yara Financial report 2011

building on its unique business model, Yara is dedicated to profitable growth Creating competitive edge, making impact based on its unrivalled presence, Yara is delivering strong results WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be yara is positioned to create value: With our unique busi­ ness model and unrivalled market presence, we create competitive edge, delivering strong results, / page 10 / Our mission is to create better yield – for our shareholders, / page 14 / customers, and society at large. Through our extensive operation / page 37–38 / we are set to seize Scan this code to see the business opportunities / page 39–40 / in existing and new video presentation of how Yara creates impact. markets, influenced by global megatrends affecting com­ pany and customers alike. Notably, we offer solutions to some of the major global challenges / impact review / of our time; creating impact.

yara is poised to create impact: With our strategic approach and growth ambition, / page 40–42 / we employ our extensive knowledge, focusing in particular on the key areas of resource management, food security and environmental issues – identifying connections between global challenges and business opportunities. Supporting a viable agricultural sector by developing solutions for improved productivity, / page 53 / we increase yields; creating value.

The yara hisTory Yara International ASA was established by a demerger from Norsk Hydro in 2004, and can trace its origin to the foundation of Hydro, the world pioneer of mineral fertilizers, in 1905. Starting as a Scandinavian pioneer, the company took a European position in the 1970s and 80s, gradually enforcing its growth strategy – and establishing a truly global presence. This timeline depicts milestones in Yara’s history, in terms of new plants and key acquisitions.

1907 1928 1929 Notodden Notodden Porsgrunn Regular production First ammonia New plant commenced production opened

1905 1910 1920 1930 1940 Norway Norsk Hydro established; world’s first nitrogen fertilizer produced 1911 1919 1934 Rjukan Denmark Heavy water New plant Sales office in Production started, opened Copenhagen introducing the industrial opened products portfolio WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be C / yara in brief Yara Financial Report 2011

Who we are yara delivers solutions for sustainable agriculture and the environment. Our fertilizers and crop nutrition programs help produce the food required for the growing world population. Our industrial products and solutions reduce emissions, improve air quality and support safe and efficient operations. Founded in Norway in 1905, Yara has a worldwide presence with sales to 150 countries. Safety is always our top priority.

What we do

upstream is the backbone of Yara’s manufacturing system. It includes supply and trade mass production of ammonia, urea, nitrates and other nitrogen­based products is a global function res­ as well as phosphoric acid. ponsible for optimization downstream offers a complete fertilizer portfolio to growers worldwide. of energy and raw mate­ It provides knowledge and tools to secure the right nutrients and optimize rial purchases, ammonia application and yield with minimal environmental impact. trade and shipping, mari­ IndustrIal is a reliable partner in chemical products. It enables innovative time logistics, third­party solutions based on ammonia production and knowledge, and helps customers sourcing, and feed reach compliance with environmental legislation. phosphates.

What we offer aGrICultural IndustrIal envIronmental BACK BACK BACK produCts: We produCts: We solutIons: We offer a complete offer a wide range offer complete 600 kg NPK 600 kg portfolio of fertilizers of nitrogen and solutions for NOx covering all neces­ specialty chemicals abatement, odor sary nutrients for in addition to CO2, control, water treat­ any crop. dry ice and civil ment and corrosion explosives solutions. prevention.

BACK BACK BACK BACK BACK BACK

1945 600 kg NPK 600 kg 600 kg NPK 600 kg 1972 1979

Sweden CO2 plants in Norway Netherlands Sales office (1972), Sweden (1976) NSM acquired in Stockholm and Denmark (1978) opened acquired 1977 1949 Thailand Glomfjord Sales Ammonia production partnership commenced established

1950 1960 1970 1980

1949 1969 1981 USA Qatar Sweden Marketing Qafco JV Supra commenced established acquired 1977 scandinavian pioneer Brazil european position Sales office in Rio Global presence de Janeiro opened WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be D / yara in brief Yara Financial Report 2011

Where we are

Global player: As the industry’s FertIlIzer sales only global player, we have production Yara plants 2011 by reGIon 2011 Europe: 9,300 on six continents, operations in 51 Joint venture plants 2011 Thousand tons North America: 2,887 countries – and sales to about 150 Sales offices 2011 Latin America: 3,798 countries. Sales 2011 Africa: 1,188 Development programs Asia: 2,276 R&D units

1984 1985 Germany Zimbabwe Ruhr Stickstoff Regional office acquired for southern Africa 1982 opened 1990 1991 1994 UK Industrial gases Germany Technology 1997/2006 Acquisition plant in Sri Lanka DMW Rostock N-Sensor tool UK Phosyn of Fisons acquired acquired introduced acquired

1990 2000

1986 1990 1991 1996 2000

France CO2 plant in Trinidad Italy Enichem Brazil Cofaz acquired Malaysia Tringen JV Agricoltura acquired Adubos Trevo acquired established acquired 1982 China Chiwan terminal opened WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Contents / 1

Report contents

Performance overview / page 2 CEO message / page 4 Report of the Board of Directors / page 6 Governance / page 16

Management discussion & analysis / page 34 Downstream / page 53 Industrial / page 56 Upstream / page 59 The Yara share / page 65

Financial statements / page 68 Consolidated financial statements /page 69 Financial statements for Yara International ASA / page 127

YARA REPORTING: This Financial Report, together with the separate Impact Review, constitutes Yara’s annual report 2011. Both are available in print and on the web. Annual reports and supplementary corporate information are found on www.yara.com

2005 2007 2008 2010 Australia Finland Innovation Climate Burrup JV Kemira Grow- Crop Nutrition Carbon footprint established How acquired Concept unveiled guarantee launched 2005 2006 2009 2004 AdBlue Mexico Libya

CO2 plant opened Air1 brand Olmeca Lifeco JV in Germany launched acquired established

2010 2012 Yara expands its global capacity with the commencement of production at the Qafco 5 and 6 2004 2005 2007 plants in Qatar, adding to the expansion with Sluiskil Urea 7 in the Netherlands in 2011. In Australia, Yara Technology Africa CO2 Praxair N O catalyst program JV established increased its ownership in Burrup Holding, planning 2 2010 technology unveiled launched the construction of a new plant for the production DEF American of technical ammonium nitrate. 2008 market for Diesel 2011 2006/2007 Canada Exhaust Fluid Sweden Brazil Fertibras Saskferco and (DEF; AdBlue) Petro Miljö acquired Agrico acquired entered acquired WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 2 / yara in brief Yara Financial Report 2011

how we performed

2011 2010 2009 2008 2007

Financial performance Notes 1) EBITDA: Earnings before Interest, Revenue and other income NOK millions 80,352 65,374 61,418 88,775 57,486 Tax, Depreciation and Amortization. Operating income NOK millions 13,240 7,467 1,271 12,281 4,987 2) Investment in property, plant and EBITDA 1) NOK millions 18,163 15,315 5,549 17,917 8,441 equipment, long-term securities, intangibles, long-term advances and Net income after non- investments in equity-accounted investees. 3) controlling interests NOK millions 12,066 8,729 3,782 8,228 6,037 Net interest-bearing debt divided by share­ holders’ equity plus non-controlling interest. 2) Investments NOK millions 3,643 4,373 6,192 16,040 7,797 4) CROGI: Cash Return on Gross Debt/equity ratio 3) % 12 27 56 84 42 Investment (12 month rolling average). 5) ROCE: Return On Capital Employed Cash flow from operations NOK millions 7,363 7,093 11,925 3,986 4,305 (12 month rolling average). CROGI 4) % 20.9 17.4 8.5 22.9 16.1 6) Yara currently has no share-based ROCE 5) % 25.8 20.6 7.4 29.0 22.4 compensation program that results in a dilutive effect on earnings per share. Earnings per share 6) NOK 41.99 30.24 13.08 28.27 20.60 7) TRI: Number of Total Recordable Injuries Total equity NOK millions 44,779 35,334 28,863 29,638 21,141 per million hours worked. 2007–2009 figures are for Yara employees only; 2010–2011 also Share price on OSE NOK 31 December 240.0 337.5 263.70 148.75 251.50 include contractors. 8) GHG emissions adjusted for new plants.

Social performance Employees Number at year-end 7,627 7,348 7,629 7,971 8,173 TRI rate 7) Per million hours worked 4.0 3.8 2.7 3.5 3.3

Environmental performance

8) GHG emissions Million tons CO2 eq. 11.2 13.1 12.5 16.0 16.4 Energy use Petajoule 219 223 208 207 191

our strategic goals

safety Profitability Relative competi­ Overall growth Cash returns 1 Yara’s goal is to be 2 Yara’s goal is to 3 tiveness and solidity 4 Yara’s goal is to 5 Yara’s goal is that a leading performer in the deliver a Cash Return On Yara’s goal is to deliver a increase its own-produced cash return to shareholders area of worker safety, with Gross Investment (CROGI) Gross Return (EBITDA/Total and JV sales volumes by should average 40–45% of a targeted accident rate as of more than 10% as an Assets) in the top quartile 8 million tons from 2010 net income, with dividends at close to zero as possible. average over the business of its peer group and to to 2016. a minimum 30% over the busi­ cycle. maintain an investment ness cycle. Share buybacks grade credit rating. will constitute the rest. 41.99 + 38% NOK

2011 earnInGs per share were 2011 net InCome after non-controlling a record-high NOK 41.99, up from interests was NOK 12,066 million, com­ NOK 30.24 in 2010. pared to NOK 8,729 million in 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 yara in brief / 3

What we did 2011

Yara entered an agreement with the leading Moroccan company Yara’s Annual General Meeting in May approved a dividend of OCP S.A. in December, to establish a 50/50 JV in Brazil, further NOK 5.50 per share, and renewed the authorization of the Board strengthening its already strong platform in this growth market. of Directors to acquire own shares. read more: Management discussion & analysis / page 43 read more: Report of the Board of Directors / page 14 Yara officially opened the new Urea 7 plant at Sluiskil, the Netherlands, Yara reduced its ownership in some ventures during 2011, including in October. With an output of 3,500 tons of urea a day, this plant its 37.7% stake in Yaibera Holding (‘Rossosh’) in Russia, and its 49% increases production capacity and supplies a vital raw material for the stake in JSC Nordic Rus Holding. In October, Yara signed an agree­ growing environmental solutions segment. The new plant has state­ ment with Praxair, Inc., reducing its ownership in the JV Yara Praxair of-the-art resource efficiency and heavily reduced emission levels. Holding AS from 50 to 34%, with a gain of NOK 309 million. read more: Management discussion & analysis / page 43 read more: Management discussion & analysis / page 45

Yara entered several new contracts for delivery and distribution of Early 2012, Yara increased its ownership share of the Australian its AdBlue solution to leading oil and truck companies. Yara opened JV Burrup Holdings Limited to 51%, with Apache Energy holding a new terminal for Diesel Exhaust Fluid (DEF) in Texas, and a the remaining 49%. The company was renamed Yara Pilbara, US Gateway terminal in Louisiana in November. marking a more active role for Yara in the region. read more: Management discussion & analysis / page 45 read more: Management discussion & analysis / page 42

Yara signed an agreement – acquiring Petro Miljö, the world leader On 20 February 2011, production in the Libyan JV plant, Lifeco, in Selective Non Catalytic Reduction (SNCR) technology in October was suspended due to the unrest in the country. This safeguarded – as a first step towards adding a vital dimension to existing business employees and the plant, and lead to a loss of NOK 131 million based on the supply of NOx abatement reagents. in 2011. read more: Management discussion & analysis / page 58 read more: Management discussion & analysis / page 60

read more: Strategic goals / page 48

Creating Impact Innovation Environment Growth in low- human resource 6 Yara’s goal is to 7 Yara’s goal is to 8 Yara’s goal is to 9 cost gas supply 10 Management positively address major develop an innovation be among the most energy Yara’s goal is to increase its Yara’s goal is to optimize the global challenges, shaped by culture to set the standard efficient in the industry, and proportion of production in management of our people, three focal areas: resources, for both products/solutions to reduce greenhouse gas low-cost gas regions in order to ensure that the company food and environment. and improvement of emissions by 45% from to reduce the average pro­ continues to have the skilled operations. 2004 to 2013. duction cost of its fertilizer and engaged workforce it will products. need to meet future business challenges. + 2,848 + 24% NOK million

2011 ebItda ended at NOK 18,163 2011 delIverIes of environmental million, compared with NOK 15,315 solutions increased by 24%, compared million in 2010. with 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 4 / Ceo Yara Financial Report 2011

CEO JøRGEN OlE HaslEstad Best year so far

yara had its best year so far in 2011. Yara’s revenues and net income levels were at an all-time high, mainly reflecting higher margins. The margins’ increase was supported by healthy farming profits and by Yara’s strategy to leverage our portfolio and crop nutrition knowledge, increasing sales of premium products and to cash crop segments.

The sTronG fundaMenTals in the agricultural markets Our JV in Libya, Lifeco, halted production in February 2011 are underscored by the FAO’s Food Price Index, which on average following the unrest in the country. We aim to restart the plant was at a higher level in 2011 than in 2008, the year of the food price during 2012. crisis. The increased margins more than offset a slight reduction in total volumes and increased energy prices. Looking forward, we are exploring the opportunity to expand our Belle Plaine plant in Canada. If conditions are right, this can also In 2011, I updated Yara’s strategic growth goal. Volumes shall be a large scale add-on to Yara’s capacity. increase by 8 million tons by 2016, about a 40% increase of our total volumes. This ambitious target will be reached through a The fundamental factors which pull the fertilizer market, such as combination of growth initiatives. Optimization of production population growth and dietary changes, provide strong support processes, step growth and brownfield and greenfield expansions for Yara’s fertilizer products. Assuming continued growth in will all be taken into consideration. global food consumption, the world needs another record grain crop in 2012 in order to prevent a further decline in inventories. Last year, several expansions were finalized or ongoing. The Qafco 5 and 6 expansions come into production during 2012. Our Dutch The combination of severe weather conditions, financial turmoil plant, Sluiskil, finalized a urea expansion on schedule, under and price volatility in agricultural markets is likely to remain budget. This Urea 7 plant adds 500,000 tons annually, which is part of everyday business life. Interestingly, volatility in energy targeted at the value-added AdBlue/DEF market. and agricultural prices became a new top-five ranked risk in the World Economic Forum (WEF) Global Risks report 2012. The Urea 7 expansion supports Yara’s ambition to grow in the US DEF market. Yara is the leading global provider of the cleans­ Taking these global trends into consideration, Yara has renewed its ing fluid used to remove hazardous NOx emissions from diesel approach, launching the strategic framework ‘Creating Impact’. This engines. This is a global market set to grow as nations worldwide is a framework for identifying and exploring connections between introduce legislation to safeguard human health and reduce business opportunities and benefits for society. environmental impact from combustion processes. We recognize how business solutions and societal interests intersect. Being a front runner means identifying how mutual interest can WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 yara in brief / 5

“ Volumes shall increase by 8 million tons by 2016 ”

Scan this code to see the CEO’s presentation of the annual report.

create a sustainable competitive advantage to Yara. As an example, Growth depends upon trust, and Yara takes pride in being a reli­ using our expertise on nitrogen chemistry to reduce harmful emis­ able partner. Doing business in about 150 countries implies being sions has a positive impact on human health, social economics and involved in markets challenged by lack of governance principles. We Yara’s business. have chosen to adhere to a Code of Conduct which describes how we want to do business responsibly. When I assumed position as The scope of Creating Impact is to create value for shareholders, cus­ President and CEO of Yara, I strengthened efforts by establishing a tomers, employees and society at large – while creating a sustainable Compliance and Ethics unit to intensify efforts on ethical behavior. competitive edge for Yara. This provides Yara with a framework for its engagement at the World Economic Forum, the G20 summits In 2011, Yara reported two potential cases of criminal offenses to and similar high-level venues. Here, we contribute our knowledge the Norwegian National Authority for Investigation and Prosecu­ towards global leadership on sustainable development of agricul­ tion of Economic and Environmental Crime (Økokrim). To make ture. Our message is that agriculture needs to improve yield levels, sure Yara gets to the bottom of these cases, we also initiated an but this must be done sustainably. We need more crop per drop of external investigation. I enforce a strict standard on compliance. water, using fertilizer and land areas more efficiently. I want growth – sustainable growth – reflecting my belief that high We have defined three focal areas; food, resources and environment. social and ethical performance lead to high financial performance. Within these Yara has a position and a knowledge base which pro­ vides opportunities. As a contributor to finding solutions on global food security, environmental issues and efficient use of resources, we will harvest volumes, margins and new opportunities.

JørgEN OLE HAsLEsTAd President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 6 / report of the board of directors Yara Financial Report 2011

Quick overview

durInG 2011, Yara delivered its highest annual result so far. Continuously employing its strong platform, unique busi­ ness model and unrivalled global presence, Yara is well positioned to leverage strong fundamentals in the agricultural markets. With mineral fertilizer demand remaining strong through 2011, we achieved our best revenues and income so far. 2011 exceeded the previous record year of 2010 and strengthened Yara’s financial position. Safety remained an operational priority, as did compliance, with strict ethical guidelines.

EARNINGS PER SHARE NOK, earnInGs 2007–2011 per sHare

2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 report of the Board of directors / 7

capitalizing on its unique platform, Yara achieved its highest annual result so far report of the board of directors

Core content

In tHIs seCtIon: Strategy page 8 / Market conditions page 9 / Financial performance and operations page 10 / Risk management page 11 / Creating Impact page 11 / Health, environment and safety page 12 / People develop­ ment page 13 / Corporate governance page 13 / Board of Directors and Executive management page 14 / Yara International ASA page 14 / Dividend and buy-backs page 14 / Outlook page 14 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 8 / report of the board of directors Yara Financial Report 2011

REPORT OF THE BOARD OF DIRECTORS 2011 strong earnings and cash flow

in 2011, yara achieved its best annual result so far, exceeding the previous record year of 2010 and continuing the strong trend for global agricultural markets which began in the previous year and kept fertilizer demand and prices strong also in 2011.

The Board of Directors believes that the long-term fundamentals 20% of global ammonia trade. Historically, the majority of Yara’s of fertilizer demand will remain strong, as a growing and increas­ production system has been located in Europe. However, the com­ ingly prosperous world population continues to improve its diet. pany’s growth initiatives in recent years have extended its presence More and better fertilizer usage is a crucial element of achieving into other markets and regions around the world. sustainable improvement in agricultural productivity. With its global market presence and product portfolio, Yara is well posi­ Yara has developed a global presence unrivalled in the fertilizer tioned to meet the demand for greater agricultural productivity industry, with a global distribution and marketing network and to address the growing challenges of climate change, air including more than 200 terminals, warehouses, blending plants pollution and water scarcity. and bagging facilities located in more than 50 countries. Yara has built a knowledge margin in the market, based on its insight Yara’s growth ambitions are built on attractive long-term market into local markets, close customer relations, agronomic expertise fundamentals, a proven track record of profitable growth initia­ and ability to develop new product offerings from its extensive tives and a flexible and scalable business model. However, Yara production base. will continue to be patient in pursuing growth, aiming to pick the best opportunities at the right time. Building on its comprehensive knowledge base, Yara is stepping up its innovation efforts. The company’s R&D has created innovative STRATEGY crop nutrition concepts and environmental solutions that position Yara is a company that focuses on the production, distribution Yara well in growing markets. In the future, innovation will drive and sale of nitrogen chemicals. The main application is fertilizers, Yara’s ability to thrive on the business opportunities involved while industrial uses are also an important and faster-growing in solving major global challenges, such as those of food security segment. Yara employs its scale, flexibility and global presence to and climate change. One element of this is the need for innovative ensure reliable supplies of mineral fertilizer and related industrial concepts that can close the growing gap between food demand and products to customers worldwide. Yara is headquartered in Oslo, supply, for a future global population of more than nine billion. Norway and is listed on the Oslo Stock Exchange. Closing the existing yield gap and doubling agricultural production by 2050 requires improved agricultural productivity – based on Yara benefits from scale: it is the world’s largest producer of ammonia, sustainable, knowledge-based solutions. In 2011, Yara’s R&D costs nitrate and complex NPK fertilizers, and carries out approximately were NOK 123 million, compared with NOK 102 million in 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 report of the board of directors / 9

Yara’s global footprint, both in terms of production assets and – expected for completion during 2012. Yara has a 25% ownership market presence, delivers industry-leading flexibility, meaning share in Qafco and currently markets approximately 50% of the that challenging conditions experienced by an individual plant company’s urea production. or market can normally be mitigated through sourcing or sales arbitrage within the wider Yara system. The majority of Yara’s Yara continued to deliver on its growth ambitions during 2011. operational cash costs are variable, as purchases and plants are A new world-scale urea plant replacing old assets started up at adjustable at short notice in the event of delivery slowdowns. the Sluiskil production site in the Netherlands in July 2011, with Increased energy costs in Europe can be mitigated by import­ a total investment cost of EUR 400 million. The plant increases ing instead of producing ammonia: Yara is the global leader Yara’s urea capacity by approximately 500,000 tons per year, in ammonia trading and shipping and most of the company’s taking advantage of urea upgrading margins on excess ammonia European production facilities have access to deep-sea import/ capacity in Sluiskil. The new plant also improves the site’s energy export terminals for ammonia. Yara also has the world’s largest efficiency, environmental performance and maintenance costs. fertilizer storage capacity. This means that the company can build up stocks before peak periods, to cope with delivery volatility and During 2011, Yara announced further brownfield expansion pro­ take advantage of geographical arbitrage opportunities. jects within its existing asset base. In Belle Plaine (Canada) Yara is studying a potential world-scale ammonia/urea expansion, and Yara has firm growth ambitions, to continue realizing profitable in Porsgrunn (Norway) a smaller investment and de-bottlenecking growth based on its track record of consistently generated strong program will increase NPK capacity by approximately 300,000 earnings through the business cycle. Yara has a scalable business tons by 2013. In early 2012, Yara increased its share in the Burrup model enabling synergies through improved utilization of its mar­ (Australia) ammonia plant from 35% to 51% and announced a keting and distribution system. Since its launch as an independent Heads of Agreement with Orica and Apache Energy to construct company in 2004, Yara has built an industry-leading track record a 330,000 tons p.a. technical ammonium nitrate facility adjacent to in profitable acquisitions and green/brownfield investments. the existing ammonia plant.

