Yara International ASA

Svein-Tore Holsether - CEO and President Torgeir Kvidal - CFO and EVP

Joel Jackson - BMO Capital Markets

Thank you very much, and welcome to the Yara Fourth Quarter Results Conference Call. Before we open up for questions, I would like to make some brief comments on our results and the presentation today.

We reported improved results with higher production and also that Yara program is ahead of schedule. However fertilizer markets remain fundamentally supply driven and our cash return on gross investment or CROGI was at 7% for a quarter which is well below our target of 10% or more through the cycle.

Today we also had our Capital Markets Day presenting backdrop and strategy, improvement and growth programs as well as financial scenarios. We remain focused on strengthening our own operations by delivering on the improvement program and the growth produce and by growing knowledge through technology and innovation.

So with these introductory remarks we are ready for questions. So operator if you can now please open up for questions.

I just have some couple of questions. Can you help us out a bit on your 2020, can you give some guidance about how much incremental earnings you can generate from the improvement program and the expansions and you like to view the 2015 base of pricing which is sometimes difficult to interpret.

If we kind of pull 2017 provided your price level is constant [indiscernible] for the next few years what is the incremental earnings you would earn in the business for the next three years from the improvement programs?

Yes, if you look at the improvement program its up 2015 prices we expect at least 500 million of which down 242 million now. And as we have shown in the presentation that if we use 2017 prices instead the volume effects are slightly less of those prices and also a little bit on energy.

So in 2017 pricess its 118 instead of 242 so that's a reduction of approximately about 25%. If that remains going forward you can roughly the same reduction also on the 500 in total, probably the reduction is slightly less than a fixed cost if we take a part of it.

We have this detail on volume and so on and calculate exactly price levels on it but I will say that its upto 80% of what we have indicated at 2017 prices. Having said that the current prices are higher than so we have already come up somewhat from 2017.

Then on your question on the growth projects where we show the setup saying that 2015 prices those are at about $600 million on EBITDA. If they are instead of 2015 prices or take the current price level then you could say the project was most influenced by that which you take profitability [indiscernible] project.

So if you compare that 2017 current prices with 2015 the biggest duration is on [indiscernible]. And we have heard that 2015 prices the project is up and running would have an EBITDA of roughly of about 100 million and that it will be closer to 25 million at the current prices.

So clearly current ammonia prices the profitability is not good at that project. So we also said that it's hard to see that current prices are sustainable in the longer term.

That's the biggest effect and we have so much effect also on the phosphate prices to be on lower one moves all the projects doesn't haven't anything to drop in profitability, there is more margin project. Actually one project which [indiscernible] 2015 and that is a [indiscernible] prices are compared to among other in 2015.

But all in all if the reduction in current prices compared with 2015 prices are roughly 25%. So from about 600 million to 450 million.

That's really helpful. My second question would be on Brazil.

Looks like there might be a lower [indiscernible] in your planting this year, lots of information out there that maybe consumption in Brazil the past year has been only flat to slightly up. Could you give me an idea where you think may be given an outlook for inventories and consumption on each nutrient phosphate in Brazil where we are?

Yes. So I'm you are correct they are very specific challenges as well but I will handle Torgeir to give more details on this.

The assessment there derived from other factors that the seasonal will be delayed in some provinces in Brazil and they are not ready to plan the second crop in those provinces so it looks like a ritual. We will drop the whole plan so we kind of expect when it will get [indiscernible] lower than a year ago when its actually very strong second crop.

I think that's great, its not particularly supported compared to other regions environment. I think its too detailed for us to comment on that.

If there are no more questions in the conference I understand but let us maybe give the participants if there are any follow-up questions.

I look at some of the [indiscernible] number four talks about trying to secure raw materials and you spell out phosphate rock and SOP, I don't think that's necessarily a new property looking what you have done in Brazil and the investments that you made IC potash and I think it's called potash I don't think you have really progressed the SOP projects for a long time. Maybe if you can give an update if you're willing to put money into Ethiopia finally you need a partner, what are the conditions to make that work or something better for SOP in the world you can look at?

Well as you correctly point out, there are no new products into that product, it's two products mainly it's one in [indiscernible] Brazil to secure phosphate supplies at an attractive prices locally in Brazil and then the other one is potash project in Ethiopia for SOP which is really driven by downstream strategy to secure recipe. We have been working on this for a number of years now and it's been important for us that we have the right framework in place before we make any final decision and that's taken some time but I would like to say that we had a very good dialogue with the Ethiopian authorities as well in order to facilitate this process I mean we did reach one milestone that was back in November when we signed the mining agreement and that is a large step forward in the realization of this just project to get that in place and I mean we do have partners on board in this now.

We enter into second phase and that is to develop the detailed mining plan and do the final [indiscernible] studies and secondly to also have the financing package in place. I mean I anticipate that we will use this year to get that in place before making any final decision to move ahead on this project.

