Yara International ASA. SEB Enskilda Nordic Seminar SVP Supply & Trade Terje Bakken Copenhagen, 12 January 2011

Transcription

1 Yara International ASA SEB Enskilda Nordic Seminar SVP Supply & Trade Terje Bakken Copenhagen, 12 January 211

2 1 Key drivers Climate change Food security N 2 O emissions from soils Crop nutrition research Fertilizer for algae Bioenergy Reduce emissions Innovation Increase productivity Improved Nutrient management Product development Intensification to Avoid deforestation Forest as carbon sink Nutrition and abiotic stress Crop growth on marginal soils Water use efficiency Adapt to changes Knowledge transfer Products & Services Secure sustainability Precision farming Water access LCA P use efficiency Nutrition of rice Nutrition of oil palm and sugar cane

3 2 Key trends impacting Yara the next 1 years Food security Climate change Water scarcity Need for agricultural productivity

4 Yara fertilizer reduces carbon footprint from farming 3 Fertilizer - an efficient solar energy catalyst Production marginal part of carbon footprint - efficient application more important Huge positive effects of fertilizer use by lower land use Production Yara s production more energy-efficient than competitor average Yara developed N 2 O catalyst Application Nitrates better than urea Precision farming (N-tester etc.) Balanced fertilization (NPK) 3.6 kg CO 2 eqv.1 kg CO kg CO 2 eqv 75 kg CO 2 75 kg CO 2 PRODUCTION TRANSPORTATION FARMING HARVEST CONSUMPTION CAPTURE Yara 21

5 4 Fertigation represents a growing opportunity Water scarcity is a clear issue Agricultural water use has to become more intelligent The segment has seen strong growth historically Rio Grande failed to reach GoM in 21 for first time Lake Aral Only ~25% of original size 17% of cropland is irrigated, is twice as productive as other land and contributes 4% of world food production but it uses 7% of all freshwater thus, productivity growth from irrigation has to come from better use of water More crop per drop Mio ha Expansion of Micro-irrigation CAGR 11.9% Yellow River Dry on last 1 km: 1972: 15 days 1997: 226 days Source: World Bank, 28 Center Pivot: carrot production in Brasil Source: Kulakarni et.al., 26; Gopalakrishnan, 28; USDA, 28; MOI, 29

6 Global food supply challenges have again reached media headlines 5

7 6 Decline in global wheat production Canada EU 114 FSU /1 1/11 9/1 1/11 China USA 9/1 1/11 India /1 1/11 9/1 1/11 Global production Global consumption 9/1 1/11 Australia Wheat production, million tons -5.9% 1.9% Source: USDA, November 21 9/1 1/11 9/1 1/11 9/1 1/11

8 7 Tight grain market Grain production and consumption Days of consumption Million tons 2,3 2,25 2,2 2,15 2,1 2,5 2, 1,95 1,9 1,85 1,8 Production Consumption F Days F May estimate Reduced from 81 days in May report to 69 days Source: USDA, November 21

9 8 Boost in fertilizer demand Index 1= Jan Wheat Urea fob Black Sea Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun -1 Jul-1 Aug-1 Sep-1 Oct-1 Source: World bank for wheat price and various market publications for Urea

10 9 Tighter fertilizer markets Price Shift in demand curve for fertilizer on the back of production shortfalls and a tighter ag commodity market P 1 2 Reduced supply as Chinese export cost increases and production is curtailed P Volume

11 1 Urea trade up 3% in 3Q21 3Q21 compared to 3Q29 Kilotons 2,5 2, 1,5 1, ,15 5 Latin America North America South Asia Europe Rest of world Rest of world Latin America Ukraine China West Asia IMPORTS EXPORTS Source: IFA Quarterly Survey of World Trade, covering close to 85% of world trade

12 11 Increasing Chinese urea prices and costs % Operating rate of China's Urea industry in 21 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 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 RMB/t 2,2 2, 1,8 1,6 1,4 1,2 1, 8 Urea and coal prices in China Urea price Anthracite price Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1

13 Planned capacity additions continue to be delayed 12 Year * Including announced closures only Global urea capacity Driving regions growth estimate World Excluding China World Excluding China % (5.%) 2.1% (1.5%) China 76% Oman 8% % (7.4%) 4.% (4.2%) China 59% Trinidad 7% % (7.7%) 4.5% (4.2%) China 49% Pakistan 13% % (5.%) 2.% (3.8%) China 73% Egypt 8% % (3.4%) 5.3% (4.8%) China 29% Oman 34% Egypt 2% Trinidad 17% Pakistan 14% Pakistan 25% Qatar 18% Egypt 29% Qatar 27% UAE 19% UAE 14% Algeria 19% Average urea consumption growth has been 3.4% last 1 years, 2.4% excluding China Source: Fertecon update September 21 (figures in brackets from Fertecon s previous report)

