2004 - Yara

Transcription

2004 - Yara

2004
Annual Report
STAYING CLOSE TO THE FARM GATE
RESPONSIBILITY THROUGHOUT
THE VALUE CHAIN
LEADERSHIP MUST BE
DEMONSTRATED EVERY DAY
HARVESTING THE VALUE
OF A GLOBAL PRESENCE
YARA INTERNATIONAL ASA
Bygdøy allé 2, P.O. Box 2464, Solli, N-0202 Oslo, Norway Tel: 47 24 15 70 00, Fax: 47 24 15 70 01, www.yara.com
Yara – 2004 Annual Report
For the past century our company has been working with partners and farmers around the
world to increase food production and meet the demands of a rapidly expanding population.
In March 2004 we became an independent company and took the name Yara to reflect our
enduring commitment to sustainable agricultural development. In the Norse language of the
Vikings the root of the word Yara indicated a connection to the land: crops, fertility or a good
harvest. With the letter Y we echo the word "Yield" - the core message of our business.
CONTENTS:
02
IN ITS FIRST YEAR as a separate com
pany, Yara achieved its best ever results.
2004 highlights also include production
start at Qafco-4 in Qatar, making Qafco
the world’s largest fertilizer producing
site.
06
“SUCCESS IN THE FUTURE will take
more than new products. We also have
to be well-informed and proactive con
sultants”, says Thorleif Enger, Yara’s CEO.
08
YARA’S BUSINESS MODEL combines
a unique global market presence with a
focused involvement in the entire industry
value chain.
12
A UNIQUE DOWNSTREAM NET
WORK, with sales to more than 120
countries, is central to Yara’s leadership
position.
16
YARA’S INDUSTRIAL SEGMENT plays
an increasingly important role in the com
pany’s business portfolio, with leadership
positions in several high-growth markets.
20
THE UPSTREAM PLANTS form the
backbone of Yara’s production system and
provide a competitive advantage through
a best-in-class cost position.
24
“AN EMERGING NEED for new types of
fertilizer presents Yara with challenges as
well as opportunities”, says Daniel Clauw,
Yara’s Chief Operating Officer.
26
GOOD PRODUCT STEWARDSHIP is
essential to ensure that Yara meets its
obligations related to safety and care for
the environment.
29
YARA’S ACCOUNTS FOR 2004 show
record financial performance, with a net
income of NOK 3,761 million, up from
NOK 2,186 million in 2003.
26
RESPONSIBLE CONDUCT
THROUGHOUT THE FERTILIZER
VALUE CHAIN
08
06
12
16
GLOBAL MARKET PRESENCE –
A CORNERSTONE OF YARA’S
BUSINESS MODEL
THE RIGHT PRODUCTS,
AT THE RIGHT PLACE,
AT THE RIGHT TIME.
“WE MUST UNDER
STAND THE NEW
NEEDS OF THE
FARMER”.
THORLEIF ENGER,
CEO
HIGH GROWTH
IN INDUSTRIAL
APPLICATIONS
INTRODUCTION
THE WORLD'S LEADING
FERTILIZER COMPANY
AS YARA CELEBRATES ITS CENTENNIAL, THE COMPANY ENJOYS A LEADING POSITION IN THE
FERTILIZER INDUSTRY – A POSITION BASED ON MARKET SHARE, GLOBAL REACH, COST LEADERSHIP
AND THE ABILITY TO MANAGE CYCLICALITY. THESE WILL REMAIN THE CORNERSTONES AS YARA
EMBARKS ON A NEW CENTURY OF DEVELOPMENT AND GROWTH.
In 1905, Norsk Hydro was established to utilize
Norway's large hydroelectric energy resources
for the industrial production of mineral fertilizer.
To position it for further growth, the fertilizer
business – formerly Hydro Agri – was demerged
from Norsk Hydro in 2004 and established as an
independent company under the name Yara
International ASA. The company was listed on
the Oslo Stock Exchange on March 25th, 2004.
Yara is a chemical company with fertilizer applications as its biggest market. Yara’s mission is
to strive for better yield. The word “yield”
reflects two key dimensions of Yara’s ambition
as an industrial company. First, Yara is dedicated
to helping provide food to the world’s growing
population in the most effective and sustainable
way. Second, Yara is commited to delivering
financial results from our operations that are
among the best in our industry. Yara aspires to
shape the fertilizer industry in a way that creates
new potential for the company, its customers
and the industry as a whole.
3,000
8.5
2,750
7.5
2,500
6.5
2,250
2,000
2000
2015
2030
5.5
The global challenge – to feed people
when arable land per person decreases
Arable land (in m2 per person) (left axis)
World Population (billions) (right axis)
Source: FAO
With a growing world population and limited
availability of new farmland, soil productivity
must be continuously increased to meet the
DOWNSTREAM: Includes Yara’s global sales
and distribution activities, as well as production
plants that upgrade fertilizer products for local
consumption.
INDUSTRIAL: Markets products and co-prod
ucts from the Upstream segment for industrial
applications.
UPSTREAM: Contains Yara’s large ammoniaintegrated fertilizer plants and the trade and
shipping of ammonia.
demand for food. Mineral fertilizers are the only
major sustainable source of the plant nutrients
required to ensure production of enough food of
good quality. As the world's leading supplier of
mineral fertilizers, Yara plays an important part
in these efforts.
GLOBAL SIZE AND REACH
With sales to more than 120 countries, Yara is
the most international player in the fertilizer
industry. The core business is the production and
marketing of NPK complex fertilizer and nitrogen fertilizer such as nitrates and urea. Yara also
produces and sells ammonia, the key raw material for all nitrogen fertilizers. To complement its
product offerings, Yara also markets third-party
sourced fertilizers. This enables Yara, through its
global downstream network, to offer customers
a balanced nutrient portfolio, including valueadded speciality fertilizers. Through its Industrial
segment, Yara has also built a substantial business based on co-products of the fertilizer operations. Products include industrial gases, nitrogen chemicals and technical nitrates, with environmental applications making up a key market
segment.
INTEGRATED BUSINESS MODEL
All of Yara’s activities are integrated into
a proven business model based on our involve
ment in the entire industry value chain. Yara’s
three business segments – Downstream,
Industrial and Upstream – have complementary
strengths and risk profiles, allowing for valuable
arbitrage opportunities and other synergies.
Downstream and Industrial are margin busi
nesses with stable cash flows. In combination
with a global market presence they mitigate the
cyclical swings of the Upstream business.
Extensive sourcing of volume from third-party
suppliers, the diversified product portfolio and a
balanced geographical and seasonal exposure,
is central to the business model.
INDUSTRY LEADERSHIP
Focusing on cost reductions and productivity
improvements, Yara has positioned itself as the
lowest-cost fertilizer producer in Europe. Since
2001, Yara has been within the top 25 percent of
its industry peers in terms of gross return on
assets (defined as EBITDA, excluding non-recur
ring items, divided by total assets). Since 1999,
Yara has grown both organically and through
well-timed acquisitions in key growth markets.
The combination of a strong financial position and
a global network is expected to give Yara the
opportunity to take an active part in the further
development of the fertilizer industry.
YARA ANNUAL REPORT 2004
1
ANNUAL REVIEW
KEY FIGURES
& HIGHLIGHTS 2004
1)
2)
3)
4)
5)
REVENUES
23 %
EBITDA
5.765
4.671
3.817
1,188
0.86
1,628
02
03
04
Growth in EBITDA in 2004 was 23% compared
with 2003 and 51% compared with 2002.
13.3
10.6
11.79
10,714
79.75
6.84
9,595
na
7,067
7,434
1.1
3.5
1.5
3.7
EBITDA: Earnings before Interest, Tax, Depreciation, and Amortization. See non-GAAP measures section for details.
Investment in property, plant and equipment, long-term securities, intangibles, long-term advances and investments
in non-consolidated investees.
Net interest-bearing debt devided by shareholder’s equity and minority interests.
CROGI: Cash Return on Gross Investment. See non-GAAP measures section for details.
Lost time injuries per million hours worked (includes contractors).
12 %
2
1,250
0.39
3,772
72%
NET INCOME
NOK
43.25 BN
2004 REVENUE FIGURE
We are the global market leader in fertilizers
measured by revenues. With our gross return on
assets of 21.2%, we are also in the top quartile
of our defined chemicals peer group.
Net interest-bearing
debt/equity ratio
0,39
Health, Safety and Environment
LTI 5)
Absence due to sickness %
38,481
2,751
4,671
2,186
0,44
Number of permanent employees (end of the year)
43,252
3,584
5,765
3,761
EBITDA for years 2002 to 2004
(NOK million)
0,43
Rate of return
CROGI % 4)
Per share information (NOK)
Earnings per share
Majority shareholders’ equity (NOK million)
Share price Oslo Stock Exchange 31.12
2003
0,65
Financial data
Investments 2) NOK million
Net interest-bearing debt/equity 3)
Cash flow from operations NOK million
PRO FORMA
2004
0,86
Operating Revenues
Operating Income
EBITDA 1)
Net Income after minority interest
PRO FORMA
1,06
KEY FIGURES
3kv 03 4kv 03 1kv 04 2kv 04 3kv 04 4kv 04
Strong cash generation in 2004 has helped
us to reduce our net interest-bearing debt by
NOK 3,385 million to NOK 4,199 million.
ANNUAL REVIEW
MAR: Yara was listed on the Oslo Stock
exchange as a separate company on 25 March.
The listing was a success with the initial offering
being oversubscribed substantially. The initial
offering price for the Yara’s share was NOK 41.
Yara also secured long-term financing at attrac
tive rates.
APR: Inauguration of Qafco-4, making Qafco
the world’s largest fertilizer producing site. By
this expansion, Qafco’s annual production
capacity will be 2 million tonnes of ammonia
and 2.8 million tonnes of urea. Yara owns 25%
of Qafco.
MAY: First quarter results announced as an
independent company. Best first quarter in the
company’s history, with strong cash flow gener
ation and a reduction of debt, resulting in a sig
nificant improvement of debt/equity ratio.
JUNE: Qafco-4 plant starts producing fertilizer.
Yara Board receives authorization from the
shareholders at the General Meeting to buy
back shares. Fertilizer markets continue to
improve. Urea prices rose to historically high lev
els towards the end of the month.
JUL: Second quarter results announced. Strong
results and cash flow generation continues into
the second quarter. Net debt reduced by an
additional NOK 1.7 billion leading to added finan
cial stability. Upstream plants set production
records during this quarter. Fire at Köping plant
with no injuries.
AUG: Köping plant back in operation.
SEP: Yara signs a new gas contract with
Gasunie for Sluiskil plant.
OCT: Third quarter results announced. Best
third quarter ever for the business. Yara’s growth
in Brazil continued to show a positive trend. Yara
starts the share buy-back programme.
NOV: Yara hosted its first Capital Markets Day
as an independent company. By the end of the
month, Yara had completed the purchase of
approximately 3 million own shares.
YARA IS A CHEMICAL COMPANY WITH FERTILIZER APPLICATION AS
ITS BIGGEST MARKET. WE CONVERT ENERGY AND NITROGEN FROM
THE AIR INTO USEFUL PRODUCTS FOR FARMERS AND INDUSTRIAL
CUSTOMERS.
YARA IS A TRULY GLOBAL FERTILIZER COMPANY, WITH A MARKETING
AND DISTRIBUTION NETWORK CONSISTING OF MORE THAN 160
INFRASTRUCTURE POINTS. OUR BUSINESS MODEL CREATES A
STRONG PLATFORM FOR PROFITABLE GROWTH WITH REDUCED
CYCLICALITY AND RISK.
DEC: Yara successfully completes its rating and
bond issue. Reflecting Yara’s strong market
position and market leadership, the company
was rated investment grade ‘Baa2’ from
Moody’s and ‘BBB’ from Standard & Poor’s,
both with a stable outlook. Yara also successful
ly launched a much pursued USD 500 million
bond offer pursuant to rule 144A / regulation S.
The company ended the year on a high note by
registering the best-ever closing price of NOK
79.75 on the last trading day of the year.
JAN-FEB 2005: Yara presented its best ever
quarterly and yearly results. The company also
launched strategic growth initiatives, which
included signing a letter of intent for Qafco-5,
buying 30% minority stake in the Russian fertil
izer producer Rossosh and increasing its shareholding in the Chilean speciality fertilizer
producer SQM.
Well-balanced fertilizer product
portfolio
Other 8.7%
Ammonia 1.1%
Urea 18%
NPK 36%
UAN 5.3%
Nitrates 31%
COMPETENCE AND
BRAND VALUE
We combine a century of experience and
expertise with the latest knowledge to deliver
outstanding products of high value to our end
customers.
Yara is the most diversified nitrogen fertilizer
company in the world. In 2004, Yara sold 19.83
million tonnes of fertilizer products and 2.05
million tonnes of other Industrial products.
More than 2/3 of Yara’s product portfolio is
comprised of differentiated products like
nitrates and NPK, which command higher
margins as they deliver superior customer ben
efits.
3
YARA CENTENNIAL
A HUNDRED YEARS OF PROGRESS
NORSK HYDRO WAS FOUNDED ON 2 DECEMBER 1905 TO PROVIDE A SOLUTION
TO ONE OF THE MOST PRESSING PROBLEMS OF THE DAY – A GROWING NEED FOR
INCREASED FOOD PRODUCTION. THE SOLUTION, INDUSTRIAL MANUFACTURE OF
NITROGEN-BASED PLANT NUTRIENTS, HAS SINCE REVOLUTIONIZED AGRICULTURE
AROUND THE WORLD.
1905
Sam Eyde
(1866–1940)
Kristian Birkeland
(1867–1917)
The world's first produc
tion of Nitrogen fertilizer
"Norgessalpeter" (calcium
nitrate) at a test facility
in Notodden, Norway.
Production based on the
Birkeland Eyde invention
using hydroelectric power
to extract nitrogen from
air. Norsk Hydro founded
on 2 December 1905.
4
1906–1919
1920–1939
1940–1959
1960–1969
Visit by Kong Chulalongkorn
of Siam at Notodden (July 1907)
Herøya production plant
(October 1935)
Harvesting of tomatoes,
Woodland, USA
Joint venture with Qatar
Industries
A new large scale pro
duction plant including
power supply completed
at Notodden and
construction of the plant
at Rjukan. King
Chulalongkorn of Siam
visited both sites.
Ammonia production
began at Rjukan (1928).
Plants established at
Porsgrunn (1929). New
industrial products like
heavy water and CO2
developed. Yara Sluiskil
(NSM) opened (1929).
Sales office opened in
Stockholm. Sales began
in the USA focusing on
calcium nitrate for fruit
and vegetable cash
crops. Agency estab
lished in San Francisco,
California. The Glomfjord
plant opened using
hydroelectric power to
upgrade ammonia to cal
cium nitrate and NPK
(1949).
Ammonia production
established at Porsgrunn
– one plant based on
partial oxidation of heavy
fuel oil and one based
on steam reforming
of naphta. The Qafco
joint venture with Qatar
Industries was estab
lished in 1969.
YARA CENTENNIAL
FROM THE FOUNDERS OF HYDRO, YARA INTERNATIONAL HAS INHERITED A PROUD
LEGACY AND IMPLEMENTED IT ON A GLOBAL SCALE. OUR WORLDWIDE OPERA
TIONS PLAY A KEY ROLE IN THE GLOBAL FOOD CHAIN. SOME 40 PERCENT OF THE
WORLD’S POPULATION NOW DEPEND ON MINERAL FERTILIZER TO OBTAIN AND
SUSTAIN THEIR FOOD SUPPLY.
1970–1977
1978–1990
1991–1998
1999–2003
2004
Opening up business in Asia
Acquisitions in Europe (Sluiskil)
Acquisitions and joint venture
in Trinidad
Strengthening our position in
Brazil
Listing of Yara on the Oslo Stock
Exchange, March 25
Sales to Thailand via a
local partner in 1972.
Sales gradually extended
to other Asian countries.
Hong Kong office opened
in 1972. Qafco-1 plant
started production of
ammonia and urea in
1973. Established sales
office for South America
in Rio de Janeiro, 1977.
Acquisition of NSM
(Netherlands), Supra
(Sweden), Fisons (UK),
Ruhr Stickstof
(Germany), Windmill
(Netherland), Cofaz
(France). Terminal
established in Chiwan,
China in 1982. Office
established in Harare,
Zimbabwe 1983.
Acquisitions in Germany
and Trinidad. Joint
ventures in Florida and
Trinidad. New offices and
bulk blending units in
Africa, Asia and Latin
America. Acquisition of
ENI Chem's fertilizer
operations in Italy.
Further growth and
establishment of an
extensive marketing
network outside Europe.
Agri acquired Adubos
Trevo in Brazil and a con
trolling stake in Kynoch,
South Africa.
Turnaround and consoli
dation of the company.
Hydro decided to list Agri
on the Oslo Stock
Exchange.
Listing on the Oslo Stock
Exchange; 25 March,
2004. Yara focuses on a
future as the high-per
formance leader of the
fertilizer industry.
5
FROM THE CEO
LEADERSHIP MUST BE
A LETTER from THORLEIF ENGER, CHIEF EXECUTIVE OFFICER
YARA’S STRONG POSITION IN THE FERTILIZER INDUSTRY IS VERY MUCH BUILT ON
LEADERSHIP AND COMPETENCE. OUR ABILITY TO FURTHER DEVELOP THIS POSI
TION WILL BE A KEY REQUIREMENT FOR STAYING ON TOP AS THE BUSINESS
GROWS MORE SOPHISTICATED.
In 2005, Yara embarks on its second century as
a leading supplier of mineral fertilizer. As we
pursue new and higher ambitions, our efforts
will be based on an established set of key
strengths. We are present in all major markets
where mineral fertilizer is sold and we are pres
ent with a strong product range supported by a
powerful brand. We have the technology to pro
vide unique products. This
includes the increasingly
important market of speciality fertilizers, as well as our
industrial segment, which
fills a critical role in our business portfolio. We have the
ability to attract partners
and build partnerships. In
addition, we have a competitive cost position. To make
the most of these strengths,
however, we need to match them with a keen
understanding of the key developments affect
ing our industry and have a proactive approach
to change.
Our strong position in ammonia is a good basis
for growth both in fertilizer applications as well
as products and services for industrial applica
tions. Basically, we are a chemical company
converting energy and nitrogen from the air into
useful products for farmers and industrial cus
tomers. The opportunities to grow the company
based on our global strength and our scope will
not be a limiting factor
ahead. Our challenge will be
to continue developing our
competence
base
and
strengthen our ability to inno
vate and stimulate creativity.
We need to match
our strength with a
keen understanding of
the key developments
affecting our industry.
2004 was a good year for Yara. We continued
making progress in our internal improvement
program and market conditions were very
favourable. The separation of Yara into an inde
pendent company provided a big boost and we are
now in a better position on all accounts to develop
the full potential of the company. At the end of the
year, we launched a strategy for the coming years
signalling stronger growth coupled with continued
focus on productivity and financial discipline.
6
MEETING THE NEED FOR
BETTER NUTRITION. The
basics of producing mineral
fertilizers have not changed
in any fundamental way over
the last fifty years. To succeed in the upstream
part of the business is and will continue to be a
question of operational excellence and having
the right products. After the turnaround, Yara
has attained a cost leadership position in our
industry that we work hard every day to fortify.
At the user’s end, however, there are fundamen
tal changes going on that challenge us to evalu
ate and improve the way we conduct our busi
ness. Farming and the development of fertilizers
has gone through three phases, each introduc
ing a higher level of sophistication. In phase
one, success relied on the ability to increase the
farmer’s output (food security). This is still the
challenge in many parts of the world. Phase two
introduced an added requirement of enhancing
the safety and quality of the food. Today, the
question is being asked how farming can con
tribute to better health for people and where fer
tilizers are increasingly expected to contribute to
improved health through better plant nutrition.
This requirement represents a science in itself,
where we want to be at the forefront. We are
right at the beginning of this development, and
to stay abreast we need to monitor the develop
ment actively. Success will take more than new
and better product formulas. We also have to be
well-informed and proactive consultants – to our
customers as well as the end user – the farmer.
Yara has over the years established an extensive
presence far down in the value chain – a capac
ity none of our competitors can match. This
presence at the farm gate will be an even more
important asset in the years ahead. In a broad
sense our mission is to improve the yield for
both our fertilizer and industrial users.
AMBITION TO SHAPE THE INDUSTRY. Yara
is already the largest fertilizer producer in the
world and holds a number of unique positions. It is
therefore a natural ambition to want to influence
key developments in our industry. Competitive
forces will strengthen the need for larger, more
focused and highly professional companies, indi
cating a thrust towards further consolidation.
Pulling in the same direction is a trend towards
privatization in countries where fertilizer production
has been a public responsibility. As it affects the
huge markets in China and India, this development
will have a significant impact on our industry.
FROM THE CEO
All our 7,100
employees should
have a fundamental
understanding of our
position and how
we intend to grow
our business.
The industry shaper ambition implies a more
explicit growth strategy than we have previous
ly practised. However, we will only grow when
we see good strategic reasons for doing so. The
growth will have to fit in with our business
model and core strengths, and we also have to
consider the consequences for the industry
structure. Ultimately, we have to steadfastly
make sure that our day-to-day operation is
meeting the highest standards of quality, effi
ciency and safety, and that we deliver leading
financial performance based on organic growth.
Only a consistent top performer has the ability
to be a shaper of our industry.
THE NEED FOR INTERNAL ALIGNMENT.
This level of performance can only be sustained
if the organization is aligned around our key pri
orities. Looking ahead and
setting new targets is not
enough. All our 7,100
employees should have a
fundamental understanding
of our position and how we
intend to grow our business.
We have a strong platform
and a strong financial posi
tion. To make the most of
our assets, we all need to
pull in the same direction,
armed with the right compe
tence and the right mindset. We have a lot of
local competence. Increasingly, this will have to
be coupled with an overall understanding of how
our total operation can be optimised. As a part
of last year’s de-merger from Norsk Hydro and
the stock exchange listing, we have established
a new level of management’s attention to exter
nal communication. Going forward, I believe it
will be even more important to ensure effective
internal communication. We will not otherwise
be able to deliver on the expectations we are
establishing in the financial markets. As chief
executive, I therefore intend to continue to
spend a significant amount of time with the
organisation. I have also emphasised internal
communication as a core responsibility of all
managers in Yara.
NEW TARGETS – TIMELESS PRINCIPLES.
While Yara is faced with new challenges and
opportunities, I believe that they best can be
met by the same set of management principles
that have brought us where
we are today. First of all we
will set high ambitions. This
means that we intend to be
among the best in our peer
group and achieve at least a
10 percent return on investment over the business
cycle. Today we have a 6
percent global market share
in mineral fertilizers. Over
the coming years, we want
to grow this share to 10 per
cent. Our ambition also includes a clear intent to
continue the positive development in our
Industrial segment. Second, we are realistic and
realize that there is always room for improve-
Success in the future
will take more than
new products.
We also have to be
well-informed and
proactive consultants.
ment. Today the gap is bigger than ever, not at
all because our performance is deteriorating, but
because our ambitions are higher. Like a suc
cessful athlete, we need to be hungry for new
achievements. Third, we have the confidence to
do it our own way. We will therefore foster a cli
mate where there is room for creativity and the
exploration of new ideas and opportunities.
Fourth, I will emphasize diversity in the man
agement teams with members that continually
challenge each other. I don’t believe in too much
harmony. We need strong and productive dis
cussions. A strong team recognizes that there is
a time for discussion and a time for decision and
alignment for implementation. Finally, we will
promote a culture and a code of conduct that
permeates the organisation and replaces exces
sive and unproductive guidelines and bureaucra
cy. A set of four values will guide us in this
effort: Ambition, trust, accountability and team
work. I believe these values are right for Yara.
What matters most, is our ability to communi
cate the values, be persistent in conveying them
and consistent in living by them. It’s not by
chance that “ambition” is first in line among the
values. We must shun complacency. If we feel
too comfortable, something is wrong. The role
of industry shaper must be earned every day.
Thorleif Enger
President and CEO
7
BUSINESS MODEL
HARVESTING
THE VALUE OF A
GLOBAL PRESENCE
YARA’S STRONG POSITION IS BASED ON A PROVEN
BUSINESS MODEL THAT COMBINES A UNIQUE
GLOBAL MARKET PRESENCE WITH A FOCUSED
INVOLVEMENT IN THE ENTIRE INDUSTRY VALUE
CHAIN – FROM THE FACTORY TO THE FARM GATE.
4.2%
Over the past ten years,
Yara has achieved a
compound annual growth
rate (CAGR) of 4.2 per
cent in terms of volumes, twice the market
growth of 2.1 percent.
8
BUSINESS MODEL
9
BUSINESS MODEL
BALANCE:
BUSINESS SEGMENTS WITH COMPLEMENTARY STRENGTHS
FLEXIBILITY:
EXTENSIVE USE OF THIRD-PARTY VOLUMES
ADDED VALUE:
DIVERSIFIED PRODUCT PORTFOLIO
Y
ara’s three business segments –
Downstream, Industrial and
Upstream – have complementary
strengths and risk profiles, allow
ing for valuable arbitrage oppor
tunities and other synergies. Downstream and
Industrial are margin businesses and have
shown stable cash flows over the past four
years. In combination with a global market pres
ence they mitigate the cyclical swings of the
Upstream business. This enables Yara to
achieve a healthy margin even at the bottom of
the fertilizer cycle. Central to the business
model are also an extensive sourcing of volume
from third-party suppliers, a diversified product
portfolio and a balanced geographical and sea
sonal exposure.
ACTIVELY MANAGING CYCLICALITY. The
Downstream segment represents approximately
40 percent of assets (non-depreciated) and cash
flow in Yara. The operation includes sales and
distribution units, as well as production plants
that upgrade intermediate fertilizer products for
local consumption. These products can be sold
with stable margins, as input cost and output
price tend to be highly correlated. The segment
supplies Yara with a strong regional and global
market presence. Supported by a strong brand,
a valuable base of loyal customers has been built
over several decades. Through the Downstream
segment, Yara also enjoys an integrated distri
bution system and access to growth markets.
Industrial, which represents approximately 10
percent of Yara’s assets (non-depreciated) and 10
percent of cash flow, markets Upstream prod
ucts and co-products for industrial applications.
The Industrial segment is the no. 1 supplier of
CO2 in Europe and is also the largest European
producer of industrial nitrogen chemicals and
technical nitrates. As in Downstream, the prod
ucts from the Industrial segment are generally
sold with stable margins. In three out of the four
previous years, the Downstream and Industrial
segments have provided more than half of
Yara’s cash flow.
The Upstream segment, which represents
approximately 50 percent of Yara’s assets (non
depreciated) and cash flow, contains the large
ammonia-integrated fertilizer plants and the
trade and shipping of ammonia. With the excep
tion of trading ammonia, Upstream sells all its
production to Downstream and Industrial. The
Upstream plants use natural gas as feedstock,
making profits volatile to developments in the
energy markets. The segment is also exposed to
fluctuations in fertilizer prices and performance
will thus follow the fertilizer cycle. However,
Yara has managed to build a strong competitive
position for Upstream through cost leadership,
access to cheaper gas in Qatar, Trinidad and
recently in Russia, and via high capacity utiliza
tion of its plants. Activities within trade, storage
and shipping of ammonia provide additional
value to the Upstream segment.
In combination, this unique business portfolio
limits volatility for the Yara group by providing
for a managed downside and a substantial
upside.
Balanced portfolio by product and geography
Outside Europe
Nitrogen (N)
14
100%
11
Phosphate (P)
143,9 mill
tonn*
Europe
YARA SALES IN LINE WITH GLOBAL
CONSUMPTION
8,0 mill
tonn*
BALANCED EUROPEAN AND GLOBAL
SALES (Million tonnes)
Potash (K)
THIRD-PARTY VOLUMES ENABLE MAXI
MUM CAPACITY UTILIZATION. Over the
years, an increasing proportion of Yara’s sales
volumes have come from joint ventures and
third-party suppliers, contributing to roughly 30
percent of the total. This element is consciously
built into the business model as a vital supple
ment to own production, contributing to full
capacity utilization in own plants. Third-party
volumes make up significant elements in nearly
all Yara product categories. The use of thirdparty products provides flexibility as they can be
reduced if conditions turn unfavourable in one
area, and increased in regions with better funda
mentals. Through this process, Yara has the
ability to change its product offering in different
local markets according to the prevailing supplydemand situation. This flexibility is further sup
ported by a conscious decision to dedicate no
more than 60 percent of Yara’s production vol
ume to key account customers.
DIVERSIFIED
PRODUCT
PORTFOLIO.
Integral to the business model is also a deliber
ate effort to extend the product portfolio with
upgraded products. Sourcing of phosphate (P) and
potash (K) from third-party suppliers is a critical
element in this strategy. Compared to other
export-oriented nitrogen producers Yara’s product
portfolio is significantly more diversified. More
than two thirds of Yara’s net sales of nitrogen prod
ucts are upgraded products, with NPKs accounting
for 36 percent and nitrates 30% percent of sales
volumes. Among the competitors, two thirds of
sales will typically be standard nitrogen products
like ammonia, urea and UAN. On the other
Third-party volumes supple
ment own production to
maximize capacity utilization
YARA PRODUCED PRODUCTS IS
APPROXIMATELY 70% OF TOTAL
Key suppliers/
JV products
Yara produced
products
25
80%
20
60%
15
40%
10
20%
5
8
5
2
94
96
98
Source: Yara estimates
10
00
02
04
0%
Globalt
gjødselforbruk
Yaras
omsetning
* Nutrient tonnes 2003. Source: Yara, IFA
0
94
Source: Yara, IFA
96
98
00
02
04
BUSINESS MODEL
hand, nitrates and NPK are more differentiated
products that on average command higher mar
gins as they provide superior customer benefits.
A BALANCED GEOGRAPHICAL AND SEA
SONAL EXPOSURE. Yara is the only fertilizer
company with a presence on all six continents.
This allows for a balanced exposure both geo
graphically and seasonally. Combined with a bal
anced product portfolio, this approach enables
Yara to offer products that meet specific
demands across regions, on a global basis. Yara’s
global presence also allows for a balancing out of
the systematic volume difference between the
quarters. When there is low season in one
region, there is always high season in another
region. For example, while Q1 is the seasonal
peak in Europe, Q3 is the seasonal peak in Brazil.
MODELLED FOR GROWTH. Through focused
initiatives governed by the business model, Yara
has built a leadership position within its industry.
Over the past ten years, Yara has achieved a
compound annual growth rate (CAGR) of 4.2
percent in terms of volumes, which is more than
twice the market growth of 2.1%. The growth
has been particularly strong overseas, but has
recently also been significant in Europe despite
a mature market. Since 2001, Yara has been
within the top quartile of its industry peers in
terms of gross return on assets (defined as
EBITDA, excluding non-recurring items, divided
by total assets). Since 1999, Yara has grown both
organically and through well-timed acquisitions
in key growth markets. A notable example is our
involvement in Qafco in Qatar, which dates back
to the late 1960s. Qafco, which is owned 75% by
Industries of Qatar and 25% by Yara, became
the world's largest producer of urea when Qafco-4
went onstream in 2004. In February 2005, a letter
of intent (LOI) was signed with Qatar Petroleum
that paves the way for phase-5 growth at what
has become one of the world’s largest fertilizer
plants. In Brazil, the world’s fourth largest fertilizer market, the acquisition of the local fertilizer
company Adubos Trevo in 2000 marked a breakthrough. Since the acquisition, Yara’s market
share in Brazil has doubled. In 2002 Yara took an
ownership position in the Chilean speciality fertilizer company SQM. The ownership stake has
later been increased, confirming Yara’s longterm commitment to SQM and speciality fertil
izers. The most recent example is the acquisition
of a minority stake in the Russian fertilizer plant
Rossosh. The plant will be of particular impor
tance for the development of Yara’s market posi
tions in key Asian markets like China, Thailand
and Indonesia. All these step-growth initiatives
have put Yara on the path for achieving above
average market growth. The continued focus on
capital discipline, while making acquisitions
based on right timing, synergies and economies
of scale will help Yara to further develop its posi
tion as a leader in the fertilizer industry.
THE GLOBAL
OPTIMIZATION UNIT:
To extract the full potential of Yara’s business model, a dedicated unit for
Global Optimization has been set up as part of the Downstream segment.
The unit optimizes the sourcing of products from Yara production facilities,
the joint ventures in which Yara has an interest, and from third parties. All
these products are sold and distributed through the segment’s global distri
bution 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. Through a focused and continual exchange of information
with the business segments, the unit helps create a shared view of market
conditions, based on local, regional and global market intelligence. This
ensures smooth operations, good risk management and stable cash flows.
Yara’s value chain
PRODUCT SOURCE*
GLOBAL OPTIMIZATION
Yara production
Europe
12.9
Yara production
outside Europe
2.4
Purchased from
JV companies
1.8
Purchased from
third parties
4.6
MARKETING AND SALES
Key accounts
• Sourcing
• Allocation
• Logistics
21.9
Business units
& Front offices
Smaller customers
2004 fertilizer and nitrogen chemicals volumes in million tonnes.
* Including bulk blends
11
BUSINESS SEGMENT:
DOWNSTREAM
STAYING CLOSE TO
THE FARM GATE
WITH SALES IN MORE THAN 120 COUNTRIES, YARA ENJOYS AN UNRIVALLED
GLOBAL PRESENCE IN THE FERTILIZER INDUSTRY. THE COMPANY’S UNIQUE
DOWNSTREAM NETWORK IS KEY TO THIS LEADERSHIP POSITION.
The right products, at the right place, at the
right time – these are the keys to success in the
international fertilizer industry. Through a dedi
cated effort over several decades, Yara has built
a global downstream business that meets these
criteria better than any competitor. The down
stream operation consists of sales and distribu
tion units, as well as production plants for local
markets. These plants upgrade intermediate
products like ammonia into more sophisticated
fertilizer products. Yara is physically present in
approximately 50 countries around the world,
and sells to more than 120 countries through an
extensive marketing and distribution network
consisting of more than 160 plants, terminals
and warehouses. Increasingly, the sales activity
has the form of organizing meetings to educate
growers on optimal use of fertilizers. The
approach of staying “close to the farm gate”
builds customer loyalty and enables Yara to
extract added value from its operations.
In 2004, we further strengthened our position
and platform for profitable growth. In Brazil, two
new local production and storage facilities were
set up. Our Brazilian operation also saw an
encouraging growth in earnings during the year,
thus reducing our overall seasonality of earnings
(see below). Our position within speciality fertil
izer was further strengthened through increased
ownership in the Chilean company SQM
(January 2005) and further integration of Yara
and SQM sales activities in several markets. In
Europe, the Downstream segment achieved
increased sales and a recovery of market share.