Okay. You know we're seeing obviously the U.S.

market for nitrate is obviously lower now because the capacity additions, Chinese, your exports are falling they are quite low now maybe they'll be an importer or maybe not. So on the nitrate market you have a big exporter and a big importer that have sort of changed the dynamics changing.

How does that change, how Yara approaches its global nitrogen marketing sales program. Would Yara consider putting tons in Indian tenders?

Maybe talk about how the whole dynamic is changing how Yara has to play into that?

Let's start with the dynamics and it's extremely interesting times now with so many moving parts trade patterns are changing. So I'll hand over to Torgeir to more details on that as a first step here.

No, I think its true for the company urea market in particular and also some on retailed market like UAE and for instance there has been a large ships in trade flows in that U.S. market is shrinking as you say and those that used to serve that market have to look for other destinations and what you see now is expected what you're saying that they are excellent in taking market share in the various market from the Chinese basically and that the Chinese are forced out of many of the import market.

So you please see now in current market that's the strongest pricing in urea is in Asia where the market is actually quite high and that buyers in Asia also in South America have to look for product in outside the nation from Africa for raw materials that they haven't been used to buying from earlier because of that strong supply. So those ships but I don't think it does affect of that market - we are very deep player in the global trade of urea or these product.

So I think it's safe to say that just making changes to our crop nutrition or production strategy either to so you will not see us moving towards becoming a very active player, at the end up there's certainly we made a significant move into India now with our acquisition of Public Chemicals [ph] that gives a significant foothold in India and that is an interesting position by itself and then we're working in also on the crop nutrition side to build and that's what we're told to develop a premium product position as well. We're already present in India for some niche crops and where we have been able to show that we can create value for the farmers even upside the subsidy schemes because of the properties of our product and how it works under those crops but with a stronger foothold we will be able to build further on that going forward but that is really the key or one of the key reasons why we're moving into India with production assets there but not from a trade perspective that's not that would not be a core part of our business.

And finally you guys look to phase out or reduce [indiscernible] content in fertilizer overtime, how does that - how did it play out for yourself and competitors, how is that going to phase the phosphate industry, what do you have to do change your business to be compliant over the years?

I could say that if you look at the sources we have a phosphate mine [indiscernible] which is cadmium free for very, very long on the cadmium so that's a good sourcing and also from the other external sources. We are able to look at cadmium mix in the foreseeable future and so of course this has to be balanced what is needed and important and supply opportunities.

Yes, I mean that's [indiscernible] either and its basically various organizations in European union and diverse but there is a process going on and I mean it looks like the [indiscernible] the way it looks like and that's kind of I can get if you add it, I think it will that will be manageable for a lot of suppliers including ourselves so that won't be traded historically at 20 milligram limit.

Just couple of small ones really, if we can just give us an update on the prospective tax rate for the group. Secondly, you have got in your CapEx guidance over $5 billion of acquisition related cost.

So obviously you have the - acquisition for this year but what is the rest and the elimination or the substantial elimination of export tariffs on Chinese NPKs how do you see that affecting your business in 2018?

If I started tax stand, we had tax rate for 2017 in total of 17% that was [indiscernible] special items in the fourth quarter we have actually had tax income where we are able to eliminate earlier non-realized internal currency gains that cross borders and as such had to be booked for but its really denoted by a simplification of our holding structure and also some other one-off effect. So we had 17% there.

What we have used in the scenario so what we have seen the average rate earlier is 25% tax rate that should trend downwards with lower tax rate in many jurisdictions over the last year no latest by the reduction in U.S. which also was a reduction in the tax non-paid tax.

So overtime you could expect a reduction from 25% some percentage point down but for the time being you could say an expected tax rate to be roughly 25%. Then second question on the guidance, on the CapEx and you're referring to one of the slides in the capital markets day - expected CapEx for 2018 of 5.2 billion and that is constituting two acquisitions is the one in India which happened in January as you pointed to but the second one is the known acquisition of [indiscernible] which we will buy for $255 million so that's 5.2 million.

I think there are several elements, one element is that we have high value profile [indiscernible] targeting very high level high premium markets and a lot of indicate the capacity in China is all kinds of quality is basically so the question mark whether that will be attractive in those premium markets that we target but even more so I think they will be impacting industries in China I could buy raw materials [indiscernible] none of it is cheap urea. So we would use - among the highest around the world phosphate prices similarly they import potash and its ways to reduce it significantly.

So I have also seen views also from a consultants that question whether they are trying to use our competitive given the export markets kind of regardless and there is no sign so its now because people are seeing [indiscernible] and they are busy with domestic for that will be third quarter but I don't think we're particularly for our business.

All right. So there seems to not be any further questions and this time - but again we have been through quite a few questions earlier today as well.

So I think all of you for calling in and thanks for the questions and then I conclude this. Thank you.