cmd 2012: financial update (torgeir kvidal)
DESCRIPTION
Presentation on Yara's Capital Markets Day, December 4, 2012, held by CFO Torgeir KvidalTRANSCRIPT
Torgeir Kvidal, CFO
Financial update
1
Capital Markets Day 2012 – 4 December
Financial highlights
Strong results and cash flow
Yara benefitting from continued
tight nitrogen markets
Increased sales volumes for
nitrates and NPK outside Europe
at higher prices
Qafco expansions finalized and
Lifeco restart
Strong balance sheet
0 %
5 %
10 %
15 %
20 %
25 %
2004 2005 2006 2007 2008 2009 2010 2011 YTD 2012
CROGI
Ex special items Long-term target
2
Capital Markets Day 2012 – 4 December
Margin above
blend cost
100
200
300
400
500
600
700
3Q10 1Q11 3Q11 1Q12 3Q12
USD/t
Nitrogen upgrading margins
Urea CFR CAN (46% N)
NH3 CFR (46% N)
100
200
300
400
500
600
700
3Q10 1Q11 3Q11 1Q12 3Q12
USD/t
Phosphate upgrading margins
DAP
Nitrate premium
above urea
Value above
ammonia
Rock*1.4
Value above
raw material
0
100
200
300
400
500
600
700
3Q10 1Q11 3Q11 1Q12 3Q12
USD/t
NPK blend premium
DAP T17 del France
NH3*0.22
Yara EU gas cost *20
Yara generates value both within commodity
and value-added products
DAP
MOP
Urea
Value above gas
3
Capital Markets Day 2012 – 4 December
Yara’s fertilizer production system
Gas
Ammonia
Urea
Sluiskil
Brunsbüttel
Ferrara
Belle Plaine
Le Havre
Qafco
Lifeco
Gas
Ammonia
Nitrate
Sluiskil
Tertre
Gas
Ammonia
NPK
Porsgrunn
Ammonia
NPK
Glomfjord
Siilinjärvi
Uusikaupunki
Montoir
Ravenna
Rio Grande
Ammonia
Nitrate
Ambes
Montoir
Rostock
Köping
Pardies
Gas
Ammonia
Trinidad
Pilbara
Distribution / Trade
Production
Plants located in Europe
Energy exposed
commodity margins
Upgrading to value-add
products and distribution
Flexible on ammonia source
4
Capital Markets Day 2012 – 4 December
Ammonia flexibility in Europe
Yara can swing 2/3 of European ammonia production
without affecting fertilizer production
Mill
ion
to
ns
3.6
5.2
1.3
European
ammonia capacity
Flexible Non flexible
1.6
0.3
Urea
Land-locked nitrates
5
Capital Markets Day 2012 – 4 December
Average 2010-2011 contribution, NOK billions
Value-added upgrading and distribution make
up major part of Yara’s contribution
Europe
Overseas
Total
24.3
4.5
Trade
1.5
Industrial
upgrade &
distribution
2.1
Fertilizer
upgrade &
distribution
11.1
Commodity
9.6
4.5
5.1
European
energy
exposure
Value-add
+
commodity
outside Europe
6
Capital Markets Day 2012 – 4 December
NOK billions
Total Yara contribution
Value-added upgrading and distribution make
up major part of Yara’s contribution
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1Q10
Commodity Europe
Commodity overseas
Fertilizer upgrade & distribution
Industrial upgrade & distribution
Trade
4Q113Q112Q111Q114Q103Q102Q10
7
Capital Markets Day 2012 – 4 December
Yara product capacity values
USD/t of NH3 equivalent
600
800
1,000
1,200
1,400
200
7.0
1,600
1,800
8.06.0 9.0
0
400
5.04.03.02.01.00.0
Excess ammoniaUANNPKNitrateUrea EUUrea overseas
Mt of NH3
equivalents
Gas cost
Ammonia upgrade value
Urea upgrade value
Nitrate value above urea
Rock upgrade
Premium above blend
Value based on prices last 12 months
8
Capital Markets Day 2012 – 4 December
*Assuming 25% marginal tax rate on underlying business and 279.5 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 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
Sensitivities assume stable value-added margins and no inter-correlation between factors
9
Capital Markets Day 2012 – 4 December
Financial scenarios are not forecasts, but
illustrate potential earnings in given situations
• Based on last 4 quarters EBITDA excluding special items adjusted for portfolio changes
• Qafco 5 & 6 expansions and Yara Pilbara consolidation included on full-year basis
• Production assumed at 95% of stated capacity
Modelassumptions
Scenarios1. China swing exporter with assumed zero domestic margin2. China swing exporter with 2H12 domestic price3. Average prices last five years4. USD 150 urea margin per ton above average of Chinese
scenarios
10
Capital Markets Day 2012 – 4 December
Lower coal price in China
Anthracite coal prices, RMB/t
Source: China Fertlizer Market Week
825
1,100 -25%
Nov 12Nov 11
• Current cost for marginal producers assumed at ~1,800 RMB/t
• Last year’s China swing scenario assumption of ~1,850 RMB/t on the conservative side
11
Capital Markets Day 2012 – 4 December
200
250
300
350
400
450
500
550
600
650
700
1 750 1 950 2 150 2 350 2 550
Fob China
Domestic price ex works, RMB/t
Chinese export tax 1 Jul – 1 Nov
Swing price last two years set by Chinese
domestic price and export tax
* China Fertlizer Market Week
1 600
1 700
1 800
1 900
2 000
2 100
2 200
2 300
2 400
2 500
Jan Apr Jul Oct
RMB/t
Domestic urea price in China
2012 2011 Avg Jul-Oct 12
2011
2012
12
Capital Markets Day 2012 – 4 December
Summary of scenario price assumptions
24 24 24
24
48
380
360
340
320
300
280
0
CMD 12
Avg domestic
price Jul-Oct 12
410
USD/t
440
420
400
289
49
CMD 12
Assumed cost
335
289
22
CMD 11
revised
335
290
22
CMD 11
Cost
370
290
56
Tax CostLogistics Producer margin
Domestic
price
Urea price fob China
13
Capital Markets Day 2012 – 4 December
Price and currency assumptions in scenarios
Last 4
quarters
5-year
avg. to
30 Sep
12
Chinese swing*Demand
-driven**Cost
Domestic
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
14
Capital Markets Day 2012 – 4 December
Simplified P&Ls for scenarios
NOK millionsLast 4
quarters
5-year avg.
to
30 Sep 12
Chinese swingDemand-
driven**Cost
Domestic
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 57
Currency translation +1 USD/NOK 2,900 3,050 2,000 2,950 4,300
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.
15
Capital Markets Day 2012 – 4 December
Negative price effects reduces
swing EPS by NOK 8
8
57
35
20
28
Demand drivenSwing CMD12
Domestic price
Price/margin
21
Price/margin
15
Swing CMD12
Assumed cost
OtherCurrencyPrice/marginSwing CMD11
NOK per share
16
Capital Markets Day 2012 – 4 December
Demand-driven USD 150 per ton on urea
improves EPS by 22
8
57
35
20
28
Demand drivenPrice/marginSwing CMD12
Domestic price
Price/margin
15
Swing CMD12
Assumed cost
OtherCurrencyPrice/marginSwing CMD11
NOK per share
17
Capital Markets Day 2012 – 4 December
Downside protection factorsRisk factors
Risk factors
Strong incentives to maximize productivity
even at significantly lower grain price
levels
Food consumption has historically seen
limited impact from economic slowdowns.
Record crops are needed to meet growing
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
Major decline in grain prices
Severe downturn in global economy,
impacting food consumption growth
China: loosening of export tariff system
China: further fall in anthracite coal price
18
Capital Markets Day 2012 – 4 December
* Carried out in the year following the result year, i.e. 2011 number reflects buy-backs and redemptions
executed in 2012. 2004 number reflects buy-backs and redemptions carried out in 2004 and 2005.
Cash distribution to date: stable growth in
absolute dividend, flexible buy-backs
4.5
2008
5.3
4.5
2007
5.4
4.0
2006
3.9
2.5
2005
6.2
2.4
2004
5.4
2.3
2011
13.2
7.0
2010
8.1
5.5
2009
4.9
DividendBuy-back
Annual dividends and buy-backs, NOK per share*
19
Capital Markets Day 2012 – 4 December
0
2
4
6
8
10
12
14
16
2004 2005 2006 2007 2008 2009 2010 2011
NOK billions
Dividend (cumulative)
Target minimum 30%
0
2
4
6
8
10
12
14
16
2004 2005 2006 2007 2008 2009 2010 2011
NOK billions
Buy-back (cumulative)
Target 10-15%
Dividend payment to date behind target, while
buy-backs are within targeted range
20
Capital Markets Day 2012 – 4 December
40 - 45% target is at the right level
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
1,00
0
5
10
15
20
25
30
2004 2005 2006 2007 2008 2009 2010 2011 3Q12
NIBD actual NIBD 45% D/E actual D/E 45%
NOK
billions
Debt /
Equity
21
Capital Markets Day 2012 – 4 December
Balance sheet can accommodate targeted
cash distribution and significant growth
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2015S2014S2013S3Q12 2016S
Annual growth CAPEX 2 BUSD, 45% payout Annual growth CAPEX 1 BUSD, 30% payout
Debt to equity ratio development assuming base
earnings equal to average of swing scenarios
22
Capital Markets Day 2012 – 4 December
Main benefitsKey elements
Execution of cash distribution policy
• The overall cash distribution target of 40-45%
is at the right level and is aligned with Yara’s
growth ambitions
• Going forward, cash distribution will normally
be 40 - 45% of the previous year’s net
income
• Cash distribution may in some years fall
short of or exceed the 40 - 45% range, but
normally only if cash flow and balance sheet
metrics move outside the required rating
range
• Increased absolute payments when cash
flow is strong and attractive M&A
opportunities are limited, at the higher end of
the cycle
• Improved availability of cash when attractive
M&A opportunities are present at the lower
end of the cycle, in the interest of both Yara
and its investors
• Increased predictability of the relative payout
level (stronger link to recent earnings)