Yara Capital Markets Day

1

Yara Capital Markets Day

November 19, 2004

2

Yara CMD 2004, page 2

Agenda

z Facts replacing myths

z Fertilizer market and competitive climate z Yara business model and strategy

z Financial performance and approach z Business segments

z Outlook and key messages

Yaras Capital Markets Day is the annual strategic update for Yaras investors and analysts. President and CEO Thorleif Enger will present the first two parts, while COO Daniel Clauw and CFO Hallgeir Storvik follow with the next two. Details and Q&A on each business segment are then dealt with by each of the segment presidents before a CEO summary. This presentation with speaker notes can also be found on www.yara.com.

http:www.yara.com

3


Myths about the fertilizer industry are gradually being replaced by facts

Balanced supply and demand Improved situation European performance

Leading player Competitive returns for best players Fertilizer industry attractiveness

Leading position Position important, not product Nitrogen attractiveness

Cyclicality reduced Similar to other commodities Fertilizer cyclicality

Yara today Industry facts Concerns

During the late 1990s several fertilizer companies, including Yara, delivered meagre results. The true causes of this were largely related to industry overcapacity, low productivity and too high overhead costs. Although it is now five years since the 90s, myths related to the past are still sometimes encountered. When dealing with them, it is useful to take a look at some facts.

4


7.0

9.6

10.5

10.8

11.2

12.2

12.8

14.5

14.9

18.6

15.6

0 5 10 15 20

Mosaic****

Kemira GrowHow

Dow

DuPont

PCS

K+S

Air Products

BASF

Agrium

Yara**

Syngenta***

7.5

9.1

10.2

10.2

11.1

12.6

13.7

15.2

16.2

17.4

17.4

0 5 10 15 20

IMC

PCS

DuPont

Dow

Syngenta

Kemira

K+S

Air Products

BASF

Agrium

Yara**

7.3

8.2

9.6

9.8

11.0

12.0

12.7

14.4

15.2

17.3

16.4

0 5 10 15 20

Dow

PCS

IMC

Agrium

Syngenta

Kemira

DuPont

K+S

BASF

Yara**

Air Products

Fertilizer industry attractiveness Yara with leading profitability Gross return on assets*

2002

Percent

2003

* Gross return on assets defined as EBITDA (excluding non recurring items) divided by Total assets (book value) ** Yara pro forma numbers *** 1H EBITDA multiplied by 1.5 as Syngenta does not report 3Q **** Mosaic from June 1, 2003 to May 31, 2004, pro forma

YTD 3Q 2004

Sourc e: Company reports

Yaras primary financial goal is to deliver a good return on capital to its shareholders. Since year 2000 Yara has benchmarked its Gross return on assets against a defined group of chemical peers, including both leading fertilizer companies and other chemical companies. From the comparisons one can see that there is no systematic difference between fertilizer and other chemical companies, and there is also no systematic difference between nitrogen fertilizer companies and potash/phosphate fertilizer companies, although both nitrogen-focused Yara and Agrium have performed well during the period. The implication is also that position within the industry is more important than the characteristics of the industry per se. Yaras goal since 2000 is to be in the top quartile of the defined peer group in terms of Gross return on assets. While Yara in 2000 was in the middle of the group, this target has since then been achieved every year.

5


Nitrogen attractiveness Yara has demonstrated favorable earnings development

Note:EBITDA excludes non-recurring items, both Yara and Mos aic are pro forma numbers * Mosaic for 2001-2003 is IMC Global only

172 212

396 481 455

386 418

657

242

72 101 85

264 348

274

491 478 478

832

664

0

100

200

300

400

500

600

700

800

900

2001 2002 2003 L12M

Terra Agrium Mosaic* PCS Yara

EBITDA (USD million)

Source: Company reports

As the fertilizer industry is essentially a US dollar business (both the majority of revenues and costs are in US dollars), company comparisons should be made in US dollars. During the last four years, Yaras EBITDA in US dollars has grown considerably, both due to improved underlying performance and improved market prices.

6


311

115

-21

-126

64

-200 0 200 400

Yara

Mosaic

K+S

Agrium

PCS

USD million

5.4

4.5

2.5

2.5

2.5

0 2 4 6

Yara

Mosaic

K+S

Agrium

PCS

USD billion

3.5

6.1

1.8

2.2

7.9

0 5 10

Yara

Mosaic

K+S

Agrium

PCS

USD billion

Market cap. Nov 11, 2004

Nitrogen attractiveness Yara with leading financial performance

2003 revenues*

Sourc e: Company web pages

* Revenues include fertilizer-related products used for industrial purposes, converted to USD at 2003 average currency rates. Yara and Mos aic are pro forma numbers

2003 net income*

Yara is the global market leader in fertilizers measured by revenues, EBITDA (see previous page) and net income. Mosaic is the newly formed US company resulting from the merger f Cargill Fertilizer and IMC Global while K+S is the second largest European fertilizer company. Agrium and PCS are Canadian companies focusing on nitrogen and potash respectively.

7


Listing of Yara has enabled improved market communication Share price development from IPO to November 15, 2004

Strong performance of Yara share since listing Good long-term shareholder return by leading fertilizer companies

Since the listing of Yara on 25 March this year, the financial market has improved its appreciation of the company giving approximately a 70% increase in the share price since the IPO price of NOK 41. The increase is believed to be both due to an improved understanding of Yaras business model and an improved industry outlook as is also reflected in the share prices of peers Agrium and PCS.

8

Y a r a C M D 2004, p a g e 8

European performance Balanced supply and demand

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

kt n

i t r o

g en

0

10 00

20 00

30 00

40 00

50 00

60 00

70 00

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

kt n

i t r o

g en

NPK 23%

Urea 15%

Nitrates (AN/CAN)

40%

Other 22%

Yara 24%

Other Western Europe

50%

Imports 26%

Capacity

Source: EFMA, Yara

Consumption

Nitrates the preferred fertilizer (2003) Yara the leading player (2003)

Net N imports to West Europe stabilizing and acceptable nitrate market balance

During the 1990s, there was overcapacity in the European fertilizer industry, imports increased, especially from FSU, and consumption declined. Since 1999 several plant closures have taken place, most recently in 2003 (IFI in Ireland) and in 2004 (Kemira in Denmark). Despite a reduction in consumption, the supply-demand balance is therefore acceptable. Consequently, the European market is attractive despite the lack of growth. Going forward, a long-term decline in consumption of approximately 1% per year is expected. However, as several of the competitions fertilizer factories are old, further plant closures are also expected. As the leader in the European fertilizer industry, Yara believes in solid profitability for those who can demonstrate sustained productivity improvements, economies of scale and innovation with limited use of capital. While no new production capacity is expected in Europe (due to higher gas cost than in the Middle East), the existing European plants can still be profitable. New fertilizer plants in the Middle East require solid fertilizer prices to be able to cover the high capital cost associated with building new fertilizer capacity, and to cover the higher logistics cost for producers in the Middle East.

9


Fertilizer cyclicality similar to oil

Average prices 1994 - 2003

Source: International publications, CERA

High/Low = 2.67

High/Low = 2.25

High/Low = 1.94

Ammonia fob Carribean (USD/t)

167 197 185

160

117 91

148 137 110

203

0

50

100

150

200

250

94 95 96 97 98 99 00 01 02 03

Urea prilled fob Arabian Gulf (USD/t)

139

211 197

136

93 79 110 109 109

148

0

50

100

150

200

250

94 95 96 97 98 99 00 01 02 03

CAN cif Germany (USD/t)

115

167 163

124 110

86 103

119 111 140

0

50

100

150

200

94 95 96 97 98 99 00 01 02 03

Oil Brent blend (USD/bbl)

15.8 17.0 20.7 19.1

12.6

17.8

28.4 24.4 24.8

28.4

0 5

10 15 20 25 30

94 95 96 97 98 99 00 01 02 03

High/Low = 2.23

Fertilizer prices are cyclical just like any other commodity. The cyclicality is primarily caused by the lumpiness in supply additions resulting in periods of overcapacity and undercapacity. Comparing the 10 year price history of nitrogen fertilizer products in the top row with oil in the bottom row, one can see that the cyclicality is similar (10 year top divided by 10 year low) and even slightly correlated. This is not surprising as the main cost involved in producing ammonia is feedstock in the form of oil and gas.