14 Strong increase in value of phosphate production* 13 Value of phos.acid production Value of DAP production USD/ton 8 USD/ton 6 DAP price Phos.acid price 5 4 Value above raw materials Value above raw materials 2 Sulphur 1 Phos.rock Ammonia 1 Phos.acid *Numbers are for Morocco Source: International publications, Yara

15 14 Basis for Yara s profitable growth ambitions Yara CROGI 25 % 2 % 15 % 1 % 5 % % Strong earnings through the cycle Long term target A scalable business model giving synergies 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

16 Yara has substantial financial capacity for growth 15 Yara s debt/equity-ratio end of third quarter 21 is.32 Debt/equity-ratio designed in 23 for Yara spin-off was 1.4, to give a BBB rating A debt/equity ratio of 1.4 today would imply USD 4 billion in additional debt Rating requirements tightened since 23, but Yara has demonstrated strong earnings and a prudent growth trackrecord Current capacity for increased debt estimated to USD 2-3 billion Equity issue will only be used if there is a value accretive step growth initiative identified Billions NOK YTD 21 Equity Net debt

17 Global downstream presence with sales offices in more than 5 countries 16 5% Europe 1 mil tons 13% North America 2.6 mil. tons 12% Asia 2.4 mil. tons 8% Africa 1.6 mil. tons 17% Latin America 3.4 mil. tons Sales Yara plants Joint venture plants Sales offices

18 Yara flexibility to produce or import ammonia in Europe 17 Million tons Yara can swing 2/3 of European ammonia production without affecting fertilizer production Almost all Yara nitrate and NPK capacity has ammonia import flexibility Land-locked plants**.5 Yara Europe* Flexible Non-flex 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 sites without deep sea ammonia import/export terminals: Tertre and Pardies

19 18 West European nitrate production trending lower Yearly production Monthly production Million tons Million tons / / /1 2/3 4/5 6/7 8/9. Jul Sep Nov Jan Mar May Source: EFMA

20 Nitrate premium in line with realized premium last 12 months 19 USD/ t Nitrate premium 5 5 % % 4 4 % % 3 3 % % 2 2 % % 1 1 % 5 5 % % Swing Last 5 year average equals 32% L12 month 23% Assumed in swing scenario 25% CAN USD/t Urea USD/t of CAN equivalent Premium A logistical proxy cost of USD35/mt and a duty charge of 6.5% is added to the urea price before calculating the premium

21 2 NPK margin improvement USD/t NPK margins* Strong NPK margins in 21 due to strong phosphate market NPK margins assumed higher than last year s swing scenario but lower than 21 margins YTD 1 Swing 9 Swing 1 * Product from Porsgrunn, Glomfjord, Ravenna and Montoir sold in Europe

22 21 Gas cost development European gas price has picked up from 29 slow-down Current lower North American gas price should benefit Yara: - Directly through lower gas costs in Belle Plaine - Indirectly by making more LNG available for Europe Scenarios assume European hub gas price USD 1 below next years forward - Gap between US and Europe may be reduced by LNG - European spot historically lower than the forward price USD/MMBtu Energy cost Zeebrugge day ahead Yara Europe Henry Hub Source: Yara, World Bank, Platts

23 Example of product innovation Developing multiple applications for nitrogen chemicals 22 ABS Concrete admixtures Dairy Industry Odor control Polyrethanes Steel industry Methyl Methcrylates Yeast Production Nylon Mineral wool Nitric Acid Ammonia Urea Calcium Nitrate Nitrocellulose Pulp and paper Bio fuels Pharmaceutical Amino Acids, Animal Feed Water Treatment Glue in wood industry Bakelite Shampoo, Handcreams De-icing Basic molecules into products that play a role in our daily life Nitric acid to produce polyurethanes that are essential components to make car seats Ammonia to make Caprolactam, an important raw material to produce nylon Calcium nitrate enables rapid setting of concrete in cold conditions thereby saving time and money in construction Client base includes large players in the chemical, pharmaceutical, automotive, steel and biomaterial industries

24 Global demand development of nitrogen chemicals for industrial applications is strong 23 Million tons N Urea Nitric Acid Ammonia, DeNOx Ammonia, TAN Ammonia, P-Chem Estimated growth of Industrial applications is 1 million tons N (3.3 % annual growth) Source: Fertecon

25 24 Industrial segment - Excellent development Industrial volumes Industrial EBITDA* Kilotons 6, NOK millions 1,4 5, 1,2 4, 1, 3, 2, , L12M L12M PC TAN ESP CO2 *Ex special items and Yara Praxair Last two years EBITDA margin at almost 2%

