Yara International ASA

Anders Lerstad - Acting Head of IR Torgeir Kvidal - Acting President and CEO Thor Giaever - Acting CFO

Joel Jackson - BMO Capital Markets Paul Walsh - Morgan Stanley Neil Tyler - Redburn Joe Dewhurst - UBS

Thank you very much and welcome to the Yara's first quarter results conference call. Before we open up for the questions some brief comments on the results.

We report strong results, which reflect continuous strong demand for our products and improved margins driven by lower natural gas cost and stronger U.S. dollar.

European oil and gas cost decreased 33% in the quarter, coming to getting to a positive NOK1.3 billion EBITDA effect year-over-year. This was partly offset by lower realized prices as nitrate prices dropped 5% and NPK prices dropped 3%.

The next price margin variants amounts to more than NOK1 billion year-over-year. The Yara fertilizer deliveries were up 3% from first quarter 2014 due to the acquisition of OFD and Galvani.

Excluding OFD and Galvani, deliveries went up about 2% from last year primarily due to a normal spring in Europe resulting in a 3% drop in European deliveries. The industrial segment continues to perform well and close to record result in the quarter with 11% growth in sales volumes at higher margins compared to last year.

Growth continues to be driven by the environmental solution business while TAN business remains challenging. Season-to-date industry deliveries in Europe are in line with the previous season.

However crops are currently benefitting from favorable growing conditions and application is expected to take place later compared to last year when the spring came earlier. Yara deliveries in Europe have been running well in April.

Based on the forward markets, Yara's European energy costs during the next two quarters are expected to be NOK800 million, lower than a year calendar. And with these introductory remarks we are done and ready to take your questions.

So, operator can you please now open for questions.

I have a couple of questions. First question is on China, you have some commentary in China about the Chinese producers being generally disciplined at about $265 a ton.

Can you give your, a little more elaboration on that? Do you think that discipline will hold to the summer, as you whip the off-season and what are some of the pushes and holds on their cost basis?

I will let our Head of Market Intelligence, Dag Tore Mo to give his view on that, on this discipline.

I mean it is not only discipline. I think it’s also logical, or make logic because if you look at the domestic price in China at the moment, let's say around $250 to $260 in the Shandong Chuangxin, some of the main export-oriented provinces.

The $265 FOV that you mentioned as the floor is actually not even covering the cost of logistics to the ports and -- sorry the 4 tier MMB export tax. So even that price is at discount compared to where the domestic price level is today.

So, the results for June, that they lost by that exports as well, and but that you are hinting at, we don’t know. We either follow the domestic prices, we did a lot going forward.

But I review that it certainly be an important element in where the export prices also will develop. When it comes to the margin it's difficult to exactly to read out all that information on margins and profits standalone.

But just looking at the curtailments that are in place within the coal base sector, and also the natural gas base sector, it seems [indiscernible] evidenced to ops that there are strong pressures on the production margins around current price levels.

I think it's, if I may add to those, [indiscernible] there will be other interesting aspects when they comes to the potential future export of China, is that exports have increased substantially over the first nine months of the season itself from around the 9 million tons to 14 million tons but after a long or same time as production is only up 11%. So, actually available product for the domestic markets is down 10%.

And you could say that over time clearly, China could increase fertilizer efficiency and use somewhat less, but you don’t see an efficiency gain [indiscernible] 10% from one year to the next. So, clearly indications also and the statistics is that there have been a substantial pipeline effect this year in China which cannot be repeated.

So, that could also give some optimism, if you're looking for optimism on the Chinese export future.

Okay, and my second question is a few months ago when you reported Q4 results, you'd given some commentary that Yara's earnings could reach 45NOKs if spot currency and spot commodity prices held for all of 2015. I see in your release today, you didn’t give any sort of similar commentary or the comp against that number.

Can you may be elaborate, where you would be this year on a similar type of methodology or whatever commentary you like to give.

May be Tore can come back more to the sensitivities, but we are not guaranteeing on earnings. What we did last year was -- last quarter was to accept our sensitivities and just use them on the current prices at that levels.

And if did so it resulted in an EPS run rate, if you call it so or 45 [indiscernible]. So what you can do then at any point in time is to take the current prices and use those sensitivities to estimate our run rate and then we know that there are seasonalities and ups and down in this business.

