Yara International ASA - SEB · Global leader by growing knowledge for 110 years • Established as...

Yara International ASA

SEB Investment Grade seminar

1 September 2016

Thor Giæver, Investor Relations

2

Agenda

Industry and markets

Financial policy and funding

Additional information

Strategy and focus areas

1. Operations

Global leader by growing knowledge for 110 years

• Established as Norsk Hydro in 1905, demerged as Yara International ASA and listed on the Oslo Stock

Exchange in 2004

• Today, Yara International ASA is a global fertilizer and chemicals company headquartered in Oslo,

Norway, that delivers solutions for Agriculture and the Environment

• President and CEO since September 2015: Svein Tore Holsether

• Stable ownership structure:

- Norwegian State 36.2%, Norway is rated Aaa/AAA (stable/stable)

- Norwegian National Insurance Scheme Fund 5.8%

• Long term credit rating of Baa2/BBB (stable/stable)

- Moody’s Baa2 rating has been unchanged since 2004

- S&P’s was BBB in 2004, BBB+ between 2005 and 2007 and BBB thereafter

• Global presence with operations and offices in more than 60 countries and sales to more than 150 countries

with close to 13,000 employees

• Key metrics (2015):

- Revenues and other income of USD 13.4bn; EBITDA of USD 2.6bn

- Total deliveries of 35.7mm tons, fertilizer sales of 26.5mm tons, industrial sales of 7.0mm tons and

ammonia trade of 2.1mm tons

3

USD translations use USD/NOK exchange rate of 8.37 as of 24th May 2016 (source: Bloomberg)

Three operating segments supported by a global supply chain

function cover the value chain

4

Provides worldwide sales, marketing and

distribution of a range of crop nutrition

products and programs

Crop Nutrition

Develops and markets environmental

solutions and products for industrial

applications

Industrial

Runs large-scale production of nitrogen-

based products, the starting point for our crop

nutrition and industrial solutions

Production

• A global function responsible for optimization of energy, raw materials and third party sourcing

• Sourcing and trade of 3,909 kilotons of ammonia and purchases of 289mm MMBtu of energy, 3,303

kilotons of potassium and 997 kilotons of phosphate rock

Crop Nutrition creates resilience in earnings by adding distribution and agronomic

competence

Industrial segment reduces cyclicality and seasonality

Production has plants and mines globally, providing scale and flexibility

NOK 80.2bn (USD 9.6bn)

72%


15%


13%


29%


7%


65%

Supply Chain

Description

Business profile

2015 Revenues1

2015 EBITDA2

1 External revenues and other income 2 Excluding other and eliminations


5

2 Revenues are identified by customer region 3 No sanctioned countries represent significant sales

Revenues2 by region

Europe 37%

Brazil 24%

North-America

12%

Asia & Oceania

11%

Latam ex Brazil

9%

Africa 6%

USD 13.4bn

2015

A global footprint with an integrated business model…


3

… which creates value above competitors through scale, flexibility

and value chain presence

6

Debt to equity ratio

Summary financials

7

Summary P&L

(NOKm) 1H 2016 1H 2015 Change YE 2015

Revenue 50,919 55,697 (4,778) 111,897

EBIT 7,367 7,311 66 14,398

EBITDA 10,544 9,973 571 21,361

% margin 20.7% 17.9% N/A 19.1%

Net income 5,872 3,645 2,227 8,435

2015 was another eventful year for Yara

We continued to invest in our production facilities and

develop our markets, serving growing global demand

and helping farmers improve both yield and crop quality

We delivered strong results with a return on investment

of 14% driven by growing sales volumes, lower energy

cost and a stronger US dollar

- Svein Tore Holsether, Yara President and CEO

Highlights

0,12

0,02

0,06

0,17 0,16 0,13

2011 2012 2013 2014 2015 2Q 2016

Debt to equity ratio

Net Debt Development (NOKm)

6,271

4,245

3,833

2,758

5,778

9,69811,868

Net debt

Jun 16

Other

495

Currency

translation

471

Sale of

CO2

business

Net

operating

capital

Dividends

received

342

Cash

earnings

Dividend

& buy-

backs

Investments

(net)

Net debt

YE2015

2015 Highlights

Crop Nutrition creates resilience in earnings…

Share of fertilizer volumes by product

Offers the industry’s most comprehensive product portfolio and

has a strong position in value-adding crop solutions.