10


Fertilizer cyclicality actively managed by Yara

z Favorable cost position z Economies of scale

z Integrated distribution system z Access to growth markets

z Balanced sales (N, P, K) z Specialty fertilizers z Industrial products z Geographic spread z Third party product sourcing

z Strong regional and global market presence z Strong brand and customer loyalty

Global reach

Cyclicality management

Market leadership

Cost leadership

As demonstrated the fertilizer industry and the nitrogen part of it are no better or worse than any other industry. What matters is the quality of specific companies. Yara has been in the fertilizer industry for 99 years, and has built a position based on market leadership, global reach, cost leadership and cyclicality management; all of which are key success factors in this industry. Going forward, we aim to continue to deliver strong returns based on the unique qualities of Yara as a company.

11


Agenda





12


The fertilizer market is large and global

Source: Chemical Economic Handbook 2002, SRI, Phillips McDougall

Fertilizer market in comparison

* Crop prot ection and seeds

Corn 17%

Other 32%

Cotton 3%

Other cereals 7%

Fruit&Vegetables 6%

Rice 17%

Wheat 18%

Market shares based on sales volume

Main fertilizer application is for grains

Sourc e: FAO

60

40

14

70Fertilizers

Ethylene

Agrochemicals*

Paper chemicals

USD billion

The fertilizer market is a large, global market worth around USD 70 billion in terms of sales, in which Yara holds the leading position. This is almost twice as large as the global agrochemicals market. The fertilizer market is not only a significant market in terms of size, but also an essential industry serving global food production. Grains are the largest end-market for fertilizers (~60%), followed by cash crops (~20-25%), such as vegetables, fruits and vines. In order to understand the fertilizer market, it is therefore necessary to understand both the grain market and the market for cash crops.

13


The global challenge To feed people when arable land per person decreases

yAlmost no increase in farmable land is possible

y Increased standard of living leads to growing protein consumption per person, requiring more grain for animal feed*

Source: FAO (Towards 2015/30 - Technical interim report 4/2000)

2000

2200

2400

2600

2800

3000

5.5

6

6.5

7

7.5

8

8.5

2015 20302000

Arable land (in m2 per person)

World population (billions)

The only solution is to increase agricultural

productivity

* Approximately one third of grain consumption growth is related to change in diet

The fertilizer industry is essential in meeting the food requirements of a rapidly increasing population. The worlds population is expected to increase by roughly 50% over the next 30 years with little possibility to increase farmable land acreage . This will lead to a continued decline in the availability of hectare per person of arable land. In addition, the worlds dietary standard is improving significantly with average daily caloric intake per capita increasing, primarily in emerging countries. The only way to meet the demand for food in the future is by increasing the productivity of agriculture.

14


Sourc e: FAO, Worldmark ets.com, Yara

Example: Cereals, global average

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1960 1970 1980 1990 2000 2010E 2020E

Tonn

es o

f cer

eals

per

hec

tare

Mineral ferti lizer

Organic fertilizers

Existing soil nutrients

Mineral fertilizer essential to sustain future yield increases

Increased production of mineral fertilizers necessary to meet future nutrient demand

Limited potential of recycling organic material

Nutrient reserves in the soil do not increase

In the quest to maintain increases in agricultural productivity, mineral fertilizer has a key role. While the nutrient reserves in the soil do not increase and recycling of organic material is not sufficient for additional growth, increased production of mineral fertilizer is what really can make a difference. Since 1960 the expanded use of mineral fertilizer is the major reason why global cereal yields have increased, and this trend is expected to continue.

15


To increase productivity is only possible with full nutrient replacement

No nutrient replacement

Nutrient replacement with fertilizers

Production without plant nutrition is mining the soil

Photo: Dr. Paul Seward, maize in Kenya

Fertilizer increases yield by 3-4 times

Trials conducted without replacing nutrients show that the productivity of the land is dramatically reduced. This not only leads to low farmer income and food shortages, but also contributes to erosion and destruction of agricultural land.

Effects of soil mining are reduced soil fertility poor yield soil compaction reduced humus content increased erosion

16


The use of mineral fertilizers pays off

0

200

400

600

800

1000

1200

0 50 100 150 200 250 300 Fertilizer application, kg N/ha

Inco

me

/ha

Sourc e: Yield data: Long term trial, Broadbalk , Rothamsted (sinc e 1856).

The investment in nitrogen fertilizer is highly profitable for growers

=> Fertilizer investment: 96 /ha => Net return: 714 /ha

Net return is 7x the investment

Yield response (monetary value) to N fertilizer rate

At the optimum nitrogen rate of 192 kg N/ha (winter wheat in Europe), it is possible to produce 9.3 tonnes of grain per hectare. The fertilizer cost at this optimum nitrogen level is approximately 192 kg N/ha * 0.5 /kg N = 96 /ha With wheat prices of 112 /t, the farmer gets the following alternative revenue scenarios: Optimal nitrogen level: 9.30 t grain/ha * 112 = 1042 /ha No nitrogen fertilizer added: 2.07 t grain/ha * 112 = 232 /ha

The difference in revenues is 810 /ha resulting from an input cost of 96 /ha, i.e., a return on investment of more than 800%.

17


Nitrogen the most important nutrient

Sourc e: IFA statistics season 2002/2003

Total 143.9 million nutrient tonnes

60%

24%

16%

Nutrient characteristics Primary benefit Application Industry structure

z Improve crop quality

z Increase crop size z Most important

and commonly lacking nutrient

z Annual application not always done

z Annual application critical

z Fewer suppliers, production discipline

z Industry more fragmented, under consolidation

z More volatile prices, but stable volume

Potassium (K)

Phosphorus (P)

Nitrogen (N)

The fertilizer market is composed of three main nutrients potassium, phosphorus and nitrogen. Nitrogen is by far the largest nutrient, accounting for 60% of total consumption, and Yara is the leading producer of this nutrient. Potassium (potash) and phosphorus (phosphate) fertilizers are primarily applied to improve crop quality. Annual application is not always done, as the soil absorbs and keeps these two nutrients for a longer time period compared with nitrogen. There are fewer large suppliers of potash and phosphate fertilizers, as potash and phosphate rock are only available in certain regions of the world. Comparing phosphate and potash, the potash industry is the more consolidated one. Nitrogen is mainly used to increase the crop size, and must be applied every year. Nitrogen fertilizers are produced in many countries, reflecting the good availability of its key raw materials - natural gas and air. The global nitrogen market is therefore less consolidated, but some regions such as Europe and the US, have undergone significant restructuring over the last years.

18


1700

1750

1800

1850

1900

1950

2000

1994 1996 1998 2000 2002 2004E

mill. t

Consumption

Production

Grain inventory

Sourc e: FAO

Grain consumption exceeds production

Low global grain stocks

Grain production in 2004 expected to meet consumption, but stocks stay low

0

200

400

600

800

1000

1994 1996 1998 2000 2002 2004E

mill. t

Over the last four years, grain consumption has exceeded production, resulting in low grain stocks. The grain inventory decline has driven prices higher, and grain prices have on average risen even further in 2004. The current grain stocks are the lowest in the past 25 years. The crop harvest for 2004 is expected to be the best in 10 years. However, according to the most recent estimates, it will only be enough to prevent a further decline in stocks (i.e. this years production is expected to meet consumption). The low grain inventories do not only lead to generally increased grain prices, but also to increased concern for self sufficiency in many countries, in particular the most populous countries in Asia. For some of these countries there is a strong preference for matching own grain consumption need with domestic production. This can at times lead to a substantial demand for fertilizer even with not so high grain prices.

19


Despite mid-year drop, average grain prices are still up for the year

Wheat (HRW US Gulf)

100 120 140 160 180 200 220

1994

1995

19

9619

97

1998

19

9920

0020

0120

02

2003

9M04

USD/tonne

Rice (Thailand)

150

200

250

300

350

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

9M04

USD/tonne

Maize (US Gulf)

50

100

150

200

1994

1995

1996

1997

1998

1999

20

0020

0120

02

2003

9M04

USD/tonne

Sourc e: World B ank

Soybeans (cif Rotterdam)

100 150 200 250 300 350

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

9M04

USD/tonne

10-year average prices

10-year grain/oilseed prices yearly averages

Grain prices have on average risen in 2004 despite a drop particularly during the second quarter. The decrease in grain prices was caused by this years crop harvest becoming higher than previously expected. However, grain prices are high enough to make it profitable for the farmer to cultivate grain and (consequently) consume fertilizer. The correlation (R square) between urea prices and grain prices is approximately 0.5, which is similar to the correlation between urea prices and grain inventories.