26 25 Demand-driven urea price assumption close to current price level USD/t Urea price Jan 7 Jan 8 Jan 9 Jan 1 Urea, fob Black Sea CMD 1 Swing CMD 1 Demand-driven

27 Additional information

28 27 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

29 28 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 Agrium PCS Koch Yara Acron Euroc. OCI Chekas Yara* Acron Police BASF Rossosh * Incl. companies shares of JVs Source: Yara & Fertecon Source: British Sulphur, EFMA Source: Nitrex-Complex

30 29 Sharp increase in soft commodity prices Index 1= avg Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Corn Wheat Rice Soybeans Index 1= avg Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Sugar Cotton Coffee Source: World Bank Pink Sheet

31 3 Forward prices sustained at high levels Wheat USD/bu Soybeans USD/bu USD/bu USD/lb Corn Sugar Source: CBOT, November 3 21 ( End of year forward price), Blue-Johnson Average 2-29

32 31 Increased fertilizer demand with higher grain prices Wheat in Germany* +7.7% If no more nitrogen is available, the CAN price needs to increase to 37 to balance supply/demand if farmers optimize purchases Assuming CAN 27% N costs Euro 26/mt at farmer level Wheat price (Euros/mt) N-optimum (kg/ha) Revenue minus N cost (Euros/ha) Scenario 1: ,14 Scenario 2: (+7.7%) 1,712 (+5%) *Yield curve based on 187 field trials for winter wheat( )

33 Production Export Domestic Domestic Export Production 32 Reduced domestic urea availability in China Chinese urea production Domestic urea balance Million tons 6. 9/1 Million tons / % Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: BOABC Jul-Oct 9 Jul-Oct 1

34 Reducing carbon footprint together with PepsiCo-Tropicana 33 Fertilizer=58% of CO 2 emissions in orange juice production PepsiCo-Tropicana: Aims to reduce overall carbon footprint for orange juice production YaraLiva Tropicote can decrease carbon footprint of orange juice production by 5% Five years trial project started February 21 in Florida Partnership between PepsiCo, SMR, Yara and University of Florida

35 Climate change & agricultural productivity Example: Fertilizer for algae 34 Objective To develop a patent protected fertilizer for mass cultivation of algae Activities Trials to optimize algae growth Nutrient application rates Nutrient forms Collaboration with external partners 2. Department for Applied Physics at 1.5 the University of Duisburg 1. Private sector (e.g. EON to test products on larger scale in their pilot plants).5. Algae (g dry matter/l) 2.5 With nutrition Without

36 Nitrate-based fertilizers are superior to urea both agronomically and environmentally 35 The agronomical efficiency of nitrates is superior to urea Nitrates have lower ammonia volatilization losses The carbon footprint is lower than for Urea 1 Nitrogen recovery (% of AN) Average Emission Factor, Cereals 3 Lifecycle carbon footprint (kg CO 2 eq/kg N) AN Urea UAN AN UAN Urea AN Urea Urea requires up to 2% higher N application to achieve same cereal crop yield and quality as AN Urea and UAN with a 3% market share of EU nitrogen fertilizers cause 88% of its ammonia emissions 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

37 36 Prospects 211 Sharp increase in agricultural prices has improved farm economics and substantially increased fertilizer demand Potential high grain price volatility, prices well above level required to boost fertilizer demand Nitrogen industry outside China running at full capacity, pricing to balance between Chinese export availability and farmers willingness to pay Chinese export will be limited by increased coal costs and authority-initiated curtailments to reduce emissions and save energy New capacity is limited, indications of slowdown in new construction

38 Structure for Growth Geographical Focus Regional updates 37 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

39 Financial scenarios are not forecasts, but illustrate potential earnings in given situations 38 Model assumptions Basis: Last 12 months (L12M) EBITDA excluding special items and position gains, and adjusted for portfolio changes Qafco 5 and Sluiskil upgrade added Scenarios 1. Chinese floor price scenario 2. Average prices last five years 3. USD 15 urea margin per ton above Chinese floor price Upsides Tighter supply-demand balance Organic growth Step growth Downsides Deterioration in supply-demand balance

40 39 Chinese swing urea export price Uncertainty around the sustainability of current anthracite price increase Conservatively include only 5% of recent anthracite price increase in assumed Chinese export swing price of USD 28 /t fob USD/t Urea price USD 28 fob China equivalent to USD 27 fob Black Sea Current Ukraine gas price gives a Black Sea swing cost of USD ~26 5 Chinese export price spring 21 Anthracite coal price increase Assumed Chinese swing export price FOB BS equivalent Current cash BS export