STRONG EARNINGS AND GROwTH OPPORTUNITIES MARKET CONDITIONS Going forward, Yara’s focus on growth opportunities will remain After increasing in through 2010, prices of agricultural com­ combined with strict valuation and capital discipline. When modities remained at a high level during 2011, although declining evaluating growth projects, Yara will always start by assessing modestly through the year. The FAO Food Price Index average for the synergies it can potentially realize, compared with estimated 2011 reached its highest level so far, and exceeded its previous 2008 competitor synergies. Market and business cycle assumptions are peak by 14%. Even the price level at the end of the year exceeded carefully considered and compared with estimates of the seller’s the 2008 average. Despite the very strong incentives to farm on and alternative buyers’ views. Timing is essential in creating more acreage, and to increase fertilizer application in order to value from acquisitions, and we combine a continuous search for increase yields, estimates the US Department of Agriculture that projects with patience and discipline in execution. Yara’s growth grain production during 2011/12 will only match consumption, initiatives focus on increasing the company’s access to competi­ leaving global grain stocks unchanged. Fundamentals for ferti­ tive raw materials, expanding its presence in high-growth mar­ lizer demand remained strong through 2011. However, macro­ kets and participating in consolidation in mature markets. economic turbulence, modestly declining crop prices, and a higher fertilizer price level all contributed to reduced willingness Yara’s production in competitive gas areas will further increase to buy earlier than necessary. Fertilizer markets turned weaker in with the ongoing Qafco 5 and Qafco 6 expansion projects, which the fourth quarter, as normal pre-buying for the Northern hemi­ started in 2007 with the construction of two world-scale ammo­ sphere spring did not take place due to increased risk aversion. nia and urea plants in Qatar – at a total cost of USD 3.8 billion

NET INCOME 15 EBITDA 20 AFTER NON- NOK billion, CONTROLLING 2007–2011 INTEREST 12 16 NOK billion, 2007–2011 9 12

6 8

3 4

0 2007 2008 2009 2010 2011 0 2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 10 / report of the board of directors Yara Financial Report 2011

CROGI 25 ROCE 30 (12-MONTH (12-MONTH ROLLING ROLLING AVERAGE) 20 AVERAGE) 24 Percent, Percent, 2007–2011 15 2007–2011 18

10 12

5 6

0 2007 2008 2009 2010 2011 0 2007 2008 2009 2010 2011

For urea, the supply-demand balance was not only supported by costs significantly compared to one year ago. Elsewhere, North strong demand, but also by stronger restrictions on Chinese urea American fertilizer production continues to benefit from lower exports. From exporting 7.0 million tons in 2010, the official gas prices following the development of new domestic non- number for urea exports reached only 3.6 million tons in 2011. In conventional gas resources. addition, due to strong export taxes, as much as 1 million tons are likely to have been exported either in small bags (<10kg) exempted FINANCIAL PERFORMANCE AND OPERATIONS from export tax, or sold into Vietnam without paying export tax. In Net income was NOK 12,090 million, up 37% from 2010. 2011 addition, exports of fertilizers containing both nitrogen and phos­ earnings per share were NOK 41.99, compared with NOK 30.24 phates increased sharply, adding to nitrogen leaving the country. in 2010. Yara’s after-tax measure for return on capital, CROGI Consequently the tax changes in China supported the urea market (Cash Return on Gross Investment), was at 20.9% compared with more than the overall nitrogen market. The global market price a target of minimum 10% average over the business cycle, and up for urea was largely determined by the balance between Chinese from 17.4% in 2010. Operating income was NOK 13,240 million, supply costs including the tax, and strong demand from the rest of up from NOK 7,467 million in 2010. EBITDA increased to NOK the world. Increased exports came mostly from Iran, due to new 18,163 million, from NOK 15,315 million in 2010. Yara’s revenue plants, and improved capacity utilization in Russia and Ukraine. and other income was NOK 80.4 billion in 2011, up from 65.4 bil­ lion in 2010. Yara’s 2011 results improved significantly from 2010 First half 2011 saw increases in nitrogen fertilizer use both in due to higher prices and margins, more than offsetting higher Europe and North America. As this was anticipated, the addi­ energy prices and lower volumes. Overall fertilizer deliveries were tional supply was to a large extent secured already during second 4% lower than in 2010, with lower second-half sales in Europe half 2010, when Chinese urea was available. So for the calendar only partially offset by stronger sales elsewhere. Average realized year 2011, increased urea imports by India and Brazil are the most nitrate prices were 49% higher than 2010, while realized urea important demand contributors to the tighter market. prices increased 37%. The major positive non-recurring items were generated by the sale of Yara’s share in Rossosh and the part- Due to strong farm economics, demand for phosphate and potash divestment of Yara’s share in Yara Praxair. fertilizers, including NPK, also improved in 2011. But towards the end of the year, the market for these nutrients was negatively The Downstream segment delivered an EBITDA of NOK 5,085 affected by reduced Indian demand, as the Indian Government million, a strong result as a tight fertilizer market improved allowed P and K prices at the farm gate to double during the year. margins and increased sales to premium markets outside Europe. The phosphate market was also negatively affected by significantly Strong global grain prices increased farm margins, lifting ferti­ higher Chinese exports. lizer demand and, subsequently, fertilizer prices during 2011. Realized sales prices were up for all main products. Nitrogen sales for industrial applications have recovered from the decline that followed the financial turmoil of 2008. A major The Industrial segment delivered strong results with an EBITDA growth area is products for NOx-abatement of truck emissions, of NOK 2,001 million, including a gain of NOK 967 million for which was initiated by new European legislation in 2006. Legisla­ the sale of Yara’s 16% ownership in Yara Praxair. The underlying tion along the same lines was implemented in the USA early in EBITDA was 6% below 2010 despite the 7% volume increase,

2010, creating a new and rapidly growing market for Yara’s prod­ which did not compensate for the loss in margins in CO2 and ucts. The trend remains strong, with more countries preparing environmental products. similar regulations. The Upstream segment delivered an EBITDA of NOK 11,446 mil­ The broad economic recovery, along with recent unrest in North lion, an increase of 92% from 2010. The result reflects the increase Africa and the Middle East, has increased European oil and gas in prices for all products, which more than offset the negative WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 report of the board of directors / 11

effect of higher energy cost. Finished fertilizer production volumes On 1 March 2012 Yara signed a heads of agreement with Orica were in line with 2010, whereas ammonia production decreased 9% and Apache via joint venture to build a 330,000 metric tons compared with 2010. The EBITDA includes the one-time gain of ammonium nitrate plant on the Burrup peninsula and to distri­ NOK 1,419 million for the sale of Yara’s share of Rossosh. EBITDA bute ammonium nitrate and other explosives products to mining excluding special items was up 69% compared with 2010. customers in the Pilbara region. Yara will be the operator of the ammonium nitrate plant and Orica will manage the sales and dis­ Net cash from operating activities in 2011 was NOK 7,363 mil­ tribution. Final agreement is subject to concluding negotiations lion, reflecting strong earnings based on a continued strong on the contract for the engineering, procurement and construc­ market situation for Yara’s products. Net cash from operating tion of the ammonium nitrate plant and Board approvals. activities in 2010 was NOK 7,093 million. Net cash from investment activities for 2011 was NOK 431 million, a positive cash flow due RISK MANAGEMENT to proceeds from the Rossosh and Yara Praxair divestments. Yara’s total risk exposure is analyzed and evaluated at corporate level. Risk evaluations are integrated in all business activities, both Yara strengthened its financial position during 2011. The debt/ at corporate and business unit level, increasing Yara’s ability to miti­ equity ratio decreased from 0.27 to 0.12 primarily due to strong gate risk and take advantage of business opportunities. Yara’s most earnings sale. Yara’s net interest-bearing debt at the end of the significant market risk is related to the margin between nitrogen year was NOK 5,539 million, while total assets were NOK 73,900 fertilizer prices and natural gas prices. Although there is a positive million. Total equity attributable to shareholders of the parent long term correlation between these prices, margins are influenced company as of 31 December 2011 amounted to NOK 44,623 mil­ by the supply/demand balance for food relative to energy. lion. At the end of the year, Yara had NOK 5,868 million in cash and cash equivalents and approximately NOK 10,585 million in The Board carries out annual reviews of the company’s most impor­ undrawn committed bank facilities. We consider the company’s tant areas of exposure to risk and its internal control arrangements. cash and financial position to be strong. Reference is made to pages 28–33 in the annual report for a more comprehensive description of Yara’s risk and risk management. In the opinion of the Board of Directors, the consolidated finan­ cial statements provide a true and fair view of the group’s financial CREATING IMPACT performance during 2011 and financial position at 31 December During 2011, Yara reviewed its previous citizenship approach, 2011. According to section 3–3 of the Norwegian Accounting Act, broadening its scope through establishing the Creating Impact we confirm that the consolidated financial statements and the strategic framework. As a strategic ambition, Creating Impact is financial statements of the parent company have been prepared closely connected to the company mission, ‘Better yield’. based on the going concern assumption, and that it is appropriate to make that assumption. Subsequent to the Board’s approval, the Creating Impact approach was launched internally in 2011. It is a business approach building Subsequent events on three interlinked dimensions, mutually reinforcing each other On 1 February 2012, Yara acquired additional 16% of Burrup in a virtuous cycle: competitive advantages, value creation and Holdings Limited (BHL) for USD 143 million, increasing its own­ creating impact. ership share in the company to 51%. Yara will consolidate BHL and its subsidiaries from the acquisition date, including possible Yara creates value by executing the company’s strategy for profit­ goodwill, and measure all identifiable assets acquired and liabili­ able and sustainable growth. Sustainable value creation in a global ties assumed at their acquisition-date fair values. industry and competitive world market depends on competitive advantages. In the case of Yara, these derive largely from the

DEBT/EQUITY 100 EARNINGS 50 RATIO PER SHARE Percent, 80 NOK, 40 2007–2011 2007–2011

60 30

40 20

20 10

0 2007 2008 2009 2010 2011 0 2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 12 / report of the board of directors Yara Financial Report 2011

or lower. The TRI rate includes lost-time injuries, restricted work cases where employees and contractors were allowed to carry out * TRI RATE 5 work different from their normal duties, and medical treatment Total Record- able Injuries cases. The LTI rate (Lost-Time Injuries per million hours worked) per million 4 hours worked, for Yara employees and contractors ended at 1.80, a slight increase 2007–2011 3 from 2010. Yara’s ultimate goal is zero injuries. The company’s accident rate is half the average for European fertilizer producers. 2 Absence due to illness at Yara’s production plants was 3.6% in

*) 2007–2009 figures 2011, slightly higher than the 3.5% in 2010. 1 are for Yara em­ ployees only; 2010– 2011 also include 0 2007 2008 2009 2010 2011 Yara experienced three serious accidents in 2011, of which one had contractors. a fatal outcome. In Brazil, an electrician received a lethal electri­ cal shock during work on a panel that had not been de-energized and locked out according to procedures. Yara works continuously company’s unique business model, global position and extensive and systematically to enforce strict operating procedures, conduct­ knowledge assets. ing extensive employee training and audit programs, to prevent accidents from occuring. Creating value allows Yara to create impact: to develop improvements along its own value chain, to drive improvements in the industry’s In 2011, the company upgraded and strengthened technical and overall performance, and to contribute solutions to major global chal­ operational procedures for contractors, who have historically lenges, impacting on society and delivering on the company mission. been more prone to undesired incidents than Yara employees. Yara also continued to develop the BBS (Behavior-Based Safety) By adding the Creating Impact dimension, Yara further explores program, focusing on better employee safety performance the opportunities arising from addressing and contributing towards feedback, and strengthening management commitment through societal benefits which are linked to Yara’s core business, position more safety walks. The Upstream segment proceeded to focus on or knowledge. By making these interconnections, Yara will create operational discipline, including new training initiatives for engi­ sustainable competitive advantages. neers, leaders, supervisors and operators, and technical safety in » See separate Impact Review its Process Safety program, while Yara continued to raise safety awareness and improve reporting and hazard identification in the HEALTH, ENvIRONMENT AND SAFETY Downstream and Industrial segments. Yara has a strong track record with respect to health, environ­ mental and safety performance. The company has a longstanding As to managing environmental impacts, Yara continues to reduce commitment to workers’ safety, founded on the belief that every its carbon footprint. The company’s goal has been to reduce accident is preventable. This forms the basis for a strong safety greenhouse gas (GHG) emissions by 45% by 2013 compared to program within the company. Similarly, Yara works systemati­ a 2004 baseline. Yara reached this goal in 2010 and maintained cally to reduce the environmental impacts of its operations and the achieved level with some further improvements in 2011. In to contribute to environmental improvements in agriculture and 2011, the level of greenhouse gas emissions was reduced a further the transportation and industrial sectors. 15% from the previous year, though partly due to closure of the Lifeco plant. In 2011, Yara achieved a TRI rate (Total Recordable Injuries per million hours worked) of 4.0 for employees and contractors com­ All of the company’s nitric acid plants have installed Yara’s

bined, up from 3.8 in 2010 and above the target of a TRI at 3.5 N2O catalyst technology, or similar technology, which reduces respective GHG emissions by up to 90%. Yara will meet the new requirements for nitric acid plants under the EU Emissions Trading System (EU ETS) coming into force in 2013 by having

GHG 25 installed such reduction technologies. The company will continue EMISSIONS VS TARGETS investments in its ammonia plants, pursuing higher energy and 20 Target 2013: Million ton of 53% down cost efficiency as well as lower emissions. CO equivalents, 45% down 2 vs 2004 adjusted for new plants 15 In 2011, Yara’s total energy consumption in production was 219 Target 10 Actual million GJ, a 2% decrease from 2010. Energy consumption per ton

*) of finished product also continued to decrease. 0.7 of the 1.9 mill 5 tons CO2e reduc­ tion from 2010 are attributable to the 0 2004 2010 2011* 2013 Yara’s operations are subject to many environmental require­ closure of produc­ tion in Lifeco. ments under the laws and regulations of the various jurisdictions in which the company conducts its business. Such laws and regu­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 report of the board of directors / 13

lations govern, among other matters, air emissions, wastewater In 2011, Yara upgraded the workforce planning processes and discharges, solid and hazardous waste management, product launched a global recruitment process that have a specific focus on labeling, transportation of hazardous materials and remediation monitoring and promoting diversity, including gender diversity, of past activities. Yara has successfully completed the registration in the organization. An open and transparent job market where of substances under the REACH Regulation (Registration, Evalu­ all vacancies are advertised internally is also part of our efforts to ation, Authorization and Restriction of Chemicals), and is now promote diversity and mobility in the organization. revising packaging and labeling for compliance with national and international requirements. As part of a Key Talents program, Yara HR launched a High Poten­ tials program in August. Thirteen young professionals, between 27 In 2011, no material legal claim was made against Yara regarding and 34 years old and representing 11 nationalities, were selected environmental issues. based on merit and potential. This is a rolling program, with annual uptake and exits, where the High Potentials are followed Yara has a number of facilities that have been operated for long closely over a period of 2–3 years and are expected to hold 1–2 periods of time. They may require remediation or generate liabili­ development positions within that period. ties under the laws of the jurisdictions in which the facilities are located. Yara examines such impacts where they are apparent and While employees are responsible for their own life and develop­ executes remediation or containment procedures, in coordination ment, managers have a critical role in ensuring that all Yara’s with the appropriate authorities. Provisions of NOK 209 million people can perform to the best of their abilities. Managers at all have been made for other clean-up activities of former activities in levels are the ultimate stewards of talent in Yara. Therefore special several locations, of which NOK 55 million were allocated in 2011. emphasis is placed on people management.

PEOPLE DEvELOPMENT Altogether, we believe that having efficient performance and Yara recognizes that the company is only as good as the combina­ talent management processes will enable us to identify, develop, tion of its people and products. Yara is the world’s largest supplier deploy and recruit the talent we need across the world and, at the of mineral fertilizers, the largest supplier and trader of ammonia, same time, meet individual employees’ expectations for reward­ and the global leader in a wide range of chemical products – thanks ing work and personal development. to its talented employees. CORPORATE GOvERNANCE Yara is a workplace where people develop. For this to continue Proactive and transparent corporate governance is crucial for to happen, the talent management processes need to evolve and aligning the interests of shareholders, management, employees and improve constantly, as described in the Talent Management other stakeholders. Yara believes that good corporate governance Framework that was launched in 2010. In 2011, Yara provided drives sustainable business conduct and long-term value creation. nearly 3,000 employees around the world with access to the Human Resources Information System (HR IS), initiated a new The Board of Directors and Executive Management of Yara Inter­ Talent Development process, improved its Workforce Planning national ASA review its corporate governance principles annually, process, launched a High Potentials program, tested a new reporting in accordance with the Norwegian Accounting Act § 360-degree feedback tool and rolled out an IS supported Perfor­ 3–3b and the Norwegian Code of Practice for Corporate Govern­ mance Management Process. ance dated 20 October 2011.

In order to focus on the development of our employees, Yara has Yara’s Board of Directors has decided to comply with the Nor­ designed a new Talent Development Mid-Year Review process, wegian Code of Practice for Corporate Governance, last updated supported by a new HR IS tool. Over 1,200 employees on all con­ 20 October 2011. The Code contains stricter requirements than tinents and in all business segments took part in the pilot project. mandated by Norwegian law. They tested and evaluated the different components; the process, » Corporate governance / page 22 Yara’s competency model, the HR IS tool and the communica­ tions and training activities. Based on the valuable feedback In April 2011, Yara decided to initiate an external investigation and insights Yara will change and improve the various elements related to the establishment and follow-up of it’s interest in Libyan before the full global roll-out in 2012. Norwegian Fertiliser Company (Lifeco). In parallel, Yara notified The Norwegian National Authority for Investigation and Prosecu­ The Workforce Planning process ran globally on all levels for the tion of Economic and Environmental Crime (Økokrim) of the pos­ second year in row. The outcome was a clearer view of the need for sibility that criminal offenses may have occurred before October succession planning, competency development, and recruitment. 2008 in connection with the negotiations preceding the company’s This provided valuable input to short and longer term plans, with investment in Libya. Yara subsequently widened its investigation an increased focus on gender and diversity. The Yara GRI report to comprise other issues, including an earlier unrealized project (available on yara.com/GRI) provides some details about Yara’s aimed at establishing a joint venture in India, and an initial inves­ performance on diversity metrics. tigation uncovered a payment of USD 1 million to a third party. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 14 / report of the board of directors Yara Financial Report 2011

Økokrim launched an investigation following these notifications in 2010). Net foreign exchange gain was NOK 85 million com­ from Yara, and subsequently charged the company with violation pared to NOK 325 million in 2010. of the Norwegian penal code paragraph 276a, cf paragraph 276b. DIvIDEND AND BUY­BACKS During 2012 the investigation has uncovered unacceptable Yara expects to return 40–45% of net income to its shareholders, payments from the company’s former associated entity in Swit­ measured as the sum of dividends and share buy-backs, averaged zerland. The Norwegian National Authority for Investigation and over the business cycle. As long as Yara can maintain profitability Prosecution of Economic and Environmental Crime (ØKOKRIM) at the attractive level achieved since the IPO, a dividend level that has been notified of the new findings. Further investigations are restricts Yara’s growth will not be desirable. now taking place to clarify how such payments have been carried out and authorized. The main findings will be published when the Yara’s dividend policy is to pay out a minimum 30% of net income investigation report is finalized. as an average over the business cycle. Yara believes it will be beneficial for shareholders that the Company strives for a gradual In June 2011 the Yara Board of Directors created an Ad Hoc increase and predictability in the absolute dividend level over Committee to follow up the investigations described above. The time, independent of the business cycle. committee will follow up and communicate with management, the externally appointed investigator and external legal counsel. The Board proposes a dividend of NOK 7.00 per share, a 27% The Ad Hoc Committee reports on its work at every Yara Board increase from 2010, totaling a payment of NOK 1,998 million meeting, and all decisions are made by the full Board of Directors. based on outstanding shares at the date this financial statement was authorized for issue. Combined with the positive result in BOARD OF DIRECTORS AND ExECUTIvE MANAGEMENT Yara International ASA and other effects, this results in a net Yara’s Board held twelve meetings in 2011. Three of the eight Board reduction in equity of NOK 934 million. Distributable equity in members are women. The Board is made up of five shareholder- the parent company as of 31 December 2011 was NOK 3,615 mil­ elected members and three employee-elected members. The five lion after proposed dividend. shareholder-elected members all have extensive line management experience from international industrial companies. Two of Yara will use share buy-back programs when certain conditions the three employee-elected Board members were re-elected in are met. Share buy-backs are more flexible than dividends. For February 2011, and Kristine Haukalid was elected as a new board most shareholders, buy-backs also provide tax advantages com­ member. pared to dividends. In 2011, Yara bought back and redeemed shares for a total of NOK 763 million. Yara has decided not to constitute a corporate assembly. Conse­ quently, the Board of Directors is directly responsible to the General In total, Yara paid out NOK 2,347 million in 2011 in dividends Meeting and the shareholders. A Compensation Committee was and share buy-backs, representing 27% of net income in 2010. The established in April 2004 and an Audit Committee was established proposed 2011 dividend represents 17% of net income and 20% in December 2006. of net income excluding net foreign exchange gains and special items. YARA INTERNATIONAL ASA The parent company Yara International ASA is primarily a holding OUTLOOK company, with financial activities and non-material operations. Global agricultural markets are strong. Although the FAO Food Yara International ASA had net income of NOK 1,903 million in Price Index ended the year 7% lower than the average for 2011, the 2011, down from NOK 4,697 million in 2010, after dividends and latter was still 6% higher than the average index for any other group relief from subsidiaries of NOK 1,796 (NOK 3,799 million calendar year. The price index increases reflect tight markets for a broad range of agricultural products, and create strong incentives to increase agricultural productivity. Assuming continued growth in global food consumption, the world needs another record grain crop in 2012 in order to prevent a further inventory decline.

DIVIDENDS 8 NOK per share, 2007–2011 Improved agricultural prices in 2011 led to strong fertilizer

Graph textGraph 6 demand during application season for all regions. However, the second half of the year saw lower Northern hemisphere pre- 4 buying activity for spring 2012 application, likely impacted by macroeconomic turbulence, modestly declining crop prices, and 2 a higher fertilizer price level. Nitrogen fertilizer industry deliver­ Graph text ies in Western Europe for the first half of the 2011/2012 season Graph text 0 2007 2008 2009 2010 2011 were 18% behind a year earlier, following strong deliveries at the end of the 2010/2011 season and low pre-buying activity in the WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 report of the board of directors / 15

current season. European deliveries have picked up since Decem­ ramping up during first and fourth quarter 2012 respectively. The ber, and Yara expects normal European nitrogen consumption in Lifeco joint venture plant remains closed while preparations are 2012. The supply of nitrogen fertilizer is limited, and the global made for a safe return to normal operation. Yara is targeting a nitrogen fertilizer industry outside China is already running at third-quarter start-up, with full production by end 2012, contingent full capacity as all producers have positive margins. Furthermore, on natural gas supplies being available by the summer. new exportcapacity start-ups during 2011–2015 and are expected to be in line with historical trend consumption growth. There is significant potential for high price volatility in the markets for agricultural commodities where supply is limited and custom­ China has implemented a 110% urea export tax, effective from ers have a low sensitivity to price changes. Weather-related set­ 1 November 2011 through June 2012. Urea export volumes from backs in agricultural production could further increase fertilizer China were halved in 2011 compared with a year earlier, following demand, while a significant drop in agricultural prices, e.g. in the the introduction during the year of a stricter export tax system event of improved harvest prospects, could lead to a temporary also for the low-season period 1 July – 31 October. A similar slow-down in fertilizer deliveries. However, a substantial harvest progressive export tax mechanism has been announced for the increase in the 2012/13 season will be required merely to avoid a same period in 2012, which at February domestic urea price levels decline in inventories. would indicate a swing export price around USD 400 per ton fob China from 1 July 2012. A majority of Yara’s dry raw material purchases are re-negotiated annually. While these costs are typically recouped in Yara’s finished Nitrate fertilizer prices increased in 2011 compared with a year fertilizer sale prices over time, the company expects to record a earlier, reflecting both stronger nitrogen prices and a continued smaller negative impact in its 2012 results compared to 2011, partly healthy crop price level. Nitrates continue to command a price as a result of rising phosphate rock prices during the year. Yara’s premium over urea due to their agronomic benefits, and the size energy costs are projected to increase in first half of 2012, compared of the premium is largely linked to the strength of farm margins with a year earlier based on current (8 March) forward markets for and thereby crop price levels, particularly wheat prices for Yara. oil products and natural gas.

Based on the current strength of nitrogen prices, Yara aims to run The necessary level of investment needed to maintain current its fertilizer production facilities at full capacity. On this basis the capacity and productivity is estimated to be NOK 2 billion per year. company will increase production in 2012, with the urea expansion In addition, Yara plans approximately NOK 1 billion of continuity in Sluiskil fully on-stream following start-up in third quarter and reliability investments per annum in the next 2–3 years. 2011 and the Qafco 5 and Qafco 6 ammonia and urea expansions

The Board of Directors of Yara International ASA Oslo, 22 March 2012

Øivind Lund Elisabeth Harstad Leiv L. Nergaard Hilde Merete Aasheim Chairperson Board member Board member Board member

Bernt Reitan Geir O. Sundbø Kristine Haukalid Svein Flatebø Board member Board member Board member Board member

Jørgen Ole Haslestad President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 16 / Governance Yara Financial Report 2011

Quick overview

durInG 2011, Yara followed up on its business conduct. By continuously ensuring compliance with our strict guide­ lines for corporate governance, including our Code of Conduct, and improving our risk management process, we reduce risk, explore business opportunities and create value. International political as well as financial affairs, such as the Arab spring and the Eurozone turmoil, affect our business environment, adding elements of uncertainty to strategic assess­ ments of future scenarios. Throughout 2011, we intensified our focus on improving risk mitigation in our operations. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 17

strengthening corporate governance, Yara drives long-term value creation governance

Core content in This seCTion: Board of Directors page 18 / Executive management page 20 / Corporate governance page 22 / Risk management page 28 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 18 / Governance Yara Financial Report 2011

Board of Directors 2011

1 ) 4 )

2 ) 3 )

1 ) Øivind lund 3 ) Elisabeth Harstad Chairman of the Board since 2004 Member of the Board since 2006 Chairman of the Compensation Committee Member of the Compensation Committee Member of the Ad Hoc Committee Member of the Ad Hoc Committee

Dr. Lund (born 1945) has broad international industrial experience, Ms. Harstad (born 1957) is EVP in DNV KEMA, based in Netherlands. having held the position of President and Country Manager of ABB From 2006-12, she was Managing Director of DNV Research & Innova­ Holding AS, Turkey 2003–06; Senior VP and Group Function Manager, tion, Norway, and from 2002–06 COO for the DNV business area Tech­ ABB Asea Brown Boveri Ltd, Switzerland 2001–03; President of ABB nology Services. She previously held several senior positions within DNV’s AS, Norway 1998–2001. Previously, he held senior management posi­ oil, gas and process industry activities, 1993–2006. She holds an M.Sc tions with ABB National Transformer AS, Norway; ABB Transformers degree in Engineering from the Norwegian Institute of Technology (NTH). AB, Sweden; Tanelec Ltd., Tanzania, and National Industri AS, Norway. Ms. Harstad is a board member of TGS-NOPEC. He holds an M.Sc and a Ph.D degree in Electrical Engineering from the Norwegian Institute of Technology (NTH) and a degree in Industrial Economy from BI Norwegian School of Management. Dr Lund is Chair­ man of the Board of Maracc ASA. 4 ) Bernt reitan Member of the Board since 2009 2 ) Leiv L. nergaard Member of the Audit Committee Member of the Board since 2004 Mr. Reitan (born 1948) was Executive Vice President (EVP) and member Chairman of the Audit Committee of Alcoa’s Executive Council until he retired in 2010. Reitan had manage­ Chairman of the Ad Hoc Committee ment responsibility for Alcoa’s Global Primary Products Group and Alcoa’s Materials Management (metal purchasing, trading and transportation). Mr. Nergaard (born 1944) is a partner in the consulting company Norscan Prior to joining Alcoa, where he held several key management positions Partners AS, Norway. He has held several senior management positions before being elected EVP in 2004, Mr. Reitan held a series of positions within Norsk Hydro ASA, including CFO of Hydro, 1991–2002; CEO of Hydro, at Elkem ASA, Norway, including Corporate Management 1988–2000 Germany 2002–03 and advisor to Hydro corporate management, 2003– and Managing Director of Elkem Aluminum ANS from 1988. He holds an 06. He holds a degree in Business Economics from the Norwegian School M.Sc degree in Civil Engineering from the Norwegian Institute of Tech­ of Economics and Business Administration (NHH). He is a board member of nology (NTH). Mr. Reitan serves on the board of Royal Caribbean Cruise Endeavour International Corporation, Houston, as well as Chairman of the Lines and REC ASA, and he is Co-Chair of the board of the American Board for some smaller companies. Mr. Nergaard is vice-chairman of the Scandinavian Foundation (ASF) in New York. board of the Norwegian-German Chamber of Commerce and Senior Advisor to Greenhill & Co. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 19

6 ) 8 )

5 ) 7 )

5 ) Hilde Merete aasheim 7 ) Geir O. sundbø Member of the Board since 2010 Member of the Board since 2010 Member of the Audit Committee Mr. Sundbø (born 1963) has been a Yara (Hydro) employee since 1987. Mrs. Aasheim (born 1958) is Executive Vice President (EVP), Primary He has been actively engaged in union matters in the Porsgrunn plant Metal in Hydro. Prior to that she served as EVP for the Aluminum Metal since 1989. He is Deputy Chairman of the local union chapter in Herøya business area in the same company. Aasheim joined Hydro in October Industripark Porsgrunn and union chairman of Yara Porsgrunn. He is also 2005 as EVP for Leadership and Culture (human resources, health, en­ a member of the executive committee of the IndustriClusteret Grenland vironment, safety and corporate social responsibility). When Hydro’s oil (ICG). Sundbø has been a certified TQM supervisor since 1990. Since and gas activities were merged with Statoil in 2007, Aasheim headed the 2009, he has been secretary of the European Works Council (EWC) of integration process. Between 1986 and 2005, she held several senior Yara. He is also secretary of the control committee in National Trade positions in Elkem. Aasheim holds a Master’s degree in Business Eco­ Union of Industrial Energy since 2010. nomics from the Norwegian School of Economics and Business Admin­ istration (NHH) in Bergen and is also an accredited public accountant. Aasheim has also work experience with Arthur Andersen & Co. 8 ) Kristine Haukalid Member of the board since 2011 6 ) Svein Flatebø Mrs. Haukalid (born 1955) has been a Yara (Hydro) employee since 1980. Member of the Board since 2007 She currently holds the position of Department Manager of Logistics at Yara’s site in Glomfjord, Norway. She is a chemical engineer with a Member of the Compensation Committee degree from Oslo University College. She has been a board member in The Norwegian Engineers and Managers Association since 2002, and as Mr. Flatebø (born 1952) has been a Yara (Hydro) employee since 1981. of 2009 she is a board member of the service provider company Meløy Presently in Corporate Communication, he has also held leadership BedriftsService AS. positions within strategy planning, global planning and optimization, R&D, purchasing and other areas. He holds an M.Sc degree in Chemical Engi­ neering from the Norwegian Institute of Technology (NTH). Flatebø has been a board member of The Norwegian Society of Chartered Scientific and Academic Professionals (Tekna) in Yara since 2006; Chairperson of Yara Tekna since 2007. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 20 / Governance Yara Financial Report 2011

executive management 2011

1 ) 2 ) 3 ) 4 )

1 ) Jørgen Ole Haslestad 3 ) Tor Holba President and Chief Executive Officer Head of Upstream

Mr. Haslestad (born 1951) has served as President and CEO since Octo­ Mr. Holba (born 1956) has served as Senior VP Head of Upstream since ber 2008. Previously he held several senior management positions in October 2006. His previous position in Yara was SVP Downstream, 2003– Siemens AG, 1994–2008, most recently as CEO of the Group’s Industry 06. Prior to that he held numerous positions in Hydro from 1981, including Solutions Division, Germany. Before joining Siemens, he served as Mana­ SVP of Global Supply Chain Management, 2001–03; President of Trevo, ging Director of Kongsberg Offshore AS, Norway, 1986–94; Project Engi­ 2000–01; Head of Business Unit Latin America, 1998–2000; President of neer and Project Manager of the oil division, Kongsberg Vaapenfabrikk AS, Hydro Agri Mexico 1993–97; Regional Marketing Director for Asia and Man­ Norway, 1980–86. He holds an M.Sc degree in Mechanical Engineering aging Director of Hydro (Far East) Ltd., 1991–93. Mr. Holba holds an M.Sc in from the Norwegian Institute of Technology (NTH). Mr. Haslestad served Mechanical Engineering from the Norwegian Institute of Technology (NTH). as a board member of Yara, 2004–08.