20


Fertilizer prices above historical averages

Sourc e: Average of international publications

10-year fertilizer prices monthly averages until Oct 04

Ammonia fob Caribbean

0

50

100

150

200

250

300

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

USD/tonne

CAN cif Germany

0

50

100

150

200

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

USD/tonne

Urea prilled fob Arabian Gulf

0

50

100

150

200

250

19941995 1997 199719981999 2000 2001 20022003 2004

USD/tonne

Average prices 1994 - 2003

Current nitrogen fertilizer prices are high within a 10-year perspective. However, input costs are also high due to record oil and gas prices. Therefore, current margins do not match the levels seen in 1995-1996. During 2004 the most interesting development is that urea prices have picked up sharply due to strong demand in Asia. The price of European nitrates (CAN), which over time has tended to be strongly correlated with the urea price, has not yet followed through in a similar manner. This is partly linked to the seasonal pricing system in Europe where customers get a discount for buying early (high season is March-April).

21

Except for Middle East, low cost gas benefit on average offset by other disadvantages

EU China Russia Eastern Europe US Middle East

Energy cost Medium Medium Low Medium High Very low

Proximityto markets Close

Close/Medium

Distant Close/Medium Close Distant

Exportsurplus None Medium Large Medium None Large

Profitability Medium Low/Medium Low/Medium Low/Medium Low/Medium High

Except for Middle East plants, access to low cost sources of energy is oftenoffset by poor technology/energy efficiency and logistical challenges

Source: Citigroup Smith Barney based on EFMA, Yara


The main determinants of competitiveness of a fertilizer plant are input costs (gas for an Upstream plant, ammonia for a Downstream plant), logistics costs (distance to end customers) and technology/energy efficiency. In a holistic perspective this puts the profitability of plants in the Middle East ahead of the rest while Chinese and Russian plants on average compete unfavorably with European plants and the best plants in the US. Nevertheless, the capital cost of building new plants in the Middle East is so high that fertilizer prices need to stay at a level above historical average prices for new projects to be viable. As existing plants have no out-of-pocket capital costs, this means that the European industry can do reasonably well despite a significant gas cost disadvantage.

22


Potential concerns and associated mitigants

z Over-investment at the top of the cycle

z Weak players

z Spread between gas prices in the US and Europe

z International trade restrictions

z Regulatory regimes

z Terrorism, accidents, country, customer and currency risk

Weaknesses and risks

z Industry participants more rational, private investments replacing state funds

z Spin-offs from chemical/energy companies followed by consolidation

z US gas prices could remain higher due to lack of pipeline capacity from Caribbean region and high LNG costs

z WTO accession

z Operational excellence

z Increased management awareness of risk management

Mitigating factors

In the past the fertilizer industry has been affected by state funds driving investments from a food security point of view rather than from a business point of view and by weak fertilizer companies that existed as part of government-owned enterprises or conglomerates. As the state involvement is going down and conglomerates are cleaning up their portfolio, there is a trend towards consolidation and more profit orientation across the whole industry. This development is strengthened by WTO and EU enlargement which secures more and more equal terms for all industry players. Since 1999 there has been a significant spread between US and European gas prices due to little new US gas supply. Due to the lack of pipeline capacity into the US and new supply from the US Gulf, the forward market expects this trend to continue. Although European gas prices are also expected to increase, there are more gas and pipelines coming into Europe, leading the forward markets to believe that the gap will be sustained.

23


0

1

2

3

4

5

6

7

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 YTD04

New gas price regime in US lifts floor prices of nitrogen fertilizer to the benefit of Yara USD/MMBtu

Source: World Bank, Platts (average import price into EU from World Bank used up to 1999 )

US gas price (Henry Hub)

European gas price (Zeebrugge Hub)

Yearly average gas prices

The high gas price differential between US and Europe from 2003 continues into 2004. This supports good margins for Yara as Yara has costs based on the lower line and (floor) prices resulting from the upper line. (Forward prices are shown later in the presentation.)

24


Forward US gas price indicates future floor prices at attractive level

0

50

100

150

200

250

300

1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05

USD/to

nne

Urea fob US Gulf (granular)

Cash cost US Gulf*

Source: Average of international publications (urea), World Bank (Henry Hub gas price), Blue-Johnson * Based on Henry Hub forward price for gas as of October 6, 2004

Due to the substantial amount of ammonia and urea production in the US, the world is dependent upon US production for enough fertilizer. As gas prices are the highest in the US, the marginal producers in the US are the swing producers who are in a position to determine how low ammonia and urea prices can go. The period up to 2Q 2003 shows that the urea price followed this floor closely, as we had a supply-driven scenario. However, since 3Q 2003 urea prices have risen above the floor due to strong demand and there has been a demand-driven scenario. While demand is still strong, the expectation is that US gas prices will continue to increase into 4Q 2004 and 1Q 2005 meaning that one could again see a supply-driven situation with prices being determined by US cash costs. Again, the forward expectation for US gas prices is at a high level providing some security against a substantial margin drop for Yara.

25


There is more potential nitrogen swing capacity in USA

0

2

4

6

8

10

12

14

16

18

20

1999 2000 2001 2002 2003 2004

Mill

ion

tonn

es a

mm

onia

Source: IFA

There is still 14-15 million tonnes of ammonia capacity in USA, of which several million tonnes are located close to seaports.Capacity in 2005 will decline further by 0.2 million tonnes, as Terra Blytheville and Misschem Triad closed mid-2004.

US total ammonia capacity

US non-captiveammonia capacity

The remaining nitrogen swing capacity in the US is substantial despite several closures in recent years. Total global ammonia capacity is approximately 160 million tonnes, with the US constituting roughly 9% of the total (14.8 million tonnes). As of October 2004 the following US ammonia plants are believed to be down according to market reports: Koch Sterlington I+II (1 million tonnes), PCS Geismar and Memphis (0.85

million tonnes). Otherwise, utilization rates are expected to be at a high level.

In addition to direct application. ammonia is mostly used to produce urea

and UAN in the US: - For urea, the total US capacity in 2004 is 7.3 million tonnes. Yara estimates that 6.5 million tonnes are currently producing. -UAN is a large product in USA with 10-11 million tonnes of capacity, excluding PCS Geismar. All of this capacity is currently being utilized.

26


Urea, DAP and MOP are the most important fertilizer products globally per nutrient

* Million nutrient tonnes Sourc e: IFA statistics season 2001/2002 for nut rient tonnes per product, IFA on growt h rates

NPK 9%

Urea 51%

AN/CAN 12%

Other 28%

MOP 64%

NPK 29%

Other 7%

DAP/MAP 43%

NPK 22%

Other 35%

Nitrogen N (82 mill t)* Potash K2O (23 mill t)* Phosphate P2O5 (33 mill t)*

Expectedannual growthuntil 2008: N = 1.7% K = 2.7% P = 2.7%

Urea expected to continue to capture the lions share of the growth in nitrogenconsumption, 1.7% growth in nitrogen corresponds to a urea growth of 2.5-3.5%

The main products within each of the three nutrient categories are: - Nitrogen: Urea - Potash: MOP - Phosphate: DAP and MAP As approximately half of the worlds nitrogen capacity is urea (with integrated ammonia production as an intermediate step), and urea/ammonia is almost the only type of new capacity being built, this means that a growth of 1.7% per year in total nitrogen consumption corresponds to a urea growth of 2.5-3.5% per year. This is the expected consumption growth which should be compared to new urea production capacity.

27


Expected capacity growth similar to historical average

Average urea consumption (and production) growth has been 3.7% since 1990

Source: Fertecon

Egypt: 27% Iran: 20%

China: 66% Iran: 11%

China: 36% Iran: 17%

Oman: 17%

China: 48% Qatar: 19%

Driving regions Global urea capacity

growth estimate*

3.5% 2007

4.4% 2006

3.4% 2005

3.1% 2004

* Excluding possible closures

Global urea production capacity in 2003 was approximately 135 million tonnes. In the period 2004 to 2007 the expected addition of new urea capacity varies between 3.1 and 4.4% according to Fertecon. With the exception of China, all new capacity is expected in the Middle East or in other areas with low-cost gas. The expected production growth (ignoring possible closures) seems to match reasonably well with the expected annual consumption growth of 2.5-3.5%.

