Yara International ASA · OSL:YAR
Yara International ASA — Bernstein Conference 2018
58 slides from Yara International ASA's conference presentation, Sep 26, 2018
Slide 1: Yara International ASA – Bernstein Conference
Yara International ASA Bernstein Conference Petter Østbø, EVP, Chief Financial Officer 26 September 2018
Slide 2: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets IR – September 2018 2
Slide 3: Safe operations is our first priority
Safe operations is our first priority 5 TRI (Total recordable injuries 12-month rolling)1 4.5 1.4 0 Jan'16 Jun'18 1) TRI: Total recordable injuries, lost time (absence from work), restricted work and medical treatment cases per one million work hours. IR – September 2018 3
Slide 4: External safety benchmark
External safety benchmark TRIs per million hours worked Shell (Combined) 1.0 Yara (Combined) YTD 2018 1.4 Yara (Combined) 2017 1.8 DuPont (Combined) 2.2 Hydro (Combined) 2.6 Statoil (Combined) 2.9 Mosaic (Combined) 3.3 PotashCorp (Combined) 5.0 CF Industries (Own) 6.0 Fertilizer Europe (combined) 6.
Slide 5: Yara's leading global position and differentiated product portfolio
Yara’s leading global position and differentiated product portfolio represent key sources of competitive edge Global #1 in Nitrates1 7.7 9.2 4.2 3.0 2.9 2.3 3.0 4.7 2.2 1.1 Europe 40.4% Yara Eurochem Ostchem Uraichem Borealis 0.2 North America 12.0% Asia 7.1% Global #1 in NPK2 6.2 1.3 3.3 2.7 2.7 2.
Slide 6: Why is nitrate fertilizer the better nitrogen fertilizer?
Why is nitrate fertilizer the better nitrogen fertilizer? best fit for precision 2-20% yield agriculture up to 90% reduced improved local ammonia emissions environment up to 15 % lower only N-source in a GHG emissions carbon neutral future
Slide 7: Yara's integrated business model is unique within the fertilizer industry
Yara’s integrated business model is unique within the fertilizer industry IR – September 2018 7
Slide 8: Profitable growth through the cycle
Profitable growth through the cycle Average annual shareholder return of 20%1 Average cash return on gross investment (CROGI) well above the Yara CROGI target of 10% NOK/share BUSD 400 0 20 18 350 0 16 300 14 250 0 12 200 10 10% target 0 8 150 6 100 0 4 50 2 0 0 0 IPO 05 06 07 08 09 10 11 12 13 14 1
Slide 9: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets IR – September 2018 9
Slide 10: Market fundamentals improving towards 2019 on grain stocks and urea supply
Market fundamentals improving, with positive developments towards 2019 on grain stocks and urea supply Grain prices rising slowly, and Urea supply increases high in Strong Asian demand drives stocks are falling 2018, falling thereafter LNG prices higher Grain price index Global capacity additions ex
Slide 11: Steady growth in grain consumption, production expected to fall short
Steady growth in grain consumption, production expected to fall short for the 2018/19 season Grain consumption and production Days of consumption in stocks Million tons Days 2,650 100 95 90 85 80 75 70 65 60 2,000 55 09 10 11 12 13 14 15 16 17 18E 19F 09 10 11 12 13 14 15 16 17 18E 19F Consumption P
Slide 12: Stronger global pricing, pulling Chinese pricing higher as well
Stronger global pricing, pulling Chinese pricing higher as well Increasing urea pricing (USD/ton) Lower Chinese export (thousand tonnes) 390 2,400 370 2,200 350 2,000 330 1,800 310 1,600 1,400 290 1,200 270 1,000 250 800 230 600 210 400 190 200 170 0 Urea fob Black Sea Urea prilled fob China Urea gr
Slide 13: Higher natural gas cost expected for the next two quarters
Higher natural gas cost expected for the next two quarters Yara European natural gas cost Y-o-Y change in Yara gas cost USD/ USD MMBtu millions 9.0 120 8.0 100 7.0 80 6.0 60 5.0 20 12 100 91 4.0 40 20 70 3.0 20 45 42 46 27 2.0 0 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 T
Slide 14: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets IR – September 2018 14
Slide 15: Yara's mission and vision guides our strategy
Yara’s mission and vision guides our strategy Our Mission Our Vision Responsibly feed A collaborative society; the world and a world without hunger; protect the planet. a planet respected. IR – September 2018 15
Slide 16: The Crop Nutrition Leader
The Crop Nutrition Leader Advance Operational We will grow responsible solutions to farmers, industry and society, while Excellence delivering superior return on capital Create Drive Scalable Innovative Solutions Growth IR – September 2018 16
Slide 17: Advance Operational excellence; Yara Improvement Program delivering ahead of plan
Advance Advance Operational excellence; Yara Improvement Program delivering ahead of plan Start: 2016 2017 2018 2019 2020 End: 2020 Today Annual impact, USD million, vs. 2015 baseline, at 2015 margins 500 450 350 The Yara Improvement Sustained 310 242 Program has so far delivered EBITDA 310 millio
Slide 18: Create Scalable Solutions; Closer collaboration with the Food Industry
Create Scalable Solutions; Create Closer collaboration with the Food Industry Food Industry Farmer Crop Product Sell benefits of our Market depth Asset solutions Farmer centric solutions and • Deliver required crop Build crop tools quality to processor and ensure reliable solutions raw material supp
Slide 19: Precision fertilization made simple - atfarm
Precision fertilization made simple - atfarm Create 10x10m precision application of fertilizer Quantitative recommendation “in only 5 clicks” Empowered by decades of Yara precision fertilization R&D Benefits for farmers - Higher yield - Reduced waste - Higher protein content IR – September 2
Slide 20: Drive Innovative Growth; Yara is delivering on its growth pipeline
Drive Innovative Growth; Drive Yara is delivering on its growth pipeline 1 Jan 1Q 2Q 4Q 1 Jan 3Q 2018 2019 Babrala (India) Cubatao (Brazil) Sluiskil (NL) Acquisition of urea plant and distribution N and P production facility acquisition Revamp and urea+S expansion assets - 1.2 mt urea and approx 40
Slide 21: Agenda
Agenda • Yara introduction • Market fundamentals • Yara strategy • Targets IR – September 2018 21
Slide 22: Major improvement and growth investments in 2018; earnings improvement from 2019
Major improvement and growth investments in 2018; main earnings improvement from 2019 onwards1 Improvement and growth capex2 (BUSD) Improvement program EBITDA improvement3 (MUSD) Committed expansions + M&A 1.5 1,100 900 0.1 500 450 500 Improvement program: 282 350 600 + 350 MUSD cost improvement 124
Slide 23: IR – July 2018
IR – 17 July 2018
Slide 24: Market
Market IR – September 2018 24
Slide 25: Yara's margins contain both commodity and premium elements
Yara’s margins contain both commodity and premium elements Urea is the key commodity Yara’s nitrogen production capacity with Nitrogen product1 high premium share2 Other Ammonia3 10% 4% Ammonia 4% Urea DAP/MAP Urea 30% 7% 50% Yara’s World NPK/CN nitrogen 32% nitrogen consumption capacity NPK 15% UAN
Slide 26: Strong urea supply growth this year, but balance set to improve after 2018
Strong urea supply growth this year, but supply-demand balance set to gradually improve after 2018 Global urea capacity additions excl. China (mill. tonnes) India Iran USA Production Russia Algeria Others 6.7 4.7 4.5 3.4 3% consumption growth 2.6 2.5 2.6 1.9 1.1 2014 2015 2016 2017 2018 2019 2020 20
Slide 27: Chinese domestic supply slightly up, as export decline offsets lower production
Chinese domestic supply slightly up, as export decline more than offsets lower production Chinese urea production down vs last year (million tons) Export reduction exceed production decline (million tons) 5.2 60 54.3 5% 52.7 47.8 50.1 16/17 50 6.6 2.6 40 30 20 10 17/18 0 Production Production Domest
Slide 28: Grain prices significantly up from last year
Grain prices significantly up from last year Corn Nov 2018 contract France (EUR/tonnes) Wheat (milling) Dec 2018 contract France (EUR/tonnes) IR – September 2018 28
Slide 29: 10-year fertilizer prices – monthly averages
10-year fertilizer prices – monthly averages USD/t Ammonia fob Black Sea USD/t CAN cif Germany 1,000 500 800 400 600 300 400 200 200 100 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 USD/t Urea prilled fob Black Sea/Urea granular fo
Slide 30: Key value drivers – quarterly averages
Key value drivers – quarterly averages TTF day ahead (USD/MMBtu) Urea prilled fob Black Sea (USD/t)/Urea CAN cif Germany (USD/t) granular fob Egypt (dotted line, USD/t) 7.7 7.3 6.6 272 261 245 5.0 5.5 207 234 244 229 227 247 205 239 211 190 201 198 2Q17 3Q17 4Q17 1Q18 2Q18 2Q17 3Q17 4Q17 1Q18 2Q18 2
Slide 31: Business model and strategy
Business model and strategy IR – September 2018 31
Slide 32: Three operating segments supported by a global supply chain function
Three operating segments supported by a global supply chain function cover the value chain Production Crop Nutrition Industrial Runs large-scale production of nitrogen- Provides worldwide sales, marketing and Develops and markets environmental Description based products, the starting point for our c
Slide 33: Supply Chain creates global scale in raw material purchases and optimization
Supply Chain creates global scale in raw material purchases and optimization Global scale in raw material purchasing Global optimization of value potential • A major buyer of key raw materials and one of the • Large number of plant, product and market combinations largest buyers of phosphate and pot
Slide 34: Production scale advantage and variable cost flexibility
Production scale advantage and variable cost flexibility due to asset set-up and product mix Diversified product portfolio1 High ammonia flexibility Yara’s operating cash costs are mostly variable Mill tonnes 2017FY Mill tonnes 2017FY BNOK, 2017FY Ammonia 7 Nitrates 6 2.7 NPK 6 Variable costs (84%)
Slide 35: Crop Nutrition creates resilience in earnings through distribution
Crop Nutrition creates resilience in earnings through distribution of crop nutrition solutions in response to farmer needs Distributor Food Industry Consumer Market segmentation Yara capabilities Crop, channel, farmer pains, gains and behaviors. Market needs Knowledge, people, assets, Focus and inve
Slide 36: Industrial segment delivers opportunities for growth and offsets cyclicality
Industrial segment delivers opportunities for growth and offsets fertilizer cyclicality and seasonality Base Chemicals Environmental Solutions Mining Applications Industrial Applications1 Chemical applications used in CN and associated solutions for Key product and paints and packaging, glues, NOx a
Slide 37: Yara's solutions improve food production per hectare with lower emissions
Yara’s solutions improves food production per hectare, delivered through products with lower emissions per ton Yara crop nutrition practices enables farmers to Yara’s product mix has significant less emissions optimize application – and thus lower emissions than most of our competitors’ Yara Industr
Slide 38: Growth & Improvement
Growth & Improvement IR – September 2018 38
Slide 39: Yara Improvement Program – 2017 status
Yara Improvement Program – 2017 status Program progress Financial benefits 2017 2018 2019 2020 Production volume Variable unit cost3 Annual impact, USD million, vs. 2015 baseline, at 2015 margins Consumption factor Fixed cost Start: Today End: 2016 2020 500+ 450 350 ~35% 2017 EBITDA benefits ahead
Slide 40: Benefits are realized through improvements to core value drivers
Benefits are realized through improvements to core value drivers Value driver How we improve How we know Increase production in our existing plants by ~400 kt additional ammonia and ~700 Volume1 improving reliability kt additional finished fertilizer production by 20206 Reduce spend on consumption f
Slide 41: Yara Improvement Program accounts for ~20% of L12M EBITDA
Yara Improvement Program accounts for ~20% of L12M EBITDA MUSD +24% L12M earnings impacted by lower fertilizer prices and higher natural gas cost (~900 260 MUSD) Yara Improvement Program is (1) a driver of improved long-term Yara performance and (2) 1,355 a response to challenging market conditi
Slide 42: Growth pipeline focused on premium & industrial products
Yara has expected commodity nitrogen oversupply, and has focused its growth pipeline on premium & industrial products Growth focused on premium & industrial Expected start up Pipeline EBITDA (2015 prices, USDm)1 Uusikaupunki NPK 3Q 2016 190 160 180 Expand premium products Porsgrunn/Glomfjord CN/NPK
Slide 43: Yara is delivering on its growth pipeline; expansions and M&A in 2018
Yara is delivering on its growth pipeline; multiple plant expansions and M&A coming on stream in 2018 Production growth 2015 - 2020 Mill.tonnes (mt) Finished products Ammonia 25.1 9.2 0.5 0.2 0.8 0.5 Yara-operated plants 0.1 0.2 GrowHow UK (divested mid-2015) 1.2 0.7 Yara share of Qafco & Lifeco 0.4
Slide 44: Improvement and growth investments; earnings and sensitivities
Improvement and growth investments; earnings and sensitivities EBITDA improvement1 (MUSD) Improvement program: Impact2 of +100 USD/t price change (USD/share) 1,100 900 500 0.09 450 0.06 500 282 350 600 124 450 242 150 40 40 2016 2017 2018 2019 2020 Ammonia Urea Growth: Impact2 of +100 USD/t price ch
Slide 45: Financial
Financial IR – September 2018 45
Slide 46: Earnings per share impacted by higher energy cost and currency translation loss
Earnings per share impacted by higher energy cost and currency translation loss x.xx EPS excluding currency and special items EBITDA Earnings per share Negative result includes a currency translation loss of USD millions USD 302 million, a non-cash effect mainly resulting from a strengthening US dol
Slide 47: Yara investment activity peaked in first half 2018
Yara investment activity peaked in first half 2018 Capex plan Net interest-bearing debt +10% Cost&capacity improvements 3.2 USD billions M&A Committed growth 0.2 Maintenance 2.9 2.3 0.2 0.4 0.6 0.7 1.6 -25% 0.2 0.2 1.3 1.3 0.0 0.6 1.0 0.2 1.0 0.6 0.2 0.4 0.1 0.8 0.7 0.7 0.7 2017 2018 1H18 2H18 2019
Slide 48: European market nitrate prices up 4%; Yara realized NPK prices up 7%
European market nitrate prices up 4%; Yara realized NPK prices up 7% Nitrogen upgrading margins1 USD/t (monthly publication prices) Yara NPK premium over blend1 USD/t 500 +4% 500 +7% Urea Egypt CFR proxy CAN (46% N) Weighted average global premium above blend cost Nitrate premium, CIF inland Germany
Slide 49: Energy cost
Energy cost Yearly averages 2009 – 2015, quarterly averages for 2016-18 with forward prices* for 3Q18 and 4Q18. 11.0 11.4 10.7 10.5 9.1 9.2 9.4 8.1 8.2 8.5 7.6 8.1 7.1 6.5 6.6 7.8 6.6 8.2 8.0 8.0 7.4 8.0 6.6 5.7 6.5 6.9 6.4 5.6 5.0 4.9 5.3 4.6 5.7 5.2 5.5 6.2 6.2 5.4 5.9 6.1 4.7 5.7 5.5 5.3 4.8 4.2
Slide 50: Production and Deliveries
Production and Deliveries IR – September 2018 50
Slide 51: Increased deliveries in all main markets except Brazil
Increased deliveries in all main markets except Brazil, where truck strike impacts negatively Kilotons +11% 7,331 2Q17 2Q18 6,604 +18% -19% 2,413 2,039 2,052 1,671 1,076 1,045 961 586 664 711 414 302 Yara Europe Brazil North Asia Latin Africa America America IR – September 2018 51
Slide 52: Increased ammonia and finished products production
Increased ammonia and finished products production Ammonia1 Finished fertilizer & industrial products1 Kilotons Kilotons +13% +10% 2,200 5,500 Urea Nitrates NPK CN UAN SSP 0 0 2015 2016 2017 2018 2015 2016 2017 2018 1) Including share of equity-accounted investees IR – September 2018 52
Slide 53: Fertilizer deliveries
Fertilizer deliveries Kilotons 7,000 Outside Europe Europe 0 2011 2012 2013 2014 2015 2016 2017 2018 IR – September 2018 53
Slide 54: Fertilizer deliveries by product and source
Fertilizer deliveries by product and source Kilotons 1,872 1,401 1,449 1,359 1,213 1,244 1,217 1,137 1,097 1,007 465 475 2Q17 2Q18 2Q17 2Q18 2Q17 2Q18 2Q17 2Q18 2Q17 2Q18 2Q17 2Q18 Nitrate NPK compounds NPK blends Urea UAN Other Yara-produced deliveries Joint venture & third party sourced IR – Septe
Slide 55: Strong premium product deliveries
Strong premium product deliveries Value-added fertilizer deliveries1 Value-added fertilizer deliveries1 4,000 407 375 369 3,500 355 333 327 3,000 312 311 2,500 260 218 2,000 201 204 CAGR 1,500 9% 142 1,000 83 63 500 0 2Q14 2Q15 2Q16 2Q17 2Q18 Asia Brazil Latin Africa North America excl. America Outs
Slide 56: AdBlue deliveries
AdBlue deliveries Kilotons 600 0 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 IR – September 2018 56
Slide 57: Yara stocks
Yara stocks Kilotons Finished fertilizer 8,000 Other Compound NPK Nitrates Urea 0 IR – September 2018 57
Slide 58: IR – September 2018
IR – September 2018