Yara International ASA

Torgeir Kvidal – CEO Thor Giæver – Head, IR

Thank you Anders (ph). And welcome to all of you from me too.

It’s a pleasure for me then to present for you our strong Third Quarter Results for Yara. We have our (inaudible) cash flow return on growth and less spend in the quarter, annualized of 13.3% so that is the background for saying that it is strong.

And we also had record deliveries of fertilizers in the quarter up 3%, no, sorry, up 16% from the last year. We have continued strong margins with gas costs down 31% in the quarter compared to last year in Europe so, our cost saving of close to NOK900 million.

The sales increase was backed by a strong production performance, fertilizer production were up 3% while ammonia production were down 3% due to an extended turnaround in our Australian plant and also continued gas curtailments in Libya. And then we also report record results in our industrial segment with continued strong growth there.

Volumes were up 7% in industrial compared to last year. If you then look at earnings per share, we reported earnings this quarter of NOK6.18 per share compared to NOK5.66 a year ago.

We had a financial loss on currencies of NOK549 in the quarter and that is due to the fact that we do our financing in U.S. dollar as a hedge towards the positive exposure in U.S.

dollar that we have in our business. So, strong U.S.

dollar is good for us but we get an immediate financial loss on our financing. So, if you take away that effect and also the negative special items of NOK75 million, the underlying earnings per share is NOK7.62 per share which is up NOK2 per share from last year.

Let me then summarize in some bullet points how we are seeing the fertilizer market develop over the last quarter. We see a continued robust demand for fertilizer so deliveries are significantly up in our key markets in Europe, in U.S.

and in Brazil. And we also see a somewhat higher global nitrogen fertilizer price the urea price in the Black Sea for instance is up 4% from last year.

And that is also due to curtailments in several of the key exporting regions like China, like Ukraine and Northern Africa here mentioned Egypt. Then we have a good start to the fertilizers in Europe, total nitrogen gas in Europe are up 5%.

And we also have an improvement in the Phosphate market, from last year a bit higher for set prices supporting the margin in our NPK business. And lastly, we continue to see strong demand for high quality fertilizer like nitrogen NPKs also supported by good cash crops.

If I turn over, then more in general to the agriculture markets, we have seen the last quarter, a decline in grain prices. And if you look at our FAO grain price index is down 13% from last year.

Although I will say lately over the last couple of days, we have started to see a slight increase in grain prices again. So maybe the world is starting to worry a little bit more about the coming harvest than the two previous record harvests as such.

Then it’s important to remember that food is a lot more than only grain and all the food then the grain maybe more important for urea’s added value fertilizer. So if we look at the total FAO food price index, is down far less than the grain price index, it’s down 4%.

And apart which is compensating for the grain price fall has increased meat prices. And meat is important for crops in Europe among else quite significant part of the fertilization in Europe, goes to grassland.

And in addition to that when I said that the crop price index in total, is down 4%. It’s important to know that a lot of cash crops or cash crops, in general is not included in the food price index.

And those cash crops have done better than grain clearly. If you then look more in detail on the leverage in some of our key markets, as I mentioned, Europe deliveries are up 5% from last year.

Then you can also see that last year or third quarter, last year was a quite a slow quarter. In third quarter last year, distributors and farmers were more reluctant to buy early as they saw weaker by global nitrogen market is more export also of China.

This year China exported less and we have an increase in nitrogen prices globally which have made distributors and farmers to buy earlier in Europe, and particularly during the end of the quarter, we have strong increase in nitrate sales in Europe. In U.S., deliveries are up 12%, that is also partly based on a weaker last year in the same situation North American distributors and farmers were reluctant to take products earlier.

In addition, some of you may remember that we had a cold winter in U.S. last year so we had a late spring, a late season but it ended after a very strong season.

So as such quite a lot of the farmers in the third quarter was for immediate deliveries, which are now consumed. So we presume that inventories in North America, currently is of quite low levels.

Then some words on China, China continued to be an important balancing region on the global nitrogen market. And China has over the last years continued to build new capacity.

The good news is that China does not increase production for the time being. Quite the contrary their production have been reduced slightly from last year.

And the reason for that, that is that quite a number of the high cost producers are struggling with negative margins or very low margins and are curtailing production. You also see that in the export, in the export of the two first months of third quarter July and August, we don’t have the numbers yet for September.

Exports are down from 2.8 million to 2.4 million. And in China continues to struggle with the cash costs going forward, that can have a significant tightening and positive effect on the global nitrogen market.

Last season, China exported close to 11 million tons of urea which constitute roughly 25% of global trade. And if they’re not able to export the same level the coming season or need higher prices to do that, it will have a positive effect for us.