28


No dramatic change in capacity utilization expected next few years

Urea capacity utilization

70% 72% 74% 76% 78% 80% 82% 84% 86% 88% 90% 92%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005E 2006E

CRU (British Sulphur)

Fertecon

Source: CRU (British Sulphur), Fertecon

The reasonable match between expected consumption and production growth of urea is also reflected in the estimates for capacity utilization going forward by CRU and Fertecon. The estimates indicate a fairly flat development, but with a slight deterioration in the case of CRU.

29


Agenda





30


Yara has a unique business model

Concepts thatexploit

combined strength

Dedicated ownership Change mgmt skills Arbitration opportunities

Low cost product push

z Favorable gas cost z Scale advantage z Ammonia market share z Timing discipline z Capacity utilization

Added-value market pull

z Scale advantage z Balanced fertilization z Unique market position z Strong brand value z Crop/application focus

Upstream Downstream / Industrial

New business opportunities based on Scale, Synergy and Timing

Yaras business model seeks to balance the demand from the market for added-value plant nutrition with the production of low cost products. Unless there is a balance between these two dimensions, fertilizer companies may be vulnerable in situations with price fluctuations, and it will become more difficult to satisfy customer demand. Yara seeks to develop new business exploiting these combined strengths and will look for acquisitions supporting economies of scale, synergies with Yaras existing business and a good timing both relative to company situation and industry cycle.

31


22.2

13.2

1.4

2.1

5.5

Yaras value chain

O Sourcing O Allocation O Logistics

Yara production Europe

Purchased from JV companies

Yara production outside Europe

Purchased from third parties

Key accounts

Smaller customers

2003 fertilizer and nitrogen chemicals volumes in million tonnes

Business units

& Front offices

Product source* Global optimization Marketing and Sales

* Including bulk blends

Yara is not only a large producer of fertilizers, but is also a significant distributor of volumes sourced from third parties. Yaras own products, including bulk blends, make up approximately 70% of total sales volumes, while third party sourcing accounts for the rest. The Downstream segments Global Optimization unit optimizes the sourcing of products from each of the Yara production facilities, the joint ventures in which Yara has an interest, and from third parties. The sale and distribution of such products is done through the segments global distribution network. The unit supervises, on a continuous basis, the flow of raw materials, the volume and type of production and product allocations. It also organizes internal logistical services and defines the volume positions that Yara should take. There is a strong and continual exchange of information between the business units and the global planning unit, which helps to create a shared view of market conditions, based on current local, regional and global market intelligence. This ensures smooth operations, good risk management and stable cash flows. The strong marketing and distribution network with a carefully managed balance between key accounts and smaller customers provides Yara with both a stable off-take of products and opportunities for arbitration.

32


Differentiating factors of Yaras business model

z Global distribution and diversified raw material supply reduce risk

z Diversified nitrogen product portfolio creates opportunities for optimization

z Third party sourcing supports high capacity utilization and capital productivity

z Downstream and Industrial business reduce Yaras exposure to fertilizer cycle

What is unique about Yara is its global presence, which makes Yara the preferred marketing partner to export-oriented fertilizer producers. Yara Upstream has plants located in low gas cost regions (Trinidad and Qatar) and in Europe. Yaras diversified nitrogen product portfolio with a high proportion of NPK and nitrates provides opportunities for optimization resulting in better margins than for standard nitrogen products. The Downstream segments global planning unit optimizes the sourcing of products from Yaras production facilities, joint ventures and third parties, thereby supporting high capacity utilization in our own plants and at the same time increasing operating capital turnover. Yara Industrial supplies nitrogen chemicals and industrial gases originating from the production plants in Upstream and Downstream to different industries. This improves economics and logistics of Yaras overall activities. Downstream and Industrial segments are essentially margin businesses with relatively stable cashflows irrespective of fertilizer prices.

33

Unique global presence and infrastructure

62 46

15

18

Major plant 22

Office

No. of plants/ terminals/ warehous es

On the ground in ~50 countries, sales to more than 120 countries, more than 160 infrastructure points


As mentioned before, the factor that clearly sets Yara apart from its main competitors is its unique global presence. Yara has physical presence in approximately 50 countries (including both fertilizer and industrial activity) across the world, and sells to more than 120 countries through an extensive marketing and distribution network consisting of more than 160 infrastructure points. Yaras global coverage is unmatched in the industry and allows Yara to take advantage of arbitrage opportunities when volumes and margins are better in some regions than other.

34


0%

20%

40%

60%

80%

100%

Global Fertilizer Consumption

Yara Sales

Potash (K)

Phosphate (P)

Nitrogen (N)

Balanced portfolio by product and geography

Source: Yara, IFA * Nutrient tonnes 2003

Overseas increasing faster than Europe Million tonnes 143.9 mill tonnes* 8.0 mill tonnes*

Yara sales in line with global consumption

2

4

6

8

10

12

14

1993 1995 1997 1999 2001 2003

Europe

Overseas

Yara is the only fertilizer company with a presence on all six continents supporting a balanced geographical and seasonal exposure. Furthermore, although Yara is a nitrogen-based fertilizer producer, it has a balanced product portfolio, and product sales are in line with the global consumption pattern. Yara is able to obtain a balanced portfolio of products by sourcing potash and phosphate from third party suppliers. Yaras purchase of third party fertilizer materials is directly used for resale and as input for our bulk blending operations. By doing this, Yara is able to offer products that meet specific demands across regions, on a global basis.

35


2,813

2,137 2,194 2,406

3,130

2,158

2,616 2,762 2,370 2,332

2,124 3,077 3,110

2,492 2,175

2,871 2,498 2,195 2,564 2,664

2,032

2,775

5,114 4,898

5,213 4,937

5,304 5,305 4,807

5,029 4,956 4,934 4,996

0

1,000

2,000

3,000

4,000

5,000

Europe Outside Europe

Globally balanced Yara sales and arbitrage opportunities smoothen seasonality

Thousand tonnes

2002 2003 2004

Downstream fertilizer sales volume

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

With Yaras global presence there is no longer a systematic volume difference between the quarters. When there is low season in one region, there is always a high season in another region, e.g. while Q1 is the seasonal peak in Europe, Q3 is the seasonal peak in Brazil.

36


Yaras product portfolio is more diversified than other export-oriented nitrogen producers

0% 10%

20% 30% 40% 50% 60% 70% 80% 90%

100%

Yara Agrium PCS Nitrogen Terra Source: Annual reports of companies

z More than 2/3 of Yaras net sales of nitrogen products are in the form of upgraded products (nitrates, NPK, others)

z Typically, the competition has more than 2/3 standard nitrogen products (ammonia, urea, UAN)

19.6 mill t 5.4 mill t 5.4 mill t 6.7 mill t

Ammonia Ammonia Ammonia Ammonia

Urea

Urea Urea

Urea

UAN

UAN

UAN

Other

Nitrates

NPK Nitrates Nitrates

Nitrogen product portfolio

Yara is the most diversified nitrogen fertilizer company in the world. In 2003, Yara sold 19.6 million tonnes of N-based fertilizer products and 3.5 million tonnes of other non-nitrogen products. Yaras product portfolio is well-balanced with NPKs accounting for 35% of sales volumes, nitrates 34% of sales volumes and urea 21% of sales volumes. Nitrates and NPK are more differentiated products than ammonia, urea and UAN. On average, nitrates and NPK command higher margins as they provide superior customer benefits.

37


Third party volumes supplement own production to maximize capacity utilization

0

5

10

15

20

25

1993 1995 1997 1999 2001 2003

Key suppliers/ JV products

Yara produced products

Yara produced products is approximately 70% of total

Yara 10-year volume CAGR = 4.3% Market 10-year volume CAGR = 2.1% Source: Yara, IFA

Million tonnes

Million tonnes

Third party volumes significant for nearly all Yara products

0

2

4

6

8

NPK Nitrate Urea CN UAN Other

Third-party and JV production Own production incl. bulk blends

Yaras average annual volume growth has been 4.3% per year, more than twice the market growth. The growth has been particularly strong overseas although there has also been significant growth in Europe despite a stagnating market. Yara has increased the proportion of volumes from JVs and third party suppliers as this is a good supplement to own production contributing to full capacity utilization in own plants. This is important for all of Yaras products.

