CMD 2012: Financial Update (Torgeir Kvidal)

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


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


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


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


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


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


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


*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


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


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


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


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


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


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


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


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


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


* 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


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


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


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


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)

Date post:	08-May-2015
Category:	Investor Relations
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CMD 2012: Financial Update (Torgeir Kvidal)

Investor Relations