Investor Relations

Downstream 2008

Downstream delivered strong earnings in 2008, the best year so far, driven by improved ­margins for all main products.

Financial highlights 1)
NOK million

2008 2007
Revenue and other income 64,905 41,418
Operating income  3,412 2,007
EBITDA  4,648 3,035
EBITDA excl. special items 4,238 3,123
CROGI (12-month rolling average) 14.9 % 13.5 %
Net operating capital turnover 2) 4.3  4.9 
Key Statistics 1) 2008 2007
Sales by region, kt
Fertilizer Europe  11,230 10,624
Fertilizer outside Europe 9,309 10,679
Total 20,540 21,303
Sales by product group, kt 
Nitrate 5,608 5,339
NPK 7,561 8,079
CN 757 932
Urea 3,772 3,735
UAN 981 1,190
Other products  1,860 2,029
Total 20,540 21,303
1) 4Q 2007 Kemira GrowHow figures included.
2) Total external operating revenues last 12 months divided by average net external operating capital for the same period.

Volumes were down four percent from 2007 despite the Kemira GrowHow acquisition. On a combined entity basis, volumes declined by 13 percent. Volumes developed positively and were above 2007 until the global slow-down impacted the fourth quarter. All regions ended below 2007, with the main reductions in Latin America, where sales in Brazil were down 20 percent and in Asia, where lower phosphate and potash demand impacted NPK sales.

In Europe, sales were up six percent due to the Kemira GrowHow acquisition. On a combined entity basis, sales in Europe were down 11 percent as the slow-down and declining fertilizer prices made farmers postpone purchases. Nitrate sales were in line with the previous year, while urea sales decreased by 24 percent, mainly in the UK and Mediterranean markets.

During the first eight months of 2008, margins increased for all main products reflecting a tight demand-driven fertilizer market, a strong focus on central price management and a beneficial timing effect from natural long inventory positions, both on third-party and Upstream-sourced products. The positive margin development was partly offset by third- and fourth-quarter inventory write-downs.

As fertilizer prices fell during the last four months of 2008, inventories of third-party products were written down to reflect lower market prices. The write-downs were mainly in Latin America (Brazil) and Africa, but also urea positions in North America, Mediterranean and South East Asia were written down. The impact for the year was NOK 1.8 billion. Inventory write-downs of Upstream-sourced products, where Downstream carries the price risk until the products are sold externally, impacted the Downstream results by a further NOK 1.6 billion. As the Upstream-sourced products were still profitable for Yara, these write-downs had no effect at Yara level and were reversed under “Other and Eliminations.”

International agreements

During 2008, Yara strengthened its marketing and distribution network in North America with the acquisition of Saskferco, the purchase of a 25 percent share in Agrico Canada Ltd., and terminal investments in New Orleans and Savannah. Two sub-scale plants were permanently closed in late 2008: the Terni plant in Italy and the Kedainiai plant in Lithuania.

Yara sold its equity holding in the Chilean mining company SQM in the second quarter, with a pre-tax gain of NOK 440 million. The global marketing agreement for speciality fertilizers produced by SQM continues. Other special items were gains from the part-divestment of Baltic joint ventures, Kemira GrowHow restructuring cost and closure cost for the Kedainiai plant. 2007 saw a net special item charge of NOK 87 million mainly related to provisions for the Terni closure.

Yara has a well-established system for credit management, with limits on both customer and country level and main risks managed through various instruments. In 2008, NOK 143 million was provided for bad debt, mainly related to Africa and Eastern Europe.

Downstream EBITDA

Downstream EBITDA chart View graph

Downstream CROGI

Downstream CROGI View graph

“Other” reflects these provisions in addition to increased performance bonuses and IS costs.

Net operating capital turnover, measured on a 12-month rolling basis, was at 4.3 at the end of 2008 compared with 4.9 last year. The decline was mainly due to a deliberate inventory build-up ahead of the European peak season and changes to Yara’s business model in South East Asia.

Variance analysis  million million ton 2)
EBITDA 2008 4,648 1,020 50
EBITDA 2007 3,035 521 25
Variance EBITDA in NOK 1,613
Conversion (NOK vs. USD) 312
Variance EBITDA 1,925 499 24
Kemira GrowHow 2007 (pro forma) 3) 258 49 2
Volume & mix (733) (113) (5)
Margin 2,088 500 24
  Margin excl. ammonia effect 4,147 866 42
  of which third party write-down (1,802) (278) (14)
of which internal write-down (1,553) (240) (12)
  Ammonia effect on margin (2,060) (366) (18)
Special items 498 94 5
Other (186) (31) (2)
Total variance explained 1,925 499 24
1) Based on quarterly average NOK/USD rates as detailed in Yara 2008 reports.
2) Divided by 2008 fertilizer sales volume.
3) Pro forma Kemira GrowHow 1-3Q 2007 EBITDA, restated to Yara segment structure and accounting policies.

Downstream sales volume

Downstream sales volume graph View graph

Sales volume by region

Sales volume by region View graph

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