So, momentarily run rate is just a starting point on an illustration. Now Tore, if you would like to add to that.

Yes, not very much, Joel, ironically you will recognize also as we have done it in the past. Our intent is to provide some tools that the analysts can use to estimate earnings in different scenarios, but it has, at no point being calendar year guidance, or any other form of guidance as such.

So we continue to believe that you guys should do the estimates based on the conditions that you anticipate.

But if you look at the variables down, some of them have gone the right way. Some of them down the other way along.

Some elements which have gone the right way since we guided this and the gain continued to improve in Europe. And you could save dollars, and continued to improve.

And then on fertilizer prices you also have seasonal effects. You get the urea, have been pushed down somewhat, that's the seasonality, and it remains, still to be seen [indiscernible] you see it from start, and clearly the same on nitrate prices stand.

I'm just wondering if I could follow on from that -- on the sort of market-to-market EPS potential. Of course we can run the numbers, but I was just wondering if you had and what number was coming out with given those positives and negatives you've just mentioned.

Secondly, just on nitrates. Is there more downward pressure on nitrates pricing moving through the year at the moment or not and then just finally on the demand outlook.

You've given some commentary in your outlook statement around a year it was looking slightly better in Q2 in U.S., which is pretty well supplied and Brazil I guess remains relatively tough. But I just wondered if you can elaborate on some of the regional demand dynamic is given, how strong really activity was in the first half of last year.

If I start at nitrate prices then -- you could say -- I mean don't guard on that project. Let's go back on the history then.

What we have seen there is that the nitrate demand has been good. We have increased sales of nitrates both in Europe and in U.S.

We have been able to run, you could say a normal stifling mechanism in Europe but the force what have happened there is that the dollars have strengthened towards euros, while they have been running a European stifling mechanism and try to compensate also for the euro weakening. They haven’t fully been able to adapt because they measured in U.S.

dollars, the nitrate prices are 15% below now compared with last year. And that is very much in line with the drop in urea.

So the nitrate premiums are being pretty stable in euro. Having said that of course also we have the very good -- a very tight situation last year -- with the early spring, so more production problems.

So we had availability of more product, but not better prices unlike this year. So that’s not bad.

Going forward, I should say we never guide and in addition to that second quarter is always the quarter in a way where the biggest uncertainty because that is the residual remaining quarter in the season and in next seasonal variances in volume end up as [indiscernible] I would say in the second quarter. So of course a clear strategy for any producer down is to aim current price levels this year's price level as far as possible and sell at that prices and at one point time just the worse.

And obviously reserves don’t need much more, not willing to take more product if this month sales start to doing the one and then you have to set the new price for the next season, and then to motivate these users and farmers to start to pre-storage. And what we’ve said, also in the outlook is that [indiscernible] running very well in a [indiscernible] gain in euro stuff.

And Dag Tore, if you would say anything more on nitrates?

No I mean that also globally the nitrate price have pretty much followed the urea prices, as it relatively dropped over the last few weeks. But it’s still 15% more expensive also outside Europe than what urea is.

So I would say that it’s fairly in line.

Yes, and then more on the regional questions, you have already talked about [indiscernible] price now it's that way. By the end of this first quarter we were in line with last year as an industry [indiscernible] delivery and having said that a drill has been running quite well.

So quite a normal situation as such in Europe. In U.S., it's somewhat more supplied as we indicated that the statistic shows that have been 6% higher nitrogen sales in U.S., more urea import.

What can be modifying that is in the business like that you have the late spring in U.S. last year.

So we had quite some deliveries, we think into the third quarter last year which actually went for immediate applications. So those 6%, some of it is probably already consumed but clearly the supply in U.S.

for the spring is ahead of last year. So you can see it’s a somewhat more moderate development in U.S.

than in Europe and things else if you will, for us even if you have a position also in U.S. and Europe is of course far more important in short term variations and supply demand balances.

Maybe if you could just add that you may have noted that is the urea price in the U.S. Gulf, to jump 10%, just very recently, so I mean it’s not like, it’s that, it's a huge oversupply problem.

It’s just that we haven’t seen this spring what often happens that there is kind of a price increase at the peak season because of supply issues that has not been the case this season in the U.S.

