Yara International ASA Second quarter results Anders Lerstad, Investor Relations July 2011

Transcription

1 Yara International ASA Second quarter results 211 Anders Lerstad, Investor Relations 2-21 July 211

2 1 Summary second quarter Strong results driven by improved margins Lower production due to plant turnarounds and Lifeco stop Volumes up 4% but drought impacted sales in Europe New European fertilizer season progressing well

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

4 3 Net debt development NOK millions 8,5 8, 7,5 7,482 1, ,281 7, 6,5 62 6, 61 5,5 5, 2, ,5 Net interestbearing debt Apr Cash earnings** 11* Dividends received Net operating capital change Investments (net) Yara dividend Foreign exchange gain/(loss) Other Net interestbearing debt Jun 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

5 4 75% of nitrate sales at new season price Share of 2Q sales Nitrate sales in 2Q11 Share of Nitrates sold at peak prices 5 % 6 % 45 % 4 % 5 % 35 % 3 % 4 % 25 % 3 % 2 % 15 % 2 % 1 % 5 % % Apr May Jun 1 % % 2Q11 2Q1 Sold at peak price New

6 5 Low European producer nitrate stocks Index, June 27= Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 1/11 6/7 7/8 8/9 9/1 Source: Fertilizers Europe, June estimate from Yara

7 6 Nitrate premium Nitrate premium proxy* 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % % Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Avg 2-7 9/1 season 1/11 season * Urea fob Black Sea adjusted for freight (USD 35) and duty (6.5%) to calculate a CFR NWE proxy

8 7 Strong farm incentives FAO price index Index /2 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/21 1/211 Food Price Index Cereals Price Index Source: FAO

9 8 Stocks-to-use decline despite strong incentives and record production Million tons 2,3 2,25 2,2 2,15 2,1 2,5 2, 1,95 1,9 1,85 1,8 Grain production and consumption Production Consumption F Days of consumption in stocks Days F Source: USDA, July 211

10 9 Strong market for all nutrients Urea prilled fob Black Sea DAP fob US Gulf MOP fob Vancouver USD/t USD/t USD/t Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Source: Fertilizer Market Publications

11 1 Projected nitrogen capacity additions in line with historical consumption growth Year 21 China 5% Trinidad 8% 211 China 54% Driving regions Urea capacity growth relative to nitrogen capacity World Excluding China World Excluding China Pakistan 14% 212 China 56% Algeria 18% 213 China 4% UAE 13% 214 India 17% Indonesia 15% Trinidad 15% Iran 12% Pakistan 3% Iran 15% Algeria 41% Qatar 17% UAE 21% Iran 2% India 16% Indonesia 15% 2.5% (2.6%) 2.% (2.%) 2.1% (2.2%) 1.5% (1.7%) 4.3% (4.3%) 3.1% (3.1%) 2.2% (2.%) 2.2% (2.%).9% (.8%) 1.6% (1.6%) Gross annual addition ~2.1% Assumed annual closures ~.5% Net annual addition ~1.6% Trend consumption growth from % 1.8% Source: Fertecon update July 211, IFA on consumption figures

12 11 Increasing Chinese urea cost and price RMB/t 2,4 2,2 2, 1,8 1,6 1,4 1,2 1, 8 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Urea price ex works Higher coal price lifts floor Anthracite price Demand driven price increase Higher coal prices, increased exports and focus on emission control and energy efficiency has led to higher domestic urea prices Source: China Fertilizer Market Week

13 12 Chinese urea export price logic USD/t Based on anthracite price and old tarif system Based on current reference price and zero plant profit Based on current domestic price

14 13 Prospects third quarter 211 New European season progressing well Yara ammonia production expected to be in line with second quarter; finished fertilizer expected to run at full capacity excl. Lifeco Progressive export tax means Chinese export volumes are more sensitive to domestic price level Low nitrate inventories in Europe

15 14 Prospects next twelve months Global agriculture markets are strong, with FAO food price index up 39% from last year Expected decline in grain stocks-to-use underlines need for further improvement in agricultural productivity Global nitrogen fertilizer industry outside China running at full capacity Chinese 11% urea export tax planned from 1 November Yara s energy costs for next half year expected up NOK 1.4 billion compared with last year