38


Yara three business segments with strong synergies

Downstream

Sales: NOK 29.0 bn EBITDA: NOK 1.9 bn

Industrial


Distribution and ammonia-based fertilizer production zUnique global distribution network zGlobal no. 1 in calcium nitrate and potassium nitrate

specialty fertilizer

Marketing of products for industrial purposes zEuropean no. 1 CO2 supplier zEuropean no. 1 in industrial nitrogen chemicals and

technical nitrates

2003 financials

Upstream


Natural gas-based fertilizer production and ATS zGlobal no. 1 in ammonia, nitrates and NPK zLowest cost producer of ammonia, nitrates and

NPK in Europe

Yara has three business segments. Downstream, which has approximately 40% of assets (non-depreciated) and cashflow. The segment consists of the global fertilizer sales and

marketing units and as well as smaller plants for local production (e.g. Rio

Grande in Brazil). These plants upgrade intermediate fertilizer products like ammonia and urea into more sophisticated fertilizer products that are sold with stable margins. As a result, Downstream tends to have more stable cashflows across the cycle compared with the natural gas-based production in Upstream. Industrial, which has approximately 10% of assets and 15% of cashflow, markets Upstream products and co-products for industrial applications. Upstream, which has approximately 50% of Yaras assets (non-depreciated) and cashflow in 2003, contains the large ammonia-integrated fertilizer plants and Ammonia Trade & Shipping. The key characteristic of the

Upstream plants is that they use natural gas as feedstock. With the

exception of trading ammonia, Upstream sells all produced fertilizer to Downstream and Industrial.

39


Downstream and Industrial stable platform Upstream follows fertilizer cycle

Yara total

478 478

664

832

0 100 200 300 400 500 600 700 800 900

2001 2002 2003 L12M

Upstream

228 158

342

511

0 100 200 300 400 500 600 700 800 900

2001 2002 2003 L12M

Downstream + Industrial

225 252 272 301 72 100

100 103

0 100 200 300 400 500 600 700 800 900

2001 2002 2003 L12M

USD million

USD million USD million

EBITDA pro forma numbers

297 352 372

404

Yaras Downstream and Industrial segments provide a stable platform for Yara as these businesses are margin businesses where raw material cost increases are passed on to end customers due to correlation between input prices and product prices. 3 out of the 4 previous years these two segments have provided more than half of Yaras cashflow. Yara Upstream follows the fertilizer cycle as it is exposed to fluctuations in fertilizer and natural gas prices. However, Yara Upstreams competitive position is strong due to lowest-cost position in Europe, access to cheaper gas in Qatar and Trinidad, and high capacity utilization. Due to the portfolio mix the total Yara group has a limited volatility with a managed downside and a substantial upside.

40


Downstream and Industrial account for more than half of Yaras total business

Upstream 48%

Downs tream 38%

Industrial 14%

Ups tream 31%

Down stream 59%

In dustrial 10%

* Percentages are based on gross revenues before elimination of internal sales ** Percentages are based on book value of assets excluding internal cash accounts

Upstream 34%

Dow nstream 55%

Industrial 11%

Operating revenues* NOK 38.3 billion

EBITDA NOK 4.7 billion Assets** NOK 26.6 billion

2003 financials

Yaras Downstream and Industrial segment contributed 52% of the total EBITDA whereas Upstreams contribution was 48% in 2003. Upstreams EBITDA contribution was relatively higher than its share of Yaras total book value which is reasonable considering that it has less stable earnings than Downstream and Industrial.

41


Strong focus on profitable growth, but financial discipline to be maintained

z A business strategy built on... Continuous productivity improvement with focus on fixed costs and capacity utilization Achievement of organic growth in the 3 4% p.a. range (twice market growth) Readiness to capitalize on potential step growth transactions, when opportunities

present themselves and conditions allow it

z ... to be pursued maintaining a strong financial profile consistent with mid investment grade ratings

Yara has steadily strengthened its results by cutting cost and improving productivity to stay ahead of the competition. Over the past ten years, Yara has increased operating revenues and sales volumes through a combination of organic growth, increased purchasing of third party and joint venture products for resale, and by targeted acquisitions. Using this strategy, Yara has achieved a compound annual growth rate of 4.3% during past ten years, with volumes outside Europe reflecting a higher growth rate than in Europe. Yara seeks to establish financial flexibility for Step Growth investments in the future on top of the yearly continuity investments. This implies reducing debt to below the long-term target during good times. Yara aims to manage its financial position consistent with a mid-investment grade rating implying consistent financial discipline.

42


Acquisition principles consistent with profitable growth

z Industry continues to consolidate as marginal players increase returns or exit

z Yara is the preferred partner for many potential sellers / JV partners

z Any transaction has to satisfy stringent hurdle rates and strategic fit criteria Contribute to size and synergies Timing must be right Will not jeopardize solid financial profile

The fertilizer industry continues to consolidate, with small and marginal players seeking to increase their returns or leave the business. The influx of more private funds into the industry also means that capital efficiency is likely to supercede other factors. Yara will continue its productivity improvement efforts with the aim of maintaining its status as the reference player in the fertilizer industry.

43


Agenda





44


Financial highlights 2004 z February:

Record financials for 2003 published

z March: Debt financing and IPO considerablyoversubscribed

z March 25: Successful stock market launch

z Q1:Good results and cash flow, strongfertilizer market

z June:New Qafco-4 plant in Qatar started

z Q2:Record second quarter results

z Q3:Best third quarter ever

z October: Share buy-backs started

In every aspect, 2004 has so far been an outstanding year for Yara. Yaras IPO was oversubscribed by more than 20 times, and the share price has risen by approximately 65% since the launch on the Oslo Stock Exchange. Over the last 12 months, Yara has delivered its best financial performance in history and has emerged with a substantially strengthened balance sheet.

45


962

496

650

811

521

786 745

420

197

750

261

0

200

400

600

800

1,000

1,200

Net income after minority interest shows strong development and reduced seasonality NOK million

Accumulated

366311237

2,5182,1861,894

USD mill

NOK mill

2003 20042002 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

Net income after minority interest at the end of 3Q 2004 was 75% higher than in the corresponding period last year. The latter half of the first nine months also witnessed Yaras continued growth in Brazil and a recapture of market share in Europe previously lost to imports. The European market share growth was mainly facilitated by the increased production and sale of own produced products.

46


Net interest-bearing debt / equity ratio significantly improved

0.44 0.43

0.65

1.06

0.86

0.00

0.20

0.40

0.60

0.80

1.00

1.20

3Q 2003* 4Q 2003* 1Q 2004 2Q 2004 3Q 2004

* Figures from Demerger Information Memorandum and Offering Memorandum

Per quarter

Net interest bearing debt has been reduced from NOK 8.5 bn on 1 October 2003 to NOK 4.85 bn as of 30 September 2004. The reduction in net debt has been facilitated by strong cash generation during the period.

47


Net interest-bearing debt strongly reduced despite increase in operating capital

4 851

8 500

856 745

630332

402

3 886

3 000

4 000

5 000

6 000

7 000

8 000

9 000

Net Interest Bearing

Debt Oct 1 03

Earnings* Net Operating

Capital

Investments Dividends Received**

Tax Receivable

from NH

Other*** Net Interest Bearing

Debt Sep04

NOK million

* Net income after minority interest plus deferred tax, depreciation, depletion and amortization, minus share of net income in non-consolidated investees

** Dividends received from non-consolidated investees *** Primarily NOK 450 million increased current tax payable

The strong cash generation during the last 12 months has helped Yara to reduce its net debt by NOK 3.65bn (during period 1 October 2003 to 30 September 2004). The increase in operating capital, is almost entirely due to higher prices of fertilizer products. As such, an increase in operating capital is a positive development as it is driven by fertilizer price increases reflecting higher revenues and earnings.

48


Net operating capital turnover* key to high return on capital

4.9 4.9 5.0 5.0 4.6 4.6 4.4 4.3 4.3

3.9 3.7

0

1

2

3

4

5

6

Downstream operating revenues / net operating capital

* 12-month rolling average

2002 2003 2004 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

Comparing the different segments, the bulk of operating capital belongs to the Downstream segment due to relatively long customer credit terms (especially outside of Europe) and inventory. Increasing operating capital productivity is one of the factors supporting strong cash flows in Yara. Net operating capital turnover, measured on a 12-month rolling basis, improved from 4.6 at the end of third quarter 2003 to 4.9 at the end of third quarter 2004, representing a capital release of NOK 350 million.