And in Brazil, you may virtually comment on Brazil also there can be [indiscernible] slightly below last year, I think there is a [indiscernible] in this year [indiscernible] that 5% below. Of course tourist for June in Brazil is low season so it’s a quite a lot also on three deliveries.

So it’s a practical key thing and you could say clearly the lower grain prices through over the term had problem at some of the players in Brazil more quarters also seeing a drop in price trend to part of the [indiscernible]. But as we said it’s still late in the season.

Got a few quick questions. Just actually first of all, following up on Brazil as you just said it’s a low season but I just wondered whether you could -- I would like to know what your thought as for the season as we go into it because obviously currency is positive but the general economy is under some pressure and of course the price is low.

So, just some sort as you head towards that season and then second just a couple of number question, you updated the CapEx outlook for this year in the presentation this morning. Could you just remind me what the updated CapEx outlook is the ’16 and ’17 as possible and secondly in your cash flow in the first quarter there was almost billion operating inflow under the other line could you just tell me what that was?

Many thanks.

Yes, I started with Brazil and then it’s very valid point to mention Sophie. On currency [indiscernible] European fertilizer producer that is also have separate farmer, as part of it [indiscernible] and commissioning local currencies what is going to leave for is in local currencies what itself is the logic than denominated in dollar.

So as [indiscernible] stronger lot helps that we’ve seen in farmer and obviously that is on from extent and you’ll get different industries in Brazil, I think to be in agriculture is most about place to be as I think it partly drought and casing and we don’t really get reports back as you could say that, market economical or political sort of is in driving this, or you could say what happens with the [indiscernible] and so on. So we have quite still positive from Brazil but Brazil is a big market and its part of big commodity market and swing from here to here.

What we have seen in the quarter other than sales have been lower for industry [indiscernible] but YARA. But what we’ve seen is the sale for the lower on commodity on commodity both land but they are actually been selling continue decrease or sales or more premium products.

So we sold more nitrate and complex NDK in Brazil which is maybe less exposed to this facing speculation and more exposed towards ability to grab and dually convince more and more farmers to use this more advanced, more valued products in Brazil. Then on your question on CapEx, we did answered in the fourth quarter in our CapEx guidance based on what project that’s has been announced and just few dates off [indiscernible] we were also able to finally conclude that ammonia joint venture with the [indiscernible] free port.

So what we have done know in the new CapEx guidance is to add the free port ammonia plant. So that is increasing the CapEx guidance for 2015 up to 11.4.

So it adds 11.4 billion of each in [indiscernible] it adds 1.2 billion this year and then it adds 1.3 billion in 2016 bringing the total of 11.7 and then 1.2 in 2017 bringing back up to 8.7 and this year of course the reason that it drops in 2017, it’s not that we have less ambitions or such but it less committed of course into the future. And then there was a final question on cash flow which I have to hand over to Torgeir.

So just to clarify you talking about the cash flow statement or [indiscernible] during that

Is it the cash flow statement as 920 million of the enclosed?

Yes and I think they have the commentary that at any given time have some movements back and forth there on VAT and other type element and if you look back one quarter it was negative there of the roughly the same magnitude.

Yes. Thanks for taking, I have two questions.

First of all, can you talk about the current situation in Libya, I assume the situation there changes on a daily basis from bad to really bad and back but is there is any production at all happening at the moment and how do the port facilities look like? And second, can you shed some light on how Casco and [indiscernible] running at this point in time.

Thank you.

Yes. I’ll start with Libya then.

In Libya we are curtailed on gas, this is curtailment in total in country, so we get less gas than what is there [indiscernible] plants full, so we run one line at not full capacity there. So we are below 50% capacity utilization there and with that utilization we are slightly cash negative so we are drawing cash and it’s based on that cash situation and that situation on security and gas have deteriorated, so far this year that's our conclusion to impair -- impair our ownership in the company.

When it comes to port facility and situation the security situation in the port as it is, is for the time being acceptable and we have been able to take in ships to take off both ammonia and urea, there hasn’t been any significant security uncertainty elated to that. But of course that is a few possible obstacles if the local security situation around the plant and the port should deteriorate that could be one reason that to the plant is entirely stopped if you were not able to take in ships at the acceptable security.

