CMD 2012: Financial Update (Torgeir Kvidal)

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Presentation on Yara's Capital Markets Day, December 4, 2012, held by CFO Torgeir Kvidal

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CMD 2012: Financial Update (Torgeir Kvidal)

  1. 1. Financial update Torgeir Kvidal, CFO
  2. 2. 1Financial highlights CROGI Strong results and cash flow 25 % Yara benefitting from continued 20 % tight nitrogen markets 15 % Increased sales volumes for nitrates and NPK outside Europe 10 % at higher prices 5% Qafco expansions finalized and 0% Lifeco restart 2004 2005 2006 2007 2008 2009 2010 2011 YTD 2012 Ex special items Long-term target Strong balance sheet Capital Markets Day 2012 – 4 December
  3. 3. 2Yara generates value both within commodityand value-added products Nitrogen upgrading margins Phosphate upgrading margins NPK blend premiumUSD/t USD/t USD/t700 700 700 600 Margin above600 600 blend cost Nitrate premium above urea Value above 500500 500 raw material Urea 400 Value above400 400 ammonia 300 MOP NH3*0.22300 300 Value above gas 200200 200 Yara EU gas cost *20 100 DAP Rock*1.4100 100 0 3Q10 1Q11 3Q11 1Q12 3Q12 3Q10 1Q11 3Q11 1Q12 3Q12 3Q10 1Q11 3Q11 1Q12 3Q12 Urea CFR CAN (46% N) DAP DAP T17 del France NH3 CFR (46% N) Capital Markets Day 2012 – 4 December
  4. 4. 3Yara’s fertilizer production system Distribution / Trade Production Upgrading to value-add Urea Nitrate NPK NPK Nitrate products and distribution Flexible on ammonia source Ammonia Ammonia Ammonia Ammonia Ammonia Ammonia Energy exposed commodity margins Gas Gas Gas Gas Trinidad Sluiskil Sluiskil Porsgrunn Glomfjord Ambes Pilbara Brunsbüttel Tertre Siilinjärvi Montoir Ferrara Uusikaupunki Rostock Belle Plaine Montoir Köping Le Havre Ravenna Pardies Qafco Rio Grande LifecoPlants located in Europe Capital Markets Day 2012 – 4 December
  5. 5. 4Ammonia flexibility in Europe 5.2 Million tons 3.6 1.6 1.3 Urea Land-locked nitrates 0.3 European Flexible Non flexible ammonia capacity Yara can swing 2/3 of European ammonia production without affecting fertilizer production Capital Markets Day 2012 – 4 December
  6. 6. 5 Value-added upgrading and distribution make up major part of Yara’s contribution Average 2010-2011 contribution, NOK billions 24.3 1.5 2.1 Value-add 11.1 + commodity 9.6 outside EuropeOverseas 5.1 European Europe 4.5 4.5 energy exposure Commodity Fertilizer Industrial Trade Total upgrade & upgrade & distribution distribution Capital Markets Day 2012 – 4 December
  7. 7. 6 Value-added upgrading and distribution make up major part of Yara’s contribution Total Yara contributionNOK billions7,000 Trade6,000 Industrial upgrade & distribution5,000 Fertilizer upgrade & distribution4,0003,000 Commodity overseas2,0001,000 Commodity Europe 0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Capital Markets Day 2012 – 4 December
  8. 8. 7Yara product capacity values Value based on prices last 12 monthsUSD/t of NH3 equivalent 1,800 1,600 1,400 1,200 Premium above blend Rock upgrade 1,000 Nitrate value above urea Urea upgrade value 800 Ammonia upgrade value 600 Gas cost 400 200 0 Mt of NH3 equivalents 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Urea overseas Urea EU Nitrate NPK UAN Excess ammonia Capital Markets Day 2012 – 4 December
