yara international asa - nomura holdings international asa tor holba – head of upstream nomura...
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Yara International ASA Tor Holba – Head of Upstream
Nomura Global Chemical Industry Leaders Conference 22 March 2012
1
IR – Date: 2012-03-22
A business strategy geared for global optimization
Unrivalled presence + +
Upstream
Industrial
Downstream
Supply & Trade
Scale advantages
Unique flexibility
2
IR – Date: 2012-03-22
* Incl. companies’ shares of JVs Source: Yara & Fertecon Source: Fertilizer Europe Source: Fertilizer Europe
0 1 2 3 4 5 6 7 8 9
Yara CF GDF Agrium PCS 0 1 2 3 4 5 6 7 8
Yara* Euroc. Acron ZAT Rossosh 0
1
2
3
4
5
6
7
Yara Euroc. GDF Acron Agrofert
Yara – the leader in nitrogen fertilizers
Production capacity* (mill t)
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)
3
IR – Date: 2012-03-22
100
200
300
400
500
600
700
800
4Q09 2Q10 4Q10 2Q11 4Q11
USD/t
Phosphate upgrading margins
DAP
Margin above blend
cost
Nitrate premium above urea
Value above gas
Rock*1.4
Value above raw material
300
350
400
450
500
550
600
650
700
4Q09 2Q10 4Q10 2Q11 4Q11
USD/t
NPK blend premium
Blend cost T17 del France
100
200
300
400
500
600
700
4Q09 2Q10 4Q10 2Q11 4Q11
USD/t
Nitrogen upgrading margins
Urea CFR proxy CAN proxy (46% N)
NH3*0.22
Yara EU gas cost *25
Yara creates substantial value over and above the commodity nitrogen margin
4
IR – Date: 2012-03-22
Food prices at high levels despite drop in fourth quarter
0
50
100
150
200
250
1/2004 1/2005 1/2006 1/2007 1/2008 1/2009 1/2010 1/2011 1/2012
Index
FAO price index
Cereals Price Index Food Price Index Yearly avg Food price index
Source: FAO
5
IR – Date: 2012-03-22
Continued strong price incentives necessary to avoid inventory decline
1,800 1,850 1,900 1,950 2,000 2,050 2,100 2,150 2,200 2,250 2,300
98 00 02 04 06 08 10 12F
Consumption
Production
Source: USDA, March 2012
Grain production and consumption Days of consumption in stocks
Million tons
40
50
60
70
80
90
100
110
120
98 00 02 04 06 08 10 12F
Days
6
IR – Date: 2012-03-22
Source: Fertecon urea update January 2012. Consumption data source is IFA. Previous update in paranthesis
Year Driving regions Urea capacity growth relative to nitrogen capacity
World Excluding China World Excluding China 2011 China 46%
Pakistan 18% Pakistan 34%
Iran 17% 1.6% (2.0%) 1.4% (1.5%)
2012 China 64% Qatar 10%
Qatar 27% Algeria 23%
4.2% (4.2%) 2.4% (3.1%)
2013 China 28% Algeria 22%
Algeria 30% India 19%
2.3% (2.0%) 2.7% (2.2%)
2014 Algeria 23% Saudi Arabia 23%
Algeria 25% Saudi Arabia 25%
0.3% (0.9%) 0.5% (1.4%)
2015 Brazil 18% Indonesia 15%
Brazil 19% Indonesia 16%
2.1% (-) 3.2% (-)
Gross annual addition 2011-2015 ~2.0%
Assumed annual closures ~0.5% Net annual addition 2011-2015 ~1.5% Trend consumption growth from 2001 2.5% 2.0%
Projected nitrogen capacity additions outside China in line with historical consumption growth
7
IR – Date: 2012-03-22
Lower Chinese urea exports in 2011
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2007
Kilotons
Source: BOABC
2008
0 %
20 %
40 %
60 %
80 %
100 %
120 %
140 %
160 %
180 %
200 %
0
100
200
300
400
500
600
700
800
900
USD per ton Export tax
Urea fob Black Sea
Export tax
2009
2010
Accumulated urea exports Urea price and export tax
2011
8
IR – Date: 2012-03-22
Demand-driven Chinese domestic urea price since mid 2011
Higher coal prices, increased focus on emission control and energy efficiency has led to higher domestic urea prices
Source: China Fertilizer Market Week
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400 RMB/t
Urea price ex works Anthracite price
9
IR – Date: 2012-03-22
370 335
430
765
0
100
200
300
400
500
600
700
800
CMD 2011 Anthracite price & 2012 system
Domestic price & 2012 system
Domestic price & 110% tax