Then, back to our own sales, which were up 16% from last year. A significant part of that is due to the Bunge acquisition which happened in August last year but even taking away that or sales were up 6%.

Or sales were up 3% in Europe but it was up 11% outside Europe and Brazil. So, you see, we continue to shift our production or sales in total from Europe to overseas.

If we go back some years, the sales of Yara in Europe and outside Europe were roughly 50-50. If you look at this quarter, more than two third of our sales are outside Europe and less than one third than as you have already calculated was within Europe.

Then a final comment, and some final comments on Brazil as such. You can see, if you compare this year’s sales with last year’s sales year-to-date, and if you look closely at the figure, you’ll see that you have increased our sales with 3.3 million or 140% up.

A large part of that is of course due to the Bunge acquisition but the Brazilian market also continued to grow as you see on the left hand side there. So far this isn’t deliveries in total for fertilizers in Brazil, not only for us but for the industry in total is up 7%.

And then, I also would like to add that over our efforts in Brazil is not only both expanding products or volumes, it’s a lot about also expanding margins. And what we do there is to continuously try to upgrade our product physically and through better marketing and advice to the farmers.

What we do is to introduce more nitrates into our belt plans to get the margin on the total belt plans. In addition, we have a technology called true coat, very coat well planned fertilizer with the coating including micronutrients so you can also tailor made but plans for different crops.

And we are expanding that – sales also through our downstream network. And of course, with the Bunge acquisition we have also expanded our distribution marketing system in Brazil and we’ll continue to use that to gradually introduce also more and more premium products imported into Brazil.

So we have an aim now during this year to sell more than 1 million of what we call premium products imported being compound NPK, being nitrates and being calcium nitrate. So, with those words, I leave the word back – or leave the work back to Thor Giæver to comment in more detail on our financial results.

Thank you, Torgeir. Good morning to all of you.

There are some new faces but the message remains the same. I’m pleased to echo the CEO to say that Yara is delivering a strong result.

And a reminder as the CFO often has said in the past, the strong results in Yara is defined as a Krogi (ph) above 10%, at or above 10%. In this quarter, we delivered 13%, 13.3% to be precise, a significant increase from a year ago and it was 12%.

We’re then talking about the quarter in isolation. So, in terms of EBITDA, we have a significant increase from a year ago, which we will go into some of the explanations around this.

I think just to mention, compared to the consensus that was out there I think that we are slightly below. And the main explanation I think for that is that we’ve had this stop in Pilbara, a turnaround in the ammonia plant that lasted longer than expected.

And we believe that the consensus has probably to some extent picked this up but not fully. In terms of the variance analysis the volumes of course we have record volumes but a small volume variance.

And again, the important comment there is that this longer stop in the Pilbara ammonia plant is an effect of roughly NOK230 million. So, if you would adjust for that you have an increase of NOK300 million in the rest of the business which where Brazil is the main factor.

So, we can reveal that more than half of that NOK300 increase reflects our increased business in Brazil. And then as a reminder we had the Bunge acquisition completed this time last year but it was effective from the 8 August, so not a full quarter last year.

So, the Brazil result is in line with expectations, a good result from our point of view. In terms of the price effects, they are small.

I think those who dig into this in a bit more detail will see that the prices overall in the market are slightly up from last year. However, if you adjust this for the normal one month time-lag that we tend to have in our results based on when we deliver the product, then it’s slightly down compared to last year and therefore in line with this development.

Then the big item which is hopefully unsurprising to those who follow us and Torgeir already touched on, the significantly lower gas cost in Europe. This is slightly below our guidance but fully in line with the spot markets developments in European gas prices since we published the guidance in July.

Special items, small effect we had a positive contract derivative last year effect which explains the year-over-year negative variance. Other items is primarily due to a higher level of fixed cost as we now have the Brazil acquisition fully on board.

But as mentioned earlier of course on the results it’s a positive effect with the increased volumes at good margins. And on currency, we benefit then from a stronger U.S.

dollar which is of course positive for a dollar margin as we have but with predominantly Euro and Norwegian Krona fixed cost. On the segment results I think it’s again a pleasure to say that we have an improvement in all segments.

And again, those are for the last one though that that’s not always the case. You will often see upstream improvements at the expense of downstream and industrial or vice versa.

This time, we clearly have a positive energy effect which sits in upstream but we are also able to say that downstream and industrial are creating good additional value over and above that. And I think on both the counts you can say this reflects that they are placing their products, including their premium products well in the market and also are reaping the benefits of some recent technology investments to if you like increase the value added components here.

