Yara Growth in a strong market. Thorleif Enger, CEO Dag Tore Mo, Market Analysis NFF seminar 31 May 2005

Transcription

1 Yara Growth in a strong market Thorleif Enger, CEO Dag Tore Mo, Market Analysis NFF seminar 31 May 25

2 2 Key facts about Yara Demerged from Norsk Hydro and listed on the Oslo stock exchange 25 March figures Revenues NOK 43.3 billion (USD 6,38 million) EBITDA NOK 5.8 billion (USD 858 million) Net income NOK 3.8 billion (USD 56 million) Fertilizer volume 21.9 million tonnes Employees ~7,1 Sales offices in more than 5 countries, sales to more than main production sites in 12 countries EH - Date: Page: 2

3 Myths about our industry are gradually being replaced by facts 3 Concerns Fertilizer industry attractiveness Nitrogen attractiveness European performance Fertilizer cyclicality Industry facts Competitive returns for best players Position important, not product Balanced supply and demand Similar to other commodities Yara today Leading player Leading position Leading position Cyclicality reduced EH - Date: Page: 3

4 4 Industry-leading profitability and cashflow 25% Gross return on assets* EBITDA excl. non-rec. (USD million) Yara % % 1% Agrium PCS % Agrium PCS Yara Historic EV/EBITDA multipliers % PCS Agrium * Gross return on assets defined as EBITDA (excluding non recurring items) divided by total assets (book value) Source: Company reports, CSFB for multipliers EH - Date: Page: 4

5 Yara in top quartile of profitability compared with Norwegian industrial companies Gross return on assets* Yara** 17.3 Yara** 21.1 Elkem 13.6 Hydro Aluminium 13.7 Tomra 12.3 Orkla 11. Orkla 1.5 Elkem 1.7 Norske Skog 9.9 Tomra 1.4 Hydro Aluminium 9.8 Norske Skog 1.4 Aker Kværner 7.5 Aker Kværner * Gross return on assets defined as EBITDA (excluding non recurring items) divided by Total assets (book value) ** Yara pro forma NGAAP numbers Source: Company reports EH - Date: Page: 5

6 The global challenge To feed people when arable land per person decreases 6 Arable land (in m 2 per person) World population (billions) Almost no increase in farmable land is possible Increased standard of living leads to growing protein consumption per person, requiring more grain for animal feed* The only solution is to increase agricultural productivity * Approximately one third of grain consumption growth is related to change in diet Source: FAO (Towards 215/3 - Technical interim report 4/2) EH - Date: Page: 6

7 Mineral fertilizer essential to sustain future yield increases 7 Tonnes of cereals per hectare Example: Cereals, global average Mineral fertilizer Organic fertilizers 1.5 Existing soil nutrients E 22E Increased production of mineral fertilizers necessary to meet future nutrient demand Limited potential of recycling organic material Nutrient reserves in the soil do not increase Source: FAO, Worldmarkets.com, Yara EH - Date: Page: 7

8 Unique global network, now also including production in Russia and Australia Major plant 22 Sales office No. of plants/ terminals/ warehouses On the ground in ~5 countries, sales to more than 12 countries, more than 16 plants/terminals/warehouses EH - Date: Page: 8

9 Third party volumes supplement own production to maximize capacity utilization 9 Million tonnes Yara produced products is approximately 7% of total Key suppliers/ JV products Million tonnes Third party volumes significant for nearly all Yara products Third party and JV production Own production incl. bulk blends 1 5 Yara produced products Source: Yara, IFA Yara 1-year volume CAGR = 4.2% Market 1-year volume CAGR = 2.1% NPK Nitrate Urea CN UAN Other EH - Date: Page: 9

10 1 Balanced portfolio by product and geography Positive development in Europe Yara sales in line with global consumption 14 Million tonnes 1% mill tonnes * 8. mill tonnes * 12 Europe 8% Overseas 6% 4% 2% Potash (K) Phosphate (P) Nitrogen (N) % Global Fertilizer Consumption Yara Sales * Nutrient tonnes 23 Source: Yara, IFA EH - Date: Page: 1

