New growth initiatives: Kemira GrowHow, Libya and Praxair JV. Yara has secured increased flexibility in European gas contracts

Transcription

1 2Q 2007 Yara International quarterly report 2007 Strong financial results Higher fertilizer prices Further market growth in Brazil Lower energy cost and reduced oil exposure New growth initiatives: Kemira GrowHow, Libya and Praxair JV Yara has secured increased flexibility in European gas contracts. 2Q 2007 Earnings per share NOK 4.85 EBITDA (NOK millions) Earnings per share (NOK) Debt/equity ratio 1,682 1,947 1,351 1,787 2, Q 06 3Q 06 4Q 06 1Q 07 2Q 07 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07

2 Second quarter 2007 Financial highlights Millions, except per share information and CROGI 2Q Q 2006 YTD 2007 YTD 2006 Revenue and other income NOK 13,775 12,200 27,269 23,935 Operating income NOK 1, ,393 1,682 Share net income non-consolidated investees NOK EBITDA NOK 2,222 1,682 4,009 3,173 EBITDA excl. special items NOK 2,243 1,688 4,061 3,230 Net income after minority interest NOK 1,422 1,041 2,507 1,894 Earnings per share 1) NOK Earnings per share excl. net foreign exchange gains/losses NOK Average number of shares outstanding (millions) CROGI (12-month rolling average) 15.0 % 13.0 % 1) Yara currently has no share-based compensation programs that result in a dilutive effect on earnings per share. Key statistics 2Q Q 2006 YTD 2007 YTD 2006 Sales Fertilizer kt 5,179 4,786 10,435 9,222 Industrial products (excl. industrial gases) kt ,471 1,390 Total kt 5,891 5,496 11,906 10,612 Production 1) Ammonia kt 1,438 1,388 2,846 2,688 Finished fertilizer and industrial products, excl. bulk blends kt 3,508 3,245 6,904 6,644 Total kt 4,946 4,633 9,750 9,332 1) Including share of Tringen, Qafco, Rossosh and Burrup. Yara s second-quarter net income after minority interest was NOK 1,422 million (NOK 4.85 per share), compared with NOK 1,041 million (NOK 3.42 per share) last year. Excluding net foreign exchange gains/losses, the result was 1,323 million (NOK 4.51 per share), compared with NOK 908 million (NOK 2.98 per share) in the second quarter Second-quarter operating income was NOK 1,329 million, compared with NOK 924 million last year. EBITDA was NOK 2,222 million, compared with NOK 1,682 million in the second quarter last year. A JV will also be established with Praxair to further develop our industrial gas business, said Thorleif Enger, President and Chief Executive Officer of Yara. Competition in the European natural gas market is increasing due to new supply and increased liquidity at trading hubs. Yara is taking advantage of this development and has secured increased flexibility in several European natural gas contracts, said Thorleif Enger. Special items reduced the result by NOK 0.05 per share. (See page 15 for details of non-recurring items and contract derivative effects.) Yara made good progress in the second quarter, delivering strong results and several new growth initiatives. We have taken steps to acquire Kemira GrowHow and establish an important JV in Libya. 2

3 Fertilizer and energy market prices Average prices 2Q Q 2006 YTD 2007 YTD 2006 Urea prilled (fob Black Sea) USD/tonne Ammonia (fob Black Sea) USD/tonne CAN (cif Germany) EUR/tonne CAN (cif Germany) USD/tonne Oil Brent blend spot USD/bbl Low-sulphur fuel oil (LSFO) USD/tonne US gas (Henry Hub) USD/MMBtu European gas (Zeebrugge) USD/MMBtu Fertilizer market conditions The tight global supply-demand balance for urea continued through the second quarter The fob Black Sea urea price was unchanged compared with the first quarter, and 28 % higher than in the same quarter last year. Demand continued to be supported by strong prices for grains and other agricultural commodities. Imports increased into the key importing countries India, the US and Brazil. The increase in import demand was met by additional export capacity from plants in Egypt and Saudi Arabia that have come on-stream since the second quarter last year, as well as additional Chinese export. In contrast to the strong demand-driven pricing for upgraded nitrogen fertilizer products, the ammonia market was weighed down by excess export supply. The fob Black Sea price declined from USD 280 per tonne at the start of the quarter to USD 235 per tonne at the end of the quarter. Based on current natural gas prices in Europe, including the Ukraine, ammonia prices at the end of the quarter were close to an estimated production cost for the weakest producers. Regional market developments Second-quarter total industry nitrogen fertilizer sales in Western Europe were down an estimated 7 % compared with last year. Imported volumes for the quarter were down 16 %, hence lost market share. For the season, total industry fertilizer sales were down 2 %. Adjusting for high stock levels throughout the supply chain at the start of the season, nitrogen fertilizer consumption is estimated to have increased slightly. As urea import was strong early in the season, the 2006/07 market share for imports was unchanged. North American nitrogen demand rebounded sharply from last season, due to increased prices for grains, corn in particular. Farmers shifted acreage primarily out of oilseeds into corn, positively affecting fertilizer consumption. Compared with the second quarter last year, higher nitrogen import was required to cover the increase in demand. The US imported 1.4 million tonnes urea during April and May, up from 0.8 million tonnes in the same period last year. India bought large quantities of urea in the second quarter. For the current Kharif season (April-September), million tonnes of urea were contracted, compared with 2 million tonnes in the same period last year. Attractive urea prices drew more Chinese urea into the global market. For the two first months of the quarter, net export was 442 kt urea, up from 81 kt last year. Increasing grain and soybean prices have boosted urea imports to Brazil. In April and May, Brazil imported 294 kt urea, up strongly from 105 kt in the same period last year. Year to date May, urea import stands at 944 kt, 119 % higher than last year, and 26 % higher than the record year The market for spot gas in Europe developed differently from North America, and also compared with the global oil market. The Zeebrugge spot price averaged USD 4.0 per MMBtu in the second quarter, compared to USD 7.0 per MMBtu in the same quarter last year, mainly due to the mild winter, but also due to increased LNG imports. Industrial market developments Global demand for minerals and coal, driven by Chinese and world economic growth, has had a positive effect on technical ammonium nitrate sales. Demand is expected to remain strong for the rest of the year. Industrial activity in Scandinavia has remained high due to strong economic growth, leading to good demand for industrial gases. Increased awareness and momentum on environment issues is increasing demand for industrial environmental solutions. Most new trucks produced in Europe now incorporate SCR technology for the reduction of NOx emissions, and other industry sectors such as cement and power have more stringent NOx emissions targets, boosting demand for NOx abatement products. The shipping industry is expected to follow a similar trend, which would further increase the overall NOx abatement market. 3