In the case of industrial also, there is a fairly good volume increase overall. And just to underline that, also in terms of Krogi (ph) or return on capital if you like, all three segments are improved compared to a year ago.

Looking then at the nitrogen market and the premiums in this business, it’s a quarter where the commodity side of nitrogen actually has developed favorably. And the premium side has been more stable.

So if we go through this on the left hand side starting with the gas cost, as mentioned and this is a European nitrogen picture. We see that the effect here in urea terms of the lower gas price in Europe.

And at the same time we then compared to last year have a higher Ammonia and urea price. So, a good increase in the European commodity nitrogen margin.

And then, in terms of the nitrates price, you can see overall for the quarter it is slightly up but the premium is actually quite stable as the urea prices increased as well. On the right hand side we show Yara’s realized premium, you can see that is somewhat up from last year, we’ll say that by and large is due to the late start of the new season price in Europe.

If you look on the left hand side you can see that the nitrate price came down later than normal at the start of the season. If you look at what the nitrate premium is today, it’s just below $100 which is more or quite in line if you like with recent history.

On phosphates as well, it’s the same story and that the commodity margin has expanded largely due to higher DAP prices. And it’s worth reminding everyone at this point that Yara does in addition to the premium side on NPK, we do have a significant value creation in terms of upgrading phosphate rock, both our own and that we produce in Finland but also what we buy in.

When we produce NPKs, we first of all create a commodity margin which is why we show the development here, DAP compared to phosphate rock and ammonia which are the main inputs into DAP production. Then when we move to the right hand side here, we say that over and above that we have a good value add for the NPK compared to those commodity products.

But again, similar to nitrogen, the commodity improvement year-over-year is strong here and the premium part is more stable. So, in terms of the gas costs, we do have a large effect in this quarter and also for the next two quarters we expect to have roughly NOK1.1 billion in further year-over-year savings.

And of course that mainly reflects the spot market in Europe but you can also see from the chart on the left hand side, that’s the spread between the spot price and Yara’s price is also lower. And that partly reflects also actions that we have taken for example, in converting one plant from oil feed stock to flex feed stock, can use both gas and oil and also some contract adjustments that make our price more competitive compared to the spot price.

But in principle there is always a spread there because there is some transport and cost to take the gas to the plant. In terms of the deliveries by product, the CEO has already touched on some of this.

On nitrates we have an increase compared to last year and in the third quarter last year, we could say we were slightly below and normal third quarter. And this year it’s more a normal level.

Otherwise the increases here in NPK blends, urea and other largely reflects the increase in Brazil, where we have a bigger footprint with the Bunge acquisition, first time that we have a full third quarter. Looking then at the cost and debt situation, we have a good earnings level and also contribution here from dividends from our equity accounted investees.

But in the quarter that is more than consumed by an operating capital increase and investments. Now the operating capital increase, again, those who follow us will know that this is, we have season effects here.

And there is a relatively large season effect here in Brazil. And the prepayments come down at this time of the year as you deliver the product in the main season in Brazil.

There is also an inventory increase here, which is can be prescribed partly to Europe which again is normal seasonal because of the third quarter, it does not tend to be the top delivery season, that’s more in end of the screen time and partly in Brazil where the impact of lower crop prices has taken down the delivery somewhat. But the main impacts are seasonal here.

And of course well, over time, they even out. So, when you look at this on an annual basis, the operating capital increase in principle is not there.

In terms of the investments, this is more or less in line with what we have communicated earlier, in other words that we have roughly five NOK5 billion of maintenance investments in the system including a higher level this year of ammonia plant turnarounds. Then in addition, we have some productivity and smaller gross investments.

So that the quarter number we present here is in line if anything little, a little delay compared to the 2014 guidance that we presented in the fourth quarter. Finally on the cash and debt, I’d like to reemphasize that we are pleased to have such a big currency loss in the accounts as that is an effect of the stronger dollar.

So our debt is momentarily revalued to a higher level and not but of course for a dollar exposed fertilizer business a strong dollar is a positive effect then carries on beyond the end of this quarter. With those comments, I’d like to give the word back to our CEO Torgeir Kvidal.

So, today I’m happy to see that we still have a strong balance sheet which is geared for further cash return to owners and profitable growth. We have summarized our prospects in the following six bullets as such.

We feel that we are still a good incentive for nitrogen application even though as I said grain prices have come down. Other crop prices haven’t come down to the same extent.

And as you know, to keep up yields, farmers need to continue to apply nitrogen every year. There continues to be nitrogen curtailments in China and in Ukraine and also in other expert regions.