11 Yara three business segments with strong synergies 24 financials (NGAAP) 11 Downstream Sales: USD 4,678 mill EBITDA: USD 38 mill Global distribution and ammonia-based production Unique global distribution network Global no. 1 in calcium nitrate and potassium nitrate specialty fertilizer Industrial Sales: USD 82 mill EBITDA: USD 12 mill Marketing of products for industrial purposes European no. 1 CO 2 supplier European no. 1 in industrial nitrogen chemicals and technical nitrates Upstream Sales: USD 2,768 mill EBITDA: USD 53 mill Natural gas-based fertilizer production and ATS Global no. 1 in ammonia, nitrates and NPK Lowest cost producer of ammonia, nitrates and NPK in Europe EH - Date: Page: 11

12 Downstream and Industrial stable platform Upstream follows fertilizer cycle EBITDA pro forma numbers Downstream + Industrial USD million Upstream USD million Yara total USD million 1, EH - Date: Page: 12

13 13 Net income after minority interest* NOK million 1, ,2 1, Accumulated NOK mill 2,188 3, USD mill * IFRS from 24 EH - Date: Page: 13

14 Earnings before interest, tax, depreciation and amortization (EBITDA)* 14 NOK million 2, 1,8 1,6 1,4 1,2 1, ,26 Accumulated 1,866 1,582 1,565 1,456 1,484 1,477 1, NOK mill 4,671 6,18 1,866 USD mill * IFRS from 24 EH - Date: Page: 14

15 15 Strengthened balance sheet Net interest-bearing debt/equity ratio Q 23* 4Q 23* 1Q 24 2Q 24 3Q 24 4Q 24 1Q 25 * Figures from Demerger Information Memorandum and Offering Memorandum. IFRS from 24 EH - Date: Page: 15

16 Safety and productivity improvements go hand-in-hand 16 Lost Time Injuries (LTI) per million work hours Year EH - Date: Page: 16

17 Average Net cash from operating activities higher than Capital expenditures* 4 Average annual Capex vs Net cash from operating activities NOK million ,4 Major upgrading and growth Continuity investments Capital expenditures 3,1 Net cash from operating activities Annual continuity investments estimated at 8 1, MNOK * Annual investment level increased by NOK 2 million due to IFRS accounting change EH - Date: Page: 17

18 Industry Shaper -the next phase in our development Turnaround & cost cutting Consolidation & demerger High performance & growth EH - Date: Page: 18

19 19 Who we are and what we do We are a chemical company with fertilizer application as our biggest market Nitric Acid Fertilizer Energy Ammonia Urea Industrial We convert energy and nitrogen from the air into useful products for farmers and industrial customers EH - Date: Page: 19

20 2 Urea market is currently demand-driven Urea price compared to production cost in US Gulf quarterly averages 3 25 Urea fob US Gulf (granular) USD/tonne 2 15 Cash cost US Gulf* 1 5 1Q 2 2Q 2 3Q 2 4Q 2 1Q 3 2Q 3 3Q 3 4Q 3 1Q 4 2Q 4 3Q 4 4Q 4 1Q 5 2Q 5 3Q 5 4Q 5 1Q 6 2Q 6 3Q 6 4Q 6 * Future cash costs based on Henry Hub forward price for gas as of 29 April Source: Average of international publications (urea), World Bank (Henry Hub gas price), Blue-Johnson EH - Date: Page: 2

21 Yara s gas costs significantly below US gas prices Yearly averages , quarterly averages for 25 with forward prices 2Q 4Q 25* USD/MMBtu US spot gas price (Henry Hub) European spot gas price (Zeebrugge Hub) Yara s global energy cost (weighted average) Q5 2Q5 3Q5 4Q5 * Dotted lines denote forward prices as of 29 April 25 (Platts) Source: World Bank, Platts (average import price into EU from World Bank used up to 1999 ) EH - Date: Page: 21

22 Yara Strong organic growth in differentiated products 22 Specialty fertilizer sales Industrial environmental applications USD million Thousand tonnes % annual growth since 22 8% annual growth since 22 EH - Date: Page: 22

23 Reducing emissions from trucks with AdBlue/Air1 23 Thousand tonnes 4 ACEA forecasts rapid market growth for AdBlue solution Market position Yara is launching AdBlue/Air1 for reduction of NOx from trucks Need for stable supplies of high quality urea solution fits well Yara s European urea production Urea equivalent Source: ACEA (European Automobile Manufacturers Association) EH - Date: Page: 23