4 ) Egil Hogna 2 ) Hallgeir storvik Head of Downstream Chief Financial Officer and Head of Strategy Mr. Hogna (born 1971) has served as Senior VP Head of Downstream since Mr. Storvik (born 1958) has served as Senior VP Chief Financial Officer and August 2009. His previous positions in the company are: Chief Financial Head of Strategy since August 2009. His previous positions in the company Officer 2008–09, Business Unit Manager South Europe/Mediterranean, were: SVP and Head of Strategy, Supply & Trade 2008–09, SVP, Supply 2007–08; SVP Business Intelligence 2006–07; VP Investor Relations, and Trade since 2006–08; CFO of Hydro Agri, 1998–2004, and CFO of 2004–06; VP of Hydro Aluminum Metal Products (responsible for Supply Yara 2004–06, also acting as CFO of Hydro Agri International, 1995–98. Chain & Performance Management), 2001–03; Corporate Controller Hydro He was employed by Hydro in 1984 and was responsible for the strategy Agri 1999–2001. Before joining Norsk Hydro, Mr. Hogna was a consultant that led Hydro Agri to undertake a major turnaround from 1999 to 2000. with McKinsey, 1994–99. He holds an M.Sc in Industrial Management from Mr. Storvik holds a Master’s degree from the Norwegian School of Eco­ the Norwegian Institute of Technology (NTH) and an MBA from INSEAD. nomics and Business Administration (NHH). WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 21

8 ) 5 )

9 )

6 ) 7 )

5 ) bonte she was VP Corporate Communications. Before joining Yara, she was Presi­ Yves dent of the Norwegian Nurses Organization, 1998–2007, and its Chief Ne­ Head of Industrial gotiator and Director of the Department of Negotiation, 1995–98. Between 1984–95 she held various positions within the Norwegian Association of Lo­ Mr. Bonte (born 1961) has served as Senior VP Head of Industrial since cal and Regional Authorities. Mrs. Slaatten holds a Master’s degree in Busi­ January 2010. Before joining Yara, he worked for 17 years for the chemi­ ness Administration from the Norwegian School of Economics and Business cal company LyondellBasell and its predecessors, serving as Senior VP Administration (NHH), a Bachelor’s degree in Nursing, a degree in Business Polypropylene Business based in Germany and the Netherlands, 2007– Administration from the Norwegian School of Management and has studied 09; Senior VP Sales & Marketing for Asia, Middle East/Africa and Latin organization and project management at the University of Oslo. Mrs. America based in Hong Kong, 2002–06; Head of Strategic Marketing, Slaatten has held numerous board positions and honorary posts. 2000–01; several marketing, supply chain and manufacturing positions, 1992–99. Prior to this he worked five years for Exxon Chemical in Brus­ 8 ) sels. Mr. Bonte holds a post-graduate degree in Business Management Håkan Hallén and a Master’s degree in Civil Engineering from the University of Leuven Chief Human Resource Officer in Belgium. Mr. Hallén (born 1951) has served as Senior VP Chief Human Resource Officer since August 2009. Before joining Yara he served in various senior 6 ) Torgeir Kvidal positions, including Group HR Director at Aibel Group Ltd, London 2008–09; Head of Supply & Trade Director HR with UBS, Zurich, 2006–08, EVP with Accenture, 2004– 06; SVP HR with Volvo, Brussels 1998–2004. He also has extensive Mr. Kvidal (born 1965) has served as Senior VP Head of Supply & Trade international experience from leading HR positions at the World Bank, since April 2011. His previous positions in the company include: Head of Washington DC and the OECD, Paris, 1987–98. Mr. Hallén holds a Investor Relations 2006–11. CFO Industrial 2005–06, Head of Business degree equivalent to an M.Sc in Behavioral Science and Personnel

Unit CO2/Industrial Central Europe 2000–05 and VP Finance Hydrogas Management, from the University of Gothenburg. 1997–99, Corporate Controller Hydro Agri 1993–97. He was employed by Hydro in 1991 as a trainee. Mr. Kvidal holds a Master’s degree from the Norwegian School of Economics and Business Administration (NHH). 8 ) Trygve Faksvaag Chief Legal Counsel 7 ) Bente G. H. slaatten Mr. Faksvaag (born 1966) has served as Senior VP Chief Legal Counsel Chief Communications and Branding Officer since May 2008. His previous positions in the company include: Manag­ ing Director of Yara Switzerland Ltd., 2006–08; VP and general counsel Mrs. Slaatten (born 1958) has served as Senior VP Chief Communications of Yara North America, Inc., 2004–06; legal counsel and VP of Norsk and Branding Officer since October 2009. From January 2008 until then Hydro Americas, Inc., 2001–03. Mr. Faksvaag joined Hydro/Yara in 1996 from the Norwegian law firm Wikborg, Rein & Co. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 22 / Governance Yara Financial Report 2011

GOvERNANCE 2011 Corporate governance

proactive and transparent corporate governance is crucial for aligning the interests of shareholders, management, employees and other stake­ holders. Yara believes that good corporate governance drives sustainable business conduct and long-term value creation.

Yara’s Board of Directors has decided to comply with the Nor­ Yara’s compliance with the Code is detailed in this report and wegian Code of Practice for Corporate Governance, last updated section numbers refer to the Code’s articles. 20 October 2011. The Code contains stricter requirements than mandated by Norwegian law.

1. Implementation and reporting of corporate governance / Compliant

Following the approval of a new procedure for with all of the recommendations of the Norwe­ the Nomination Committee at the Yara annual gian Code of Practice for Corporate Governance. general meeting on 10 May 2011, Yara complies

2. business / Compliant

Yara is a company that focuses on the produc­ at the company’s website. Yara’s objectives and » yara.com / Articles of assosiation tion, distribution and sale of nitrogen chemi­ strategies are presented in the Report of the » Report of the Board of Directors / page 8 cals. The scope of Yara’s business is defined Board of Directors and Management discus­ » Management discussion & analysis / page 40 in its Articles of Association, published in full sion and analysis.

3. equity and dividends / Compliant

Yara’s strong balance sheet is closely linked to is granted to the Board of Directors to increase tain profitability at the attractive level achieved the company’s overall strategy, goals and risk the company’s share capital. since the IPO, a dividend level that restricts position. The Yara dividend policy aims to pro­ Yara’s growth will not be desirable. vide a predictable payout over the years. Yara expects to return 40–45% of net income to its shareholders, measured as the sum of Yara’s dividend policy is to pay out a minimum New equity will only be issued when quantum dividends and share buy-backs, averaged over 30% of net incomeas an average over the busi­ leap defined opportunities arise. No mandate the business cycle. As long as Yara can main­ ness cycle. Yara believes it will be beneficial WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 23

sHareHolders

annual nomInatIon CommIttee external audItor General meetInG

CompensatIon CommIttee yara Internal board oF dIreCtors rIsK and audIt audIt CommIttee

presIdent and Ceo

Reporting exeCutIve Election/appointment manaGement

for shareholders that the Company strives for tages compared to dividends. Yara’s Board has the State’s ownership (36.21%) unchanged. a gradual increase and predictability in the ab­ every year since the IPO secured an authoriza­ The mandates granted to the Board of Directors solute dividend level over time, independent of tion from the Annual General Meeting to buy for the company to purchase its own shares are the business cycle. back up to 5% of total shares in the company limited in time to the date of the next annual during the next year, for subsequent cancella­ general meeting. Yara executes share buy-back programs as an tion. A precondition for each annual programs integral part of its shareholder policy. Share is that an agreement is entered into with the » Report of the Board of Directors / page 14 buy-backs are more flexible than dividends, Norwegian State where the State commits to » The Yara Share / page 65 and for most shareholders provide tax advan­ sell a proportional share of its holdings to leave

4. equal treatment of shareholders and transactions with close associates / Compliant

All Yara shareholders have equal rights and In 2011, there were no significant transactions Directors and Management are required to the company has one class of shares. Trans­ between closely related parties, except for ordi­ disclose all entities that would be considered actions involving the company’s own shares, nary commercial transactions with subsidiaries to be “related parties” under applicable laws such as the share buy-back program, are nor­ and non-consolidated investees. and regulations. Transactions with such enti­ mally executed via the stock exchange, or at ties are subject to disclosure and special, inde­ prevailing stock exchange prices if carried out In addition to the mandatory regulations in the pendent approval requirements. in any other way. Shares redeemed from the Norwegian Public Limited Companies Act (§§ Norwegian State are also priced at market value. 3–8 and 3–9), Yara uses IFRS rules to define » Note 32 to the consolidated financial related parties. The members of the Board of statements “Related parties” / page 122

5. Freely negotiable shares / Compliant

The company places no restrictions on the Long-Term Incentive scheme, mandate the » Note 32 to the consolidated financial transferability of shares. There are no restric­ use of a portion of the funds received by man­ statements “Related parties” / page 122 tions on the purchase or sale of shares by di­ agement for the purchase of Yara shares and rectors and executives, as long as insider reg­ restrict the sale of such shares for varying pe­ ulations are adhered to. Certain management riods following such purchase. compensation programs, including the Yara WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 24 / Governance Yara Financial Report 2011

6. General meetings / Compliant

In accordance with Yara’s articles of associa­ The chairperson of the Board and the CEO votes can be given only for shares registered in tion and Norwegian corporate law, the Yara are present at the Annual General Meeting, the owner’s name. Annual General Meeting ranks at the top of normally along with the Board of Directors, the corporate governance structure, Yara’s ar­ the Nomination Committee and the Company Notice of the meeting and relevant docu­ ticles of association require the Annual Gen­ Auditor. An independent, qualified person chairs ments, including the proposal of the Nomina­ eral Meeting to be held every year before the the meeting. The protocol of the Annual Gen­ tion Committee, are made available on Yara’s end of June. eral Meeting is published on the Yara website. website no later than three weeks in advance of the meeting. Notice of the meeting is sent The annual meeting of shareholders elects All shareholders are entitled to submit items to to all shareholders individually, or to their the Nomination Committee, the shareholders’ the annual meeting’s agenda, to meet, speak depository banks, at least three weeks in ad­ representatives to the Board of Directors and and vote. In accordance with Norwegian corpo­ vance of the meeting. The notice of meeting approves the annual accounts, the board report rate law, shareholders registered in the Nor­ includes information regarding shareholders’ and any proposed dividend payment. In accord­ wegian Central Securities Depository (Verdi­ rights, guidelines for registering and voting at ance with Norwegian legislation, shareholders papirsentralen) can vote in person or by proxy the meeting. consider and vote on the appointment of the on each agenda item and candidate put for­ external auditor based on the board’s proposal ward in the Annual General Meeting. share­ » yara.com / Corporate governance / and approve the remuneration to be paid to the holders or their authorized representatives General meetings external auditor. must be present in order to vote. In addition, » The Yara share / page 65

7. nomination committee / Compliant

Yara’s Articles of Association state that the are independent of the Board and Manage­ Following the approval of new instructions for company shall have a Nomination Committee ment: the Nomination Committee at the Yara annu­ consisting of four members elected by the An­ • Eva Lystad, chair al general meeting on 10 May 2011, Yara com­ nual General Meeting. The Nomination Com­ • Bjørg Ven plies with the Norwegian Code of Practice for mittee nominates the chairperson of the Board • Olaug Svarva Corporate Governance recommendation that and shareholders’ candidates to the Board of • Thorunn Kathrine Bakke the general meeting shall stipulate such in­ Directors, including presenting relevant infor­ structions. mation about the candidates and an evalua­ In 2011, the Nomination Committee held 13 tion of their independence, and proposes the meetings. In 2011, the members of the Nomi­ » yara.com / Nomination Committee remuneration of the Directors to the Annual nation Committee received a remuneration of procedure General Meeting. Members of the committee NOK 4,700 per meeting prior to the Annual are elected for two-year terms. The Nomina­ General Meeting and thereafter NOK 4,900 tion Committee in Yara International ASA con­ per meeting. sists of the following members, all of which

8. Corporate assembly and board of directors: Composition and independence / Compliant

In accordance with an agreement between including the chairman are elected for two-year representative Board members, other than their Yara and the employees, Yara does not have a terms by the general meeting. The remaining employee contracts. corporate assembly. Yara believes this supports three employee-elected Board members are more direct communication between share­ also typically elected for two-year terms. Three » yara.com / Corporate governance holders and management, increases account­ of eight Directors are women. » Board of Directors / page 18 ability and improves the speed and quality of » Note 32 to the consolidated financial decision making in the company. The shareholder-elected members of the Board statements “Related parties” / page 122 are independent of the company’s manage­ Yara’s Board of Directors consists of eight mem­ ment, main shareholders and material business bers. Five shareholder-elected Board members contracts. The same is valid for the employee

9. the work of the board of directors / Compliant

The Board’s work follows an annual plan and In 2011, the Board of Directors held 12 meetings. meeting. If the chairman of the Board is, or has conducts an annual self-evaluation of its per­ Elisabeth Harstad, Hilde Merete Aasheim, been, personally involved, in matters of mate­ formance and expertise, which is presented to Svein Flatebø and Geir Sundbø were each rial significance to the Company, the Board’s the Nomination Committee. absent from one meeting. The other Board consideration of such matters will be chaired by members attended all Board meetings during some other member of the Board. The Board has established written instructions their Board membership period in 2011. for its work and the work of the Audit Commit­ All shareholder-elected members are inde­ tee, Compensation Committee and Executive In the case of the Chairperson’s absence, the pendent of the Management and the main management. Board elects a Board member to chair the shareholders. Neither the President and CEO, WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 25

nor any other member of the Executive man­ The Audit Committee further evaluates plans has no direct operational responsibility or au­ agement, is a Director of the Board. and internal audits performed by the Internal thority over any of the activities it reviews. The Risk and Audit department within the areas of unit has unrestricted access to all functions, Compensation Committee financial reporting and control. The Committee records, physical properties, and personnel Yara’s Compensation Committee reviews the conducts an annual self-evaluation according to relevant to the performance of engagements. performance and proposes terms and com­ its mandate. Yara’s Audit Committee consists It also has full and free access to Yara Execu­ pensation for the CEO to the Board of Direc­ of three members of the Board, all of whom tive Management, the Board of Directors and tors. The committee also reviews and propos­ are independent from the company. The the Audit Committee. es guidelines for executive remuneration and Chairperson of the Audit Committee is not the material employment matters. The Compen­ Chairperson of the Board. In 2011, the Audit ad Hoc Committee sation Committee consists of three members Committee held 6 meetings. In June 2011 the Yara Board of Directors created elected by the Board, from its own members. an Ad Hoc Committee to follow up the investi­ In 2011, the Compensation Committee held Yara Internal Risk and Audit performs inde­ gations initiated by Yara in connection with the 6 meetings. pendent audits related to internal control both company’s investment in Libya and a project in at subsidiary and group level as well as audits India. The committee will follow up and com­ audit Committee and reviews of specialist functions involved in municate with management, the externally ap­ Yara’s Audit Committee assists the Board of business operations, financial reporting and risk pointed investigator and external legal counsel. Directors in assessing the integrity of the Com­ management. The Chief Internal Risk and Au­ The Ad Hoc Committee reports on its work at pany’s financial statements, financial reporting dit Executive reports functionally to the Board every Yara Board meeting, and all decisions are processes and internal controls, risk manage­ of Directors and administratively to the Chief made by the full Board of Directors. In 2011, ment and performance of the external auditor. Financial Officer. Yara Internal Risk and Audit the Ad Hoc Committee held 4 meetings.

10. risk management / Compliant

Risk Management in Yara is based on the prin­ System provides all employees with an over­ Control activities ciple that risk evaluation is an integral part of sight of the prevailing policies and procedures Group Accounting prepares reporting instruc­ all business activities. While risk management for the group, including Yara’s corporate values, tions for monthly and annual reporting, distri­ is a governed process, the responsibility for guidelines for corporate citizenship and Yara’s buted to all reporting entities. Yara’s Account­ day-to-day risk activities is placed with the Code of Conduct. The Steering System aims ing Manual is covering the Group’s Accounting business segments and expert organizations. to ensure that all Yara employees act in a con­ Policies and iscontinuously updated and revised sistent manner and in line with quality stand­ for any changes related to IFRS and Yara’s The Board carries out annual reviews of the ards and business needs. Accounting Policies. company’s most important areas of exposure to risk and its internal control arrangements. All Yara employees are encouraged to raise In 2011, a new unit with specfic responsibility to questions or issues about such matters with review and improve processes related to In­ The external auditor shall give the Audit Com­ line management and through alternative ternal Control of Financial Reporting (ICFR) mittee an description of the main elements in channels, including a whistle-blowing system. across the group was established. their audit and their opinion about the inter­ Compliance with the Steering System is mon­ nal control related to the Financial Reporting itored by monthly reviews of key performance The Audit Committee performs reviews of the process. indicators that cover both financial and opera­ quarterly and annual financial statements with tional activities, including health, environmen­ special focus on transaction types which in­ The Audit Committee performs ongoing eval­ tal, safety and quality performance. cludes judgments, estimates or issues with uations of risk and control related to financial major impact on the Financial Statement. reporting. risk assessment In additional to the quarterly and annual re­ Yara’s Group Accounting is responsible for the porting, The Board of Directors receives pre- Yara Internal Risk and Audit assists Yara Exec­ preparation of the Financial Statementfor en­ quarterly reporting per segment, business unit utive management and the Board of Directors suring that the Financial Statement is reported and product area. The internal and external by bringing a systematic, disciplined approach according to applicable laws and regulations auditor participate in these meetings. to evaluating and improving the effectiveness and in accordance with adopted accounting of risk management, controls and governance policies. monitoring processes. All bodies and functions described above mon­ The Controller function is responsible for plan­ itor and and perform judgments for any need Yara also has procedures on responding to ning and coordinating the business plan pro­ of corrective actions related to financial and accidents and other unexpected events such cess, the risk management process as well as operational risk within their area of responsi­ as natural disasters. the Board of Directors and Management re­ bility. porting. Yara has adopted the Committee of Sponsoring » yara.com / Corporate governance Organizations of the Treadway Commission The Corporate Risk Management unit is the key » Risk management / page 28 (COSO) integrated framework for internal con­ facilitator of the internal risk management sys­ trol. The five framework components includes; tem and shall assist management with imple­ control environment, risk assessment, control menting and maintaining an appropriate risk activities, information and communication and management framework to support identifica­ monitoring. The content of the different ele­ tion, analysis, management and reporting of all ments are described below. types of risk.The units further coordinates the risk management activities within Yara and Control environment consolidates the reporting on risks. The Yara Steering System is one of the pillars in Yara’s internal control system. The Steering WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 26 / Governance Yara Financial Report 2011

11. remuneration of the board of directors / Compliant

The remuneration of the Board of Directors is meeting in first half 2011 and thereafter NOK company’s incentive plans for officers and cer­ not linked to the company’s performance. 6,000 per meeting. tain key employees. The President and CEO decides on the compensation to other mem­ The Chairperson of the Board of Directors re­ The Board of Directors prepares guidelines for bers of Yara’s Executive management. Perfor­ ceived a fixed compensation of NOK 445,000 the remuneration of executive personnel being mance-related remunerations are subject to in 2011, while each of the other Board mem­ communicated to the annual general meeting. absolute limits. bers received NOK 256,000. The guidelines to be presented at the annu­ al general meeting 10 May 2012 are disclosed The actual compensation to executive person­ The Chairperson of the Audit Committee re­ in note 32 in the consolidated financial state­ nel in 2011 is disclosed in note 32 in the con­ ceived a fixed compensation of NOK 93,000 ments. solidated financial statements. in 2011, while each of the other two commit­ tee members received NOK 77,000. The Board of Directors determines the remu­ » Note 32 to the consolidated financial neration of the President and CEO based on statements “Related parties” / page 122 Members of the Compensation Committee a proposal from the Compensation Commit­ received a remuneration of NOK 5,800 per tee and decides on the general terms of the

12. remuneration of executive personnel / Compliant

The Board of Directors determines the remu­ Yara’s remuneration of the Executive Man­ after the purchase. After this period the execu­ neration of the President and CEO based on a agement Group consists of the following el­ tive is free to keep or sell the shares at his/her proposal from the Compensation Committee ements: Base pay, an annual incentive bonus, discretion. All new pension plans in Yara shall and approves the general terms of the com­ a retirement plan, death and disability cover­ be Defined Contribution plans. pany’s incentive plans for Executive Manage­ age and other components such as car, phone ment and certain key employees. The Presi­ expenses, etc. In addition, executives on expa­ All Executives below age 55 (per 1 July 2006) dent and CEO determines the compensation triate contracts have various other costs cov­ on Norwegian employment contracts are part to other members of Yara’s Executive man­ ered by the company. Executive Management of the Defined Contribution Retirement plan. agement. members being employed in Norway can take The retirement age is 65 and there are no spe­ part in the annual offer to all permanent Yara cial severance clauses in the contract. In accordance with the Norwegian Public Lim­ employees in Norway where they can buy Yara ited Companies Act § 6–16 a, the Board of shares to a value of NOK 7,500 with a tax- For information on salary and other benefits Directors prepares a separate statement relat­ exempt discount of NOK 1,500. earned in 2011 see note 32 in the consolidated ed to the determination of salary and other financial statements. For additional informa­ benefits for the Executive Management. The The annual incentive bonus represents per- tion about existing pension plans see note 22 statement will be presented for the Annual formance-driven variable compensation com­ in the consolidated financial statements. General Assembly. ponents based on financial and non-financial performance, such as profitability and HES » Note 32 to the consolidated financial The guidelines for the coming accounting year (Health, Environment and Safety) results, at statements “Related parties” / page 122 are unchanged from the previous year and the Company and/or Segment level. The maxi­ remuneration to Executive Management has mum pay-out will not exceed 50% of annu­ been in accordance with these guidelines. al base salary, unless special circumstances dictate otherwise. Yara’s policy concerning remuneration of the CEO and the other members of Yara’s Executive To increase the alignment between Executives Management Group is to provide remuneration and Shareholders’ interests and to ensure re­ opportunities which: tention of key talent in the company, a Long • Are competitive to recruit and Term Incentive plan has been approved by the retain executives Board. This Long Term Incentive program pro­ • Reward the Executives’ performance, vides a fixed cash amount to the eligible top measured as his/her contribution to the executive, who is required to invest the net overall success of Yara amount after taxes in Yara shares within a pe­ • Support the creation of sustainable riod of one month after grant. The acquired shareholder value shares are locked in for a period of three years

13. Information and communication / Compliant

Communication with the financial markets is ment detailing the manner in which the com­ based on the principles of openness and equal pany is perceived by the financial markets. treatment of all shareholders. Yara’s website Yara has received several awards for its inves­ (www.yara.com) contains an updated financial tor communication and financial reporting. calendar, financial reports and other investor- related information. Yara’s Board of Directors » yara.com / Investor relations receives regular updates from the Manage­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 27

14. take-overs / Compliant

The Board of Directors will not seek to hinder will issue a statement making a recommen­ The Norwegian Securities Act regulates take­ or obstruct takeover bids, unless there are spe­ dation as to whether shareholders should or over attempts. Shareholders at the Annual cific reasons for doing so. The Board will en­ should not accept the offer. The Board will ar­ General Meeting will, according to law, make sure that shareholders are given sufficient in­ range a valuation from an independent expert the decision on a potential take-over bid. formation and time to form an opinion on the that shall be made public no later than the dis­ offer. If a take-over offer is made, the Board closure of the Board’s recommendation.