49


Yaras positions and business model provide natural hedges

z Competitive production facilities, no swing producers

z Geographical spread reducing seasonality

z Balanced product and market portfolio

z Balance between Upstream and Downstream/Industrial

z Long-term financing mostly in US dollar

z Emerging market limits related to currency, country and customer credits

Although world market prices and exchange rates have a potentially major impact on Yaras results, the accounting results from year 2000 to date have been fairly stable when measured in NOK with a significant underlying improvement in USD. This is despite the fact that energy prices, fertilizer prices and exchange rates have experienced large fluctuations during the last four years. Yaras stability in results is partly due to the reason that there is a certain correlation between, e.g., energy prices and fertilizer prices. In addition, Yara has a number of natural hedges where the most important is the quality of Yaras production facilities. Furthermore, Yaras geographical spread supports a diversified gas supply (reducing the impact of regional price changes) and a reduced effect of the inherent seasonality of the fertilizer business. Finally, the substantial share of differentiated products (specialty fertilizers and industrial products) also contributes to relatively stable margins for a considerable part of Yaras portfolio. Out of traditional hedging tools, Yara will have most of its debt in USD, mitigating the cashflow effect of changes in the USD rate. Furthermore, Yara has established limits on currency, country risk and customer credits for emerging markets, which over time have proven effective in protecting cashflows.

50


Floor price for urea

Urea demand

Urea supply

Urea price (above floor)

Most other nitrogenfertilizer prices

Value-added margins

Yara revenue drivers

US gas price

Grain inventories/prices

New urea capacityvs. closures

Global urea demand vs. supply

Urea price

Market segmentation

Drivers Effect on

Since 1999 the US gas price has established a floor price for the ammonia price due to US producers going in and out of the market. In general, when energy prices are relatively high and/or demand relatively low, there tends to be a supply economy where there is a price floor established that indirectly determine fertilizer prices. On the other hand, when fertilizer demand is high and/or energy prices are low, there is typically a demand economy driving fertilizer prices well above the minimum prices determined by energy costs. During such times, fertilizer prices can be very high. What finally determines the urea price, which again drives other nitrogen fertilizer prices, is the fertilizer market balance where capacity utilization is the key factor. Both Downstream and Industrial segments offer (differentiated) products and services to different market segments. These segments are largely unaffected by energy prices and fertilizer prices and have margins driven by the ability to offer a superior product to targeted customer segments.

51


Yara cost drivers

Drivers Effect on

Gas cost in Europe

Fixed cost

Unit cost

Oil product prices

Manning

Economies of scale

Yaras gas consumption in fully-owned plants is approximately 145 million MMBtu. With an average gas cost in fully-owned facilities around USD 4 per MMBtu, this means Yaras annual gas cost is close to NOK 4 billion at a NOK/USD rate of 6.90 (last 12 months). Other raw materials than gas/oil products are mainly P and K in addition to finished fertilizers for resale. Potential price changes for P and K going into NPK production are over time passed on to customers through changed NPK prices. Manning has a direct impact on fixed costs. Yara will continue to focus on decreasing fixed costs and at the same time to improve operational procedures to increase productivity. Yara is the global no. 1 in production of ammonia, nitrates and NPK and it also benefits from a favorable cost position in its home market (Europe). Due to productivity improvements and favorable economies of scale due to the size and location of its major production plants, Yara is able to achieve a lower unit cost for its products, compared with the European average.

52


Yara sensitivities updated to reflect weaker US dollar*

0.17 68-... of which Translation effect

5.7

5.7

- 15.4

4.6

26.2

63.1

EBITDA USD million

0.08

0.25

- 0.22

0.09

0.40

0.90

EPS** NOK

105Currency + 0.1 NOK/USD at an EBITDA of USD 680 million

37... of which Net fixed cost in Euro/NOK

410CAN + 10 USD/t

170Urea + 10 USD/t

30Ammonia + 10 USD/t

- 100 Oil price + 1 USD/boe

EBITDA NOK million*

* Assuming NOK/USD = 6.50, EUR/USD = 1.26, and constant NOK/E UR ** Assuming marginal tax rate on underlying business and t he 5% share buy -back program completed with cancellation

Sensitivities do not take into account that some factors are correlated

The sensitivities are calculated irrespective of correlations between the different parameters. For example, even though in the past commodity prices often have increased when the US dollar has weakened, this is not taken into account in the USD sensitivity.

53


Improved business model drives improved earnings

z Major turnaround implemented and consolidated

z Yara organic growth double the market growth

z Competitive ammonia position in Upstream

z Low volatility in Downstream and Industrial

Following a three-year turnaround programme (1999-2001), Yara has achieved significant cost reductions and substantial productivity improvements. Over the past ten years, Yara has achieved a compound annual growth rate of 4.3%, which is double the market growth rate. The Upstream segment has a strong competitive position in the industry as it is the global leader in the production of ammonia, nitrates and NPK and by the virtue of being the European cost leader. Yara is unique in the fertilizer industry because of its global Downstream presence and due to its Industrial segment that markets numerous industrial products mainly originating from Yaras fertilizer operations. In sum, Yara has lifted its long-term earnings level considerably in recent years.

54


Supply-driven future scenario chosen for illustration purposes

z Currency

z Commodity fertilizer prices

z Energy costs

z Organic growth

z Step-wise growth

Yara is a US dollar business

US supply-driven scenario (4 out of last 5 years prices based on forward US gas prices)[Alt: Demand-driven scenario (1 out of last 5 years,mainly in 2004)]

Advantage for LSFO relative to crudegradually disappearing in 2005[Alt: Continued advantageous LSFO scenario]

Only offsetting fixed cost increases (1-2%)[Alt: Target of 3-4% organic growth]

None [Alt: Action when cycle position and business case are favorable]

If the alternative scenario was chosen, financial results would be better

Parameter Assumption

As an illustration of possible future earnings, Yara has chosen to illustrate a supply-driven scenario based on current high forward prices for energy. Conservative assumptions have been used both for commodity fertilizer prices (only supply-driven), energy costs (no Low Sulphur Fuel Oil advantage after 2005), organic growth only half of historical growth and step growth (none). If historical average conditions had been applied, a more positive scenario would also have emerged.

55


0

1

2

3

4

5

6

7

8

2005E 2006E 2007E 2008E

Gas forward market expects sustained, but reduced gap between US and European gas

USD/MMBtu

Source: Nymex, forward prices per Oct 19, 2004; Yara

US gas price (Henry Hub)

European gas price (estimates based on crude forward prices)

Yearly average gas prices

The forward markets indicate gas prices to be substantially higher in the US (more than 2 USD/MMBtu) than the implied gas price for Yara in Europe in 2005. The gap between the US forward market prices and European forward prices is expected to narrow somewhat in the years 2006 leading up to 2008. It has been assumed that fuel oil products follow long-term historical average relationship to crude oil.

56

Illustration of supply-driven scenario

Last 12 months Ending 3Q 2004

1.26

6.50

200

41.6

6.3

158

173

214

Supply-driven scenario 2005-2008*

Ammonia price (USD/t) 238

Urea price (USD/t) 180

Nitrate price (USD/t) 157

US Henry Hub gas price (USD/MMBtu) 5.6

Brent blend crude oil price (USD/ba) 34.4

LSFO fob Rotterdam (USD/t) 154

NOK/USD 6.89

USD/EUR 1.21

3.0

1.11

7.51

116

20.9

124

133

152

Historical 10-year average

* Based on forward prices per Oct 19, 2004


The supply-driven scenario is characterized by high energy prices leading to higher than average fertilizer prices. The USD is assumed to stay at todays level relative to EUR and NOK. On average, those conditions create lower fertilizer margins than the 10 year historical averages.

57


Profit and loss in supply-driven scenario

303** million 303** million 319 million Number of shares

10.23

3,268

4,443

5,733

832

Last 12 months Ending 3Q 2004

8.90 7.00 7.50 Earnings per share (NOK)

2,690 2,100 2,300 Net income* (NOK million)

3,720 2,750 3,100 Income before tax (NOK mill.)

5,180 4,250 4,550 EBITDA (NOK million)

690 650 700 EBITDA (USD million)

Scenario based on historical 10-year average prices

Average 2005-2008 Supply driven scenario

* Assuming +50 mill in IFRS adjustment going forward and 26% tax in supply-driven scenario due to high Qafco & Tringenearnings

** Assuming 5% share buy-back program completed with cancellation of shares

The supply-driven scenario should provide Yara with average Earnings Per Share in 2005-2008 of NOK 7.00-7.50. If average conditions would be similar to the historical averages 1994-2003 an EPS around NOK 9 could be expected.

http:7.00-7.50

58


Positive and negative risk factors associated with supply-driven scenario

Upsides z Conservative assumption that whole period will be supply-

driven z Value creation from organic and step growth

Downsides z Link between fertilizer floor prices and US natural gas

prices broken

Uncertainties z Gap between US and European gas markets z LSFO may deviate from historical crude regression line z Currency development

The supply-driven scenario has several upsides linked to it, but there is considerable uncertainty associated with it as well.