4 Variance analysis second quarter NOK millions USD 1) millions EBITDA , EBITDA , Variance EBITDA in NOK 541 Conversion (NOK vs. USD) 59 Variance EBITDA Volume & mix Price/Margin Energy arbitrage (262) (44) Energy cost in Europe Oil & gas products Electricity 23 4 Currency effect on net fixed cost 2) (31) (5) Special items (12) (2) Non-recurring items (4) (1) Contract derivatives (8) (1) Other (242) (40) Total variance explained ) Based on average NOK/USD rate for the quarter 2007: 6.01 (2006: 6.23). 2) Net fixed cost is derived from fixed cost in NOK and euro less NOK and euro related margins. Yara delivered strong second-quarter results due to higher fertilizer prices, lower energy costs and a strong Brazilian market. Fertilizer sales volumes increased 8 % compared with last year, mainly reflecting a favourable market development in Brazil, where secondquarter market deliveries were estimated to be up more than 60 %. European fertilizer deliveries were down compared with a strong second quarter last year, reflecting lower pre-season sales at the end of the quarter. Yara s market share in Western Europe was maintained. Sales of industrial gases and environmental products continued to grow. Higher prices, primarily for urea, but also for nitrates and NPK, had a positive impact on the second-quarter results. Increased margins for industrial products improved the results further. Oil and gas cost in Europe decreased more than previously estimated as several natural gas supply contracts were revised, increasing Yara s exposure to hub-priced gas. Natural gas hub prices were substantially lower than oil-linked product prices during the quarter. Electricity cost developed positively due to lower market prices throughout Europe. Energy arbitrage effects were NOK 262 million lower due to one-off gains last year related to European gas contracts. To take advantage of a favourable industrial gas market for Argon, a by-product of ammonia, the Brunsbüttel plant was stopped for repairs in order to restart Argon production. The impact was NOK 47 million. Yara non-recurring effects last year were a negative NOK 43 million. Qafco units 1-3 are in a tax position from 1 January As the results from non-consolidated investees are included in EBITDA on a net income basis, the Qafco tax effect was reflected in the Other variance. Increased freight cost following last year s ammonia fleet divestment added to the negative variance. In addition, fixed costs were up, mainly reflecting share-based compensation, annual performance bonuses and transition costs related to the change to IBM as global IT/ IS supplier. 4

5 Variance analysis first half NOK millions USD 1) millions EBITDA , EBITDA , Variance EBITDA in NOK 836 Conversion (NOK vs. USD) 159 Variance EBITDA Volume & mix Price/Margin Energy arbitrage (301) (50) Energy cost in Europe Oil & gas products Electricity 23 4 Currency effect on net fixed cost 2) (70) (12) Special items 6 1 Non-recurring items (3) (1) Contract derivatives 9 1 Other (444) (72) Total variance explained Stronger fertilizer prices, lower energy cost and increased deliveries, especially in Brazil, contributed to a strong first-half result. Fertilizer volumes increased 13 % compared with last year. Brazil accounted for more than half of the total growth both as a result of underlying market growth and the Fertibras acquisition. European fertilizer sales ended up 2 % for the first half. All main product prices, urea and NPK in particular, were significantly higher than last year, representing the main contribution to the strong result. Non-consolidated investees also benefited from higher urea and ammonia prices, delivering a strong improvement in results. Energy cost in Europe decreased as a result of lower LSFO prices in the first quarter and more hub-priced gas exposure in the second quarter. In addition to costs related to the Argon restart in Brunsbüttel, Yara took a first-half charge of NOK 24 million for redundancy and other restructuring costs in connection with the integration of Fertibras. Non-recurring effects last year were a negative NOK 68 million. The Other variance for the period reflected Qafco tax effects and increased ammonia freight cost. In addition, fixed costs were up, mainly reflecting share-based compensation, annual performance bonuses and additional re-insurance costs. 1) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Net fixed cost is derived from fixed cost in NOK and euro less NOK and euro related margins. 5