15. external audit / Compliant

The external auditor shall provide to the • disclose any threats to its independence tions stipulate the type of non-audit services Audit Committee a description of the main and document measures taken to mitigate that external auditors can perform for Yara. elements of the audit of the preceding fi­ such threats Remuneration to Yara’s external auditor is nancial year, including in particular any mate­ disclosed in note 33 to the consolidated fi­ rial weaknesses uncovered related to internal The external auditor participates in the nancial statements. controls of to the financial reporting process. meetings of the Audit Committee and in the The external auditor shall also: Board meeting that approves the financial • annually confirm its independence statements. In addition, the external auditor • disclose any services besides statutory meets with the Board, without Yara Execu­ audit services which have been provided tive management being present, minimum to the company during the financial year once per year. Norwegian laws and regula-

The Board of Directors of Yara International ASA Oslo, 22 March 2012

Øivind Lund Elisabeth Harstad Leiv L. Nergaard Hilde Merete Aasheim Chairperson Board member Board member Board member

Bernt Reitan Geir O. Sundbø Kristine Haukalid Svein Flatebø Board member Board member Board member Board member

Jørgen Ole Haslestad President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 28 / Governance Yara Financial Report 2011

GOvERNANCE 2011 risk management

yara’s risk management aims to identify, assess and manage risk factors that affect the performance of all parts of the company. We operate a continuous and systematic process to mitigate potential damages and losses, and to capitalize on business opportunities. Ultimately, the process contributes to achieving Yara’s long-term strategies and short-term goals.

Risk management at Yara is based upon the principle that risk ous process of risk identification, monitoring, management and evaluation is an integral part of all business activities. We have reporting throughout the organization, Yara provides assurance procedures for identifying, assessing, managing and monitor­ to the Board of Directors and stakeholders. ing our primary risk exposures. In some cases, Yara may utilize derivative instruments, such as forwards, options and swaps, to The business segments and a number of expert organizations per­ reduce these risk exposures. form a risk assessment, aiming to identify, assess and document the key risks that affect the business and understand how these FRAMEwORK AND PROCEDURES risks influence performance. Yara’s Executive Management per­ In 2009, Yara implemented a framework, including policies and forms a separate risk evaluation, based on a top-down approach. procedures, to facilitate risk management. The primary purpose of the framework is to minimize the organization’s exposure to Yara determines the materiality of risks by developing a risk pro­ unforeseen events and to provide certainty to the management of file and considering the likelihood and consequence of each risk. identified risks. This creates a stable environment within which In this appraisal, a combination of qualitative and quantitative Yara can deliver its operational and strategic objectives. risk assessment techniques is employed. Each risk is evaluated to determine whether the level is acceptable or unacceptable and to Yara has adopted the Committee of Sponsoring Organizations of prioritize those that have the greatest potential impact on com­ the Treadway Commission (COSO) ERM framework as the best pany performance. practice benchmark for assessing the soundness, efficiency and effectiveness of its risk management. Yara has also learned from Yara implements mitigating strategies and operational controls, to other companies in order to compare practices and improve its ensure that each risk is minimized and effectively managed. When risk management system. preparing the risk mitigation plan, we determine responses by » Risk responsibilities are described in the Corporate governance evaluating the cost of control and potential impact, relative to the article / page 22 benefits of reducing the risk. Yara’s business segments and expert organizations are responsible for making business continuity plan­ While risk management is a centrally controlled process, the ning part of their key risk management activities and preparing responsibility for day-to-day risk activities is placed with the contingency plans for high-impact, low-likelihood risks. business segments and expert organizations. Through a continu­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 29

Once risks are treated, we monitor the residual risks continually RISK FACTORS to ensure that they remain at an acceptable level. We review the Yara is exposed to a number of strategic, operational, political/ risk profile and update it at least annually, with more frequent economic, compliance-related and financial risks that could have updates if we identify new opportunities or risks. The risk mitiga­ an adverse material effect on the company’s business, operating tion plan is reviewed and updated on a quarterly basis to reflect the results and financial condition and, as a result, the share price. current status of risk and action plans, and communicated to Yara The Executive management currently considers the following risk Executive management during the quarterly review meeting. factors to be the most relevant to Yara’s business:

strategic risks

Yara’s vision, to be an industry shaper, and the world’s key energy and fertilizer supply sold in Europe towards the end of 2011. Yara ability to deliver on its broader ambitions regions warrants careful monitoring. Yara‘s mitigated this by shifting volumes to markets and goals, are dependent upon the company Libyan joint venture, Lifeco, shut down pro­ in Asia and Latin­America, where cash crop successfully implementing its strategy and duction in February 2011 to ensure safety for markets provided improved margins. capitalizing on new business opportunities. employees and the plant.

DEvELOPMENTS AND EvENTS IN 2011 Financial turmoil, particularly in Europe, One of the key developments in Yara’s stra­ adds an element of uncertainty to strategic tegic backdrop in 2011 was the Arab Spring. assessments of future scenarios, and con­ The new uncertainty introduced to one of tributed to lower fertilizer volumes being

Impact Both categories of risk can impact the com­ oping strategic responses to these, in order to Yara’s strategic backdrop is the world at large; its pany greatly, either positively or negatively. maintain and create sustainable competitive global developments and, more specifically, the advantages. agricultural and industrial sectors we operate in, Mitigation and their specific trends and developments. To mitigate Yara’s strategic risks, a compre­ Additionally, in order to foster agility and pre­ hensive, annual Strategy Development Pro­ paredness, Yara conducts comprehensive busi­ As a consequence, Yara is faced with both cess has been developed. This includes key ness intelligence gathering, with information generic, global risks that are largely outside our knowledge updates, such as energy and global and analysis being fed to relevant parts of the control, and more specific industry-related risks pricing, as well as strategic deep dives in areas organization. that may be more clearly defined and where we of opportunity or concern. The process focus­ may have a greater degree of influence. es on changes in strategic backdrop and devel­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 30 / Governance Yara Financial Report 2011

operational risks

Yara has a wide set of inherent operational facilities, sourcing of products and raw mate­ DEvELOPMENTS AND EvENTS IN 2011 risks. we have a strong focus on limiting and rials and the transportation of products have During 2011, Yara continued to focus on mitigating loss resulting from failed internal associated risks of major accidents, such as improving risk mitigation actions in all opera­ processes and systems, human errors or from explosions, leakage or fire, causing harm to tions and processes, building on established external events. For example, the manage­ property, employees, communities or the tools and reporting procedures. ment of Yara’s production plants, storage environment.

HESQ

Impact thoroughly investigated and preventive action of human error, an important factor in most Yara has a longstanding commitment to safety implemented. accidents. During 2011 we have continued to and a strong track record in health, environment strengthen contractor safety follow up, tight­ and safety compared to the performance of our However, Yara experienced three serious en requirements for working in confined space, industry peers. Our belief that every accident is accidents with a total of one fatality in 2011. and initiate more safety walks. preventable is the basis of our safety program. Even though this is an improvement on 2010, The goal is that no one should be injured, or their we continue to focus on operational discipline Yara’s operations are subject to many envi­ health jeopardized, while working at Yara. and follow-up of work activities. A lot of effort ronmental requirements under the laws and has therefore been expended to improve occu­ regulations of the jurisdictions in which the Mitigation pational and process safety at Yara. company conducts its business. Through strict, standardized operating pro­ cedures, employee training and audits, Yara To maintain our industry-leading position and During 2011/2012 Yara will have implement­ works continuously and systematically to prevent further improve operational safety mechanisms, ed the CLP Regulation (Regulation (EC) No. occupational safety risks and avoid accidents. the Process Safety program was initiated in 1272/2008) in EU/EEA markets. For non- Strong management commitment and active 2009 to focus on technical analysis, effec­ EU markets the Global Harmonised Standard employee involvement in preventive measures tive alarm and control systems, procedures, (GHS) – the UN standard for classification and are crucial, and compliance is monitored dil­ training and competence development. More regulation – will be rolled out, based on the igently. All accidents and near-accidents are attention is also given to reducing incidences same processes as for the EU.

REPUTATION

Impact Mitigation and scenario planning, customer and end-user Over the past century, Yara has built a strong Reputational risk management therefore has brand surveys, and media monitoring. In addi­ reputation and brand recognition with its key a wide scope. Yara’s risks are mitigated through tion, social media policies, guidelines and mon­ stakeholders around the world, significant as­ implemented policies, procedures and tools itoring have become increasingly important, to sets that are reinforced through precise operat­ and by building the capability to communicate minimize the risk of damage to the company’s ing procedures on a global scale. skillfully with stakeholders and the media, par­ reputation and brand assets. ticularly in challenging situations. Reputational value is based upon Yara’s total operations. A variety of issues and inci­ Yara is focused on developing industry-lead­ dents could potentially harm Yara’s reputation ing capabilities in awareness and crisis manage­ and public image, ranging from product liability, ment. At every step, the company aims to im­ accidents, security and corporate matters to plement best practice in mitigating unforeseen external events such as natural disasters and and harmful reputational impacts. Considera­ political interference. ble effort is put into crisis management training

SOURCING OF NATURAL GAS AND OIL

Impact Mitigation tional flexibility to reduce gas purchases and The availability and price volatility of natural Yara’s energy contracts are structured and import ammonia for fertilizer production if gas gas and other essential energy sources pose priced as either spot deals or forward contracts, prices peak. Yara also benefits from a natural both opportunities and risks for Yara. Given which are oil-linked or gas hub-based. In recent hedge in the high correlation between nitrogen that the company’s operations require large years, the company has switched a significant fertilizer prices and global energy prices. volumes of energy as inputs, our position and percentage of its European gas sourcing from operating results could be adversely affected if oil-linked to hub-based contracts. Yara has pri­ Yara is exposed to large property, business we were unable to secure competitively priced marily opted to utilize spot pricing on its hub interruption and third party liability losses. The replacements when existing energy supply exposure and limit forward buying. company’s policy is to retain frequency losses contracts expire. These risks are minimized in its own books and buy insurance cover for through global purchasing activities, based on Yara is well-positioned to cover the risk of its large catastrophic losses from reputable insurers the company’s energy strategy. spot exposure. The company has the opera- with a high security rating. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 31

SOURCING OF DRY RAw MATERIALS AND PRODUCTION RELIABILITY

Impact production. By upgrading its NPK plants and 1) The Risk Based Inspection (RBI) program Raw material risks are linked to supply and adding phosphate sourcing capability through started in 2009, and has geared up to the next the structuring of prices of raw materials nec­ acquisitions, Yara has increased its flexibility level focusing on pro-active preventive main­ essary for production. Yara relies on key third and reduced its dependence on imports from tenance and spare part philosophy. parties, including key suppliers, for a range other suppliers. To reduce dependency further, of raw materials. The company is vulnerable Yara aims for long-term relationships with a 2) The human factor. Plant reliability does to termination of, or material change to, our wide network of suppliers. Yara works continu­ not depend on technical components alone. arrangements with certain key suppliers, as ously to optimize the phosphate balance and Equally important is the human aspect well as the potential failure of key suppliers to identify opportunities for further improvement. expressed by competence, quality of opera­ meet their contractual obligations. tional procedures and operational discipline. Potash operations are not vertically inte­ In recent years Yara has significantly devel­ Yara is dependent on running its production grated, which represents a risk for the NPK oped its efforts to further strengthen the com­ facilities in a safe and reliable way. business at times when potash prices are high. petence of its operators, and also focused on the evolution of, and compliance to, the Yara Mitigation Yara continues its work to further improve Technical and Operational Standards, which Yara depends on access to dry raw materials, reliability and productivity by following two covers all aspects of safety and reliability. such as phosphate and potash salts, for NPK main initiatives:

HUMAN CAPITAL

Impact a sound candidate pipeline, and build a highly and performance effectively. Focus is put on Yara’s ability to compete effectively and valued work culture. people management skills, performance and meet market demands depends heavily on the talent development. Setting clear performance competence, experience and performance of Mitigation objectives and providing feedback on perfor­ its employees. A sufficient, balanced and suit­ In 2011, the company implemented improved mance, evaluating competence levels of em­ ably competent staff is essential for Yara’s processes to enhance the quality of human ployees and executing development plans are business to be successful. Yara’s strategic focus resource management, create a transparent key tools in these processes. and priorities are to optimize workforce per­ recruitment process, secure good access to formance, attract and develop talents to build the best talent available, and evaluate talent

Political/economical risks

Yara is exposed to a range of risks driven by DEvELOPMENTS AND EvENTS IN 2011 changes to the political and economic con­ In the wake of the Eurozone crisis Yara has ditions in the countries in which it operates. further strengthened its system and processes Developments, such as changes in political for following up its defined country exposures leadership, could represent either threats or limits during 2011. opportunities, depending on the specifics of the situation.

Impact Mitigation These measures are also used to assess the A politically or economically unstable en­ Policies and guidelines on currency and risk profile of new projects, as part of the cap­ vironment could affect investments and oper­ country exposure are aimed at minimizing ital expenditure approval process. ations, resulting in financial loss. These risks this risk and the company’s exposure is limit­ are generally beyond the company’s control, ed in high-risk areas. Yara monitors political Yara also uses insurance and trade finance but could result in Yara being unable to deliv­ and economic developments in its markets as instruments to mitigate this type of risk in cer­ er on its obligations or fulfill its strategy and an input to risk mitigation recommendations. tain cases. objectives. Country and currency credit limits are defined, to ensure that Yara’s exposure is controlled. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 32 / Governance Yara Financial Report 2011

Compliance risks

Due to its internationally widespread opera­ DEvELOPMENTS AND EvENTS IN 2011 continue to roll it out to downstream, idus­ tions Yara faces the risk of legal or regulatory Yara set up and launched the Integrity Due trial and expert organizations in 2012. In sanctions, financial loss, or loss to reputation Diligence process for its supply chain. It is 2012 Yara will launch an updated Ethics and as a result of potential failure to comply with currently being deployed in the Upstream and Compliance training program to employees. all applicable laws, regulations, codes of con­ Supply and Trade organizations. It will be up­ This will include a new Ethics video and duct and standards of good practice. dated based on lessons learned, and we will interactive training.

Impact In February 2010, Yara launched a company- in ethics training, and there is currently a high Yara’s continued success as an industry wide Ethics Program, based on the fundamen­ level of awareness of the Ethics Program with­ leader depends on the company’s ability to re­ tal principles of the company’s Code of Conduct, in the organization. tain and promote the ethical reputation and structured around its core values of ambition, the public trust that it has earned. teamwork, trust and accountability. During 2010, the program was rolled out throughout Mitigation the organization and an array of ethics tools Yara’s Ethics and Compliance Department were provided to Yara employees, including a coordinates and oversees ethics and compli­ handbook, telephone hotline, videos materi­ ance work, including the follow-up of corpo­ als and web-based portal. At the end of 2011 rate citizenship commitments and reporting. over 80% of Yara employees have participated

financial risks

Although the financial crisis brought about 2011. The company’s debt­to­equity ratio GDP growth in the USA. In this challenging increased focus on liquidity, credit and cur­ declined sharply, driven primarily by strong financial environment Yara has had contin­ rency risk, financial risk management has earnings, and the profitable divestment of ued strong focus on financial risks. During always received great attention in Yara. Due non­core activities. the year, Yara has strengthened its system to its substantial operations outside Norway, for following up counterparty risk versus Yara is exposed to various financial risks. DEvELOPMENTS AND EvENTS IN 2011 financial institutions. Yara has in place, and is constantly develop­ The financial markets in 2011 were char­ ing, comprehensive policies, procedures and acterized by downside macroeconomic con­ tools to manage these risks. Yara continued cerns. Global growth weakened considerably, to strengthen its financial position during mainly driven by the Eurozone crisis and low

REFINANCING/ACQUISITION FINANCING RISK

impact Mitigation kets; and by timing the maturity dates of large Refinancing/acquisition financing risk repre­ Yara’s strategy for mitigating this risk is to facilities to avoid them turning due at the sents the risk that the refinancing of maturing maintain a solid financial position and strong same time. Committed liquidity reserves are loans or establishment of new financing may creditworthiness. This is achieved by flexibility maintained to meet unforeseen costs. be difficult or costly to arrange. Adverse financial in capital expenditures and fixed cost levels. market conditions could lead to higher funding Yara has access to sufficient funding and costs and postponement of projects. Yara reduces the refinancing risk by basing borrowing facilities to meet currently foresee­ its long-term funding on a variety of sourc­ able requirements. es, to avoid dependency on individual mar-

CREDIT RISK

Impact basis of standard Yara policy and procedures Yara’s geographically diversified portfolio Credit risk represents exposure to poten­ and regular reporting. Yara has a well-estab­ reduces the overall credit risk of the group. tial losses deriving from non-performance of lished system for credit management, with Due to Yara’s geographical spread and large counterparties. defined exposure limits at customer, financial number of customers, there are no major con­ institution and country level. A number of in­ centrations of customer credit risk. mitigation struments, such as credit insurance, letters of Credit risk is monitored and managed by the credit and bank guarantees, are employed to business units and expert organizations on the mitigate credit risk. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Governance / 33

CURRENCY RISK

Impact mitigation A well-established system for currency risk As the fertilizer business is essentially a US Yara keeps a major part of its debt in US management is in place, with defined currency dollar business, prices of Yara’s most important dollars in order to reduce overall economic exposure limits. Yara’s geographically diversi­ products and raw materials are either directly currency exposure. Yara also utilizes deriva­ fied portfolio reduces the company’s overall denominated or determined in US dollars. In tive instruments to manage foreign currency currency risk. markets outside the USA, local prices will gen­ exchange rate risks. erally adjust to fluctuations in the US dollar ex­ change rate, however with a certain time lag.

INTEREST RATE RISK

Impact mitigation mitigation measure, Yara keeps part of the Interest rates on different currencies vary The interest rate risk is managed on an long-term debt portfolio in fixed interest rate dependent on the economy and political assessment of the financial markets and agreements. actions, which will influence Yara’s funding macroeconomic development, in relation to cost over time. the expected impact an interest change will The overall exposure of our fertilizer business have on Yara’s financial performance. As a risk to interest rate fluctuations is considered low. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be NCE ESE PR N AI CH E LU A 34 / Management discussionV & analysis Yara Financial Report 2011 SCALE ADVANTAGES

Upstream Downstream

Industrial

UNIQUE SUPPLY & TRADE FLEXIBILITY

CE EN ES PR KET MAR

Quick overview

durInG 2011, Yara redefined its growth ambition towards 2016, setting a new, ambitious goal of increasing volumes. Growth will be based on expanding capacity, perfecting operations, and driving innovation – building on our business model, strong global position and strategic partnerships. We launched a new strategic ambition, Creating Impact, which is a strategic framework for identifying and exploring connections between business and society. Designed to create value, it springs from our consistent strategy of profitable and sustainable growth. It defines focal areas in which we will engage to create impact, based on competitive advantages and value creation.

Downstream

Upstream Industrial WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 35

creating sustainable competitive advantages, Yara creates value – creating impact Management discussion & analysis

Core content in This seCTion: Business overview page 37 / Business environment page 39 / Corporate strategy page 40 / Market conditions page 46 / Financial performance page 49 / Outlook page 52 / Downstream page 53 / Industrial page 56 / Upstream page 59 / Other and eliminations page 62 / Definitions and variance analysis page 62 / The Yara share page 65 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 36 / Management discussion & analysis Yara Financial Report 2011

MaNaGEMENt dIsCussION & aNalysIs Competitive edge

yara leveraged its global position, delivering historically strong results in 2011, including the highest earnings per share so far. Building on its business model and employing competitive advantages, Yara pursued its growth strategy.

In 2011, Yara recorded the company’s best annual results so far: 2008 peak by 14%, serving as a favorable incentive for continued The 2011 net income after non-controlling interests was NOK high demand for fertilizers. 12,066 million, compared to NOK 8,729 million in 2010, a 38% increase. Corresponding earnings per share were a record high There is a strong need for improving global agricultural pro­ NOK 41.99 compared with NOK 30.24 in 2010. EBITDA was up ductivity, considering the continued growth in population and 19% compared to 2010. consumption. With its premium products and knowledge-based solutions, Yara is well positioned to take advantage of market Good farming profitability increased fertilizer demand and opportunities arising from global megatrends and major supported improved margins in 2011. This contributed to the challenges. strong results, offsetting the slight decrease in the sale of mineral fertilizers, at 19.5 million tons (20.3 million tons in 2010). Yara’s industrial products and solutions saw strong volume growth again in 2011, with total volumes of 4.6 million tons excluding Revenues and other income increased by 23%, to NOK 80,352 industrial gases. Deliveries of environmental solutions increased million, up from NOK 65,374 million in 2010. Net interest-bearing by 24%, mainly due to stricter emission abatement legislation in debt decreased by NOK 4,001 million during 2011, standing at NOK several markets. With more countries following suit, demand for 5,539 million as of 31 December, equaling a debt/equity ratio of 0.12. Yara’s Air1 will continue to rise, and as the global leader Yara is » Financial performance / page 49 well positioned to seize opportunities from this development.

Total production, at 24 million tons in 2011, was slightly down from The Downstream segment delivered an EBITDA (excl. special the record volume of 24.5 million tons the previous year. items) of NOK 5,090 million, which was a strong result, consider­ ing reduced deliveries to core European markets, whereas pre­ Yara’s agricultural products and solutions saw a slight decline in mium markets outside Europe grew. Sales volumes were 4% below volumes towards the end of 2011. The 2011 decline reflected the 2010, while realized sales prices were up for all main products. slightly slowed-down demand in some markets during parts of the year, as well as the suspension of production at our Libyan The Industrial segment delivered an EBITDA (excl. special items) JV Lifeco plant. World agricultural commodities prices remained of NOK 1,034 million, which is a strong result, reflecting higher high; the FAO Food Price Index average exceeded its previous sales volumes, which were up 8% compared with 2010, with a 24% WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 37

increase in environmental segment sales. However, margins were Yara’s fertilizer and industrial products share a common platform. considerably lower, mainly due to high raw material costs. They utilize the company’s knowledge and leadership position in the production and distribution of ammonia, nitrates NPK and The Upstream segment delivered an EBITDA (excl. special items) urea. They also share a common market approach, in which Yara of NOK 10,297 million, a strong increase compared to 2010, uses its experience and expertise to provide complete solutions with fertilizer prices more than offsetting the increased energy that meet the needs of customers and deliver real value to their cost. Both Yara’s European and global average oil and gas costs businesses. increased 42% compared to 2010. While production in Libya was suspended, volumes from Urea 7 Sluiskil, and Tertre increased. ORGANIZATION » Segment reports / pages 53–61 Company structure Yara is organized with three operating segments, Downstream, Industrial and Upstream, all supported by the global Supply & Trade function. At year-end, 7,627 people were employed by Business overview Yara worldwide. With an ambition to achieve profitable growth and represent one third of Yara’s business in the years ahead, the COMPANY Industrial segment established a new central function to improve Yara pioneered mineral fertilizers, more than one hundred years logistics optimization, sourcing and planning. ago. Expanding from its origins in Scandinavia, the company has become the world’s leading producer and distributor of mineral fer­ Executive management tilizers and a major provider of environmental solutions. Building The President and CEO of Yara International ASA, Jørgen Ole on a unique business model and unrivalled market presence, Yara Haslestad, took up his position in October 2008, having previously creates competitive edge and delivers better yield. Employing the served on the Board of Directors. In 2011, Torgeir Kvidal was company’s agricultural expertise and industrial experience, Yara appointed Head of the Supply and Trade unit from April, replacing offers comprehensive crop nutrition and environmental solutions; Terje Bakken who left the company. Kvidal formerly served as SVP creating value – for its stakeholders, and for society at large. Investor Relations.

Yara is the world leader in providing the farming community with Industry crop nutrition solutions, offering a comprehensive range of qual­ The mineral fertilizer market is composed of three main crop nutri­ ity products and solutions catering for most commercially grown ents: nitrogen (N), phosphorus (P) and potassium (K). Of these, crops. Advising growers to apply the right product in the right nitrogen is the most important and by far the largest, accounting amount at the right time, Yara helps improve agricultural produc­ for more than 60% of global fertilizer consumption. While phos­ tivity and supports sustainable agriculture – creating impact in phorus (phosphate) and potassium fertilizers are absorbed and relation to the interrelated global challenges of food security and stored in the soil, nitrogen is applied annually to maintain yield climate change. and biomass. Consequently, N consumption is less volatile.