12
STRATEGIC STRENGTHS. Our global pres
ence provides us with a number of strategic
strengths. Being margin-based, the down
stream business enjoys lower volatility in earn
ings as input cost and output price tend to be
highly correlated. Global presence also limits
seasonality challenges related to earnings as
well as supply. As an example, the lull in Europe
in Q3 can be outweighed by high activity in Latin
America in the same period. Our global pres
ence in sales and distribution also facilitates
high utilization of the global production plants in
the Upstream segment. In addition, this pres
ence makes Yara an attractive partner for jointventure and third-party producers seeking a
commercial arm with global reach. The use of
third-party producers gives us flexibility as
we can reduce volumes if conditions turn
unfavourable in one area, while increasing it in
regions with better fundamentals. This flexibili
ty is also the result of a conscious decision to
dedicate no more than 60 percent of Yara’s pro
duction volume to key account customers. The
upgrading of intermediate fertilizer products at
our local plants is also a strategic strength, as it
makes us able to offer more sophisticated prod
ucts that can be sold with stable margins.
OVER THREE DECADES OF EXPANSION.
Yara’s global presence has mainly been built
over the last three decades. Our presence in
Europe originates from participation in the
industry consolidation process that started in
the early eighties. This has involved acquisitions
in the Netherlands, Sweden, UK, Germany,
BUSINESS SEGMENT
2004 highlights
Sales volume by market
Million tonnes
• INCREASED SALES AND RECAPTURE
OF MARKET SHARE IN EUROPE
LatAm
3.2
Cont. EU
2.8
Asia
2.3
N America
2.2
Med.
2.1
Africa
1.8
UK & Ireland
1.8
France
N Europe
PRODUCT AND MARKET PORTFOLIO
FOR FUTURE GROWTH.
1.8
1.2
AROUND THE WORLD,
THE YARA BRAND WITH
THE VIKING SHIP LOGO
IS ASSOCIATED WITH
RELIABILITY, QUALITY
AND AGRONOMIC
COMPETENCE.
• POSITION IN BRAZIL FURTHER
STRENGTHENED THROUGH STRONG
GROWTH AND THE OPENING OF TWO
NEW LOCAL PRODUCTION AND STOR
AGE FACILITIES
• SALES OF LOW-MARGIN PRODUCTS
IN ASIA SIGNIFICANTLY REDUCED,
ENABLING A MORE FOCUSED
• POSITION WITHIN SPECIALITY FER
TILIZER FURTHER STRENGTHENED
THROUGH INCREASED OWNERSHIP
IN SQM (JANUARY 2005) AND FUR
THER INTEGRATION OF YARA AND
SQM SALES ACTIVITIES IN SEVERAL
MARKETS.
2004 key financials
(NOK Million)
Operating Revenues
Operating income
EBITDA
CROGI
Pro forma
2004
31,441
1,356
2,068
11.9%
Pro forma
2003
29,120
1,162
1,833
11.1%
Pro forma
2002
26,863
1,347
1,956
12.3%
13
BUSINESS SEGMENT
FOCUS ON:
BRAZIL
FOCUS ON:
CHINA
IMPORTANCE:
THE WORLD’S FOURTH LARGEST
FERTILIZER MARKET
IMPORTANCE:
PRODUCES HALF OF THE WORLD’S
VEGETABLES AND MELONS
OPPORTUNITY:
YARA’S MARKET SHARE DOUBLED
SINCE 2000
OPPORTUNITY:
AN ESSENTIAL MARKET FOR
YARA’S SPECIALITY BUSINESS
With approximately 6 percent of its
vast area being agricultural land,
Brazil is the world’s 4th largest market for fertilizers. From 1994 to 2003
its annual growth in fertilizer consumption was a strong 6–7 percent
and 60 percent of the higher demand
was met through imports. In 2000,
Yara began a new era for its Brazilian
operations with the acquisition of
Adubos Trevo. Since the acquisition,
the market share has doubled and
Yara now operates 17 terminals, production and blending units in Brazil.
A key asset is the highly efficient port in Rio Grande, which handles 2.5
million tonnes of product each year.
France and Italy. Although export sales to China
can be documented as far back as 1913, our real
international presence outside Europe was initi
ated by the completion of the Qafco plant in
Qatar in 1973. This led to the establishment of a
trade office in Hong Kong the same year. Seeing
the advantage of a wider market spread for its
plants, Yara extended its international presence
in Asia and the Americas, as well as in Africa,
during the 80s and 90s.
and gradually make speciality fertilizers a more
important part of our product portfolio. This is
reflected in our ambition to grow at twice the rate
of the market in speciality fertilizers. The cornerstones of this ambition are our global sales and
marketing agreement with the Chilean company
SQM, and our position as the number one producer
and supplier of calcium nitrate. SQM is the
world’s leading producer of potassium nitrate, a
vital ingredient in value-added speciality fertilizers.
THE VALUE OF A STRONG BRAND. Around
the world, the Yara brand with the Viking ship
logo is associated with reliability, quality and
agronomic competence. This association is the
same for a potato grower in Colombia, a grower
of fruits and vegetables in China or an industrial
player within the green house business in
Poland. As a result, Yara enjoys the position of a
premium brand in many markets, and thus the
ability to command a premium price. Yara
intends to further exploit the potential of its
strong brand. In this effort, branded marketing is
becoming increasingly important.
STRATEGIES FOR STAYING ON TOP. The main
growth markets for fertilizer are Brazil, China and
Southeast Asia. Yara will capture its share of this
growth by building on its unique position and
utilizing current and new scale advantages. A
recent step to achieve this goal was the conclu
sion of an agreement with the Russian fertilizer
producer OAO Minudobreniya (”Rossosh”). The
agreement includes a minority stock acquisition
(30%), technology transfer and the integration of
Rossosh into Yara’s planning and marketing
operations. Yara will coordinate production
schedules and logistics for the export of 900,000
tonnes of NPK from Yuzhny by the Black Sea to
key markets in Asia and other growth markets.
Our efforts to maintain industry leadership will
be guided by strong capital discipline and loyalty to our business model. It will also be critical
to identify markets with an attractive supply and
demand environment. High consumption
growth does not make a market attractive if
supply growth is even higher. In our downstream
operation we will therefore closely monitor
developments and build further positions where
we believe good margins can be achieved.
THE GROWING IMPORTANCE OF SPECIALITY
FERTILIZERS. One of the most pronounced
trends in the fertilizer market is the increased
focus on speciality fertilizers. These are formulas
targeted at cash crops like fruit and vegetables,
and where the contribution to quality and nutritional
content is equally important to yield. The global
market for speciality fertilizers is growing annu
ally by 5–6 percent, which is more than twice the
annual growth for traditional fertilizer. Yara intends
to grow its market share in this attractive segment
14
China is an important market for
Yara’s speciality business and will
continue to be so, as growers are
switching from cereals to high-value
cash crops. China now produces half
of the world’s vegetables and melons,
compared to only one third in 1995.
China’s grain harvest peaked in 1998
at 512 million tonnes, and was reduced
to 431 million tonnes in 2003. For Yara,
China offers unique opportunities for
niche marketing of quality fertilizers
and related competence. The change from grain to high-value cash crops
fits well with Yara’s growth ambitions within speciality fertilizers.
With local operations in 48 countries, Yara is a truly global company.
Major production plant
Office
Number of
plants/terminals/warehouses
15
46
YARA OFFICES:
NORTH AMERICA
Canada
United States
YARA OFFICES:
LATIN AMERICA
Chile
Argentina
Brazil
Colombia
Costa Rica
Guatemala
Martinique
Trinidad and
Tobago
BUSINESS SEGMENT
FOCUS ON:
SPECIALITY FERTILIZERS
FOCUS ON:
DOWNSTREAM PRODUCTION
IMPORTANCE:
THE NEW KEY GROWTH MARKET
IN FERTILIZERS
IMPORTANCE:
SERVES LOCAL MARKETS
DIRECTLY
OPPORTUNITY:
YARA IS THE NUMBER ONE
GLOBAL BRAND
OPPORTUNITY:
ADDS STRENGTH TO YARA’S
GLOBAL POSITION
Yara is the number one global brand
within speciality fertilizers. Through
its specialities business, Yara is a
leading supplier of plant nutrient solu
tions for cash crops, typically fruit and
vegetables. Agronomic competence is
a unique and integral part of Yara’s
offering to growers of high quality
crops, wherever they are in the world.
A complete and balanced plant nutri
tion portfolio, combining our self pro
duced products with third party prod
ucts from our global partnerships, backs our competence. In 2004 spe
ciality fertilizers contributed approximately 17 percent of Downstream
revenues, with double-digit annual growth in recent years.
YARA
OFFICES:
EUROPE
Belgium
Czech
Republic
Denmark
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
In addition to a wide network of sales
and distribution units, the Down
stream segment also includes a num
ber of production plants. These plants
upgrade intermediate products like
ammonia, phosphate and potash into
more sophisticated fertilizer products.
Downstream has seven production
sites in Europe, one in Brazil and one
in South Africa. These plants have a
total production capacity of more than
5 million tonnes, serving customers in
the local and regional markets. These production facilities, terminals and
warehouses give Downstream a unique and cost competitive infrastruc
ture for its global operations.
Poland
Russian
Federation
Spain
Sweden
United
Kingdom
62
15
18
22
YARA OFFICES:
AFRICA
Cameroon
Ivory Coast
Egypt
Guinea
Kenya
Malawi
Nigeria
South Africa
Tanzania
Zimbabwe
YARA OFFICES:
ASIA/OCEANIA
Australia
China
India
Indonesia
Iran
Malaysia
New Zealand
Phillippines
Qatar
Singapore
Sri Lanka
Thailand
Vietnam
15
BUSINESS SEGMENT:
INDUSTRIAL
Yara Industrial nitrogen products
1,010
02
03
1,148
1,008
903
821
YARA
Annual growth rate of 8.6%.
(Thousand tonnes)
inside
00
01
16
04
BUSINESS SEGMENT
THE INDUSTRIAL SEGMENT MAKES UP AN INCREASINGLY IMPORTANT PART OF
YARA’S BUSINESS PORTFOLIO. LEADERSHIP POSITIONS IN HIGH-GROWTH PROF
ITABLE MARKETS PROVIDE A SOUND PLATFORM FOR FURTHER DEVELOPMENT
OF THE SEGMENT.
301
458
• NEW CO2 PRODUCTION CAPACITY ADDED IN DORMAGEN,
GERMANY
• DIVESTMENT OF CO2 PLANTS IN MALAYSIA AND THAILAND
• STRENGHTENED POSITION IN TECHNICAL AMMONIUM NITRATE
• NEW ADBLUE PRODUCTION PLANT OPENED IN BRUNSBÜTTEL,
GERMANY
433
Environmental applications have grown at an
average annual rate of 11% since 2000.
(Thousand tonnes)
393
2004 highlights
357
Environmental applications
2004 key financials
00
01
02
03
04
(NOK Million)
Operating Revenues
Operating income
EBITDA
CROGI
Pro forma
2004
5,392
454
688
14.0%
Pro forma
2003
4,769
442
688
14.3%
Pro forma
2002
4,400
508
789
16.8%
Over the last decades, the Industrial segment
has used Yara’s nitrogen fertilizer production as
the basis for growth opportunities in many parts
of the industrial sector, in Europe as well as in
North America. Industrial’s main activity is the
use of ammonia and other co-products from
Upstream as a basis for industrial applications.
Finding new applications of existing Upstream
products and co-products for end users have
been the thrust for the successful development
of Yara Industrial.
For Yara overall, this market segmentation strat
egy also adds value by balancing out the
dependency on commodity margins in the more
volatile parts of Yara’s business. The underlying
growth in the segment’s core markets has been
attractive, and cash-flow generation has been
strong. As an example, Yara has been able to
grow its nitrogen chemical volumes by more
than 8 percent annually during the last five
years.
Further on, it is likely that a higher share of
Yara’s organic growth in Europe will take place in
the nitrogen chemical market relative to the
European nitrogen fertilizer market. The indus
trial part of the European nitrogen market con
stitutes approximately one third of the combined
industrial and fertilizer market, and Yara’s share
of the non-captive chemical market is approxi
mately 25 percent.
production of AdBlue, a high quality urea solu
tion for reducing emission of nitric oxides (NOx)
from heavy-duty vehicles. In addition, Yara has
streamlined its operations by divesting the CO2
plants in Malaysia and Thailand.
The development of the Industrial segment is
built on a set of established key strengths, first
of all the leadership positions established in
profitable markets with high growth. In addition,
the Industrial segment has a proven strong abil
ity to develop new applications and achieve justin-time deliveries to a wide and diversified cus
tomer base. Yara’s strong base for production of
industrial chemicals and gases in the Upstream
segment, is also key to this development.
FROM FOODCARE TO ENVIRONMENTAL
APPLICATIONS. The Industrial segment was
reorganized in 2004 and comprises four busi
ness units: CO2, Industrial gases, N-chemicals
and Nitrates. The focus on developing novel
applications contributing to a cleaner environ
ment is a core activity across all Industrial busi
ness units.
During 2004, the Industrial segment strength
ened its position through a number of key initia
tives. In Germany, the production capacity for
CO2 was increased with the investment in a
new liquefaction plant in Dormagen. This repre
sents a new capacity located centrally in the
important German market. Yara strengthened
the market position for nitrates in its core mar
kets for civil explosives (mining). In Germany
(Brunsbüttel), a new plant was opened for the
CO2. Yara’s ammonia plants produce CO2 as a
co-product. This has led to a unique position as
a major producer and distributor of liquid CO2 in
Europe. Important customers include the large
soft drink bottlers in Western Europe, as well as
breweries and the food industry. Yara’s dry ice
factories in France, England, Germany and
Denmark have been developed as downstream
vehicles to further exploit the strong position in
the food and transportation industry. The pro
duction facilities in Sluiskil (The Netherlands),
Ferrara (Italy), Dormagen (Germany) and
17
BUSINESS SEGMENT
BUSINESS AREA: CO2
BUSINESS AREA: Industrial gases
Yara’s ammonia plants produce CO2 as a co-product. This has led to a
unique position for Yara’s Industrial segment as a major producer and
distributor of liquid CO2 in Europe. Important customers include the
large soft drink bottlers in Western Europe, as well as breweries and the
food industry.
Yara’s Industrial segment supplies a wide range of industrial gases used
in diverse applications in a number of industries. For customers involved
in metal fabrication, Yara is an important provider of argon, helium and
oxygen needed for welding and cutting.
Liquid CO2 for the food
and beverage industry
Porsgrunn (Norway) have a capacity exceeding
900,000 tonnes of liquid CO2 per year. In addi
tion, Yara has long-term contracts for the
purchase of third-party products from other pro
ducers in the UK and continental Europe. Yara
operates its own dedicated vessels for shipping
CO2 to distribution terminals in a number of
countries and this capacity has made Yara a pre
ferred supplier of CO2 due to security of supply.
Industrial gases. Yara supplies a wide range of
industrial gases used in diverse applications in a
number of industries. The product portfolio
includes nitrogen, argon, oxygen, a number of
speciality gas mixtures and medical gases. In
the metallurgical industry, oxygen boosts tem
perature in furnaces and argon removes impuri
ties from liquid metal. Argon, helium and oxy
gen are needed for welding and cutting in metal
fabrication. A wide range of products are used in
the process industry, from making inert atmos
pheres to more demanding applications.
Cylinder gases are distributed through a wide
network of agents.
18
Gases for welding and cutting
in metal fabrication
N-chemicals is the term used by Yara for prod
ucts like ammonia, urea and nitric acid. The
major European chemical industries are served
with N-chemicals from Yara. Some N-chemicals
are produced in separate plants due to special
requirements for quality standards.
grown at an annual average rate of 11 percent
since 1999, with annual volumes exceeding
450,000 tonnes in 2004. Yara is the global
leader in calcium nitrate applications for waste
water treatment, and holds a strong position
within the removal of NOx from combustion
processes such as coal fired power plants.
Nitrates. The nitrates business includes techni
cal grade ammonium nitrates for civil explosive
purposes, and calcium nitrate for a range of
applications including waste water odour control
and treatment of reservoir souring. The civil
explosives are used for mining and to support
infrastructure development. This includes road
building and construction projects as well as for
mining of important minerals used in the elec
tronics industry and for coal used in the produc
tion of energy. The environmental applications
of our nitrate business are further explained
below.
Nutriox is a unique, environmentally friendly,
calcium nitrate product used to eliminate and
prevent the formation of hydrogen sulphide.
Hydrogen sulphide is an odorous, toxic and cor
rosive gas that is formed for instance in waste
water pipes. In Europe, customers range from
municipalities to water treatment companies.
The Nutriox purification technology is well
established in Europe and in North America, and
is in use at thousands of sites. In Europe, France
is a major market, with the municipality of Paris
as a key customer.
HELPING TO PROTECT THE ENVIRON
MENT. Environmental applications make up an
essential component in all business units in the
Industrial segment. Such applications have
PetroCare products are nitrate-based products
tailor-made for the oilfield market. One of the
applications is based on the same principles as
Nutriox with the aim to avoid production of
BUSINESS SEGMENT
BUSINESS AREA: N-chemicals
BUSINESS AREA: Nitrates
N-chemicals is the term used by Yara for products like ammonia, urea
and nitric acid. The major European chemical industries are served with
N-chemicals from Yara. An important new application with a high
potential is AdBlue, a high-quality urea solution used to reduce NOx
emissions from heavy-duty vehicles. Air1 is Yara’s AdBlue concept.
The nitrates business includes technical grade ammonium nitrates for
mining and infrastructure development, and calcium nitrate for a range
of applications including waste water odour control and treatment of oil
reservoir souring. Under the product brand PetroCare, Yara markets a
family of nitrate-based products tailor-made for the oilfield market.
Air1
hydrogen sulphide in oil reservoirs. However
PetroCare could also be used to increase oil pro
duction from reservoirs and to extend the life
time of oil fields. This technology is now well
established in the Norwegian, Danish and
British sector of the North Sea as well as in the
Gulf of Mexico. New markets are currently being
evaluated.
Reduktan is a product applied to reduce the
emission of NOx from power plants, waste
incineration sites and shipping vessels. The
product reacts with the undesired nitrogen com
pounds in exhaust gases resulting from the
combustion processes, forming pure nitrogen
gas and water.
AdBlue is a new environmental product with a
high potential. This is a high quality urea solu
tion that is used for reducing NOx emissions
from heavy-duty vehicles based on the Selective
Catalytic Reduction (SCR) technology. The solu
tion was developed in cooperation with major
truck manufacturers and responds to more strin
gent restrictions on exhaust gas emissions now
PetroCare
being implemented by the EU. Yara is now
launching its Air1 marketing supply concept for
AdBlue together with Brenntag, Europe’s largest
chemical distributor. Yara’s urea production facil
ities in Germany, Netherlands, France and Italy
are uniquely positioned to take advantage of this
particular growth opportunity. The truck industry
estimates that West Europe will need 3.5 million
tonnes of AdBlue by 2012.
CLOSE DIALOGUE WITH OUR CUSTOMERS.
Yara’s approach to the market in the Industrial
segment is governed by three key value propo
sitions to the customers: Reliability, long-term
relations, and the ability to solve problems and
challenges related to the customer’s process.
Yara’s goal is to develop effective solutions by
combining its product expertise with the cus
tomers’ knowledge of their process. Central to
the market strategy is also the ambition to be
present in large sections of the value chain. This
presence is often related to quality control, as
demonstrated in our CO2 delivery concept. Yara
is also working to extend the product offering
with relevant service applications. An example
is eNutriox, a web solution that allows Nutriox
customers to monitor status throughout the
purification process.
FOCUS ON INNOVATION AND SYNERGIES.
The Industrial segment will continue to focus on
product innovations, services and applications
based on products originating from Yara’s pro
duction plants. Restructuring opportunities in
the fertilizer/chemical industry can provide the
segment with access to new infrastructure. As
some plants can produce fertilizer grade as well
as industrial products, Yara will continue to eval
uate opportunities between such products to
optimize long-term margins. The competitive
ness of industrial products often depends on
their proximity to production plants. Yara will
therefore focus on securing market positions
that allow for synergies with existing infrastruc
ture and that enables Yara to further optimize its
global logistics operations.
19
BUSINESS SEGMENT:
UPSTREAM
CHASING AN EVER STRONGER
COST POSITION
20
BUSINESS SEGMENT
THE PLANTS IN THE UPSTREAM SEGMENT FORM THE BACKBONE
OF YARA’S PRODUCTION SYSTEM. THROUGH A PERSISTENT FOCUS
ON COST, THROUGHPUT AND SAFE OPERATIONS, THE SEGMENT
PROVIDES A HIGHLY COMPETITIVE FOUNDATION FOR YARA’S
GLOBAL BUSINESS.
YARA ANNUAL REPOR
REPORT
T 20
2004
21
BUSINESS SEGMENT
Safety and productivity
improvements go hand
in hand*
Yara’s basic production process
Natural minerals:
Phosphorus (P)
Potassium (K)
Productivity (million tonnes finished prod
ucts per million hours worked in plants)
LTI-rate (number of lost-time injuries per
million hours worked)
5
2.0
1.657
1.55
1.6
1.2
1.1
00
01
02
03
* All Yara plants
*) Market share based on sales
2004 key financials
(NOK million)
1.5
1
0
0.8
2.0
2
Natural gas
Productivity
1.483
2.7
3
1.448
Nitrogen (N)
from air
1.663
3.2
LTI-rate
4
04
0.4
0.0
Operating Revenues
Pro forma
2004
2003
Pro forma
2002
18,603
15,181
11,180
Operating Income
2,166
1,212
474
3,379
2,249
1,130
CROGI
14.7%
10.6%
5.7%
T
2004 was a very satisfactory year for the
Upstream segment, with return on capital
employed reaching historically high levels. The
key factors behind the result are high prices of
ammonia, high production volumes and suc
cessful energy sourcing. At the same time, strict
capital discipline has been maintained, providing
for a high cash flow. Cost improvement efforts
continued through the year, with a particular
focus on three major plants: Brunsbüttel in
Germany, Sluiskil in the Netherlands and
Ferrara in Italy. Significant results have been
achieved, particularly within energy efficiency
Pro forma
EBITDA
he Upstream segment includes
Yara’s own ammonia production
and large-scale fertilizer facilities.
In combination with the local
plants in Yara’s Downstream seg
ment, this production capacity
makes Yara the world’s leading producer of
ammonia, nitrate and NPK. This position pro
vides Yara with ample opportunities to reap
economies of scale and share best practices
across a large network of similar plants, and
contributes substantially to Yara’s competitive
returns. The Upstream segment also comprises
the trade and shipping of ammonia, which sup
plies Downstream plants with ammonia and
employs Yara’s global ammonia shipping and
distribution network to generate additional
value. In addition, global gas sourcing, technical
R & D and global production support are crucial
to the success of the Upstream segment.
22
FINISHED PRODUCTS*):
NPK
Global # 1 producer
Nitrates (CAN, AN)
Global # 1 producer
Urea
European # 1 producer
Speciality fertilizer
Global # 1 cash crops
Industrial products
European # 1 CO2
supplier
Ammonia
and regularity. In addition at our facility in
Porsgrunn, Norway, systematic operation and
removal of bottlenecks resulted in all time high
production volumes. Record production volumes
have been achieved for ammonia, nitric acid and
finished fertiliser for Yara total in 2004.
BASED ON NITROGEN AND NATURAL
GAS. In the basic process to produce nitrogen
fertilizers, nitrogen is extracted from the air and
combined with natural gas to form ammonia. In
turn, ammonia forms the basis for urea, nitrate
and other nitrogen fertilizers. For a western pro
ducer, natural gas typically accounts for 50–80
percent of total input cost for urea, depending
on gas prices. Potash and phosphate are
extracted from mines and sold separately or
combined with ammonia or nitrogen fertilizers
to form NPK fertilizers. The side streams of the
main production are fully utilized by Yara’s busi
nesses within speciality fertilizer and industrial
products.
Yara has five integrated production sites with
own ammonia production located in Yara’s
European home market. These are found in
Porsgrunn (Norway), Brunsbüttel (Germany),
Sluiskil (the Netherlands), Le Havre (France) and
Ferrara (Italy). Two overseas ammonia produc
tion facilities are located where lower cost gas is
available – one in Qatar (joint venture) and one
in Trinidad (comprises of one fully-owned plant
and two plants in a joint venture). Over the past
five years, these plants have performed well,
showing a solid production increase both for
ammonia and urea. This can mainly be attrib
uted to productivity increases in existing plants
without major investments and the successful
completion of the Qafco-4 project in Qatar. As a
result, Yara can benefit from some of the most
competitive production plants in the industry.
THE COST IMPERATIVE. A strong cost posi
tion is a basic requirement for healthy returns in
the fertilizer industry. This involves two funda
mental challenges: reduce cost and increase
throughput. In Yara we strive for constant
improvement on both dimensions, with an over
riding ambition to pursue scale in everything we
do. Today, Yara enjoys a cost position well below
the European average for all its core products –
ammonia, nitrates and NPK.
As we chase an ever stronger position, three
areas are of particular importance: improved
feedstock cost, improved energy efficiency and
the removal of bottlenecks in production.
Feedstock cost advantage is largely determined
by the price differences of natural gas between
Europe, the US and the Middle East and other
stranded gas areas. As swing capacity exists in
the US, production costs in this market repre
sent a floor price for ammonia and urea. Since
2000, gas prices in Europe have been lower than
in the US. This supports good margins for Yara,
as a large part of its costs are based on
European energy prices. Another cost advantage
is the fact that Yara’s gas contracts have a
BUSINESS SEGMENT
Average cost Yara’s European plants
Ammonia cost position
Nitrate cost position
NPK cost position
Production cost index: 100 = European EFMA average excl. Yara
An agreement is signed with the owners of the new, world-scale ammonia plant on
the Burrup Peninsula in Western Australia, acquiring a 30 percent stake in Burrup
Holdings Pty Ltd.
While the basic process to produce nitrogen fer
tilizers has remained unchanged for many years,
there is still room for improvement in our plants.
At all times, Yara performs systematic plant
testing and systematic maintenance to increase
yield and remove bottlenecks. Improvements
are documented and best practice is spread
across our large network of similar plants.
ADDED VALUE THROUGH TRADE AND
SHIPPING. Ammonia is shipped in liquid form
in tailored vessels. The handling of ammonia
during transport involves particular challenges
where Yara has unique skills and experience. We
are the only producer in our industry, to have
built up a significant fleet of specialized ammo
nia vessels. We currently have operative control
over 15 ships, but only 3 of these are wholly
owned by Yara. In 2004, two new vessels of
40,000 tonnes each were added to the fleet,
providing significant extra capacity and flexibility.
93
91
85
90
80
01
100
60
40
A minority stake is acquired in the Russian fertilizer producer Rossosh. The plant
will be of particular importance for the development of Yara’s market positions in
key Asian markets like China, Thailand and Indonesia.
The cost of energy is controlled by combining
different vendors in a balanced purchasing port
folio with contracts of different durations. From
2003 to 2004 our price of energy rose by less
than 10 percent, compared to an increase in oil
price of around 50 percent in the same period.
00
80
A letter of intent is signed for the building of a fifth fertilizer plant in Qatar
(Qafco-5). The plant will provide additional growth for what is already the world’s
largest fertilizer producing site.
significant link to low-sulphur fuel oil, which has
not followed crude oil to the current high levels.
It should be noted, however, that forward prices
for fuel oil point upwards while they point down
ward for crude (March 2005).
91
87
90
Key events Q1 2005
87
100
89
NETHERLANDS), PORSGRUNN
(NORWAY) AND FERRARA (ITALY)
• QAFCO-4 COMMISSIONED.
PRODUCTION VOLUMES CLOSE
TO FULL CAPACITY END OF 2004
• RETURN ON CAPITAL EMPLOYED
AT HISTORICALLY HIGH LEVELS
100
• RECORD PRODUCTION VOLUMES
FOR AMMONIA, NITRIC ACID AND
FINISHED FERTILIZER.
• SIGNIFICANT PRODUCTIVITY
IMPROVEMENTS ACHIEVED AT
OUR PLANTS IN BRUNSBÜTTEL
(GERMANY), SLUISKIL (THE
Yara – the European low cost leader
102
2004 highlights:
20
0
02
03
Source: EFMA
The fleet, together with an extensive involve
ment in storage and trade, makes Yara a global
no. 1 also in this part of the industry. Thus, we
extend our physical control through the value
chain, which again results in improved margins.
Success in our trade, shipping and commercial
activities also rests on our ability to maintain
optimal customer relations and world-class
logistics.
FOCUS ON SAFETY. Health, safety and envi
ronmental protection are issues of critical impor
tance across the activities in the Upstream seg
ment. In this area, we aspire for the highest
standards for ourselves as well as our partners.
Our upstream activities involve potentially dan
gerous products and processes. If not handled
safely and professionally, several of our mechan
ical and chemical processes may cause serious
harm. Yara’s key performance indicator in this
area – LTI: Lost-Time Injury – showed a positive
development during 2004.
CONTINUED FOCUS ON PRODUCTIVITY
AND CAPITAL DISCIPLINE. The price of
ammonia and urea and the cost of oil, gas and
other raw materials will continue to be essential
external parameters for Yara’s Upstream busi
ness. In response, Yara will strive to further
improve its leading competitive position by
improving productivity and maintaining capital
discipline. Lower fixed cost and higher produc
tion volume will be key to maintaining and
improving productivity. Additional improvements
will be pursued through systematic plant testing
in order to remove bottlenecks.
A strong financial position will enable Yara to
acquire additional capacity when the timing is
appropriate. The most likely location for such
initiatives will be the stranded gas areas, where
energy is cheaper than in Europe. One example
is the Letter of Intent recently signed (01.02.05)
with Qatar Petroleum and Qafco to add more
capacity to our joint venture in Qatar through a
new project (Qafco-5).
Yara not only cares about the safety of the peo
ple in its plants, but also about the safety of
customers and others involved in our activities.
To facilitate the best possible handling of its
products, Yara and the European Fertilizer Man
ufacturers Association have launched a Product
Stewardship initiative to improve product han
dling procedures and other processes. (See page
26)
23
COO PERSPECTIVE
WE NEED TO BE RELEVANT
FOR THE NEXT DIET
AN INTERVIEW with DANIEL CLAUW, CHIEF OPERATING OFFICER
THE EXTENSIVE INTERFACE WITH END USERS AROUND
THE WORLD SETS YARA APART FROM ITS COMPETI
TORS. WITH THE EMERGING NEED FOR NEW TYPES OF
FERTILIZERS, THIS INTERFACE WILL BECOME AN EVEN
MORE IMPORTANT ASSET, EXPLAINS DANIEL CLAUW,
YARA’S CHIEF OPERATING OFFICER.
While the fundamentals of the fertilizer industry
remain largely intact, there are significant new
developments to watch. Daniel Clauw is con
cerned with both, and believes that Yara needs
a multiple strategic focus to succeed.
- Our industry is truly global and it has a good
size. Many observers will also call it mature, but
it still grows by around 2 percent a year. A grow
ing population, combined with less availability
of arable land, will inevitably result in a contin
ued need for good fertilization. But there are
also significant changes affecting the industry.
The most important is the shift to a broader
focus on yield including a focus on nutritional
content in the crop, protein in particular. This
change, which has been going on for 5–6 years,
implies that the traditional product approach to
the market will have to be supplemented by a
nutrition approach. At Yara, we take pride in a
good understanding of the product and the
farmer’s needs. However, we need an even
broader understanding of these needs and how
they change. In particular, this understanding is
24
important to further develop our business with
in speciality products. We must understand the
fertilization needs for growing cash crops like
fruit and vegetables, including the role of
micronutrients, different climatic conditions, dif
ferent soil factors, and so on. This will require a
change of perspective, seeing ourselves as part
of the food supply chain. To meet the needs of
what is often called “the next diet”, we must
proactively develop our marketing efforts and
our product portfolio. Our global Downstream
operation and closeness to the farm gate makes
us uniquely positioned to achieve this objective.
We are able not only to understand the needs in
different regions and for different kind of crops,
but also to drive the change. With our total
value chain approach we can benefit from the
market pull, while having control over the com
modity part of our business.
What examples from Yara’s business can
illustrate this development?
- One example is our strategic joint venture with
the Chilean company SQM, the world’s most
competitive producer of potassium nitrate (PN).
Through this partnership, we are able to offer a
complete product portfolio for the high value
crop segment being served by our specialities
business. Included in this offer are solutions for
fertigation – fertilizer applied through the irriga
tion of water. The SQM agreement, combined
with our position as the number one producer of
calcium nitrate (CN), has enabled us to take a
global leadership position in fertigation.
Another example is our activities in China. In
this vast market, a major transition is sweeping
across the agricultural sector, with the growers
switching from cereals to high-value cash crops.
China now produces half of the world’s vegeta
bles and melons, compared to only one third in
1995. For Yara, China offers unique possibilities
for niche marketing of quality fertilizers and
related competence.
Apart from the increased emphasis on
specialities, what is Yara’s strategic focus?
- Our focus is dual. From our product platform,
COO PERSPECTIVE
with a best-in-class cost position, we control the
basic elements of mineral fertilizers: ammonia,
urea and nitric acid, which form the basis for a
wide range of products. We combine this with a
world-class marketing and brand value approach
to achieve healthy margins on the distribution
side. With this dual focus, supported by good
business intelligence, we have been able to take
leadership in our industry. This will also be the
basic approach as we seek to strengthen our
leadership and create shareholder value in the
years ahead.
Building on its leadership position, Yara has
stated an ambition to shape the industry.
What does this ambition imply?
- First of all it implies a clear ambition to grow.
It is important to note, however, that we will
only grow when we see good strategic reasons
for doing so. In other words: we will grow by
design, not by default. Being the preferred part
ner for local producers and also the preferred
partner Upstream, nobody can match our posi
tion in mineral fertilizers. From this vantage
position, we can grow in several dimensions:
Downstream, there is an opportunity for organic
growth. Upstream, we may pursue step growth,
but only if it fits in with and is beneficial to the
whole value chain of Yara. In considering such
steps, we also have to evaluate the conse
quences for the industry structure as a whole.
How would you describe the role of the
Industrial segment in Yara’s future devel
opment?
- Our Industrial segment primarily conducts its
business in Europe. On the agricultural side,
Europe is the most mature market we operate
in. However, it represents a significant growth
potential for our industrial products, existing and
new. We will continue to develop this important
business through a constant search for new
applications and a strategy of seeking a deep
presence in the customer’s value chain.
In some parts of the world, the fertilizer
business has been subject to political bar
riers, motivated by some countries’ ambi
tion to remain self-sufficient. What devel
opments do you see in this area?
- Here, we observe a clear positive trend. Every
year it gets easier for companies like Yara to
gain access to markets that were formerly
closed. The fertilizer industry is gradually
becoming a privately owned business where
influence is shifted from policymakers to share
holders. This is an important development, as it
affects huge markets like India and China.
Since March 2004, Yara has been an inde
pendently listed company. How does that
affect the agenda of the corporate man
agement group?
- Because we are leaner, we are now more flex
ible and can act more quickly. We can pursue our
own vision and strategy with full independence.
However, it also means that we are able to
spend more time with analysts, institutional
investors and journalists. More than before, we
are expected to be clear and outspoken about
our strategy and business model. I believe this
to be a good thing, also for Yara.
25
PRODUCT STEWARDSHIP
RESPONSIBILITY
THROUGHOUT THE VALUE CHAIN THE MANUFACTURING, DISTRIBUTION AND SALE OF FERTILIZER IMPLY A NUMBER
OF OBLIGATIONS RELATED TO SAFETY AND CARE FOR THE ENVIRONMENT. YARA
TAKES ON THIS RESPONSIBILITY IN A STRINGENT AND SYSTEMATIC MANNER,
GUIDED BY THE INDUSTRY’S PRINCIPLES OF GOOD PRODUCT STEWARDSHIP.
I
n 2003 the European Fertilizer Manufacturers Association (EFMA) established a Product Stewardship programme to ensure that proper care is
taken along the whole fertilizer value
chain – from product development and
purchase of raw materials, during production
and storage and in the distribution network right
up to delivery and use on the farm. The requirements deal specifically with the hazards related
to ammonium nitrate fertilizers, and responds to
some recent serious accidents in the storage
and transportation of such products. Yara has
26
participated in the development of the program,
and has expanded on the requirements in its
own application of the principles. The elements
of Product Stewardship reflect the specific challenges in each of the steps in the value chain.
Many of the principles are also applied in Yara’s
Industrial segment, where a number of safety
challenges are similar to those found in the fertilizer business.
PRODUCT DEVELOPMENT. At the product
development stage, considerations include how
new fertilizer products should be composed. The
products must meet the requirements of bal
anced fertilization, ensuring that the fertilizer
provides the correct amount of nutrients needed
by the plant. At the same time the physical and
chemical properties of the product must comply
with customer demands and meet with interna
tional and national legislation. Yara has estab
lished a Product Technology Centre dealing
specifically with the legislative requirements in
all markets and is the centre for issuing product
safety data sheets and transport emergency
cards.
PRODUCT STEWARDSHIP
Product Stewardship in Yara
PRODUCT APPLICATION
AND FARMER SERVICES:
Advice on product use and
application
Information on safe use
and handling of fertilizers
MARKETING AND SALES:
Sales of qualityapproved products
Product safety information
to customers
Responses to inquiries
STORAGE:
Selection of and coopera
tion with storage operators
Use of best practices in
operating standards
Emergency plans and
safety information
TRANSPORTATION:
Selection of and coopera
tion with transporters
Use of best practices in
operating standards
Emergency plans and prod
uct safety information
PRODUCT DEVELOPMENT:
Assessment of
HSE and product quality
Regulations
Processing limitations
PRODUCT
STEWARDSHIP
PACKAGING
Assessment of packaging
material
Recycling and safe waste
disposal
SOURCING:
Selection and cooperation
with suppliers
Product quality criteria
HSE of processing and
final product
MANUFACTURING:
Operational and technical
standards
Selection of contractors
Product quality criteria
HSE of processing and final
product
27
PRODUCT STEWARDSHIP
EFMA/SGS external audit of
Yara’s European operations, 2004
Product Stewardship
management
Fertilizer application rates
and environmental impacts
Relative environmental
impact per tonne wheat
grain
81
Eutrophication
Sourcing, Manufacturing
and Packaging
89
SOURCING, MANUFACTURING AND PACK
AGING. Whether produced by Yara or by a thirdparty supplier, Yara has established stringent cri
teria for the quality of raw materials, additives
and finished products. For example, the quality
of ammonium nitrate is set at a stricter level
than the EU requirements, and when sourcing
minerals and additives, the content of cadmium
and other impurities is reviewed to meet envi
ronmental requirements. The increasing atten
tion directed at food safety in general is reflect
ed in Yara’s policy of continuously developing
products that are safe and clean, and which
meet the need for cost-efficient agriculture.
The manufacturing stage has traditionally been
the cornerstone of safety efforts in our industry,
with a focus on occupational health and safety
and serious risk factors like fires, explosions and
emissions of pollutants. Manufacturing process
es are today strongly regulated by international
and national requirements, where the EU has
taken a leading role. Yara’s manufacturing sites
satisfy these regulations. In addition, Yara has
implemented more detailed European industry
standards for its fertilizer operations and indus
trial activities, for instance on the safe treat
ment of waste products and reject fertilizer
materials. Closely related to manufacturing is
the packaging stage, where important issues
include the choice of packaging material and
possibilities for recycling. Another issue of rele
vance to packaging is labelling, where the main
challenge is to provide concise and relevant
information for safe and correct handling of the
product.
TRANSPORTATION AND STORAGE. To
secure good Product Stewardship, stronger
attention is needed to operations beyond the
28
150
100
50
Marketing and Sales
84
0
pt
O
N
si
ve
es
100
Ex
c
80
N
60
um
40
Score (100=best)
im
20
N
0
Ze
ro
Good information
is essential to good
product stewardship
Land use
87
250
200
Acidification
Global Warming
Transportation
and Storage
300
Source: Yara Research
factory gate, where other companies are
involved and take over the formal responsibili
ties. Yara is directing much attention to external
service providers and in setting standards for
safe operations. This is of particular relevance to
transportation. The perception of the industry’s
safety standard is closely linked to the perform
ance of the service providers. Therefore, Yara
must be confident about the quality of the
vehicles used, the skill of the driver and other
personnel, and the status of the emergency pro
cedures. In effect, Yara critically reviews the
safety performance when choosing partners,
and has a requirement for tight operational
standards. In some instances we offer a Total
Service Provider concept, which includes ele
ments like training of people who handle our
products, and technical solutions for receiving
and storing products. For storage of fertilizer
products, Yara has established an industry code
together with other producers, taking account of
the risk of accidents and thefts. This is followed
up at Yara’s own warehouses, at rented storages
and at customers’ sites.
MARKETING, SALES AND CUSTOMER
SERVICES. At the user end of the value chain,
the key product stewardship challenge is to pro
vide sound advice on the best use of fertilizer, as
well as giving directions on the safe storage and
handling on the farm. This means that our sales
and marketing personnel need to be resourceful
consultants to wholesalers, retailers and farm
ers. It also implies a constant need for good
information material – an area where Yara
spends significant resources. In addition, our
services to the farmer include a number of tools
to assist in the correct application of fertilizer.
One example is the N-Sensor, a device fitted to
the tractor that measures the nitrogen status of
the crop and calculates the optimum nitrogen
requirement for each individual part of the field.
An attached spreader immediately applies the
correct amount of nitrogen. Environmental pro
tection is the basis for the advice we give on fer
tilizer application rates. Research shows that
balanced fertilization, i.e. the right amount and
the right kind of nutrients applied at the right
time during the growing season, provide the
least detrimental environmental impact and the
most efficient and profitable farming.
ROOM FOR IMPROVEMENT. In a rating per
formed by SGS, an independent auditor on
behalf of EFMA, Yara scores high on the Product
Stewardship parameters. Still there is room for
improvement, and this is currently being
addressed by Yara’s business units.
Yara is committed to the further development of
fertilizer products which meet high demands on
quality, agronomic efficiency, safety and envi
ronmental care. Likewise, Yara’s operational
procedures and technical standards are continu
ously being reviewed to match best industry
practices. This also applies to the distribution
and application of fertilizer and other products in
Yara’s portfolio. The Product Stewardship pro
gramme is a key tool in this effort.
FINANCIAL STATEMENTS AND OTHER
MANAGEMENT-RELATED INFORMATION
CONTENTS:
30
REPORT OF THE BOARD
OF DIRECTORS
34
CORPORATE GOVERNANCE,
SOCIAL RESPONSIBILITY & HSE
39
MANAGEMENT DISCUSSION &
ANALYSIS 47
CONSOLIDATED FINANCIAL
STATEMENTS
47 Consolidated Profit and Loss
Statements
48 Consolidated Balance Sheets
50 Consolidated Cash Flow
Statements
51 Notes to Consolidated Financial
Statements
83
FINANCIAL STATEMENTS YARA
INTERNATIONAL ASA
83 Yara International ASA
Profit and Loss Statement
Balance Sheet
Cash Flow Statement
87 Notes to the Financial Statements
for Yara International ASA
97
AUDITORS’ REPORT
98
USE OF NON-GAAP MEASURES
100
101
IMPLEMENTATION OF IFRS
OPERATIONAL DATA
102
BOARD OF DIRECTORS
104
MANAGEMENT AND
ORGANISATION
106
THE YARA SHARE
As a result of rounding differences, figures or percent
ages may not add up to the total
29
FROM THE BOARD OF DIRECTORS
REPORT OF THE
BOARD OF DIRECTORS
YARA WAS DEMERGED FROM NORSK HYDRO AND LISTED ON THE OSLO STOCK
EXCHANGE 25 MARCH 2004. WITH RECORD FINANCIAL RESULTS FOR THE YEAR
AND WITH A SUCCESSFUL LISTING, THE BOARD OF DIRECTORS BELIEVE YARA
HAS BEEN LAUNCHED WITH A STRONG START.
BACKGROUND
The decision to demerge and list Yara in 2004
was taken by Norsk Hydro after concluding that
its shareholders would benefit from Yara having
direct access to capital markets and a better
opportunity to grow both organically and through
the ongoing restructuring of the fertilizer indus
try. 80 % of the shares in Yara were distributed
to the Norsk Hydro shareholders and 20 % were
sold in a public offering. Since April 2004 Yara
has had no ownership relationship or other ties
to Hydro with the exception of some arm’s
length contracts for the supply of selected prod
ucts and administrative services.
Yara is a chemical company mainly focusing on
production, sales and distribution of nitrogen
chemicals. The main application is fertilizer, but
many industrial applications are also important.
Yara is the world's largest fertilizer company
measured by revenues and profit. Yara's head
office is located in Oslo, Norway, and the com
pany has operations in approximately 50 coun
tries with products distributed to approximately
120 countries. Yara's business is organized into
three segments:
DOWNSTREAM which contains the global
fertilizer distribution system and smaller
plants upgrading intermediate fertilizer
products like ammonia into finished fertiliz
er. The main plants are located in Europe,
South Africa and Brazil.
INDUSTRIAL which contains the market
ing of nitrogen chemicals and gases for
industrial purposes. The plants are located
in Europe and Sri Lanka.
UPSTREAM which contains the main pro
duction plants converting natural gas and
other raw materials into nitrogen chemicals
and NPKs. The plants are located in Europe,
30
Trinidad and Qatar. The segment also com
prises ammonia trade and shipping, which
includes a fleet of owned and chartered ves
sels.
MARKETS AND RESULTS FOR THE YEAR
The fertilizer market was good in 2004 with
strong demand. After several years of grain con
sumption exceeding grain production, global
grain stocks diminished to a 20-year low level in
2003/2004. In particular, populous Asian coun
tries like China and India increased their con
sumption of fertilizer significantly, mainly with
the intention to secure food supply. In combina
tion with a limited growth in fertilizer production
capacity in recent years, this led to attractive
margins for fertilizer producers. However, fertil
izer prices were also positively influenced by the
high energy prices in 2004. As most of the nitro
gen fertilizer production costs are energy cost,
high energy prices will normally lift nitrogen fer
tilizer prices to higher levels.
A major event in 2004 related to Yara's busi
ness was the opening of the 25 % Yara-owned
Qafco-4 plant in Qatar, which has an annual
production capacity of 1.1 million tonnes of urea,
the most common type of fertilizer outside
Europe. In total, the Qafco site is now the
world's largest urea production facility with an
annual capacity of 2.8 million tonnes and an
ammonia capacity of 2.0 million tonnes. Yara
has over the last years sharpened its strategic
focus and divested from non-core activities. No
significant acquisitions were made during 2004.
In February 2005, Yara announced the acquisi
tion of a minority stake in a Russian fertilizer
plant (Rossosh) and the intention to build a fifth
fertilizer plant in Qatar with a final decision
expected in 2006.
Production performance was satisfactory in
2004 and Yara's total production reached the
highest level ever of 15.5 million tonnes. The
increase in production was mainly due to pro
ductivity improvements and in part due to minor
debottlenecking activities in some plants. Sales
volumes were at a level similar to the year 2003
due to the divestment of low margin sales of
products from other sources. Profitability was
satisfactory in all regions except Africa where
provisions for doubtful receivables were made,
primarily due to the difficult political and finan
cial situation in the Ivory Coast.
The accounting numbers in the following sec
tions are pro forma numbers, which was derived
from Norsk Hydro's consolidated financial state
ments, and include the historical information for
operations being transferred to Yara. Financial
numbers referring to the period after 25 March
2004 are actual figures.
The financial results for 2004 were the best
ever. Net income after minority interest was
NOK 3,761 million (NOK 11.79 per share), com
pared with NOK 2,186 million (NOK 6.84 per
share) in 2003. Operating income was NOK
3,584 million, compared with NOK 2,751 million
in 2003. EBITDA (see Note 06 in consolidated
financial statement) was NOK 5,765 million,
compared with NOK 4,671 million in 2003. Yara's
revenues were NOK 43.3 billion in 2004, an
increase of 12 % compared with 2003. The most
substantial improvement came from higher fer
tilizer prices and productivity gains in the pro
duction system. Yara's after-tax measure for
return on capital, CROGI (Cash return on gross
investment), was 13.3 % compared to a target of
minimum 10 % as an average over the business
cycle. In terms of relative competitiveness as
measured by Gross Return on assets
(EBITDA/Total assets), Yara remained in the tar
geted top quartile of its defined company peer
group.
Downstream operating income was NOK 1,356
million in 2004, compared with NOK 1,162 mil
lion in 2003. EBITDA was NOK 2,068 million
compared with NOK 1,833 million in 2003.
Fertilizer sales in 2004 were approximately 640
kt lower than in 2003, primarily due to deliberate
efforts to reduce activity in Africa and trade of
low-margin products in Asia. In Europe, Yara
gained market share, primarily at the expense of
imports. Margins were improved due to a tighter
supply/demand balance. A significant share of
the increase was related to improved sales mar
gins in Brazil, but the positive impact from
Europe, in particular from the Mediterranean,
was also substantial.
The Industrial segment's operating income for
2004 was NOK 454 million, compared with
NOK 442 million in the same period in 2003.
EBITDA was NOK 688 million, unchanged from
2003. Despite divestments in Asia, sales of
industrial gases increased in 2004. Also environ
mental products and industrial nitrogen chemi
cals showed growth as a result of new contracts
in Europe and the US. Technical ammonium
nitrate prices rose as mining activity increased.
Despite a historically high price level for ammo
nia, which is an input to the Industrial business,
margins increased.
In 2004, Upstream operating income was
NOK 2,166 million compared with NOK 1,212 mil
lion in 2003. EBITDA was NOK 3,379 million
compared with NOK 2,249 million in 2003.
Upstream production in 2004 totaled 12.2 million
tonnes, close to full capacity and 5 % above
2003. Sales prices were significantly higher than
2003 and were the largest contributor to the
improved result, while energy costs for the
European plants increased compared to 2003.
Net cash from operating activities in 2004 was
NOK 3,772 million, mainly reflecting strong
earnings. Net cash from operating activities in
2003 was NOK 1,628 million. The improvement
from 2003 was mainly due to higher earnings, a
net increase in current tax payables, collection
of a tax receivable from Norsk Hydro, and an
improved net operating capital development.
Net cash used in investing activities for 2004
was NOK 986 million, mainly for continuity
investments and some smaller capacity and
cost improvement projects.
With respect to financial solidity Yara's longterm rating target is mid-investment grade.
Having received ratings of BBB (Standard &
Poor) and Baa2 (Moodys) in December and with
a debt/equity ratio of 0.39 at the end of 2004,
Yara is well within this target. Yara's net inter
est-bearing debt at the end of 2004 was NOK
4,199 million, while the total assets were NOK
27,486 million. The total majority shareholders
equity as of 31 December 2004 was NOK 10,714
million.
Yara's total risk exposure is analyzed and eval
uated at corporate level. Both at corporate and
business unit level risk evaluation is an integrat
ed part of the way Yara does business. Yara's
most important market risk is related to the
margin between nitrogen fertilizer prices and
natural gas prices. Although there is some cor
relation between these prices, margins vary
depending on the demand for food relative to
the demand for energy. While margins have
been higher at previous cycle peaks, 2004 clear
ly represented a year with above average mar
gins. Yara has a well-established system for
credit and currency risk management with
established limits for exposure both on cus
tomer level and on country level. Yara's geo
graphically diversified portfolio reduces the over
all credit and currency risk of the company. As
the fertilizer business essentially is a US dollar
business with both revenues and raw material
costs priced in dollars, Yara seeks to keep a
major share of its debt also in US dollars to
reduce the overall USD currency exposure. Yara
has the majority of its net interest-bearing debt
as 10-year USD bonds with a fixed interest rate.
According to Section 3-3 of the Norwegian
Accounting Act, we confirm that the accounts
are prepared on the assumption of a going con
cern.
As a chemical company, it is important for Yara
to have high health, environment and safety
standards. The company's working environment is
considered to be satisfactory. In Norway several of
the subsidiaries have entered “IA” agreements
(“Inkluderende Arbeidsliv”), which are designed to
support a continued improvement of the working
environment. Absence due to illness was 3.5 %,
down from 3.7 % in 2003. The LTI rate (Lost Time
Injuries per million hours worked) for Yara employ
ees and contractors was 1.1, which is an improve
ment from 1.5 in 2003. The average LTI rate for the
European fertilizer industry was 3.8 in 2004. There
were three tragic fatal occupational accidents in
Yara in 2004, one in Asia involving a Yara employ
ee, the others involving two contractors in Latin
America and Africa. There was also a serious fire
at Yara’s plant in Köping, Sweden, but without per
sonnel injuries. While the Board is pleased with
the generally positive trend related to systematic
safety work, the number of near-misses underline
that high priority must be given to improvement
efforts in the safety area. The lessons learned
have been communicated to all relevant parts of
Yara's organization, and a program for behaviorbased safety is under establishment.
Yara's operations are subject to environmental
requirements under the laws and regulations of
the various jurisdictions in which Yara conducts
its business. Such laws and regulations govern,
among other matters, air emissions, waste
water discharges, solid and hazardous waste
management, transportation of hazardous mate
rials and remediation of past activities.
Emissions from Yara's production plants are
within the limits set by the authorities, except
for minor breaches of short term permit levels at
some locations, but without regulatory reac
tions. In general, Yara satisfies the best achiev
able emission levels established by the
European Fertilizer Manufacturing Association.
31
In terms of energy efficiency Yara ammonia
plants perform better than the industry average.
Having invested considerable research in devel
oping new technology for the abatement of
nitrous oxide gas (N2O) from nitric acid plants,
Yara is well positioned to meet the challenges of
reducing climate gas emissions.
Yara has a number of facilities that have been
operated for a period of years. Subsurface impact
to soil and groundwater are common to such
sites and may require remediation or give rise to
liabilities under the laws of the various jurisdic
tions in which the facilities are located. Yara has
attempted to identify such impacts where they
are apparent and has initiated remediation or
containment procedures in coordination with the
appropriate authorities.
As some of Yara's products can be dangerous if
not handled properly, the European Fertilizer
Manufacturers' Association and Yara have
launched a Product Stewardship program aimed
at securing proper handling of products both by
Yara's own organization and Yara’s customers.
The implementation of this program has been
audited by external auditors.
At the end of 2004 Yara had 7,067 permanent
employees in 41 different countries. In order to
attract the right competence, Yara seeks to
recruit, develop and retain people of different
experience, age, gender, nationality and prefer
ences. Both the Board and the company's man
agement are well aware of the society's expec
tations of equal opportunities in the company
and on the board of directors. Yara's global pres
ence and business model have secured a welldiversified organization in terms of nationalities
with employees representing a broad degree of
diversity. In the Norwegian part of the organiza
tion women represent 20 % of the employees
versus 8 % of the senior managers and 20 % of
all managers. In order to improve the balance
between the genders in managerial positions,
the company has aimed at a higher relative
proportion of women in Yara's leadership devel
opment program.
32
Two of the five shareholder-elected board members
are women, while there is one woman among the
three employee-elected board members.
THE ESTABLISHMENT OF YARA
AND THE COMPANY'S GOALS
Yara's new Board of Directors was established
at the time of the demerger on 25 March and
has had nine meetings during 2004. The five
shareholder-elected members all have exten
sive management experience from international
industrial companies, while the three employeeelected board members represent the three dif
ferent segments of the organization.
On the establishment of Yara, it was agreed not
to have a corporate assembly. Consequently, the
Board of Directors is responsible directly to the
General Meeting and the shareholders. A com
pensation committee under the Board was
established in April 2004. Yara has no separate
Audit Committee as audit issues are dealt with
directly by the Board. During 2004 there was
one change in Yara's management when Terje
Bakken replaced Jon Reutz as head of the
Industrial segment.
Yara's mission is “We strive for better yield”.
This wording has a double meaning as Yara's
fertilizer and industrial products contribute to a
better productivity and yield for customers, and
as the company strives to maximize return for
its shareholders. The business concept is to con
vert energy and nitrogen from the air into useful
products for farmers and industrial customers.
Yara's ambition to be the Industry Shaper mate
rializes into three strategic goals:
Deliver leading financial performance based
on organic growth
Drive the development and consolidation of
our industry
Develop a performance culture known for
operational excellence based on a clear set
of values
The core Yara values are Ambition, Trust,
Accountability and Teamwork. For each of these
values a number of specific behaviours have been
identified that are consistent with these values.
Yara's primary financial goal is to maximize
shareholder return over time. Yara applies a hur
dle rate of minimum 10 % real return after tax for
new projects, and minimum 10 % CROGI as an
average over the cycle for existing businesses.
The targets are ambitious, and there is good evi
dence that companies that have delivered on
these targets have been able to supply an excel
lent shareholder return. Yara's profitability over
the last four years generated an average CROGI
of 10.5 %.
Yara expects to return 40-45 % of net income
to its shareholders as an average over the busi
ness cycle through dividend payments and share
buy-backs. As long as Yara can maintain an
attractive profitability also for growth projects, a
dividend level restricting Yara's possibilities for
growth will not be desirable. Consequently, Yara
must define an optimal dividend level taking
into account the company’s ability to pursue
attractive and profitable investments.
Yara's dividend policy is to pay out minimum 30
% of net income as an average over the business
cycle. Yara believes it will be beneficial for the
shareholders that the company strives for a
gradual increase and predictability in the
absolute dividend level over the years independ
ently of the business cycle.
Yara will use share buy-back programs when cer
tain conditions are met. Share buy-backs are
more flexible than dividends, and for shareholders
in some countries, buy-backs provide tax advan
tages compared to dividends. As part of the buy
back program authorized by the General Meeting
in June 2004, Yara has bought back approximate
ly 3 million shares at a cost of NOK 206 million
with the intention of amortization, exclusive
future buy-back from the Norwegian state.
OUTLOOK FOR 2005
Despite a modest increase in grain invento
ries after record harvests in 2004, global
grain inventories still remain at a low level.
This is a concern, particularly in several Asian
countries. During similar situations in the past,
those countries have sought to increase fertiliz
er consumption to boost domestic food produc
tion. High forward prices for US natural gas indi
cate that the substantial production capacity in
the United States will continue to have high pro
duction costs. This is expected to continue to set
a high floor for global nitrogen fertilizer prices.
For non-US producers like Yara this will create
some protection in the event of a slow-down of
demand growth. In such an event, the industry
could move from the demand-driven situation
witnessed in 2004 to a supply-driven situation
where commodity prices are determined by the
cost of the marginal cost producer. However, the
forward market also indicates increased gas
prices in Europe. This may lead to lower margins
in 2005 compared with 2004 even though the
overall margin level is expected to be attractive.
New nitrogen fertilizer capacity in 2005 is fore
cast to be roughly in line with historical average
demand growth. The necessary level of invest
ments to maintain current capacity is estimated
to be NOK 600-800 million. Yara's total invest
ment level in 2005 is expected to increase from
a modest level of NOK 1,250 million in 2004
since Yara has already committed to and
expects to identify new growth opportunities.
Yara's financial solidity is expected to remain
strong.
The transition to IFRS (International Financial
Reporting Standards) has no major conse
quences for Yara. The annual impact on net
income is expected to be positive by approxi
mately NOK 50 million. The inclusion of net
unfunded pension obligations is expected to
have a one-time negative effect on equity as of
1 January 2004 of approximately NOK 650 mil
lion. However, this will be partially offset by the
positive after tax consequence of approximately
NOK 250-350 million capitalization of plant
maintenance shutdowns.
Net profit for Yara International ASA, the parent
company, amounted to NOK 75 million. The
profit and loss statement covers the period from
10 November 2003, when the company was
established, to 31 December 2004.
DIVIDEND
The Board proposes a dividend of NOK 2.25 per
share, totalling a payment of NOK 712 million.
With a net profit in Yara International ASA of
NOK 75 million, this results in a total reduction
of NOK 637 million in retained earnings of the
parent company. Distributable equity in the par
ent company as of 31 December 2004 was NOK
3,986 million after proposed dividend for 2004.
The sum of proposed dividends and buy-backs
for 2004 amounts to NOK 918 million, which is
equivalent to approximately 25 % of net income.
The Board of Directors of Yara International ASA
Oslo, 18 March 2005
Lone Fønss Schrøder
Board member
Jørgen Ole Haslestad
Board member
Åse Aulie Michelet
Board member
Leiv L. Nergaard
Board member
Arthur Frank Bakke
Board member
Charlotte Dyrkorn
Board member
Frank Andersen
Board member
Øivind Lund
Chairperson
Thorleif Enger
President and CEO
33
GOVERNANCE & HSE
CORPORATE GOVERNANCE
SOCIAL RESPONSIBILITY AND
HEALTH, SAFETY AND ENVIRONMENT
TRANSPARENT AND SOUND CORPORATE GOVERNANCE IS KEY TO ALIGNING
THE INTERESTS OF SHAREHOLDERS, MANAGEMENT, EMPLOYEES AND OTHER
STAKEHOLDERS. YARA BELIEVES GOOD CORPORATE GOVERNANCE DRIVES
VALUE CREATION AND PROMOTES SUSTAINABLE BUSINESS CONDUCT.
When Yara was demerged from Norsk Hydro
and established as a separate company 25
March 2004, it faced several unique challenges.
While having the benefit of emerging from a
professional system with high standards for cor
porate governance, Yara nevertheless had to
establish its own practices adapted to the spe
cific challenges for the world’s largest and most
global fertilizer company. Yara has decided to
comply with the Norwegian Code of Practice for
Corporate Governance during 2005. This code
has requirements in addition to what is mandat
ed by law. In the following only the main fea
tures of that practice are described.
The scope of Yara’s business is defined in its
Articles of Association and is presented in the
Report of the Board of Directors together with
its goals and strategies. Yara is listed on the
Oslo Stock Exchange and is subject to the
Norwegian securities legislation. The reporting
follows the standards of Norwegian GAAP for
2004, but will from 2005 follow the new interna
tional standards IFRS. The expected changes as a
result of this transition are explained on page 100.
Yara has an equity level adapted to the goals,
strategy and risk of the company. The dividend
policy, which is described in the Report of the
Board of Directors and the section on the Yara
share, should enable a predictable pay-out over
the years. New equity capital will only be asked
for when defined opportunities arise. The Board
has an authorization to buy back up to approxi
mately 16 million shares out of which approxi
mately 3 million shares have already been
bought back. The reasons are further described
in the Report of the Board of Directors.
34
All Yara shareholders have equal rights, and
there is only one class of shares. There are no
restrictions on the purchase or sale of shares.
Communication with the financial market is
based on principles of openness and equal treat
ment of all shareholders. Yara’s web site con
tains an updated financial calendar and a large
amount of other investor-related information. In
2004 Yara was awarded the Information and
English certificate of the Oslo Stock Exchange
testifying that Yara complies with a set of infor
mation requirements beyond a defined mini
mum standard. Yara’s Board of Directors receive
regular updates from the Management as to
how the company is perceived by the financial
market.
In 2004 there have been no significant trans
actions with related parties, except for those
described in the notes to the consolidated finan
cial statements. Yara uses the new IFRS rules to
determine who are related parties.
Yara’s corporate directives were originally
inherited from Norsk Hydro after the demerger.
After the demerger the Yara Board of Directors
has reviewed the directives, and Yara today has
updated corporate directives encompassing
Instructions for the Nomination Committee
Rules of Procedure for the Board
Internal Audit Charter
Mandate for the Board’s Compensation
Committee
Insider Regulations
Code of Conduct
At the General Meeting all shareholders are
entitled to submit items to the agenda, meet,
speak and vote. In accordance with Norwegian
corporate law, the physical presence of the
shareholders or their authorized representatives
is required in order to vote. Shares must be reg
istered with the Norwegian Registry of
Securities if the holders want to vote for their
shares at the shareholders’ meeting. The Annual
General Meeting is normally held in May. Notice
of the meeting is sent to all shareholders indi
vidually, or to their depository banks, minimum
two weeks in advance of the meeting. The
General Meeting of shareholders elects the
Nomination Committee, the shareholders’ rep
resentatives to the Board of Directors, and
approves the annual accounts and the Board
report and any proposed dividend payment. In
accordance with Norwegian legislation, share
holders consider and vote on the appointment of
the external auditor based on the Board of
Directors’ proposal, and approve the remunera
tion to be paid to the external auditor. Normally,
the Board of Directors, the Nomination
Committee and the external auditor are all pres
ent at the Annual General Meeting. The meet
ing is led by an independent, qualified person.
The Nomination Committee consists of four
independent members elected by the General
Meeting for two years at a time. The Nomination
Committee makes a recommendation to the
General Meeting on the election of shareholderelected Directors of the Board. The selection of
Board candidates is done considering both the
competence, experience, capacity and diversity
of each individual and the group in total. The
Nomination Committee also proposes a remu
GOVERNANCE & HSE
neration of the Directors to the Annual General
Meeting reflecting the responsibility, competence,
time and complexity of the work involved. The
remuneration is a fixed amount which does not
depend on results or involve options.
Based on an agreement with the trade unions,
Yara does not have a Corporate Assembly. Yara
believes this supports a more direct communica
tion between the Board and Management,
increases accountability and improves the speed
and quality of decision-making in the company.
Yara’s Board of Directors consists of eight
members, five independent shareholder-elected
and three employee-elected (minimum one third
according to Norwegian legislation). Members
are elected for a period of two years at a time.
Neither the President and CEO nor any other
member of the executive management is a
director of the Board. According to Norwegian
corporate law, the Board of Directors has the
overall responsibility for management of the
company, while the President and CEO is
responsible for day-to-day management. The
Board supervises day-to-day management as
carried out by the President and CEO, and the
activities of the company in general, as well as
ensures that appropriate steering and control
systems are in place. The Board’s internal rules
of procedure establish in more detail the Board’s
role in relation to the management of the com
pany as well as the other corporate bodies. The
President and CEO’s authority and responsibili
ties are defined in order to allow the Board of
Directors to concentrate on the company’s strat
egy and organization. The Board’s work follows
an annual plan, and it conducts an evaluation
every year of its work and procedures. In 2004
the Board held nine meetings.
The Norwegian legal and regulatory corporate
governance structure requires the entire Board
to be involved in deliberation and decision-mak
ing. Indeed, the Norwegian Public Limited
Companies Act stipulates that a Board of
Directors may not adopt a resolution without
members of the Board having been given an
opportunity, to the extent possible, to partici
pate in the discussion of the matter in question.
Consequently, the formation and delegation of
certain responsibilities of the Board of Directors
of a Norwegian company to one or more com
mittees of the Board is less common than for
companies in some other jurisdictions. Yara’s
Board of Directors has chosen not to have a sep
arate Audit Committee, but to deal with audit
matters as a full board.
The Compensation Committee consists of
three members elected by and among the mem
bers of the Board. The Committee shall prepare
and make proposals to the Board of Directors on
terms and compensation to the CEO. Frames for
possible future share incentive rights (SiRs) will
be approved by the General Meeting.
Yara’s Internal Audit Department is account
able to the Board of Directors and provides an
annual assessment of the adequacy of Yara’s
processes for controlling its activities and man
aging its risks. Information on the status and
results of the annual audit plan and the suffi
ciency of department resources will be commu
nicated to the Board when appropriate. The
Chief Internal Auditor has the right and duty to
inform the Board of Directors of fraud/corruption
or other issues that in his/her opinion may inflict
damage to the company. Internal Audit has
unrestricted access to all functions, records,
property, and personnel, and has full and free
access to the Board of Directors.
Yara’s external auditor also follows an annual
plan. The external auditor participates in the
Board meeting approving the annual accounts,
and meets with the Board as deemed appropriate.
The President and CEO constitutes a formal
corporate body according to Norwegian corpo
rate law. The CEO is responsible for day-to-day
management of the company. In Yara, the divi
sion of functions and responsibilities has been
defined in greater detail in the Rules of
Procedures established by the Board which are
published on Yara’s web site, www.yara.com.
The President and CEO appoints a manage
ment to assist the President and CEO in his or
her stewardship duties delegated by the Board
and in the day-to-day management, including
the organization and operation, of the company.
The President and CEO determines the instruc
tions for Management after prior discussion with
the Board. The instructions for Management,
and the function descriptions and the appropria
tion authorizations issued to each member of
the Management, reflect a joint obligation for
these members to safeguard the overall interests
of Yara and to protect Yara’s financial position.
The Board of Directors determines the remu
neration to the President and CEO based on a
proposal from the Compensation Committee.
35
GOVERNANCE & HSE
The Board also decides on the terms of the
company’s incentive plans for officers and
certain key employees in the company. The
President and CEO decides the compensation to
other members of Management. Remuneration
to the Board of Directors and the Nomination
Committee is determined by the General
Meeting. The actual payments to the CEO and
the company’s corporate bodies in 2004 are fur
ther described on page 89.
YARA’S CODE OF CONDUCT
Yara seeks to ensure that all Yara employees act
in a consistent manner in line with its quality
standards and business needs.
Yara’s corporate responsibility is determined by two
defining characteristics – being a listed company
and a global business with local operations – and by
Yara’s ambition to become the Industry Shaper.
Listed company. As a listed company we have
a responsibility to deliver on our promises to
stakeholders. We are committed to doing this by
employing strategies that balance financial,
environmental and social performance.
Yara will operate in a sustainable manner in
order to create long-term value through
strong financial performance.
Yara will strive to attain high standards of
corporate governance.
Yara’s core values: ambition, trust, account
ability and teamwork – will be reflected in
our behavior and in our business conduct.
Global Business. As a truly global company
with local operations on five continents, Yara
governs the creation of future value and has a
fundamental influence on society. Our strategy
of local partnership based on trust gives us a
unique potential for supporting sustainable agri
culture and ethical business practices.
Yara will take a leading role in the sustain
able development of the industry through an
active dialogue and cooperation with all
stakeholders.
36
Yara will develop and explore existing and
new markets and businesses where this is in
the interests of, and of benefit to, our stake
holders with the ambition to be a good local
citizen.
Industry Shaper. As the only truly global suppli
er of plant nutrition with presence throughout
the product life cycle, Yara is uniquely equipped,
and committed, to driving the development of
our industry to ensure high standards of per
formance and behavior.
Yara will drive the industry in pursuing com
mon high standards and anchoring best
practices.
Yara will promote product stewardship to
ensure that the entire value chain, from raw
material sourcing to end use, is rooted in
sustainable conduct and consideration for
health, environment, safety, quality and
food safety.
Yara will support the development of sus
tainable agriculture.
SOCIAL RESPONSIBILITY
Yara contributes to the development of the local
communities where it operates. Yara sponsors
programmes and initiatives supporting children
and youngsters in communities where we work,
particularly related to schools, education and
sports. Yara and its Brazilian subsidiary Trevo
have as an example supported a team from Rio
Grande competing in Norway Cup for the last
three years. In 2005 there will be two teams –
one from Trevo and one from Kynoch in South
Africa. Team members are teenagers recruited
in the neighbourhood of Yara’s plants on the
basis of good behaviour and school performance
as much as on their sports excellence.
Yara is also supporting employee education. In
several countries basic education in reading and
writing skills as well as mathematics are given
during normal working hours (ex. are South
Africa, Guatemala, Colombia and Brazil). Yara is
continuously striving to improve performance of
operation at all levels. Literate employees can
contribute more and in better ways to the good
functioning of their unit and hence help ensure
its future. At the same time these employees
become more active citizens in the community
where they live, contributing to overall progress
and development.
As part of its Centennial celebration, Yara is sup
porting the Millennium villages programme set
up to implement the actions recommended by
the UN Millennium project. Yara is sponsoring a
school programme that combines free school
lunches and scholarships for children with the
purchase of food from local farmers, thereby
stimulating local demand and agricultural pro
ductivity including new and better crops and
agricultural methods.
Yara applies criteria for social responsibility to its
own investments. Yara has directives listing the
demands that must be fulfilled in order for a
project to be eligible for investment by Yara. It
defines what type of projects that are covered by
the directive and lists all types of analysis and
evaluation required before a project can be pre
sented for approval. Social consequences and
environmental impact are among the criteria
listed in addition to a number of technical and
financial requirements.
HEALTH, SAFETY AND ENVIRONMENTAL
PERFORMANCE (HSE)
The management of HSE is an important part of
Yara’s business operations. A systematic
approach over many years has produced sub
stantial improvements in HSE, and reflects a
continuous and ongoing process. Company-wide
requirements are set to the management of
occupational health and safety, process safety,
pollution prevention and control, emergency
preparedness, product stewardship and security.
The business units and support groups are
responsible for ensuring that relevant gover
nance documents exist within their area of
responsibility. HSE performance indicators are
established at all management levels, integrat
ed into business plans and personal perform
ance objectives, and systematically reviewed.
GOVERNANCE & HSE
01
02
3%
2
3
2%
1.1
1.5
2
3.5%
4%
3.7%
4
4.2%
5%
4.2%
5
4.6%
Sickness rate, 2000–2004 (%)
(Number of lost-time injuries per million hours worked)
2.7
The follow-up of HSE is carried out at many lev
els in the organisation. Many tools are applied
to monitor and audit the HSE performance, that
covers:
Lost-time injury rate, 2000–2004
3.2
Yara has established a safety committee at
management level, with the participation of the
European Works Council, to guide and review
the safety work.
HSE reporting and investigation of accidents
and nearmiss incidents.
Technical standards and operational proce
dures.
Plant performance reviews.
ISO quality and environment certification of
manufacturing, logistical and commercial
operations, and HACCP analysis (Hazard
Analysis and Critical Control Points) for
products to the food industry.
Global benchmarking of HSE performance.
Auditing of HSE management using inter
national rating systems developed by Det
Norske Veritas, and operational and techni
cal audits of specific activities.
Product Stewardship as described in
“Responsibility throughout the value chain”,
see page 26.
Health & Safety Performance. Although the
overall accident rate in Yara is low, at 1,1 losttime injuries per million hours worked in 2004,
three fatal injuries occurred at Yara sites during
the year:
An employee was fatally injured when hit by
heavy machinery during construction work
in Sri Lanka.
A contractor was fatally injured when falling
6.5 meters through a roof during construc
tion of a new blending unit in Brazil.
A contractor security guard suffered fatal
injuries when falling down a staircase in
South Africa.
1
0
1%
00
01
02
03
04
In addition, a major fire took place in July 2004
at Yara Köping in Sweden, when a fire in a con
veyor belt spread and destroyed a storage build
ing on site.
Yara was fined NOK 1 million in 2004 by
Norwegian authorities in connection with a fatal
accident at a farm due to an ammonia tank
explosion in 2002.
The safety work is now being further strength
ened by reviewing the technical standards and
by establishment of a company wide program
on behaviour-based safety.
Yara Ferrara (Italy), was awarded the Yara Safety
Award for its excellent performance in 2004.
The occupational sickness rate is improving,
with an average rate of 3.5 % for Yara’s produc
tion sites in 2004. Improvement programs are
established for units with a sickness rate higher
than 4%.
0%
00
03
04
Environmental Performance. All Yara sites
were in compliance with regulatory environmental
permits in 2004, except for minor exceedances
of short term permit levels at some locations.
None of this has prompted regulatory reactions.
The eco-efficiency indexes for energy consump
tion and emissions show a positive trend, as
shown in the graphs. It is expected that Yara is
well positioned to meet the future regulatory
requirements of the European Union in 2007,
when new emission permits will be issued
based on Best Available Techniques for pollution
prevention and control.
Yara emits significant amounts of the climate
gases CO2 (carbon dioxide) and N2O (nitrous
oxide) from the production of fertilizers. The
emission of CO2 is associated with the energy
consumption in the production of ammonia, and
is kept as low as possible by operating at high
energy efficiency levels. On average, the ammo
nia plants in Yara use nearly 10 % less energy per
tonne of ammonia produced than the industry
average (PSI 2004: Benchmarking of 41 ammo
nia plants). Four of the Yara ammonia plants
rank amongst the world top 10 % in terms of
energy efficiency.
37
GOVERNANCE & HSE
30
100
320
50
10
25
5
00
01
02
03
SO2
F
04
0
7.0
100
5.6
81
79
72
75
69
4.2
50
2.8
25
1.4
00
02
02
N
P
75
160
50
80
25
00
01
02
03
Gasoil
Electricity
Coal
04
0
Eco-efficiency
Emissions contributing to global warming,
2000–2004
125
100
240
LPG
Natural gas
Heavy oil
Emissions to water contributing
to eutrophication, 2000–2004
100
84
75
0
Eco-efficiency
87
03
04
0
Eco-efficiency
25
20
125
100
98
97
96
96
100
15
75
10
50
5
25
0
CO2
N2O
00
01
02
03
CH4
Eco-efficiency
04
0
Eco-efficiency index
(emission/production)
0
81
(energy/production)
75
NOx
NH3
125
100
Energy consumption
(PJ)
92
15
0
98
20
NOx
NH3
38
400
Emission
(million tonnes CO2-equivalents)
25
125
105
100
Emission
(1,000 tonnes SO2-equivalents)
110
Energy consumption, 2000–2004
Emission
(1,000 tonnes PO4-equivalents)
Although the fertilizer industry represents a
major source of climate gas emissions, it should
be recognised that fertilizers play an important
role in harvesting energy and capturing CO2.
Fertilizers stimulate plant growth, and the solar
energy stored in the plants may be 5–10 times
higher than the energy needed in making the
fertilizer. Growing plants capture CO2 and the
roots help building organic soil structure. If care
is taken to utilise plant waste material as an
energy source, the production and use of fertil
izers will help in reducing global climate gas
emissions.
Emissions to air contributing to acidification,
2000–2004
The emission of N2O is associated with the pro
duction of nitric acid. No technology has as yet
been made available for reduction of such emis
sions, except when building a new nitric acid
plant. In 2004 Yara successfully concluded ten
years of research for a technology that can be
fitted to existing plants. The technology has
been tested at full scale and preparations are
being made for launching the technology at
commercial scale, to the benefit of the fertilizer
industry and the global environment.
MD&A
MANAGEMENT
DISCUSSION & ANALYSIS
YARA’S PRO FORMA CONSOLIDATED STATEMENTS FOR 2004 AND 2003 ARE THE
BASIS FOR ALL DISCUSSIONS AND ANALYSIS.
Financial highlights
1)
2)
3)
3)
Based on average NOK/USD rate 2004: 6.72 (2003: 7.04)
Yara currently has no stock option compensation program with a dilutive effect on Earnings per share.
Average number of shares reduced in 2004 due to the share buy-back program.
Key Statistics
Fertilizer Sales Europe
Fertilizer Sales Outside Europe
Industrial Sales
Total Sales
Whereof Yara’s own produced product, incl. bulk blends
Whereof JV and Third Party products
Production ammonia 1)
Production finished fertilizer and industrial products, excl. bulk blends
1)
1)
kt
kt
kt
kt
kt
kt
2004
10,231
9,600
2,052
21,883
15,525
6,358
2003
10,044
10,324
1,838
22,206
15,270
6,936
kt
kt
5,205
13,096
4,992
12,654
Including share of Tringen and Qafco.
Net income after minority interest was NOK 3,761
million (NOK 11.79 per share), compared with
NOK 2,186 million (NOK 6.84 per share) last year.
Excluding net foreign exchange gains, the result
for 2004 was approximately NOK 10.21 per share.
Operating income was NOK 3,584 million, compared with NOK 2,751 million last year. EBITDA
was NOK 5,765 million, compared with NOK
4,671 million last year.
The Board proposes to the Annual General
Meeting a dividend of NOK 2.25 per share for 2004.
2004 was a record year for Yara, both in terms
of cash flow and earnings, which were the
strongest ever delivered by a fertilizer company.
The fertilizer market remained attractive during
2004 and Yara increased its market share in
Europe at the expense of imports. Total nitrogen
industry fertilizer sales to West European agri
culture were estimated 4% down on last year,
while Yara was able to maintain its sales volume
in Europe from last year.
5,765
3,817
5,000
4,000
4,671
6,000
4,303
NOK
NOK
NOK
USD 1)
NOK
NOK
Pro forma
2003
38,481
2,751
4,671
664
2,186
6.84
319.44
10.6%
3,730
Million, except per share information
Operating Revenues
Operating Income
EBITDA
EBITDA
Net income after minority interest
Earnings per share 2)
Avg. number of shares outstanding (in million)
CROGI (12-month rolling avg.)
Yara EBITDA (MNOK)
Pro forma
2004
43,252
3,584
5,765
858
3,761
11.79
318.94
13.3%
3,000
2,000
1,000
0
00
01
02
03
04
During the last 12 months, Yara has undergone a
substantial transformation, beginning with the
successful demerger and stock market listing,
and concluding with the announcement of several significant strategic moves. Capacity was
boosted in 2004 with the opening of a fourth fertilizer plant in Qatar (Qafco-4), and in early 2005
with the signing of a letter of intent for Qafco-5
and the acquisition of a minority stake in the
Russian fertilizer producer Rossosh. Operational
focus has been sharpened through the sale of
non-core Industrial and Downstream assets and
the strengthening of our position in the Chilean
speciality fertilizer producer SQM. These initia
tives, the successful USD 500 million bond
offering and our solid credit rating have
strengthened Yara’s ability to meet its ambitious
objectives.
GENERAL DEVELOPMENT IN MAIN FERTI
LIZER MARKETS
West European fertilizer producers gained market
share in their domestic markets in 2004.
Fertilizer imports to West Europe were down 5%
from 2003 (Yara estimates), losing one percentage
point market share, as imports were unusually
low in the second half of the year as a result of
39
MD&A
very strong fertilizer markets also outside
Europe.
Asian demand was strong in 2004, with a substantial increase in imports to India, Bangladesh
and Pakistan. In China, nitrogen production continued to increase, and both domestic consumption and exports were higher than in 2003.
Declining soybean prices dampened market
growth in Brazil, and urea imports were down on
2003. Despite high natural gas prices in the US,
global fertilizer demand was sufficiently strong
to secure demand-driven pricing and high capacity utilization for US producers.
Overall, the nitrogen supply-demand balance
tightened as the market improved considerably
in 2004. The International Fertilizer Association
estimates that global nitrogen fertilizer con
sumption will increase by 2.8% for the fertilizer
season ending June 2005. Yara estimates that
total nitrogen growth exceeded 3% in 2004, due
to strong growth also in the industrial segments.
Crop prices for most agricultural produce have
declined, as a result of the record crop in 2004.
Grain production in 2004 is estimated to have
slightly exceeded consumption, leading to a
small increase in stocks.
DEVELOPMENT IN MAIN FERTILIZER
PRICES
The average prilled urea price fob Arabian Gulf
was USD 200 per tonne, compared with USD 148
per tonne in 2003. Demand growth was strong,
particularly in Asia, while production capacity
was almost unchanged, tightening the supply/
demand balance significantly. The average urea
price fob Black Sea was USD 175 per tonne,
compared with USD 139 per tonne last year. The
stronger increase in the Arabian Gulf reflect the
stronger freight market, as it improve their logis
tical advantage to nearby Asian markets.
The average ammonia price (fob Caribbean) was
USD 251 per tonne, compared to USD 203 per
tonne in 2003. For urea, demand growth outstripped supply additions, and the supply/
40
Variance analysis
EBITDA 2004 – pro forma
Variance EBITDA in NOK
Conversion (NOK vs. USD)
Variance EBITDA
Volume
Price/Margin
Effect of long position
Energy cost in Europe
Currency effect on net fixed cost 2)
Divestments
Drop-down cost
Other
Total variance explained
1)
2)
NOK million
5,765
4,671
1,094
209
1,302
USD 1)
858
664
95
1,940
(198)
(100)
(149)
55
(75)
(265)
1,302
14
289
(29)
(15)
(22)
8
(11)
(39)
194
194
Net fixed cost is derived from fixed cost in NOK and Euro less NOK and Euro related revenues.
demand balance improved. For most of the
year, demand drove prices, and even the highest
cost producers made positive margins.
High nitrogen fertilizer and ammonia price levels improved EBITDA by NOK 1,940 million
(USD 289 million).
The average CAN price in Germany was USD
165 per tonne, compared with 146 USD per
tonne 2003. The price increase reflects the
increase in urea prices.
Yara’s long position in ammonia created a NOK
198 million (USD 29 million) negative effect
compared with last year, since ammonia prices
increased more in 2003 than in 2004. The price
for ammonia was relatively low at the start of
2003, while 2004 saw a generally higher price
level. At year-end 2004, the ammonia position
was valued at the lower of cost and market
based on the mid January price level.
VARIANCE ANALYSIS
EBITDA was NOK 5,765 million, compared with
NOK 4,671 million last year. The appreciation of
the Norwegian krone against the US dollar had
a NOK 209 million negative effect on EBITDA.
Converted EBITDA was USD 858 million, up
USD 194 million on last year.
Sales were down 323 kt on last year, primarily
for low-margin third party products in Asia and
reduced activity levels in Africa. The volume
reduction outside Europe was more than offset
by increased sales of own produced products,
generating a NOK 95 million (USD 14 million)
EBITDA improvement. In Europe, Yara gained
market share as it maintained last year’s sales
level, while the overall market declined.
Higher energy costs in Europe had a NOK 100
million (USD 15 million) negative effect on
EBITDA.
The divestment variance includes the gain on
the sale of Hydrogas Malaysia, Hydrogas
Thailand, Ballance Agri-Nutrients and Yara
Formates’ oilfield business.
The item “Other” includes provisions taken for
doubtful receivables in West Africa. Yara has
implemented a number of measures to limit the
consequences of the on-going conflict in the
Ivory Coast. “Other” also includes a NOK 65 mil
MD&A
lion (USD 10 million) charge for Yara’s deductible
in connection with a fire at our production plant
in Köping, Sweden.
For further details, see the variance analysis for
each segment.
FINANCIAL ITEMS
Yara bases its long-term funding on diversified
sources of capital. At the time of the demerger
Yara established two bank facilities, one of
which was a USD 750 million syndicated
revolver facility due 2009 and the other a USD
750 million 364-day bridge facility. In December
2004, Yara launched a bond issue of USD 500
million due 2014 pursuant to rule 144A/
Regulation S, with proceeds from the bond
issue used to repay some of the bridge facility.
Yara’s long-term debt at year-end was thus
more than 90% US dollar denominated, consist
ing of the bond totalling USD 500 million and
drawings on bank facilities totalling USD 220
million. The remaining part of the long-term
debt was kept in emerging market currencies to
hedge economic exposure in these markets.
More than 50% of the long-term debt carried
fixed interest rates. See Note 19 in the financial
statements for further details on long-term
debt.
The December bond issue was supported by
solid investment grade ratings from Moody’s
(Baa2) and S&P (BBB), both with a stable out
look.
Net interest-bearing debt at the end of 2004
was NOK 4,199 million compared with NOK
7,584 million at the end of 2003. See the cash
flow section for further details.
The debt/equity ratio at the end of December,
calculated as net interest-bearing debt divided
by shareholders’ equity plus minority interest,
was 0.39 compared with 0.86 at the end of
December 2003.
Financial items
NOK million
Interest income on customer credits
Interest income, other
Dividends and net gain (loss) on securities
Interest income and other financial income
Interest expense
Capitalized interest
Net foreign exchange gain (loss)
Other financial expense
Interest expense and foreign exchange gain/(loss)
Net financial income (expense)
Net financial income for 2004 was NOK 574 mil
lion compared with net financial expense of
NOK 206 million last year.
Net foreign exchange gains during 2004 were
NOK 737 million. The US dollar depreciation
against the Euro and the Norwegian krone dur
ing the second half of the year affected the USD
450–650 million part of Yara’s US dollar debt
established as an economic hedge of future US
dollar cash flows. Additionally, a foreign
exchange gain of approximately NOK 200 mil
lion was made in the first quarter on Euro posi
tions kept during the demerger process.
In 2003, Yara reported a net exchange gain of
NOK 11 million. This was a pro forma amount
based on Yara’s relative share of Norsk Hydro’s
net exchange gain.
Interest income on ordinary customer credits,
mainly in markets outside Europe, amounted to
a total of NOK 137 million in 2004, up from NOK
128 million in 2003.
TAX
Full-year provisions for current and deferred
taxes were NOK 1,185 million, representing
approximately 24% of income before tax.
In 2004, Yara’s tax expense was reduced by
NOK 140 million due to implementation of new
tax legislation in Norway. At the end of 2003,
Pro forma
2004
137
37
(4)
171
(266)
1
737
(68)
403
574
Pro forma
2003
128
12
2
142
(311)
15
11
(62)
(348)
(206)
Yara had provided for deferred tax related to its
share of net income from Qafco (25% owner
ship). After the implementation of participation
exemption for capital gains and dividends in the
Norwegian tax legislation, only the tax provision
related to Qafco shares owned directly from
Norway (10%) has to be maintained.
In 2004, Yara’s results benefited from the utiliza
tion of tax loss carry-forwards previously not rec
ognized as deferred tax assets.
CASH FLOW
Net cash from operating activities in 2004 was
NOK 3,772 million, mainly reflecting strong
earnings. Net cash from operating activities in
2003 was NOK 1,628 million. The improvement
from last year was mainly due to higher
earnings, a net increase in current tax payables,
collection of a tax receivable from Norsk Hydro,
and an improved net operating capital develop
ment.
At the end of 2004, net operating capital was
NOK 7,838 million. From 31 December 2003 to
31 December 2004, net operating capital
increased mainly as a result of higher fertilizer
prices. Net operating capital productivity, meas
ured as capital turnover on a 12-month rolling
basis, showed a stable development from end
2003.
41
MD&A
The Downstream segment consists of Yara’s
global sales and marketing units and regional
production facilities that primarily serve home
markets in Europe, South Africa and Brazil.
1)
2)
2)
Third party and joint venture product sourcing
improve Yara’s flexibility and market position,
enabling it to offer customers a complete range
of fertilizer products. Strong purchasing power
42
Pro forma
2004
31,441
1,356
2,068
308
11.9%
5.0
Pro forma
2003
29,120
1,162
1,833
260
11.1%
5.0
2004
5,024
7,047
922
3,597
1,065
1,959
19,613
2003
4,970
6,826
972
3,857
1,101
2,529
20,254
Total operating revenues last 12 months divided by average net operating capital for the same period.
ensures the competitiveness of third party
volumes, increasing growth and arbitrage oppor-
tunities across regions and product groups
without the need for large investments.
2,500
2,000
1,500
2,068
Downstream EBITDA (MNOK)
1,000
500
The key strengths of the Downstream business
are its worldwide marketing organization, infra
structure and regional presence, which allow for
optimization of fertilizer shipments and sales to
prevailing market conditions.
million
million
million
million
kt
kt
kt
kt
kt
kt
kt
1,833
DOWNSTREAM
NOK
NOK
NOK
USD 1)
Total Sales per product group
Nitrate
NPK
CN
Urea
UAN
Other products
Total sales
1,956
The Board intends to propose to the Annual
General Meeting to expand the share price
range of the buy-back program.
Operating Revenues
Operating Income
EBITDA
EBITDA
Net Operating Capital Turnover
1,957
DIVIDEND POLICY
Yara’s objective is to pay a minimum 30 % of net
income in dividends as an average over the busi
ness cycle. In addition, the company expects to
use share buy-back programs to achieve on
average 40–45% of net income over the business cycle in cash payments to shareholders.
The company’s ambition is also to deliver steady
growth in absolute dividend payments. Yara’s
board will propose to the Annual General
Meeting a dividend payment of NOK 2.25 per
share for 2004, which represents 19% of net
income. The share buy-backs carried out in 2004
amount to more than 5% of net income for 2004.
Downstream
1,105
Net cash used in investing activities for 2004
was NOK 986 million, mainly for continuity
investments and some smaller capacity and
cost improvement projects. The amount
includes proceeds from the sale of the industrial gas activities in Malaysia and Thailand, while
the proceeds from the sale of Ballance AgriNutrients in December 2004 will be included in
the cash flow for the first quarter of 2005. For
2003, net cash used in investing activities was
NOK 734 million.
0
00
01
02
03
04
In 2000, the Downstream business was affected
by significant non-recurring cost related to Agri
Turnaround.
2005 as Yara increased its indirect ownership in
SQM, the Chilean speciality fertilizer company.
The above factors combine to provide a stable
platform for Yara, as the Downstream business
is essentially a margin business where raw
material cost changes can be passed on to end
customers due to the strong link between input
costs and end product prices. Hence, cash flows
tend to be relatively stable irrespective of
fertilizer price changes, and the Downstream
business provides a natural hedge against the
industry cycle exposure in the Upstream
segment.
For 2004, operating income was NOK 1,356 mil
lion, compared with NOK 1,162 million last year.
EBITDA was NOK 2,068 million compared with
NOK 1,833 million last year.
USD 47 million from last year.
Yara has a strong position in value-added
speciality fertilizer products, such as calcium
nitrate and potassium nitrate. This position has
been strengthened during late 2004 and early
EBITDA per tonne for 2004 was USD 16, up
approximately USD 2 compared with the same
period last year.
MD&A
Activity in West Africa has been scaled down in
an effort to limit the risk associated with the on
going conflict and weak financial situation for
the local farming community. Provisions taken
for doubtful receivables in West Africa are
included in “Other”.
Production performance in Downstream plants
continued the positive trend, producing a total of
5.3 million tonnes of solid fertilizer, almost 2%
higher than in 2003. The Downstream seg
ment’s total production capacity represents
approximately 45% of Yara’s overall production
capacity for fertilizer products.
1)
2)
USD 1)
million
308
260
47
(1)
(4)
2
71
151
(80)
11
(33)
47
USD/
tonne 2)
16
13
2

4
8
(4)
1
(2)
2
Divided by volume sold in 2004.
Net operating capital turnover, measured on a
12-month rolling basis, was 5.0 at the end of
2004, in line with turnover at the end of 2003.
Downstream Net Operating Capital Turnover*
5
5.0
Operating revenues/net operating capital
5.0
As part of its continuous efforts to streamline
operations and enhance return on capital, Yara
sold its 20.1% shareholding in Ballance AgriNutrients in New Zealand at the end of 2004.
Together with the insurance compensation for
the assets lost in the fire in Köping (Sweden)
this represents the main gains on divestments
for 2004.
Variance EBITDA
Volume
Produced in Downstream
Other
Margin
Margin excl. ammonia effect
Ammonia effect on margin
Divestments
Other
4.3
Net margin improvements increased EBITDA
per tonne by USD 4 due to a tighter
supply/demand balance. A significant share of
the increase was related to improved sales mar
gins in Brazil, but the positive impact from
Europe, in particular from the Mediterranean,
was also substantial.
NOK
million
2,068
1,833
236
82
318
(9)
(25)
15
474
1,012
(538)
73
(220)
318
3.7
Sales in Brazil, Yara’s single largest market,
increased compared with last year, despite a
subdued market after record growth in 2003.
Since the acquisition of Adubos Trevo in 2000
Yara has steadily increased scale and profitabili
ty in the fast growing Brazilian market. In 2004,
sales in Brazil amounted to approximately 11% of
Yara’s total fertilizer sales volume.
Downstream variance analysis
4.2
Fertilizer sales in 2004 were approximately 640 kt
lower than in 2003, primarily due to deliberate
efforts to reduce activity in West Africa and
reduce trade of low-margin third party products
in Asia. In Europe, Yara gained market share,
primarily at the expense of imports.
4
3
2
1
0
00
01
02
03
04
* 12-month rolling average
Turnover has improved significantly over the
past 5 years due to a combination of improved
credit control, shorter credit terms and better
inventory management. The improvement from
the end of 2000 is equivalent to a capital release
of approximately NOK 1.2 billion.
INDUSTRIAL
The Industrial segment markets nitrogen chemicals
and industrial gases originating from the produc
tion plants in Upstream and Downstream. It has
a broad presence across the product value chain
and has a wide and diversified customer base,
ranging from multinationals to small welding
operators. With its strong ability to create new
applications in different markets, Industrial adds
value to Yara product streams over and above
normal returns from the fertilizer business.
Examples of growth markets are liquid technical
urea for the reduction of NOx emissions, calcium
nitrate for water purification, technical nitrate for
explosives and carbon dioxide for the food
industry. The Industrial segment is the leading
European supplier for many of these products.
During 2004, several steps were taken to improve
operational focus and prepare the Industrial organ
ization for future organic growth. Two Industrial gas
plants in Asia were divested, in addition to the petro
leum industry related activities of Yara Formates.
43
MD&A
Industrial
688
688
647
708
800
789
Industrial EBITDA (MNOK)
600
400
00
01
02
03
04
Operating income for 2004 was NOK 454 million, compared with NOK 442 million in the
same period last year. EBITDA was NOK 688
million, unchanged from last year.
USD 5 million from last year.
EBITDA increased by USD 10 million in 2004 due
to higher volumes, with N-chemicals being the
major contributor.
Despite divestments in Asia, industrial gases
showed growth in 2004 mainly due to higher
sales of cylinder gases in Norway and Denmark.
Environmental product sales increased as water
treatment and air purification volumes grew in
both Europe and the US. Industrial N-Chemicals
saw strong volume growth as a result of new
contracts in Central and South Europe.
Technical ammonium nitrate prices rose as min
ing activity within both the coal and the metal
mining industries increased. Despite a histori
cally high price level for ammonia, margins
increased by USD 1 million, mainly for technical
ammonium nitrate and carbon dioxide.
Last year’s EBITDA included gains of USD 6 mil
lion from divestments, while the sale of the gas
activity in Malaysia and Yara Formates’ petrole
um industry business in 2004 resulted in a gain
of USD 9 million.
44
NOK
NOK
NOK
USD 1)
million
million
million
million
Total Sales per product group
Environmental Products
Industrial N-chemicals
200
0
Operating Revenues
Operating Income
EBITDA
EBITDA
1)
kt
kt
Pro forma
2004
5,392
454
688
102
14.0%
Pro forma
2003
4,769
442
688
98
14.3%
2004
458
1,649
2003
430
1,475
NOK
million
688
688
31
30
69
9
9
51
10
110
(100)
18
(66)
30
USD 1)
million
102
98
Industrial variance analysis
Variance EBITDA
Volume
Industrial gases
Environmental products
Industrial N-chemicals
Margin
Margin excl ammonia effect
Ammonia effect on margin
Divestments
Other
1)
5
10
1
1
8
1
16
(15)
3
(10)
5
The “Other” EBITDA reduction of USD 10 million
primarily reflects costs incurred to further
increase efficiency and streamline the organiza
tion for future organic growth, in addition to the
negative impact of the appreciation of the Euro
against the US dollar.
UPSTREAM
The Upstream segment is based on Yara’s
worldwide ammonia and urea production,
including the global trade and shipping of
ammonia, as well as nitrate and complex fertil
izer production co-located with ammonia pro
duction. All products except ammonia are dis
tributed through Downstream and Industrial.
MD&A
04
For 2004, operating income for the Upstream
segment was NOK 2,166 million compared with
NOK 1,212 million last year. EBITDA was NOK 3,379
million compared with NOK 2,249 million in 2003.
The volume variance of USD 2 per tonne was
mainly due to higher nitrate sales compared
with 2003, together with higher production levels.
Upstream production (kt)
15,000
12,000
9,000
12,221
Divided by volume produced.
7,246
2)
6,000
3,000
0
00
01
02
Finished fertilizer
4,975
1)
6,858 11,636
03
14
2
18
(2)
(1)
(3)
14
11,420
2,249
02
183
20
226
(29)
(15)
(19)
183
Variance EBITDA
Volume
Price/Margin
Effect of long position
Energy cost in Europe
Other
4,778
01
USD/
tonne 2)
41
27
6,730 11,418
00
USD 1)
million
503
320
4,688
0
NOK
million
3,379
2,249
1,129
100
1,230
135
1,518
(198)
(100)
(125)
1,230
Upstream variance analysis
EBITDA margin per produced tonne was USD 41
for 2004, up USD 14 per tonne on 2003.
1,000
4,778
6,858
11,636
Incl. Yara’s share of 20–50% owned companies.
Converted EBITDA was USD 503 million in
2004, up USD 183 million on last year.
1,130
1,883
2,000
1,982
3,000
4,975
7,246
12,221
million
million
million
million
6,874
3,379
4,000
2)
kt
kt
kt
NOK
NOK
NOK
USD 1)
4,546
Upstream EBITDA (MNOK)
1)
USD/MMBtu
Pro forma
2003
15,181
1,212
2,249
320
10.6%
3.2
11,305
Financial results for the Upstream segment are
driven mainly by fertilizer prices and raw material
costs, with fuel oil and natural gas prices being
the most important. The Upstream segment is
exposed to fertilizer industry cyclicality, but this
impact is reduced by Yara’s economies of scale
and strong focus on productivity improvements.
Yara’s unit cost is significantly below the
European average, for all major product groups.
Operating Revenues
Operating Income
EBITDA
EBITDA
CROGI (12 month-rolling avg.)
Energy cost (weighted avg.)
Production
Ammonia 2)
Finished Fertilizer 2)
TOTAL
Pro forma
2004
18,603
2,166
3,379
503
14.7%
3.5
6,570
Upstream’s ammonia trade and shipping unit
(ATS) supplies Downstream plants with ammonia
from Upstream plants or external parties, and
utilizes its shipping and distribution network to
generate additional returns from external trade.
Upstream
4,735
The primary input factor for Upstream is natural
gas, from which hydrogen is combined with
nitrogen from the air to form ammonia.
Ammonia is the basic building block for produc
tion of urea, nitrates and other nitrogen fertiliz
ers. Natural gas typically accounts for 50–80% of
the total input costs for urea production,
depending on gas prices, for a European produc
er. The long-term fertilizer price level for nitro
gen fertilizer products is strongly linked to inter
national ammonia and urea prices.
03
04
Ammonia
45
MD&A
Upstream production in 2004 totaled 12.2 million
tonnes, close to full capacity and 5% above
2003. Production consists of 5.0 million tonnes
ammonia and 7.2 million tonnes finished fertilizer, and includes Yara’s share of production in
20–50% owned companies. Captive ammonia
consumption was 83%, compared with 84% in
2003.
The average cost of purchased energy for
Upstream, including its share of energy costs in
non-consolidated investees, was 3.5 USD/
MMBtu in the 2004, compared with 3.2
USD/MMBtu in 2003. This increase was due to
higher gas prices in Europe, in addition to high
er ammonia-linked gas costs in non-consolidated investees outside Europe.
Qafco-4 in Qatar, in which Yara holds a 25%
ownership interest, began production in mid
2004. Production was close to full capacity by
the end of 2004.
A new energy contract for the Sluiskil plant was
signed during 2004, after the previous contract
expired at the end of 2003. Yara’s energy exposure in Europe changed somewhat as a result of
the new contract with Gasuine, reducing our
exposure to fuel oil prices and increasing our
exposure to gas oil prices.
Sales prices were significantly higher than last
year, improving EBITDA per tonne by USD 18.
The ammonia price increase had the greatest
impact, but higher urea, nitrate and NPK prices
also contributed to the improvement.
Relative to 2003, the EBITDA margin declined
by USD 2 per tonne due to Upstream’s long
position in ammonia. At year-end 2004, the
ammonia position was valued at the lower of
cost and market based on the price level in mid
January 2005.
Energy costs for European plants were up on
last year, reducing the EBITDA margin by USD 1
per tonne.
46
The item “Other” is mainly the negative effect
on fixed cost of the weaker US dollar against the
Euro and Norwegian krone.
OTHER AND ELIMINATIONS
“Other and eliminations” consists of Yara headquarters costs and cross-segment eliminations.
2004 EBITDA was a negative NOK 370 million
compared with a negative NOK 99 million last
year.
Unrealized profits from cross-segment sales
were eliminated to show the correct earnings for
Yara. The level of unrealized profit in inventory
increased mainly due to higher prices. This had
a NOK 95 million negative impact on EBITDA.
One-time costs related to the demerger from
Norsk Hydro of NOK 57 million and Yara’s
deductible of NOK 65 million for the Köping fire
were the other main reasons for the change in
EBITDA.
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED
PROFIT AND LOSS STATEMENTS
Actual
25.03. - 31.12.04
33,030
189
33,219
23,105
112
2,790
928
3,636
30,571
Notes
6
5,7,19
6,14,15
7,24
NOK million, except per share information
Revenues
Other income
Operating Revenues
Raw materials and energy costs
Change in inventories of own production
Payroll and related costs
Depreciation and amortization
Other
Operating Expenses
Operating Income
Notes
Pro forma
2004
Pro forma
2003
Pro forma
2002
6
43,066
185
43,252
38,334
148
38,481
33,477
272
33,750
30,106
155
3,600
1,208
4,597
39,667
27,207
(16)
3,216
1,147
4,176
35,730
23,450
(76)
2,921
1,183
4,003
31,480
6
3,584
2,751
2,270
5,7,19
6,14,15
7,24
2,649
6
637
144
3,429
6,12
8,23
6
Share of net income in non-consolidated investees
Earnings before interest expense and tax (EBIT)
6,12
8,23
6
768
171
4,523
610
142
3,503
57
199
2,526
226
3,656
8,23
Interest expense and foreign exchange gain/(loss)
Income before tax and minority interest
8,23
403
4,926
(348)
3,155
294
2,820
(796)
2,860
9
Income tax expense
Net Income
9
(1,185)
3,741
(966)
2,189
(915)
1,905
(6)
2,854
3
Minority interest
3
20
3,761
(3)
2,186
(11)
1,894
8.95
318,788,669
Earnings per share
Average number of shares outstanding 1)
11.79
318,938,750
6.84
319,442,590
5.93
319,442,590
1) Average number of shares outstanding was reduced in fourth quarter 2004 due to share buy-backs.
