Yara International ASA Flexible business model in an attractive market Merrill Lynch European Chemicals Conference London, 19 November 2008

Transcription

1 Yara International ASA Flexible business model in an attractive market Merrill Lynch European Chemicals Conference London, 19 November 28 CFO Egil Hogna

2 A chemical company with fertilizer application as its biggest market Nitric acid Fertilizer Energy Ammonia Urea Industrial Yara converts energy, natural minerals and nitrogen from the air into useful products for farmers and industrial customers IR - Date:

3 Business model and global presence support profitability and growth EBITDA*, pro forma until 25 USD millions 4, 3,5 3, 2,5 2, 1,5 1, ,33 1, , , ,584 1, L12M Upstream Downstream Industrial Yara * Kemira GrowHow included from 4Q Knowledge Margin Local market knowledge Strong customer relations Agronomic and application competence Differentiation and branding Sourcing & logistics leverage Scale in sourcing and distribution Long-standing partnerships Global presence and optimization World-scale production & trade Economies of scale Low-cost gas Strong product portfolio Competitive commodity player 2 IR - Date:

4 3 Yara the nitrate and NPK low-cost leader Production cost index: 1 = European EFMA average excl. Yara Ammonia cost position Nitrate cost position NPK cost position * Index Index Index Average cost Yara s European plants European average (excl. Yara) * / only Source: EFMA IR - Date:

5 Unique global fertilizer sales and distribution network ~8 ~5 ~2 ~2 Major plant ~2 Sales office No. of plants/ terminals/ warehouses On the ground in ~5 countries, sales to more than 12 countries, ~2 plants/terminals/warehouses IR - Date:

6 5 Global optimization creates value 27 fertilizer and nitrogen chemicals volumes in million tonnes* Product source** Yara production Europe 17.9 Global optimization Marketing and Sales Fertilizer Europe 13.5 Latin America 4.7 Yara production outside Europe Purchased from JV companies Sourcing Allocation Logistics 28.2 Business units & Front offices Asia 2.5 North America 2. Purchased from third parties 4.5 * Including full-year 27 Kemira GrowHow volumes **Including bulk blends Africa 1.8 Industrial products 3.7 IR - Date:

7 6 Third party volumes supplement own production to maximize capacity utilization Million tons Yara produced products is approximately 7% of total Million tons (27) Third party volumes significant for nearly all Yara products Key suppliers/ JV products Third party and JV production Own production incl. bulk blends 6 1 Yara produced products NPK Nitrate Urea CN UAN Other IR - Date:

8 Earnings per share adjusted for foreign exchange gain / loss and special items* 7 NOK Accumulated NOK * After tax, Kemira GrowHow included from 4Q 27. Average number of shares for 3Q 28: 291 million (3Q 27: million) IR - Date:

9 8 Net interest-bearing debt Q3 28 NOK millions 14, 13, 12, , ,83 11, 1, 6,4 89 9, 8, 7,879 4,826 7, 6, 5, 4, 277 3, 2, 1, Net interestbearing debt Jun 8 Cash earnings* Dividends received** Net operating capital change Burrup Other investments (net) Yara dividend and share buy-backs Foreign exchange gain/(loss) Other Net interestbearing debt Sep 8 * Operating income plus depreciation and amortization, minus tax paid, net gain on disposals, net interest expense and bank charges ** Dividends received from non-consolidated investees IR - Date:

10 9 Funding capacity USD billions Funding capacity 6 5 Net interestbearing debt Significant new shortterm funding secured since July New loans secured at Libor plus ~75bps average Incl. Saskferco Additional long-term funding when market conditions improve 2Q8 3Q8 4Q8E 1Q9E IR - Date:

11 1 Grain stocks to remain stable at a low level Million tons : 1.7% growth/year Consumption Production :.8% growth/year F 35 % 3 % 25 % 2 % 15 % 1 % 5 % % 115 days inventory 63 days inventory F Source: USDA, November 28 IR - Date:

12 Declining agricultural commodity prices 11 Corn Wheat Soybeans Rice Source: Chicago Board of Trade, 14 November 28; November/December 29 contracts IR - Date:

13 Non-commercials net long position in corn at CBOT (futures and options) Thousand contracts /3/27 2/3/27 3/3/27 4/3/27 5/3/27 6/3/27 7/3/27 8/3/27 9/3/27 1/3/27 11/3/27 12/3/27 1/3/28 2/3/28 3/3/28 4/3/28 5/3/28 6/3/28 7/3/28 8/3/28 9/3/28 1/3/28 Source: US Commodity Futures Trading Commission IR - Date:

14 Fertilizer costs are up, but variable costs in US corn production is well below the corn price 13 USD/bu Corn price Corn price Assumptions Target corn yield: 18 bu/acre Fertilizer application: NH3: 265 lb/acre DAP: 1 lb/acre MOP: 22 lb/acre Corn price: 5.2 (Dec 8) 4.4 (Dec 9) Logistics Other variable K P N Prices(USD/st) : Jan8 Oct8 NH 3 : 7 6 DAP: 6 1, MOP: A logistical cost element is added to compare with the CBOT quotation. This logistical cost varies over the year, highest just after harvest. Source: Yara estimates IR - Date:

15 14 Food consumption unaffected in Asia crisis % Thailand GDP growth (annual %) Thailand food consumption growth(kcal/cap/day) Source: World Bank, FAO IR - Date:

16 15 Considerable potential for optimal fertilizer application kg/ha France FSU + EE South Asia East Asia Sub-Saharan Africa Latin America Source: FAO IR - Date:

17 16 Reduced Chinese exports Net urea exports Kt 6, 5, May-Aug 27 : May-Aug 28: Oct-Apr 7/8: 1.4 million tons 1.1 million tons 5.9 million tons 27 4, , 2, 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: BOABC IR - Date:

18 17 Further delays to new urea capacity Year Global urea capacity growth estimate* Driving regions % (4.5%) Average urea consumption growth has been 4.9% last 5 years, 4.1% excluding China * Including announced closures only World Excluding China World Ex. China 2.4% (2.4%) China 66% Egypt 17% % (2.5%) 1.9% (2.4%) China 53% Iran 23% 29 8.% (6.3%) 5.5% (4.5%) China 58% Iran 9% % (5.3%) 2.3% (2.9%) China 73% Pakistan 1% % (3.6%) 4.3% (4.5%) China 49% Qatar 12% Egypt 51% Iran 26% Iran 48% Egypt 22% Iran 22% Oman 2% Pakistan 35% Trinidad 2% Qatar 24% Algeria 24% Source: Fertecon update October 28; ( ) = Fertecon update June 28, used in Yara s second quarter presentation IR - Date:

19 18 Improved energy sourcing flexibility in Europe Yara s European energy contract links: Hub Gas ~45% (~35%) LSFO 1% ~2% (~35%) Gasoil.2% ~1% (~1%) HFO ~1% (~1%) Naphtha ~1% (~1%) Crude ~5% (~ %) EBITDA EBITDA EPS Preliminary new sensitivities: USD mill. NOK mill. NOK Crude oil +1 USD/brl (~4 month lag) European hub gas +.1 USD/MMBtu IR - Date:

20 How is the financial crisis affecting the fertilizer industry? 19 Challenges: Cash withdrawal from commodity markets reducing crop prices Credit problems for customers: farmers, retailers, wholesalers, traders Higher financing costs for working capital Benefits for Yara: New capacity projects slowing down Lower energy costs Strong balance sheet creates opportunities IR - Date:

21 2 Outlook summary Grain inventories remain at historical low despite strong harvest Food demand less exposed to financial turmoil Fundamentals for Chinese urea export restrictions remain Start-ups of new urea capacity continue to be delayed Lower energy costs Financial turmoil may create interesting investment opportunities IR - Date:

22 21 Good progress on Yara s growth target Million tons product ~6% market share Incl. Saskferco -Libya - Sluiskil - Qafco 5 ~1% market share Organic growth Yara has historically achieved 3-4 % growth p.a. Step growth Consolidation in mature markets Growth market investments Low-cost production & sourcing 25 Achieved to date Pipeline projects Remaining objective IR - Date:

23 Additional information 22

24 23 Yara sensitivities EBITDA EBITDA Op. Income EPS** USD million NOK million* NOK million* NOK CAN + 1 USD/t Urea + 1 USD/t Ammonia + 1 USD/t Phosphoric acid + 1 USD/t P 2 O 5 Oil price + 1 USD/brl (cost effect) European hub gas +.1 USD/MMBtu Currency +.1 NOK/USD at an EBITDA of USD 1.3 billion of which Translation effect of which Net fixed cost in Euro/NOK Sensitivities assume full production and no inter-correlation between factors * Assuming NOK/USD = 5.3, USD/EUR = 1.47 and constant NOK/EUR ** Assuming marginal tax rate on underlying business and million shares IR - Date:

25 Share of net income in non-consolidated investees 24 NOK millions 3Q 28 3Q 27 Qafco Tringen Rossosh Burrup GrowHow Ltd Other Total (61) IR - Date:

26 25 Yara s growth strategy remains firm Distribution Market Pull Consolidation in Mature Markets North America West Europe Growth Markets Brazil China India FSU Other Industrial Growth Markets Environmental and Mining Applications Product Push Low-cost Production & Sourcing (all raw materials) Middle East (Qatar) North Africa (Algeria, Libya and Morocco) Australia & Trinidad FSU Sub Sahara IR - Date:

27 26 Saskferco: strong geographic fit with Yara Belle Plaine warehouse & tanks (22 kt) Carman warehouse (8 kt) 5.7 mill.t XXX = Consumption of urea and nitrogen solutions (as UAN32) in million tons (Fertilizer+Industrial) SASKFERCO PLANT WA AB SK MB ON QC MT ND OR SD MN WI NY 1.8 mill.t CA I A PA Transport cost/ton from NOLA ~USD 7 MD VA A R AL NC SC GA 1.9 mill.t Capacities kt/yr Ammonia 65, Urea 98, Postexpansion 725, 1,115, UAN 23, FL IR - Date:

28 27 Apparent nitrate stocks - EFMA Index, June 27= / /9 7/8.2 Jul Aug Sep Oct Nov Des Jan Feb Mar Apr May Jun IR - Date:

29 28 Upstream production volume* Kt 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Accumulated Ammonia 3,247 3,312 3,175 3,256 3,357 3,437 3,443 2,1 1,983 1,914 1,994 1,999 2,53 2,51 4,27 2,615 1,237 1,329 1,262 1,262 1,358 1,384 1,392 1,412 Finished fertilizer 4,589 4,362 2,895 2,738 4,42 2,579 1,694 1,624 1, Ammonia 5,91 5,546 4,781 Fin. fertilizer 7,9 8,718 8,212 * Incl. share Qafco, Tringen, Rossosh, Burrup and GrowHow UK Ltd. * Kemira GrowHow included from 4Q 27. IR - Date:

30 29 Downstream fertilizer sales volume* Europe Outside Europe Kt 6, 5, 4, 4,437 1,848 4,786 4,685 4,883 2,275 2,57 2,697 5,256 2,388 5,179 2,827 4,763 2,629 6,14 6,284 6,17 2,835 2,575 3,15 4,742 2,18 3, 2, 2,589 2,511 2,178 2,186 2,868 2,352 2,135 3,269 3,71 3,2 2,562 1, Accumulated Fin. fertilizer 18,791 21,33 17,43 * Kemira GrowHow included from 4Q 27 IR - Date:

31 3 NPK margins still higher than last year France Blend cost proxy* 75 USD/ton Average differential has increased by ~$75/ton Jan 26 Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan 27 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 28 Feb Mar Apr May Jun Jul Aug Sep * AN delivered France + DAP fob Morocco + MOP fob Western Europe (no freights or other costs) Source: International publications IR - Date:

32 Strong volume growth in Yara TAN IR - Date: YTD 3Q 7 YTD 3Q 8 Sales volumes Kt

33 32 Yara fertilizer sales by market and product* YTD 28: 17 million tons (27: 23.6 million tons) Million tons product YTD Europe Latin America Asia North America Africa Million tons product * Including full-year 27 Kemira GrowHow volumes NPK Nitrate Urea Other products 27 YTD UAN CN IR - Date:

34 Spot natural gas versus Yara average* Yearly averages 2 26, quarterly averages for 27 and 28 with forward prices for 28** 33 USD/MMBtu US spot gas price (Henry Hub) European spot gas price (Zeebrugge Hub) Yara European oil & gas cost (weighted average) Yara global oil & gas cost (weighted average) Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 * Yara averages include Kemira GrowHow from 4Q 27 **Dotted lines denote forward prices as of 1 October 28 Source: Yara, World Bank, Platts IR - Date:

35 Grain stocks recovery slower than before Million tonnes 7 6 4% 35% Stocks Percent % 25% 2% 15% 1% 1 5% % Source: USDA, October 28 IR - Date:

36 35 US Ethanol production: slower growth likely IR - Date:

37 36 Still high values in phosphate production* USD/ton Value of phos.acid production USD/ton Value of DAP production 2,5 1,4 DAP price 2, Phos.acid price 1,2 1, Value above raw materials 1,5 1, Sulphur Value above raw materials Phos.rock 2 Phos.acid Ammonia *Numbers are for Morocco Source: International publications, Yara. Average prices based on contracts for sulphur. Not reflecting marginal profitability IR - Date:

38 37 Key value drivers quarterly averages Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) Q 7 4Q 7 1Q 8 2Q 8 3Q Q 7 4Q 7 1Q 8 2Q 8 3Q Q 7 4Q 7 1Q 8 2Q 8 3Q 8 US gas price Henry Hub (USD/MMBtu) Oil Brent blend spot (USD/bbl) NOK/USD exchange rate Q 7 4Q 7 1Q 8 2Q 8 3Q 8 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 Source: The Market, CERA, World Bank, Norges Bank IR - Date:

39 38 Key value drivers 1-year history Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) US gas price Henry Hub (USD/MMBtu) Oil Brent blend spot (USD/bbl) NOK/USD exchange rate Average prices Source: The Market, CERA, Hydro, World Bank, Norges Bank IR - Date:

40 39 1-year fertilizer prices monthly averages Ammonia fob Black Sea USD/t USD/t CAN cif Germany USD/t Urea prilled fob Black Sea Average prices Source: Average of international publications IR - Date:

41 4 1-year grain/oilseed prices yearly averages USD/t Wheat (HRW US Gulf) TD8 USD/t Rice (Thailand) TD8 Corn (US Gulf) USD/t TD8 Source: World Bank, September 28 USD/t Soybeans (cif Rotterdam) TD8 Average prices IR - Date:

42 Yara cash distribution policy: 4 45% cash return over the cycle 41 Yara s average profitability and return on capital is well above investors cost of capital Cash distribution must be balanced against opportunities for profitable growth Financial discipline will be the basis for the development of Yara s global leadership position Total cash return to shareholders expected at 4 45% of net income as an average over the business cycle Dividend minimum 3% of net income over the business cycle Ambition to increase absolute dividend independent of business cycle Share buy-backs expected in years with strong free cash flow Dividend 27: NOK 4 per share IR - Date:

43 42 Ambitious targets Solid profitability CROGI over the cycle > 1% as average New investment profitability Ambition: IRR real, after tax > 1% Hurdle rate: IRR real, after tax > 7% Relative competitiveness Gross Return (EBITDA/Total assets) Best quartile of peers Financial strength Long-term rating target Mid investment grade Expected cash return to shareholders HSE Sum of dividend and buy-backs 4-45% of net income Health, Safety and Environment Best quartile of the industry IR - Date: