Investor Relations

Financial performance 2008

Yara’s 2008 net income after minority interest was NOK 8,228 million, a 36 percent improvement from 2007 and clearly the best annual ­result so far. The corresponding earnings per share were NOK 28.27 compared with NOK 20.60 in 2007.

Financial highlights

NOK millions, except per share information and CROGI 2008 2007
Revenue and other income 88,775 57,486
Operating income 12,281 4,987
Share net income non-consolidated investees 2,760 1,624
EBITDA 17,917 8,441
EBITDA excl. special items 17,723 7,789
Net income after minority interest 8,228 6,037
Earnings per share 1) 28.27 20.60
Earnings per share excl. currency 36.12 18.29
Earnings per share excl. currency and special items 36.28 15.91
Average number of shares outstanding (millions) 291.1 293.0
CROGI (12-month rolling average) 22.8 % 16.1 %
1) Yara currently has no share-based compensation programs that result in a dilutive effect on earnings per share.


Key statistics
Sales, kiloton
2008 2007
Fertilizer  20,540 21,303
Industrial products (excl. industrial gases) 3,898 3,289
Total 24,438 24,592
Production 1)
Ammonia 6,342 5,759
Finished fertilizer and industrial products, excl. bulk blends 16,802 14,550
Total 23,144 20,309
1) Including share of Tringen, Qafco, Rossosh, Burrup and GrowHow UK Ltd.

Full-year results improved considerably from 2007 due to higher fertilizer prices. Fertilizer volumes decreased four percent compared with 2007. In Europe, deliveries were up six percent due to the Kemira GrowHow acquisition adding sales volumes. Outside Europe, fertilizer sales decreased 13 percent, mainly in Brazil and Asia. All main product prices, in particular for nitrates and NPKs, were higher than the previous year, representing the main contribution to the strong results.

Net interest-bearing debt increased by NOK 15,870 million during 2008, ending at NOK 24,794 million. The increase reflects the Saskferco acquisition and an increase in net operating capital due to higher prices and higher inventories mainly outside Europe. Yara dividends of NOK 1,166 million and share buy-backs of NOK 422 million were also included.

Operating segments
The Downstream segment delivered strong earnings in 2008, the best year so far, supported by improved margins, although with a decrease in volumes of four percent. Margins improved significantly compared with 2007, reflecting higher average prices for all main products, as well as timing effects on raw materials and product positions, partly offset by third- and fourth-quarter inventory write-downs.

The Industrial segment delivered an EBITDA of NOK 629 million. Adjusting for special items and portfolio effects, the 2008 result was 23 percent lower than 2007. Volumes were 19 percent higher, mainly driven in environmental applications and TAN, where growth continued throughout the year. Temporary plant closures in Le Havre and Ferrara also impacted margins negatively.

The Upstream segment delivered an EBITDA of NOK 12,372 million. All product prices were significantly up from 2007, with strong increases for ammonia, urea, NPK and nitrates. Despite major production curtailments in November and December, ammonia production increased by 11 percent and finished fertilizer production increased by 26 percent from the previous year, mainly reflecting the Kemira GrowHow acquisition.

Fourth quarter
Like other parts of the industry, Yara’s operations were affected by the market turmoil at the end of 2008, as a sharp drop in demand resulted in major sales reductions in the fourth quarter. At the same time, Yara management chose to reduce third-party sourcing and curtail own production, while also building stocks of some products, demonstrating the flexibility of its business model.

Yara ran several European plants at lower capacity during fourth quarter 2008, following a slow-down in urea and NPK deliveries. The production curtailments equaled 28 percent of Yara’s global ammonia capacity and 45 percent of its European ammonia capacity. Whereas ammonia closures primarily were made to benefit from cheaper import opportunities, urea production was curtailed due to low upgrading margins in some plants. The NPK plant curtailments were made in response to slower demand for phosphate and potash, as the short-term yield impact of reducing application of these nutrients on average is smaller than for nitrogen.

Sales, prices
Full-year EBITDA was NOK 17,917 million, compared with NOK 8,441 million last year. The Norwegian krone was stronger versus the US dollar during 2008, resulting in a NOK 248 million negative conversion effect on EBITDA. Converted EBITDA was USD 3,350 million, up USD 1,900 million on 2007.

Fertilizer sales decreased four percent from the previous year, mainly attributable to the weak fourth quarter. In Europe, deliveries increased by six percent due to the Kemira GrowHow acquisition adding sales volumes, while outside Europe fertilizer sales decreased 13 percent. Industrial sales increased 19 percent mainly driven by sales of environmental applications and technical ammonium nitrate (TAN).

Product prices, in particular nitrates and NPKs, were higher than last year, representing the main contribution to the strong result. In the first three quarters, margins increased as sales prices were raised to capture value increases for all nutrients amid a tight supply situation.

Amid the sharp second-half 2008 market slow-down, third-party sourced inventory positions, including ammonia, were written down by NOK 2.1 billion.

Oil and gas costs in Europe increased significantly due to an increase in both oil-linked and hub-gas prices. European oil and gas costs were USD 12.0 per MMBtu, up USD 4.6 per MMBtu from last year.

Special items
Special items in 2008 mainly consist of gains on sale of Yara’s holdings in SQM and China BlueChemical, the sale of chemical marketing activities to Brenntag, a negative fair value adjustment in Saskferco and Kemira GrowHow restructuring costs. In the fourth quarter of 2007, the establishment of the Yara Praxair joint venture resulted in a non-recurring gain of NOK 795 million.

Variance analysis NOK millions USD 1)millions
EBITDA 2008 17,917 3,350
EBITDA 2007 8,441 1,450
Variance EBITDA in NOK 9,476
Conversion (NOK vs. USD) 248
Variance EBITDA 9,724 1,900
Kemira GrowHow 2007 (pro forma) 2) 738 140
Volume & mix (1,691) (292)
Price/Margin 15,860 2,966
    of which write-down on inventories (2,087) (322)
Energy cost in Europe (4,324) (793)
    Oil & gas products (4,178) (769)
    Electricity (146) (24)
Currency effect on net fixed cost 3) (87) (20)
Special items (759) (99)
    Non-recurring items (875) (113)
    Contract derivatives 116 14
Other (13) (2)
Total variance explained 9,724 1,900

1) Based on quarterly average NOK/USD rates as detailed in Yara 2008 reports
2) Pro forma Kemira GrowHow 1-3Q 2007 EBITDA, restated to Yara segment structure and accounting policies.
3) Net fixed cost is derived from fixed cost in NOK and EUR less NOK and EUR related margins.

Financial items
NOK millions
2008 2007
Interest income from customers 238 183
Interest income, other 132 105
Dividends and net gain/(loss) on securities 306 36
Interest income and other financial income 676 325
Interest expense (1,347) (488)
Return on pension plan assets 423 358
Interest expense re. pension liabilities (490) (370)
Foreign exchange gain/(loss) (3,313) 982
Other (86) (81)
Interest expense and foreign exchange gain/(loss) (4,813) 401
Net financial income/(expense) (4,136) 726

Financial items

Yara bases its long-term funding on diversified sources of capital to avoid dependency on single markets. As the fertilizer business is essentially a US dollar business, with both revenues and raw material costs de­-nominated or determined in dollars, Yara keeps a major part of its debt in US dollars to reduce its overall currency exposure. At the end of 2008, more than 90 percent of Yara’s long-term debt was US dollar denominated with approximately 35 percent of the long-term debt carrying fixed interest rates.

During 2008, Yara established four new long-term bank facilities. A syndicated loan facility maturing in 2013 was signed in February, while three loan agreements maturing from 2010 to 2012 and equaling USD 1 billion in total were signed in December.
See Note 23 in the financial statements for further details on long-term debt.

Net financial expense in 2008 was NOK 4,136 million, compared with a net financial income of NOK 726 million in 2007. The difference was mainly due to higher interest expense and a foreign exchange loss in 2008 versus a gain in 2007.

The net foreign exchange loss for the year totaled NOK 3,313 million and was mainly explained by the depreciation against the US dollar of both the Norwegian krone and Yara’s emerging market currencies such as the Brazilian real.

Full-year interest expense was NOK 859 million higher than 2007. Of the increase, NOK 557  million stems from interest rate derivatives entered into during 2007 and early 2008 in order to retain a portion of the interest-bearing debt at fixed rates and thus reduce the exposure to future interest rate increases. The drop in US Treasury rates during the year has generated a loss on these contracts, of which NOK 458 million is unrealized. The remaining increase was a result of the average gross debt level being NOK 8 billion higher than 2007.


Full-year income tax expense was NOK 2,633 million, approximately 24 percent of income before tax. The effective tax rate was higher than for 2007 (17 percent) that which was positively affected by one-time benefits.

Cash flow

Net cash from operating activities was NOK 3,986 million (for definition, see the consolidated statements of cash flow). Strong earnings and dividend income from non-consolidated investees of NOK 1,223 million, of which Qafco and Tringen contributed NOK 604 million and NOK 312 million respectively.

At the end of 2008, net operating capital was NOK 23,283 million, an increase of NOK 10,047 from 31 December 2007. Higher prices and inventories explains the increase. Net operating capital turnover was lower than in 2007, due to the slowdown in fourth quarter 2008.

Net cash used in investing activities was NOK 12,786 million, primarily reflecting the acquisition of Saskferco, the purchase of remaining shares in Kemira GrowHow, the purchase of 25 percent in Agrico Canada Ltd and an increased holding of five percent in Burrup. Net cash used in investing activities was NOK 6,988 million in 2007.

During 2008, dividend payments to shareholders amounted to NOK 1,166 million and NOK 422 million was used for purchasing own shares.

Net interest-bearing debt

As a supplement to the formal consolidated statements of cash flow, this table highlights the key factors behind the development in net interest-bearing debt.

Net interest-bearing debt increased by NOK 15,870 million during 2008, ending at NOK 24,794 million. The increase reflects the Saskferco acquisition and an increase in net operating capital due to higher prices and inventories, Yara dividend payment and share buy-backs, and the strengthening of the US dollar.

Net interest-bearing debt

NOK millions 2008
Net interest-bearing debt at beginning of period (8,924)
Cash earnings 1) 11,778
Dividends received from non-consolidated investees 1,223
Net operating capital change (10,047)
Burrup (809)
Saskferco (9,195)
Other investments (net) (2,782)
Yara dividend and share buy-backs (1,588)
Foreign exchange gain/(loss) (3,313)
Other (1,137)
Net interest-bearing debt at end of period (24,794)

Dividend policy

Yara’s objective is to pay out minimum 30 percent of net income as an average over the business cycle. Yara believes it will be beneficial for shareholders that the company strives for a gradual increase and predictability in the absolute dividend level over time, independent of the business cycle. Consequently, Yara expects to pay out somewhat more than 30 percent of net income in years with weaker than average cash flow from operations and less than 30 percent in years with stronger than average cash flow from operations.

The current equity and credit market with more restricted access to long term financing, may short-term limit some of Yara’s growth opportunities. This supports a more conservative dividend policy short-term.

At the Annual General Meeting, Yara’s Board will propose a dividend payment of NOK 4.50 per share for 2008, which represents 16 percent of net income.

Cash payments to shareholders from dividends and share buy-back programs combined are expected to be an average of 40-45 percent of net income over the business cycle. At the Annual General Meeting, the Board intends to propose a new buy-back program along the lines of the previous one.

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