16 Additional information

17 16 Strong season with increased nitrogen deliveries Million tons USA Million tons West Europe % % /8 8/9 9/1 1/11 Production Net imports. 7/8 8/9 9/1 1/11 Domestic Imports Source: Yara estimate for fertilizer deliveries to selected West European countries. Total nitrogen deliveries estimate in USA based on TFI, US Trade Commission, Blue-Johnson

18 17 Yara sensitivities Operating Income USD million * Assuming NOK/USD = 6, USD/EUR = 1.36 and constant NOK/EUR EBITDA USD million ** Assuming 3% marginal tax rate on underlying business and million shares Operating Income NOK million EBITDA NOK million Urea sensitivity +1 USD/t 951 1,9 5,695 6, of which pure Urea ,797 2, of which Nitrates ,25 2, of which NPK ,38 1, Nitrate premium +5 USD/t ,437 2, EPS** of which pure Nitrates ,75 1, Hub gas Europe + 1 USD/MMBtu (9) (11) (53) (62) (1.7) Currency + 1 NOK/USD 9 9 2,139 2, of which translation effect - - 1,6 2, and EUR & NOK net fixed cost Ammonia + 1 USD/t Phos rock + 5 USD/t Hub gas North Am + 1 USD/MMBtu (27) (27) (159) (159) (.4) Crude oil + 1 USD/brl (8) (8) (479) (479) (1.3) Sensitivities assume full production and no inter-correlation between factors NOK

19 18 Financial scenarios Price and currency assumptions in scenarios 12 months to 3 Sep 1 5-year average to 3 Sep 1 Chinese swing* Demand -driven** Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) Nitrate premium (% above Nitrogen in Urea) 23% 32% 25% 25% Phos rock fob North Africa (USD/t) Zeebrugge natural gas (USD/MMBtu) Henry hub natural gas (USD/MMBtu) Brent blend crude oil price (USD/bbl) Yara s European energy price (USD/MMBtu) NOK/USD USD/EUR * Ammonia and urea prices equal to marginal producers cash cost, energy prices are forward prices as of 26 November ** Given example to illustrate effect of urea price USD 15 per ton above marginal cost.

20 19 Financial scenarios Simplified P&Ls for scenarios NOK 12M to 3 Sep 21 * 5-year average to 3 Sep 21** Chinese swing Demanddriven EBITDA 8,7 13, 9,5 21, Depreciation (2,5) (2,5) (2,5) (2,5) Net finance (1,) (7) (7) (7) Income before tax 5,2 9,8 6,3 17,8 Tax (1,2) (2,2) (1,2) (4,1) Net income 4, 7,5 5,1 13,7 Number of shares (millions) Earnings per share (NOK) Earnings per share (USD) * Excluding foreign exchange gain/loss, special items and energy arbitrage ** Not historical earnings, but estimated earnings for today s Yara business, using 5-year average price conditions.

21 2 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

22 21 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

23 Structure for Growth Geographical Focus Regional updates 22 Market North America West Europe Brazil East Europe China India Industry Characteristics Consolidated Mature, with some consolidation remaining; non-core assets available Capacity expanding, ownership shift, strong state interest/scrutiny Consolidation and rationalization yet to take place Over-supply, capacity expanding, limited consolidation, heavy state involvement Some consolidation, feedstock poor, still subsidy driven Yara focus and actions Market structure settled in short to medium term map strategic intentions of key players in both market stress and boom scenarios and develop Yara response One more major acquisition likely possible; look for assets made available by sellers dedicated to restructuring As the battle has been for phosphate dominance, a role as industry shaper in nitrogen could be attainable; map alternatives for achieving such a role Potentially attractive producers and market positions exist; map and rank these in light of energy situation and political risk Given intense competition, high political risk, market barriers, unlikely to be investment destination for at least 3 5 years Unless major changes in subsidy policy, not likely to be focus area for fertilizer in the short to medium term. TAN is possible exception In addition opportunities to build global plants for export are being pursued in areas like Africa and Middle East