47
CONSOLIDATED
BALANCE SHEETS
Actual
31.12.2004
Notes
NOK million
Notes
Pro forma
31.12.2003
Pro forma
31.12.2002
Assets
48
1,362
284
1,646
9
15,19
Deferred tax assets
Other intangible assets
Intangible assets
9
15,19
784
240
1,023
408
154
562
6,786
14,21
Property, plant and equipment
14,21
7,219
7,091
2,558
1,151
3,709
12
13,19
Non-consolidated investees
Prepaid pension, investments and other non-current assets
Financial non-current assets
12
13,19
2,549
1,031
3,580
2,089
861
2,950
12,141
6
6
11,822
10,603
5,814
11
11
5,325
4,383
6,518
1,766
16
1,230
15,345
7
7
10
6
Accounts receivable, less allowances
Prepaid expenses and other current assets
Other liquid assets
Cash and cash equivalents
Total current assets
6
7,095
1,168
28
1,153
14,769
5,550
1,030
35
1,146
12,145
27,486
6
Total assets
6
26,591
22,747
Total non-current assets
Inventories
10
Actual
31.12.2004
543
(5)
3,703
4,241
6,674
(201)
10,714
63
10,777
Notes
3
3
3
1,846
1,037
430
3,313
19
9
20
4,494
18,21
776
175
712
7,238
8,901
27,486
316,441,190
16
18
3
17
NOK million, except for number of shares
Pro forma
31.12.2003
Pro forma
31.12.2002
543
3,703
4,246
5,349
9,595
96
9,691
543
3,703
4,246
3,348
7,594
85
7,680
19
9
20
1,760
636
492
2,888
1,530
254
624
2,408
18,21
7,488
7,488
16
18
3
17
501
30
5,993
6,524
26,591
319,442,590
447
84
4,640
5,171
22,747
319,442,590
Notes
Liabilities and shareholders' equity
Share capital
- Treasury shares
Premium paid-in capital
Total paid-in capital
Retained earnings
- Treasury shares
Total majority shareholders' equity
Minority shareholders' interest in consolidated subsidiaries
Shareholders' equity
Accrued pension liabilities
Deferred tax liabilities
Other long-term liabilities
Long-term liabilities
Long-term interest bearing debt
Bank loans and other interest-bearing short-term debt
Current portion of long-term debt
Dividends payable
Other current liabilities
Current liabilities
Total liabilities and shareholders' equity
Total number of shares outstanding 1)
3
3
3
1) Number of shares outstanding was reduced in fourth quarter 2004 due to share buy-backs.
Oslo, 18 March 2005
Board member
Board member
Åse Aulie Michelet
Board member
Leiv L. Nergaard
Board member
Arthur Frank Bakke
Board member
Charlotte Dyrkorn
Board member
Frank Andersen
Board member
Øivind Lund
Chairperson
Thorleif Enger
President and CEO
49
CONSOLIDATED
CASH FLOW STATEMENTS
Actual
25.03. - 31.12.04
Notes
2,854
928
(641)
143
(65)
(185)
(461)
(145)
6,14,15
6,12
12
9
Operating activities:
Net income after minority interest
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of non-consolidated investees
Dividends received from non-consolidated investees
Deferred taxes
Loss (gain) on sale of non-current assets
Loss (gain) on foreign currency transactions
Other
Notes
6,14,15
6,12
12
9
8
Pro forma
2004
Pro forma
2003
Pro forma
2002
3,761
2,186
1,894
1,208
(772)
385
(109)
(180)
(737)
(171)
1,147
(610)
336
(33)
(109)
(11)
20
1,183
(57)
206
(3)
(294)
(670)
56
(89)
(194)
178
402
2,724
Working capital changes that provided (used) cash:
Receivables
Inventories
Current liabilities
Net cash provided by operating activities
(166)
(675)
6
1,223
3,772
(628)
(564)
(493)
387
1,628
(201)
310
(247)
756
2,933
(849)
(210)
10
58
164
(827)
Investing activities:
Purchases of property, plant and equipment
Purchases of other long-term investments
Net sales (purchases) of short-term investments
Proceeds from sales of property, plant and equipment
Proceeds from sales of other long-term investments
Net cash used in investing activities
(974)
(251)
9
67
163
(986)
(930)
(281)
6
294
177
(734)
(1,134)
(529)
(21)
224
506
(954)
10,341
(12,056)
(924)
(206)
(7)
(2,851)
34
(1,278)
280
(1)
(964)
25
1,125
(3,067)
36
(1,881)
10,341
(11,947)
(206)
(7)
(1,819)
10
88
1,142
1,230
50
8
NOK million
3
Financing activities:
Loan proceeds
Principal payments
Pro forma adjustments
Purchase of treasury stock
Net cash transfers (to)/from minority interest
Net cash used in financing activities
Foreign currency effects on cash flows
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents as of beginning of period
Cash and cash equivalents at the end of period
3
142
77
(106)
77
1,153
1,230
7
1,146
1,153
(8)
1,154
1,146
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
01
Summary of significant
accounting policies
The Actual and Pro forma consolidated financial statements for Yara International ASA and its subsidiaries (Yara) pre
sented in this report have been prepared in accordance with accounting principles generally accepted in Norway (N
GAAP).
Financial statement preparation requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses as well as disclosures of contingencies. Actual results may differ from
estimates.
The accompanying Notes are an integral part of the consolidated financial statements.
Consolidation
The consolidated financial statements include Yara International ASA and entities in which Yara International ASA con
trols, directly or indirectly, more than 50 % of the voting interests. In certain circumstances, an entity may be controlled
through means other than majority voting interest, such as through contractual agreements.
All significant intercompany transactions and balances have been eliminated in the Financial Statements.
Investments in companies in which Yara exercises significant influence (non-consolidated investees) are accounted for
using the equity method. Significant influence normally exists when Yara has an ownership interest or otherwise controls
20 to 50 % of the voting shares. Participation in joint ventures is accounted for using the equity method.
Yara reviews non-consolidated investees for impairment if indications of loss in value are identified. As Yara's nonconsolidated investees are generally not listed on a stock exchange or regularly traded, the impairment review for such
non-consolidated investees can only rarely be based on observable market prices. Impairment indications may include
operating losses, or adverse market conditions. Fair value of the investment is estimated based on valuation model tech
niques. If it is considered probable that the fair value of the non-consolidated investee is below Yara's carrying value, the
investment is written down as impaired.
Business Combinations
Acquisitions are accounted for using the purchase method. See Note 04 for a description of significant acquisitions and
disposals during the past three years. Purchase accounting involves recording assets and liabilities of the acquired com
pany at their fair value at the time of acquisition. Any excess of purchase price over fair value is recorded as goodwill.
Foreign Currency Translation
The financial statements, including any excess values, of foreign operations are translated using the exchange rate at year
end for the balance sheet items, and average exchange rates for the profit and loss statement. Translation gains and loss
es, including effects of exchange rate changes on transactions designated as hedges of net foreign investments, are includ
ed in Shareholders’ equity as retained earnings.
Foreign Currency Transactions
Realized and unrealized gains or losses on transactions, assets and liabilities denominated in a currency other than the
functional currency that do not qualify for hedge accounting treatment, are included in net income.
51
Revenue Recognition
Revenue from sales of products, including products sold in international commodity markets, is recognized when owner
ship passes to the customer. Generally, this is when products are delivered. Yara's rebate arrangements include fixed-rate
rebates negotiated with each individual customer or variable rate rebates increasing with increasing volumes. For variable
rate rebates, the maximum possible rebate is accrued at each revenue transaction, and the accrual is adjusted at the end of
each “rebate period”, which typically is the end of a fertilizer season. The rebate arrangements are cash rebates accounted
for as revenue reduction. In arrangements where Yara acts as an agent, such as commission sales, only the net commission
fee is recognized as revenue.
Cash and Cash Equivalents
Cash and cash equivalents include cash, bank deposits and all other monetary instruments with a maturity of less than
three months at the date of purchase.
Other Liquid Assets
Other liquid assets include bank deposits and all other monetary instruments with a maturity between three months and
a year at the date of purchase.
Inventories
Inventories are valued at the lower of cost, using the first-in, first-out method (“FIFO”), and net realizable value. Cost
includes direct materials, direct labor, other direct cost, and the appropriate portion of production overhead or the price
to purchase inventory.
Property, Plant and Equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation and amortization. If a legal obli
gation for the retirement of a tangible long-lived asset incurs, the carrying value of the related asset is increased by the fair
value of the asset retirement obligation upon initial recognition of the liability. Long-lived assets are reviewed for impair
ment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carry
ing value of a long lived asset is considered impaired when the carrying amount of an asset exceeds its recoverable amount
which is the higher of net selling price and value in use. Value in use is the present value of estimated future cash flows
expected to arise from continuing use of an asset and from its disposal at the end of its useful life.
Impairment tests for long-lived assets measure impairment as the difference between carrying value and recoverable
amount of such an asset. The recoverable amount of an asset is the higher of net selling price and the present value of esti
mated future cash flows expected to arise from continuing use of such an asset and from its disposal at the end of its use
ful life.
An impairment loss in prior years is reversed if events or circumstances have resulted in a change in the estimate used
to determine the recoverable amount since the last impairment loss was recognized.
Periodic maintenance and repairs applicable to production facilities are accounted for on an accrual basis. Normal
maintenance and repairs for all other properties are expensed as incurred. Major replacements and renewals that materi
ally extend the life of plant, properties and equipment are capitalized and any assets replaced are retired.
Capitalized Interest
Interest is capitalized as part of the historical cost of major assets constructed.
Leased Assets
Leases that provide Yara with substantially all the rights and obligations of ownership are accounted for as capital leases.
Such leases are valued at the present value of minimum lease payments or fair value if this is lower, and recorded as assets
under Property, plant and equipment. The liability is included in Long-term debt. The assets are subsequently depreciat
ed and the related liabilities are reduced by the amount of the lease payments less the effective interest expense. Other leas
es are accounted for as operating leases with lease payments recognized as an expense over the lease term.
Environmental Expenditures
Environmental expenditures that increase the life, capacity, or result in improved safety or efficiency of a facility are capi
talized. Expenditures that relate to an existing condition caused by past operations are expensed. Liabilities are recorded
when environmental assessments or clean-ups are probable and the cost can be reasonably estimated.
52
Depreciation and Amortization
Depreciation is determined using the straight-line method with the following rates:
Machinery and equipment
5 – 25 %
Buildings
2– 5%
Ships
4– 5%
Other
10 – 20 %
Intangible Assets
Intangible assets acquired individually or as a group are recorded at fair value when acquired. Intangible assets acquired
in a business combination are recognized at fair value separately from goodwill when they arise from contractual or legal
rights or can be separated from the acquired entity and sold or transferred. Intangible assets with finite useful lives are
amortized on a straight-line basis over their benefit period. Intangible assets determined to have indefinite useful lives are
not amortized until a finite life can be determined. These intangible assets are subject to impairment testing on an annu
al basis and an impairment loss is recognized whenever the carrying amount of an intangible asset exceeds its recoverable
amount.
Goodwill
When a business is acquired, the purchase price in excess of the identified fair value of assets and liabilities is accounted
for as goodwill. Goodwill is amortized over a period not exceeding ten years. If there is an indication that goodwill may
be impaired, the recoverable amount is determined for the cash-generating unit to which goodwill belongs, and the recov
erable amount is compared to the carrying amount of the cash-generating unit. Any impairment loss is allocated to reduce
the carrying amount of the assets of the unit, first to reduce goodwill allocated to the unit and then to reduce the other
assets of the unit on a pro-rata basis.
Shipping costs
Purchase related shipping and handling costs are included in Other operating expenses. Shipping and handling cost
invoiced to customers are included in Operating revenues.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
Deferred income tax expense is calculated using the liability method in accordance with Norsk RegnskapsStandard
(“NRS”) regarding Income Taxes (“Resultatskatt”). Under this standard, deferred tax assets and liabilities are measured
based on the differences between the carrying values of assets and liabilities for financial reporting and their tax basis,
which is considered temporary in nature. Deferred income tax expense represents the change in deferred tax asset and lia
bility balances during the year except for deferred tax related to items charged directly to equity. Changes resulting from
amendments and revisions in tax laws and tax rates are recognized when the new tax laws or rates are enacted.
Derivative Instruments
Derivative instruments are marked to their market value with the resulting gain or loss reflected in the Profit and Loss
statement, except when the instruments meet the criteria for hedge accounting. See Note 23 for the balance sheet classifi
cation of these instruments. Gains or losses on cash flow hedge instruments are booked directly against equity until the
underlying transactions are recognized. Gain or loss on fair value hedge instruments is recognized in the Profit and Loss
statement, but is partly offset by changes in value of the hedge item.
Forward currency contracts
Forward currency contracts are marked to their market value at each balance sheet date with the resulting unrealized gain
or loss recorded as foreign exchange gain (loss).
Interest rate and foreign currency swaps
Interest income and expense relating to swaps that are not designated as hedge instruments are netted and recognized as
income or expense over the life of the contract. Foreign currency swaps are translated into Norwegian kroner at applica
ble exchange rates as of the balance sheet date with the resulting unrealized exchange gain or loss recorded in interest
expense and foreign exchange gain (loss).
53
Derivative Commodity Instruments
Commodity derivative instruments that are traded in a liquid market are marked-to-market with their fair market value
recorded in the balance sheet as either assets or liabilities.
Share-based Incentive program
Yara accounts for the share-based incentive program based on intrinsic value. For awards settled in cash, compensation
cost is measured at the end of each period as the amount by which the market price of the shares exceeds the strike price
of the share based incentive program. Compensation is charged to expense over the periods when the employee earns the
benefit.
Employee Retirement Plans
Pension costs are calculated in accordance with the NRS no. 6. Prior service costs are amortized on a straight-line basis
over the average remaining service period of active participants. Accumulated gains and losses in excess of 10 % of the
greater of the benefit obligation or the fair value of assets are amortized over the remaining service period of active plan
participants (See Note 19).
Change in presentation of Other items
In 2004, Yara decided to change the classification of “Other Income/Loss”. Gains from divestments of companies and dis
posal of property, plant & equipment are now included in Operating Revenues, while losses from divestments and dispos
als are included in Other under Operating Expenses. The figures for previous periods presented have been restated accord
ingly.
Change in Accounting Principles
There has not been any change in accounting principles in 2004.
The following is included with reference to EU-directive 83/349
YARA GmbH & Co. KG with legal seat in Dülmen/Germany and its directly and indirectly owned subsidiaries are includ
ed in the consolidated financial statement of Yara International ASA as defined by sec. 291 HGB (German commercial
code). For the purpose of sec. 264b HGB, YARA GmbH & Co. KG makes use of the relief to not disclose any independent
financial statement and notes.
54
02
Notes to
Pro forma Accounts
Yara International ASA was demerged from Norsk Hydro ASA and listed on the Oslo Stock Exchange as a separate com
pany on 25 March 2004.
In the demerger, the assets, rights and liabilities primarily related to Hydro’s activities in connection with fertilizer
products and related chemicals and industrial gases were transferred to Yara International ASA.
The consolidated financial statements for Yara have been prepared on a historical cost basis in accordance with
accounting principles generally accepted in Norway (N GAAP). The pro forma consolidated financial statements have
been derived from Hydro’s consolidated financial statements, and include the historical information for operations being
transferred to Yara. In addition, pro forma adjustments have been made to revenues, general and overhead cost, financial
expenses and interest-bearing debt and tax, as if Yara had been a stand-alone company. The pro forma adjustments
are prepared in accordance with Oslo Stock Exchange requirements (“Regnskapssirkulære 2001” and “Børsforskriftens
§ 5-3”) regarding demergers. The operations and companies demerged from Hydro are not identical to the operations
reported as Agri Business Area in Hydro’s segment reporting.
General and overhead cost
In the pro forma figures for Yara, costs invoiced and allocated from Hydro are adjusted to represent estimates
for Yara's general and overhead costs, calculated as if Yara was a stand-alone company. For the years 2003 and 2002 the
adjustments amounted to NOK 12 million and NOK 15 million. No adjustment was made subsequent to third quarter
2003.
In addition, costs relating to cash management and finance functions were allocated to Yara to the amount of NOK 22
million for 2003. No such cost was allocated in the third quarter 2003 and first quarter 2004. For 2002 the amount allo
cated was NOK 30 million. For cash management, costs were allocated based on ratios of the two companies revenues, to
reflect use of the services.
Financial expenses and interest-bearing debt
Yara was allocated a net interest-bearing debt of NOK 8.5 billion as of 1 October 2003 (the agreed date of transferring risk
and rewards in the demerger). Yara reduced its net interest-bearing debt to NOK 6.8 billion as of 24 March 2004, which
was applied in the pro forma financial statements for all periods presented, except for the 25 March to 31 December peri
od of 2004, where the actual net interest-bearing debt was used. In the calculation of pro forma net interest expense, it was
assumed that Yara needs an average cash level of NOK 800 million for the operations.
As explained above, net interest-bearing debt as of 24 March 2004 was applied in calculating shareholders'
equity in the Pro Forma Consolidated Balance Sheet as of 31 December 2003 and prior periods presented. The portion of
net income in the period 1 January 2004 to 24 March 2004 used to reduce net interest-bearing debt, is concequently
reflected in shareholders' equity in the Pro Forma Consolidated Balance Sheets as of 31 December 2003.
Shareholders' equity including minority interests, as of 31 December 2004 was NOK 10,777 million compared to NOK
8,108 million allocated to Yara on 1 October 2003.
Interest rates used in the pro forma calculation are based on the terms for the new Yara financing effective from 25
March 2004, adjusted for Yara’s target to have a major part of its financing at fixed interest terms.
For periods prior to 1 October 2003 the pro forma accounts reflect foreign currency gains and losses allocated to Yara
based on Hydro’s actual foreign currency gains and losses and Yara’s interest-bearing debt relative to Hydro’s total interestbearing debt. For periods subsequent to 1 October 2003, the accounts reflect foreign currency gains and losses based on
Yara’s actual loans, terms and currency mix.
Income taxes
The income tax expenses in the pro forma financial statements for 2003 and prior periods presented, were established in
order to give an indication of what the tax expense would have been, had Yara been a separate group. All significant effects
from tax consolidation of Yara’s taxable income with the taxable income of the remaining part of Hydro have been adjust
ed for.
Hydro is, according to the Demerger Plan, responsible for the current taxes on Yara’s results for the period prior to
1 October 2003. Yara’s tax liability, as of 31 December 2003 therefore reflects only current income tax payable for the peri
od from 1 October 2003 until 31 December 2003.
55
03
Consolidated
shareholders' equity
Ordinary Shares to
be issued / issued by Yara Premium
International ASA
paid-in
NOK million, except number of shares
Number
Amount
capital
Pro forma
Balance 31 December 2001
Net income 2002
Other items recorded
directly to shareholder's equity
Hedge of net investment
Transfers to Hydro 2)
Foreign currency translation, net
Pro forma adjustments 3)
Net income 2003
Hedge of net investment
Transfers to Hydro 2)
Net income 2004
Dividends proposed
Cash flow hedges
Actual
Balance 31 December 2003 4)
Demerger Yara 25 March
Net income 25 March - 31 December
Dividends proposed
Cash flow hedges
319,442,590
319,442,590
319,442,590
(3,001,400)
543
543
543
3,703
3,703
3,703
(5)
Total
paid-in
capital
4,246
4,246
4,246
(5)
316,441,190
538
3,703
4,241
63,888,512
255,554,078
109
434
1,939
1,764
2,048
2,198
(3,001,400)
316,441,190
(5)
538
3,703
(5)
4,241
Total Majority ShareRetained
holder’s
earnings
equity 1)
6,246
1,894
10,492
1,894
(233)
191
(2,547)
(2,024)
(179)
3,348
2,186
(233)
191
(2,547)
(2,024)
(179)
7,594
2,186
26
(107)
(478)
1,453
(1,079)
5,349
3,761
(712)
(688)
26
(107)
(478)
1,453
(1,079)
9,595
3,761
(712)
(688)
(57)
(77)
(201)
(902)
6,473
(57)
(77)
(206)
(902)
10,714
5
5,416
2,854
(712)
(767)
2,053
7,614
2,854
(712)
(767)
(46)
(77)
(201)
6,473
(46)
(77)
(206)
10,714
1) Minority interest at the end of the periods 2004, 2003 and 2002 amounted to NOK 63 million, NOK 96 million and NOK 85 million.
2) Yara's net interest bearing debt is kept stable at NOK 6.8 billion for all periods prior to the effective date of the demerger, 25 March 2004. Accordingly, Yara's earnings in
the period does not directly affect changes in equity for this period. For the period after the effective date of the demerger, Yara has assumed the risk of operations and
financing.
3) Pro forma adjustments is related to changes in equity due to different assumptions in the P&L and Balance sheet.
4) Represents equity balance in Yara International ASA.
On 19 October 2004, Yara started the purchase of own shares, as part of the buy-back program approved by Yara's General
Meeting 16 June 2004. The program opens for buy-back of up to 5 % of Yara's shares (15,972,130 shares), and is valid until
15 December 2005. According to the buy-back program, the purchase price shall not be less than NOK 25 per share or
more than NOK 75 per share. The intention is to amortize the shares. This decision must be taken by Yara’s annual gen
eral meeting
56
Yara's largest shareholder, the Norwegian State, has committed to sell a proportional part of its shares, leaving the State's
36.21 % ownership unchanged. The compensation to the State will be equal to the average price paid in the market for the
buy-back shares, plus interest of NIBOR +1 %, calculated from the dates of the acquisition of the corresponding shares.
In 2004, Yara purchased 3,001,400 shares at an average price of NOK 68.60 per share, and with a total cost of NOK 206
million.
Minority interest is mainly related to the following units;
Company
Adubos Trevo s.a.
Yara Cameroun s.a.
Ceylon Oxygen Ltd.
Yara Fertilizers Philippines Inc.
P.T. Yara Indonesia
04
Acquisitions
and disposals
Country
Minority
interest in %
Brazil
Cameroon
Sri Lanka
Philippines
Indonesia
4.10 %
35 %
29.15 %
44 %
30 %
Subsequent to and during the three years ended 31 December 2004, Yara entered into the following significant business
combinations and disposals.
2005 Acquisitions
In January 2005 Yara acquired a 30 % stake in the Russian fertilizer producer OAO Minudobreniya ("Rossosh"). The
Rossosh plant has a total production of approximately 900,000 tonnes of NPK, 450,000 tonnes of ammonium nitrate (AN),
and 800,000 tonnes of ammonia. Half of the ammonia is upgraded to NPK and AN. The Rossosh plant will be fully inte
grated into the Yara product planning and fertilizer marketing system.
2004 Acquisitions
No significant acqusitions were made during 2004.
2004 Disposals
Yara sold its 20.1 % shareholding in Ballance Agri-Nutrients in New Zealand to the majority owner Ballance AgriNutrients Cooperative. The transaction resulted in a gain of NOK 81 million. At the same time Yara entered into a supply
agreement with Ballance and will continue to supply urea and other fertilizer products to the company.
2003 Acquisitions
No significant acqusitions were made during 2003.
2003 Disposals
No significant disposals were made during 2003.
2002 Acquisitions
In April 2002 Yara entered into a joint venture, SQYA, in Chile as a part of the strategy to strengthen its speciality fertiliz
er operations. Through its 49 % ownership in SQYA, and a parallel investment in Pampa Calichera, a listed Chilean com
pany, Yara indirectly acquired approximately 6 % of the shares in SQM, a Chilean company with a strong position in nitrate
and potassium-based speciality products. Yara's acquistion costs was NOK 240 million.
2002 Disposals
During 2002 Yara reorganized the Vlaardingen operations in the Netherlands into a new joint venture company, named
NU3. Yara exhanged property, plant & equipment in Vlaardingen for a 50 % ownership in the new company. The transac
tion was recorded at fair value and resulted in a pre-tax gain of NOK 66 million.
57
05
Stock-based
compensation
A cash-settled share-based incentive program was established in 2004. During 2004, 2,055,000 share incentive rights
(SIRs) were granted to 9 persons in Yara's top management. The SIRs vesting schedule is based on the performance of the
shares in Yara on the Oslo Stock Exchange (OSE). Under the share-based incentive program the employees will receive a
bonus if certain market performance criterias are met. The bonus vests after two and three years, with 1/3 and 2/3 respec
tively, and can be exercised during the period 8 May 2007 to 8 May 2010. In the agreement the employees consent to that
they have to invest half of the bonus after tax in the company's shares and not sell the shares within one year from the exer
cise date.
SIR plan:
Target
Group
Management
Outstanding
Granted
01.01.2004 07.05.2004
-
2,055,000
Strike
(NOK)
46.16
Exercised
in 2004
Forfeited
in 2004
-
-
Expired Outstanding
in 2004
31.12.2004
-
2,055,000
Exercisable
31.12.2004
-
Yara has recorded a liability related to the SIR plan of approximately NOK 19 million at 31 December 2004. The compen
sation expense related to the plan is recognized over the vesting period of the SIRs using the intrinsic value method. The
intrinsic value of the SIRs is re-measured each reporting date until the SIRs are settled. The market share price as of
31 December 2004 was NOK 79.75.
58
06
Operating and
geographical segment
information
Operating segments are components of a business that are evaluated regularly by dedicated senior management utilizing
financial and operational information prepared specifically for each segment for the purpose of assessing performance and
allocating resources. In general, financial information should be disclosed on the same basis as internally, in order to
enable investors to follow the company’s development in the same way as Yara management.
Segment Structure
The current segment structure was implemented 1 October 2003. Historical figures for the years 2003 and 2002 have been
reclassified to reflect this segment structure. Yara’s segments are managed as separate and strategic businesses.
Downstream
The Downstream segment contains the global fertilizer distribution and marketing system, but also includes production
facilities that primarily serve the regions in which such production facilities are located. Less than 30 % of the segment's
sales volumes is related to the segment's own chemical production of fertilizers. The remaining sales volume is purchased
on an arm’s- length basis from the Upstream segment or third parties. The Downstream segment's activities are margin or
commission-based. This reduces volatility in income significantly compared with a traditional fertilizer production com
pany, since the margins and commissions will remain relatively stable not much influenced by market prices for fertilizers
and the cost of energy inputs used to make fertilizers. The Downstream segment is characterized by a high capital
turnover, a low ratio of property, plant and equipment to total assets compared to a traditional production-oriented fertil
izer operation, and by a relatively low EBITDA margin in relation to revenues.
Industrial
The Industrial segment markets numerous industrial products, mainly originating from Yara’s fertilizer operations to other
industries. The industrial segment takes the advantage of the fertilizer operations, which is used to build strong market
positions within industrial gases, nitrogen chemicals and environmental products.
Upstream
The Upstream segment comprises ammonia and urea production in different parts of the world, the global trade and ship
ping of ammonia, as well as nitrate and NPK fertilizer production co-located with ammonia production and is serving
both domestic and international markets. The Upstream segment includes large joint venture operations (e.g., Qafco,
Tringen). Because of the level of ownership in these joint venture entities (i.e., less than 50 %), their operating results are
not reflected in operating income, but Yara’s share of the associates net income are included in EBITDA and net income.
The Upstream segment's operating results are, to a great degree, based on the segment's production margins, which are
primarily affected by the price levels for ammonia, urea, nitrates and NPK and the price level of energy and raw materials
such as phosphate rock and potash. In addition, operating results can be greatly influenced by movements in currency
exchange rates. The fluctuation of the Upstream segment's operating results is typical of that of traditional fertilizer pro
ducers and is, normally, less stable than the operating results of Yara’s Downstream and Industrial segments.
Operating Segment Information
Yara’s steering model reflects management's focus on cash flow-based performance indicators, before and after taxes.
EBITDA is an approximation of cash flow from operations before taxes. EBITDA is considered an important measure of
performance for the company's operating segments. Yara defines EBITDA as operating income plus interest income, other
financial income and results from non-consolidated investees. It excludes depreciation, write-downs and amortizations as
well as amortization of excess values in non-consolidated investees. In addition the segments are followed up on CROGI
(defined as gross cash flow after tax divided by gross investment).
Intersegment sales and transfers reflect arm’s-length prices as if sold or transferred to third parties. Results of activities
considered incidental to Yara's main operations as well as revenues, expenses, liabilities and assets not originating in, or
defined as part of, either the Upstream, Downstream or Industrial segment, are reported separately under the caption
"Other and eliminations". These amounts principally include interest income and expenses, realized and unrealized for
eign exchange gains and losses and the net effect of pension schemes. In addition, elimination of gains and losses related
to transactions between the segments will be accounted as part of Other and Eliminations. General corporate overhead
costs and costs related to cash management and finance function are also charged to Other and Eliminations.
59
Actual
25.03. - 31.12.04
Pro forma
2004
Pro forma
2003
Pro forma
2002
External operating revenues
Downstream
Industrial
Upstream
Other and Eliminations
Total
23,463
4,163
5,474
119
33,219
30,436
5,345
7,302
168
43,252
27,788
4,721
5,793
179
38,481
25,909
4,331
3,317
193
33,750
Internal operating revenues
Downstream
Industrial
Upstream
Total
720
43
8,456
(9,219)
-
1,005
47
11,301
(12,353)
-
1,333
47
9,387
(10,767)
-
954
70
7,863
(8,887)
-
Operating revenues
Downstream
Industrial
Upstream
Total
24,183
4,206
13,930
(9,100)
33,219
31,441
5,392
18,603
(12,185)
43,252
29,120
4,769
15,181
(10,588)
38,481
26,863
4,400
11,180
(8,694)
33,750
Operating expenses excl. depreciation and amortization
Downstream
Industrial
Upstream
Total
22,906
3,669
11,967
(8,899)
29,643
29,688
4,715
15,868
(11,812)
38,459
27,582
4,096
13,435
(10,529)
34,583
25,147
3,635
10,149
(8,633)
30,297
304
171
437
16
928
397
224
569
19
1,208
377
231
534
5
1,147
370
257
557
(1)
1,183
973
365
1,527
(217)
2,649
1,356
454
2,166
(392)
3,584
1,162
442
1,212
(64)
2,751
1,347
508
474
(59)
2,270
105
6
526
637
119
7
642
768
92
5
513
610
NOK million
Downstream
Industrial
Upstream
Total
Operating income
Downstream
Industrial
Upstream
Total
Share of net income non-consolidated investees
Downstream
Industrial
Upstream
Total
60
36
9
12
57
NOK million
Earnings before interest and tax (EBIT)
Downstream
Industrial
Upstream
Total
Actual
25.03. - 31.12.04
Pro forma
2003
Pro forma
2002
1,638
464
2,810
(389)
4,523
1,418
458
1,731
(104)
3,503
1,560
532
491
(57)
2,526
Earnings before interest, tax, depreciation and amortization (EBITDA)
Downstream
1,542
Industrial
545
Upstream
2,491
(188)
Total
4,389
2,068
688
3,379
(370)
5,765
1,833
688
2,249
(99)
4,671
1,956
789
1,130
(58)
3,817
Investments during the period
Downstream
Industrial
Upstream
Total
319
173
463
130
1,085
370
204
511
166
1,250
533
201
318
136
1,188
1,082
257
401
(191)
1,549
126
2
1
18
148
161
3
1
9
175
External interest income
Downstream
Industrial
Upstream
Total
1,206
374
2,054
(204)
3,429
Pro forma
2004
NOK million
Gross cash flow after tax 1)
Downstream
Industrial
Upstream
Total
Pro forma
2004
1,613
551
2,728
(81)
4,811
166
8
6
(40)
140
Pro forma
2003
1,435
552
1,884
(165)
3,706
176
15
5
(35)
161
Pro forma
2002
1,500
632
987
(40)
3,079
1) Defined as EBITDA less total tax expense, excluding tax on net foreign exchange gains/losses.
Gross investment 1)
Downstream
Industrial
Upstream
Total
13,520
3,927
18,500
173
36,119
12,929
3,850
17,834
253
34,866
12,156
3,758
17,293
392
33,598
11.9
14.0
14.7
Negative
13.3
11.1
14.3
10.6
Negative
10.6
12.3
16.8
5.7
Negative
9.2
1) 12-month average.
Cash Return on Gross Investment (CROGI)
Downstream
Industrial
Upstream
Total
61
NOK million
Actual
2004
Pro forma
2003
Pro forma
2002
Assets 1)
Downstream
Industrial
Upstream
Total
15,158
2,633
8,850
846
27,486
13,965
2,754
8,802
1,068
26,591
12,767
2,531
7,790
(342)
22,747
10,767
1,446
3,297
(166)
15,345
9,440
1,472
3,330
525
14,769
8,480
1,186
2,554
(75)
12,145
4,390
1,187
5,552
1,011
12,141
4,525
1,282
5,472
544
11,822
4,286
1,345
5,236
(265)
10,603
636
10
1,746
167
2,558
808
15
1,516
210
2,549
601
41
1,351
96
2,089
4,431
775
2,261
(1,106)
6,361
3,928
668
1,800
(562)
5,834
4,460
652
1,742
(2,214)
4,640
1) Assets exclude internal cash accounts and accounts receivable related to group relief.
Current assets 1)
Downstream
Industrial
Upstream
Total
1) Current assets exclude internal cash accounts and accounts receivable related to group relief.
Non-current assets
Downstream
Industrial
Upstream
Total
Non-consolidated investees, investments and advances
Downstream
Industrial
Upstream
Total
Segment debt 1)
Downstream
Industrial
Upstream
Total
1) Segment debt is defined as short-term interest-free liabilities excluding income taxes payable and short-term deferred tax liabilities.
62
Geographical segment information
Revenues 1)
NOK Million
Actual
25.03.-31.12.04
Pro forma
2004
Pro forma
2003
Pro forma
2002
1,696
2,052
1,833
1,759
France
Germany
Great Britain
Italy
Spain
Sweden
The Netherlands
Belgium
Denmark
Other
Total EU
2,931
2,195
1,773
1,760
1,368
756
570
756
422
1,079
13,608
4,200
2,833
2,516
2,672
1,743
1,111
709
850
583
1,473
18,690
3,730
2,461
2,357
2,339
1,639
1,015
794
534
502
1,117
16,488
3,392
2,312
2,239
2,099
1,236
795
739
503
556
640
14,511
Other Europe
Total Europe
569
15,874
909
21,652
737
19,059
521
16,791
South and Central America
Asia
North America
Africa
Australia and New Zealand
Total outside Europe
Total
5,307
3,571
4,851
3,162
265
17,157
33,030
6,149
4,503
6,537
3,905
320
21,414
43,066
5,191
4,269
5,637
3,934
244
19,275
38,334
4,716
4,166
3,831
3,805
168
16,686
33,477
Norway
1) Revenues are identified by customer location.
63
NOK Million
Assets 1)
Pro
Pro
Actual forma forma
2004 2003 2002
Long-lived Assets 1)
Pro
Pro
Actual forma forma
2004 2003 2002
Norway
France
The Netherlands
Germany
Italy
Great Britain
Belgium
Sweden
Denmark
Spain
Other
Total EU
Other Europe
Total Europe
Asia
South and Central America
Africa
North America
Australia and New Zealand
Total outside Europe
Eliminations
Total
6,118
4,825
2,393
2,169
1,625
1,520
905
919
220
533
240
15,349
9
21,476
3,744
3,013
2,001
1,543
31
10,332
(4,323)
27,486
2,545 2,680 2,793
1,027 1,097 1,007
1,345 1,259 1,156
887
678
577
579
576
484
403
458
475
89
77
57
308
331
317
160
172
154
65
50
28
7
10
10
4,870 4,708 4,265
8
29
20
7,424 7,417 7,078
1,348 1,632 1,406
1,179 1,184
958
201
194
177
342
370
421
1
1
1
3,071 3,381 2,963
10,495 10,799 10,041
5,632
4,613
2,150
2,160
1,833
1,470
1,209
890
223
448
209
15,205
33
20,870
3,055
2,379
1,902
1,695
31
9,062
(3,341)
26,591
6,237
3,892
2,230
1,739
1,668
1,339
629
783
193
289
239
13,001
26
19,264
2,679
2,020
1,814
1,403
18
7,934
(4,450)
22,747
Investments 1)
Pro
Pro
Actual forma forma
2004 2003 2002
225
175
211
306
50
8
30
16
18
1
815
1,040
8
105
71
26
1
210
1,250
220
179
277
123
35
18
29
18
20
2
701
1
923
35
151
49
30
265
1,188
92
116
229
79
84
113
117
73
16
2
2
830
2
924
72
356
68
130
626
1,549
1) The identification of assets, long-lived assets and investments is based upon location of operation. Included in long-lived assets are investments in non-consolidated
investees; property, plant and equipment (net of accumulated depreciation) and non-current financial assets. The intangible assets are not included. Eliminations are relat
ed to internal transactions between geographical areas.
64
07
Operating
expense
Operating expense include research and development, operating lease expense and payroll and related costs as follows:
Actual
25.03.-31.12.04
Pro forma
2004
Pro forma
2003
Pro forma
2002
Payroll and related costs:
Salaries
Social security costs
Social benefits
Net periodic pension cost (Note 19)
Total
2,004
370
74
342
2,790
2,600
471
98
431
3,600
2,347
418
44
406
3,216
2,254
326
76
265
2,921
Other:
Selling and administrative expense
Rental of buildings etc.
Travel expense
Freight and insurance expense
Allowance for bad debt
Other
Total
Research and development expense
Operating lease expense: 1)
986
109
86
2,170
191
94
3,636
137
545
1,254
135
98
2,764
206
139
4,597
137
695
1,187
107
60
2,410
172
240
4,176
127
660
1,258
106
67
2,219
141
212
4,003
176
707
NOK million
1) Total minimum future rentals of NOK 2,929 million are due under non-cancellable operating leases as follows (in NOK million):
2005 (447); 2006 (359); 2007 (254); 2008 (273); 2009 (260); and thereafter (1,336).
Over the last few years, Yara has focused on orienting research and development resources towards commercial activities,
both with respect to process and product improvements and agronomical activities. It is impracticable to give a fair esti
mate of possible future financial returns of these activities.
08
Financial income
and expense
NOK million
Interest income on customer credits
Interest income, other
Dividends and net gain (loss) on securities
Interest expense
Net foreign exchange gain (loss)
Other financial expense
Interest expense and foreign exchange gain (loss)
Net financial income (expense)
Actual
25.03.-31.12.04
113
35
(4)
144
(194)
461
(42)
226
370
Pro forma
2004
137
37
(4)
171
(266)
1
737
(68)
403
574
Pro forma
2003
128
12
2
142
(311)
15
11
(62)
(348)
(206)
Pro forma
2002
149
12
38
199
(339)
9
670
(47)
294
493
The basis for the pro forma interest income and expense calculation is the pro forma debt structure (see Notes 16 and 18
for pro forma short-term and long-term debt, respectively).
65
09
NOK million
Actual
25.03.-31.12.04
Pro forma
2004
Pro forma
2003
Pro forma
2002
312
3,344
3,656
420
4,506
4,926
211
2,944
3,155
367
2,453
2,820
74
787
861
98
1,194
1,292
45
890
935
229
619
848
(12)
(53)
(65)
796
(20)
(89)
(109)
1,183
2
1,185
(82)
49
(33)
902
64
966
(95)
92
(3)
845
70
915
Income taxes
Income before taxes and minority interest:
Norway
Other countries
Total
Current taxes:
Norway
Other countries
Current income tax expense
Deferred taxes:
Norway
Other countries
Deferred tax expense (benefit)
Total income tax expense before pro forma adjustment
Tax effect on pro forma adjustment
Total income tax expense - Pro forma
Reconciliation of Norwegian nominal statutory tax rate to effective tax rate.
NOK million
Actual
25.03.-31.12.04
Expected income taxes at statutory tax rate 1)
Tax law changes
Losses and other deductions with no tax benefit
Non-deductible expenses
Foreign tax rate differences
Tax free income non-consolidated investees
Tax free income miscellaneous
Dividend exclusion
Losses and other benefits not previously recognized 2)
Other, net
Total income tax expense before pro forma adjustment
Tax effect on pro forma adjustment
Total income tax expense - Pro forma
Effective tax rate 3)
1,024
(159)
95
14
158
(158)
(46)
(38)
(276)
182
796
21.8 %
Pro forma
2004
1,378
(159)
95
14
158
(125)
(46)
(38)
(276)
182
1,183
2
1,185
24.1 %
1) Norwegian nominal statutory tax rate is 28 %.
2) Use of deferred tax assets previously not recognized due to valuation allowances.
3) The “Effective tax rate - Pro forma” is calculated on the base of Pro forma Income before tax and minority interest.
66
Pro forma
2003
820
54
80
16
79
(86)
(29)
(21)
(80)
69
902
64
966
30.6 %
Pro forma
2002
720
(3)
388
31
(148)
(25)
(28)
(27)
(174)
111
845
70
915
32.4 %
Deferred tax
NOK million
Property, Plant & Equipment
Other non-current assets
Inventory valuation
Other current assets
Accrued expenses, short-term
Unrealized exchange (gains) losses
Accrued expenses, long-term
Pensions
Deferred (gains) losses on sales
Other non-current liabilities
Total tax loss carry forwards
Subtotal
Total valuation
allowance
Gross deferred tax
assets and liabilities
Net
Assets
Actual
2004
1,868
56
86
1
593
34
109
359
20
110
819
4,055
(551)
3,504
1,362
Liabilities
Actual
2004
(1,912)
(26)
(26)
(109)
(379)
(49)
(66)
(192)
(90)
(330)
(3,179)
(3,179)
(1,037)
Assets
Pro forma
2003
Liabilities
Pro forma
2003
1,919
47
55
1
526
17
77
234
51
95
946
3,968
(1,984)
(30)
(16)
(111)
(296)
(50)
(97)
(208)
(294)
(3,086)
(734)
-
3,234
784
(3,086)
(636)
Assets
Pro forma
2002
1,739
41
59
1
344
26
83
227
60
79
1,064
3,723
(977)
2,746
408
Liabilities
Pro forma
2002
(1,804)
(31)
(27)
(77)
(201)
(41)
(88)
(58)
(266)
(2,593)
(2,593)
(254)
Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries, amounting to NOK
11,566 million, since those earnings are considered to be indefinitely invested. No deferred income taxes have been recog
nized on undistributed earnings of Norwegian subsidiaries which also can be distributed as tax-free dividends. Deferred
income taxes have not been provided on undistributed earnings in foreign non-consolidated investees, amounting to NOK
780 million, which can be distributed as taxfree dividends.
At the end of 2004, Yara had tax loss carry forwards of NOK 2,475 million, primarily in Germany, France and
Italy. Tax loss carry forward amounts expire as follows:
NOK million
2005
2006
2007
2008
2009
After 2009
Without expiration
Total tax loss carry forwards
10
NOK million
7
236
188
29
68
66
1,881
2,475
Actual
2004
Pro forma
2003
Pro forma
2002
16
28
35
Actual
2004
Pro forma
2003
Pro forma
2002
3,316
151
2,346
5,814
3,299
294
1,733
5,325
2,795
201
1,387
4,383
Other liquid assets
Bank time deposits (4-12 months)
11
NOK million
Inventories
Finished goods
Work in progress
Raw materials
Total inventories
67
12
Non-consolidated
Investees
NOK million
Qafco
Tringen
1,121
246
434
(230)
(126)
1,199
191
(85)
(34)
318
Actual 2004
Balance 25.03.2004
998
Investments (sale), net
Transfers (to) from other investments
Yara's share of net income (loss)
361
Amortization and write-down
Dividends received by Yara
Foreign currency translation & other (161)
Balance 31.12.2004
1,199
307
139
(85)
(43)
318
Pro forma 2004
Balance 31.12.2003
Changes in 2004:
Investments (sale), net
Transfers (to) from other investments
Yara's share of net income (loss)
Amortization and write-down
Dividends received by Yara
Foreign currency translation & other
Balance 31.12.2004
NHFL Farmland Ballance Carbonor
-
NU3
SQYA
Other
Total
2,549
74
171
69
75
439
353
85
17
(2)
100
(3)
(7)
64
(178)
27
(23)
3
-
3
(1)
71
11
(5)
(2)
78
(17)
20
(53)
389
(4) (114)
(12)
(12)
107
806
(34)
(34)
(41) (385)
(29) (252)
339 2,558
85
17
(1)
100
76
(2)
(9)
64
182
(178)
25
(23)
(5)
-
70
2
(2)
71
79
7
(5)
(2)
78
435
(17)
20
(50)
389
353 2,499
12
(98)
(12)
(12)
104
673
(32)
(32)
(30) (143)
(56) (329)
339 2,558
Specification of Non-consolidated Investees
NOK million,
except ownership
Percentage
owned by Yara
(equals voting rights)
Investments in
and advances
to investees
Actual
2004
Qafco
Tringen
NHFL
Farmland Hydro
Ballance Agri-Nutrients
Carbonor
NU3
SQYA
Others
Total
68
25.0 %
49.0 %
50.0 %
50.0 %
50.0 %
50.0 %
49.0 %
-
1,199
318
100
64
71
78
389
339
2,558
Pro forma
2003 2002
1,121
246
74
171
69
75
439
353
2,549
1,002
167
135
140
44
57
217
327
2,089
Yara's current
receivable (payable)
net with investees
Actual
2004
(507)
(112)
23
222
202
(172)
Pro forma
2003 2002
(378)
(135)
16
24
238
(235)
(142)
(72)
6
2
252
46
A description of significant investees' business, majority owners and the nature of related party transactions with Yara
including sales and purchase amounts (if material) is laid out below.
Qatar Fertilizer Company (S.A.Q.), (“Qafco”), owns and operates a fertilizer complex for which Yara provides market
ing support and technical assistance. Yara has a 25 % ownership stake in Qafco, the remaining 75 % of Qafco is owned by
Industries Qatar, a Doha Stock Market listed company, owned 70 % by Qatar Petroleum and 30 % by the general public.
QAFCO 4, a US$470 million project, went on-stream in 2004. Yara International ASA and QAFCO have signed a letter of
intent (LOI) with Qatar Petroleum for QAFCO 5, creating a platform for the construction of a 1 million tonnes ammonia
and 1,1 million tonnes urea plant. Sales from Qafco to Yara amounted to NOK 1,969 million, NOK 1,524 million and NOK
944 million in 2004, 2003 and 2002, respectively.
Tringen owns and operates a fertilizer complex for which Yara provides marketing support and technical assistance,
regulated by a management and operating agreement. Yara has a 49 % ownership stake in Tringen, the remaining 51 % of
Tringen is owned by National Enterprises Limited, which is a public registered Company, in which the Government of
Trinidad & Tobago has a majority shareholding. Tringen operates two separate lines for production of Ammonia. Sales
from Tringen to Yara amounted to NOK 1,556 million, NOK 1,145 million and NOK 692 million in 2004, 2003 and 2002,
respectively.
NHFL Erste and NHFL Zweite are German incorporated Companies, based in Rostock. The companies own two
ammonia carriers, which are on time charter to Yaraship AS. Yara has a 50 % ownership in the two companies and the
remaining 50 % are owned by Reederi F. Laeisz. Sales from NHFL Erste to Yara amounted to NOK 10 million in 2004.
Yara owns 50 % in Farmland Hydro LP, a former phosphate fertilizer producer in Florida, in the United States. In the
fourth quarter 2002, Farmland Hydro LP transferred all its employees and sold all its assets to Cargill Fertilizer Inc. Yara's
sales to Farmland Hydro LP amounted to NOK 225 million in 2002.
Yara has sold its 20.1 % shareholding in Ballance Agri-Nutrients Ltd. in New Zealand to the majority owner Ballance
Agri-Nutrients Cooperative. At the same time Yara entered into a supply agreement with Ballance and will continue to
supply urea and other fertilizer products to the company. Sales from Yara to Ballance Agri-Nutrients Ltd. amounted to
NOK 98 million, NOK 78 million and NOK 72 million in 2004, 2003 and 2002, respectively.
Carbonor S.p.A, an Italian incorporated company based in Milan, manages four ships on time-charter contracts with
Yara. Yara has a 50 % ownership in Carbonor, the remaining 50 % is owned by Carbofin S.p.A. Sales from Carbonor S.p.A
to Yara amounted to NOK 172 million, NOK 200 million and NOK 207 million in 2004, 2003, and 2002, respectively.
NU3 owns and operates two specialty fertilizer production facilities, one in the Netherlands and one in Belgium. NU3,
which is a 50/50 joint venture between Yara and NutriSi (owned by SQM of Chile and Rotem, an Israeli company), is part
of a worldwide alliance between Yara and SQM. NU3 sells specialty fertilizers through the Yara - SQM sales and market
ing network. Sales from NU3 to Yara amounted to NOK 239 million, NOK 246 million and NOK 39 million in 2004, 2003
and 2002, respectively.
Yara has a 49 % interest in Inversiones SQYA s.a, a Chilean investment company, as part of the strategy to strengthen
its specialty fertilizer operations. Through this company and a parallel investment in Pampa Calichera, a listed Chilean
company, Yara indirectly owns approximately 6 % of the shares in SQM, a Chilean company with a strong position in
nitrate and potassium-based specialty fertilizer products. Sales from SQM to Yara amounted to NOK 625 million, NOK
574 million and NOK 483 million in 2004, 2003 and 2002, respectively.
The results of the non-consolidated investees split by segment can be found in Note 06.
69
Non-consolidated investees on a 100 % basis
The following table sets forth summarized unaudited financial information of Yara's non-consolidated investees on a
100 % combined basis. Yara's share of these investments, which is specified above, is accounted for using the equity
method.
Profit and Loss statement, unaudited data
NOK million
2004
2003
2002
12,030
3,168
3,083
2,733
806
9,614
2,609
2,290
2,007
631
10,302
1,742
840
725
165
2004
2003
2002
Non-current assets
Current assets
Assets
8,318
6,292
14,609
9,211
6,143
15,354
6,746
4,371
11,117
Minority interest
Non-current liabilities
Current liabilities
8,270
656
2,762
2,923
14,609
8,582
658
3,347
2,767
15,354
6,528
6
2,335
2,248
11,117
2,558
2,549
2,089
Actual
2004
Pro forma
2003
Pro forma
2002
600
132
101
152
167
1,151
539
134
50
144
164
1,031
490
112
37
102
120
861
Operating revenues
Operating income
Income before taxes and min. interest
Net income
Yara's share of net income
Balance Sheet Data (unaudited)
NOK million
Yara's investments and advances
13
Prepaid pension,
investments and other
non-current assets
70
NOK million
Prepaid pension (Note 19)
Loans to pension fund
Other investments at cost
Long term VAT receivables
Total prepaid pension, investments and non-current assets
14
Property, plant
and equipment
Pro forma 2004
NOK million
Cost:
Cost 31.12.2003
Additions at cost
Retirements
Transfers
Foreign currency translation
Balance 31.12.2004
Depreciation:
Balance 31.12.2003
Impairment loss 1)
Additions new companies
Retirements
Transfers
Balance 31.12.2004
Net Book Value:
Balance 31.12.2003 2)
Balance 31.12.2004 2)
Actual 2004
NOK million
Cost:
Cost 25.03.2004
Additions at cost
Retirements
Transfers
Balance 31.12.2004
Depreciation:
Balance 25.03.2004
Impairment loss 1)
Retirements
Transfers
Balance 31.12.2004
Net Book Value:
Balance 25.03.2004 2)
Balance 31.12.2004 2)
Useful life in years
Depreciation
Machinery
and
Land Equipment
386
(7)
(8)
371
(1)
(1)
386
371
19,681
569
(365)
251
(309)
19,828
3,226
43
(59)
48
(34)
3,222
(14,830)
(983)
(18)
(40)
252
(2)
226
(15,396)
(1,957)
(124)
(4)
(2)
38
2
22
(2,025)
4,851
4,432
1,268
1,197
Buildings
Machinery
and
Land Equipment
387
(5)
1
(12)
371
Buildings
19,815
522
(341)
248
(417)
19,828
3,251
39
(57)
47
(59)
3,222
(15,108)
(751)
(18)
(40)
234
(2)
288
(15,396)
(1,998)
(92)
(4)
(2)
37
2
32
(2,025)
387
371
4,707
4,432
1,253
1,197
-
4-20
5-25 %
20-50
2-5 %
(1)
(1)
Plant
under
construct.
277
415
(299)
(6)
387
Other
Total
775
775
24,345
1,026
(431)
(358)
24,583
(339)
(37)
(376)
(17,126)
(1,144)
(23)
(42)
289
248
(17,798)
277
387
436
399
7,219
6,786
Plant
under
construct.
Other
Total
353
338
(296)
(7)
387
775
775
24,580
900
(402)
(494)
24,583
(348)
(28)
(376)
(17,454)
(870)
(23)
(42)
271
320
(17,798)
353
387
426
399
7,127
6,786
-
5-25
4-20 %
1) The fair value of the impaired asset is generally estimated by discounting the expected future cash flows of the individual assets. Impairment is generally indicated as
the result of current period cash flow losses, combined with a history of losses, or a significant change in the manner in which the asset is to be used.
2) Includes NOK 31 million related to capital leases for 2004 both actual and pro forma and NOK 26 million for 2003.
71
15
Pro forma 2004
NOK million
Goodwill
Other Intangibles
Total
Intangible assets
Cost:
Cost 31.12.2003
Additions at cost
Retirements
Transfers
Balance 31.12.2004
194
(13)
(4)
177
297
78
(22)
(7)
345
491
78
(35)
(11)
523
Depreciation:
Balance 31.12.2003
Depreciation
Impairment loss
Retirements
Transfers
Balance 31.12.2004
(155)
(4)
13
3
(143)
(236)
(35)
(3)
(3)
22
7
(248)
(391)
(39)
(3)
(3)
35
10
(390)
39
35
61
98
100
132
Net Book value
Balance 31.12.2003
Balance 31.12.2004
Actual 2004
NOK million
Goodwill
Other Intangibles
Total
Cost:
Cost 25.03.2004
Additions at cost
Retirements
Transfers
Balance 31.12.2004
196
(13)
(6)
177
309
75
(22)
(17)
345
505
75
(35)
(22)
522
Depreciation:
Balance 25.03.2004
Depreciation
Impairment loss
Retirements
Transfers
Balance 31.12.2004
(158)
(3)
13
5
(143)
(250)
(29)
(3)
(3)
22
15
(247)
(408)
(32)
(3)
(3)
35
20
(390)
38
35
59
98
97
132
Net Book value
Balance 25.03.2004
Balance 31.12.2004
In addition to intangibles specified in this Note, Other intangible assets include an additional minimum employee retire
ment liability of NOK 152 million for the year 2004 and NOK 140 million for 2003 (see Note 19).
The entire remaining net book value of the goodwill is related to the acquisition of Kaltenbach Thüring SA in 2003.
The goodwill is amortized over ten years, based on the expected future period of return.
Intangible assets are amortized on a straight line basis over their benefit period. Yara policy is to amortize intangible
assets up to a 10-year period using an amortization rate of up to 10 % per year. If the value of an intangible asset is deemed
to last less than 10 years, a shorter life is used.
72
16
Bank loans and
other interest-bearing
short-term debt
NOK million
Bank loans and overdraft facilities
Other
Total bank loans and other
interest bearing short-term debt
Weighted Average
Interest Rates
2004
2003
2002
6.03 %
8.00 %
8.26 %
8.00 %
Actual
2004
Pro forma
2003
Pro forma
2002
522
254
369
132
354
93
776
501
447
10.70 %
8.00 %
The short-term debt specified above is primarily local financing arrangements in various emerging markets.
As of 31 December 2004, Yara International ASA has unused short-term credit facilities with various banks totalling
approximately NOK 590 million. The interest rate for withdrawals under these facilities is based on the interbank interest
rate for the relevant currency plus a margin depending on the currency.
17
Other current
liabilities
NOK million
Accounts payable
Income taxes payable
Payroll and value added taxes
Accrued liabilities
Other liabilities
Total other current liabilities
18
Long-term
interest-bearing
debt
Amounts in million
USD
Total unsecured debenture bonds
USD
XOF (Ivory Coast)
BRL (Brazil)
MYR (Malaysia)
ZAR (South Africa)
VND (Vietnam)
Other
Total unsecured bank loans
Capital lease obligation
Mortgage loans
Other long-term debt
Total
Outstanding long-term debt
Less: Current portion
Total long-term debt
Actual
2004
Pro forma
2003
Pro forma
2002
4,494
877
695
824
348
7,238
4,378
159
540
672
244
5,993
3,635
383
452
169
4,640
Weighted
average
interest
rates
Denominated
amounts
Actual
2004
Balance
in NOK
Actual
2004
Balance
in NOK
Pro forma
2003
Balance
in NOK
Pro forma
2002
5.8 %
492
2,968
2,968
-
-
2.8 %
9.0 %
14.0 %
220
15,000
18
10
50,491
1,328
188
40
10
19
1,586
7,323
24
52
8
21
7,428
7,314
45
24
55
9
19
2
7,468
5
1
110
115
6
1
83
90
2
4
98
104
9.0 %
9.3 %
4,669
(175)
4,494
7,518
(30)
7,488
7,572
(84)
7,488
73
As of 31 December 2004, the fair value of long-term debt, including the current portion, is NOK 4,693 million and the
carrying value is NOK 4,669 million.
Yara bases its funding on a negative pledge structure with the basic funding ranking pari passu. Substantially all unse
cured debenture bonds and unsecured bank loan agreements therefore contain provisions restricting the pledging of assets
to secure future borrowings. Of the long-term debt at the end of 2004, the USD 492 million bond debt originates from
Yara's December bond issue according to 144A/RegulationS including issuance discount and capitalised issuance costs.
The other pillar of Yara's long-term funding is committed bank facilities, which are drawn USD 220 million at year end.
After regrouping the drawings from two bank facilities in January 2005, one facility will be cancelled while a USD 750 mil
lion facility expiring in 2009 will be kept, with an un-drawn part of USD 530 million. The additional minor portion of
long-term debt is arranged in emerging markets.
Payments on long-term debt fall due as follows:
NOK million
2005
2006
2007
2008
2009
Thereafter
Total
Debentures
Bank
loans
2,968
2,968
140
17
14
200
1,213
1,586
1)
Capital
lease and
other l.t. loans
2)
35
27
27
26
115
Total
175
45
41
227
1,213
2,968
4,669
1) Of which Yara International ASA is responsible for NOK 2,968 million.
2) Of which Yara International ASA is responsible for NOK 1,328 million.
19
Employee
retirement plans
Yara International ASA and many of its subsidiaries have defined benefit retirement plans that cover substantially all of
their employees. Plan benefits are generally based on years of service and final salary levels. Some subsidiaries have defined
contribution or multi-employer plans.
Employee Retirement Plans
With respect to employee retirement plans, as of 31 December 2004, the projected benefit obligations ("PBO") associated
with Yara's defined benefit plans was NOK 5,996 million and the fair value of pension plan assets was NOK 4,444 million,
resulting in a net unfunded obligation for such plans of NOK 1,552 million. In addition, termination benefit obligations
and other pension obligations amounted to NOK 234 million, leaving the net unfunded pension obligations at a total of
NOK 1,786 million. Net accrued pension liability was NOK 1,246 including additional minimum liabilities of NOK 667
million. Recognized liability with profit and loss statement effect is therefore NOK 579 million.
Unrecognized net loss and prior service costs were NOK 1,208 as of 31 December 2004, of which NOK 693 (approxi
mately NOK 485 after tax) is not recognized in equity. Yara's net pension cost for 2004 amounted to NOK 431 million.
The discount rate that Yara utilizes for determining pension obligations and pension cost is based on the yield on a
portfolio of long-term corporate bonds that receive one of the two highest ratings given by a recognized rating agency.
Yield on state bonds are used in countries without a deep market for such corporate bonds. Yara provides defined benefit
plans in several countries and in various economic environments that will effect the actual discount rate applied.
Approximately one-fifth of Yara's projected benefit obligation relates to Norway. The weighted average discount rate
applied as of 31 December 2004 was 5.1 %.
Normal assumptions for demographical and retirement factors have been used by the actuaries when calculating the
obligation.
74
Net periodic pension cost
NOK million
Defined benefit plans:
Benefits earned during the year,
net of participants' contributions
Interest cost on prior period benefit obligation
Expected return on plan assets
Recognized net (gain) loss
Amortization of prior service cost
Amortization of net transition (asset) obligation
Curtailment (gain) loss
Defined contribution plans
Multiemployer plans
Termination benefits and other
Total net periodic pension cost
Change in the additional minimum pension liability
included within other comprehensive income
Actual
25.03.-31.12.04
Pro forma
2004
Pro forma
2003
Pro forma
2002
118
230
(182)
34
29
2
230
6
30
77
342
154
300
(238)
44
38
2
299
8
36
88
431
110
266
(194)
36
33
1
252
7
26
121
406
84
249
(216)
11
33
(17)
1
145
1
24
95
265
77
77
(34)
341
Change in projected benefit obligation (PBO)
NOK million
Projected benefit obligation at beginning of year
Benefits earned during the year
Actuarial gain (loss)
Plan amendments
Benefits paid
Curtailment gain (loss)
Settlements
Special termination benefits
Divestments
Inclusion of plans deemed immaterial in prior period
Translation
Projected benefit obligation at end of year
Pro forma 1)
2004
(5,776)
(172)
(300)
3
(46)
227
(27)
95
(5,996)
Pro forma
2003
(4,290)
(120)
(266)
(316)
(3)
217
4
(612)
(390)
(5,776)
Pro forma
2002
(4,456)
(91)
(249)
(72)
7
180
(1)
(37)
6
423
(4,290)
1) Pro forma, except for the actual obligation as of 31 December 2004.
Change in pension plan assets
NOK million
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Plan participants' contributions
Benefits paid
Divestments
Inclusion of plans deemed immaterial in prior period
Translation
Fair value of plan assets at end of year
Pro forma 2)
2004
4,049
336
296
18
(184)
(71)
4,444
Pro forma
2003
3,005
335
124
10
(181)
480
276
4,049
Pro forma
2002
3,746
(290)
69
8
(156)
(9)
(363)
3,005
2) Pro forma, except for the value as of 31 December 2004.
75
Status of pension plans reconciled to balance sheet
Actual
2004
NOK million
Funded status of the plans at end of year
Unrecognized (gain) loss
Unrecognized prior service cost (credit)
Unrecognized net transition (asset) obligation
Net accrued pension liability recognized with profit and loss statement effect
Total net accrued pension liability recognized
with profit and loss statement effect
Amounts recognized in the balance sheet consist of:
Prepaid pension cost
Accrued pension liability
Intangible asset
Accumulated amount booked to equity
Net amount recognized
Weighted-average assumptions at end of year (PBO):
Pro forma
2003
(1,552)
953
255
(1)
(345)
(234)
(1,727)
1,127
232
1
(367)
(275)
(1,285)
954
249
2
(80)
(405)
(579)
(642)
(485)
600
(1,846)
152
515
(579)
539
(1,760)
140
439
(642)
490
(1,530)
81
473
(486)
Actual
2004
Pro forma
2003
Pro forma
2002
5.1 %
5.6 %
2.6 %
5.5 %
6.1 %
3.1 %
6.0 %
6.5 %
3.2 %
Pro forma
2004
Pro forma
2003
Pro forma
2002
5.2 %
5.8 %
2.6 %
5.8 %
6.5 %
3.1 %
6.0 %
6.5 %
3.2 %
Plans in which ABO exceed Plan Assets:
Actual
2004
Pro forma
2003
Pro forma
2002
Projected Benefit Obligation (PBO)
Accumulated Benefit Obligation (ABO)
Fair Value of Plan Assets
(3,921)
(3,451)
2,407
Investment profile of plan assets 1)
Actual
2004
Discount rate
Rate of compensation increase
Weighted-average assumptions at beginning of year (NPPC):
Discount rate
Rate of compensation increase
Equity instruments
Bonds and other interest bearing instruments
Cash and cash equivalentes
(4,910)
(4,358)
3,278
41 %
54 %
5%
1) Pro forma figures for 2003 and 2002 are not presented due to the demerger. Actual figures are based upon investment profile as of 31 December 2004.
76
Pro forma
2002
(4,158)
(3,736)
2,885
20
Contingencies and other
long-term liabilities
NOK million
Post-retirement benefits other than pension
Investment grants
Accruals for environmental clean-up
Accruals for plant maintenance shut-down
Other
Total
Actual
2004
Pro forma
2003
Pro forma
2002
58
107
72
60
134
430
60
107
88
84
153
492
63
98
72
111
279
624
Yara’s future cost for environmental clean-up depends on a number of uncertain factors, such as the extent and type of
remediations required. Due to uncertainties inherent in the estimation process, it is possible that such estimates could be
revised in the near term. In addition, conditions which could require future expenditures may be determined to exist for
various sites, including Yara's major production facilities and product storage terminals. The amount of such future costs
cannot be determined due to the unknown timing and extent of corrective actions that may be required.
As of 31 December 2004, Yara had accrued NOK million 96 million, whereof NOK 72 million was classified as long
term, for corrective environmental measures. The corresponding expense was NOK 8 million in 2004 compared with
NOK 22 million and NOK 25 million in 2003 and 2002, respectively.
Yara's operations are subject to environmental laws and regulations. These laws and regulations are subject to change,
and such changes may require that the company make investments and/or incur costs to meet more stringent emissions
standards or to take remedial actions related to e.g. soil contamination.
Yara is party to lawsuits in various jurisdictions arising out of the conduct of its business. None of these lawsuits, indi
vidually or in aggregate, is anticipated to have a material adverse effect on Yara.
21
NOK million
Secured debt
and guarantees
Amount of secured debt
Assets used as security:
Machinery and equipment, etc.
Buildings and structural plant
Other
Total
Guarantees (off-balance sheet):
Contingency for discounted bills
Guarantees of debt
Non-Financial guarantees:
Commercial guarantees
Public guarantees
Total
Actual
2004
Pro forma
2003
Pro forma
2002
1
1
24
1
14
15
16
16
25
185
209
164
6
18
9
76
10
1,826
991
2,987
1,756
414
2,197
984
1,070
Guarantees of debt include parent company guarantees issued on behalf of non-consolidated investees and third party
companies covering external credit facilities in the name of non-consolidated investees and third party companies. Yara
could be required to perform in the event of a default by the entity guaranteed. Guarantees issued on behalf of consoli
dates companies are not included since drawings made by these companies are shown as liabilities in the consolidated bal
ance sheet, and Yara’s obligations under such guarantees are limited to the amounts drawn at any time.
Non-financial guarantees consist of commercial guarantees related to contractual obligations (Bid Bonds, Performance
Guarantees and Payment Guarantees) and various mandatory public guarantees (Customs Guarantees, Receivable VAT
Guarantees) recorded as off-balance sheet liabilities. These guarantees are issued on behalf of Yara International ASA, its
subsidiaries and non-consolidated investees. The guarantor could be required to perform in the event of a default of a
commercial contract or non-compliance with public authority regulations. NOK 1,671 million of the non-financial, offbalance sheet guarantees are issued as parent company guarantees.
Guarantees issued to public authorities covering tax and VAT liabilities are not included as these obligations are already
included in the consolidated balance sheet.
77
Contingent liabilities related to the demerger from Norsk Hydro ASA
Under the Norwegian Public Limited Companies Act, Yara may be contingently liable for obligations established by Norsk
Hydro ASA prior to the demerger, unless the right to enforce against Yara any rights to payments (or other rights) has been
specifically waived by the party holding the right. The process of obtaining such waivers has been ongoing throughout the
year and will continue in 2005. At the end of 2004, Yara remains contingently liable for approximately NOK 0.5 billion of
Hydro's external loans and debt securities. Of that total, approximately NOK 0.3 billion matures in 2005 and NOK 0.2 bil
lion in 2006. The amount of outstanding guarantees for which Yara remains contingently liable is approximately NOK 3.8
billion, while the remaining liability for Hydro's debt to its subsidiaries is approximately NOK 0.2 billion.
Hydro also has unfunded pension liabilities. To the extent such liabilities have accrued prior to the consummation of
the demerger, Yara is contingently liable for such liabilities as a matter of the joint and several liability provided by
Norwegian law. Hydro's unfunded pension liabilities, calculated in accordance with Norwegian GAAP and US GAAP,
amounted to approximately NOK 2 billion as of 31 December 2004.
22
Contractual and other
commitments for future
investments and operations
31 December 2004:
NOK million
2005
Contract commitments for investments in property, plant and equipment
Additional authorized future investments in property, plant and equipment
Contract commitments for other future investments
Total
126
162
3
291
Investments
Thereafter
35
35
Total
126
197
3
326
Additional authorized future investments include projects formally approved for development by the Board of Directors
or management given the authority to approve such investments. General investment budgets are excluded from these
amounts.
Yara has entered into take-or-pay and long-term contracts providing for future payments to transportation capacity,
processing services, raw materials and electricity. In addition, Yara has entered into long-term sales commitments, main
ly related to the sale of formates.
Non-cancellable future obligations as of 31 December 2004 are as follows:
Take-or-pay and Long-term contracts 1)
NOK million
2005
2006
2007
2008
2009
Thereafter
Total
Transport
and Other
Raw
materials
Energy
related
96
63
52
30
30
52
322
348
6
8
2
2
2
366
158
158
158
155
155
785
Sale
commitments
(683)
(642)
(515)
(439)
(347)
(886)
(3,511)
1) The amounts are calculated based on minimum contracted quantities and market prices as of 31 December 2004.
Total purchases under take-or-pay agreements and long-term contracts were as follows (in NOK million): 2004
(954); 2003 (2,740) and 2002 (1,446).
78
23
Derivative instruments
and risk management
Risk Management Policies
Risk Management in Yara is based on the principle that risk evaluation is an integral part of all business activities. Yara has
established procedures for monitoring the primary risk exposures and for assessing appropriate risk levels. Based on over
all evaluations of risk, Yara may use derivative instruments to reduce risk exposures. The primary derivative instruments
that Yara uses to manage main market risks are forward contracts, options and swaps.
Yara's positions and business model provide natural hedges. The most important of these is the quality of Yara’s pro
duction facilities, which ensures its competitive posision. Furthermore, Yara's geographical spread supports a diversified
gas supply, reducing the impact of regional price changes, and a reduced exposure to the inherent seasonality of the fertil
izer business. Yara's substantial sales of differentiated products, comprising speciality fertilizers and industrial products,
also contribute to more stable margins for the business as a whole. Finally, a certain correlation between energy prices and
fertilizer prices reduces the volatility of Yara's results.