Yara provides world-leading industrial environmental solutions, The fertilizer industry has historically been divided into offering products used to reduce toxic emissions from transporta­ nutrient-specific sub-sectors. This is a result of the geographic tion and industrial plants, and to cleanse toxins from water. Yara location of raw material sources and the variety of both nutrient helps advance air and water quality and improves living conditions, requirements and local market demands. A number of companies especially in urban areas – creating impact in relation to the global serve national markets or sub-regional markets. However, only a trends of population growth and urbanization. The company’s handful – of which Yara is the largest – operate on a global scale. technologies, chemicals and gases support cleaner, more efficient As nitrogen is produced on all continents from hydrocarbons, industrial processes. mainly derived from natural gas, and air, the N fertilizer industry is less concentrated and consolidated than the P and K industries. Yara International ASA is headquartered in Oslo, Norway and has This fragmentation offers growth opportunities not provided by been listed on the Oslo Stock Exchange since 2004. phosphate and potash. Globally, there are few, but large, suppliers » The Yara share / pages 65–67 of P and K fertilizers, located close to natural deposits of phos­ phate rock and potash ores. OPERATIONS Yara’s global activities range from phosphate mining and ammonia The industry has historically been subject to government engage­ production, through commodity trade and energy arbitrage, ment and ownership, as a means of securing national food supplies. to building local market knowledge and developing customer However, with state involvement declining and government-owned relationships. The backbone of the company’s operations has enterprises becoming more market-oriented, there is a trend been large-scale ammonia and fertilizer production in Europe. toward consolidation and stronger financial discipline across the In recent years, new capacity has been added in regions with low- industry. This trend is also fuelled by expansions of the WTO and cost gas supplies. EU, contributing to more equal terms for players in the fertilizer WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be NCE ESE PR N AI CH E LU A V SCALE ADVANTAGES

Upstream Downstream

Industrial

UNIQUE SUPPLY & TRADE FLEXIBILITY

E NC SE RE T P 38 / Management discussion & analysis Yara Financial Report 2011 KE MAR

VALUE CHAIN PRESENCE

Downstream UNIQUE SCALE FLEXIBILITY ADVANTAGES

Upstream Industrial

SUPPLY & TRADE

MARKET PRESENCE

Global position

yara Has a stronG platform houses and sales offices worldwide provides Global optimization building on its global presence, its flexible production, distribution and sales, re­ sulting in reliable deliveries to customers and Yara’s business model (see model above) builds vast knowledge base and unique profound knowledge on global and regional on the company’s scale advantages and exten­ business model. with a presence agricultural markets. sive flexibility, its unrivalled presence – and a from sourcing of resources to quest for operational excellence throughout the Secondly, Yara’s unique reach across the ferti­ dissemination of knowledge in the entire value chain. With its extensive value lizer value chain allows for optimization in lo­ chain involvement, Yara has a stronger influ­ field, Yara is positioned to yield gistics, earning margins from mining of phos­ ence on the entire process, creating value for margins throughout the value chain. phates, through large scale ammonia the company and its customers. production to serving cash crop market seg­ During 2010–11, Yara continued to execute ments with premium products and expert ad­ Global presence allows for global optimization; its strategy of profitable growth, by reinforcing vice on crop nutrition. creating value by taking out cost and improving and strengthening its position through measures margins in all parts of the operation, by increas­ such as securing the sourcing of phosphates This combination of value chain and market ing efficiency and minimizing losses throughout and launching three innovation platforms (see presence has positioned Yara as the major the value chain. Yara’s stakes in the value page 43). Building on its century-old history, its global player in the industry and represents a chain, including its role in supply and trade, industrial experience and agronomic expertise, competitive advantage, comparing to com­ support the company’s ability to deliver – with and by employing a business model unique to petitors commanding only limited parts of the reliability and quality. Furthermore, it improves the industry, Yara has taken the lead position in value chain, restraining their options for flexi­ Yara’s ability to handle market risks and cycli­ two major dimensions: unmatched value chain bility and reach. cality, reducing the potential downside, and im­ presence and unrivalled market presence. proving margins. Africa is a case in point, where Yara has forged strategic partnerships, such as the growth cor­ The business model is built for optimization on ridor concept launched in Southeastern Africa, Global presence a global scale; for realizing Yara’s industrial and to exploit business opportunities. A value chain financial potential, and for leveraging the com­ Yara’s global presence is manifested in two approach issimilarly applied to cash crops such pany’s knowledge margin. major ways. Firstly, the large number of pro­ as coffee and oranges, partnering with other duction and blending plants, terminals, ware­ companies in the food business. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 39

industry. In recent years, the nitrogen industry has undergone nutrient use efficiency, with a positive impact on cost efficiency, significant restructuring in Europe and North America. climate change and environmental performance.

Yara argues that the CAP needs to incentivize resource use efficiency, including measurements of nutrient use efficiency, and Business environment good agricultural practices.

GLOBAL TRENDS Green growth Yara is influenced by major global trends that impact global mar­ In 2011 the OECD presented a preliminary report on a green growth ket conditions and drive demand for both mineral fertilizer and strategy for food and agriculture, stating that green growth is essen­ industrial products. tial if the food and nutrition requirements of future generations • Population growth increases the demand for food, directly are to be met. Green growth was identified as a priority by OECD influencing Yara’s business. In 2050, world population is set agriculture ministers in 2010, pointing at the need for a strategy for to reach about 9.1 billion. increased resource use efficiency throughout the supply chain. • Economic growth stimulates changes in diet, i.e. increased consumption of especially meat, which raises the demand Yara has taken a role in promoting green growth solutions, such for grain and fertilizers. as resource efficiency with reduced carbon footprint. At the Janu­ • World urbanization affects diet, food systems and creates ary 2012 World Economic Forum in Davos, Yara President and environmental challenges, strengthening the market for CEO Jørgen Ole Haslestad pointed to the need to integrate the Yara’s environmental solutions. food, climate, water and energy agendas – if green growth is to be achieved. Yara is engaged in the ‘New Vision for Agriculture’ ini­ Furthermore, globalization is a megatrend affecting Yara as a tiative, aiming at reduced carbon footprint, improved agricultural global company, and with increasing harmonization of regulations productivity and reduced rural poverty. Yara is a catalyst for action and standards following multilateral policy processes, not least in a pioneer project, the Southern Agricultural Growth Corridor in affecting agricultural commodities. Tanzania (SAGCOT); also presented as a case study at the COP17 in Durban in December. GLOBAL CHALLENGES » See separate article on Creating Impact / page 41 Connected to these global megatrends, the world is up against a number of major global challenges highly relevant to Yara and its Agricultural productivity business. Among these are food insecurity, climate change and Green growth is an approach, launched by the UN Environment resource scarcity, not least shortage of fresh water. Program, with a vision of greener, cleaner, low-carbon and resource- efficient economies and societies. Yara has for several years cham­ A challenge for policymakers and business, and for society at large, pioned the key position that improving agricultural productivity is is to see the interlinkages between the key dimensions of food, crucial to achieve green growth and food security. This approach climate, water and energy. The understanding of these challenges has become an integrated part of worldwide policy debates. provides strategic direction for Yara. By emphasizing innovation and business development, this serves as a basis for competitive Yara is a strong proponent of combining the closely interlinked advantages, creating value and making impact. issues of food and climate – calling for increased investments in agriculture in general, and in knowledge development and trans­ AGRICULTURAL POLICIES fer in particular. These arguments were supported from several Political attention to agriculture has grown manifestly in recent quarters also in 2011, including in the joint FAO / OECD report years. After the 2008 food crisis, agricultural productivity has ‘Agricultural Outlook 2011–2020’. The report points at a slowdown become part of the global agenda, closely connected to climate in global agricultural production growth, and argues that “substan­ change challenges. Concepts such as ‘climate-smart agriculture’ tial further investments in productivity enhancement are needed and ‘green economy’ have become mainstream in international to ensure the sector can meet the rising demands of the future”. policy discussions. Yara has taken active part in this process, argu­ ing the case of agricultural productivity as a way to increase food In 2011, the G20 group of countries pursued food security as a security, and at the same time reduce global warming. policy priority, stressing “the need to increase agricultural pro­ duction and productivity on a sustainable basis”. Global business EU CAP was involved in the process; Yara took part in the CEO Working A major policy issue in 2011 was the ongoing process towards a Group, providing private-sector input to the overall G20 process. revised Common Agricultural Policy (CAP) within the European In the G20 Cannes France summit declaration in October, Union. In October 2011, the European Commission presented a member states committed to “sustainably increase agricultural set of legal proposals. Yara engaged to address the key issues of production and productivity”. increased resource use efficiency, including optimal use of farm­ land. Modern farming management systems can further advance WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 40 / yara in brief Yara Financial Report 2011

The strong global policy attention to food security and the need to NOx abatement solutions for stationary applications, particularly improve agricultural productivity imply obvious opportunities for within power generation. Yara, as the world-leading company in crop nutrition solutions which are designed to raise productivity in a resource-efficient manner. The strong global policy attention to environmental issues, both with respect to agriculture and other aspects, including pollution ENvIRONMENTAL POLICIES in urban areas, implies obvious opportunities for Yara, as a world- Political attention to environment, climate change and the effects leading company in environmental solutions, including NOx of global warming has grown significantly over several years. abatement solutions for vehicles and industrial plants.

COP17 A major policy issue on the table in 2011 was the progression of the Kyoto Protocol, debated at the COP17 (Conference of the Parties) in Corporate strategy Durban, South Africa in December, aimed at reducing the emission of greenhouse gases. UN Secretary-General Ban Ki-Moon joined INDUSTRY SHAPER the Business for Environment (B4E) event at the COP17 Durban Yara’s vision is to be an industry shaper, aiming to set industry Dialogue, where Yara’s Chairman of the Board, Øivind Lund, was standards and driving industry development through innovative among the speakers, addressing the issue of sustainable agriculture performance and growth execution, and playing a role in the con­ and food security. The Chairman noted that high-level political solidation of the nitrogen fertilizer sector. The company’s mission engagement drives development, and creates an enabling environ­ – Better yield – means delivering good returns for its customers, ment that supports investments into the agricultural sector. owners and society at large.

Resource management Yara’s ambition of Creating Impact was introduced in 2011, iden­ Water scarcity has become a major concern, as a limiting factor in tifying focal areas in which Yara will engage to create competitive reaching future food production goals. Climate change will have advantages, create value and thereby benefitting both the company an impact on water availability in several farming regions, affect­ and society. In support of its strategy, Yara drives an inspiring and ing productivity. innovative performance culture based on its vision and mission, the Code of Conduct and the Ethics Program, and the core values The August 2011 World Water Week in Stockholm, Sweden raised of ambition, teamwork, trust, and accountability. ways to address the global water, energy and food security chal­ lenges, calling on all stakeholders to commit to a 20% increase in Growth strategy water efficiency in agriculture – creating more crop per drop. One Yara has consistently implemented a strategy of profitable and of Yara’s priority innovation areas is to develop solutions to help sustainable growth. The strategy is a roadmap for industry shaper meet the demand for greater water use efficiency. performance and long-term value-creation. Yara has consistently expressed the need for further consolidation of the nitrogen ferti­ Climate-smart agriculture was highlighted at the COP17 in lizer industry, and the company’s readiness to participate in that Durban, where the former Secretary-General of the UN, Kofi consolidation through acquisitions and joint ventures. Annan, called for an urgent focus on innovative approaches to agriculture, also related to water use management. Increasingly, Yara seeks growth by offering value-adding pre­ mium products in addition to its profitable commodity business. As a producer of mineral fertilizer, Yara is a consumer of energy Yara’s knowledge-based Crop Nutrition Concept uses the crop – and a provider of solutions. Yara is dedicated to improving its competence and application expertise of the company’s global energy efficiency and reducing GHG emissions. sales force to improve productivity and efficiency, impacting customer and farm profitability. Yara’s diverse knowledge base is Environmental legislation a key part of the strategy to improve margins. Legislation is driving the market for environmental solutions that reduces NOx emissions from the use of fossil fuels in transporta­ Yara’s growth ambition was redefined in 2011, setting a new tion, power generation and industrial production. The first wave ambitious goal for increased volumes. By 2016 Yara aims to of legislation was introduced between 2006 and 2010, with Europe increase production and sales by 8 million tons, which is about a as a forerunner and Japan, Australia, the USA and major cities in 40% increase. Constantly considering investment opportunities, China following suit. The second wave will take place in 2012–2016, either through attractive entry costs and/or cash flows, Yara opts with stricter regulations being implemented in existing markets to integrate new acquisitions into its global logistical and market­ and new legislation coming into force in Brazil, China and Russia. ing system to achieve synergies and create value. Legislation after 2016 is currently being reviewed. The basis for the company’s profitable growth ambition includes National emission caps and legislation aimed to reduce emissions strong earnings delivered through the present cycle and a profit­ from large combustion plants are expected to drive demand for able acquisition track record unrivalled in the fertilizer industry. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 yara in brief / 41

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Creating Impact yara is seT To create impact, tomers, as well as for society at large. Value is the company’s potentially significant impact on building on its global position created by executing the company’s strategy society. The total impact is created throughout for profitable and sustainable growth. the value chain, and primarily correlated to and engagement, and its unique three key areas linked with Yara’s core business: business platform. as a strategic Sustainable value creation in a global industry resource management, food security, and en­ ambition, Creating Impact is closely and competitive world market depends on com­ vironmental issues. connected to the company mission, petitive advantages. In the case of Yara, these derive largely from the company’s unique busi­ Yara delivers solutions for sustainable agricul­ ‘Better yield’. By creating value, ness model, global position (see page 38) and ture and the environment, and the company’s yara is creating impact. extensive knowledge assets. The latter are in­ innovation platform targets resource efficiency creasingly employed in an innovation drive (see in general and water scarcity in particular. Yara During 2010–11, Yara developed its Creating page 43), seeking new solutions, and opening aims to further improve agricultural productivity, Impact approach. Launched internally in mid­ avenues to seize new business opportunities. and to create decisive impact – with obvious 2011, it expands on the company’s previous con­ potential for creating value – within the critical cept of corporate citizenship. Creating Impact Creating value allows Yara to create impact: to nexus of food security, water scarcity and cli­ conceptualizes and frames how creating value develop improvements along its own value mate change. also for society at large adds on to Yara’s com­ chain, to drive improvements in the industry’s petitive advantages, enabling the company to overall performance, and to contribute solutions Creating Impact pertains to the company’s entire Create Impact. to major global challenges, impacting on society value chain, from the extraction and use of raw and delivering on the company mission. Creating materials, through the production and distribu­ It is a business approach building on three noticeable, positive impacts adds to the com­ tion of its products – including the application of interlinked dimensions, mutually reinforcing pany’s competitive edge in a strategic perspec­ fertilizers by customers, where Yara shares its each other in a virtuous cycle: competitive ad­ tive, spurring further growth and value creation. knowledge to improve performance. Addition­ vantages, value creation and creating impact. ally, Yara takes an active role in the international arena, aiming to influence the global agenda on Creating impact key issues such as improving agricultural pro­ Creating value ductivity to achieve food security and reduce Creating Impact is a strategic framework con­ global warming. Yara is a commercial company with the purpose necting Yara’s main objectives, business activ­ of creating value – for shareholders and cus­ ities and global engagement, accounting for WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 42 / Management discussion & analysis Yara Financial Report 2011

Yara’s unique, scalable, business model is appropriate for creating Business model growth opportunities, and the company’s global presence adds to Yara’s strategy is closely connected to its unique business model. the growth potential in several regions. With global optimization at its core, the model builds upon Yara’s scale advantages, extensive flexibility and unrivalled presence. To fulfill Yara’s global growth ambitions, productivity gains in the Yara benefits from scale as the world’s largest producer of ammo­ existing business, organic growth and step growth initiatives are all nia, nitrate and NPK fertilizer, carrying out about 20% of global necessary. Yara pursues growth opportunities both internally and ammonia trade. Furthermore, Yara has developed an unrivalled externally. Productivity improvements combined with synergies global presence. Its global distribution and marketing network within the global organization can add to profitability, enhanced by includes chartered shipping capacity and more than 200 terminals, acquisitions and expansions. warehouses, blending plants and bagging facilities.

Yara will focus on growing within nitrogen-based fertilizers; Local sales and marketing units provide customer services as well nitrogen for industrial applications; and sourcing of phosphate and as agronomical support – sharing knowledge and working with potash to cover Yara’s needs in NPK production. Larger initiatives farmers worldwide to increase yields and improve crop quality. will focus on increasing production in regions with stable supplies of This local market insight and close customer relations, combined competitively priced natural gas for ammonia production, and phos­ with agronomic expertise and ability to develop new products and phate and potash resources, expanding presence in high-growth technologies, have given Yara a knowledge margin in the market. markets and participating in consolidation in mature markets. For all growth categories, scale, synergy and timing are important fac­ The business model has built-in flexibility to enable quick response tors, along with strict financial discipline. to changing market conditions. The majority of the company’s operational cash cost is variable and related to energy, raw materials, Leadership agenda freight and third-party fertilizer sourcing. Yara’s Leadership Agenda, established in 2009, is designed to sup­ port the company’s strategic ambitions. It aims to inspire innova­ Plants and purchases can be halted at short notice to respond to tion and a consistent drive to explore new business opportunities delivery slow-downs. This flexibility also extends to energy costs driven by global developments, Yara’s knowledge base and market- in Europe: increased costs can be mitigated by cheaper ammonia oriented R&D activities. imported from other sources. Most of Yara’s European production » See separate article on Innovation platforms / page 43 sites have deep-sea import/export ammonia terminals. Further­ more, Yara has the world’s largest storage capacity for fertilizers, The agenda covers five areas that the company needs to focus on providing it with the ability to build inventory ahead of peak in its quest for industry shaping performance: Yara needs to grow seasons, tolerate delivery volatility and take advantage of geo­ steadily and profitably; lead global agricultural development; drive graphical arbitrage opportunities. strong performance and positioning in environmental solutions; drive perfect operations; and apply best practice corporate govern­ STRATEGY ExECUTION ance throughout the organization. Growth strategy Yara has an industry-leading acquisition track record, adding Creating Impact capacity through several major purchases in recent years, includ­ In 2011, Yara introduced the concept of Creating Impact. This is ing JV Lifeco, Libya (2009); Saskferco, Canada (2008); Kemira a strategic framework for identifying and exploring connections GrowHow, Finland (2007); Fertibras, Brazil (2006); Burrup, between business and society. Recognizing how business solutions Australia (2005, 2008 and 2011) and Rossosh, Russia (2005). and societal interests intersect, Yara aims identify how mutual Also, considerable capacity has been added through expansions, interests can create sustainable competitive advantages. particularly in Qatar, the Netherlands and Australia.

The scope of Creating Impact is to create value for shareholders, In January 2011, Yara acquired the remaining shares of Yara customers, employees and society at large. This provides Yara with Nipro Pty Ltd, following the purchase of an initial 40% stake in a framework for the engagement at World Economic Forum, the 2008. Yara thereby secured full ownership of the company, which G20 summits and similar high-level venues. At these venues Yara is a market leader in bulk liquid fertilizer for many cropping contributes its knowledge towards global leadership on sustainable systems in Eastern Australia. development of agriculture. Also in Australia, in February 2012 Yara took another important Within the Creating Impact framework Yara has defined three step in its strategic growth ambition, when it acquired an addi­ focal areas; food, resources and environment. Within these Yara tional 16% of Burrup Holdings Ltd (BHL) for USD 143 million, has a position and a knowledge base which provides business increasing its ownership share in the company to 51%t. Apache opportunities and contribute solutions to global challenges. Energy acquired the remaining 49%, and signed a new sharehold­ » See separate story on Creating Impact / page 41 ers’ agreement with Yara. The wholly-owned BHL subsidiary Burrup Fertilisers Pty Ltd (BFPL) operates an ammonia plant WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 yara in brief / 43

completed in 2006, with an annual production capacity of approximately 850,000 metric tons. The plant has been renamed Yara Pilbara Fertilisers Pty Ltd (YPFPL), and will be fully integrated into Yara’s global production system. BHL has been renamed Yara Pilbara Holdings Ltd (YPHL).

In 2011, the construction of the new Urea 7 plant at Sluiskil, the Netherlands – another key element of Yara’s growth strategy – was completed at a cost of EUR 400 million, 10% below budget. The innovation platforms expansion added capacity of approximately 500,000 tons of urea equivalents targeted for the delivery of environmental solutions. BuildinG on iTs knowledge In Qatar, the Qafco 5 and 6 expansion projects are being finalized base – its industrial experience and during 2012 with production being initialized. The expansions in agronomic expertise – yara uses Qatar represent a combined increase in production capacity of 1.6 innovation as a strategic tool to million tons of ammonia and 2.6 million tons of urea. Yara owns develop business opportunities. as 25% of the Qafco JV; the remaining 75% is owned by Industries a strategic priority, the company’s Qatar. innovation has been reinforced and structured across the orga­ In December 2011 Yara International ASA and the leading nization. Moroccan company OCP S.A. agreed to establish a 50/50 JV in In 2011 the innovation process was launched. Brazil, and the entry into corresponding phosphate rock supply Guided by the Chief Technical Officer (CTO) a and other commercial arrangements. A long-term raw material supporting team of innovation experts has been supply for Yara’s European NPK plants is included in the agree­ formed. Based on ideation, strategic innovation ment. The first step of the joint venture will involve OCP gaining platforms and the Yara Project Management system, Yara is focusing onkey society and a 50% interest in Yara’s existing terminal and production plant market trends where Yara competencies pro­ in Rio Grande, Brazil. Through the JV, OCP and Yara will have vide competitive solutions. access to the existing port, terminal and storage facilities, with plans for further development. The agreement strengthens Yara’s The first ideation campaign was conducted in 2011. By highlighting innovation in internal cam­ already strong platform for further growth in Brazil. Brazil is a paigns, also rewarding the best innovation significant growth market, where Yara has a strong ambition to throughout the year, Yara aims to develop an further develop its position. even more innovative culture.

Innovation is enabled through both a rein­ In 2011, Yara also made moves to strengthen its position in other forcement of our internal R&D capabilities parts of Latin America, including the opening of an office in aligned to key challenges, but also by launching Peru, another potential growth market ideal for Yara’s products. open innovation initiatives through various partnership, short cutting the time to market. In Asia, one of the regions with the highest demand for Yara’s premium products, Yara has established two new domestic companies, Yara Shanghai in China and Yara India Fertilizer, to Strategic platforms further develop these markets. In 2011, Yara launched three innovation platforms closely connected to core business During 2011 deliveries of Yara’s fertilizer products decreased by and to the new concept of Creating Impact. The about 4% compared with 2010, mainly due to adverse weather processes are facilitated by the innovation conditions and financial turmoil in Europe, where customers team and led by specific business teams, which embeds innovation into business development. were reluctant to replenish stocks in advance of the application period. This was partly offset by growth in premium products outside Europe. Continues »

During 2011 deliveries of Yara’s industrial products increased by 8% compared with 2010. The increase was mainly driven by increased sales of environmental solutions, with new customers for NOx abatement in the USA and Europe. In 2011 Yara entered or renewed several major contracts for the delivery of the catalyst fluid Air1. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 44 / Management discussion & analysis Yara Financial Report 2011

EXTERNAL OPPORTUNITIES

EMISSION TO AIR

WATER SC ARCIT Y

B USIN E SS COMP E T I T I V E O P P O R T UNI T IES ADVAN TAG E S RESOURCE EFFICIENCY

INTERNAL CAPABILITIES

In Qatar, Yara has teamed up with the Sahara Open Innovation is the other essential element « Continued Forest Project Foundation and the JV Qafco to of success. In order to capitalize on a wider set explore innovative solutions for growing biomass of competencies and ideas, a series of collabo­ emissions to air in desert areas, using solar power, seawater and ration with universities, institutes or companies Societies worldwide are increasingly focusing adapted plant nutrients as key input. are conducted to support specific projects. on cleaner technologies. Yara has a leading EXTERNALpo­ OPPORTUNITIES sition supplying products and solutions abating resource efficiency An example is the ‘Environment and Climate NOx emissions, reducing acid rain and health Yara explores opportunities to increase phos­ Compatible Agriculture’, a partnership between hazards. New applications and solutions are be­ phate EMISSIONuse efficiency, TO including AIR P uptake by Syngenta, Yara, the University of Life Science in ing developed by Yara to further explore busi­ plants. The demand for this resource has further Norway and Sokoine University in Tanzania. In ness opportunities rising from environmental increased due to water scarcity. Yara is exploring 2011 the project displayed promising results legislation. ways to improve processing technologies, for from field trials in Tanzania. The project scope is WATER SCARCITY better quality and profitability along the phos­ to develop a clear understanding of the impacts Water scarcity phate value chain. of agriculture on theBUSINESS environment COMPETITIVEand on cli­ Water scarcity is an increasingly acute issue. mate change, andOPPORTUNITIES to test how modernizedADVANTAGES and Presently, agriculture consumes about 70% of RESOURCE EFFIECIENCY more productive farming practices perform global fresh water supplies, and with food de­ Innovation drivers from an environmental and climate change per­ mand increasing existing practices are unsus­ spective – while improving productivity and tainable. Yara is actively exploring opportunities INTERNALInnovation in CAPABILITIES Yara is driven by external factors profitability at farm level. in increased water use efficiency within world and internal competence, strongly supported by agriculture. Improved water management com­ the company’s well-established research and bined with crop nutrition will enable farmers to development activities. Yara has four R&D facil­ reach optimal yield levels, while consuming less ities; two dedicated to agronomic R&D, two water. Yara is already offering a wide range of dedicated to technological R&D. Across the lab­ products and solutions both in the growing ferti­ oratories three Core Competence Communities gation market, and in drip irrigation. have been built to stimulate progress: Products and applications; Process; and Catalysts.