If you look at the capacity coming over the next years, there is not a lot of capacity coming outside China, coming very much I would say in line with historical demand trend growth. And in addition, you see curtailments coming up due to technical problems but also due to gas curtailments in several regions over time.

Then, as we touched upon, we have a strong European order book at the start of fourth quarter. As I said, nitrate sales really picked up late in the third quarter.

To it has already shown that based on the forward price expect significant lower gas cost the two next quarters compared with last year, NOK1.15 lower gas cost in Europe. And then we continue to grow our business.

We took over Westar (ph), which is the company which has an NPK calcium nitrate and ammonia plant in Columbia and markets slightly more than 1 million ton of products in Northern Latin America, we took over that company from 1 October this year. And we have also announced that we are going to buy into (inaudible) where we expect the completion in fourth quarter this year of this transaction.

And I will briefly touch upon this business. This we are paying for our 60% share in this privately held company, NOK318 million.

Currently, the company has mining activities in Brazil producing about 0.5 million ton of phosphate rock yearly and they are upgrading that into about 1 million ton of SSP. In addition, these companies have several mining projects under consideration.

And if those projects are fulfilled they will add in total up to capacity of 2 million tons of phosphate rock. And if those are upgraded into SSP it will make 4 million tons of SSP.

So, it is our backward integration of the strong down same position in fertilizer marketing that we have established in Brazil through several acquisitions latest by the Bunge fertilizer acquisition and continues organic growth over the last 15 years. Now I’m pleased also to inform you about another investment that Board of Yara decided yesterday.

We have decided to expand our NPK and nitrate production in Pushkin it is a (inaudible) with a total cost in Pushkin of NOK2.25 million. In Pushkin it is going to add 200,000 tons of calcium nitrate and 50,000 tons of NPK.

In addition, it will have surplus nitric acid in Pushkin which we will utilize in our Glomfjord NPK plant in Norway and our Uusikaupunki NPK plant in Finland. So, in total this investment with only small marginal add-ons investment cost in Glomfjord and Uusikaupunki have less than NOK100 million in logistical investments there will in total, add a capacity of 200,000 tons of NPK and 235,000 tons of calcium nitrate.

And this comes at a very favorable investment cost per ton because it’s based investment partly on existing equipment and on the existing infrastructure in those sites. And the project will be completed and production up and running in 2017.

Then let me at the end talk a little bit about calcium nitrate which will be the biggest product from this new expansion. Over the last years you have learned lot of, all about the commodity nitrogen like urea but we talked more and more about nitrates and NPKs which are more upgraded products, where tools show that we earn a substantial and more stable margin on top of the commodity prices.

This is even more of a specialty product than I would say nitrates and most of our NPKs. This product, the nitrogen component of that is purely nitrates, for instance in ammonium nitrate, you have 50-50 blend of nitrate and ammonium nitrogen.

And you also have fully soluble calcium in this product. So, it’s a product very well suited for cash crops, and it’s mostly going to cash crops as such.

And if you look at the pricing, you’re able to actually also realize that this is quite a high value specialized product. We typically sell this product for a price range of $400 to $600 per ton for 15% nitrates as such.

But of course it’s not easy to do it and it’s not done from one day to the next, this is based on downstream system when we have agricultural and sales people, out and testing and proving these products to the market. And this is something that you’ve done for many years calcium nitrates are actually the first product we have started to product in 1905.

And it continued to be one of our highest margin products as such. And we are now increasing Yara’s capacity from 1.1 million ton to 1.3 million tons of this product.

So you see, based on all asset base, based on all marketing systems we have a lot of growth opportunities going forward. Thank you.

Good morning, (inaudible). Just one question in when you’re talking about expansion.

Before summer you were talking about the possible ammonium plant or JV with BASF. I understand there has, been plenty of things coming on in the board being kept really busy the last couple of months.

But could you just give us a status on that project, where you’re running? Thanks.

The project is developing well. We have received tender offers from suppliers.

We are now considering those tender offers. And we plan to come back with our decision within not too long time.

Yes, good morning, a couple of questions. You stated that the calcium nitrate was the most profitable product in the Yara portfolio, could you say anything more about that, how much more profitable?

And also on the lately opium potash projects, we understand that there is a bankable feasibility. So where are they, so call us on the projects, on that project?

And a final comment also on sales of NPK compound to Yara produced and compound seems to be down year-over-year?

Yes, I said that it was, did I say that was the most profitable? At least it is one of the most profitable maybe even compete with some of our products.

But I think for a product where we sell 1.1 million ton I think I can say so. When it comes to the cost picture of that, it’s a coal product with a NPK production as such.