USD/t
Cash cost Inland transport Tax Producer margin Series5
Current domestic price and 2012 tariff implies swing price of USD 430 fob China
Date: 28.02.2012 Page: 10
Global downstream player with sales to 150 countries
Yara plants Joint venture plants Sales offices Development programs R&D Units
48%
Europe 9.4 mill tons
12% Asia 2.3 mill tons
15% North America 2.9 mill tons
Latin America 3.8 mill tons
19%
6% Africa 1.2 mill tons
11
IR – Date: 2012-03-22
European deliveries lagging last season
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2H07 2H08 2H09 2H10 2H11
Domestic Imports
Source: Yara estimate for fertilizer deliveries to selected West European countries. Total nitrogen deliveries based on TFI, US Trade Commission, Blue-Johnson and Yara estimates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2H07 2H08 2H09 2H10 2H11
Production Net imports
West Europe USA
-18%
Million tons Million tons
12
IR – Date: 2012-03-22
Nitrate premium is mainly a function of crop prices and marketing effort
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
450
02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
Wheat price, USD/t CAN price, USD/t
Adjusted urea* Nitrate premium, USD/t Wheat price
* Urea fob Black sea adjusted for import costs into Europe and nitrogen content similar to CAN
13
IR – Date: 2012-03-22
100
1,016
0
200
400
600
800
1,000
1,200
Wheat/UK Oranges/Brazil
Index
Increase in crop production value using nitrates instead of urea
Nitrates’ agronomic advantage has higher value for cash crops than for commodity crops
(160 kg N/ha) (180 kg N/ha)
1,553
3,192
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Wheat/UK Oranges/Brazil
€/ha
Crop value with nitrates
14
IR – Date: 2012-03-22 IR – Date: 2011-04-29
0
20
40
60
80
100
120
140
160
180
4Q Full year
USD/t NPK margins*
2010 2011
* Product from Porsgrunn, Glomfjord, Ravenna and Montoir sold in Europe
Good NPK development
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1Q 2Q 3Q 4Q
Kilotons
NPK volumes
2010 2011
15
IR – Date: 2012-03-22
11.90 10.20 13.88
20.63
28.27
13.08
30.24
41.99
0
5
10
15
20
25
30
35
40
45
2004PF 2005 2006 2007 2008 2009 2010 2011
EPS EPS ex special items & currency
2011 earnings per share highest so far
Healthy grain fundamentals and farm margins led to strong demand for all nutrients
Supply constraints as China halved
exports due to a tighter domestic market and higher coal prices
Rossosh and 16% in Yara Praxair divested at attractive terms
NOK per share
16
IR – Date: 2012-03-22
0.34
0.75
0.49
0.20 0.28
0.63
0.38
0.22
0.40
0.57
0.32
0.12
0.84
0.56
0.27
0.12
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2008 2009 2010 2011
Strong cash-generation Net interest-bearing debt / equity ratio (end of period)
17
IR – Date: 2012-03-22
0
5
10
15
20
25
30
2010 Qafco, Sluiskil and Porsgrunn
expansions
Remaining 2016
Million tons External OPP/JV sales
We aim to increase own-produced and JV volumes by 8 million tons by 2016
In the five years to 2016, Yara’s OPP/JV sales will grow by
40%
18
IR – Date: 2012-03-22
Basis for Yara’s profitable growth ambitions
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
Grain, fertilizer and gas outlook has recently improved increasing nitrogen asset values
0 %
5 %
10 %
15 %
20 %
25 %
2004 2005 2006 2007 2008 2009 2010 L12M
Strong earnings through the cycle
Long term target
Yara CROGI
Industry-leading acquisition track-record
A scalable business model giving synergies
19
IR – Date: 2012-03-22
More information can be found at www.yara.com
20
IR – Date: 2012-03-22
9.63
14.93 10.91
-7.27
3.06 3.88
1.21
4.93 5.27
12.86
6.68 5.42
10.02 7.73
12.42 11.84
-10
-5
0
5
10
15
20
Earnings per share*
NOK
* Average number of shares for 4Q 2011: 286.0 million (4Q 2010: 288.4 million).