EXTERNAL OPPORTUNITIES

EMISSION TO AIR

WATER SCARCITY

BUSINESS COMPETITIVE OPPORTUNITIES ADVANTAGES RESOURCE EFFIECIENCY WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be

INTERNAL CAPABILITIES Yara Financial Report 2011 Management discussion & analysis / 45

In 2011 Yara’s Air1 was introduced in the Brazilian market. The reluctant to stock up fertilizers ahead of the coming season. Uti­ solution is commercially available from 2012, when new trucks sold lizing Yara’s flexible business model and pursuing our strategy, in Brazil must comply with stricter emission limits. sales were shifted towards non-European markets. Yara saw vol­ umes growth in Asia and Latin-America, in spite of unfavorable In November 2011 Yara North America’s New Orleans Louisiana weather conditions in Thailand, Argentina and southern Brazil (NOLA) Gateway terminal opened at St. James Parish, with a towards the end of 2011. capacity of 55,000 metric tons of urea, also supporting the distribu­ tion of Air1, Yara’s Adblue / Diesel Exhaust Fluid (DEF). Also in Through a continuous focus on commercial optimization, nitrate- November, Yara opened a new DEF terminal in Houston, Texas, based products were targeted to better paying market segments, as part of the strategy to grow within the DEF market in the USA. in particular cash crop segments in Latin America and Asia. Yara’s strategy towards the Brazilian market is paying off, and In October 2011 Yara signed an agreement, acquiring Petro Miljö, fertilizer sales to Brazil in 2011 outstripped all other countries the Swedish world-leader in Selective Non Catalytic Reduction both in terms of volumes and revenues. (SNCR) technology, from PetroKraft AB. Petro Miljö is based in Gothenburg, Sweden. The acquisition will allow Yara to enhance Innovation and knowledge drive the quality and delivery of its NOx abatement solutions under the Yara fully established its new innovation structure in 2011, with a NOxCare brand to a wider range of global customers. new project management system aimed at energizing the innova­ tive spirit throughout the organization, aligning innovation with During 2011 Yara reduced its ownership in some ventures: Yara the corporate strategy. sold its 37.692% stake in the associated entity Yaibera Holding » See separate article on Innovation platforms / page 43 (also known as ‘Rossosh’), with a EBITDA gain of NOK 1,419 million. In October, Yara reduced its ownership in the JV Yara Yara encourages knowledge development within and outside the Praxair Holding AS from 50 to 34%, with a gain of NOK 309 company. During 2011, Yara implemented and tested a number of million. In December, Yara sold its 49% stake in ISC Nordic Rus new or upgraded talent management processes aimed at support­ Holding. ing the three priority areas performance and development, recruit­ ment and retention. In 2011 nearly 3,000 employees got access to Creating competitive edge the new HR Information System (HR IS). Engaging through its Creating Impact strategic framework, Yara contributed at several global venues during 2011, including the In 2011, Yara’s prize for academic achievement in the field of Physics WEF annual meeting in Davos, the G20 summit and the COP17 and Chemistry, the Birkeland Prize, was awarded to Dr. Tor Erik negotiations in Durban, South Africa. Kristensen of the University of Oslo, Norway for his doctoral thesis on polymer-supported chiral organocatalysts. Yara plays the role of a catalyst, driving the development of the Agricultural Growth Corridors in Mozambique and Tanzania. In Yara’s R&D activities are decidedly market-oriented and geared 2011, Yara took a position as co-chair when the Grow Africa Task towards business development and production improvement. Force was established. The Task Force aims at leveraging experi­ Through 2011, the company continuously worked on enhanced crop ence from the growth corridors and related projects, scaling up nutrition models at the interface between production and marketing. investments into the agricultural sector. R&D supports the development of cost-saving and best value con­ Based on these global engagements, Yara has entered into value cepts for the grower, as well as improved production processes and chain partnerships with other companies in the food chain, nitrogen-based environmental technologies. R&D is concentrated addressing increased productivity, environmental performance at Hanninghof, the company’s agronomic center in Dülmen, and crop quality – while also ensuring farm profitability. Germany; the center for foliar products in Pocklington, UK; and » See separate article on Creating Impact / page 41 the technology centers in Porsgrunn, Norway and Sluiskil, the Netherlands. Flexible business model During 2011, we saw Europe stricken by adverse weather and financial unrest. Towards the end of the year customers were WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 46 / Management discussion & analysis Yara Financial Report 2011

Fertilizer and energy market prices

Average prices 2011 2010 2009 2008 2007

Urea prilled (fob Black Sea) USD/ton 423 289 251 499 308 Ammonia (fob Black Sea) USD/ton 518 357 243 525 264 AN (cif France) USD/ton 479 336 276 575 316 CAN (cif Germany) USD/ton 379 265 254 466 245 Phosphate rock (fob Morocco) USD/ton 185 124 122 345 69

Oil Brent blend spot USD/ton 111 80 62 97 73 Low-sulphur fuel oil (LSFO) USD/ton 642 465 355 341 340 US gas (Henry Hub) USD/MMBtu 4.0 4.4 4.0 8.9 7.0 European gas (Zeebrugge) USD/MMBtu 9.2 6.6 4.7 10.8 6.1

Source: The Market, Fertilizer Week, World Bank and Platts.

year, urea imports exceeded the previous season’s by roughly one Market conditions million tons.

FERTILIZER MARKET CONDITIONS China exported 3.6 million tons urea in 2011, excluding exports of The ammonia market improved in 2011, following the general small bags (<10kg) and cross border trade with Vietnam, compared strength in nitrogen and phosphate demand, while upgrading with seven million tons in 2010. More severe export restrictions and margins from ammonia to finished nitrogen fertilizers were above higher domestic prices led to reduced exports, despite the sharply historic average. Lower demand from phosphate and industrial higher level of global urea prices. Coal prices have remained higher users led to a price decline towards the end of the year. than in 2010 throughout the year, and the political focus on energy efficiency and environmental issues is sustained. Allowing for changes in sulphur and ammonia prices, phos­ phate rock and phosphoric acid prices followed the price of Brazil imported three million tons of urea in 2011, up from 2.5 DAP (Diammonium Phosphate), leaving phosphate upgrading million tons in 2010. Sales of all nutrients are reported at 28.4 margins virtually unchanged from 2010. Phosphoric acid prices million product tons, up 16% from 24.5 million tons the previous increased somewhat more than rock and DAP, resulting in higher year, reflecting the strong developments in Brazil’s agricultural upgrading margins from rock to acid, and less from acid to DAP. sector.

Regional market developments INDUSTRIAL MARKET CONDITIONS In Western Europe, nitrogen fertilizer sales were down 6% from The market for environmental applications has retained momen­ 2010, as a result of strong early buying during the 2010/11 season tum in North America as more and more heavy-duty diesel trucks and the opposite taking place during the current 2011/12 season. hit the road with Selective Catalytic Reduction (SCR) technology Imports were down 9%, losing some market share to domestic for NOx emissions abatement. At the end of 2011, Integer Research producers, particularly during the second half of the year. Nitrate estimated that over 200,000 SCR-equipped Class 8 trucks had hit and NPK demand and prices were supported by tighter global the road. SCR technology utilizes AdBlue/DEF/ARLA32 urea as nutrient markets, due to improved farm economy. a reagent.

In the USA, the dynamics were similar, but less pronounced Brazil introduced NOx abatement legislation effective January than in Europe. Total nitrogen deliveries in 2011 exceeded 2010 2012, paving the way for further global growth for NOx abate­ by 1–2%. Actual nitrogen consumption grew more than this. ment products. In Europe, the rate of adoption of NOx abatement Deliveries late 2010 for consumption in 2011 were very high, products has been steady as the legislation is now into its sixth while deliveries in fourth quarter 2011 – for consumption in 2012 year of implementation for heavy-duty vehicles. Integer estimates – were characterized by buyers reluctant to take position. the number of SCR trucks on European roads to be over one million.

In India, urea sales were up by 6% in the period April through In the stationary segment, many co-generation power producers December, with domestic production increasing 1%. As sales and the European cement industry have begun installing SCR growth has outpaced the increase in production, the need for or Selective Non Catalytic Reduction (SNCR)-based NOx abate­ urea imports has increased. From April 2011 till the end of the ment equipment, typically using urea or aqueous ammonia as a WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 47

reagent. However, the uncertain economic conditions in Europe ing potential adverse effects on the company’s performance. At the have led several countries to not strictly enforce the legislation, same time, the risk factors are largely inseparable from opportuni­ while utilities have also not been operating at full blast. ties for improvements and growth – when handled proactively and effectively. In China, the implementation of NOx abatement legislation for heavy-duty vehicles has been postponed by 12 months. In the Yara’s JV Libyan Norwegian Fertiliser Company (Lifeco) halted maritime segment, in July 2011 the IMO officially designated North production in February 2011, due to considerations of the safety of America an Emission Control Area with more stringent require­ the employees and the plant during the civil unrest in Libya. This ments for lower NOx emissions from new ships from 2016. led to a loss of NOK 131 million in 2011.

Growth in the mining sector continues to outpace GDP growth, Yara also initiated an internal investigation in 2011 related to driven primarily by demand for raw materials and energy in many the establishment and follow-up of Yara’s interest in Lifeco. Yara countries. China continued to show strong demand for energy notified The Norwegian National Authority for Investigation and and steel, which has led to intensified coal and iron ore mining – Prosecution of Economic and Environmental Crime (Økokrim) the main consumers of technical nitrates for civil explosives – in of the possibility that criminal offenses may have occurred before countries such as Australia and the United States. Mining activity October 2008 in connection with the negotiations preceding the is expected to show strong growth in 2012. company’s investment in Libya.

Nitrogen demand for the process industry slowed down towards In connection with the on-going investigation process, a Yara the end of the fourth quarter in 2011, as uncertain economic employee brought forward information relating to a separate matter conditions prevailed in Europe. The process industry and the auto relating to a project in India during the period 2006–2007. The industry undertook extended maintenance turnarounds in the project aimed to establish a joint venture for the production and fourth quarter leading to lower demand for some products such as sale of fertilizer, but was not realized. Yara is under investigation ammonia and nitric acid. The construction sector also had a slower and formally charged for both matters. pace of activity during the second half of 2011. The glue sector began to show signs of a modest recovery late in the year. The overall risk level at Yara has not changed significantly from 2010, but the trend is positive, and the risks considered to be the

The CO2 and dry ice markets have seen stable growth over recent most relevant to Yara’s business are for the most part unchanged. years, with GDP growth as a key driver. With cooling and refresh­ Yara has taken great efforts to improve process safety, focusing on ing drinks as key applications, seasons and weather conditions both the technical aspects as well as human behavioral factors. In also have an impact with warm weather driving demand. Yara 2011, Yara continued to take steps to manage and mitigate risk, continues to pursue new, innovative applications, such as the specifically within the areas of safety and compliance, including cost-efficient and environmentally friendly use of liquid CO2 for the strengthening of contractor safety follow-up and require­ cryogenic solutions in refrigerated trucks. ments for working in confined space. However, Yara experienced three serious accidents, with one fatality in 2011. In 2011, Yara also undertook measures for improving its sourcing capabilities and reliability by acquiring two new ships for CO2 In response to increased attention to ethics and compliance transportation. These ships are expected to become operational in issues, Yara established an Ethics and Compliance Department the second half of 2012. in 2009. By the end of 2011, over 80% of Yara’s employees had participated in ethics training. MAjOR RISKS » Risk management / page 28 Managing risks and opportunities is an intrinsic part of Yara’s business. The company faces a number of external and internal risk factors, broken down into five categories; strategic, operational, political/economical, compliance, and financial risks, each harbor­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 48 / Management discussion & analysis Yara Financial Report 2011

saFety PROFITABILITY strategic goals 1 Yara’s goal is to be a leading performer 2 Yara’s goal is to deliver a Cash in the area of worker safety, with a targeted Return On Gross Investment (CROGI) and performance accident rate as close to zero as possible. of more than 10% as an average over the business cycle. 2011 Performance 2011: The TRI rate was 4.0 for employees and contractors combined. Performance 2011: Yara delivered There was one fatal accident. a CROGI of 20.9%, up from 17.4% in 2010.

relatIve CompetItIveness overall GrowtH CasH returns 3 and solIdIty 4 Yara’s goal is to increase its own-pro­ 5 Yara’s goal is that cash return to Yara’s goal is to deliver a Gross Return duced and JV sales volumes by 8 million tons shareholders should average 40–45% of (EBITDA/Total Assets) in the top quartile of from 2010 to 2016. net income, with dividends at a minimum its peer group and to maintain an investment 30% over the business cycle. Share grade credit rating. Performance 2011: Sales of own-produced buybacks will constitute the rest. and JV products were 20.9 million tons in Performance 2011: Yara’s Gross Return was 2011 compared to 21.8 in 2010. Performance 2011: Total cash returns in the top quartile in 2011, improving from to shareholders were NOK 2,347 million, 2010. Yara maintained a Standard & Poor’s or approximately 27% of 2010 net income. rating of BBB throughout 2011.

CreatInG ImpaCt InnovatIon envIronment 6 Yara’s goal is to positively address major 7 Yara’s goal is to develop an innovation 8 Yara’s goal is to be among the global challenges, shaped by three focal areas: culture to set the standard for both products/ most energy efficient in the industry, resources, food and environment. solutions and improvement of operations. and to reduce greenhouse gas emissions by 45% from 2004 to 2013. Performance 2011: Yara internally launched Performance 2011: Yara launched its global the Creating Impact strategic framework, and innovation process, consisting of Ideation, Performance 2011: Yara reached its is in the process of integrating the concept into Project management and Strategic innovation GHG goal ahead of schedule in 2010, its business strategy. platforms. Three platforms were launched, and saw a further improvement in 2011. paving the way to new business development.

GrowtH In low-Cost Human resourCe 9 Gas supply 10 manaGement Yara’s goal is to increase its proportion of Yara´s goal is to optimize the management production in low-cost gas regions in order of our people, to ensure that the company to reduce the average production cost of continues to have the skilled and engaged its fertilizer products. workforce it will need to meet future business challenges. Performance 2011: Yara’s share of non-European gas decreased from 43% Performance 2011: Yara provided close to in 2010 to 38% in 2011, primarily due 3,000 employees access to the HR Information to increased capacity utilization in Europe. System, piloted and improved several talent and performance management processes and launched a High Potentials program. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 49

financial performance fertilizer prices during 2011. Realized sales prices were up for all main products. Yara’s 2011 net income after non-controlling interests was NOK 12,066 million, which is 38% higher than 2010 net income and The Industrial segment delivered strong results with an EBITDA represents Yara’s best result so far. 2011 earnings per share were of NOK 2,001 million, including a gain of NOK 967 million for NOK 41.99, compared with NOK 30.24 in 2010. Full-year results the sale of Yara’s 16% ownership in Yara Praxair. The underlying improved significantly from 2010 due to higher prices and margins, EBITDA was 6% below last year despite the 7% volume increase, which more than offset higher energy prices and lower volumes. which did not compensate for the loss in margins in CO2 and environmental products. Overall fertilizer deliveries were 4% lower than in 2010, with a decline in Europe partly compensated by growth in premium The Upstream segment delivered an EBITDA of NOK 11,446 mil­ markets outside Europe. Average realized nitrate prices were 49% lion, an increase of 92% from 2010. The result reflects the increase higher than last year, while realized urea prices increased 37%. in prices for all products, which more than offset the negative effect NPK prices were 29% above 2010 levels. of higher energy cost. Finished fertilizer production volumes were in line with last year, whereas ammonia production decreased 9% Net interest-bearing debt decreased by NOK 4,001 million during compared with 2010. The EBITDA includes the one-time gain of 2011, ending at NOK 5,539 million. The decline reflects strong NOK 1,419 million for the sale of Yara’s share of Rossosh. EBITDA earnings and consideration from the sale of Yara’s minority hold­ excluding special items was up 69% compared with 2010. ing in NPK plant Rossosh in Russia, but is partly offset by increased net operating capital towards the end of the year. Fertilizer deliveries were 4% lower than in 2010, with nitrate and urea sales down 7 and 8% respectively, while NPK deliveries were The Downstream segment delivered an EBITDA of NOK 5,085 mil­ in line with 2010. In Europe, sales were slow during second half lion, a strong result as a tight fertilizer market improved margins with customers reluctant to replenish stocks in advance of the and increased sales to premium markets outside Europe. Strong application period. The decline in Europe was partly compensated global grain prices lifted fertilizer demand and, subsequently, by growth in premium markets outside Europe, in particular Asia

Financial highlights

NOK millions, except where otherwise indicated 2011 2010 2009 2008 2007

Revenue and other income 80,352 65,374 61,418 88,775 57,486 Operating income 13,240 7,467 1,271 12,281 4,987 Share net income equity-accounted investees 1,889 1,515 1,412 2,760 1,624 EBITDA 18,163 15,315 5,549 17,917 8,441 EBITDA excl. special items 16,010 10,748 5,492 17,723 7,788 Net income after non-controlling interests 12,066 8,729 3,782 8,228 6,037 Earnings per share 1) 41.99 30.24 13.08 28.27 20.60 Earnings per share, excl. currency and special items 1) 34.94 20.69 8.82 36.28 15.91 Average number of shares outstanding (millions) 287.3 288.7 289.2 291.1 293.0 CROGI (12-month rolling average) 20.9% 17.4% 8.5% 22.9% 16.1% ROCE (12-month rolling average) 25.8% 20.6% 7.4% 29.0% 22.4%

1) NOK per share. Yara currently has no share-based compensation programs that result in a dilutive effect on earnings per share.

Key statistics

Thousand tons 2011 2010 2009 2008 2007

Sales Fertilizer 19,522 20,276 20,099 20,540 21,303 Industrial products, excl. industrial gases 4,551 4,251 3,756 3,898 3,289 Total 24,073 24,527 23,855 24,438 24,592

Production 1) Ammonia 6,655 7,335 6,736 6,377 5,759 Finished fertilizer and industrial products, excl. bulk blends 17,307 17,195 15,457 16,695 14,550 Total 23,962 24,531 22,193 23,072 20,309

1) Including Yara share of production in equity-accounted investees. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 50 / Management discussion & analysis Yara Financial Report 2011

Variance analysis costs outside Europe were higher than a year ago, primarily due to higher ammonia prices in North America. NOK millions 2011

EBITDA 2011 18,163 Special items were a positive NOK 2,152 million in 2011, primarily EBITDA 2010 15,315 reflecting the sale of Rossosh and the Yara Praxair transaction. Variance EBITDA 2,847 In 2010, net special items were a positive NOK 4,568 million, pri­ marily reflecting the sale of Fosfertil and the break fee following Volume & mix (773) the termination of the merger agreement with Terra Industries. Price/Margin 10,175 » Further details on special items / page Oil & gas costs in Europe (2,813) 63 Special items (2,415) Other (521) In 2011, the US dollar was on average 7% weaker versus the Conversion (NOK vs. USD) 1) (806) Norwegian krone compared with 2010, resulting in a negative Total variance explained 2,847 translation effect in Yara’s results. 1) Based on quarterly average NOK per USD rates as detailed in Yara 2011 reports. NET INCOME FROM EQUITY-ACCOUNTED INVESTEES Net income from equity-accounted investees improved 25% from and Brazil. Industrial volumes increased 7%, driven by growth in the previous year, reflecting higher prices and margins as well as the environmental segment. normalization of Burrup results.

Realized prices were up compared with 2010. Nitrate prices were The improvement in result was partly offset by suspension of 49% higher than last year, urea prices increased 37%, and NPK prices Lifeco production since February 2011 amid the unrest in Libya, were 29% higher than in 2010, reflecting improved market funda­ and sales of Yara’s minority holdings in the Rossosh NPK plant mentals and nutrient values. Industrial margins were lower than a in third quarter. year earlier, due to increasing raw material prices for most of 2011. FINANCIAL ITEMS European oil and gas costs increased 42% from 2010, while Yara’s Yara bases its long-term funding on diversified sources of capital global average oil and gas costs were up 42% over last year. Energy to avoid dependency on individual markets. As the fertilizer busi-

Net income from equity-accounted investees

NOK millions 2011 2010 2009 2008 2007

Qafco 1,018 729 607 1,446 787 Tringen 243 227 118 295 184 Rossosh 112 137 81 506 104 Burrup 169 (156) 311 (193) 151 GrowHow UK 334 221 112 514 (33) Lifeco (131) 179 127 – – Other 144 178 56 193 432 Total 1,889 1,515 1,412 2,760 1,624

1) Burrup production halted from June to December 2008 due to gas supply disruption.

Financial items

NOK millions 2011 2010 2009 2008 2007

Interest income from customers 118 112 130 238 183 Interest income, other 201 130 121 132 105 Dividends and net gain/(loss) on securities (9) 3,580 124 306 36 Interest income and other financial income 309 3,822 376 676 325

Interest expense (650) (667) (728) (1,347) (488) Return on pension plan assets 451 419 376 423 358 Interest expense re. pension liabilities (457) (486) (504) (490) (370) Foreign exchange gain/(loss) (215) (676) 1,364 (3,313) 982 Other (162) (214) (89) (86) (81) Interest expense and foreign exchange gain/(loss) (1,033) (1,625) 419 (4,813) 401 Net financial income/(expense) (724) 2,197 794 (4,136) 726 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 51

ness is essentially a US dollar business, with both revenues and net interest-bearing debt raw material costs denominated or determined in dollars, Yara keeps a major part of its debt in US dollars in order to reduce NOK millions 2011 overall currency exposure. At year end 2011, 80% of Yara’s long- Net interest-bearing debt at beginning of period (9,540) term debt was US dollar denominated, and USD 900 million of Cash earnings 1) 11,067 Yara’s long-term debt carried fixed interest rates at an average Dividends received from equity-accounted investees 1,137 interest cost of 7.3%. See Note 24 (page 111) for further details on Net operating capital change (4,851) long-term debt. Rossosh divestment and dividend 2,492 Yara Praxair divestment 329 Investments (net) (2,848) Net financial expense in 2011 was NOK 724 million, compared with Share buy-backs and redemption of shares (763) an income of NOK 2,197 million in 2010. The difference mainly Yara dividend (1,584) reflects the net gain on securities last year from the sale of Yara’s Foreign exhange gain/(loss) (215) stake of the Brazilian phosphate producer Fosfertil. Other (762) Net interest-bearing debt at end of period (5,539)

1) Operating income plus depreciation and amortization, minus tax paid, net gain/(loss) on disposals, The net foreign exchange loss for 2011 totaled NOK 215 million net interest expense and bank charges. as the US dollar appreciated against both the euro and the Nor­ wegian krone. During the year, Yara’s US dollar debt generating currency effect was around USD 1.2 billion, with approximately The debt/equity ratio at the end of 2011, calculated as net interest- USD 1 billion of the exposure towards the euro. bearing debt divided by shareholders’ equity plus non-controlling interests, was 0.12 compared with 0.27 at the end of 2010. With an average gross debt level NOK 3.8 billion lower than in 2010, this year’s interest expense was NOK 17 million lower than TAx last year. Last year’s interest expense included a NOK 37 million 2011 current and deferred taxes were NOK 2,315 million, repre­ gain on interest rate derivatives, compared with a NOK 30 million senting approximately 16% of income before tax. The tax rate is less loss in 2011. than normal due to tax free gain from the sale of shares in Rossosh and in Yara Praxair. NET INTEREST­BEARING DEBT As a supplement to the consolidated statement of cash flows DIvIDEND POLICY (page 74), this table (page 51) highlights the key factors behind Yara’s objective is to pay out minimum 30% of net income as an the development in net interest-bearing debt. Net interest-bearing average over the business cycle. Yara believes it will be beneficial for debt decreased by NOK 4,001 million during 2011, ending at NOK shareholders that the company strives for a gradual increase and 5,539 million. The decline primarily reflects strong earnings and predictability in the absolute dividend level over time, independ­ consideration from the sale of Yara’s stake in Rossosh. ent of the business cycle. Consequently, Yara expects to pay out somewhat more than 30% of the net income in years with weaker Cash earnings increased significantly in 2011, reflecting an than historical average cash flow from operations, and less than improved market situation. This positive effect was partly offset by 30% in years with stronger than historical average cash flow from increased operating capital, mainly reflecting higher inventory and operations. accounts receivables. Dividends from equity-accounted investees were NOK 1,137 million, up from NOK 827 million in 2010. Yara’s Board will propose to the Annual General Meeting a divi­ » Further details see note 12 / page 99 dend payment of NOK 7 per share for the 2011 financial year, which represents 17% of net income after non-controlling interests and Net operating capital at the end of 2011 was NOK 14,109 million, an 20% of net income excluding net foreign exchange gains/losses and increase of NOK 4,817 million (excluding currency effects) from 31 special items. If approved, year-over-year increase in dividends per December 2010. This was primarily driven by higher volumes and share will be 27%. prices for most products. Cash payments to shareholders from dividends and share buy-back In addition to normal maintenance programs, growth investment programs combined are expected to be an average 40–45% of net activity in 2011 was significant, primarily due to the urea capacity income over the business cycle. The Board intends to propose to the expansion in Sluiskil, the Netherlands. Annual General Meeting a new buy-back program along the lines of the existing one. Yara’s Annual General Meeting approved a dividend for 2010 of NOK 5.50 per share, giving a total dividend of NOK 1,584 mil­ lion payable in 2011. Share buy-backs and redemption of shares amounted to NOK 763 million in 2011, compared to NOK 115 million in 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 52 / Management discussion & analysis Yara Financial Report 2011

outlook premium over urea due to their agronomic benefits, and the size of the premium is largely linked to the strength of farm margins and Global agricultural markets are strong. Although the FAO Food thereby crop price levels, particularly wheat prices for Yara. Price Index ended the year 7% lower than the average for 2011, the latter was still 6% higher than the average index for any other Based on the current strength of nitrogen prices, Yara aims to run calendar year. The price index increases reflect tight markets for a its fertilizer production facilities at full capacity. On this basis the broad range of agricultural products, and create strong incentives company will increase production in 2012, with the urea expansion to increase agricultural productivity. Assuming continued growth in Sluiskil fully on-stream following start-up in third quarter 2011 in global food consumption, the world needs another record grain and the Qafco 5 and Qafco 6 ammonia and urea expansions ramp­ crop in 2012 in order to prevent a further inventory decline. ing up during first and fourth quarter 2012 respectively. The Lifeco joint venture plant remains closed while preparations are made for Improved agricultural prices in 2011 led to strong fertilizer demand a safe return to normal operation. Yara is targeting a third-quarter during application season for all regions. However, the second half start-up, with full production by end 2012, contingent on natural of the year saw lower Northern hemisphere pre-buying activity for gas supplies being available by the summer. spring 2012 application, likely impacted by macroeconomic turbu­ lence, modestly declining crop prices, and a higher fertilizer price There is significant potential for high price volatility in the markets level. Nitrogen fertilizer industry deliveries in Western Europe for for agricultural commodities where supply is limited and customers the first half of the 2011/2012 season were 18% behind a year earlier, have a low sensitivity to price changes. Weather-related setbacks in following strong deliveries at the end of the 2010/2011 season and agricultural production could further increase fertilizer demand, low pre-buying activity in the current season. The supply of nitro­ while a significant drop in agricultural prices, e.g. in the event of gen fertilizer is limited, and the global nitrogen fertilizer industry improved harvest prospects, could lead to a temporary slow-down outside China is already running at full capacity as all producers in fertilizer deliveries. However, a substantial harvest increase in have positive margins. Furthermore, new export capacity start-ups the 2012/13 season will be required merely to avoid a decline in during 2011–2015 are expected to be in line with historical trend inventories. consumption growth. A majority of Yara’s dry raw material purchases are re-negotiated China has implemented a 110% urea export tax, effective from annually. While these costs are typically recouped in Yara’s finished 1 November 2011 through June 2012. Urea export volumes from fertilizer sale prices over time, the company expects to record a China were halved in 2011 compared with a year earlier, following smaller negative impact in its 2012 results compared to 2011, partly the introduction during the year of a stricter export tax system also as a result of rising phosphate rock prices during the year. Yara’s for the low-season period 1 July – 31 October. A similar progressive energy costs are projected to increase in first half of 2012 compared export tax mechanism has been announced for the same period in with a year earlier, based on current (8 March) forward markets for 2012, which at February domestic urea price levels would indicate oil products and natural gas. a swing export price around USD 400 per ton fob China from 1 July 2012. The necessary level of investment needed to maintain current capacity and productivity is estimated to be NOK 2 billion per year. Nitrate fertilizer prices increased in 2011 compared with a year In addition, Yara plans approximately NOK 1 billion of continuity earlier, reflecting both stronger nitrogen prices and a continued and reliability investments per annum in the next 2–3 years. healthy crop price level. Nitrates continue to command a price WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 53

OPERatING sEGMENts downstream performance

DOwNSTREAM PROvIDES a unique global presence in January 2008. Yara Nipro represents a business which is com­ consisting of Yara’s worldwide sales and marketing plementary to the already strong position held by Yara within the organization and global distribution network for fertilizer horticultural segment in Australia, and Yara Nipro’s operations products and agronomic solutions. have been integrated with those of Yara Australia. Yara Nipro has concentrated on irrigated high productivity agriculture and high The product offering covers both standard and high-value crop performance large-scale farmers, and in more recent years expanded segments where Downstream offers differentiated fertilizer operations into horticulture, wheat and sugar cane. With only about products and services. The segment offers the fertilizer industry’s 3% of the fertilizer in Eastern Australia supplied by liquids, there is most comprehensive product portfolio, ranging from standard huge potential for further growth. nitrogen products to complete crop nutrition solutions. In Asia, one of the regions with the highest demand for Yara’s Downstream has sales offices in approximately 50 countries premium products, Yara has established two new domestic compa­ and sales to more than 130 countries, delivering expertise and nies, Yara Shanghai in China and Yara India Fertilizer, to further value-adding products worldwide. Yara is the number one global develop these markets. In Latin America, Yara has established a brand in differentiated fertilizers, and Downstream is the leading new domestic company in Peru. Both Asia and Latin America are supplier of crop nutrition solutions for cash crops. seen as key growth markets for Yara going forward.