Main elements of the funding strategy are to secure long term-debt and to base the funding of Yara on diversified cap
ital sources to avoid dependency on single markets. Yara aims at an even debt repayment schedule and has secured com
mitted un-drawn credit facilities to provide financial flexibility.
Commodity Price Risks
A major portion of Yara's operating revenues are derived from the sale of ammonia, urea, and other fertilizers that may
generally be classified as commodities. Yara also purchases natural gas, electricity and other commodities. The prices of
these commodities can be volatile and may create fluctuations in Yara's earnings. To manage this risk, Yara's financial pol
icy prioritizes maintaining a low debt/equity ratio and maintaining liquidity reserves. Yara utilizes derivative instruments
to manage certain price risk exposures and also for some position taking within the limits established by the risk manage
ment policies. As of 31 December 2004, Yara had no derivative contracts to manage the commodity price risk exposure.
Foreign Currency Exchange Rate Risk
The prices of Yara's most important products are either directly denominated or determined in US dollars. Also in mar
kets outside the US, local prices will generally adjust to fluctuations in the US dollar exchange rate, albeit with a certain
time lag. The prices of Yara's raw materials, such as natural gas used in the production of ammonia, are also either denom
inated in US dollars or highly correlated to changes in the US dollar exchange rate. In order to hedge Yara's long-term
exposure to fluctuations in the US dollar exchange rate, Yara incurs most of its debt in US dollars. A certain portion of the
total debt is, however, kept in various local currencies to finance local currency-exposed business positions.
Yara utilizes derivative instruments to manage foreign currency exchange rate risks by adjusting the composition of the
debt portfolio to changes in Yara's overall risk exposure. Derivative instruments are also utilized to manage foreign cur
rency exchange rate risk related to forecasted purchases and sales or to offset short-term liquidity needs in one currency
with surplus liquidity in another currency. Such forward contracts are not designated as hedging instruments for account
ing purposes. Changes in fair value are therefore recognized in the Profit and Loss statement.
79
The following forward currency contracts were outstanding as of 31 December 2004:
Amounts in million
Buying
currency
Notional
amount
Selling
currency
Notional
amount
Maturity
1
3
47
51
67
2
43
156
2
5
8
200
9
360
3
156
15
52
6
31
18
3
78
13
52
8
6
NOK
NOK
EUR
GBP
NOK
PLN
SEK
USD
CAD
EUR
USD
DKK
SEK
USD
USD
USD
CAD
EUR
GBP
NOK
NZD
SEK
THB
BRL
ZAR
COP
BRL
6
17
2
36
543
8
386
206
4
7
15
182
10
58
2
4
18
39
3
193
25
20
3,194
37
332
19,518
17
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2006
AUD
CAD
CZK
EUR
EUR
EUR
EUR
EUR
GBP
GBP
GBP
NOK
NOK
NOK
SGD
THB
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
NOK
value
3
5
(1)
41
1
(3)
(2)
12
(9)
(5)
(1)
(23)
(13)
(43)
(5)
(5)
Fair value of currency forwards recorded on the balance sheet as of 31 December 2004:
NOK million
Currency forwards
Assets
Liabilities
Actual
2004
64
(114)
Pro forma
2003
2
(35)
Pro forma
2002
12
(48)
Interest Rate Risk
Yara is exposed to fair value risk and cash flow risk from its debt portfolio as disclosed in Note 18 “Long-Term Debt.” Yara
aims to secure a significant part of its debt at fixed interest rates. In 2004, this was achieved by entering into an interest
rate swap prior to the bond issue (see the following paragraph for further details) and thereafter by keeping the majority
of the USD 500 million bond issue as fixed. Yara may utilize derivative instruments to manage the interest risk. Financial
derivatives designated as hedge instruments are presented below.
Cash flow hedge - interest swap
In 2004, Yara used interest rate swaps to hedge the future cash flows of USD 300 million of the December bond issue. The
after-tax result of this hedge was a loss of NOK 81 million, of which NOK 4 million have been reclassified into expenses.
The remaining NOK 76 million have been booked to equity per 31 December 2004 and will be reclassified into expenses
over the duration of the bond (due in 2014).
80
Fair value hedge - interest swap
After the December bond issue, Yara entered into an interest rate swap to convert USD 100 million of the bond from fixed
to floating interest rate. The fair value of this contract at 31 December 2004 was NOK 6 million.
Credit Risk
Yara has a well-established system for credit management with established limit at both customer and country level. Yara’s
geographically diversified portfolio reduces the overall credit risk of the company.
Credit risk arising from the inability of the counter-party to meet the terms of Yara's derivative financial instrument
contracts is generally limited to amounts, if any, by which the counter-party's obligations exceed Yara's obligations. Yara's
policy will be to enter into derivative financial instruments with various international banks with established limits for
transactions with each institution. Therefore, Yara does not expect to incur material credit losses on derivative financial
instruments.
Liquidity Risk
Yara generates a positive net cash flow from operations and has, in addition, access to committed long-term credit lines
that can be used to meet future obligations.
24
External audit
remuneration
Deloitte Statsautoriserte Revisorer AS (Deloitte) is Yara's principal auditor. Ernst & Young and other firms are the auditors
of certain parts of the companies international activities. The following table shows total audit and non-audit fees for the
fiscal year Actual 2004, Pro forma 2004, Pro forma 2003 and Pro forma 2002.
Audit fee
Audit
related
services
Tax fee
Other
non-audit
services
Total
Deloitte Norway
Deloitte Abroad
Total Deloitte
Ernst & Young
Others
Actual fees 25.03.-31.12.2004
2,393
8,144
10,537
2,720
261
13,518
1,830
1,205
3,034
88
358
3,480
1,706
1,706
898
916
3,520
32
32
220
1,058
1,310
4,222
11,087
15,309
3,926
2,593
21,828
Deloitte Norway
Deloitte Abroad
Total Deloitte
Ernst & Young
Others
Pro forma fees 31.12.2004
3,190
10,859
14,049
3,627
348
18,024
2,440
1,606
4,046
118
477
4,640
2,275
2,275
1,197
1,221
4,693
43
43
293
1,411
1,746
5,630
14,783
20,412
5,235
3,457
29,104
Deloitte Norway
Deloitte Abroad
Total Deloitte
Ernst & Young
Others
1,450
12,095
13,545
3,174
244
16,963
37
1,442
1,479
912
269
2,660
798
798
688
402
1,888
4
1,147
1,151
40
492
1,683
1,491
15,482
16,973
4,814
1,407
23,194
Deloitte Norway
Deloitte Abroad
Total Deloitte
Ernst & Young
Others
1,465
9,934
11,399
3,560
14,959
520
689
1,209
91
1,300
10
10
10
15
362
377
116
493
2,000
10,995
12,995
3,767
16,762
NOK thousand
81
25
Related parties
The Norwegian State owned as of 31 December 2004, 115,674,848 ordinary shares, representing 36.2 % of the total num
ber of ordinary shares issued. There are no different voting rights associated with the ordinary shares held by the State.
Transactions with non-consolidated investees are described in Note 12 - Non-Consolidated Investees.
Members of the board of directors are elected for two-year terms. Their rights and obligations as board members are
solely and specifically described in the company's articles of association and by Norwegian law. The company has no sig
nificant contracts in which a board member has a material interest.
The number of shares owned by the members of the Board as of 31 December 2004 are:
Number of shares
Øyvind Lund
Åse Aulie Michelet
Lone Fønss Schrøder 1)
Jørgen Ole Haslestad 2)
Leiv L. Nergaard 3)
Arthur Frank Bakke 4)
Charlotte Dyrkorn
Frank Andersen
6,000
3,600
2,800
36,923
884
99
1) Including 2,800 shares owned by Schrøder Consult, a company 100 % owend by Lone Fønss Schrøder. 2) Jørgen Ole Haslestad is Chairman of the Board in US Filter Corporation, which is a customer and collaborating partner of Yara.
3) Including 5,000 shares owned by Leina AS, a company 100 % owned by Leiv L. Nergaard.
4) Yara provides a gurarantee for a loan of NOK 41,900.
The number of shares owned by the deputy board members:
Number of shares
Geir Thorson Solvi
Nils-Egel Nilsen
Sten Arntzen
The Yara management ownership of shares and SIRs as of 31 December 2004:
Thorleif Enger
Daniel Clauw
Hallgeir Storvik
Tor Holba
Sven Ombudstvedt
Terje Bakken
Anne Grethe Dalane
Arne Cartridge
Kendrick T. Wallace 2)
104
2
Number of Shares
49,864
24,200
10,200
2,530
2,400
31,255
3,133
2,400
15,100
SIRs 1)
500,000
500,000
200,000
200,000
200,000
150,000
90,000
90,000
125,000
1) Share Incentive Rights (SIRs). Rights in the share-based incentive program, are based on Yara shares' market performance in relation to an initial share price of NOK
46.16 per share. Future compensation will be the difference between the actual share price and initial price multiplied by the number of rights in the program.
See Note 05.
2) Including 100 ADRs (American Depositary Receipts).
82
FINANCIAL STATEMENTS YARA INTERNATIONAL ASA
PROFIT AND LOSS STATEMENT
NOK million
Notes
Revenues
Other income
Operating Revenues
Raw materials and energy costs
Change in inventories of own production
Payroll and related costs
Other
Operating expense
10.11.03-31.12.04
804
7
811
2,3
4,5
6
Operating Income
33
(2)
307
10
670
1,017
(206)
Financial income (expense), net
Income before tax
7
370
164
Income tax expense
Net income
8
(88)
75
14
712
(637)
75
Appropriation of net income and equity transfers:
Dividend proposed
Retained earnings
Total appropriation
83
BALANCE SHEET
NOK million
Notes
31.12.2004
Assets
Deferred tax assets
Other intangible assets
Intangible assets
8
5
95
27
122
Property, plant and equipment
4
10
Shares in subsidiaries
Intercompany receivables
Prepaid pension, investments and other non-current assets
Financial non-current assets
9
3,376
4,189
38
126
7,729
10
2,11
Total non-current assets
Inventories
Accounts receivable, less allowances
Intercompany receivables
Total current assets
Total assets
84
7,861
11
20
28
15,477
127
391
16,044
23,905
NOK million
Notes
Share capital
- Treasury shares
Premium paid-in capital
Total paid-in capital
Retained earnings
- Treasury shares
Accrued pension liabilities
Other long-term liabilities
Long-term liabilities
31.12.2004
14
543
(5)
3,703
4,241
14
4,287
(201)
8,327
2
314
30
344
Intercompany payables
Long-term interest bearing debt
Long-term debt
375
4,176
4,551
Bank loans and other interest-bearing short-term debt
Current portion of long-term debt
Dividends payable
Intercompany payables
Current liabilities
Total liabilities and shareholders' equity
11
188
121
712
9,302
361
10,683
23,905
Oslo, 18 March 2005
Board member
Board member
Åse Aulie Michelet
Board member
Leiv L. Nergaard
Board member
Arthur Frank Bakke
Board member
Charlotte Dyrkorn
Board member
Frank Andersen
Board member
Øivind Lund
Chairperson
Thorleif Enger
President and CEO
85
CASH FLOW STATEMENT
NOK million
Notes
Operating activities:
Net income
Actual
10.11.03 - 31.12.04
75
Adjustments to reconcile net income
to net cash provided by operating activities:
Net income of non-consolidated investees
Dividends received from non-consolidated investees
Deferred taxes
Loss (gain) on foreign currency transactions
Other
Working capital changes that provided (used) cash:
Receivables
Inventories
Current liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property, plant and equipment
Purchases of other long-term investments
Proceeds from sales of property, plant and equipment
Proceeds from capital reduction in subsidiary
Proceeds from sales of other long-term investments
Net cash used in investing activities
Financing activities:
Loan proceeds
Principal payments
Purchase of treasury stocks
Shareholder contribution
Net cash used in financing activities
8
10
15
11
7
(101)
(83)
(741)
(2)
431
(1,339)
(1,717)
4
14
14
(5)
(86)
10
200
1,773
1,892
9,960
(12,228)
(206)
2,048
(426)
Demerger Yara effect on cash flows 1)
Foreign currency effects on cash flows
706
(65)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the start of period
Cash and cash equivalents at the end of period
391
391
1) Cash received at the demerger from Norsk Hydro ASA as of 25 March 2004.
86
4,5
7
NOTES TO THE FINANCIAL STATEMENTS
01
Summary of significant
accounting policies
02
Employee
retirement plans
The financial statements of Yara International ASA are prepared in accordance with accounting principles generally
accepted in Norway (N GAAP).
Yara's general accounting principles are presented in Note 01 to the consolidated financial statements.
Yara International ASA (initially AgriHold ASA) was established on November 10, 2003, for purposes of acting as the
transferee company in the demerger of Hydro Agri from Norsk Hydro. Until the completion of the demerger, there were
no subsidiaries or operational activity in Yara International ASA. The financial statements and the Notes to the financial
statements in the 2004 Annual Report for Yara International ASA covers the period from the date of establishment,
November 10, 2003 to December 31, 2004.
Shares in subsidiaries and non-consolidated investees are in Yara International ASA's financial statements presented
according to the cost method. Group relief received is included in dividends from subsidiaries.
For information about risk management in Yara International ASA see Note 23 in Notes to the consolidated financial
statements and the Risk Management discussion in the Operating and Financial Review section of this report. The infor
mation given in Note 18 in Notes to the consolidated financial statements on payments on long-term debt also applies for
Yara International ASA.
Yara International ASA provides financing to most of the subsidiary companies in Norway as well as abroad.
The information given in Note 18 in Notes to the consolidated financial statements on payments on long-term debt
also applies to Yara International ASA.
Yara International ASA is a part of the Yara Group pension schemes in Norway managed by Yara Pensjonskasse (Yara
Pension fund). As of 31 December 2004, the number of active participants was 328 and the number of retirees 29. Further
information about the employee retirement plans is given in Note 19 to the consolidated statement.
NOK million
Benefits earned during the year, net of participants' contributions
Recognized net (gain) loss
Amortization of prior service cost
Total net periodic pension cost
2004
25
25
(11)
12
3
54
22
76
Change in projected benefit obligation (PBO)
NOK million
2004
Projected benefit obligation demerger Yara 25 March 2004
Benefits earned during the year
Actuarial gain (loss)
Benefits paid
Projected benefit obligation at end of year
(687)
(25)
(25)
39
5
(694)
87
Change in pension plan assets
NOK million
Fair value of plan assets at 25 March 2004
Actual return on plan assets
Company contributions
Benefits paid
Fair value of plan assets at end of year
2004
266 9
20 (2)
293 Status of pension plans reconciled to balance sheet
88
NOK million
2004
Funded status of the plans at end of year
Unrecognized (gain) loss
Unrecognized prior service cost (credit)
Net prepaid pension (accrued pension liability) recognized
Total net prepaid pension (accrued pension liability) recognized
(401)
226
29
(146)
(103)
(249)
Amounts recognized in the balance sheet consist of:
Prepaid pension cost
Accrued pension liability
Net amount recognized
65
(314)
(249)
Weighted-average assumptions at end of year (PBO):
2004
Discount rate
Rate of salary increase
Rate of pension increase
4.5 %
5.5 %
2.5 %
2.0 %
Weighted-average assumptions at beginning of year (NPPC):
2004
Discount rate
Rate of salary increase
Rate of pension increase
5.0 %
6.0 %
3.0 %
2.5 %
Investment profile of plan assets
2004
Equity instruments
Bonds and other interest bearing instruments
27 %
67 %
5%
03
Remunerations
and other
Remuneration of the board of directors was NOK 1,312,500 in 2004.
As President and Chief Executive Officer in Yara, Thorleif Enger’s salary totalled NOK 2,850,000 for the period from
25 March to 31 December 2004, and other benefits totalled NOK 109,000. On an annual basis this equals NOK 3,800,000
and NOK 145,000, respectively. In addition, Thorleif Enger received a bonus in 2004 totalled NOK 3,000,000 in connec
tion with the separation and listing of Yara, and he is entitled to a performance-based bonus for 2004 of up to 50 % of his
base salary.
The CEO is entitled to retire at 62 years of age with a pension benefit representing 70 % of his salary from the age 62
to 65, and 65 % of his salary thereafter. There is a mutual understanding between Thorleif Enger and the Board of
Directors to prolong his position as CEO beyond the age of 62. Benefits earned during 2004 totalled NOK 1,044,000.
On 18 June 2004, the Board approved a compensation program based on three incentive concepts. This is the basic
bonus scheme, the performance-related pay for senior managers and the share incentive program for senior management.
The basis for all three incentive concepts is that the company shows a positive development.
The basic bonus scheme is triggered by the achievements of organizational units and teams. It is implemented and
adapted with consideration of differing national practices and developed in close cooperation with local employee repre
sentatives.
For senior managers a performance-related pay is established. Awards for this level can be from one to six months
salary depending on management position and national practices. The bonus will be based on criteria similar to the basic
bonus scheme, but with stronger emphasis on individual performance. For 2004, approximately 40 managers with sub
stantial performance responsibility will have a bonus potential exceeding one month's salary. For the management group,
the Chief Executive Officer and Chief Operating Officer are entitled to a maximum of six months salary, the Segment
Heads, the Chief Financial Officer and Chief Legal Officer 3 months, and the Heads of HR and Communication 2 months
salary. Twenty percent of any gross bonus payment for senior managers must be used to buy Yara shares in the market with
a one-year lock-up period.
A share incentive program is introduced for the senior management group - nine persons - based on the Yara share
market performance. Refer to Note 05 to the consolidated financial statements for a description of the program.
Partners and employees of Yara's independent auditors, Deloitte Statsautoriserte Revisorer AS, own no shares in Yara
International ASA, or in any of its subsidiaries. For the parent company, Yara International ASA the audit fees in 2004 to
Deloitte Statautoriserte Revisorer AS for ordinary audit was NOK 2,205,000. For the Norwegian subsidiaries, the fees in
2004 was NOK 985,000. Deloitte Consulting AS and Deloitte Advokatfirma DA, affiliate companies of Deloitte
Statsautoriserte Revisorer AS in Norway, have provided no service to Yara during 2004. Fees to audit-related services were
NOK 2,354, 000 for Yara International ASA, and NOK 86,000 for Norwegian subsidiaries.
As of 31 December 2004 the number of employees in Yara International ASA was 272. The costs for these employees are:
NOK million
Payroll and related costs:
Salaries
Social security costs
Social benefits
Net periodic pension costs
Internal invoicing of payroll related costs
Sum
Actual
10.11.03-31.12.04
235
29
7
76
(39)
307
External commercial banks provide the Norwegian employees with a range of banking services, including unsecured per
sonal loans at favorable rates of interest. Yara does not compensate the banks for these services. In connection with the
replacement of transferred employee loans related to the demerger from Hydro, Yara provides a guarantee for all such
loans as well as of new unsecured loans by the banks to the Norwegian employees. For most such employees, the amount
guaranteed will not exceed NOK 100,000. For a very limited number of employees, the guaranteed amount may be
increased to NOK 540,000. As of 31 December 2004, there were 159 such loans outstanding with an average balance of
NOK 49,000. There were also 28 loans to more senior employees outside the Yara management with an average balance of
NOK 156,000. The aggregate balance of all of the outstanding loans for which Yara are providing a guarantee is approxi
mately NOK 12,1 million.
89
The maximum term of any existing loan, or any loan that may be provided under the loan guarantee program, will be
seven years. Most of the currently outstanding loans are for a shorter term.
Yara managements ownership of shares and SIRs as of 31 December 2004:
SIRs 1)
Number of shares
Thorleif Enger
Daniel Clauw
Hallgeir Storvik
Tor Holba
Sven Ombudstvedt
Terje Bakken
Anne Grethe Dalane
Arne Cartridge
Kendrick T. Wallace 2)
49,864
24,200
10,200
2,530
2,400
31,255
3,133
2,400
15,100
500,000
500,000
200,000
200,000
200,000
150,000
90,000
90,000
125,000
1) See Note 25 to Consolidated Financial Statements.
2) Including 100 ADRs
The board of directors ownership of shares as of 31 December 2004:
Number of shares
Øyvind Lund
Åse Aulie Michelet
Lone Fønss Schrøder 1)
Jørgen-Ole Haslestad
Leiv L. Nergaard 2)
Arthur Frank Bakke 3)
Charlotte Dyrkorn
Frank Andersen
6,000
3,600
2,800
36,923
884
99
1) Including 2,800 shares owned by Schrøder Consult, a company 100 % owned by Lone Fønss Schrøder.
2) Including 5,000 shares owned by Leina AS, a company 100 % owned by Leiv L. Nergaard.
3) Yara provides a guarantee for a loan of NOK 41,900.
The deputy board members ownership of shares as of 31 December 2004:
Number of shares
Geir Thorson Solvi
Nils-Egel Nilsen
Sten Arntzen
04
Property, plant
and equipment
NOK million
Cost:
Cost 10.11.2003
Additions at demerger Yara 25 March 2004
Additions at cost
Retirements
Accumulated depreciation
Balance 31.12.2004
Depreciation in 2004
Useful life in years
Depreciation
90
104
2
Machinery and
Equipment
40
5
(14)
(23)
8
(2)
4-20
5-25 %
Buildings
1
(1)
20-50
2-5 %
Plant under
construct.
Other
-
2
2
-
-
5-25
4-20 %
Total
44
5
(14)
(24)
10
(2)
05
Intangible assets
NOK million
Other Intangibles
Cost:
Cost 10.11.2003
Additions at cost
Balance 31.12.2004
35
35
Depreciation:
Balance 10.11.2003
Depreciation
Balance 31.12.2004
(8)
(8)
Net Book value:
Balance 10.11.2003
Balance 31.12.2004
27
Intangible assets are amortized on a straight-line basis over their benefit period. Yara policy is to amortize intangible assets
up to a 10-year period using an amortization rate up to 10 % per year. If the value of an intangible asset is deemed to last
less than 10 years, a shorter life is used.
06
NOK million
Other
Selling and administrative expense.
Rental and leasing
Travel expense
Other
Total
07
NOK million
Financial income
and expense
Dividends from subsidiaries including group relief
Write down shares 0-20 %
Interest from group companies
Other interest income
Interest paid to group companies
Other interest expense
Other financial income (expense) net
Financial income (expense), net
10.11.03-31.12.04
576
24
63
6
670
10.11.03-31.12.04
183 11
(27)
403 21
(138)
(95)
13 370 YARA ANNUAL REPORT 2004
91
08
NOK million
Actual
10.11.03-31.12.04
Income taxes
Current tax expense
Deferred tax expense
Income tax expense
81 7
88 Reconciliation of nominal statutory tax rate to effective tax rate
NOK million
10.11.03-31.12.04
Income before taxes
Expected income taxes at statutory tax rate
Non-deductible expenses
Dividend exclusion
Tax effect of income before tax 01.01 - 24.03.2004
Other, net
Income tax expense
Temporary differences
NOK million
Short-term items
Accrued expenses, long-term
Prepaid pension
Pension liabilities
Other long-term
Deferred tax assets
164
46
1
(8)
93
(44)
88 Deferred tax
31.12.2004
4
19
(18)
88
2
95
Deferred tax
01.01.2004 1)
2
7
(20) 80 33 102 1) For tax purposes, the demerger from Norsk Hydro ASA was effective 1st of January, 2004.
Deferred tax assets are entered based on future earnings.
Deferred income taxes, amounting to NOK 846 million, have not been provided for undistributed earnings of foreign sub
sidiaries, since those earnings are considered to be indefinitely invested. No deferred income taxes have been recognized
on undistributed earnings of Norwegian subsidiaries and non-consolidated investees since such earnings can be distri
buted to the parent company as tax-free dividends.
92
09
Shares in subsidiaries
Company name:
Subsidiaries owned by Yara International ASA
Yara Russia AS
Yara Industrial AS
Ceylon Oxygen Ltd.
Yara China Ltd.
Yaraship AS
Yara Guatemala S.A.
Yara Colombia Ltda.
Hydro Agri Russland AS
Yara Argentina S.A.
Yaraship Services AS
Yara Hellas SA
AS Djupvasskaia
Yara Norge AS
Fertilizer Holdings AS
Hydro Agri Rus Ltd
Yara North America Inc.
Yara Asia Pte Ltd
Yara IEC AG
Total
Subsidiaries owned by Fertilizer Holding AS
Yara Holding Danmark AS
Yara Holding Sverige AB
Yara Formates AS
Adubos Trevo S.A.
Yara Carribean Ltd.
Yara UK Ltd
Yara Holding Canada, Inc.
Yara Insurance Ltd.
Yara Holding Netherlands
Yara AS
Total
Percentage of
shares owned
Total share
Book value
capital of the
31.12.2004
company (1,000's) (NOK 1,000's)
100
100
70.85
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
NOK
NOK
LKR
HKD
NOK
GTQ
COP
NOK
USD
NOK
EUR
NOK
NOK
NOK
RUB
USD
SGD
EUR
3,750
15,100
67,500
50
79,800
8,515
4,842,549
21,200
33,012
1,039
1,264
1,000
400,000
10,000
54,158
1,000
230,104
131
3,750
49,416
18,912
79,800
24,258
16,749
21,200
108,704
1,039
7,437
3,523
1,057,569
400,000
467,948
1,114,364
1,076
3,375,745
100
100
100
95.9
100
100
100
100
100
100
DKK
SEK
NOK
BRL
USD
GBP
CAD
EUR
EUR
NOK
500
172,972
30,000
90,846
59,510
49,441
15,000
1,000
19
1,000,000
554
159,065
28,031
463,945
716,064
344,297
77,910
97,364
3,930,828
4,000,000
9,818,058
The foreign currency designation indicates country of domicile. Percentage of shares owned equals percentage of voting
shares owned. A number of the above mentioned companies also own shares in other companies as specified in their
annual reports.
10
Shares in
non-consolidated
investees
NOK million except ownership
Name
Abonos del Pacifico, S.A.
Phosyn Plc
Talconor AS
Total
Percentage owned
(equals voting rights)
34.02 %
35.00 %
50.00 %
Country
Book value
at 31.12.2004
Costa Rica
Great Britain
Norway
18
20
38
93
11
Specification of
balance sheet items
NOK million
Prepaid pension, investments and other non-current assets:
Other investments
Prepaid pension
Total
Inventories:
Raw materials
Finished goods
Total
12
Guarantees
2004
52
65
9
126
2
18
20
Bank loans and other short-term interest-bearing debt:
Bank overdraft
Total
(188)
(188)
NOK million
2004
Assets used as security:
Machinery and equipment, etc.
Total
Guarantees (off-balance sheet):
Guarantees of debt
Commercial guarantees
Public guarantees
Total
1
1
6
1,826
991
2,823
Yara International ASA provides guarantees arising in the ordinary course of business including Letters of Credit,
Performance Bonds and various payment or financial guarantees. See Note 21 in Notes to the consolidated financial state
ments for further information about guarantees.
Contingent liabilities related to the demerger from Norsk Hydro ASA
Under the Norwegian Public Limited Companies Act, Yara International ASA may be contingently liable for obligations
established by Norsk Hydro ASA prior to the demerger, unless the right to enforce against Yara any rights to payments (or
other rights) has been specifically waived by the party holding the right. The process of obtaining such waivers has been
ongoing throughout the year and will continue in 2005. At the end of 2004, Yara International ASA remains contingently
liable for approximately NOK 0.5 billion of Hydro's external loans and debt securities. Of that total, approximately NOK
0.3 billion matures in 2005 and NOK 0.2 billion in 2006. The amount of outstanding guarantees for which Yara
International ASA remains contingently liable is approximately NOK 3.8 billion, while the remaining liability for Hydro's
debt to its subsidiaries is approximately NOK 0.2 billion.
Hydro also has unfunded pension liabilities. To the extent such liabilities have accrued prior to the consummation of
the demerger, Yara International ASA is contingently liable for such liabilities as a matter of the joint and several liability
provided by Norwegian law. Hydro's unfunded pension liabilities, calculated in accordance with Norwegian GAAP and
US GAAP, amounted to approximately NOK 2 billion as of 31 December 2004.
94
13
Risk management in Yara and the use of derivative instruments are described in Note 23 to the consolidated statement.
Yara International ASA has the following outstanding forward currency contracts as of 31 December 2004:
Derivative instruments
and risk management
Amounts in million
Buying
currency
Notional
amounts
Selling
currency
Notional
amounts
Maturity
date
1
3
47
51
67
2
43
156
2
5
8
200
9
360
3
156
15
52
6
31
18
3
78
NOK
NOK
EUR
GBP
NOK
PLN
SEK
USD
CAD
EUR
USD
DKK
SEK
USD
USD
USD
CAD
EUR
GBP
NOK
NZD
SEK
THB
6
17
2
36
543
8
386
206
4
7
15
182
10
58
2
4
18
39
3
193
25
20
3,194
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
AUD
CAD
CZK
EUR
EUR
EUR
EUR
EUR
GBP
GBP
GBP
NOK
NOK
NOK
SGD
THB
USD
USD
USD
USD
USD
USD
USD
NOK
value
3
5
(1)
41
1
(3)
(2)
12
(9)
(5)
(1)
(23)
Fair value of currency forwards recorded on the balance sheet as of 31 December 2004:
NOK
Currency forwards
Assets
Liabilities
million
2004
64
(47)
95
14
Number of
shares outstanding,
shareholders, equity
reconciliation etc.
Yara International ASA was established on 10 November 2003. The company was established with a share capital of NOK
108,610,470 consisting of 63,888,512 shares at NOK 1.70 per share. As of 31 December 2004 the company has a share cap
ital of NOK 543,052,403 consisting of 319,442,590 ordinary shares at NOK 1.70 per share. As of 31 December 2004 the
company had purchased 3,001,400 treasury stocks at a cost of NOK 205,900,164. For further information on these issues
see Note 3 to the consolidated financial statement.
Shareholders holding one percent or more of the total 316,441,190 shares outstanding as of 31 December 2004 are list
ed below based on information in the Norwegian securities' registry system (Verdipapirsentralen):
Name
Number of shares
Ministry of Trade and Industry
National Insurance Fund, Norway
State Street Bank 1)
Morgan Stanley & Co 1)
Morgan Guaranty Trust ADR-division 2)
Fidelity Funds-Europe
Fidelity Low-Price Fund
Lehman Brothers Inc. 1)
Capital Research
Vital Forsikring ASA
Euro Pacific Growth Fund (Capital Research)
Morgan Stanley 1)
Bank of New York 1)
115,674,848
13,697,775
13,083,612
10,214,258
9,346,412
7,854,500
6,857,053
5,065,300
4,196,800
3,985,053
3,851,605
3,683,892
3,656,400
1) Client accounts and similar.
2) Representing American Depositary Receipts.
NOK million
Shareholders’ equity 10.11.2003
Demerger Yara 25.03.2004
Net income 10.11.03 - 31.12.04
Dividend proposed
Cash flow hedges
Shareholders’ equity 31.12.2004
96
Paid in
capital
2,048
2,198
(5)
4,241
Retained
earnings
5,000
75
(712)
(77)
(201)
4,086
Total shareholder’s equity
2,048
7,198
75
(712)
(77)
(206)
8,327
AUDITORS’ REPORT
TO THE ANNUAL GENERAL MEETING OF YARA INTERNATIONAL ASA
INDEPENDENT AUDITORS' REPORT FOR 2004
We have audited the financial statements of Yara
International ASA and its subsidiaries as of 31
December 2004, showing a net income of NOK
75 million for the parent company (for the period
10 November 2003 to 31 December 2004) and a
net income of NOK 2,860 million for the group
(for the period 25 March 2004 to 31 December
2004). We have also audited the information in
the Board of Directors' report concerning the
financial statements, the going concern assump
tion, and the proposal for the allocation of net
income. Financial statements comprise the bal
ance sheet, the profit and loss statement, the
statement of cash flows, the accompanying Notes
and the group accounts. These financial state
ments, which are presented in accordance with
accounting principles generally accepted in
Norway, are the responsibility of the Company's
Board of Directors and the Company's Chief
Executive Officer. Our responsibility is to express
an opinion on these financial statements and on
certain other information according to the
requirements of the Norwegian Act on Auditing
and Auditors.
Until the completion date of the demerger on
24 March 2004, the Yara business was an integrat
ed business of Norsk Hydro; consequently, as indi
cated in Note 2 to the consolidated financial state
ments, the pro forma financial statements of Yara
International ASA and its subsidiaries have been
based on the carve-out financial statements for the
Yara business, derived from the consolidated
financial statements and accounting records of
Norsk Hydro, and reflect allocations based on
management's assumptions, as described in Note 2
to the consolidated financial statements.
The objective of the Pro forma financial state
ments, which comprise the balance sheet, the
profit and loss statement, the statement of cash
flows, and the accompanying Notes, is to show
what the significant effects on the historical
financial information might have been had the
demerger occurred at an earlier date. However,
the pro forma financial statements are not neces
sarily indicative of the results of operations or
related effects on the financial position of Yara
International ASA and its subsidiaries that would
have been attained had the above-mentioned
demerger actually occurred earlier.
We have audited the carve-out financial state
ments for the Yara business, which form the basis
for the pro forma financial statements of Yara
International ASA and its subsidiaries for the
years ending 31 December 2003 and 2002. We
have audited the carve-out profit and loss state
ment for the period 1 January 2004 to 25 March
2004 which combined with the actual profit and
loss statement for the period 25 March 2004 to 31
December 2004 form the basis for the pro forma
profit and loss statement of Yara International
ASA and its subsidiaries for the year ending 31
December 2004. We have also examined the pro
forma adjustments included in the pro forma
financial statements for Yara International ASA
and its subsidiaries for the years ending 31
December 2004, 2003 and 2002. These pro forma
financial statements are the responsibility of the
Company's Board of Directors and the
Company's Chief Executive Officer, and the pro
forma adjustments are based upon management's
assumptions as described in Note 2 to the consol
idated financial statements. Our responsibility is
to express an opinion on the pro forma financial
statements based on our audits and examination.
We conducted our audits of the financial
statements in accordance with the Norwegian Act
on Auditing and Auditors and auditing standards
generally accepted in Norway. Auditing standards
generally accepted in Norway require that we
plan and perform the audit to obtain reasonable
assurance about whether the financial statements
are free of material misstatement. An audit
includes examining, on a test basis, evidence sup
porting the amounts and disclosures in the finan
cial statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as evalu
ating the overall financial statement presentation.
To the extent required by law and auditing stan
dards generally accepted in Norway, an audit also
comprises a review of the management of the
Company's financial affairs and its accounting
and internal control systems. We believe that our
audits provide a reasonable basis for our opinion.
We conducted our audits of the carve-out
financial statements, the inclusion of the pro
forma adjustments and the proforma financial
statements in accordance with auditing standards
generally accepted in Norway. We believe that
our audits of the pro forma financial statements
provide a reasonable basis for our opinion.
In our opinion,
the financial statements (pages 47–96) are
prepared in accordance with the law and reg
ulations and present fairly, in material
respects, the financial position of the
Company as of 31 December 2004 and the
results of its operations and its cash flows for
the period ended 31 December 2004, in
accordance with accounting principles gen
erally accepted in Norway;
the Company's management has fulfilled its
duty to maintain the Company's accounting
process in such a proper and well-arranged
manner that the accounting process is in
accordance with the law and accounting
practices generally accepted in Norway; and
the information in the Board of Directors'
report (pages 30–33) concerning the finan
cial statements, the going concern assump
tion, and the proposal for allocation of net
income is consistent with the financial state
ments and complies with the law and regula
tions.