I can may be comment on the capital [indiscernible]. We don’t report the production numbers for plant by plant, but I think I can refer you to the production volumes until we can see that both our own ammonia production and also as we specified equity account to industries where Casco of course mix up a big part of the number that is up from a year earlier and also on [indiscernible] which is consolidated and we can also confirm that there is a good production level.

Good afternoon. A couple from me please.

Firstly, looking at your slide on NPK upgrading margins and the prices that you realized and comparing those with -- historically that correlated very closely to global potash prices, but it seems that you've managed to sort of buck the trend. Am I looking at this wrongly, could you talk a little bit about the realized NPK price and how you've managed to maintain the margin given declining potash prices.

And secondly, more broadly, I wondered if you might talk a little bit about the sort of longer term thinking in terms of capital allocation. Typically, Yara's looked at the industry on a a very long term basis and on a certain competitiveness similarly.

Obviously, current conditions have moved in your favour with gas prices and currencies. How has that opened up additional opportunities or closed doors for you.

How are you thinking of taking advantage for the long term of the current shorter term favourable conditions, thank you.

Okay. I can may be start with NPK and potash then and as you say potash prices have declined though over the last couple of years and it hasn’t turned up again and you could say that it's for, large extent that would say supply driven by in the introduction of more competition in the potash market.

For NPK and NOF grading margin as such there has been more competition. Even if you have a differentiated product that situation haven't changed.

So in that way I think potash prices could decline but their upgrading margin may be particularly influenced by that. Then on capital allocation Europe of course right afterwards looks slightly different today than it looked a year ago.

Gas prices in Europe have come significantly down. Dollar has appreciated.

We're hoping that it can be longer term than on the short-term as it may indicate, but we will not take that for granted. So we will have to live and be able to live with volatility also going forward, but clearly with these kind of changes, you also start to gradually change some of your longer term perspective.

If you look at gas price then still a gas price in Europe or say currently $7, which is a lot better than the $11, it's still far too high for us to start to think about yielding and new ammonia capacity in Europe. Then what it means is that backbone over current infrastructure in Europe becomes more solid.

So, it's more tempting and profitable to start to look into some debottlenecking opportunity. It could be on ammonia, very normally in a process plant, sometimes [indiscernible] manipulated but even more than in finished fertilizer.

And you see that you're doing that. You could [indiscernible] ongoing in our NPK plant in Norway and in Finland.

We are also looking into some other debottlenecking opportunities and we have also announced that we are building a new nitric acid plants and TIM capacity in [indiscernible] it does mean that they are willing to invest somewhat more into our European system also goes with maintenance cost to increase reliability, the better the margin due to lower gas cost and more you will be willing to invest into maintenance increased durability. So we are unable to start to show more in this quarter.

Thank you, that’s helpful. I was actually also thinking whether -- inquiring really whether the flattening of the cost curve that you want to describing that way has meant there are opportunities opening up for assets or construction or other opportunities lower down the cost curve that would have been ruled out by very, very high margins.

Those margins have been lowered and therefore the prices or the cost -- the potential investment opportunity might have begun to arise.

Can you be a little more specific Neil?

If the assets at the bottom end of the cost curve are making less money than they were to 12 month ago, then is that being reflected in asset prices or is that being reflected in potential construction costs that would make you consider or perhaps reconsider bringing the Belle Plaine project back on to the agenda or anything similar?

Yes. Then I catch the question in a way, but you could say that it's not the lower gas cost probably what goes on the prices than its more Chinese export.

And for instance on Belle Plaine the lower gas cost in U.S. and the remaining low gas cost in -- continuing low gas cost in U.S.

it's keeping up the construction activity there. So I think we're quite early realised with the Belle Plaine project that this was starting to become more expensive than what you originally thought.

And I think all the players have realized that over the last year, some of them although trying to their construction areas. I don’t think that is motivating to go into more into U.S.

quite a contrary what we see that it upon continuity we afraid that might hypothesis that U.S. will become oversupplied on the urea and UAN is growing in evidence and as we continue to being announcing or say that they continue those plants.

So, that’s also why we continue to keep out of urea project in U.S. actually this is [indiscernible].