BUSINESS DEvELOPMENT Yara has purchased the remaining 1.5% shares in Yara Brazil from In January 2011, Yara purchased the remaining 60% of shares in the minority shareholders and has delisted the company from the Yara Nipro Pty Ltd. Yara Nipro is the market leader in bulk liquid Brazilian stock exchange. In December 2011, Yara and OCP S.A. fertilizers to many crops in Eastern Australia, and sales volumes agreed key terms for the establishment of a 50/50 joint venture have increased by 190% since Yara purchased a 40% ownership in Brazil. The proposed joint venture will, as a first step, involve

DOWNSTREAM 35 SALES VOLUME 25000 CROGI BY REGION Percent, Thousand tons, 2007–2011 28 2007–2011 20000

21 15000

14 Asia 10000 Africa Latin America 7 5000 North America Europe 0 2007 2008 2009 2010 2011 0 2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 54 / Management discussion & analysis Yara Financial Report 2011

OCP gaining a 50% interest in Yara’s existing terminal and produc­ trend was positive for the first three quarters of 2011, Downstream tion plant in Rio Grande. Through the joint venture, OCP and Yara saw positive gains from stock positions in the market. Urea prices will have access to the existing port, terminal and storage facilities, dropped 30% during fourth quarter, but through strict exposure which they plan to develop through new investments in the short management of third-party positions, losses were limited to NOK to medium term. The agreement will include the new joint venture 143 million at Yara level, primarily on urea stock. importing phosphate rock supplied by OCP and producing Single Super Phosphate (SSP) for blending by Yara into fertilizers and other Volumes were 4% below last year as sales in Europe were slow during phosphate products. Yara’s Rio Grande SSP plant has an annual second half with customers reluctant to replenish stocks in advance of capacity of approximately 650,000 tons, consuming approximately the application period. The decline in Europe was partly compensated 350,000 tons of phosphate rock. OCP and Yara expect that comple­ by growth in premium markets outside Europe, in particular Asia tion of the investment and the agreements will take place in first half and Brazil. Adjusting for the shortfall of Libyan urea and the change 2012, subject to regulatory approval. in business model related to the sale of the retail activity in South Africa, volumes were similar to last year on a comparable basis. PERFORMANCE Downstream delivered strong 2011 results as a tight fertilizer market NPK sales were also in line with last year. Reduced sales in Europe improved margins and increased sales to premium markets outside were offset by increased deliveries to Latin America, especially Europe. The underlying 2011 EBITDA represents the second best Brazil. Urea deliveries were down 8% as increased sales in Asia and year for Downstream so far. Africa did not compensate for shortfall in other regions. Also nitrate deliveries were 7% below last year due to slow sales in Europe during Strong global grain prices lifted fertilizer demand and subsequently second half 2011. fertilizer prices during 2011. Realized sales prices were up for all main products. Average realized nitrate prices were up 49%, while average Special items impacting EBITDA in 2011 were a negative NOK 5 realized NPK prices were up 29% compared with 2010, reflecting million. improved market fundamentals and nutrient values. As the price » Further details on special items / page 63

Financial highlights

NOK millions, except where otherwise indicated 2011 2010 2009 2008 2007

Revenue and other income 55,437 48,249 45,569 64,905 41,418 Operating income 4,330 3,424 262 3,412 2,007 EBITDA 5,085 7,796 963 4,648 3,035 EBITDA excl. special items 5,090 3,780 1,187 4,238 3,123 CROGI (12-month rolling average) 19.7% 32.1% 4.1% 14.9% 13.5% ROCE (12-month rolling average) 22.7% 39.1% 2.2% 15.4% 14.0%

Key statistics

Thousand tons 2011 2010 2009 2008 2007

Sales by region Fertilizer Europe 9,300 10,188 10,031 11,230 10,624 Fertilizer outside Europe 10,149 9,976 10,068 9,309 10,679 Total 19,449 20,164 20,099 20,540 21,303

Sales by product group Nitrate 5,122 5,486 6,089 5,608 5,339 NPK 6,562 6,610 6,211 7,561 8,079 of which own-produced 3,846 4,085 3,092 3,794 3,764 of which own blends 1,937 1,922 2,149 2,482 2,988 Urea 4,236 4,588 4,247 3,772 3,735 of which own-produced 1,613 1,636 1,757 996 1,076 of which equity accounted investees sourced 1,527 2,168 1,798 1,898 1,647 CN 915 841 680 757 932 UAN 1,158 965 1,009 981 1,190 Other products 1,456 1,675 1,862 1,860 2,029 Total 19,449 20,164 20,099 20,540 21,303 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 55

demonstrated that there does not need to be a conflict between variance analysis addressing environmental issues and delivering improved profit­ ability for farmers. NOK millions 2011 As a response to the global trends of water scarcity and food EBITDA 2011 5,085 quality, Yara is strengthening its initiatives within fertigation and EBITDA 2010 7,796 other solutions when water is scarce. Variance EBITDA (2,711)

Volume (299) The Yara Crop Nutrition concept focuses on nutritional man­ Price/margin 2,030 agement of the crop, in contrast to the traditional approach of Special items (4,021) feeding the soil. Yara Crop Nutrition brings together Yara’s global Other (128) crop knowledge, product portfolio and application competence Conversion (NOK vs. USD) 1) (293) Total variance explained (2,711) for the benefit of growers globally, increasing nutrient efficiency and reducing environmental impact. 1) Based on quarterly average NOK per USD rates as detailed in Yara 2011 reports.

Previously, Yara has mainly worked with distributors to com­ municate the Yara Crop Nutrition approach to growers. Partner­ Net operating capital turnover, measured on a 12-month rolling ing with food companies like Nestlé and PepsiCo represents an basis, was 6.4 at the end of 2011 versus 6.9 at the end of 2010, reflect­ additional attractive route to reach even more growers. Yara’s ing higher inventory levels. crop nutrition knowledge allows us to address several challenges which food companies are facing, including securing supplies of crops, increasing quality and reducing the environmental impact strategic focus of crop production. Optimizing nutrition plans for crop growers Downstream’s priority is to be the crop nutrition provider add­ will be a crucial contributor for food companies, to reach their ing the most value after own costs to any fertilizer product carbon footprint targets. from plant gate to our customer. The Downstream platform consists of its complete and high-quality product portfolio, its In 2012, Downstream starts the construction of a USD 20 million global fertilizer distribution network, and its extensive crop and fertilizer terminal in Dar es Salaam, Tanzania. The new terminal application expertise. is linked to Yara’s continued efforts to develop the Southern Agri­ cultural Growth Corridor of Tanzania (SAGCOT) in cooperation This platform will be strengthened by enhancing Yara’s focus on with several partners, including the Government of Tanzania, marketing and agronomy, both centrally and locally, in order to development partners and the private sector. By improving infra­ help farmers get the maximum benefit from Yara’s products and structure and financing, the corridor aims to harness the largely solutions. underutilized agricultural potential of Tanzania, linked to the port of Dar es Salaam, and to neighboring countries. Yara also has Yara innovates to secure a sustainable competitive advantage. several other initiatives in Africa focused on driving agricultural By developing knowledge, technology and tools to minimize development and contributing to economic growth for farmers, environmental impact while increasing productivity, Yara has distributors and Yara. downstream projects

Downstream aims to grow profitably based on its comprehensive product portfolio, global distribution network and extensive application expertise. Downstream’s ongoing projects include:

tanzanIa brazIl value CHaIn In 2012, Downstream Downstream will partnersHIps will begin the construc­ start construction of Downstream will tion of a USD 20 million a bulk warehouse in continue partnerships fertilizer terminal Porto Alegre during with PepsiCo, Nestle in Dar es Salaam, second half of 2012 and other food compa­ Tanzania. The terminal will have bulk handling with a storage capacity of 50,000 tons, an nies to improve returns for growers, Yara and and bagging facilities, and a total storage unloading system with capacity of 350 tons the food companies by using the Yara Crop capacity of 45,000 tons. It is expected to per hour, and two blenders. The project will Nutrition concept. be completed in 2013. replace existing facilities partly damaged by a fire in 2008. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 56 / Management discussion & analysis Yara Financial Report 2011

OPERatING sEGMENts industrial performance

IndustrIal Creates value over and above the BUSINESS DEvELOPMENT established Yara Upstream platform by developing ap­ There are five business units in Industrial, with an ambition to plications and selling chemicals and CO2, as well as tech­ grow the business globally from its existing strong European nologies and services, to non-fertilizer industries such as base. In 2011, Industrial showed strong growth in North America chemicals, utilities, civil explosives, transport, and food following the rapid progress of the EPA Clean Air Act, which was and beverages. implemented in the USA during 2010. North America is well on its way to becoming the world’s largest NOx abatement market for Yara occupies a leading position in nitrogen applications, creating heavy-duty vehicles. Globally, Yara is the largest producer of the value in its markets with a Total Service Provider approach. Beyond high-purity urea solution called AdBlue in most countries in the

the chemicals and CO2, this encompasses services and technology world, DEF (Diesel Exhaust Fluid) in North America or ARLA32 solutions that add value for Yara’s customers. Supply reliability and in Brazil. Under the brand name Air1, this product is used to reduce strict adherence to quality specifications are essential for industrial NOx emissions from heavy-duty vehicles. clients, who need products on a 24/7 basis throughout the year. In the USA, Yara has partnered with Mansfield Oil, the leading The Industrial portfolio includes a rapidly growing environmental independent fuel distributor in the country. By the end of 2011, applications segment for emissions abatement in transport, power Yara’s multi-sourcing platform had been further strengthened and generation, water utility and other sectors. This market is driven a nationwide distribution network was in place for DEF, bringing by stricter legislation and GDP growth. Yara has been a pioneer in the solution to customers across the USA and Canada. Industrial several applications for nitrogen oxides (NOx) abatement. also made forays into the Brazilian market for the DeNOx and

INDUSTRIAL 30 SALES BY 5000 CROGI BUSINESS Percent, Thousand tons, 2007–2011 24 2007–2011 4000

18 3000

12 Environmental 2000 products

6 GraphIndustrial text 1000 N-chemicals GraphTAN text 0 2007 2008 2009 2010 2011 0 2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 57

Financial highlights

NOK millions, except where otherwise indicated 2011 2010 2009 2008 2007

Revenue and other income 12,631 9,366 8,615 10,995 8,563 Operating income 1,667 850 940 401 1,441 EBITDA 2,001 1,135 1,248 629 1,645 EBITDA excl. special items 1,034 1,104 1,290 534 860 CROGI (12-month rolling average) 28.1% 17.8% 19.5% 10.4% 25.9% ROCE (12-month rolling average) 37.3% 22.8% 23.4% 10.2% 40.1%

Key statistics

Thousand tons 2011 2010 2009 2008 2007

Sales by product group (excl. industrial gases) 1) Environmental products 1,544 1,247 1,088 1,219 893 Industrial N-chemicals (incl. TAN) 3,057 3,004 2,668 2,678 2,396 of which TAN 734 705 674 805 646 Total 4,601 4,251 3,756 3,898 3,289

1) Segment view, includes inter-segment sales.

Chemicals sector. The Brazilian market for ARLA32 is set to grow During the second half of 2011, all product groups suffered from as legislation on emissions came into force on 1 January, 2012. a significant drop in margins. The uncertain economic conditions in Europe weighed heavily on Chemicals’ sales to the process and

Industrial’s global Technical Ammonium Nitrate (TAN) business automobile industries. CO2 business suffered loss of margins due to showed positive development in 2011, retaining its leading position higher cost of supply to customers resulting from simultaneous and in many developing markets. The strong performance of the mining multiple plant outages. The TAN business showed good develop­ sector in Scandinavia also helped the TAN business to efficiently ment as demand picked up in many mining countries, especially in serve its customers in its home base. In Australia, the development the Scandinavian market. The environmental segments continued of the Burrup TAN project is expected to proceed quickly as Yara to show positive development, driven by the USA. acquired a majority share in Yara Pilbara in February 2012. The lower margins were only partially compensated by strong In October 2011, Yara made a strategic purchase of Petro Miljö, a volume growth of 8% compared to 2010. Volume growth was seen Swedish technology provider leader in SNCR equipment for NOx in most groups, with environmental products for NOx abatement abatement. The integrated unit has been renamed Yara Miljö. contributing most, with 29%. Chemical sales slowed down in the last quarter of 2011 due to worsening economic conditions in

In Asia, the Calcium Nitrate (CN) production plant in Malaysia Europe. TAN sales were up 4% from last year. Liquid CO2 sales to successfully continued to pursue new market opportunities for latex European end-users decreased by 4%, due to supply disruptions. gloves manufacturing and for wastewater odor control. Special items reflect a NOK 967 million gain in 2011, on the PERFORMANCE divestment of Yara Praxair, while in 2010 a NOK 31 million gain Industrial EBITDA excluding special items was down 6% from 2010 was recognized from a settlement following the Pardies ammonia despite an 8% volume increase. The strong volume improvement plant closure in France. was reflected across all product groups. However, margins were considerably lower than last year due to increasing raw material prices for most of 2011. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 58 / Management discussion & analysis Yara Financial Report 2011

Variance analysis

VOLUMES BY 5000 NOK millions 2011 REGION Thousand tons, 2007–2011 4000 EBITDA 2011 2,001 EBITDA 2010 1,135 3000 Variance EBITDA 866

2000 Volume & mix 130 Price/margin (24) 1000 Outside Europe Special items 936 Europe Other (76) 0 2007 2008 2009 2010 2011 Conversion (NOK vs. USD) 1) (100) Total variance explained 866

1) Based on quarterly average NOK per USD rates as detailed in Yara 2011 reports.

strategic focus important milestone to serve several Industrial markets in Europe, Industrial growth is based on innovation that meets market the USA and Brazil. Industrial will also benefit from Yara’s planned needs, driven by GDP growth and increasingly stringent en­ expansion in Belle Plaine, Canada. vironmental legislation. Future profitable growth requires the strength of Yara’s production capability, innovation in In 2012, Industrial will significantly increase its activities in the technology, product development, and operational excel­ Brazilian NOx abatement market. This market is set to become the lence, to bring the right product and expertise to the custo­ third-largest in the world for AdBlue or ARLA32, the high purity mer, at the right time, at the lowest cost. All of these ele­ urea solution that eliminates toxic NOx emissions from heavy-duty ments will be in focus in 2012. vehicles. Yara will bring expertise to this market, by replicating its success from other markets. Alongside North America, countries in Latin America will progres­ sively implement emissions abatement legislation that will pave the The strategic acquisition of Petro Miljö, renamed Yara Miljö, was way for market development. Brazil has implemented the legislation the first step in Industrial’s decision to include leading-edge tech­ leading to the start of the ARLA32 market in January 2012 and nology for NOx abatement in the stationary sector and also provides Industrial is well positioned to take advantage of the growth oppor­ significant technology capability for future grow. tunity in that country. Industrial will also be targeting growth in the Middle East and Turkey. 2012 should see the first concrete steps towards establishing the Burrup TAN production facility. The planned annual capacity of All these regions need Industrial’s chemical solutions to support 330,000 tons will meet demand from iron ore, copper and diamond growth as GDP increases. Yara’s Upstream platform has upgraded mines, mostly in the Pilbara region. its production capacity in Sluiskil, Netherlands and this will be an

Industrial projects

Industrial aims to grow by providing innovative solutions to increasingly strict environmental requirements and the needs of rapidly growing economies around the world. Industrial’s pipeline projects and focus areas include:

AustrAliA usA GlobAlly In 2012 Yara is likely to Yara aims to further ex­ Brazil will be a major accelerate setting up the pand its market share for focus area for growth Burrup TAN production DEF in North America, in the AdBlue/ARLA32 facility. The Burrup TAN leveraging the sourcing segment. Yara is target­ plant, with a planned platform and distribution ing further growth in annual capacity of 330,000 tons will serve network established there since 2010. North the market for NOx abatement solutions in demand from iron ore, copper and diamond America is expected to become the world’s Europe and the USA and will take concrete mines mostly in the local Pilbara region. largest market for NOx abatement solutions steps to build our position in China using for heavy-duty vehicles. Yara Miljö’s technology platform. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 59

OPERatING sEGMENts upstream performance

UPSTREAM IS THE BACKBONE of Yara’s production Yara Brazil completed a BRL 5.8 million (approximately NOK 20 system, including world-scale ammonia and fertilizer million) investment revamping its Single Super Phosphateacidu­ plants, phosphate mines and global trade of ammonia. lation (SSP) plant in Rio Grande. The scrubbing system was renovated to meet new fluoride and dust emission level ceilings, Upstream produces ammonia, urea, nitrates, NPKs and other which went down by 80% and 50% respectively. nitrogen-based products as well as phosphoric acid and feed phos­ phates. Products are mainly sold through the Downstream and Following the recent acquisition of the controlling stake in the Industrial segments. Yara is the world’s number one producer of Burrup Holdings Limited (BHL), the Burrup Nitrates project will ammonia, nitrates and NPKs, and largest global trader of ammonia. now proceed as a JV between Apache, Orica and Yara, with Yara World-class operational efficiency and competitive raw material holding a 45% share. The planned TAN plant will have an annual sourcing gives Upstream significant competitive advantages, pro­ capacity of 330,000 tons in close proximity to the existing Burrup viding a world-class manufacturing base for Yara’s business. ammonia plant. The proposed TAN plant’s close proximity to the Pilbara mining industry plus adjacent ammonia supply gives it a BUSINESS DEvELOPMENT distinct advantage over other ammonium nitrate suppliers. In Sluiskil, Netherlands, the EUR 400 million urea expansion project was successfully concluded and taken into operation during PERFORMANCE third quarter 2011. The approximately 500,000 tons of increased Upstream 2011 EBITDA increased 92% over previous year, only volume (dry urea equivalent) represents a 45% capacity increase, outperformed by the record year 2008 results, reflecting the combined with lower energy consumption and increased reliability. increase in prices for all products.

NATURAL UPSTREAM 30 12 CROGI GAS COST Percent, USD/MMBtu, 10 2007–2011 24 2007–2011 European spot 18 gas (Zeebrugge) 8 US spot gas 12 (Henry Hub) 6

Yara’s global 6 energy cost 4 (weighted average) 2 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 60 / Management discussion & analysis Yara Financial Report 2011

Financial highlights

NOK millions, except where otherwise indicated 2011 2010 2009 2008 2007

Revenue and other income 43,510 31,663 25,899 45,826 23,659 Operating income 7,757 2,884 856 8,342 1,649 Share net income equity-accounted investees 1,738 1,335 1,308 2,482 1,316 EBITDA 11,446 5,975 4,013 12,372 3,797 EBITDA excl. special items 10,297 6,096 3,690 12,665 3,842 CROGI (12-month rolling average) 17.6% 10.2% 7.8% 27.9% 14.4% ROCE (12-month rolling average) 21.1% 10.1% 6.4% 40.5% 26.5% Oil & gas cost (weighted average) 1) USD per MMBtu 8.2 5.7 4.8 9.6 5.6 Oil & gas cost Europe (weighted average) 1) USD per MMBtu 10.7 7.6 6.6 12.0 7.4

1) Including Yara share in equity-accounted investees.

Key statistics

Thousand tons 2011 2010 2009 2008 2007

Production by category 1) Ammonia 6,655 7,335 6,639 6,167 5,546 Finished fertilizer 12,184 12,282 10,642 10,905 8,718 Total 18,839 19,617 17,281 17,072 14,264

1) Including Yara share of production in equity-accounted investees.

2011 ammonia production decreased 9% compared with last year, USD 8.2 per MMBtu, up 42% over 2010. Energy costs outside reflecting mainly a higher level of turnarounds in 2011 combined Europe were higher than a year ago, primarily due to higher with the production stops in Lifeco, Hull, Burrup and Billingham, ammonia prices in North America. the gas curtailments in Trinidad, and the Rossosh divestment. Finished fertilizer production was in line with 2010 volumes. The Special items in 2011 were a net positive NOK 1,149 million, increased production out of Tertre and Urea 7 in Sluiskil were offset mainly related to the sale of Rossosh, the Lifeco outage and prior by the stop in Lifeco and the Rossosh divestment. periods adjustment in Qafco. For the same period 2010, special items were a net negative of NOK 122 million. The Lifeco joint venture plant was safely stopped on 20 February 2011, due to the unrest in Libya, and remained closed while prepa­ rations were made for a safe return to normal operation. Yara is strategic focus targeting a third-quarter 2012 start-up, with full production by The Upstream segment in Yara focuses both on ensuring a end 2012, contingent on natural gas supplies being available by safe and sustainable, first-class operation of its existing asset the summer. base, and pursuing the increase of production capacity, mainly through exploring potential projects in areas with competitive In the third quarter, Yara sold its minority share in Rossosh with and sustainable feedstock for its nitrogen and NPK business a gain of NOK 1,419 million. This transaction illustrates the value and further optimizing of processes through identifying and of nitrophosphate NPK and nitrate capacity, which delivers prod­ resolving bottlenecks. ucts with superior yield and environmental performance com­ pared to commodity fertilizers. While Yara remains committed Plant reliability and productivity will continue to be a main as the leading player in this sector, this minority position does not focus area for Yara Upstream during the coming years. Yara will give the optimal integration with Yara’s global marketing system. continue its work to further improve reliability and productivity The offer was an attractive price for a non-integrated position. by following two initiatives:

European oil and gas costs increased from USD 7.6 per MMBtu 1) The Risk Based Inspection (RBI) program began in 2009, and to USD 10.7 per MMBtu, up 42% from 2010, while Yara’s global it has been adopted by most production units. These are now average oil and gas cost increased from USD 5.7 per MMBtu to showing positive results from the program and will now gear up WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 61

variance analysis

NOK millions 2011 UPSTREAM PRODUCTION UAN 720 CN 1,027 EBITDA 2011 11,446 Thousand tons, 2011 1) Ammonia EBITDA 2010 5,975 NPK 6,655 Variance EBITDA 5,472 3,565

Volume & mix (343) Price/margin 8,035 1) Including Yara share of production Oil & gas costs in Europe (2,813) in equity-accounted 3,294 Special items 1,270 investees. Nitrates Urea 3,578 Other (263) Conversion (NOK vs. USD) 1) (415) Total variance explained 5,472

1) Based on quarterly average NOK per USD rates as detailed in Yara 2011 reports.

to next level, focusing on pro-active preventive maintenance and Yara will meet the new requirements for our nitric acid plants spare part philosophy. by having Yara’s N2O reduction technology installed, while continuing to invest in higher energy efficiency and pursuing 2) The human factor. Plant reliability does not depend on techni­ lower emissions in its ammonia plants. cal components alone. Equally important is the human aspect expressed by competence, quality of operational procedures Yara will continue its long-term strategy of increasing production and operational discipline. In recent years Yara has not only capacity in areas with competitive and sustainable feedstock for significantly developed its efforts to further strengthen the com­ its business portfolio. This includes nitrogen production based on petence of its operators, but is also focusing on the evolution of competitively priced natural gas and also production of phosphate and compliance to the Yara Technical and Operational Standards and potash for its NPK plants. Efforts are mainly focused on the covering all aspects of safety and reliability. Middle East, Africa, Australia and Canada, but any areas with potential competitive feedstock are of interest. From 2013, all European ammonia and nitric acid plants will be regulated under the European Emission Trading Scheme (ETS).