In our opinion, management's assumptions pro
vide a reasonable basis for presenting the signifi
cant effects directly attributable to the abovementioned demerger, the related pro forma
adjustments give appropriate effect to those
assumptions, and the pro forma financial state
ments (pages 47–82) reflect the proper applica
tion of those adjustments to the audited carveout financial statements as of 31 December 2004,
31 December 2003 and 31 December 2002 and
the results of its operations and its cash flows for
the three years ended 31 December 2004, in
accordance with accounting principles generally
accepted in Norway.
Oslo, 18 March 2005
Deloitte Statsautoriserte Revisorer AS
Ingebret G. Hisdal State Authorized Public Accountant, (Norway)
97
NON-GAAP MEASURES
USE OF
NON-GAAP MEASURES
In the discussion of operating results, Yara refers to certain non-GAAP
financial measures including EBITDA and CROGI. Yara’s management
makes regular use of these measures to evaluate the performance, both in
absolute terms and comparatively from period to period. These measures
are viewed by management as providing a better understanding – both for
management and for investors – of the underlying operating results of the
business segments for the period under evaluation. Yara manages long-term
debt and taxes on a group basis. Therefore, net income is discussed only for
the Group as a whole.
Yara’s management model, referred to as Value Based Management,
reflects management’s focus on cash flow-based performance indicators.
EBITDA, which Yara defines as income/(loss) before tax, interest expense,
foreign exchange gains/losses, depreciation, amortization and writedowns,
is an approximation of cash flow from operating activities before tax and net
operating capital changes. EBITDA is a measure that in addition to operat
ing income, also includes interest income, other financial income, and
results from non-consolidated investees. It excludes depreciation, writedowns and amortization, as well as amortization of excess values in nonconsolidated investees. Yara’s definition of EBITDA may differ from that of
other companies.
EBITDA should not be considered as an alternative to operating income
and income before tax as an indicator of the company’s operations in accor
dance with generally accepted accounting principles. Nor is EBITDA an
alternative to cash flow from operating activities in accordance with gener
ally accepted accounting principles.
Yara management uses CROGI (Cash Return On Gross Investment) to
measure performance. CROGI is defined as gross cash flow, divided by
average gross investment and is calculated on a 12-month rolling basis.
“Gross cash flow” is defined as EBITDA less total tax expense, excluding tax
on net foreign exchange gains/ losses. “Gross Investment” is defined as total
assets (exclusive of deferred tax assets, cash, cash equivalents and other liq
uid assets) plus accumulated depreciation and amortization, less all shortterm interest-free liabilities, except deferred tax liabilities. The CROGI def
inition was slightly revised in second quarter 2004, as cash, cash equivalents
and other liquid assets were taken out from gross investments, and total tax
was adjusted for tax on net foreign exchange gains/losses. All CROGI fig
ures included in this report were calculated with the revised definitions.
In order to track underlying business developments from period to peri
od, Yara’s management also uses a variance analysis methodology, devel
oped within the Company (“Variance Analysis”), that involves the extrac
tion of financial information from the accounting system, as well as statisti
cal and other data from internal management information systems.
Management considers the estimates produced by the Variance Analysis,
and the identification of trends based on such analysis, sufficiently precise
to provide useful data to monitor our business. However, these estimates
should be understood to be less than an exact quantification of the changes
and trends indicated by such analysis.
Reconciliation of Operating Income to Gross Cash Flow
NOK million
Operating Income
Equity in net income of non-consolidated investees
Interest Income
Net gain on securities
Dividends from 0-20% companies
Earnings before interest expense and tax (EBIT)
Depreciation
Amortisation of excess value of non-consolidated investees
Earnings before interest, tax and depr/amort (EBITDA)
Income tax less tax on net foreign exchange gain (-loss)
Gross Cash Flow
98
Pro forma
2004
3,584
768
174
(6)
2
4,523
1,208
34
5,765
(954)
4,811
Pro forma
2003
2,751
610
141
1
1
3,503
1,147
22
4,671
(965)
3,706
Pro forma
2002
2,270
57
161
1
38
2,526
1,183
108
3,817
(739)
3,079
NON-GAAP MEASURES
CASH RETURN ON
GROSS INVESTMENT – YARA
Reconciliation of Net Income after minority
interest to Gross Cash Flow
Reconciliation of Total assets to Gross Investments
2004
Pro forma Pro forma Pro forma
NOK million
2004
2003
2002
3,761
2,186
1,894
Minority interest
20
(3)
(11)
Interest expense and
foreign exchange gain/loss
403
(348)
294
Depreciation
1,208
1,147
1,183
Amortization of excess
value of non-consolidated investees
34
22
108
Tax effect on foreign exchange gain (-loss) 231
176
Gross Cash Flow
4,811
3,706
3,079
12 months average
NOK million
2004
2003
2002
Total assets
27,044
25,159
23,725
(1,269)
(1 043)
(718)
Other liquid assets
(27)
(122)
(38)
Deferred tax assets
(1,035)
(736)
(205)
(6,674)
(5 387)
(5,734)
Accumulated depreciation
and amortization
18,080
16,996
16,569
Gross investment 12 months average
36,119
34,866
33,598
Cash Return on Gross Investment (CROGI) 13.3
10.6
9.2
Reconciliation of Operating Income to EBITDA
Reconciliation of EBITDA to Income before Tax and Minority Interest
NOK million
2004
2003
2002
Operating Income
3,584
2,751
2,270
768
610
57
Interest income
175
140
161
Selected Financial Items
(4)
2
38
EBIT
4,523
3,503
2,526
1,242
1,168
1,291
Depreciation and Amortization 1)
EBITDA
5,765
4,671
3,817
1)
Including amortization of excess value in non-consolidated investees.
NOK million
2004
2003
2002
EBITDA Downstream
2,068
1,833
1 956
EBITDA Industrial
688
688
789
EBITDA Upstream
3,379
2,249
1,130
EBITDA Other and Eliminations
(370)
-99
(58)
EBITDA Yara
5,765
4,671
3,817
Depreciation
(1,208)
(1,147)
(1,183)
Amortization of excess value in
non-consolidated investees
(34)
(21)
(108)
Interest expense
(266)
(311)
(339)
1
15
9
Net foreign exchange gain(-loss)
737
11
670
Other financial income/expense, net
(68)
(62)
(47)
Income before tax and minority interest 4,926
3,155
2,820
99
IFRS IMPLEMENTATION
IMPLEMENTATION
OF IFRS
Yara International ASA and its subsidiaries currently prepares its consolidated financial statements in accordance with generally accepted accounting principles in Norway (N GAAP). From 1 January 2005 Yara is required
to prepare the consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS). For the purpose of presenting comparative financial information, the implementation effects of
IFRS will result in a restatement of the balance sheet as of 1 January 2004,
except for the effects of IAS 32 and IAS 39, which will be implemented in
the balance sheet as of 1 January 2005.
The implementation effects of IFRS presented below is prepared on the
basis of the standards and interpretations that management expects will be
Majority shareholders’ equity
Preliminary IFRS implementation effects – Proforma
1 Jan 2004
NGAAP
9,595
IFRS implementation effects:
(1,014)
Pensions 1)
509
Plant maintenance shut downs 2)
137
Deferred taxes 3)
Gain on sale of foreign subsidiaries 4)
Goodwill amortisation 5)
Dividend 6)
Stock based compensation 7)
IFRS
9,228
in force on 31 December 2005. The IFRS standards are subject to an ongo
ing review process, that may lead to amendments to the accounting stan
dards or to interpretative guidance. The numbers presented must thus be
regarded as preliminary.
The transition to IFRS will also lead to changes in the classification with
in the profit & loss and balance sheet statements. Key financial figures will
also be impacted.
Yara will update the restated financial information for any changes to the
standards or interpretative guidance when changes occur. The numbers in
the tables are unaudited.
Net Income after
minority interest
2004
3,761
91
(6)
(26)
(26)
4
100
Currency
translation
effects 2004
(688)
70
(10)
(20)
26
19
493
(6)
712
(4)
3,794
Implementation of IAS 32 and IAS 39 on 1 January 2005 8)
IFRS – 1 January 2005
Net Income
after minority
interest
25.3.–31.12.
Preliminary IFRS implementation effects IFRS – Actual
2004
NGAAP
2,854
IFRS implementation effects:
68
Provisions for pensions 1)
(6)
Plant maintenance shut downs 2)
(20)
Deferred taxes 3)
(32)
Gain on sale of foreign subsidiaries 4)
3
Goodwill amortisation 5)
Dividend 6)
Stock based compensation 7)
(4)
IFRS
2,864
Implementation of IFRS does not lead to any material changes to the
cash flow statements.
Recorded
directly to
equity 2004
(1,954)
(1,166)
(686)
Majority shareholders’ equity
31 Dec 2004
10,714
(834)
85
4
712
(4)
11,170
(10)
11,160
1)
Yara has decided to use the exemption under IFRS1, which implies that the unrecognised actuarial gains
and losses are directly booked to equity in the transition to IFRS. Furthermore, the unconditional part
of unrecognised past service costs are recorded directly to equity at the date of implementation. In the
future, Yara will present its pension liabilities at fair value in the balance sheet. Actuarial gains and loss
es are recorded directly to equity.
2)
Accruals for major plant maintenance shut downs were recorded under N GAAP. Provisions for plant
maintenance shut downs are not permitted under IFRS. Subsequent costs related to plant maintenance
shut downs are capitalised if the recognition criterias under IFRS are met, and depreciated over the
period to the next planned plant maintenance shut down.
3)
The main changes to deferred taxes is explained by changes in temporary differences resulting from
other IFRS implementation effects. In addition, deferred taxes related to elimination of profit in inventories are adjusted to reflect the tax rate of the receiving country.
4)
Yara has decided to use the exemption under IFRS 1 which allows to reset the cumulative currency
translation effects to zero. Gains and losses related to sales of subsidiaries in 2004 have been restated
accordingly.
5)
Goodwil is not amortised under IFRS, but tested for impairment at least once a year, and written down
if impaired. Goodwill amortisation under N GAAP are adjusted for.
6)
For NGAAP, dividends proposed at the end of the year which will be paid in the following year are
recorded as a reduction to equity and as debt. Under IFRS, dividends are accrued when dividends are
declared.
7)
For NGAAP, the expense related to the share incentive programme has been calculated based upon the
intrinsic value method. Under IFRS, the share incentive programme is recorded at fair value in accordance with IFRS2.
8)
Yara has chosen to use the option under IFRS1 to apply IAS 32 and IAS 39 from 1 January 2005. The
change is related to embedded derivatives, which are recorded at fair value in IFRS.
OPERATIONAL DATA
OPERATIONAL
DATA
Thousand tonnes, except price information
2004
2003
2002
Purchase of raw materials 1)
Rock phosphate
Potassium
1,300
1,550
1,250
1,500
na
na
Production of ammonia (NH3)
Yara’s own production
Yara’s share of non-consolidated investees production 2)
5,205
4,277
928
4,992
4,132
860
4,908
4,061
847
Production of fertilizer, excl. bulk blends
Yara’s own production
Yara’s share of non-consolidated investees production 2)
13,096
12,260
836
12,655
11,890
765
11,947
11,159
788
Sales including third-party products 3)
Europe
Outside Europe
21,900
11,900
10,000
22,200
11,500
10,700
22,200
11,100
11,100
Fertilizer prices – average monthly calculations USD / tonne
Urea – fob Prilled Black Sea
Ammonia – fob Caribbean
CAN – cif Germany
175
251
167
139
203
140
94
110
111
Energy cost (weighted-average US $ / MMBtu) 4)
3.50
3.20
2.30
1)
Purchased for consumption in Yara plants, including blending in Trevo.
Including Qafco (25%), Tringen (49%). 3)
Fertilizer materials and associated nitrogen chemicals.
4)
Yara consumption, including proportional share of non-consolidated investee companies.
2)
101
BOARD OF DIRECTORS
BOARD OF
DIRECTORS
102
ØIVIND LUND - CHAIRMAN OF THE BOARD
LONE FØNSS SCHRØDER
JØRGEN OLE HASLESTAD
ÅSE AULIE MICHELET
LEIV L. NERGAARD
ARTHUR FRANK BAKKE
CHARLOTTE DYRKORN
FRANK ANDERSEN
BOARD OF DIRECTORS
<<< ØIVIND LUND. Dr. Lund is the President
and Country Manager of ABB Holding A.S.,
Turkey, a company engaged in the business
of power and automation technologies. He
served as Senior Vice President and Group
Function Manager for ABB Asea Brown
Boveri Ltd. in Switzerland from 2001 until
2003, and prior to that he was President and
Chief Executive Officer of ABB A.S., Norway,
from 1998 to 2001. Dr. Lund held senior man
agement positions with EB National
Transformer AS in Norway, with TanalecArusha Ltd. in Tanzania and with National
Industri AS. Dr. Lund holds a Master of
Science in Electrical Engineering and a Ph.D.
in Electrical Engineering and an Industrial
Economist degree from the Norwegian
School of Management. Dr. Lund is a mem
ber of the Board of Directors of Norske Skog
ASA.
<<< ÅSE AULIE MICHELET. Ms. Michelet
serves as the President of Amersham Health
AS now part of GE Healthcare and Executive
Vice President Opeations of Amersham
Health. Prior to that, she has held various
management and executive positions within
Nycomed and Nycomed Amersham. Ms.
Michelet holds a Master of Science in
Pharmacy from the University of Oslo. She is
a member of the Boards of Directors of Orkla
ASA.
<<< CHARLOTTE DYRKORN. Ms. Dyrkorn has
been a Hydro employee since 1997. She is
employed in the accounting department of
the Industrial segment in Oslo. She is also
the leader of the union in that location and
has been in this position for the past two
years. She was educated at the Norwegian
School of Commerce.
<<< LONE FØNSS SCHRØDER. Ms. Schrøder
is on the Boards of Directors of a number of
public companies and per 1.10.2005 president
of Wallenius Lines. From 1982 through 2002,
Ms. Schrøder held various senior management responsibilities with A.P. Møller-Maersk
A/S, one of the world’s largest shipping and
oil companies. Ms. Schrøder holds a master
of science in law and economics. She is
chairman of Kværner ASA, deputy chairman
of Aker Asa, and board member of Vattenfall
AB and DSB.
<<< LEIV L. NERGAARD. Mr. Nergaard has
been an advisor to corporate management of
Hydro since mid-2003. Prior to that he was
the President of Norsk Hydro Germany and
Senior Vice President, EU Coordinator, for
Hydro from 2002. From 1991 until 2002, Mr.
Nergaard was Executive Vice President and
Chief Financial Officer of Hydro and, prior
to that, he held various senior management
positions within Hydro from 1969. Mr.
Nergaard holds a degree in business and economics from the Norwegian Graduate School
of Economics and Business Administration.
He is a member of the Boards of Directors
of Storebrand ASA (Chairman from 2000),
Rieber & Søn ASA (Chairman since 2000),
Joma Chemicals AS (Chairman since 2004)
and Tinfos AS.
<<< ARTHUR FRANK BAKKE. Mr. Bakke has
been a Hydro and Yara employee for 31 years.
He has been the local union representative at
the Herøya site in Porsgrunn since 1985. He
is also the Chairperson of the Yara European
Work Council that represents the Yara
employees in Europe.
<<< JØRGEN OLE HASLESTAD. Mr. Haslestad
is the Group President of Siemens Industrial
Solutions and Services, a Group of Siemens
AG, and has held this position since 2001.
From 1994 until 2001, he held various manag
ing director positions with Siemens AG and
its subsidiaries in Asia and in the United
States. Before joining Siemens, he was
Managing Director of Kongsberg Offshore a.s
from 1989 until 1994 and held various management and technical positions with that
company beginning 1980. Mr. Haslestad
received a Master of Science in Mechanical
Engineering from NTH, Trondheim, Norway.
He is a member of the Board of Directors of
Tandberg ASA.
<<< FRANK ANDERSEN. Mr. Andersen has
been a Hydro and Yara employee for 31 years.
He has been active in employee union mat
ters at the Glomfjord facility since 1980 and
was the second leader of the employees’
union at Glomfjord from 1994 until 2002,
when he was elected leader of the union.
He is also a member of the local council
on industrial policy.
103
MANAGEMENT AND ORGANISATION
MANAGEMENT
AND ORGANISATION
AC >>
<< TB
DC >>
SO >>
<< TE
<< HS
KW >>
AGD >>
<< TH
104
MANAGEMENT AND ORGANISATION
CHIEF EXECUTIVE OFFICER
THORLEIF ENGER
CHIEF LEGAL OFFICER
KEN WALLACE
CHIEF COMMUNICATION OFFICER
ARNE CARTRIDGE
CHIEF FINANCIAL OFFICER
HALLGEIR STORVIK
CHIEF OPERATING OFFICER
DANIEL CLAUW
CHIEF PERSONNEL OFFICER
ANNE GRETHE DALANE
UPSTREAM
SVEN OMBUDSTVEDT
DOWNSTREAM
TOR HOLBA
INDUSTRIAL
TERJE BAKKEN1)
1)
TE >> THORLEIF ENGER, president
and chief executive officer
Dr. Enger acted as Executive Vice President
of Hydro Agri from 1999 to 2004. Employed
by Hydro since 1973, he has held numerous
positions. He served as President of Hydro’s
Exploration & Production Division from 1987
to 1996, and Project Director of the Oseberg
oil field from 1982 to 1986. Prior to 1973, he
worked as a senior research engineer for the
Shell Development Company in the United
States. Dr. Enger has a Doctorate degree in
engineering from the University of Colorado
USA. Dr. Enger currently serves as the
Chairman of the Board of Telenor ASA.
TH >> TOR HOLBA, senior vice president,
downstream
Mr. Holba has served as Senior Vice
President, Downstream, since September
2003. He has held numerous positions in
Hydro since 1981: Senior Vice President of
Global Supply Chain Management from 2001
to 2003, President of Trevo from 2000 to
2001, head of Business Unit Latin America
from 1998 to 2000, President of Hydro Agri
Mexico from 1993 to 1997, Regional Marketing
Director for Asia and Managing Director of
Hydro (Far East) Ltd from 1991 to 1993. Mr
Holba has a Master of Science degree in
Mechanical Engineering from the Norwegian
Institute of Technology.
DC >> DANIEL CLAUW, executive president
and chief operating officer
Mr. Clauw served as Chief Operating Officer
of Hydro Agri from 2001 to 2004, President of
Hydro Plant Nutrition from 2000 to 2001,
Head of Markets in Europe and North
America from 1999 to 2000, and Head of
Africa and Latin America for Hydro Agri
International (France) from 1995 to 1999. He
was a private entrepreneur in the Caribbean
from 1978 to 1985, and in Africa from 1985 to
1995. He started his career in the fertilizer
industry as Production Manager for Gardinier
(France) from 1972 to 1978. Mr. Clauw has
French university degrees in chemistry and
physics and a financial degree from IFG Paris.
HS >> HALLGEIR STORVIK, senior vice president
and chief financial officer
Employed by Hydro since 1984, Mr. Storvik
served as Chief Financial Officer of Hydro
Agri from 2000 to 2004. From 1999 to 2000
he was responsible for Hydro Agri’s contribu
tion to the strategy that resulted in the com
pany’s turnaround program. Mr. Storvik also
acted as the CFO of the Hydro Agri
International division from 1995 to 1999, and
developed a risk management system for the
growing fertilizer business outside of Europe.
Mr. Storvik graduated from the Norwegian
School of Business Economics and
Administration in Bergen.
From 1 september 2004
AC >> ARNE CARTRIDGE, senior vice president
and chief communication officer
From 1996 to 2003, Mr. Cartridge held posi
tions as Head of Marketing Communication,
Head of Public Relations and Head of Public
affairs for various business units of Telenor
ASA, Norway’s leading telecommunication
company. From 1993 to 1996, he was general
manager for one of Norway’s leading com
munications agencies, Gazette. Prior to this,
he was marketing manager and director of
communications at Digital Equipment Corp.,
and a public relations consultant and journal
ist in Publicity AS and Informativ AS. Mr.
Cartridge has a Bachelor of Science degree in
International Politics and Middle East History
from the University of Bergen, Norway.
TB >> TERJE BAKKEN, senior vice president,
industrial
Mr. Bakken has served as Senior Vice
President, Industrial since September 2004.
Previously, he was Head of Business Unit
Ammonia Trade and Shipping, Brussels from
2000 to 2004, Managing Director of Hydro
Asia Trade, Singapore from 1996 to 2000,
Managing Director of Norsk Hydro (Far East)
Ltd. from 1994 to 1996, and in various agricul
tural sales and marketing positions in Norway
before moving to Hong Kong in 1993. He has
a Master of Business Administration degree
from Bath University, School of
Management, UK.
SO >> SVEN OMBUDSTVEDT, senior vice president,
upstream
Mr. Ombudstvedt has served as Senior Vice
President, Upstream, since September 2003.
Previously, he was Senior Vice President,
Corporate Strategy, for the Hydro Group from
2002 to 2003, and deputy to Hydro Agri’s
Chief Operating Officer from 2000 to 2002,
with responsibility for commercial strategy
and industrial restructuring. He held several
senior positions in Hydro Agri’s European
operations between 1993 and 1999, and was
senior systems analyst on several large proj
ects from 1991 to 1993. He has a Bachelor of
Business Administration from Pacific
Lutheran University, USA and a Master of
International Management from the American
Graduate School of International
Management.
AGD >> ANNE GRETHE DALANE, senior vice president
and chief personnel officer
Ms. Dalane has acted as Senior Vice
President and Chief Personnel Officer of
Hydro Agri since September 2003. Employed
at Hydro since 1984, she has held numerous
financial positions. Most recently, she served
as Vice President, Human Resources, for
Hydro Oil and Energy from 2001 to 2003, Vice
President, Corporate Strategy, from 2000
until 2001, and Vice President, Finance, of Oil
and Gas, Norway, from 1996 to 1999. Ms.
Dalane graduated from the Norwegian
School of Business Economics and
Administration in Bergen and is also a
Certified Financial Analyst.
KW >> KEN WALLACE, senior vice president and
chief legal counsel
Mr. Wallace served as Vice President and
Legal Counsel, Norsk Hydro Americas, Inc.,
at the Hydro Corporate center for North,
Central and South America and the
Caribbean, from 1997 to 2003. Previously, he
was a partner in the US law firm of Bryan
Cave LLP and predecessor firms in Kansas
City, Missouri, from 1976 to 1997. Mr. Wallace
has a Bachelor of Arts degree from California
State University and a Juris Doctor degree
from Harvard Law School, USA.
105
SHARE INFORMATION
THE YARA
SHARE
SHAREHOLDER POLICY
We are committed to serving all our sharehold
ers and potential investors by providing consis
tent, open and prompt disclosure of relevant
information. Our underlying policy is equal treat
ment of all stakeholders, which includes ana
lysts, banks, institutional investors and private
shareholders. All information that may be
important and relevant to shareholders and
other players both in the Norwegian and inter
national markets is provided in the form of
notices to the Oslo Stock Exchange and through
press releases.
Yara presents its quarterly
results as live webcasts and at its headquarters
at Bygdøy Alle 2 in Oslo. In addition, Yara holds
regular meetings with investors both in Europe
and in the US.
Yara aims to provide its shareholders with a
competitive return on investment compared to
other investment alternatives with similar risk.
The Yara share shall be liquid and an attractive
investment opportunity.
SHARE FACTS
In 2004, a total of 526,203,000 shares of Yara
were traded on the OSE, at a total value of NOK
29.44 billion. The average trading volume for
Yara shares on the OSE between the period 01
April–31 December 2004 was 1.98 million.
Symbol: YAR.OL
Listing: Oslo Stock Exchange (OSE)
Average common shares outstanding (25
March–31 December 2004): 318,788,669
ANALYST COVERAGE
Thirteen financial analysts on a regular basis
provide market updates and estimates for Yara’s
financial results, which include four analysts
located in the UK and North America.
SHARE PRICE PERFORMANCE
At the initial public offering (25 March 2004), the
Yara share was sold at NOK 41. The highest quo
tation during the year was NOK 81.5 and the
lowest was NOK 44.6. On the last trading day
of the year, the closing price of the Yara share
106
was NOK 79.75, an improvement of 95% over
the initial offering price. Yara was the most suc
cessful IPO on the Oslo Stock Exchange in 2004
according to the consultants Argument (part of
Citigate). Yara was one of the five nominees for
the ‘Best European IPOs in 2004’ by Financial
News. Yara’s Investor Relations was voted the
second best in Norway according to a study con
ducted by REGI Research and Strategy.
The market value as at 31 December 2004 was
NOK 25.24 billion, making Yara the seventh
largest company quoted on the Oslo Stock
Exchange.
SHAREHOLDER DISTRIBUTION
At year-end 2004, Yara had 36,618 shareholders.
Non-Norwegian investors owned approximately
42% of the total stock, with the United States
and the United Kingdom being dominant. The
Norwegian State, through the Ministry of Trade
and Industry, is the largest single owner with
36.2% of the shares. Norwegian private owner
ship of Yara shares stood at 21.9%.
CASH DISTRIBUTION POLICY
Yara’s objective is to pay dividends at a mini
mum 30% of the net income as an average over
the business cycle. In addition, the company
expects to use share buy-back programmes to
achieve an average 40-45% of net income in
cash payments to the shareholders over the
business cycle.
The company’s ambition is also to deliver steady
growth in absolute dividend payments. Yara’s
board will propose to the Annual General
Meeting a divident payment of NOK 2.25 per
share for 2004, which represents 19% of net
income.
The General Meeting on June 16, 2004 author
ized Yara’s Board to buy back up to 5% of total
shares (15,972,130 shares) within 15 December
2005. A precondition for the Yara Board ahead of
starting the execution of the programme was
that an agreement was entered into with the
Norwegian State where the State committed to
sell a proportional share of its holdings to leave
the State’s ownership (presently 36.21%)
unchanged.
Yara’s accumulated shareholdings as a result of
the share buy-back programme is 3,001,400
shares as at 31 December 2004. This does not
include the proportional part of shares that will
be purchased from the Norwegian State.
The Board intends to propose to the Annual
General Meeting to expand the share price
range of the buy-back programme.
RISK ADJUSTMENT (NORWEGIAN RESI
DENT SHAREHOLDERS ONLY)
The RISK-amount for Yara International ASA as
at 01 January 2005 is estimated to be NOK –2.18
per share. RISK reflects an adjustment to the
share cost price for Norwegian resident share
holders. Calculation of RISK is based upon tax
able income less proposed dividend in Yara
International ASA. Yara shareholders may also
adjust their share purchase with RISK calculated
on shares in Norsk Hydro ASA for previous
years. Yara shareholders are entitled to 8.5% of
RISK calculated on shares in Norsk Hydro ASA
bought before January 2004. For more informa
tion, we refer to the public RISK register and to
the website of Norsk Hydro ASA.
The dividend pertaining to a fiscal year will be
declared at Yara's annual general meeting in the
following year.
YARA ADR
Yara has a sponsored level 1 ADR programme.
The ADRs are not listed, but are bought and
sold OTC, i.e., through any broker licensed to
buy and sell US securities. One ADR represents
one Yara ordinary share.
2005 Dividend schedule
Ex-dividend date: 20 May 2005
Payment date: 03 June 2005
YARA ADR PERFORMANCE
On 01 April 2004, Yara ADR was quoted at USD
7.40. On 31 December 2004, the ADR was quoted
SHARE INFORMATION
COMMON SHARE DATA
(NOK millions, except per share amounts and where otherwise noted)
Basic earnings per share
Adjusted earnings per share 1)
Period end common shares outstanding
Average number of outstanding shares
actual (25.3.04 – 31.12.04)
Average number of shares outstanding
pro forma (1.1.04 – 31.12.04)
Average trading volume
(1.1.04 – 31.12.04)
Average share price
Closing share price
(last day of the period)
High share price
Market capitalization
(last day of the period - NOK billion)
Proposed dividends per share
Q1
3.01
2.40
319,442,590
Q2
2.54
2.57
319,442,590
Q3
2.33
2.22
319,442,590
Q4
3.91
3.04
316,441,190
2004
11.79
10.21
316,441,190
319,442,590
319,442,590
319,442,590
317,438,181
318,788,669
319,442,590
319,442,590
319,442,590
317,438,181
318,938,750
na
na
2,271,484
49.79
1,767,141
61.72
1,962,601
72.55
1,976,886
61.60
na
na
56
56
71.50
72
79.75
79.75
79.75
79.75
15.91
17.89
22.84
25.24
25.24
2.25
na: not applicable
1)
Adjusted for foreign exchange gain/loss
Yara ADR performance 2004
Yara share price performance since IPO
14$
2.0
12$
1.5
10$
8$
1.0
6$
4$
0.5
2$
0$
Apr
04
May
04
Jun
04
Jul
04
Aug
04
Sep
04
Oct
04
Nov
04
Dec
04
0.0
Apr
04
Yara
May
04
Jun
04
Jul
04
Aug
04
Sep
04
Oct
04
Nov
04
Dec
04
OSEBX Index
107
SHARE INFORMATION
at USD 13.25, which denotes a 79% increase
over the 01 April ADR price.
To find a recent price quote for Yara ADRs
please go to JPMorgan's website www.adr.com.
Our ticker is YARIY.
VOTING RIGHTS THROUGH ADR
OWNERSHIP
In accordance with Norwegian corporate law,
the physical presence of the shareholders or
their authorized representatives is required in
order to vote. Shares must be registered with
the Norwegian Registry of Securities if the holders want to vote for their shares at the share
holders’ meeting. Holders of Yara ADRs should
check their voting rights with JP Morgan Chase,
which is the depository bank for Yara ADRs. The
contact details are found on the next page
(Registrar information).
RATING
In their first analysis of Yara, rating agencies
Moody's and Standard & Poor's rated Yara solid
investment grade. Reflecting Yara's strong market position and cost leadership, the company
was rated investment grade 'Baa2' from
Moody's and 'BBB' from Standard & Poor's, both
with a stable outlook.
YARA’S LARGEST SHAREHOLDERS AS OF 31 DECEMBER 2004
Shareholders
Shares (%)
Ministry of Trade and Industry, Norway 36.2 *
National Insurance Fund, Norway
4.3
State Street Bank
4.1
Morgan Stanley & Co.
3.2
Morgan Guaranty Trust ADR-Division
2.9
Fidelity Funds-Europe
2.5
Fidelity Low-Price Fund
2.2
Lehman Brothers Inc.
1.6
Capital Research
1.3
Vital Forsikring ASA
1.3
Shares (%)
1.2
1.2
1.2
0.9
0.9
0.8
0.7
0.7
0.7
* Assuming execution of buy-back agreement
CONSOLIDATED MAJORITY SHAREHOLDERS’ EQUITY
Ordinary shares
Premium
Total
NOK million
issued by Yara
paid-in
paid-in
Retained
except share nos.
Intl. ASA
capital
capital
earnings
Balance 31 Dec 2003
63,888,512
1,939
2,048
5
Demerger Yara 25 March
255,554,078
1,764
2,198
5,416
Net income 25 March–31 Dec
2,854
Dividends proposed
(712)
Foreign currency translation (net)
(767)
Other items recorded directly
to shareholders equity
(46)
Cash flow hedges
(77)
(3,001,400)
(5)
(201)
316,441,190
3,703
4,241
6,473
* Majority Shareholder’s Equity. Minority interests at the end of periods 2004 and 2003
amounted to NOK 63 million and NOK 96 million, respectively.
Yara is awarded both the Information Symbol and the English Symbol by
the Oslo Stock Exchange. The Information Symbol is awarded to companies that meet, among other things, defined standards for information
on their web-site. The English Symbol is awarded to companies that
meet all the requirements for the Information Symbol in English.
108
Shareholders
Euro Pacific Growth Fund
(Capital Research)
Morgan Stanley
Bank of New York
Storebrand Livsforsikring
The Northern Trust
Clearstream Banking
Skandinaviska Enskilda
Royal Trust Corporation
Mellon Bank
Total
MSE*
2,053
7,614
2,854
(712)
(767)
(46)
(77)
(206)
10,714
The "Best in Class" designation from Storebrand Investments is awarded
to companies that meet the highest environmental and social standards
within their industry.
2005 QUARTERLY EARNINGS
RELEASE DATES
First quarter – 6 May 2005
Second quarter – 15 July 2005
Third quarter – 21 October 2005
2005 ANNUAL GENERAL MEETING
Our shareholder meeting will take place at 18 00
(CET) 19 May, Thursday at Radisson SAS
Scandinavia Hotel, Holbergsgate 30, Oslo.
Shareholders who wish to attend the Annual
General Meeting are asked to inform Yara’s reg
istrar by 12 00 CET on 18 May 2005.
DnB Nor Bank
Verdipapirservice
Stranden 21
N-0021 Oslo
Phone: + 47 22 48 35 90
Fax: +47 22 48 11 71
Shareholders may also register electronically on
the company’s web page www.yara.com/register
or at the Verdipapirservice investor services site
at www.vps.no.
For more information on how to vote your shares,
consult our proxy circular or visit our website.
REGISTRAR INFORMATION
Registered shareholders may contact our
Registrar in Norway regarding their holding of
Yara shares. The contact details are:
DnB Nor ASA
Registrar’s Department
Stranden 21
N-0021 Oslo
Phone: +47 22 48 35 90
www.dnbnor.com
YARA’S ADR DEPOSITARY BANK
JP Morgan Chase is the depositary bank for Yara
ADRs. The contact details are:
JP Morgan Chase Bank
P.O. Box 43013
Providence, RI 02940-3013
USA
International telephone: +1-781-575-4328
Toll-free: +1-800-990-1135
CHANGE OF ADDRESS
Shareholders registered in the Norwegian
Registry of Securities should send information
on changes of address to their registrars and not
directly to the company.
Continuously updated information on sharehold
er related matters can be found on our website
www.yara.com/en/investor_relations.
Concept, editorial text and design: COBRA
Photo: Ole Walter Jacobsen pages 7 and 20, Dag Thorenfeldt pages
24, 102 and 104, Morten Krogvold pages 9, Nils Lund pages 13 and
26, Getty Images cover and page 16
Production: Network Produksjon
2004
Annual Report
STAYING CLOSE TO THE FARM GATE
RESPONSIBILITY THROUGHOUT
THE VALUE CHAIN
LEADERSHIP MUST BE
HARVESTING THE VALUE
OF A GLOBAL PRESENCE
Bygdøy allé 2, P.O. Box 2464, Solli, N-0202 Oslo, Norway Tel: 47 24 15 70 00, Fax: 47 24 15 70 01, www.yara.com
Yara – 2004 Annual Report
For the past century our company has been working with partners and farmers around the
world to increase food production and meet the demands of a rapidly expanding population.
In March 2004 we became an independent company and took the name Yara to reflect our
enduring commitment to sustainable agricultural development. In the Norse language of the
Vikings the root of the word Yara indicated a connection to the land: crops, fertility or a good
harvest. With the letter Y we echo the word "Yield" - the core message of our business.

2004 - Yara

Transcription

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