41 4 Chinese urea production cost Chinese export prices bottomed this spring at USD 24 fob, reflecting domestic cash cost and 7% export tax Urea and coal prices in China Urea Coal USD/t RMB/t 4 1,5 Anthracite coal price has increased 4% since spring, increasing urea production cost by USD 8/t Other costs like electricity and logistics continue to increase too, export cost today above USD 32/t Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 1,4 1,3 1,2 1,1 1, Urea, FOB China Anthracite price

42 41 NPK margin improvement USD/t NPK margins* Strong NPK margins in 21 due to strong phosphate market NPK margins assumed higher than last year s swing scenario but lower than 21 margins YTD 1 Swing 9 Swing 1 * Product from Porsgrunn, Glomfjord, Ravenna and Montoir sold in Europe

43 Financial scenarios 42 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.

44 Financial scenarios Price gains and currency offset negative energy effect in swing scenario 43 NOK Swing scenario CMD29 Expansions Price/Margin Currency Net finance Energy Swing scenario CMD21 Price/Margin Demanddriven scenario

45 24-27: Double-digit returns for established US and global players 44 EBITDA* excl. special items / total assets 25 % Nitrogen 2 % 22 % 21 % 2 % Potash Phosphate 15 % 15 % 15 % 1 % 8 % 5 % 5 % % CF Yara Potash Corp Agrium Terra Mosaic K+S *Using an assumed 3% tax rate on net income from non-consolidated investees Source: Yara reports and Thomson-Reuters Worldscope

46 45 28 profitability for Yara segments and peers EBITDA* excl. special items / total assets (24-7 average in brackets) 7 % Nitrogen 6 % 5 % 4 % 3 % 58 % (22%) 56 % (15%) 49 % (31%) 47 % (2%) 43 % (5%) 32 % (8%) 3 % (21%) 25 % Potash Phosphate 2 % 1 % (15%) 16 % (14%) 11 % (23%) % CF Terra Yara UPS Source: Thomson-Reuters Worldscope Potash Corp *Using an assumed 3% tax rate on net income from non-consolidated investees K+S Mosaic Yara Agrium Yara DWS Yara IND

47 46 Yara performance 4Q8-4Q9 vs. peers 1. Long value chain Like Agrium, Yara has a long value chain 2. Downstream exposure Third-party exposure, position losses 3. NPK exposure Margin squeeze and low capacity utilization 4. Energy exposure European energy cost at 7.8 USD/MMBtu versus Henry Hub 4.5 USD/MMBtu 5. Regional exposure Stronger and longer drop in European deliveries 6. Currency 29 EUR ca. 1% stronger vs. USD than 24-7 average

48 47 Downstream Why does it make sense? 14% EBITDA margin of total assets over the period 24-7 corresponds to a CROGI level of approximately 1%. Downstream reduces uncertainty for Upstream as capacity utilization increases as a result of captive markets (beyond 95% over period) As about two thirds of Yara's production is differentiated products (nitrates, NPK and CN), a dedicated sales network is key to realize required premium to nutrient commodity value Upstream realized prices are higher as a result of Downstream presence Downstream has enabled more and better Upstream ownership positions (Qatar, Libya, Russia) Important source of business intelligence

49 4Q8-4Q9: Strong return for Upstream focused US nitrogen companies 48 EBITDA* excl. special items / total assets 4 % 37 % Nitrogen 35 % Potash 3 % 25 % 25 % 22 % Phosphate 2 % 15 % 1 % 19 % 16 % 12 % 1 % 9 % 5 % 4 % % -5 % -5 % -1 % CF Yara IND Terra Yara UPS Source: Thomson-Reuters Worldscope Potash Corp * Using an assumed 3% tax rate on net income from non-consolidated investees K+S Yara Mosaic Agrium Yara DWS

50 49 Key value drivers quarterly averages Oil Brent blend spot (USD/bbl) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t) Q 9 4Q 9 1Q 1 2Q 1 3Q Q 9 4Q 9 1Q 1 2Q 1 3Q Q 9 4Q 9 1Q 1 2Q 1 3Q 1 US gas price Henry Hub (USD/MMBtu) Ammonia fob Black Sea (USD/t) Q 9 4Q 9 1Q 1 2Q 1 3Q 1 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 NOK/USD exchange rate Q 9 4Q 9 1Q 1 2Q 1 3Q 1 Source: The Market, CERA, World Bank, Norges Bank

51 5 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 1, Source: Average of international publications DAP fob US Gulf USD/t 1,4 1,2 1, Average prices 2-29

52 51 Agricultural commodity prices increasing Wheat (HRW US Gulf) USD/t Rice (Thailand) USD/t 1, Corn (US Gulf) USD/t Soybeans (cif Rotterdam) USD/bushel Source: World Bank, October 21

53 52 Corporate targets Solid profitability CROGI over the cycle > 1% as average New investment profitability 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

54