6 Financial items NOK millions 2Q Q 2006 YTD 2007 YTD 2006 Interest income from customers Interest income, other Dividends and net gain/(loss) on securities Interest income and other financial income Interest expense (98) (77) (198) (164) Return on pension plan assets Interest expense re. pension liabilities (85) (76) (170) (154) Foreign exchange gain/(loss) Other (22) (13) (38) (23) Interest expense and foreign exchange gain/(loss) (38) 70 Net financial income/(expense) Second-quarter net financial income was NOK 85 million, compared with NOK 152 million last year. Interest expense was higher than in the same quarter last year, due to an increase in the gross debt level of NOK 1.5 billion. The net foreign exchange gain, mainly due to the US dollar depreciating against the euro, the Norwegian krone and Yara s main emerging market currencies, was NOK 144 million this quarter, compared with NOK 192 million last year. During the quarter, the US dollar debt to hedge future earnings was kept at USD 650 million. Year-to-date net financial income was lower than last year, reflecting higher interest cost and lower foreign exchange gain. Tax Second-quarter provisions for current and deferred taxes were NOK 449 million, representing approximately 24 % of income before tax. The tax rate is 1 % lower than for second quarter 2006 (25 %). The main part of the variance is explained by less tax of Qafco net earnings due to local taxation of Qafco units 1-3 from 1 January Cash flow Strong earnings and Qafco dividends of NOK 323 million contributed to a second-quarter net cash flow from operating activities of NOK 1,488 million. The net operating capital decrease during the second quarter was limited to NOK 32 million, as a strong start to the season in Brazil almost offset the reduction in Europe where the season came to an end. First-half net cash from operating activities was NOK 1,757 million. Continued strong earnings and dividend payments from nonconsolidated investees of NOK 657 million, of which Qafco and Tringen represented NOK 543 million and NOK 90 million respectively, were the main contributors. At the end of the second quarter 2007, net operating capital was NOK 9,809 million, an increase of NOK 1,287 million from 31 December The increase was mainly driven by the positive market development in Brazil and higher product prices. Net operating capital turnover improved from the end of Net cash used in investing activities during the first half of 2007 was NOK 2,769 million, reflecting the acquisition of % ownership in Kemira GrowHow from the State of Finland and the purchase of the remaining shares outstanding in Fertibras, in addition to smaller market and production investments. Net cash used in investing activities was NOK 687 million in the first half of Yara s Annual General Meeting approved a dividend for 2006 of NOK 2.50 per share, giving a total dividend of NOK 739 million, payable in

7 Net interest-bearing debt NOK millions 2Q 2007 YTD 2007 Net interest-bearing debt at beginning of period (5,493) (5,350) Cash earnings 1) 1,326 2,509 Dividends received from non-consolidated investees Net operating capital change 32 (1,287) Investment Fertibras - (530) Investment Kemira GrowHow (1,696) (1,696) Other investments (net) (469) (529) Yara dividend (739) (739) Foreign exchange gain/(loss) Other (107) 82 Net interest-bearing debt at end of period (6,674) (6,674) 1) Operating income plus depreciation and amortization, minus tax paid, net gain on disposals, net interest expense and bank charges. As a supplement to the formal consolidated statements of cash flow (page 20), this table highlights the key factors behind the development in net interest-bearing debt. Net interest-bearing debt increased by NOK 1,324 million during the first half of 2007, ending at NOK 6,674 million. The increase reflects the investments in Kemira GrowHow shares and Fertibras, in addition to Yara dividend and higher net operating capital. The debt/equity ratio at the end of the second quarter 2007, calculated as net interest-bearing debt divided by shareholders equity plus minority interest, was 0.41 compared with 0.33 at the end of

8 Downstream 2Q Q 2006 YTD 2007 YTD 2006 Financial highlights Revenue and other income NOK millions 10,068 8,634 19,911 17,024 Operating income NOK millions , EBITDA NOK millions , EBITDA excl. special items NOK millions , CROGI (12-month rolling average) 11.9 % 9.2 % Net operating capital turnover 1) Sales by region Fertilizer Europe kt 2,352 2,511 5,220 5,100 Fertilizer outside Europe kt 2,827 2,275 5,215 4,123 Total kt 5,179 4,786 10,435 9,222 Sales by product group Nitrate kt 1,280 1,165 2,554 2,195 NPK kt 1,760 1,571 3,695 3,174 CN kt Urea kt ,898 1,933 UAN kt Other products kt , Total kt 5,179 4,786 10,435 9,222 1) Total external operating revenues last 12 months divided by average net external operating capital for the same period. Variance analysis second quarter Strong sales and earnings growth Brazil deliveries up more than 60 % Strong US margins NOK millions USD 1) millions USD/ tonne 2) EBITDA EBITDA Variance EBITDA in NOK 363 Conversion (NOK vs. USD) 16 Variance EBITDA Volume & mix Margin Margin excl. ammonia effect Ammonia effect on margin (5) (1) - Special items Other (35) (6) (1) Total variance explained ) Based on average NOK/USD rate for the quarter 2007: 6.01 (2006: 6.23). 2) Divided by 2007 fertilizer sales volume. 8