If you do NPK production with sulphur acid solution, you get a lot of gypsum, which is a waste and a cost to get rid or to store. In our nitro-phosphate process, we don’t get that waste we get a very valuable coal product as such.

So, when I started this long explanation, it’s because you don’t – it’s not possible actually to extract as such the cost of producing calcium nitrate from NPK. So, we cannot provide you as such with our cost calculation only for that but it is in combination with the NPK production as such.

And of course, you could be, so you have to build it up in total and look at the nitrogen cost are producing NPK and calcium nitrate in total and you can get end component of that and ammonia produced in Pushkin and inter-Pushkin, you can look at the phosphate cost associated phosphate rock cost as such and the potash cost of course in NPK which doesn’t influence calcium nitrate there. So that was a long and not very precise answer to that one.

I suppose, so are there certain comments at least we can say that the higher Yara project – of this project is comfortably above the – our heritor rates?

Yes. And then on (inaudible) and the development there, we are continuing to develop that project.

We are now in a testing phase. This is a solution mine project on SOP.

So, sulphur of potash which significant more of a premium product and urea as such have a little bit of a shortage situation or also some of the producers have had production problems. We are now testing the mining of it having so called test covers, where you could water underground and get the grain up and testing production of that grain.

And that is developing well as such. But so we are developing that and we’ll be ready to make a conclusion during next year on that project as such.

Yes. Then it was compound NPKs, I don’t think we have any particular comments here other than let’s say I think in Europe the nitrogen has been stronger.

The nitrogen picture has been stronger. And you could say that globally as well compared to NPK.

Yes, so you get a full saved, with somewhat lower particularly grain prices and that questions with farmers reduce neutron application. What you see is that in this kind of drops that we saw from previous year, you should see quite a stable demand for nitrogen but you can see somewhat more drop for phosphate and potash.

But then you have the effect that quite a big part and a growing part where NPK production or sales goes to cash crops. And cash crop prices have kept up well.

Hi, (inaudible) Johnson Markets. I was just wondering if you can say something in general but continued exports from China, when moving into the hi-tech season soon.

Something between the Chinese and Indian balance, India absorbs a lot of the Chinese flow, their imports have been going down a little bit, production increasing. Can you just say something about them?

Thanks.

To get the most detailed interest for this answer and then I will go directly to the source of down to it. Yes, India has had drop of imports of urea where 1.4 million tons so far their agricultural year which starts in April, and of course most of that is translated into reduced exports from China to India.

What we’ve seen there is that while this has had to do with a slow monsoon and fairly dry conditions in India, in parts of the country. This past season they have not bought quite heavily, I mean, they’ve bought 1.8 million tons in the last tender which is mostly coming from China, it’s going to be shaped until November 10, which will on top of this volumes that we see from the Chinese exports graph of 6.6 million tons so far this year.

You can add them easily several millions more. So I think that’s already today, you can say that there will be a record trying these exports and for the calendar year 2014.

It’s hard to know exactly how much, I mean, it depends, it’s a bit very to the degree of how much can be exported during the hi-tech season which now starts November 1, has a lot to do with it, how much it’s put into inventories ahead of that deadline. And also I would say on how strongly the Chinese authorities are implementing the hi-tech period.

Sometimes they seem to be more lose than other areas, I think link to what their domestic pricing does. So, I think they’ve began already, they conclude that there will be a record year for Chinese exports.

And then, what is maybe more important is 2015 and there we don’t know yet what export tax system is going to be and the tradition from the Chinese is to wait as long as possible to formally announce it. You often see that they have some deliberately interest.

If they see that they want the market to assume certain features. But there is not much on that yet, other than that there is a lot of speculation that there would be a flat export tax rate for 2015.

A lot in the press speculates that rather than this high tax, low tax season. And then it’s of course, it’s – we don’t know what would that tax rate will be.

If it’s not extremely low, I don’t see it as very negative because that’s as they’ve been so good at playing around this hi-tech periods anyway. I think if it’s a decent tax rate, it’s just as well to have it flat rather than to have a lower tax rate tax period, let’s see.

But that of course is a very important factor for 2015 which we don’t know. But as Torgeir said, roughly 25% of the market is covered by China and of course the costs of those volumes are extremely important.

One final question, I think you stated in your report that belt plans margins in Brazil was slighter compared to last year. Are you happy with that achievement in the light of the synergy potential that you saw when you announced acquisition of Bunge?

Yes, I think we are happy with that. And the synergies, comes on top of that.

So you say it’s on comparable terms that we have a slight improvement in the belt plans and then they are well on track on reaching those synergies of $50 million per year by end of this year with an effect this year.