Increased market presence in Africa and North America by

signing agreements to acquire the Greenbelt Fertilizer and the

Sacramento Terminal

Continued investments in solutions for precision farming and

water scarcity. Investments in 2015 amounted to a total of NOK

1.5 bn

8

Key financials

Fertilizer volumes by region

(NOKm) 1H 2016 1H 2015 Change YE 2015

Revenue and other income1 37,760 41,950 (4,190) 80,189

EBITDA 3,108 3,415 (307) 6,188

Operating income 2,476 2,854 (378) 4,973

% margin 6.6% 6.8% N/A 6.1%

CROGI (12-month rolling avg.) 16.3% 17.9% N/A 17.5%

0

5 000

10 000

15 000

20 000

25 000

2013 2014 2015

Europe Latin America North America Asia AfricaKilotons

26,317 26,544 23,668

0 %

20 %

40 %

60 %

80 %

100 %

2013 2014 2015

NPK OTHFER UREA CN NITRA UAN

1 External revenue and other income

… by adding distribution and agronomic competence

Time

Mark

et depth

Sell what we produce

• Place new capacity

• Manage seasonality

Build product

reputation

• High quality products

• Viking ship brand

Farmer centric solutions and

tools

• Our next strategic step to

build Yara’s knowledge

margin

Asset

Product

Crop

Farmer

Build crop

solutions

• Crop knowledge

• Product portfolio

• Application competence

Evolved focus and aspiration

9

2015 Highlights

Industrial segment reduces cyclicality and seasonality…

Significantly expansion of terminal and logistics network in North

America and Brazil to better and more efficiently serve the

automotive Nox abatement markets with respectively DEF (Diesel

Exhaust Fluid) and Arla 32 reagent

Increased deliveries of air pollution abatement products by 20% and

achieved strong growth parameters for Nutriox business (waste

water treatment) and increasing demand for related services and

monitoring technologies

Agreement to sell European CO2 business

10

Key financials

(NOKm) 1H 2016 1H 2015 Change YE 2015

Revenue and other income1 9,085 8,520 565 17,233

EBITDA 2,116 749 1,367 1,489

Operating income 2,030 602 1,428 1,174

% margin 22.3% 7.1% N/A 6.8%


1 External revenue and other income 2 Including Yara share of production in equity-accounted investees 3 Including share of JVs

Industrial sales by product2

Kilotons

6 255 6 593 7 030

0

1 500

3 000

4 500

6 000

2013 2014 2015

Environmental products Base ChemicalsMining Applications Animal NutritionCO2 and feed phosphates

…by securing stable off-take from production plants and the

unseasonal nature of its businesses

Chemical applications for

food, feed, automotive, space,

pharmaceutical and

construction industries

Abatement of emissions from

heavy duty vehicles

NOx and SOx abatement for

maritime sector

Solutions to the Civil explosives

industry

Based on Technical nitrates for

mining and construction

CO2 as gas, liquid and Dry ice

CN for Industrial Applications

Animal nutrition

Key product and

service offering

EBITDA 2013- 20151

(NOKm)

Market drivers GDP growth Legislation, GDP growth GDP growth, infrastructure

projects, supply security GDP growth, standard of living

Strategic fit Optimization of Upstream

assets

Utilize technology, logistic

advantage and infrastructure

footprint

Handling, storage and

economies of scale Monetize secondary products into

primary markets applications

Geographical market Europe Global Global Global

Four business lines with focused strategy and operations

11

Base Chemicals Environmental Solutions Mining Applications Gas and Industrial

applications

2015

515

2014

533

2013

426 303

2014 2013

237 447

2015 2014 2015

147 223

2013

225

2015

513

2014

492

2013

337

1 EBITDA not adjusted for eliminations between Business Units

2015 Highlights

Production segment has plants and mines across the globe which

provide scale and flexibility…

In the US, Yara and BASF started construction of a world-scale

ammonia plant in Freeport. In Australia, Yara secured full ownership of

the Pilbara ammonia plant and increased ownership in the Pilbara TAN

plant. Construction started on the project to increase the capacity of

value-added production in Sluiskil, the Netherlands. Yara sold its 50%

stake in GrowHow UK.