NOK 28.27 13.08 30.24 41.99
Annual
2008 2009 2010 2011
EPS excluding currency and special items
21
IR – Date: 2012-03-22
6,108 6,618 6,472
8,441
17,917
5,549
15,315
18,163
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2004PF 2005 2006 2007 2008 2009 2010 2011
EBITDA EBITDA ex special items
NOK millions
Earnings before interest, tax, depreciation and amortization (EBITDA)
22
IR – Date: 2012-03-22
Fourth-quarter net debt development NOK millions
* 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
4,961
5,539
2,523
304
329
2,039
786 297
175
441
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
Net interest-bearing debt
Sep 11*
Cash earnings** Dividends received from
equity accounted investees
Net operating capital change
Praxair divestment
Investments (net)
Share buy-backs and
redemption of shares
Foreign exchange gain/(loss)
Other Net interest-bearing debt
Dec 11
23
IR – Date: 2012-03-22
Strong European 2Q deliveries despite drought
-
500
1,000
1,500
2,000
2,500
3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Kilotons European nitrogen deliveries
Average
24
IR – Date: 2012-03-22
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Index, June 2007=1
11/12 07/08 08/09 09/10 10/11
Source: Fertilizers Europe
European producer nitrate stocks increased in 4Q
25
IR – Date: 2012-03-22
3,710
3,002 2,562
1,956
2,592 2,551 2,451 2,436
2,983
2,347 2,564 2,400
2,937
2,256 2,216 1,960
2,575 3,015
2,180
1,540
2,290 2,658 2,765
2,355 2,146
2,412
2,910
2,514
2,543 2,715
2,617
2,280
6,284 6,017
4,742
3,496
4,882 5,210 5,216
4,791 5,129
4,759
5,474
4,914
5,481
4,970 4,834
4,239
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000 Outside Europe Europe
Fertilizer volumes
Kilotons
2008 2009 2010
Accumulated, Kt
Fin. fertilizer 20,540 20,099 20,276 19,522
2011
26
IR – Date: 2012-03-22
Yara 4Q fertilizer sales by market and product
2,401
997
516 631 370
1,960
949
487 611 233
0
500
1,000
1,500
2,000
2,500
3,000
Europe Latin America Asia North America Africa
Kilotons 4Q10 4Q11
1,685 1,287 1,170
434 166 173
1,547
1,086 852
350 241 165
0
1,000
2,000
3,000
NPK Nitrate Urea Other products UAN CN
Kilotons
4Q10 4Q11
2011: 4.2 million tons (2010: 4.9 million tons)
27
IR – Date: 2012-03-22
Yara – production volume*
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Kilotons
Urea Nitrates NPK CN UAN
2008 2009 2010 2011
* Including share of equity-accounted investees
0
500
1,000
1,500
2,000
2,500 Kilotons
Finished fertilizer Ammonia
2008 2009 2010 2011
28
IR – Date: 2012-03-22
4.4
5.6 5.6
9.6
4.8 5.7
7.6 8.3 8.3 8.6
7.8 7.8
5.4
7.5 7.0
12.0
6.6
7.6
10.1
11.1 10.9 10.8 10.6 10.5
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
US gas price (Henry Hub) Yara Global Zeebrugge day ahead Yara Europe
Spot natural gas versus Yara average
USD per MMBtu
Source: Yara, World Bank, Platts
Yearly averages 2005 – 2010, quarterly averages for 2011-12 with forward prices* for 1Q12 and 2Q12
*Dotted lines denote forward prices as of 26 January 2012
29
IR – Date: 2012-03-22
0%
2%
4%
6%
8%
10%
12%
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Share of annual sales
10/11 Avg 05/06-09/10 seasons
Yara nitrate sales
30
IR – Date: 2012-03-22
0.0
2.0
4.0
6.0
8.0
10.0
Ammonia Nitrate NPK Urea
Outside Europe Europe
Yara production capacities Million tons product
31
IR – Date: 2012-03-22
0.0
2.0
4.0
6.0
8.0
10.0
12.0 Million tons
Quarterly urea trade
Source: IFA, Iran from GTIS
32
IR – Date: 2012-03-22
Source: PepsiCo Vietnam, 2011
Yara Crop nutrition program helps potato growers in Vietnam
33
IR – Date: 2012-03-22
0
25
50
75
100
AN Urea UAN
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
Source: DEFRA (2006), NT26 project report; Fertilizer Europe; 2EMEP/EEA air pollutant emission inventory guidebook (2007); Yara
Nitrogen recovery (% of AN)
Urea requires up to 20% higher N application to achieve same cereal crop yield and quality as AN
Lifecycle carbon footprint (kg CO2 eq/kg N)
0
4
8
12
AN Urea
Although urea is more CO2 efficient in production, CO2 emissions and ammonia volatilization on application
more than offset for this
34
IR – Date: 2012-03-22
NPKs have significant cash crop share, while nitrates today mainly serve commodity crops