9 Variance analysis first half Downstream delivered a strong second-quarter result as both deliveries and margins improved significantly compared with last year. Yara delivered 5.2 million tonnes in the second quarter, up 8 % on the same quarter last year. The majority of the growth came in Brazil, where market deliveries in the second quarter were estimated to be more than 60 % higher than last year, explained by early purchases and a strong market for corn and soybeans. Deliveries to corn growers for the winter season in Brazil reached a historical high, fueled by strong demand for corn from the US ethanol industry. Despite lower sugar prices, prospects for the sugar cane sector are regarded as very positive, increasing fertilizer demand in Brazil. In Western Europe, deliveries continued strongly into April, but slowed down in May and June due to drought in Germany and lower pre-season sales in the United Kingdom and Germany. It is estimated that inventory levels throughout the supply chain were reduced during the season, explaining the estimated 2 % drop in deliveries in the season 2006/07. The substantial margin expansion realized in the first quarter continued into the second quarter. The higher margin levels reflect a demand-driven market, and a strong focus on price management combined with natural long positions, especially in North America and Latin America. In the US, margins recovered strongly compared with a difficult second quarter last year, with the main improvement in urea and UAN. In Latin America, the improvement was driven by strong demand and good product positions acquired ahead of the recent increase in phosphate prices. The strong growth, combined with low end-of-season inventories in Europe and the US, and a continuous focus on improvement led to a further increase in net operating capital turnover, up from 4.4 at the end of 2006, to 4.8 at the end of June (measured on a 12-month rolling basis). NOK millions USD 1) millions USD/ tonne 2) EBITDA , EBITDA Variance EBITDA in NOK 569 Conversion (NOK vs. USD) 50 Variance EBITDA Volume & mix Margin Margin excl. ammonia effect Ammonia effect on margin (33) (5) (1) Special items (20) (3) - Other (71) (12) (1) Total variance explained ) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Divided by 2007 fertilizer sales volume. Downstream delivered strong earnings in the first half of 2007 supported by a 13 % increase in sales volume and significantly improved margin levels. The main driver behind the growth was the strong Brazilian market and the acquisition of Fertibras in July The second half of the European fertilizer season was stronger than last year, supported by higher crop prices. Margins improved significantly reflecting higher prices for all main products and natural long positions in a market with increasing prices. The strong market recovery in the US, from a difficult first half of 2006, was also a major contributor to enhanced margins. The process to merge Fertibras into Yara Brazil, a listed company in São Paulo, was completed in June A charge of NOK 24 million was taken in the first quarter to cover all redundancy and other restructuring costs related to the merging of activities. 9

10 Industrial 2Q Q 2006 YTD 2007 YTD 2006 Financial highlights Revenue and other income NOK millions 1,845 1,557 3,679 3,013 Operating income NOK millions EBITDA NOK millions EBITDA excl. special items NOK millions CROGI (12-month rolling average) 15.0 % 13.9 % Sales by product group (excl. industrial gases) Environmental products kt Industrial N-chemicals (incl. TAN) kt ,079 1,060 Total kt ,471 1,390 Variance analysis second quarter Continued strong results Solid volume growth for environmental products and industrial gases Margin improvement for all product groups NOK millions USD 1) millions EBITDA EBITDA Variance EBITDA in NOK 40 Conversion (NOK vs. USD) 7 Variance EBITDA 47 8 Volume & mix 28 5 Margin 40 7 Margin excl ammonia effect 39 6 Ammonia effect on margin 1 - Special items (6) (1) Non-recurring items (11) (2) Contract derivatives 5 1 Other (16) (3) Total variance explained ) Based on average NOK/USD rate for the quarter 2007: 6.01 (2006: 6.23). 10

11 Variance analysis first half Industrial delivered a strong second quarter with continued volume and margin growth. A one-off charge of NOK 47 million was booked to restart Argon production in Brunsbüttel, taking advantage of a tightening Argon market. The industrial gas businesses delivered a strong quarter. The results were primarily driven by continued growth in sales of CO 2 and revenue growth from end-user sales of cylinder gases in Scandinavia. Environmental products saw growth of 25 % compared with the second quarter last year. Sales of NOx abatement applications to the transport industry and power stations were up 50 % compared with the same quarter last year while sales of water treatment applications were up 17 %. A demand-driven explosives market has ensured a strong quarter for the technical ammonium nitrate business. Volumes were up 5 % on last year primarily driven by growth in the Central European markets. Production disruptions at customer sites in the beginning of the quarter had a negative impact on volumes for the N-chemicals business. Contract derivatives represent effects on industrial urea and ammonia sales contracts with price links to LSFO. Urea and ammonia prices decreased relative to LSFO during the quarter, resulting in a NOK 32 million gain on contract derivatives. Fixed costs increased compared with last year following higher commercial activities in industrial gases and environmental chemicals. The announced JV with Praxair Inc. is expected to be established during the fourth quarter NOK millions USD 1) millions EBITDA EBITDA Variance EBITDA in NOK 48 Conversion (NOK vs. USD) 18 Variance EBITDA Volume & mix Margin 32 5 Margin excl ammonia effect 30 5 Ammonia effect on margin 2 - Special items (5) (1) Non-recurring items (11) (2) Contract derivatives 6 1 Other (45) (7) Total variance explained ) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. Despite the non-recurring cost in Brunsbüttel, the overall Industrial results were up NOK 48 million on a year to date basis. Favourable market conditions have given a record half-year for the technical ammonium nitrate business with double-digit volume growth in all markets. Increased focus on end-user sales in the industrial gas business has also proved to be successful with revenues above last year. Demand for Yara s environmental products has been strong throughout the period with volumes up more than 30 %. 11

12 Upstream 2Q Q 2006 YTD 2007 YTD 2006 Financial highlights Revenue and other income NOK millions 5,410 5,605 11,174 11,328 Operating income NOK millions , Share net income non-consolidated investees NOK millions EBITDA NOK millions 1, ,113 1,723 EBITDA excl. special items NOK millions 1, ,118 1,757 CROGI (12-month rolling average) 15.2 % 14.9 % Oil & gas cost (weighted average) 1) USD/MMBtu Production 1) Ammonia kt 1,384 1,329 2,742 2,567 Finished fertilizer kt 2,053 1,983 4,052 3,993 Total kt 3,437 3,312 6,794 6,560 1) Including share of Tringen, Qafco, Rossosh and Burrup. Variance analysis second quarter Strong results driven by higher urea prices Lower energy cost Production up 4 % NOK millions USD 1) millions USD/ tonne 2) EBITDA , EBITDA Variance EBITDA in NOK 275 Conversion (NOK vs. USD) 30 Variance EBITDA Volume & mix Price/Margin Energy arbitrage (262) (44) (13) Energy cost in Europe Oil & gas products Electricity Special items (13) (2) (1) Non-recurring items Contract derivatives (13) (2) (1) Other (161) (27) (8) Total variance explained ) Based on average NOK/USD rate for the quarter 2007: 6.01 (2006: 6.23). 2) Divided by 2007 ammonia and finished fertilizer production. 12