24 23 Net income after non-controlling interests NOK millions 5, 4,354 4, 3, 2, 1, 2,88 3, , ,716 1,927 1,424 1,522 1,564 2,889 2,225-1, -2, -3, -2, Annual NOK millions 8,228 3,782 8,729 5,114

25 24 Earnings before interest, tax, depreciation and amortization (EBITDA) NOK millions 7, 6, 6,215 6,89 EBITDA excluding special items 6,587 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 7,736

26 25 Variance analysis Yara group NOK millions 2Q 211 EBITDA 211 3,455 EBITDA 21 6,587 Variance EBITDA (3,132) Volume & mix 29 Price/Margin 2,177 Oil & gas costs in Europe (915) Special items (3,944) Other (125) Conversion (NOK vs. USD)* (354) Total variance explained (3,132) * Based on average NOK per USD rate for the quarter 211: 5.44 (21: 6.22)

27 26 Share of net income in equity-accounted investees NOK millions 2Q 211 2Q 21 Qafco Tringen Rossosh 53 4 Burrup 71 (25) GrowHow UK Ltd Lifeco (76) 35 Other Total

28 27 Debt/equity ratio Net interest-bearing debt / equity ratio (end of period)

29 28 Fertilizer volumes up 4% on last year 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 5,476 2,543 2,933 4,967 2,715 2,252 1, Accumulated, Kt Fin. fertilizer 2,54 2,99 2,276 1,443

30 29 Yara 2Q fertilizer sales by market and product 211: 5. million tons (21: 4.8 million tons) Kilotons 2,5 2,347 2,25 2Q1 2Q11 2, 1,5 1, Europe Latin America Asia North America Africa Kilotons 3, 2Q1 2Q11 2, 1,458 1,492 1,163 1,29 1,219 1,75 1, NPK Nitrate Urea Other products UAN CN

31 3 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

32 31 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

33 32 Spot natural gas versus Yara average Yearly averages 25 29, quarterly averages for 21 and 211 with forward prices for 211* USD per MMBtu Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 4Q11 US gas price (Henry Hub) Yara Global Zeebrugge day ahead Yara Europe *Dotted lines denote forward prices as of 11 July Source: Yara, World Bank, Platts

34 Production Export Domestic Domestic Export Production Domestic urea supply from producers July to May down 14% 33 Chinese urea production Domestic urea balance Million tons /1 Million tons % / Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: BOABC Jul-May 9/1 Jul-May 1/11

35 34 Chinese exports needed to balance the global market Accumulated urea exports Urea price and export tax Kilotons USD per ton Export tax 8, 9 2 % 7, % 6, 5, 4, 3, 2, 1, Urea fob Black Sea Export tax 16 % 14 % 12 % 1 % 8 % 6 % 4 % 2 % % Source: BOABC

36 35 Import need returning to the peak level of 8/9 Sales - Production Kt 8, 7, 6, 5, 4, 3, 2, 1, -1, -2, -3, Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 211/12 24/5 25/6 26/7 27/8 28/9 29/1 21/11 Source: Indian Statistics Kharif (July planting) imports Apr-Sep Rabi (November planting) imports Oct-Jan

37 36 Non-commercials net long position in corn Thousand contracts Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Source: US Commodity Futures Trading Commission

38 37 Key value drivers quarterly averages Oil Brent blend spot (USD/bbl) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) Q 1 3Q 1 4Q 1 1Q 11 2Q Q 1 3Q 1 4Q 1 1Q 11 2Q Q 1 3Q 1 4Q 1 1Q 11 2Q 11 US gas price Henry Hub (USD/MMBtu) Ammonia fob Black Sea (USD/t) NOK/USD exchange rate Q 1 3Q 1 4Q 1 1Q 11 2Q Q 1 3Q 1 4Q 1 1Q 11 2Q Q 1 3Q 1 4Q 1 1Q 11 2Q 11 Source: Fertilizer Market Publications, CERA, World Bank, Norges Bank

39 38 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