  9. 9. 8Yara sensitivities Operating Income EBITDA EPS* USD million USD million USD Urea sensitivity +100 USD/t 925 1,097 3.1 …of which pure Urea 285 422 1.3 …of which Nitrates 367 393 1.1 …of which NPK 198 208 0.6 Nitrate premium +50 USD/t 458 518 1.4 …of which pure Nitrates 289 333 0.9 Hub gas Europe + 1 USD/MMBtu (130) (145) 0.4) Ammonia + 100 USD/t 37 94 0.2 Phos rock + 50 USD/t 50 50 0.1 Hub gas North Am + 1 USD/MMBtu (26) (26) (0.1) Crude oil + 10 USD/brl (30) (30) (0.1) Currency + 1 USD/NOK ** 90 90 0.2*Assuming 25% marginal tax rate on underlying business and 279.5 million shares** Net fixed costs in EUR and NOK Sensitivities assume stable value-added margins and no inter-correlation between factors Capital Markets Day 2012 – 4 December
  10. 10. 9Financial scenarios are not forecasts, butillustrate potential earnings in given situations • Based on last 4 quarters EBITDA excluding special items adjusted for portfolio changes Model assumptions • Qafco 5 & 6 expansions and Yara Pilbara consolidation included on full-year basis • Production assumed at 95% of stated capacity 1. China swing exporter with assumed zero domestic margin Scenarios 2. China swing exporter with 2H12 domestic price 3. Average prices last five years 4. USD 150 urea margin per ton above average of Chinese scenarios Capital Markets Day 2012 – 4 December
  11. 11. 10Lower coal price in China Anthracite coal prices, RMB/t 1,100 -25% • Current cost for marginal producers assumed at ~1,800 RMB/t 825 • Last year’s China swing scenario assumption of ~1,850 RMB/t on the conservative side Nov 11 Nov 12Source: China Fertlizer Market Week Capital Markets Day 2012 – 4 December
  12. 12. 11Swing price last two years set by Chinesedomestic price and export tax Domestic urea price in China Chinese export tax 1 Jul – 1 NovRMB/t Fob China2 500 700 2 400 650 2011 2 300 600 550 2 200 500 2 100 2012 450 2 000 400 1 900 350 1 800 300 1 700 250 1 600 200 Jan Apr Jul Oct 1 750 1 950 2 150 2 350 2 550 2012 2011 Avg Jul-Oct 12 Domestic price ex works, RMB/t* China Fertlizer Market Week Capital Markets Day 2012 – 4 December
  13. 13. 12Summary of scenario price assumptions Urea price fob China USD/t 440 420 410 400 49 380 370 360 335 24 340 56 335 320 22 22 48 300 24 24 24 Domestic 280 290 290 289 289 price 0 CMD 11 CMD 11 CMD 12 CMD 12 Cost revised Assumed cost Avg domestic price Jul-Oct 12 Tax Logistics Producer margin Cost Capital Markets Day 2012 – 4 December
  14. 14. 13 Price and currency assumptions in scenarios 5-year Chinese swing* Last 4 avg. to Demand quarters 30 Sep Domestic -driven** Cost 12 price Ammonia fob Black Sea (USD/t) 527 420 475 475 550 Urea prilled fob Black Sea (USD/t) 432 372 325 400 515 Nitrate premium (% above Nitrogen in Urea) 21% 33% 25% 25% 20% Nitrate premium, USD/t 62 83 56 68 69 Phos rock fob North Africa (USD/t) 191 184 180 180 180 DAP fob USG (USD/t) 565 588 550 550 550 Zeebrugge natural gas (USD/MMBtu) 9.0 8.1 10.5 10.5 10.5 Henry hub natural gas (USD/MMBtu) 2.8 5.0 3.7 3.7 3.7 Yara’s European energy price (USD/MMBtu) 11.0 9.5 10.9 10.9 10.9 Brent blend crude oil price (USD/bbl) 105 89 105 105 105 NOK/USD 5.8 5.9 5.7 5.7 5.7* Energy prices are forward prices as of 9 October** Given example to illustrate effect of urea price USD 150 per ton above average of the two sing scenarios Capital Markets Day 2012 – 4 December
  15. 15. 14Simplified P&Ls for scenarios 5-year avg. Chinese swing Last 4 Demand- NOK millions to quarters Domestic driven** 30 Sep 12 Cost price EBITDA1) 17,000 18,000 11,400 16,700 24,400 Depreciation -3,100 -3,200 -3,300 -3,300 -3,300 Interest expense -800 -800 -800 -800 -800 Income before tax 13,100 14,000 7,300 12,600 20,300 Tax -2,500 -2,900 -1,300 -2,500 -4,100 Minorities -100 -200 -300 -300 -400 Net income 10,500 10,900 5,700 9,800 15,800 Number of shares (millions) 284.2 279.5 279.5 279.5 279.5 Earnings per share (NOK) 37 39 20 35 57Currency translation +1 USD/NOK 2,900 3,050 2,000 2,950 4,3001) 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. Capital Markets Day 2012 – 4 December