24 In addition to organic growth, Yara seeks several types of step growth 24 Fertilizer and Industrial market position Upstream production based on low cost gas Consolidation adding scale and synergies EH - Date: Page: 24

25 Recent strategic growth investments* for the fertilizer market of the future 25 Increased ownership in SQM, Chile Letter of intent for Qafco-5, Qatar Acquisition of minority stake in Rossosh, Russia Acquisition of minority stake in Burrup, Australia Investments improve competitiveness of both Upstream and Downstream * Growth initiatives announced in first quarter (SQM, Rossosh, Burrup) will imply approximately NOK 1 billion of investments on top of other investments for continuity and organic growth in 25 EH - Date: Page: 25

26 Rossosh Acquisition of minority stake in Russian fertilizer plant 26 Acquisition of 3% of stock, technology transfer and coordinated production, logistics and marketing of NPK Production based on Yara s own technology Competitively priced energy and dry raw materials Yara will initially market 9, tonnes of NPK increasing total NPK sales by 13% Main market is Asia, but also competitive on other continents EH - Date: Page: 26

27 Burrup Acquisition of minority stake in world s largest ammonia plant under construction 27 Acquisition of 3% of Australian company Burrup Holdings World s largest single ammonia plant at 76, tonnes per year Competitively priced stranded gas favorably located close to core Asian markets Yara will market 1% of production Option for Yara to participate in possible second plant which could involve ammonium nitrate and urea EH - Date: Page: 27

28 28 Qafco-5 Gas contract and Letter Of Intent Additional growth for what is already the world s largest fertilizer producing site Qafco-5: 1 million tonnes of ammonia and 1.1 million tonnes of urea 25-year gas contract securing competitive long-term energy supply Final decision expected in 26 with possible start of production in 29 or 21 EH - Date: Page: 28

29 Yara cash distribution policy: 4 45% cash return over the cycle 29 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 EH - Date: Page: 29

30 3 Prospects full year 25 Food and Agriculture Organization of the UN expects global grain production to decline in 25-26, potentially leading to lower grain inventories High forward price for US gas indicates continued high floor prices for ammonia and urea if a weakening of the supply-demand balance should occur Yara s European energy costs expected to increase EH - Date: Page: 3

31 31 Yara the leading fertilizer company The global fertilizer industry leader Market leadership in all its key segments Profitability above peers Strong platform for profitable growth Capital discipline EH - Date: Page: 31

32 The nitrogen market Prices are at historic highs why and what next? Dag Tore Mo, Market Analysis

33 Urea is the most important nitrogen fertilizer Nitrogen N NPK 9% Other 3% Urea 51% NPK 28% Potash K2O Other 8% AN/CAN 1% 85 million tonnes Other 34% Phosphate P2O5 DAP/MAP 43% MOP 64% NPK 23% 23 million tonnes 33 million tonnes Source: IFA statistics season 22/23 EH - Date: Page: 33

34 The key exporting regions for urea are Black Sea and Arab Gulf Million tonnes Source: IFA 23 EH - Date: Page: 34

35 Urea prices at a historic high level 3 25 Urea (fob Black Sea) jan-95 jan-96 jan-97 jan-98 jan-99 jan- jan-1 jan-2 jan-3 jan-4 jan-5 USD/tonne Source: Average of international publications EH - Date: Page: 35

36 Large upgrading margins for urea from ammonia Demand is the price driver 3 25 Urea (fob Black Sea) USD/tonne jan-95 jan-96 jan-97 jan-98 jan-99 jan- jan-1 jan-2 jan-3 jan-4 jan-5.6 * Ammonia + 15 Source: Average of international publications EH - Date: Page: 36

37 The floor price, for ammonia, and then also upgraded nitrogen products, is set by US gas 35 3 Ammonia fob US Gulf USD/tonne US Gulf cash cost Source: Blue-Johnson EH - Date: Page: 37

38 Strong reduction in ammonia production in high energy cost regions West Europe, USA, Mexico, Japan and Korea 45, 4, 35, 3, kt ammonia 25, 2, 15, 1, 5, Source: CRU EH - Date: Page: 38