13 Variance analysis first half Upstream delivered a strong second-quarter result as global urea prices increased strongly, while oil and gas costs were down. All product prices increased compared with last year with urea prices giving the highest contribution. Net income from non-consolidated investees developed positively from second quarter last year, despite Qafco units 1-3 being in a tax position from 1 January The underlying improvement primarily reflects stronger international urea prices and Caribbean ammonia prices together with contribution from the Burrup plant in Australia, which was only partly in operation second quarter Following the revision of several natural gas supply contracts, Yara s average European contract exposure has changed, with increased exposure to hub-priced gas resulting in NOK 80 million lower cost in the quarter. European oil and gas costs were USD 6.6 per MMBtu, down USD 1.2 from last year. Electricity cost developed positively due to lower market prices throughout Europe. Both ammonia and finished fertilizer production increased 4 % from second quarter 2006, reflecting strong production performance in all plants. Last year, Yara had a stop in the ammonia plant in Porsgrunn and the Burrup plant was only partly in production. Energy arbitrage effects were NOK 262 million lower due to one-off gains last year related to European gas contracts. Other items primarily reflect Qafco units 1-3 tax effects, higher freight rates following the ammonia fleet divestment and slightly higher maintenance costs. NOK millions USD 1) millions USD/ tonne 2) EBITDA , EBITDA , Variance EBITDA in NOK 390 Conversion (NOK vs. USD) 85 Variance EBITDA Volume & mix Price/Margin Energy arbitrage (301) (50) (7) Energy cost in Europe Oil & gas products Electricity Special items Non-recurring items Contract derivatives Other (317) (52) (8) Total variance explained ) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Divided by 2007 ammonia and finished fertilizer production. Upstream delivered a strong first-half result as global urea prices increased strongly and oil and gas costs decreased. Realized urea prices for European plants were significantly higher than last year, together with a smaller increase for other products. Net income from non-consolidated investees was up from last year, primarily reflecting stronger international urea prices and sales from the Burrup plant in Australia. Oil and gas costs were down primarily due to lower LSFO prices in the first quarter and higher exposure to hub-priced gas in the second quarter. All plants showed good production performance in the first half year. Yara re-opened its Le Havre facility in March, and volumes from the Burrup plant boosted ammonia production further. Other items primarily reflect Qafco units 1-3 tax effects, higher freight rates following the ammonia fleet divestment and increased fixed costs. 13

14 Other and eliminations Other and eliminations consists mainly of Yara headquarters costs and cross-segment eliminations. Profits on sales from Upstream to Downstream and Industrial are not recognized in the consolidated Yara income statement before the products are sold to external customers. These internal profits are eliminated in the Other and Eliminations segment. Outlook The US Department of Agriculture forecasts a further drop in global grain stocks by the end of the 2007/2008 season, from an already low current level. A strong increase in grain production is not expected to fully compensate for accelerating demand growth and previous production shortfalls. Even though some prices have softened recently due to expectations of an increased harvest, grain prices in general remain at historical high levels supporting strong farm profitability and fertilizer demand. The start of the new fertilizer season in Europe and North America is supported by lower fertilizer inventories than last year throughout the supply chain. The new fertilizer season in Europe has started with euro nitrate prices in line with last year. As urea prices are substantially higher than last year, the lower nitrate premium over urea improves nitrate competitiveness. Fertilizer deliveries in Brazil reflect a strong recovery in the Brazilian agro industry. Part of the increase represents earlier purchasing, so delivery growth may slow down in the second half of the year. Second-quarter EBITDA was a positive NOK 12 million, compared with a positive NOK 149 million last year (see page 26). The negative variance primarily reflected higher positive elimination effects last year and increased share-based compensation costs this year. First-half EBITDA was a negative NOK 11 million, compared with a positive NOK 160 million last year. The negative variance reflected the same items as for second quarter and additional re-insurance cost. The fundamentals are in place for a continued increase in Indian fertilizer import, with growing domestic demand and stable domestic production capacity. The monsoon has started well, and fertilizer consumption should not be hindered by adverse weather. Chinese urea exports have remained strong during the first half of the year, even with a 30 % export tax. Continued growth in Chinese production limits price increases in demand-driven periods, and could represent a medium-term risk if global demand growth weakens. Start-ups of new urea capacity in the next few years are expected to be further delayed. New projects have been included in estimates from 2010, but construction costs and lead times have continued to increase. This could also affect the Qafco-5 project. Yara s expected third-quarter energy costs in Europe are in line with last year. Based on the current forward market for oil products and natural gas (July 6), Yara s energy costs for fourth quarter 2007 are expected to be approximately NOK 250 million higher than last year. The estimate for the fourth quarter may change considerably depending on future energy prices. At this time, Yara has hedged about 80 % of its thirdquarter hub gas exposure, and about 25 % of its fourth quarter hub gas exposure. The Board of Directors of Yara International ASA Oslo, 16 July