But I'm very happy for the ammonia project in Freeport because foresee that U.S. will continue to be a ammonia importer although there may be oversupplied on urea and UAM and you actually capture the gas advantage in U.S.

either on ammonia plant with all their capital investment than with the integrated ammonia or urea to hand and also Freeport, have a lower construction cost and is less exposed to cost inflation due to increased petrochemical activity in U.S. than you say more protected or less available areas, less flexible may be labour markets in the Midwest or not U.S.

or not to mention, Canada or [indiscernible] we plan to do, where it's closely impossible to import big compliments and the labour market is less flexible there.

Perhaps just although I realized Neil your question pertaining that mainly investment opportunities but since you asked consequences of changes in profitability, it's probably also worth reiterating that we have a cash distribution policy that is designed to allow for increased absolute payout at the higher end of the earning spectrum.

just two brief questions. First of all, you said that you had continued favourable developments from the international markets for nitrates, am I supposed – if it too particularly can, so the global and some of the tropical markets, any kind of update on how that’s progressing and if it's really coming a sizeable portion of the overall sales.

In other words is it more than 3% or 4%? And then secondly just any views on what was China with the trade organization, do you think that they're less influential this year than they were last year on sort of -- at least curtailing some of the trades or do you think they continue to have just as much influence that they had last year on the trade flows.

Thank you.

Second question sorry Chinese associations the influence and Torgeir could may be comment upon that.

I [indiscernible] see anything that the Chinese supply part of the supply curve on the global market is going to be just as important in 2015 as it was in 2014 and it has started. So in the first quarter we have done another record quarter on exports and you could even though argue that with a lower oil prices and maximum gas prices globally where there is L&G our Ethiopian costs and so on.

The Chinese export chunk in the global market stands even more clearout as the swing producer. So we foresee that China is going to play an extremely important role in their global urea market also going forward.

It's just that I mean least year we -- with the trade organization they stopped -- producers offering product down and sort of 250-- 255 quite effectively. This year it doesn’t seem to be as forceful.

I mean is that a correct interpretation or would you expect them to have as much an impact this year as they did last year.

They are well and [indiscernible] initiative they just took on this [indiscernible] independent where they-- I mean it's not my trade association as such, it’s a kind of association of the nitrogen producers in China and I don’t think they have a kind of real power to kind of determine where prices should be but they are at least strongly we advised against dropping prices below the 255 level in India and since then prices have actually gone up, I mean those are the prices from China today at 270 or above, so either whether it is nitrogen associations initiative that to prove did resulted in that or it is just pure kind of supply and demand because we think that domestic market is also relatively tight at the moment and there is not much stocks reported in the ports. So, there is also that kind of [indiscernible] and supply demand issue.

But I mean it’s not hard to understand from Chinese because the way it is the way it works in India if you have a consolidated buyer I mean long tender at this time, that buy all the volume, they are in trade. There is that type offering prices into that India tender and it often going for watch since aiming to squeeze the fairly large size on smaller to medium size urea exporters from China which could stem in a very difficult position than product if already in the ports and so forth.

I think it’s not a natural that the Chinese are trying to kind of operate a little bit in coordination with each other in this kind of game with versus the traders that are active in India.

And on the other question on my trade sales overseas standard, it still a huge potential on that quite hard most of nitrates it didn’t fell in Europe. I think it typically out sell lot more 20% of our nitrates also in Europe.

The biggest nitrate market also in Europe is Brazil where we have cost 300,000 tons on annual basis and it’s getting up to 400,000 tons. But then he also sells on nitrate into North America and we [indiscernible] also nitrate into Southern Africa for instance.

So in the more [indiscernible] so its still a huge there and this quarter also we increase sales overseas in addition to that also nitrate sales in Europe were slightly up in this total nitrogen delivery [indiscernible] were down, this is part I’ll also explain that the nitrates supply was very tight last year.

I mean with sort of a, I am going to miss I guess in these regions, is this something that’s more of a recent discoveries that it can behaves a lot better in more humid sort of warmer environments? Is this something that’s very new to them that is driving adoption?

I don’t know if it’s new, I think if you ask to right people I know they could say the same 20 years ago but it takes time to gradually develop this market and clearly we are also got the big footprint over the last years in Brazil continue to run it. This is actually for -- in Brazil we have more or less start to this from close to scratch 4 or 5 years back.

If there are no further questions then I would like to thank all of you to attending this conference and we will end the call then. Thank you.