD Sensitivities assume stable value-added margins and no inter-correlation between factors

24 Simplified P&Ls for scenarios NOK Last 4 quarters 5-year avg. to Chinese 3 Sep 211 2) swing Demanddriven EBITDA 1) 14,8 15,2 13,5 23,6 Depreciation -2,6-2,6-2,6-2,6 Interest expense Income before tax 11,4 11,9 1,2 2,3 Tax -2,4-2,8-2,1-4,5 Net income 9, 9,1 8,1 15,8 Number of shares (millions) Earnings per share (NOK) Currency translation +1 USD/NOK 2,6 2,55 2,3 4,1 1) Including interest income, assumed in line with last 4 quarters in all scenarios. 2) Not historical earnings, but estimated earnings for today s Yara business, using 5-year average price conditions.

25 Global downstream presence with sales offices in more than 5 countries 51% Europe 1.3 mill tons 13% North America 2.7 mill tons 11% Asia 2.3 mill tons 7% Africa 1.4 mill tons 18% Latin America 3.6 mill tons Sales Yara plants Joint venture plants Sales offices

26 Basis for Yara s profitable growth ambitions Yara CROGI 25 % 2 % 15 % 1 % 5 % % Strong earnings through the cycle L12M A scalable business model giving synergies Long term target Industry-leading acquisition track-record Valuation and capital discipline In acquisitions Yara looks for: Relative synergies compared to alternative buyers Distressed sellers Our cycle view compared to seller & alternative buyers Capital and valuation discipline demonstrated with Terra withdrawal which we believe was right Grain, fertilizer and gas outlook has recently improved increasing nitrogen asset values

27 Significant growth in finished fertilizer capacity Urea expansion in Sluiskil 211 Qafco expansion 211/12 NPK expansion 213 Million tons Million tons Million tons Before U7 New capacity After U Qafco 5 Qafco NPK capacity 211 Expansion NPK capacity 213

28 Earnings before interest, tax, depreciation and amortization (EBITDA) NOK millions 7, 6, 6,215 6,89 EBITDA excluding special items 6,587 5,444 5, 4, 3, 2, 3,988 1,626 2,36 1, ,394 3,251 2,992 2,486 4,281 3,455 1, Annual NOK millions 17,917 5,549 15,315 13,18

29 Earnings per share* NOK 2 EPS excluding currency and special items Annual NOK * Average number of shares for 3Q 211: million (3Q 21: million).

30 Net debt development 9, NOK millions 8,281 8, 7, 6, 962 5, 4, 3, ,961 3, 2,488 2, Net interestbearing debt Jun 11* Cash earnings** Dividends received from equity accounted investees Net operating capital change Rossosh divestment, including dividend Investments (net) Share buybacks and redemption of shares Yara dividend Foreign exchange gain/(loss) Other Net interestbearing debt Sep 11 * Included in net interest-bearing debt are external bank time deposits (4-12 months), this is part of other current assets in balance sheet ** Operating income plus depreciation and amortization, minus tax paid, net gain/loss on disposals, net interest expense and bank charges

31 Debt/equity ratio Net interest-bearing debt / equity ratio (end of period)

32 Fertilizer sales volumes Kilotons 7, Outside Europe Europe 6, 5, 4, 3, 2, 6,284 6,17 2,575 3,15 3,71 3,2 4,742 2,18 2,562 3,496 1,54 1,956 5,21 5,216 5,129 4,882 4,791 2,658 2,765 2,146 2,29 2,355 2,983 2,592 2,551 2,451 2,436 5,474 4,759 2,91 4,914 2,412 2,514 2,347 2,564 2,4 5,481 2,543 2,937 4,97 4,834 2,715 2,617 2,256 2,216 1, Accumulated, Kt Fin. fertilizer 2,54 2,99 2,276 15,285

33 Yara production volume* Finished fertilizer Ammonia Kilotons 5, Kilotons 2,5 4,5 4, 2, 3,5 3, 1,5 2,5 2, 1, 1,5 1, Urea Nitrates NPK CN UAN * Including share of equity-accounted investees

34 Low European producer nitrate stocks Index, June 27= Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 11/12 7/8 8/9 9/1 1/11 Source: Fertilizers Europe, September estimate from Yara

35 Spot natural gas versus Yara average Yearly averages 25 29, quarterly averages for with forward prices* for 4Q11 and 1Q12 USD per MMBtu Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 4Q11 1Q12 US gas price (Henry Hub) Yara Global Zeebrugge day ahead Yara Europe *Dotted lines denote forward prices as of 7 October Source: Yara, World Bank, Platts

36 Yara nitrate sales Share of annual sales 12% 1% 8% 6% 4% 2% % Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 1/11 Avg 5/6-9/1 seasons

37 Quarterly urea trade Million tons Source: IFA, Iran from GTIS

38 Yaras operating cash costs are mainly variable Operating cash costs 21 NOK billions 6 5 Temporary plant closures can be made speedy and with limited stop/start costs Variable costs (89%) - Raw materials - Energy - Freight - 3rd party finished fertilizer Example for ammonia/urea plants: Takes half a week to stop and a week to start Cost of stopping is 2 days energy consumption Other cash cost (11%) Cost of starting is 3 days energy consumption

39 Yara flexibility to produce or import ammonia in Europe Million tons Yara can swing 2/3 of European ammonia production without affecting fertilizer production Land-locked plants**.5 Yara Europe* Flexible Non-flex Almost all Yara nitrate and NPK capacity has ammonia import flexibility Yara can mitigate high European energy costs or take advantage of low ammonia prices by closing ammonia production and run most of nitrates and NPK based on imported ammonia. * Including equity share of joint venture capacity ** Yara European site without deep sea ammonia import/export terminals: Tertre

40 Current anthracite price and tariff system implies swing price of USD 37 USD/t Swing CMD 21 Anthracite stable at higher level Break-even & 7% (21 regime) Base price lowered to RMB 2,1 Break-even & 18% tax (211 regime) Current domestic price > break-even Current domestic price & 34% tax Formula for calculating the tax rate is (1.7 - (RMB 2,1 / FOB price))*1%

41 Key value drivers quarterly averages Zeebrugge day ahead(usd/mmbtu) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) Q 1 4Q 1 1Q 11 2Q 11 3Q Q 1 4Q 1 1Q 11 2Q 11 3Q Q 1 4Q 1 1Q 11 2Q 11 3Q 11 US gas price Henry Hub (USD/MMBtu) Ammonia fob Black Sea (USD/t) NOK/USD exchange rate Q 1 4Q 1 1Q 11 2Q 11 3Q Q 1 4Q 1 1Q 11 2Q 11 3Q Q 1 4Q 1 1Q 11 2Q 11 3Q 11 Source: Fertilizer Market Publications, CERA, World Bank, Norges Bank

42 1-year fertilizer prices monthly averages Ammonia fob Black Sea USD/t 1, CAN cif Germany USD/t Urea prilled fob Black Sea USD/t Source: Average of international publications DAP fob US Gulf USD/t 1,2 1, Average prices 21-21