15 Business and financial information The fertilizer season in Western Europe referred to in this discussion starts 1 July and ends 30 June. Yara s business is strongly linked to the US dollar, both with regard to the purchase of energy and raw materials and prices of finished products. The variance analyses are therefore developed in US dollars, as management considers this to provide a better understanding of underlying business performance. Currency effect on net fixed cost as given in the variance analysis reflects the effect of US dollar changes on net fixed cost in euro and Norwegian krone. Yara s competitive position versus US producers is negatively impacted when the US dollar depreciates against the euro and Norwegian krone. Several of Yara s purchase and sales contracts for commodities are, or have embedded terms and conditions which under IFRS are, accounted for as derivatives. The derivative elements of these contracts are presented under Commodity-based derivatives gain/(loss) in the income statement. In the management discussion and analysis these effects are divided into energy arbitrage and contract derivatives. The former represents effects from Yara s major energy-related contracts and energy arbitrage activities, while the latter comprises effects related to commercial sales and purchase contracts. Special items EBITDA effect (NOK millions) 2Q Q 2006 YTD 2007 YTD 2006 Brazil restructuring - - (24) - Köping restructuring - (4) - (4) Downstream - (4) (24) (4) Köping restructuring - (38) - (38) Startup Argon plant (47) - (47) - Contract derivatives Industrial (16) (10) (22) (19) Le Havre costs (25) Contract derivatives (5) 8 (5) (9) Upstream (5) 8 (5) (34) Other and Eliminations Total (21) (7) (52) (57) * Special items in NOK using monthly accounting exchange rates for the respective periods. Translation differences compared with variance analysis may occur. 15

16 Condensed consolidated interim income statement NOK millions, except share information Notes 2Q Q 2006 YTD 2007 YTD Revenue 13,699 11,838 27,201 23,537 46,969 Other income ,154 Commodity based derivatives gain/(loss) Revenue and other income 3 13,775 12,200 27,269 23,935 48,261 Raw materials, energy costs and freight expenses 5 (10,761) (9,350) (21,074) (19,106) (38,749) Change in inventories of own production 40 (391) (429) (125) 148 Payroll and related costs 6 (944) (814) (1,887) (1,626) (3,389) Depreciation and amortization 3 (349) (367) (672) (700) (1,373) Other operating expenses (432) (354) (814) (696) (1,546) Operating costs and expenses (12,446) (11,276) (24,876) (22,253) (44,909) Operating income 3 1, ,393 1,682 3,352 Share of net income in equity accounted investees ,463 Interest income and other financial income Earnings before interest expense and tax (EBIT) 1,870 1,313 3,331 2,470 5,092 Foreign exchange gain/(loss) Interest expense and other financial items (125) (101) (246) (211) (471) Income before tax and minority interest 1,889 1,405 3,292 2,540 5,043 Income tax expense (449) (351) (765) (629) (833) Net income 1,440 1,053 2,528 1,910 4,210 Minority interest (18) (12) (21) (16) (22) Net income after minority interest 1,422 1,041 2,507 1,894 4,188 Earnings per share 1) Weighted average number of shares outstanding 2) 293,385, ,688, ,536, ,229, ,071,267 1) Yara currently has no share-based compensation that results in a dilutive effect on earnings per share. 2) Weighted average number of shares outstanding was reduced in first and second quarter 2006, and second quarter 2007, due to the share buy-back program. 16

17 Condensed consolidated interim statement of recognized income and expense NOK millions 2Q Q 2006 YTD 2007 YTD Exchange differences on translation of foreign operations (229) (353) (572) (557) (137) Actuarial gain/(loss) on defined benefit pension plans Available for sale investments - change in fair value Hedge of net investments (2) Tax on items taken directly to equity (16) (1) (27) (1) (35) Net income recognized directly to equity (95) (351) (378) (555) 35 Transfers: Cash flow hedges (2) Tax on items transferred from equity (1) (2) (1) (3) 1 Net income 1,441 1,053 2,528 1,910 4,210 Total recognized income and expense for the period 1, ,153 1,362 4,244 Attributable to: Shareholders of the parent 1, ,128 1,348 4,216 Minority interest Total 1, ,153 1,362 4,244 17

18 Condensed consolidated interim balance sheet NOK millions Notes Assets Non-current assets Deferred tax assets 1 1,009 1,323 1,175 Intangible assets Property, plant and equipment 1,5 7,520 7,435 7,600 Equity accounted investees 3,4 7,474 4,053 6,019 Other non-current assets 1, ,393 Total non-current assets 17,896 13,640 16,765 Current assets Inventories 6,886 5,806 6,689 Trade receivables 7,215 7,133 6,834 Prepaid expenses and other current assets 1 1,746 2,009 1,974 Other liquid assets Cash and cash equivalents ,003 Total current assets 16,778 15,714 16,499 Total assets 34,674 29,354 33,263 18

19 NOK millions, except for number of shares Notes Equity and liabilities Equity Share capital reduced for treasury stock Premium paid-in capital 1,092 2,948 2,183 Total paid-in capital 1,588 3,463 2,686 Retained earnings 14,542 9,802 12,773 Total equity attributable to shareholders of the parent 16,130 13,264 15,459 Minority shareholders' interest in consolidated subsidiaries Total equity 2 16,218 13,340 16,034 Non-current liabilities Employee benefits 1 2,032 2,156 2,192 Deferred tax liabilities 1 1,269 1,112 1,238 Other long-term liabilities Long-term provisions Long-term interest bearing debt 5,920 3,345 4,732 Total non-current liabilities 9,903 7,056 8,773 Current liabilities Trade and other payables 5,486 5,262 5,915 Current tax liabilities Short-term provisions Other short-term liabilities , Bank loans and other interest-bearing short-term debt 1,658 1,925 1,575 Current portion of long-term debt Total current liabilities 8,553 8,958 8,457 Total equity and liabilities 34,674 29,354 33,263 Total number of shares outstanding 1) 2 291,570, ,588, ,699,984 1) Number of shares outstanding was reduced in first and second quarter 2006, and second quarter 2007, due to the share buy-back program. The Board of Directors of Yara International ASA Oslo, 16 July