39 Moderate expectations for urea capacity growth next few years Global urea capacity growth estimate* 2.3% (3.1%) 2.8% (3.4%) 5.4% (4.4%) 3.1% (3.5%) 2.% (new) Driving regions China: 61% Qatar: 17% China: 51% Oman: 21% China: 53% Iran: 2% Egypt: 31% China: 31% Oman: 29% China: 23% Average urea consumption growth has been 3.7% since 199, corresponding to a nitrogen growth of approximately 2% * Excluding possible closures. Previous estimate presented at Yara Capital Markets Day in brackets ( ) Source: Fertecon, update April 25 EH - Date: Page: 39

40 Chinese urea export lower than in 24 4,5 4, 3,5 3, 2,5 kt product 2, 1,5 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec EH - Date: Page: 4

41 Global nitrogen capacity utilization expected to remain at a quite high level Urea capacity utilization 92% 9% CRU (British Sulphur) 88% 86% 84% Fertecon 82% 8% 78% 76% 74% 72% 7% E 25E 26E Source: CRU (British Sulphur), Fertecon EH - Date: Page: 41

42 Urea production dominated by the largest consumers, and growth has been strong 14 Total production 4 1 largest producers Million tonnes urea Million tonnes urea annual average growth rate = 3.5% China India USA Indonesia Russia Pakistan Canada Ukraine Saudi-Arabia Bangladesh Source: IFA 23 EH - Date: Page: 42

43 Population and economic growth drive increased nitrogen consumption Fertilizer consumption Population growth Economic growth More meat consumption in developing countries Focus on diets rich in proteins More fruit and vegetables Reduce hunger Biofuels Industrial consumption Economic growth Environmental limits (e.g. reduction of NOx emissions) EH - Date: Page: 43

44 Grain production 25 expected to be high, but substantially lower than in mill. t Grain production exceeding consumption in 24 Consumption Production E mill. t but decline in grain stocks in two of the world s most populous countries continues Global grain inventory China+India E Source: FAO, update April 25 EH - Date: Page: 44

45 Increasing population and reduced land available for food production per capita.5 1 Almost no increase in farmable land is possible Hectares/person P opula tion (billion) Increased standard of living leads to growing protein consumption per person, requiring more grain for animal feed* E 22E Hectares/person Population The only solution is to increase agricultural productivity Source: IFA, Worldmarkets.com EH - Date: Page: 45

46 Total calorie consumption mainly driven by population growth, but diet change also important All products Animal products Total Total No change in diet No change in diet EH - Date: Page: 46 Index (199=1) Index (199=1) Source: FAO

47 Animal products consumption per capita per day increasing fast in the developing world Developed countries Developing countries Index (199=1) Source: FAO EH - Date: Page: 47 Index (199=1)

48 China consumes more grain and oilseeds than it produces Grain /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 2/3 3/4E 4/5F 9/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 2/3 Million tonnes 3/4E 4/5F Soybeans Consumption Production Consumption Production Source: USDA EH - Date: Page: 48 Million tonnes

49 China s main focus is on high value cash crops 25 million ha ha Vegetables Watermelons Cabbages Cucumbers 15 1 Tomatoes Asparagus Eggplant Onions Fruit Spinach Garlic Chillies&Pepper Lettuce Carrots Source: FAO EH - Date: Page: 49

50 Industrial use of food crops is increasing, driven by demand for biofuels 7 Global use of maize 23/4 6 5 Million tonnes Food Industrial Feed Source: IGC, CBOT EH - Date: Page: 5

51 Market summary Nitrogen fertilizer prices are at a high level Net increase in nitrogen capacity has been low over the last five years, due to substantial capacity closures in high energy cost regions. Urea capacity has continued to grow, but this has been matched by a high consumption growth rate, as urea has gained market share Main demand drivers have influenced fertilizer demand positively lately Low grain inventories Population growth Strong increase in meat consumption Demand for biofuels growing Industrial demand following world economic growth, which was high in 24 Fertilizer consultants forecast utilization rates to remain close to the current high level through 25 and 26 EH - Date: Page: 51

52 Additional information 52

53 53 IFRS introduced from this quarter All accounting figures since 1 Jan 24 have been restated to IFRS (International Financial Reporting Standards), earlier figures are according to Norwegian GAAP Most important changes are Balance sheet now includes real value of pension obligations Major plant maintenance is treated as an investment Yara has not utilized the option to change other asset values There are no significant changes to cash flow figures, and overall changes in Yara s accounting numbers are small EH - Date: Page: 53

54 54 More info can be found at EH - Date: Page: 54