Total production ended at 26.5mm tons, ammonia production

decreased by 1% and finished fertilizer and industrial products

increased by 2%

Gas consumption by region in 20152

1 Including Yara share of production in equity-accounted investees; 2 Including share of JVs

12

22

Europe

159

RoW Canada

109

Million MMBtu

Key financials

Production volumes by product2

(NOKm) 1H 2016 1H 2015 Change YE 2015

Revenue and other income1 22,881 28,266 (5,385) 55,812

EBITDA 4,965 6,017 (1,052) 14,414

Operating income 2,132 4,364 (-2,232) 8,842

% margin 9.3% 15.4% N/A 15.8%


26 009 25 924 26 259

0

5 000

10 000

15 000

20 000

25 000

30 000

2013 2014 2015

Ammonia Urea Nitrate NPK CN UAN SSPKilotons

… ca.60% of European ammonia production is flexible

without affecting fertilizer or Industrial production

1 Including Yara's share of joint venture plants

Source: Yara internal accounts

6

2

Urea 6

Nitrates

Ammonia 9

Phos. Rock

Europe ROW

CN

1

SSP

1

UAN 1

NPK 5

Mm tons

Diversified product portfolio1

11,8

79,1

0

10

20

30

40

50

60

70

80

Variable costs (87%)

Dry raw materials

Energy

Freight

3rd party finished

fertilizer

Fixed cash cost (13%)

Yara’s operating cash costs are

mainly variable

NOK billions, year ended 2015

13

4,5

2,6

0,4

1,5

Mm tons

High ammonia flexibility

Non flexible Flexible European

ammonia

capacity Land-locked nitrates

Urea

Key highlights1

Supply Chain continuously looks for cost optimization

Purchase of energy

Supply Chain is generating value by realizing the

benefits of Yara’s knowledge and scale in

procurement and through an optimal use of assets

by global optimization and efficient supply chain

operations

The Supply Chain segment harvests economies

of scale:

Biggest industrial buyer of natural gas in Europe

Third single biggest buyer of P and K globally

625,000 orders and 890,000 deliveries

675 contracts and 1,100 suppliers

14 ammonia vessels

2,400 fixing of vessels per year (dry bulk)

21mm tons raw materials and fertilizer shipped

P and K purchases

1 2015 figures; 2 Weighted average, Yara and JV plants; 3 L12M ending September 2015;; 4 L12M ending June 2015

8.24

4.84

3,3

4.3

24.13

Potash, MOP Phosphate

(rock equivalents 70 BPL)

China India Yara

14

2011

European Gas (Zeebrugge)

Yara’s global gas & oil costs2

Yara’s European gas & oil costs2

US gas (Henry Hub)

2015 2014 2013 2012

USD/MMBtu mt

2

12

10

8

6

4

8,2 10,8

16,4

20,2 24,5

30,2

0

5

10

15

20

25

30

35

1990 1995 2000 2005 2010 2015

Highlights Brazil Highlights Yara Brazil

Brazil – Agribusiness is one of the key pillars in the economy and

is healthy despite the current political and economical situation

Yara volume

The agricultural sector is important for the Brazilian economy, with

significant impact on GDP, exports and labor force

The Brazilian agricultural sector is export oriented implying that it is less

exposed to the current political and economical crisis in Brazil

compared to other sectors

Despite the 6% reduction (2 million tonnes) in 2015 deliveries, Brazil

will have a record grain harvest implying that nutrient soil reserves were

used. As the competitiveness of Brazilian farming is further improved,

the fertilizer sector should regain momentum.

Brazilian Trade Balance1

0

200

400

600

800

1 000

1 200

2008 2009 2010 2011 2012 2013 2014 2015

Volume kt

In house development Bunge acquisition effect

15

-7 -1 -0

6 4

-10

-35 -30 -43 -48 -60

-80 -84 -55

20 26 34 39 43 50

60 55 63 77 79 83 80 75

-100

-50

0

50

100

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Agribusiness Other sectors (net)

Balance of trade

USD bn

Fertilizer Deliveries2

The leading position in Brazil enable Yara to grow sales of own

produced products in Brazil

Brazilian fertilizer season complement well with the northern

hemisphere fertilizer season

Yara has a farmer centric approach with dedicated Yara sales &

marketing agronomists, sales representatives, >22.000 customers

and with high intensity of one-to-one farmer interactions, enabling a

large share of sales to be done directly with farmers

M tonnes

Source1: Brazilian Governmental data (SECEX / MDIC, MAPA ), Source2: ANDA

Operations

2. Industry and markets

16

Agenda




Weaker farm economics, affecting P and K demand in particular

0

50

100

150

200

250

300

1/2004 1/2005 1/2006 1/2007 1/2008 1/2009 1/2010 1/2011 1/2012 1/2013 1/2014 1/2015 1/2016

Index

FAO price index

Cereals Price Index Cereals 5 year avg. Food Price Index Food 5 year avg.

