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Creating value through innovation and integration in the...
Transcript of Creating value through innovation and integration in the...
Samir Al-Abdrabbuh,
Executive Vice President, Agri Nutrient Business - SABIC
GPCA fertilizer convention - Muscat, Oman
September 25th, 2019
CREATING VALUE THROUGH INTEGRATION AND INNOVATIONIN THE AGRI NUTRIENT INDUSTRY
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FERTILIZER INDUSTRY PERFORMANCE
HOW ARE WE DOING ?
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Classification: Internal Use
Source: Corporate Performance Analytics by McKinsey
SHAREHOLDER RETURNS WERE LAGGING THE PEERS
Total Return to Shareholders (TRS) 2008 – 2018*
12.7%
16.3%
35.9%
Fertilizers
S&P 500
Chemicals
*Total Return to Shareholders (TRS) combines share price appreciation and dividends paid to show the total return to the shareholder expressed as an annualized percentage.
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Classification: Internal Use
Source: IFA Forecast June 2019, Sabic analysis
GROWTH WITH THE MARKET: MARKET GROWTH BELOW GDP AND OTHER INDUSTRIES
Fertilizer Demand Growth 2018 – 2023 (in MMT Nutrients)
Nitrogen: 1.5 % CAGR
5 y Growth Projections of Agri-Industrial Inputs (Value)
145 156
4750
4346
2018 2023
Nitrogen Phosphate (P2O5) Potasch (K2O)
Total: 1.4 % CAGR
Phosphate: 1.2 % CAGR
Potash: 1.54% CAGR
235 252
2.9%
3.7%
2.4%
GDP
Ag Chem
Fertilizers
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Classification: Internal Use
CONSOLIDATION: P AND K HIGHLY CONSOLIDATED, SOME ROOM IN NITROGEN
Consolidation(Mega Merger/M&A last 10 years)
Market share of top 10 Fertilizer producer (2007 – 2018)
Top 10:24%
Top 10:45%
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
In b
n$
Market Share:Top 5 suppliers by Nutrient
14%
52%
75%
Nitrogen
Phosphate(DAP equi.)
Potash (KCl)
Top 5 Others
Source: Sabic analysis
*Excluding Chinese Market
25%*
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GROW BY
INTEGRATION ?
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Classification: Internal Use
GROWTH BY INTEGRATION: ADDED VALUE FROM DOWNSTREAM INTEGRATION- DISTRIBUTOR ACQUISITIONS AS GROWTH ENABLER
Integration (Downstream integration last 5 y)
DistributionFertilizer production
• Ben Trei (USA)• Fertilizantes (Br)• Trammo Inc. (USA)
• Louis Dreyfus (Aust)• Ruralco (Aust)
• Greenbelt (Africa)• Tata (India)• Cubatao (Br.)
• Heringer (Br)
• FertinAgro (Spain)
• Grow How (UK)
• Secure product outlet
• Manage Seasonality
• Better understand customer needs
• Additional profit pool
Wholesales Retail Farmer
• Meridian (East Africa)
Source: Sabic analysis
Rationale
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GROW BY
INNOVATION ?
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Classification: Internal Use
GROWTH BY INNOVATION HAS TO BE DRIVEN BY SUSTAINABILITY AND DIFFERENTIATION TO CREATE CUSTOMER VALUE
Source: Sabic analysis
Innovation
Sustainability
Differentiation
Create Value for Farmers
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Classification: Internal Use
INCREASE SUSTAINABILITY AND PLANT UPTAKE WITH ENHANCED EFFICIENCY FERTILIZERS
Source: Sabic analysis, FAO, Yara 2018 Handbook
Volatilization and Leaching Plant Nitrogen Uptake
Up to 50% Nitrogen losses
Urea responsible for approx. 8% of agricultural related GHG
Volatilization 10-20%
Leaching10-15%
No uptake10-15%
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Classification: Internal Use
ENHANCED EFFICIENCY UREA COULD REPRESENT ALMOST 50% OF THE GLOBAL UREA MARKET BY 2028
Urea market demand by type 2018 to 2028 (in MMT)
Source: Nexant , SABIC, RAMS&Co, IFA
Slow and Control Release
CAGR 2018-2028
10.8
4
30
100.2
145
Treated ROW
Treated China
NeemCoated India
Standard
Total UreaDemand
2018 in MMT
1.3%
31
8
33
93
165
2028 in MMT
-0.8%
7.4%30% 44%
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Classification: Internal Use
DIFFERENTIATION: PRECISION FARMING AND DIGITALIZATION DRIVE SOIL AND CROP SPECIFIC COMPOUNDED FERTILIZERS
Source: SABIC analysis, https://earthobservatory.nasa.gov/images/1139/precision-farming , https://www.dronezon.com/learn-about-drones-
quadcopters/multispectral-sensor-drones-in-farming-yield-big-benefits/
Benefit of Precision Farming/ Digitalization for Farmers/Suppliers
Nitrogen Oversupply and Benefit to Farmers by Imaging (example)
Prior Imaging
With Imaging
Nutrients costs/ hectare(in US$)
212 187
New profit pool / hectare ( in US$)
25
Soil- and crop specific fertilizer compounds
- 30% N
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Classification: Internal Use
INNOVATE TO GROW, OR INNOVATE TO DISRUPT ? DISRUPTIVE INNOVATION : CHALLENGES OR OPPORTUNITIES OR BOTH ?
Source: SABIC analysis
Nitrogen-fixing microbes – potential for true industry transformation
-8%
-88%
non GM crops CFC chemcials
Urea Substitution Scenarios 2018-
2028 (% reduction of total urea
demand)
Comparable incidencesGM: Gen-modified crops CFC: Chlorofluorocarbons – root cause for ozone hole
?
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Classification: Internal Use
THE MORE WE INTEGRATE & THE MORE WE INNOVATE, THE MORE VALUE WE CREATE
Source: SABIC analysis
Fertilizers Company’s Sales in Differentiated Products by Own Distribution (in % of total sales)
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100%
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Share of differentiated products (incl. NPKs) (% of Total sales) Sales in diff. products (in kmt)
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