20 Condensed consolidated interim statement of cash flow NOK millions Notes YTD 2007 YTD Operating activities Operating income 3 2,393 1,682 3,352 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization ,373 Tax paid (408) (274) (720) Dividend from non-consolidated investees ,019 Change in net operating capital 1) (1,287) (111) 349 Other (270) (688) (1,519) Net cash from operating activities 1,757 1,927 3,854 Investing activities Purchases of property, plant and equipment 3 (746) (762) (1,870) Purchases of other long-term investments 3,4 (2,273) (103) (1,615) Net sales/(purchases) of short-term investments Proceeds from sales of property, plant and equipment Proceeds from sales of other long-term investments ,543 Net cash used in investing activities (2,769) (687) (1,759) Financing activities Loan proceeds/(repayments), net 1,606 (809) (340) Purchase of treasury shares 2 - (133) (809) Redeemed shares Norwegian State (444) Dividend 2 (704) (675) (722) Net cash transfers (to)/from minority interest (1) (3) (3) Net cash used in financing activities 900 (1,621) (2,317) Foreign currency effects on cash flows Net increase (decrease) in cash and cash equivalents (71) (353) (105) Cash and cash equivalents at beginning of period 1,003 1,108 1,108 Cash and cash equivalents at end of period ,003 Bank deposits not available for the use of other group companies ) Operating capital consists of trade receivable, inventories and trade payable. 20

21 Notes to the condensed consolidated interim financial statements General and accounting policies Yara (the Group) consists of Yara International ASA (the Company) and its subsidiaries. Yara International ASA is a limited company incorporated in Norway. The condensed consolidated interim financial statements consist of the Group and the Group s interests in non-consolidated investees and joint ventures. The consolidated financial statements of the Group as at and for the year ended 31 December 2006 are available upon request from the Company s registered office at Bygdøy allè 2, Oslo, Norway or at These condensed consolidated interim financial statements have been prepared in accordance with rules and regulations of Oslo Stock Exchange and International Financial Reporting Standard (IFRS) IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual consolidated financial statements, and should be read in conjunction with consolidated financial statements of the Group as at and for the year ended 31 December These condensed consolidated interim financial statements are unaudited. As a result of rounding differences, numbers or percentages may not add up to the total. The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December Note 1 Judgements, estimates and assumptions The preparation of condensed consolidated interim financial statements in accordance with IFRS and applying the chosen accounting policies requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the period ended 31 December

22 Note 2 Consolidated shareholders equity Related to the share buy-back programs in approved 2006 and 2007, Yara has not purchased any shares in the market in the second-quarter or the first-half of Ordinary shares Own shares 1) Balance at 31 December ,737,356 (6,500,800) Redeemed shares Norwegian State 2) (4,257,712) - Shares cancelled 2) (7,500,200) 7,500,200 Treasury shares - (8,278,860) Balance at 31 December ,979,444 (7,279,460) Redeemed shares Norwegian State 3) (4,129,587) - Shares cancelled 3) (7,274,500) 7,274,500 Treasury shares 4) Balance at 30 June ,575,357 (4,816) 1) Including employee trust. 2) As approved by Extraordinary General Meeting 16 October ) As approved by General Meeting 10 May ) Adjustment of shares held by employee trust. 22

23 Reconciliation of equity NOK millions Share capital 1) Premium paid-in capital Hedging, fair value, translation and actuarial reserves 2) Other retained earnings 2) Total retained earnings Attributable to shareholders of the parent Minority interests Total equity Balance at 31 December ,389 (329) 9,634 9,306 13, ,296 Net income ,188 4,188 4, ,210 Net income recognized directly to equity Cash flow hedges - - (1) - (1) (1) - (1) Total recognized income and expense ,188 4,216 4, ,244 Companies purchased/sold Treasury shares (1) - - (26) (26) (27) - (27) Redeemed treasury shares 3) (13) (769) (782) - (782) Redeemed shares Norwegian State 3) (7) (437) (444) - (444) Dividend's distributed (722) (722) (722) (16) (738) Balance 31 December ,183 (301) 13,073 12,773 15, ,034 Net income ,507 2,507 2, ,528 Net income recognized directly to equity - - (382) - (382) (382) 3 (378) Cash flow hedges Total recognized income and expense - - (378) 2,507 2,128 2, ,153 Companies purchased/sold 4) (316) (316) (316) (498) (814) Redeemed treasury shares 5) - (696) Redeemed shares Norwegian State 5) (7) (395) (402) - (402) Dividend's distributed (739) (739) (739) (12) (752) Balance 30 June ,092 (679) 15,220 14,542 16, ,218 1) Par value ) Included in retained earnings. 3) As approved by extraordinary General Meeting 16 October ) Related to Fertibras, see note 4. 5) As approved by General Meeting 10 May