Source: FAO

17

Strong increase in global urea capacity

2018 2017

3.0

2019 2020

3.5

2016

7.8 7.6

2.0

~3 Mt

consumption

growth

Gross capacity additions, excl. China

(mill. tonnes urea1)

Source: CRU, gross capacities, June 2016 1) Using 50% operating rate in new plants’ first year of production

Indonesia 0.7

India 0.7

Egypt 0.6

Malaysia 0.6

Mexico 0.5

Bangladesh 0.3

USA 1.7

Algeria 1.2

Nigeria 0.7

Iran 0.5

Russia 0.3

India 0.7

Malaysia 0.5

Indonesia 0.5

Mexico 0.5

Azerbaijan 0.4

Bolivia 0.3

Bangladesh 0.3

USA 2.5

Nigeria 0.7

Iran 0.5

Russia 0.3

USA 0.9

Brazil 0.6

Turkmenistan 0.6

Azerbaijan 0.4

Bolivia 0.3

Iran 0.5

Russia 0.3

Brazil 0.6

Turkmenistan 0.6

Russia 1.0

Nigeria 1.3

Algeria 1.2

Russia 0.7

Nigeria 1.3

18


3. Strategy and focus areas

Operations

19

Agenda



Four main sources of competitive edge

CROP NUTRITION EXPERTISE

KNOWLEDGE-BASED INDUSTRIAL APPLICATIONS

KNOWLEDGE

MARGIN

SCALE IN RAW MATERIAL PROCUREMENT

COMPETITIVELY SOURCED GAS AND OTHER RAW MATERIALS

COMPETITIVE

RAW MATERIAL

COST

COMPETITIVE

EDGE

GLOBAL PRESENCE AND SCALE

PRODUCT STREAM OPTIMIZATION

OPERATIONAL

EXCELLENCE

GLOBAL

OPTIMIZATION

AND SCALE

RAW MATERIAL EFFICIENCY

PROCESS EFFICIENCY

LEAN SUPPLY CHAIN

20

Sustaining profitable growth and competitive edge within three

focus areas

Organic growth and

market development

Cost optimization

Profitable step growth

Shape the markets where we are

present and grow our positions

Improve productivity through

central and local initiatives

Drive growth through M&A, as

well as capacity expansions and

new builds

Implications of market

outlook Strategic response

• Increased relative strength of integrated

business model

• Reduced trade liquidity; market positions

are key

• Timing of investments is critical

• Pressure on commodity crop margins

• Significant fertilizer market growth

opportunities in emerging markets

21

Crop Value Index – a key guide to our approach What is CVI:

Crop revenue

Fertilizer costs

Low value - High volume

Limited price premiums for quality

Nutrient use efficiency is key

+1200 USD/ha = 50% yield increase

CV

I

Global area grown (ha)

High value, Low volume

Double price premium for high quality

2% yield increase= +1200 USD/ha

Optimal cost position for lower value segments

Low level of differentiation

Build positions for crop with both value and scale

Yield, quality and productivity

Take the position in cash crop – but not enough scale

Key parameters: Quality and yield

22

Farmer centric approach, Northern Germany

Integrating farm data in and farmer-centric strategy

TARGET

SPECIFIC

FARMER

SEGMENTS

CROP

PROGRAM

(products)

TOOLS

& SERVICES

(application)

TARGETED VALUE PROPOSITION

23

Strategic growth with financial discipline: Profitable growth through brownfield expansion and M&A, while maintaining credit rating

OFD (Latin America)

CN/NPK expansion Porsgrunn (Europe)

NPK expansion Uusikapuunki (Europe)

Greenbelt Fertilizers (Africa)

West Sacramento import terminal (USA)

Expand premium products

sales and supply

Bunge (Crop Nutrition) (Brazil)

Freeport ammonia JV (newbuild in USA)

Pilbara (acq. of remaining 49% stake)(Australia)

New ammonia vessels

Expand commodity scale

based on attractive full-

cost growth opportunities

Act on attractive

opportunities to grow

industrial sales and supply

Galvani (Brazil)

Dallol1 (Africa) Structurally secure P and K

supply

OFD (Latin America)

Pilbara – TAN (newbuild in Australia)

Köping – TAN (Europe)

Small-scale TAN

Le Havre (Europe)

Environmental solution bolt-on (Europe)

1 Not yet committed

Net debt / EBITDA evolution

0,96

0,35

0,07 0,29

0,72 0,63

0,0

0,5

1,0

1,5

2,0

2,5

2010 2011 2012 2013 2014 2015

Net debt/EBITDABBB

rating

≤~ 2x

GrowHow UK (50% stake)