59


Preliminary estimates for effects of IFRS implication for Yara

Minor Minor No material effect identified Other issues

Approx. (400) - (300)

+ 250 - 350

(650)

One time implementation effect on equity after tax

Jan 1, 2004

Approx. + 50 Approx. + 250 Total

0+ 120 Plant maintenance/shut-down

+ 50 + 130 Pensions

Future effect yearly Net income

Future effect yearly EBITDA

Issue impacted by IAS/IFRS

NOK million

The implementation of IFRS (International Financial Reporting Standards) next year is expected to have a positive yearly effect of NOK 150-200 million on EBITDA. The impact on yearly net income is expected to be small (NOK 50 million). These effects are taken into the future scenarios. The inclusion of net unfunded pension obligations is expected to have a one-time negative effect on equity of NOK 650 million. However, this will be partially offset by the positive consequence of NOK 250-350 million on plant maintenance/shut-downs, thus limiting the net impact on equity.

60


Ambitious targets

z Solid profitability CROGI over the cycle >10% as average

z Investment hurdle-rate IRR real, after tax >10%

z Relative competitiveness Gross Return (EBITDA/Total assets) Best quartile of peers

z Financial strength Long-term rating target Mid investment grade

z Cash returns to shareholders Average dividend pay-out ratio >30% of net income

z HSE Health, Safety and Environment Best quartile of the industry

Yaras financial targets are ambitious, but not unrealistic considering the historical performance. To remain in the best quartile of peers will require that Yara continues to outperform. Yaras cashflow is strong and can be used for continuity investments, repayment of debt, annual dividend payments, share buy-backs and for pursuing profitable growth opportunities depending on what is considered to be in the best interest of Yaras shareholders. Finally, Yara also has ambitious HSE goals, targeting a position in the best quartile of the fertilizer industry on safety and emission indicators as well. Yaras internal measure for return on capital, CROGI, equals (EBITDA tax) divided by Gross Investment (undepreciated assets). The exact definition is presented in Yaras financial reports.

61


Agenda

z Facts replacing myths z Fertilizer market and competitive climate z Yara business model and strategy z Financial performance and approach z Business segments

Downstream

Industrial

Upstream


62


Downstream is mainly a margin business

Sales volume by market

Key financials (NOK million)

3.1 3.1 2.8 2.2 2.1 1.9 1.9 1.8

1.3

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

LatAmAsia

Cont. EU

N America

Med. Africa

UK & Ireland

France

N Europe

Milli

on to

nnes

20162028 1916 2066

0

500

1000

1500

2000

2500

2001 2002 2003 L12M 0 5000 10000 15000 20000 25000 30000 35000

EBITDA Sales

z Focus on sales & marketing, plus local production sites close to key customers

z Third party and JV sourcing and sale of all fertilizer products produced by Upstream, except ammonia

z Mainly margin business - therefore more stable and less capital intensive

Downstream characteristics

Downstreams main strengths are: - Clear no.1 downstream fertilizer business with unrivalled global presence - Downstream plants serve local markets. In Europe, 60% of sales is to key account customers with long term relationship, but with no single customer accounting for more than 3% of sales - Third party and joint venture sourcing increases flexibility and ability to optimize market position and serve customers with a complete range of fertilizer products. It also enables Yara to utilize arbitrage opportunities across regions and products and grow without heavy investment - Global distribution network also supports high capacity utilization in production system - Leading position in value-added specialty fertilizers through strategic JV with SQM, the worlds most competitive producer of potassium nitrate

In this section a Brazilian example will illustrate how Yaras Downstream business really works, the value-added specialty fertilizer business will be explained, and finally, the value drivers and strategy going forward will be presented.

63


Brazil Yaras largest market

Land mass similar to 35 European countries

Porto Alegre

Curitiba

Vitoria

Salvador

Olinda Imperatriz

Rio Grande

Own plants

Rented

Rondono-polis

Uberaba

- 4th largest market in world - Annual growth rate 6.6 % - 60% of fertilizer imported

Brazil

Adubos Trevo was acquired by Yara in 2000. (Yara owns approximately 96% of Trevo.) After the acquisition, Trevo has doubled its market share in three years. Fertilizer consumption in Brazil grew from 12.0 million tons in 1994 to 22.8 million tons in 2003, showing an annual growth of 6.6%. Brazil is the 5th largest country in the world, with an area of 8.5 million km2 or 850 million hectares (1 km2 = 100 ha). Approximately 6% (54 million ha) is agricultural area (does not include pasture, which constitute an additional 180 million ha). Brazil's agricultural research organization EMBRAPA, estimates that the total potential area well suited for modern agricultural production is more than 150 million ha. Other sources, such as USDA/FAS (US Department of Agriculture / Foreign Agriculture Services), believe that the potential in Brazil is higher, and could in the future surpass the present arable land area of USA (~180 million ha). Yara now operates 17 terminals, production and blending units in Brazil. Eight of these are rented through tolling agreements, making use of excess capacity from other fertilizer companies.

64


Yara Brazil discharging at own pier in Rio Grande

z 2.5 million tonnes total per year z Over 1 million tonnes Yara products per year z Processing and shipment to key blenders/regions

Yara Brazil has the only private pier in the South of Brazil, and provides services from this highly efficient port to other fertilizer importers. The total product handled at this port amounts to 2.5 million tonnes per year.

One million tonnes of Yara product handled at the port includes raw materials purchased from sources around the world for industrial upgrade and combining nutrients into tailor-made formulations. The final product is bagged and distributed to customers inland.

Through an efficient logistics network, products can be delivered competitively even to customers located more than 2000 km inland.

65


Strategically located blend plants and storage with extensive marketing network in Brazil

Supporting 60 sales agronomists and 400 sales agents

Yara Brazil has 46,000 customers and the average order size is 46 tonnes.

A significant part of the sales activity is to organize meetings to educate growers on optimal use of fertilizers.

66


Key to success is having the right products, where the customers need them, at the right time

Right product Right place Right time

With extensive product portfolio and global sourcing possibilities, Yara has the competitive advantage to access the right products to meet customer needs.

60% of fertilizers to Brazil are imported, and Yara is strategically located at several other main ports, in addition to Rio Grande.

The 17 terminals, production and blending facilities enable Yara to serve its customer base throughout Brazil at the right time for optimal application on the fields.

67


No 1 brand

No 1 in fertigation

No 1 in nitrophosphate NPK for cash crops

No 1 in agronomic competence through global presence

No 1 product portfolio provider through unique partnerships

Yara Leading supplier of plant nutrient concepts for cash crops

Key focus: Creating value together with the grower

through crop-focused approach

Yara is through its specialities business, a leading supplier of plant nutrient concepts for cash crops. Cash crops can be defined as agriculture products with high value output per hectare crop land. Typical cash crops are fruits and vegetables like citrus and tomatoes. Yara has the number one global brand within specialty fertilizers. The Yara Viking ship and associated brands are symbols of quality, an insurance that customers are willing to pay a premium for. Fertigation is fertilizer applied through the irrigation water (normally drip irrigation). By being the number one producer and supplier of Calcium Nitrate (CN), and through the SQM agreement the leading supplier of Potassium Nitrate (PN), Yara is the global leader in fertigation. Yara is also the leader in nitrophosphate nutrition (NPK) for cash crops. Nitrophosphate NPKs are differentiated products suitable for crops requiring high quality fertilizers. Yara has world-leading agronomic competence in plant nutrition. Yaras global network of agronomists is key in creating demand by demonstrating agronomic benefits from using Yara specialty products. Yara offers, through its partnership with SQM and Phosyn, a complete product portfolio for the high value crop segment.

68


Cash crop production is partly replacing grain production in China

0

20

40

60

80

100

120

140

160

1991 1993 1995 1997 1999 2001 2003

Source: FAO

Mill. Ha.