North America Europe
Asia
Africa Latin America
2,571
4,700
NPK Nitrate
Commodity crops
Cash crops
191
100
NPK Nitrate
70
150
NPK Nitrate
866
10
NPK Nitrate
343
450
NPK Nitrate
35
IR – Date: 2012-03-22
Key investment value driver
Typical source of value creation
Selected examples Attractive capital cost/
entry fee
Attractive operating cash
flow Distressed seller Rostock
Non-core divestiture Belle Plaine
Advantageous CAPEX Qafco 4
First mover DeNox (Air1)
Finders’ fee Qafco, Dallol
Scale advantages Kemira GH, Lifeco
Low-cost raw material Qafco, Burrup
Hidden trends Trinidad
Unique product offering Kemira GH, Phosyn
Consolidation synergies Kemira GH, European production assets
Focus on key investment value drivers ensures value-creating growth
Typically increasing degree of
Yara specific value
creation potential
from investment
36
IR – Date: 2012-03-22
*Assuming 30% marginal tax rate on underlying business and 287.2 million shares
** Net fixed costs in EUR and NOK
Yara sensitivities
Operating Income
USD million EBITDA
USD million EPS* USD
Urea sensitivity +100 USD/t 944 1,095 2.8 …of which pure Urea 304 422 1.2 …of which Nitrates 367 391 1.0 …of which NPK 198 207 0.5 Nitrate premium +50 USD/t 439 467 1.2 …of which pure Nitrates 273 294 0.8 Hub gas Europe + 1 USD/MMBtu (90) (110) (0.3) Ammonia + 100 USD/t - 50 0.2 Phos rock + 50 USD/t 50 50 0.1 Hub gas North Am + 1 USD/MMBtu (27) (27) (0.1) Crude oil + 10 USD/brl (80) (80) (0.2) Currency + 1 USD/NOK ** 90 90 0.2
Sensitivities assume stable value-added margins and no inter-correlation between factors
37
IR – Date: 2012-03-22
NOK Last 4 quarters
5-year avg. to 30 Sep 20112)
Chinese swing
Demand-driven
EBITDA1) 14,800 15,200 13,500 23,600
Depreciation -2,600 -2,600 -2,600 -2,600
Interest expense -800 -700 -700 -700
Income before tax 11,400 11,900 10,200 20,300
Tax -2,400 -2,800 -2,100 -4,500
Net income 9,000 9,100 8,100 15,800
Number of shares (millions) 287.9 287.2 287.2 287.2
Earnings per share (NOK) 31 32 28 55
Currency translation +1 USD/NOK 2,600 2,550 2,300 4,100
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.
Yara financial scenarios
38
IR – Date: 2012-03-22
Price and currency assumptions in scenarios
Last 4 quarters
5-year avg. to 30 Sep 11
Chinese swing*
Demand-driven**
Ammonia fob Black Sea (USD/t) 459 366 450 550
Urea prilled fob Black Sea (USD/t) 386 342 360 510
Nitrate premium , USD/t 94 77 62 68
Phos rock fob North Africa (USD/t) 164 158 200 200
DAP fob Morocco (USD/t) 594 575 600 600
Zeebrugge natural gas (USD/MMBtu) 8.8 7.3 9.3 9.3
Henry hub natural gas (USD/MMBtu) 4.1 5.8 3.9 3.9
Yara’s European energy price (USD/MMBtu) 10.1 8.8 10.8 10.8
Brent blend crude oil price (USD/bbl) 98 81 106 106
NOK/USD 5.7 5.9 5.8 5.8
* 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 150 per ton above marginal cost.
39
IR – Date: 2012-03-22
Key value drivers – quarterly averages
359 354 408
484 446
0
100
200
300
400
500
600
4Q 10 1Q 11 2Q 11 3Q 11 4Q11
Urea prilled fob Black Sea (USD/t)
318 377 384 376 378
0 50
100 150 200 250 300 350 400 450
4Q 10 1Q 11 2Q 11 3Q 11 4Q11
CAN cif Germany (USD/t)
3.8 4.2 4.4
4.1
3.3
0 0.5
1 1.5
2 2.5
3 3.5
4 4.5
5
4Q 10 1Q 11 2Q 11 3Q 11 4Q11
US gas price Henry Hub (USD/MMBtu)
8.3
9.0
9.5
9.2 9.0
7.6 7.8
8 8.2 8.4 8.6 8.8
9 9.2 9.4 9.6
4Q 10 1Q 11 2Q 11 3Q 11 4Q11
Zeebrugge day ahead(USD/MMBtu)
5.9 5.7 5.4 5.5 5.8
0 1 2 3 4 5 6 7 8 9
10
4Q 10 1Q 11 2Q 11 3Q 11 4Q11
NOK/USD exchange rate
403 470 499 526
576
0
100
200
300
400
500
600
700
4Q 10 1Q 11 2Q 11 3Q11 4Q11
Ammonia fob Black Sea (USD/t)
Source: Fertilizer Market Publications, CERA, World Bank, Norges Bank
40
IR – Date: 2012-03-22
10-year fertilizer prices – monthly averages
Source: Average of international publications
0
200
400
600
800
1,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
USD/t Ammonia fob Black Sea
0
100
200
300
400
500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD/t CAN cif Germany
0
200
400
600
800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD/t Urea prilled fob Black Sea
Average prices 2001 - 2011
0
200
400
600
800
1,000
1,200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD/t DAP fob US Gulf