European CO2 business Divest non-core

businesses

24

2010 2011 2012 2013 2014 2015 2016

S&P Moody'sBaa3/BBB-

Baa2/BBB

Baa1/BBB+

A3/A-

Credit Ratings Development


4. Financial policy and funding


Operations

25

Agenda


0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012 2013 2014 2015

Track record of consistently strong returns and stable rating

Strong returns and solid balance

sheet through the cycle

26

CROGI1

Historical stable BBB rating in line

with established strategy

jan.04 jan.06 jan.08 jan.10 jan.12 jan.14 jan.16

S&P Moody's

Baa3/BBB-

Baa2/BBB

Baa1/BBB+

A3/A-

1) Cash return on Gross Investment

10% long-term target

“Yara aims to maintain a long-term mid-

investment grade rating level, i.e. BBB

according to Standard & Poor’s methodology

and Baa2 according to Moody’s methodology.

This implies that the company should normally

operate with a net debt below two times

EBITDA, and that larger acquisitions would

normally be accompanied by new equity

issuance.”

Report of the Board of Directors

Yara financial report 2015

Long-term credit rating target

Mid investment grade (minimum Baa2/BBB)

Relative competitiveness

EBITDA/Total assets in best quartile of peers

Solid profitability

CROGI over the cycle > 10% as average

New investment profitability

Hurdle rate: IRR nominal, after tax > 9%

Financial discipline will be the basis for the

development of Yara’s global leadership

position

Total cash return to shareholders expected to

average 40-45% of net income over the

business cycle

Ordinary dividend a minimum 30% of net

income over the business cycle

Share buyback will constitute the rest

Financial Targets Financial Policy

Financial discipline and active risk management will continue to

guide our growth strategy

27

Long-term gross debt1 overview per end 2Q 2016

NOK mm

Maturity profile long-term debt

28

953 246 338

6 570

178 943

5 224

0

2 000

4 000

6 000

2016 2017 2018 2019 2020 2021 >2021

Bonds Bank loans Capital lease and other LT loans

1) Long-term debt (excluding short term debt of approximately 343 MUSD)

-

5 000

10 000

15 000

20 000

25 000

30 000

Gross LT DebtJune 2016

2016 2017 2018 2019 2020 2021

Drawn debt Undrawn facility Available at year end

NOK mm

Drawn long-term debt and committed undrawn long term financing facility

100 MUSD term loan (Pilbara) maturing Sep '16

500 MUSD bonds maturing Jul '19 2,200 MNOK bonds maturing Dec '19

1,250 MUSD bank facility maturing Jul '20

700 MNOK bonds maturing Dec '21

Note: 7% of debt is secured whereof 80% matures in 2016

Thank you

29


5. Additional information



Operations

30

Agenda

Earnings before interest, tax, depreciation and amortization

(EBITDA), quarter by quarter

4 184 4 039

3 318

1 858

3 591

4 227 3 964

4 625 4 794 5 179

7 884

3 504

5 055 5 489

2013 2015 2014 2016

NOK mm

NOK mm 13,399 16,407 21,361 10,544

Annual / year to date

31

Source: Yara annual reports

Key market prices

32

277 268 250 207 198

297 281 270 233

208

2Q15 3Q15 4Q15 1Q16 2Q16

Urea prilled fob Black Sea (USD/t)/Urea granular fob Egypt (dotted line, USD/t)

273 257 255 249

197

2Q15 3Q15 4Q15 1Q16 2Q16

CAN cif Germany (USD/t)

2,7 2,7

2,1 2,0 2,1

2Q15 3Q15 4Q15 1Q16 2Q16

US gas price Henry Hub (USD/MMBtu)

6,8 6,4

5,5

4,1 4,3

2Q15 3Q15 4Q15 1Q16 2Q16

TTF day ahead (USD/MMBtu)

7,8

8,2

8,5 8,7

8,3

2Q15 3Q15 4Q15 1Q16 2Q16

NOK/USD exchange rate

393 388 355

270 274

2Q15 3Q15 4Q15 1Q16 2Q16

Ammonia fob Black Sea (USD/t)

Source: Fertilizer Market Publications, CERA, World Bank, Norges Bank

10-year fertilizer prices – monthly averages

33

0

200

400

600

800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

USD/t Urea prilled fob Black Sea/Urea granular fob Egypt

Average prices 2006 - 2015

0

200

400

600

800

1 000

1 200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

USD/t DAP fob US Gulf/MOP granular fob Vancouver

0

100

200

300

400

500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

USD/t CAN cif Germany

0

200

400

600

800

1 000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

USD/t Ammonia fob Black Sea

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