  16. 16. 15Negative price effects reducesswing EPS by NOK 8 NOK per share 57 21 35 28 15 8 20Swing CMD11 Price/margin Currency Other Swing CMD12 Price/margin Swing CMD12 Price/margin Demand driven Assumed cost Domestic price Capital Markets Day 2012 – 4 December
  17. 17. 16Demand-driven USD 150 per ton on ureaimproves EPS by 22 NOK per share 57 35 28 15 8 20Swing CMD11 Price/margin Currency Other Swing CMD12 Price/margin Swing CMD12 Price/margin Demand driven Assumed cost Domestic price Capital Markets Day 2012 – 4 December
  18. 18. 17Risk factors Risk factors Downside protection factors  Major decline in grain prices  Strong incentives to maximize productivity even at significantly lower grain price  Severe downturn in global economy, levels impacting food consumption growth  Food consumption has historically seen  China: loosening of export tariff system limited impact from economic slowdowns. Record crops are needed to meet growing  China: further fall in anthracite coal price consumption  European crisis could improve competitiveness of European agricultural sector and put pressure on European gas prices  Yara financially stronger and may take advantage of a potential negative short- term development Capital Markets Day 2012 – 4 December
  19. 19. 18Cash distribution to date: stable growth inabsolute dividend, flexible buy-backs Annual dividends and buy-backs, NOK per share* 13.2 8.1 6.2 5.4 5.4 5.3 4.9 3.9 7.0 5.5 4.0 4.5 4.5 2.3 2.4 2.5 2004 2005 2006 2007 2008 2009 2010 2011 Buy-back Dividend* Carried out in the year following the result year, i.e. 2011 number reflects buy-backs and redemptionsexecuted in 2012. 2004 number reflects buy-backs and redemptions carried out in 2004 and 2005. Capital Markets Day 2012 – 4 December
  20. 20. 19Dividend payment to date behind target, whilebuy-backs are within targeted rangeNOK Dividend (cumulative) NOK Buy-back (cumulative)billions billions16 1614 14 Target minimum 30%12 1210 10 8 8 6 6 Target 10-15% 4 4 2 2 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011 Capital Markets Day 2012 – 4 December
  21. 21. 2040 - 45% target is at the right level Debt / NOK Equity billions 30 1,00 0,90 25 0,80 0,70 20 0,60 15 0,50 0,40 10 0,30 0,20 5 0,10 0 0,00 2004 2005 2006 2007 2008 2009 2010 2011 3Q12 NIBD actual NIBD 45% D/E actual D/E 45% Capital Markets Day 2012 – 4 December
  22. 22. 21Balance sheet can accommodate targetedcash distribution and significant growth Debt to equity ratio development assuming base earnings equal to average of swing scenarios 0.6 0.5 0.4 0.3 0.2 0.1 0.0 3Q12 2013S 2014S 2015S 2016S Annual growth CAPEX 2 BUSD, 45% payout Annual growth CAPEX 1 BUSD, 30% payout Capital Markets Day 2012 – 4 December
  23. 23. 22Execution of cash distribution policy Key elements Main benefits • The overall cash distribution target of 40-45% • Increased absolute payments when cash is at the right level and is aligned with Yara’s flow is strong and attractive M&A growth ambitions opportunities are limited, at the higher end of the cycle • Going forward, cash distribution will normally be 40 - 45% of the previous year’s net • Improved availability of cash when attractive income M&A opportunities are present at the lower end of the cycle, in the interest of both Yara • Cash distribution may in some years fall and its investors short of or exceed the 40 - 45% range, but normally only if cash flow and balance sheet • Increased predictability of the relative payout metrics move outside the required rating level (stronger link to recent earnings) range Capital Markets Day 2012 – 4 December

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