0 500 1000 1500 2000 2500

Peas, Green

Castor Beans

Cauliflower

Carrots

Lettuce

Chillies&Pepper

Spinach

Onions

Asparagus

Broad Beans

Tomatoes

Cucumbers

Cabbages

Watermelon

x1000 ha

2003 1991

Arable Iand

Cereals

China is an important market for Yaras specialties business and will continue to be so, as the growers are switching from cereals to high value cash crops:

In the 1980s, US was the worlds biggest producer of apples. Now China produces four times as many apples as the US.

Chinese broccoli sales to Japan has tripled since 1995, while

American exports are down by a third.

China now produces half of the worlds vegetables and melons five times more than India, and eleven times more than the US compared with only one third in 1995

Chinas grain harvest peaked in 1998 at 512 million tonnes but has fallen to 431 last year

China offers unique possibilities for niche marketing of quality fertilizers and competence as the change from grain to high value cash crops matches well with Yaras nitrophosphate NPK and specialty fertilizer growth ambitions.

Source: Far Eastern Economic Review, Oct 14, 2004

69


For cash crops specialty fertilizers are of high value with a low cost

0 200 400 600 800 1000 1200 1400

Wheat

Rice

Potato

Grapes

Cabbage

Onions

Carrots

Orange

Apples

Melon

Sweet Corn

Pineapple

Tomato

Avocado

Cherries

Strawberry

Harvest value / Fertilizer cost Source: Yara estimates

The chart above shows the harvest value of selected crops divided by the fertilizer cost. This is called the Crop Value Index. For high value crops the fertilizer costs are relatively small compared to harvest value of the crop. For commodity crops like like rice and wheat the index is substantially lower. As relative fertilizer costs are lower and quality more important for cash crops, the farmer is willing to pay for high quality fertilizers and solutions that ensure consistent quality. Selling fertilizer to the high value segment therefore requires a different marketing approach compared to the more cost-focused mainstream business.

70


Specialty products add quality to yield

Focus on high value crops where quality pays Demonstrate value to grower share benefits Complete plant nutrition concept matched with

crop and application competence

Premium margins Lower price volatility Customer loyalty Growth rate higher than average growth Brand-building effect for Yara

Value creation

Business concept

Low

Cro

p se

gmen

t val

ueLo

w

Hig

h

Crop specific marketing High

The overall goal with the specialty concept is to allocate products to higherpaying segments. The low relative fertilizer costs and the high requirementfor crop quality, give lower price elasticity, and the grower is willing to paya premium to get consistent and high quality. By being in the field, demonstrating value to growers, Yara createsdemand for specialty fertilizers. The pricing of the products is based onbenefit for the grower by the use of Yara specialty products. The target isto decouple the specialty portfolio from the commodity fertilizer market(urea, DAP, MAP). Yara is selling a distinct benefit, not merely nutrients. As customers often prefer suppliers with a complete product assortment,Yaras specialty concept makes it the preferred supplier of specialtyfertilizers. In such a partnership, customer loyalty increases, and switching costs are higher. The value for Yara is premium margins and lower price volatility. The relative value creation in the specialty business becomes more evident during commodity downturns, as this segment is lesscyclical. In addition to premiums and stability, the specialty business offers valuethrough a higher growth rate than that of the commodity market. Finally, by being in the market the Specialties business also contributes to build a brand that is leveraged by the mainstream part of Yara. In 2003 specialty fertilizers constituted approximately 15% of total Downstream revenues with a double digit annual growth in recent years.

71


Downstream value drivers z Supply/demand balance

in local markets

z Flexibility and scale in local distribution and marketing

z Mix of own produced products vs. third party products

z Cost effectiveness in local production

z Operating capital and risk management

z Exchange rates

Any imbalance in supply/demand in local markets will influence local

prices and margins. Yara has flexibility in its market positions via third party sourcing, making it

possible to utilize arbitrage opportunities across regions and products. Scale in local markets is necessary to ensure cost efficiency and to ensure

competitiveness. Yaras infrastructure (plants, blenders, terminals and warehouses) makes

it possible to ship and store fertilizer across regions and then sell the

fertilizer at the optimal time in the right market. This enables Yara to

secure and serve its local customers in a highly cost-effective manner. Yara will continue to buy and sell products in excess of own production to

adjust supply to demand in order to maximize own capacity utilization in

own production and distribution and to avoid tying up too much capital.

Purchase of third party products also enables Yara to offer a more

complete product portfolio to its customers. In order to manage operating capital and risk levels, Yara has established

limits on exposure to currency, country risk and customer credits for

emerging markets. This has over time proven effective in protecting cash

flows. Short term, ammonia price changes may impact the Downstream results.

However, as permanent ammonia price changes are normally quickly

reflected in fertilizer prices, there is typically little if any long-term effect.

72


Downstream Strategy and opportunities

z Achieve increased share of farmgate spending on fertilizer

z Develop differentiated products and solutions

z Enhance key account relationships

z Develop NPK nitro-phosphate market position

z Broader access to Asian markets

z Strengthen market share for urea and related products

Strategy Opportunities/Examples

z Be the main supplier to key customers

z Utilize arbitrage opportunities across regions and products

z Maintain sourcing flexibility to optimize margins

z Drive market innovation to support product development and branding

z Manage operating capital and risk level

The Downstream segment will focus on innovation and development of differentiated products and solutions to strengthen customer relationships. Yara will utilize arbitrage opportunities by capitalizing on its unique distribution and marketing network while managing capital and risk.

73


Agenda

z Facts replacing myths z Fertilizer market and competitive climate z Yara business model and strategy z Financial performance and approach z Business segments

Downstream

Industrial

Upstream


74


Nitrogen Chemicals

for industrial and

environmental applications

61%

Industrial Gases, liquid CO2 and dry

Other 8 %

Industrial products improve production economics and have more stable margins

Sales by product category, 2003

Key financials (NOK million)

797 652 701 709

0

200

400

600

800

1000

2001 2002 2003 L12M 0 1000 2000 3000 4000 5000 6000

EBITDA Sales

z Markets industrial gases and nitrogen chemicals, such as aqueous urea, calcium nitrate, technical nitrates etc.

z Most products originate from Upstream and Downstream production sites

z Increases value of product streams above fertilizer value

Industrial characteristics

Industrials main strengths are: - Leadership in high growth profitable markets - 8% average annual growth rate in core segments since 2000 (in USD, excluding divestments of non core activities) - Strong ability to develop new applications and achieve just-in-time deliveries to customers - Strong cash flow generation - Wide and diversified customer base (more than 40,000)

Yara Industrial is deeply involved down the product chain and has a wide

and diversified customer base, ranging from Coca-Cola to small Norwegian welding operators. Different industrial customers may buy a similar product, but will always have different needs regarding delivery and contract terms. This is where Yara Industrials strong and proven ability to develop new applications and

achieve just-in-time deliveries to customers have given it a competitive

advantage. Although the Industrial segments accounting revenues have been quite stable in recent years due to divestment of non-core activities, the

underlying growth in Industrials markets has been attractive and cashflow generation strong.

75


Yara optimizes margins through active segmentation

Fertilizer vs. Industrial: z Different business cycles z Different competitors z Different buying behaviour z Different customers

Fertilizer segment Industrial segment

Marketingapproach Marketingapproach

Products & applications

Products & Services

Fertilizer and

nitrogenchemicals

Co-

prod

ucts

Ammonia

Yaras industrial involvement represents a text book illustration of how companies position products and adopt a different marketing approach towards various targeted segments. Yaras technology and competitive basis is nitrogen. Yara is a chemical company, which in its 100-year history has largely focused on the fertilizer segment. In recent decades, Yaras nitrogen platform has also brought about growth opportunities in the industrial sector. This also includes combined products like industrial gases, which are linked to Yaras ammonia position and plant structure.

76


Fertilizer value

Industrials mission is to generate value beyond fertilizer value of product streams

Success factors z Understand and interact with

customers in order to adaptapplications and quality requirements

z Reliability and flexibility through full control of supply chain

Value added by

Industrial product

value

Sales to customers with special

application needs Demonstrate quality performance as part

of total solution

Yara Industrials products are often raw materials in industrial processes, where commitment, adaptation, reliability, safety, quality, performance and other characteristics of longer term buyer seller relationships can bring about extra margins. The longer term focus will also lead to different pricing arrangements, which can leverage both Yaras Upstream and Downstream fertilizer involvement. A dedicated and focused approach through a separate segment and business organization has in our case lead to better

Yara Capital Markets Day

Documents

Transcript of Yara Capital Markets Day