24 Reconciliation equity year-to-date 2006 NOK millions Share capital 1) Premium paid-in capital Hedging, fair value, translation and actuarial reserves 2) Other retained earnings 2) Total retained earnings Attributable to shareholders of the parent Minority interests Total equity Balance at 31 December ,389 (329) 9,634 9,305 13, ,296 Net income ,894 1,894 1, ,910 Net income recognized directly to equity - - (553) - (553) (553) (2) (555) Cash flow hedges Recognized income and expense (545) 1,894 1,349 1, ,363 Treasury shares (2) - - (131) (131) (133) - (133) Redeemed shares Norwegian State (7) (441) (448) - (448) Dividends distributed (722) (722) (722) (15) (737) Balance at 30 June ,948 (874) 10,675 9,802 13, ,340 1) Par value ) Included in retained earnings. 24

25 Note 3 Operating segment information The operating segments presented Downstream, Industrial and Upstream are the key components of Yara s business. These are evaluated on a regular basis by Yara s senior management on the basis of financial and operational information prepared specifically for each segment for the purpose of assessing performance and allocating resources. The information disclosed is on the same basis as presented internally and used for follow-up of Yara s development by Yara Management. NOK millions 2Q Q 2006 YTD 2007 YTD External revenue and other income Downstream 9,837 8,310 19,356 16,384 33,135 Industrial 1,814 1,526 3,639 2,977 6,070 Upstream 1,972 2,319 4,098 4,490 8,875 Other and eliminations Total 13,775 12,200 27,269 23,935 48,261 Internal revenue and other income Downstream ,154 Industrial Upstream 3,437 3,286 7,076 6,839 13,248 Other and eliminations (3,700) (3,641) (7,671) (7,514) (14,450) Total Revenue and other income Downstream 10,068 8,634 19,911 17,024 34,289 Industrial 1,845 1,557 3,679 3,013 6,118 Upstream 5,410 5,605 11,174 11,328 22,124 Other and eliminations (3,548) (3,596) (7,496) (7,430) (14,270) Total 13,775 12,200 27,269 23,935 48,261 25

26 NOK millions 2Q Q 2006 YTD 2007 YTD Depreciation and amortization Downstream (122) (143) (218) (250) (485) Industrial (43) (45) (91) (91) (189) Upstream (181) (176) (357) (354) (687) Other and eliminations (3) (3) (6) (6) (12) Total (349) (367) (672) (700) (1,373) Operating income Downstream , ,107 Industrial Upstream , ,552 Other and eliminations (32) Total 1, ,393 1,682 3,352 EBITDA Downstream , ,960 Industrial Upstream 1, ,113 1,723 3,563 Other and eliminations (11) Total 2,222 1,682 4,009 3,173 6,472 Investments Downstream ,659 Industrial Upstream ,358 Other and eliminations 1) 1,706 (67) 1,706 (62) 93 Total 2, , ,443 1) Includes Kemira GrowHow investment in second quarter 2007, which has not been allocated to specific segments. See note 4. 26

27 Note 4 Acquisitions and disposals Acquisitions In January, Yara acquired the remaining minority interest of % of the non-voting shares in Fertibras for NOK 530 million. The difference between the cost of the additional interest in Fertibras and the minority s interest s share of the assets and liabilities reflected in the consolidated balance sheet at the date of acquisition of the minority interest is reflected partly as an adjustment to goodwill (measured using IFRS 3 principles) and partly as an equity transaction. Due to the significant increase in the value of Fertibras investment in Fosfertil up to the date of acquisition of the minority interest this has resulted in reduced goodwill of NOK 286 million and an amount recognized in equity of NOK 316 million. The allocation of the purchase price in connection with the acquisition of the controlling interest has been determined provisionally, with some adjustments in second quarter 2007 and will be finalized in third quarter In April, Yara signed a Heads of Agreement with the National Oil Corporation (NOC) of Libya with the intention to establish a joint venture for production and marketing of mineral fertilizer. The planned joint venture will be owned 50% by each partner and will comprise the ammonia and urea plants located in Marsa el Brega in Libya, presently owned by NOC. The intention is to finalize the negotiations and to establish the new company by the end of In April, Yara signed a Heads of Agreement with Kribhco of India with the intention to establish a joint venture for production and marketing of mineral fertilizer. The partners will each own 50% of the planned joint venture. The joint venture s objective is to establish an Indian production base by acquiring existing production facilities, combined with import. In May, Yara acquired percent of all shares and votes in Kemira GrowHow Oyj from the State of Finland. The purchase price paid for the shares is EUR per share. As a result of the acquisition, Yara have launched a mandatory tender offer in July for the remaining shares in the company at the same price of EUR per share in accordance with the Finnish Securities Markets Act. During first quarter of 2007 net sales were EUR 350 million and operating profit EUR 21.4 million. No results from aquisition date to end June has been included. Disposals In May, Yara International ASA and Praxair Inc., the world s third largest industrial gases company, signed a Heads of Agreement with the intention of establishing a joint venture to further enhance development opportunities for Yara s industrial gases business. The planned joint venture would be owned 50% by each partner and comprise Yara s existing industrial gases business located in Norway, Denmark and Sweden. The intention is to establish a new company, with completion of the transaction subject to certain conditions and obtaining regulatory approvals expected to be in fourth-quarter The agreement would result in a one-time net income for Yara of more than NOK 700 million. In 2006, Yara s existing industrial gases business had sales of NOK 940 million. Note 5 Property, plant and equipment In January 2007, Yara agreed a new gas contract for the LeHavre plant in France. In March, Yara re-started the production of ammonia at the plant. Note 6 Provisions As part of the restructuring of business in Brazil subsequent to the acquisition of Fertibras a provision of NOK 24 million was recognized in the first quarter