upstream projects

Qatar Norway. The project is in its initial phase, but Canada The USD 3.2 billion should start to harvest some volumes already Based on the strong investment in Qafco 5 in 2013, with full effect expected towards the market and feedstock ammonia/urea plant end of 2014. fundamentals, as well in Qatar Fertiliser as the already existing Company, where Yara trInIdad infrastructure at our owns 25%, and the Qafco 6 urea project, will In November 2011, Belle Plaine plant in Canada, Yara is consider­ start up during 2012. the Board of Trinidad ing a new world-scale ammonia-urea project in Nitrogen, a 51–49% JV the same location. Such a project is in its initial norway company between the evaluation phase and, if greenlit, should take Following the strong Government of Trinidad around 4–5 years until production start-up. market fundamentals and Tobago and Yara, approved a USD 50 for Yara’s NPK portfolio, million energy improvement project that will Yara decided to pursue reduce the energy consumption in Tringen 1 by a 300,000 tons NPK 13% and will increase the daily capacity of the capacity expansion at its Porsgrunn plant in ammonia plant by 80 tons by 2014. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 62 / Management discussion & analysis Yara Financial Report 2011

other and eliminations mance indicators. EBITDA, which Yara defines as income/(loss) before tax, interest expense, foreign exchange gains/losses, depre­ 2011 EBITDA was a negative NOK 370 million, compared with ciation, amortization and write-downs, is an approximation of a positive NOK 410 million in 2010. The positive result in 2010 cash flow from operating activities before tax and net operating primarily reflects the NOK 666 million gain related to the Terra capital changes. EBITDA is a measure that in addition to operating break-up fee paid to Yara following the termination of the merger income, also includes interest income, other financial income, agreement with Terra Industries. and results from equity-accounted investees. It excludes depre­ ciation, write-downs and amortization, as well as amortization of excess values in equity-accounted investees. Yara’s definition of EBITDA may differ from that of other companies.

definitions and variance analysis EBITDA should not be considered as an alternative to operating income and income before tax as an indicator of the company’s The fertilizer season in West Europe referred to in this discussion operations in accordance with generally accepted accounting starts 1 July and ends 30 June. “Tons” in this document refers to principles. Nor is EBITDA an alternative to cash flow from oper­ metric tons, equal to 1,000 kilograms. ating activities in accordance with generally accepted accounting principles. Several of Yara’s purchase and sales contracts for commodities are, or have embedded terms and conditions which under IFRS Yara management uses CROGI (Cash Return On Gross Invest­ are, accounted for as derivatives. The derivative elements of these ment) to measure performance. CROGI is defined as gross cash contracts are presented under “Commodity-based derivatives flow, divided by average gross investment and is calculated on a gain/(loss)” in the condensed consolidated interim statement of 12-month rolling basis. “Gross cash flow” is defined as EBITDA income, and are referenced in the variance analysis (see below) as less total tax expense, excluding tax on net foreign exchange gains/ “Special items”. losses. “Gross Investment” is defined as total assets (exclusive of deferred tax assets, cash and cash equivalents, other liquid assets “Other and eliminations” consists mainly of cross-segment elimi­ and fair value adjustment recognized in equity) plus accumulated nations, in addition to Yara’s headquarter costs. Profits on sales depreciation and amortization, less all short-term interest-free from Upstream to Downstream and Industrial are not recognized liabilities, except deferred tax liabilities. in the consolidated Yara condensed consolidated interim statement of income before the products are sold to external customers. These ROCE (Return on Capital Employed) has been included as an internal profits are eliminated in “Other and eliminations”. additional performance measure to CROGI to simplify bench­ marking with other companies. ROCE is defined as EBIT minus Changes in “Other and eliminations” EBITDA therefore usu­ tax divided by average capital employed and is calculated on a ally reflect changes in Upstream-sourced stock (volumes) held 12-month rolling average basis. Capital employed is defined as by Downstream and Industrial, but can also be affected by total assets adjusted for deferred tax assets minus other current changes in Upstream margins on products sold to Downstream liabilities. and Industrial, as transfer prices move in line with arms-length market prices. With all other variables held constant, higher In order to track underlying business developments from period stocks would result in a higher (negative) elimination effect in to period, Yara’s management also uses a variance analysis Yara’s results, as would higher Upstream margins. Over time methodology, developed within the Company (“Variance Ana­ these effects tend to even out, to the extent that stock levels and lysis”), that involves the extraction of financial information from margins normalize. the accounting system, as well as statistical and other data from internal management information systems. Management con­ In the discussion of operating results, Yara refers to certain non- siders the estimates produced by the Variance Analysis, and the GAAP financial measures including EBITDA and CROGI. Yara’s identification of trends based on such analysis, sufficiently precise management makes regular use of these measures to evaluate to provide useful data to monitor our business. However, these the performance, both in absolute terms and comparatively from estimates should be understood to be less than an exact quantifi­ period to period. These measures are viewed by management as cation of the changes and trends indicated by such analysis. providing a better understanding – both for management and for investors – of the underlying operating results of the business The variance analysis presented in Yara quarterly and annual segments for the period under evaluation. Yara manages long- financial reports is prepared on a Yara EBITDA basis including term debt and taxes on a group basis. Therefore, net income is net income from equity-accounted investees. The volume, margin discussed only for the Group as a whole. and other variances presented therefore include effects generated by performance in non-consolidated investees. Yara’s management model, referred to as Value Based Manage­ ment, reflects management’s focus on cash flow-based perfor­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 63

Yara defines “special items” as material items in the results which derivatives gains or losses (see above) which are not the result of are not regarded as part of underlying business performance for active exposure or position management by Yara. the period. These fall into two categories, namely “non-recurring items” and “contract derivatives”. “Non-recurring items” comprise Due to it being impractical to obtain financial reports at the restructuring-related items and other gains or losses which are same reporting dates as Yara uses, the results for some of Yara’s not primarily related to the period in which they are recognized, equity-accounted investees are included in Yara results with a subject to a minimum value of NOK 20 million per item within one-month time lag. a 12-month period. “Contract derivatives” are commodity-based

special items

NOK millions 2011 2010 NOK millions 2011 2010

EBITDA effect Operating income effect Fair value adjustment Yara Nipro 44 – Fair value adjustment Yara Nipro 44 – Environmental provisions (24) – Environmental provisions (24) – Import duty charge prior years (26) – Import duty charge prior years (26) – Fair value adjustment Balderton – 185 Fair value adjustment Balderton – 185 Fosfertil sale – 3,578 Fosfertil sale – – Anitapolis sale – 122 Anitapolis sale – 122 Terni sale – 72 Terni sale – 72 Insurance settlement Brazil – 33 Insurance settlement Brazil – 33 Peremarton sale – 32 Peremarton sale – 32 Demolition provision Brazil – – Demolition provision Brazil – (28) Restructuring France – (34) Restructuring France – (40) Baria Serece sale – 38 Baria Serece sale – 38 Environmental provisions – (8) Environmental provisions – (8) Contract derivatives – (2) Contract derivatives – (2) Total Downstream (5) 4,016 Total Downstream (5) 403

Partial write down of Pardies plant – – Partial write down of Pardies plant (59) – Yara Praxair Holding AS revaluation Yara Praxair Holding AS revaluation of remaining 34% 658 – of remaining 34% 658 – Yara Praxair Holding AS sale of 16% 309 – Yara Praxair Holding AS sale of 16% 309 – Compensation Pardies closure – 31 Compensation Pardies closure – 31 Total Industrial 967 31 Total Industrial 908 31

Libya costs (164) – Libya costs – – Environmental provisions (28) – Environmental provisions (28) – Qafco restatement of prior periods (82) – Qafco restatement of prior periods – – Rossosh sale 1,419 – Rossosh sale 1,479 – Write down related to increased demolition costs – – Write down related to increased demolition costs (39) – Sale of shares Carbonors – 69 Sale of shares Carbonors – 69 Sluiskil asset decommissionings – – Sluiskil asset decommissionings – (39) Environmental provisions – (10) Environmental provisions – (10) Property damage insurance Tertre – 39 Property damage insurance Tertre – 39 Write-down Burrup – (165) Write-down Burrup – – Contract derivatives 4 (55) Contract derivatives 2 (29) Total Upstream 1,149 (122) Total Upstream 1,414 31

Gain sale of Nordic Rus Holding 42 – Gain sale of Nordic Rus Holding 42 – Terra break fee – 666 Terra break fee – 666 Environmental provisions – (24) Environmental provisions – (24) Total Other and eliminations 42 643 Total Other and eliminations 42 643 Total Yara 2,152 4,568 Total Yara 2,359 1,108 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 64 / Management discussion & analysis Yara Financial Report 2011

operational data

Thousand tons 2011 2010 2009 2008 2007

Purchase of raw materials, kt 1) Rock Phosphate 954 1,025 615 1,051 1,276 Potassium 1,797 1,971 879 1,646 1,641

Downstream production, kt Ammonia – – 82 71 Nitrates 2,622 2,553 2,847 2,693 2,619 NPK 1,604 1,573 1,194 2,125 2,087 CN 166 175 106 242 223 UAN 329 232 281 304 488

Upstream production, kt Ammonia 4,935 4,956 4,463 4,341 4,001 Urea 2,715 2,622 2,520 1,935 1,802 Nitrates 2,808 2,602 2,376 2,609 2,087 NPK 3,117 3,104 2,338 3,136 2,218 CN 1,027 1,008 797 956 1,049 UAN 720 581 480 351 350

Industrial production, kt Ammonia – 97 128 141 Nitrates (TAN) 402 380 388 425 415

Equity­accounted investees, kt 2) Ammonia 1,720 2,379 2,176 1,826 5,545 Urea 862 1,180 1,107 749 741 Nitrates 486 620 575 618 137 NPK 448 566 449 552 332

1) Purchased for consumption in Yara plants, including blending in Yara Brazil. 2) Yara share of production in equity-accounted investees. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 65

The yara share

yara aims to be an attractive investment for shareholders, and to provide competitive returns compared to other investment alternatives. The Yara share shall be liquid and an attractive investment opportunity.

We are committed to serving all our shareholders and potential 18% was from the United States and 7% from the United Kingdom. investors by providing consistent, open and prompt disclosure The Norwegian State, through the Ministry of Trade and Industry, of relevant information. Our policy is equal treatment of all is the largest single owner with 36.21% of the shares. Norwegian stakeholders, including analysts, banks, institutional investors and private ownership of Yara shares was approximately 22%. private shareholders. All information that may be important and relevant for Norwegian and international markets is provided in the ADR PERFORMANCE AND vOTING RIGHTS form of notices to the Oslo Stock Exchange (OSE) and through press Yara has a sponsored level 1 ADR (American Depository Receipt) releases. Yara presents quarterly results as live webcasts and at its program in the United States. The ADRs are not listed, but are headquarters at Bygdøy allé 2 in Oslo. In addition, Yara holds regular bought and sold OTC, i.e. through any broker licensed to buy and meetings with investors both in Europe and in North America. sell US securities. One ADR represents one ordinary Yara share.

SHARE PERFORMANCE AND DISTRIBUTION On 31 December 2011, the ADR was quoted at USD 39.85, a 31.3% In 2011, a total of 1,028 million Yara shares were traded of which decrease for the year. To find a recent price quote for Yara ADRs 607 million on the OSE, at a total value of NOK 171.6 billion, please go to www.adr.com. The ticker symbol is YARIY. making Yara the second most traded company on the OSE. The average daily trading volume for Yara shares on the OSE during Shares must be registered with the Norwegian Registry of Securities 2011 was 2.4 million. in the name of the real owner if holders want to vote for their shares at the shareholders’ meeting. Holders of Yara ADRs should check The highest closing price during the year was NOK 350 and the their voting rights with JP Morgan, which is the depository bank lowest was NOK 203.30. The year-end closing price was NOK for Yara ADRs. 240, representing a decrease of 29% from the 2010 year-end close. » Contact details / page 67 Yara’s market value as of 31 December 2011 was NOK 69.03 billion, making Yara the fourth-largest company quoted on the Oslo Stock CASH DISTRIBUTION POLICY Exchange. Yara expects to return 40–45% of average net income to shareholders over a business cycle. Dividends should be minimum 30% of aver­ At year-end 2011, Yara had 39,193 shareholders. Non-Norwegian age net income, with share buy-backs making up the balance. Total investors owned approximately 41% of the total stock, of which cash returned to shareholders in 2011 was NOK 2,347.5 million or WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 66 / Management discussion & analysis Yara Financial Report 2011

shareholding distribution orw As of 31 December 2011 SHAREHOLDING N egian St DISTRIBUTION er at th e O N As of 31 December 2011 o r 16.6% 36.2% w Ownership structure

e

g i a

n

p 7.1 % No. of shares No. of shareholders Percentage of share capital r

i

v

a

Norwegian State t

e 1–100 21,950 0.29

Norwegian Private

101–1,000 13,802 1.66 K

U 1 7.7 %

US

1,001–10,000 2,654 2.74

UK

22.3% 10,001–100,000 582 6.74

Other

100,001–one million 175 18.53

U

S

Over one million 32 70.05

roughly 27% of 2010 net income. Dividends accounted for NOK yara’s 20 largest shareholders 1) 1,584 million representing 18% of 2010 net income while share As of 31 December 2011 buy-backs amounted to NOK 763 million representing 9% of 2010 net income. Shareholders Holding (%) Ministry of Trade and Industry 36.21 Yara believes it will be beneficial for shareholders that the Com­ National Insurance Scheme Fund 6.58 pany aims for a gradual increase and predictability in the absolute Black Rock 2.39 dividend level over time, independently of the business cycle. Fidelity Investments 2.01 Consequently, Yara expects to pay out somewhat more than 30% Van Eck Global 1.98 of net income in years with weaker than average cash flow from People’s Bank of China 1.75 operations, and less than 30% in years with stronger than average DWS Investments 1.54 cash flow. The dividend pertaining to a fiscal year will be declared Storebrand Investments 1.49 at Yara’s annual general meeting in the following year. DNB Asset Management 1.37 Pareto 1.14 The Board of Directors will propose a dividend payment of NOK Invesco Perpetual 1.00 7.00 per share for 2011 to the Annual General Meeting. KLP 0.80 SSGA 0.77 The General Meeting on 10 May 2011 authorized Yara’s Board Yara International ASA 0.77 to buy back up to 5% of total shares (14,382,807 shares) before Allianz Global Investors 0.71 10 May 2011, at a purchase price not less than NOK 10 and not Legal & General Investment Management 0.60 more than NOK 1,000. A precondition for the program was that APG Asset Management 0.58 an agreement was entered into with the Norwegian State where Neptune Investment Management 0.58 the State committed to sell a proportional share of its holdings to Danske Capital 0.57 leave the State’s ownership (36.21%) unchanged. Vanguard Group 0.55

1) This shareholder list is delivered by RD:IR and VPS through their service Nominee ID. The list is made analyzing information provided by registered shareholders on request from Yara Inter- As of 31 December 2011 Yara had bought 2,200,000 shares under national. Neither RD: IR, or VPS guarantee that the information is complete. For a list of the the existing authorization. 20 largest registered shareholders as of 31 December 2011, see note 19 on page 104 in this annual report.

YARA SHARE & OBX 400 PERFORMANCE

2011 320

240

OBX indexed, 160 end 2010 =Yara’s share Graphprice text end 2010 80

GraphYara text 0 30.12.10 30.01.11 28.02.11 31.03.11 30.04.11 31.05.11 30.06.11 3 1.07.1 1 31.08.11 30.09.11 31.10.11 30.11.11 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Management discussion & analysis / 67

2011 ANNUAL GENERAL MEETING RATING Our shareholder meeting will take place at 18:00 (CET) Thursday Rating agencies Moody’s and Standard & Poor’s have rated Yara 10 May 2012, at Yara headquarters in Bygdøy allé 2, Oslo. Share­ as solid investment grade. Reflecting its strong market position holders who wish to attend the Annual General Meeting are asked and cost leadership, Yara is rated investment grade ‘Baa2’ with to inform Yara’s registrar by 12:00 CET on Monday 7 May 2012. Moody’s and ‘BBB’ with Standard & Poor’s.

Shareholders may also register electronically on the Yara web- CHANGE OF ADDRESS page www.yara.com/register or at the Verdipapirservice investor Shareholders registered in the Norwegian Registry of Securities services site at www.vps.no. should send information on changes of address to their registrars and not directly to the company. For more information on how to vote, consult Yara’s voting form or visit the company’s website.

ANALYST COvERAGE REGISTRAR INFORMATION 32 financial analysts provide market updates and estimates for Registered shareholders may contact our registrar in Norway Yara’s financial results. This includes 20 analysts located outside regarding share transfers, address changes and other issues related Norway. to their holding of Yara shares. The contact details are shown below.

Common share data

NOK, except where otherwise noted Q1 Q2 Q3 Q4 2011 2010 Basic earnings per share 10.02 7.73 12.42 11.84 41.99 30.24 Average number of shares outstanding 1) 288,259,681 287,838,612 287,193,916 286,019,464 287,321,413 288,680,758 Period end number of shares outstanding 1) 288,081,903 287,656,144 286,656,144 285,456,159 285,456,159 288,381,903 Average daily trading volume 2) 2,747,484 2,178,538 2,258,364 2,156,292 2,333,288 2,786,312 Average closing share price 305.8 304.1 283.2 241.2 283.2 251.2 Closing share price (end of period) 280.2 303.7 227.6 240.0 240.0 337.5 Closing share price high 350.00 335.50 319.90 275.30 350.00 337.5 Market capitalization (end of period NOK billion) 80.9 87.4 65.5 69.0 69.0 97.3 Dividend per share 7.0 3) 5.50

1) Excluding own shares 2) Only trades on OSE 3) Proposed

share facts syMBOl: YAR YARA’S ADR DEPOSITARY BANK 2012 DIvIDEND SCHEDULE lIstING: Oslo Stock Exchange (OSE) JPMorgan is the depositary bank for Ex-dividend date: 11 May 2012 Yara ADRs: Payment date: 23 May 2012 YARA’S REGISTAR IN NORwAY JPMorgan ADR Group DNB ASA 4 New York Plaza, 13th Fl. 2012 QUARTERLY EARNINGS Verdipapirservice New York, NY 10004 RELEASE DATES Stranden 21 USA First quarter: 27 April 2012 NO-0021 Oslo Phone (US): 800-990-1135 Second quarter: 18 July 2012 Phone: +47 22 48 35 90 Phone (outside US): +1-201-680-6630 Third quarter: 19 October 2012 Fax: +47 22 48 11 71 E-mail: [email protected] Fourth quarter: 12 February 2013 www.dnb.no www.adr.com WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Financial statements

Consolidated financial statements Financial statements for Yara International ASA

Consolidated statement of income / Page 69 Yara International ASA Income statement / Page 127 Consolidated statement of comprehensive income / Page 70 Yara International ASA Balance sheet / Page 128 Consolidated statement of changes in equity / Page 71 Yara International ASA Cash flow statement / Page 130 Consolidated statement of financial position / Page 72 Note 1: Accounting policies / Page 131 Consolidated statement of cash flows / Page 74 Note 2: Employee retirement plans and other Accounting policies / Page 75 similar obligations / Page 133 Note 1: Key sources of estimation uncertainty, Note 3: Remunerations and other / Page 136 judgements and assumptions / Page 81 Note 4: Property, plant and equipment / Page 137 Note 2: Business initiatives / Page 82 Note 5: Intangible assets / Page 138 Note 3: Business combinations / Page 83 Note 6: Specification of items in the income statement / Page 139 Note 4: Segment information / Page 85 Note 7: Financial income and expense / Page 139 Note 5: Operating expense / Page 90 Note 8: Income taxes / Page 140 Note 6: Stock-based compensation / Page 91 Note 9: Shares in subsidiaries / Page 141 Note 7: Financial income and expense / Page 91 Note 10: Shares in associated companies / Page 141 Note 8: Income taxes / Page 92 Note 11: Specification of items in the balance sheet / Page 142 Note 9: Intangible assets / Page 95 Note 12: Guarantees / Page 142 Note 10: Impairment testing of goodwill / Page 96 Note 13: Risk management and hedge accounting / Page 143 Note 11: Property, plant and equipment / Page 98 Note 14: Number of shares outstanding, shareholders, Note 12: Associated companies and jointly controlled entities / Page 99 equity reconciliation etc. / Page 144 Note 13: Equity securities / Page 101 Note 15: Long-term debt / Page 145 Note 14: Other non-current assets / Page 102 Note 16: Transactions with related parties / Page 146 Note 15: Inventories / Page 102 Directors responsibility statement / Page 147 Note 16: Trade receivables / Page 102 Auditor´s report / Page 148 Note 17: Prepaid expenses and other current assets / Page 103 Reconciliation of non-GAAP measures / Page 150 Note 18: Cash, cash equivalents and other liquid assets / Page 103 Note 19: Share information / Page 104 » Due to rounding differences, figures or percentages may Note 20: Earnings per share / Page 105 not add up to the total. Note 21: Non-controlling interests / Page 105 Note 22: Employee retirement plans and other similar obligations / Page 106 Note 23: Provisions and contingencies / Page 110 Note 24: Long-term debt by currencies / Page 111 Note 25: Trade payables and other payables / Page 112 Note 26: Bank loans and other short-term interest-bearing debt / Page 112 Note 27: Risk management and hedge accounting / Page 113 Note 28: Financial instruments / Page 117 Note 29: Secured debt and guarantees / Page 120 Note 30: Contractual obligations and future investments / Page 121 Note 31: Operating lease commitments / Page 122 Note 32: Related parties / Page 122 Note 33: External audit remuneration / Page 125 Note 34: Post balance sheet events / Page 125 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 69

Consolidated statement of income

NOK millions, except share information Notes 2011 2010

Revenue 4 77,726 64,006 Other income 2,11 2,698 1,429 Commodity based derivatives gain/(loss) 1,27,28 (72) (61) Revenue and other income 4 80,352 65,374

Raw materials, energy cost and freight expenses 30 (60,331) (49,247) Change in inventories of own production 2,502 104 Payroll and related cost 5,6,22 (4,698) (4,579) Depreciation, amortization and impairment loss 4,9,11 (2,677) (2,440) Other operating expenses 5,31,32,33 (1,908) (1,746) Operating cost and expenses 4 (67,112) (57,908)

Operating income 4 13,240 7,467

Share of net income in equity-accounted investees 4,12 1,889 1,515 Interest income and other financial income 7,27,28 309 3,822 Earnings before interest expense and tax (EBIT) 4 15,438 12,804

Foreign exchange gain/(loss) 7,27,28 (215) (676) Interest expense and other financial items 7,22,27,28 (818) (948) Income before tax 14,404 11,179

Income tax expense 8 (2,315) (2,386) Net income 12,090 8,793

Attributable to Shareholders of the parent 12,066 8,729 Non-controlling interests 21 24 64 Net income 12,090 8,793

Earnings per share 1) 20 41.99 30.24 Weighted average number of shares outstanding 2) 19,20 287,321,413 288,680,758

1) Yara currently has no share-based compensation that results in a dilutive effect on earnings per share. 2) Weighted average number of shares outstanding was reduced in third and fourth quarter 2010 and first, third and fourth quarter 2011, due to the share buy-back program. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 70 / Consolidated Financial Statement Yara Financial Report 2011 Consolidated statement of comprehensive income

NOK millions Notes 2011 2010

Net income 12,090 8,793

Exchange differences on translation of foreign operations 27 313 517 Actuarial gain/(loss) on defined benefit pension plans 22 (504) 105 Available-for-sale investments - change in fair value 13, 28 27 (30) Hedge of net investments 28 - (13) Share of other comprehensive income of equity-accounted investees 12 (177) (66) Reclassification adjustments related to: - cash flow hedges 7, 28 11 10 - exchange differences on foreign operations disposed of in the year 12 144 (119) - available-for-sale investments disposed of in the year 13, 28 (2) (1,244) Total other comprehensive income, net of tax (189) (839)

Total comprehensive income 11,901 7,955

Total comprehensive income attributable to Shareholders of the parent 11,880 7,895 Non-controlling interests 22 59 Total 11,901 7,955

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 71 Consolidated statement of changes in equity

Available- Premium Translation for-sale Cash Hedge Total Attributable to Non- Share paid-in of foreign financial flow of net other Retained shareholders of controlling Total NOK millions Capital 1) capital operations assets hedges investments reserves earnings the parent interests equity

Balance at 1 January 2010 491 435 (423) 1,278 (155) 103 803 26,976 28,705 158 28,863

Net income ------8,729 8,729 64 8,793

Other comprehensive income, net of tax - - 404 (1,274) 10 (13) (873) 105 (768) (5) (773) Share of other comprehensive income - - (7) - (75) - (82) 16 (66) - (66) of equity-accounted investees Total other comprehensive income, net of tax - - 397 (1,274) (66) (13) (955) 121 (833) (5) (839)

Buyout of non-controlling interests 2) ------(1) (1) - (1) Treasury shares 3) (1) - - - - - (1) (114) (115) - (115) Share capital increase in subsidiary, ------4 4 non-controlling interests Dividend distributed ------(1,300) (1,300) (71) (1,371) Balance at 31 December 2010 490 435 (26) 4 (221) 90 (152) 34,411 35,185 149 35,334

Net income ------12,066 12,066 24 12,090

Other comprehensive income, net of tax - - 458 25 11 - 493 (504) (11) (2) (13) Share of other comprehensive income - - (2) - (57) - (59) (118) (177) - (177) of equity-accounted investees Total other comprehensive income, net of tax - - 456 25 (46) - 434 (622) (188) (2) (189)

Long term incentive plan ------(12) (12) - (12) Buyout of non-controlling interests 4) ------(81) (81) 7 (74) Treasury shares 5) (4) ------(643) (647) - (647) Redeemed treasury shares 5) - (203) -- - - - 203 - - - Redeemed shares, Norwegian State 5) (1) (115) ------(116) - (116) Dividend distributed ------(1,584) (1,584) (22) (1,606) Balance at 31 December 2011 485 117 430 29 (267) 90 282 43,737 44,623 157 44,779

1) Par value 1.70. 2) Related to purchase of remaining 30% of shares in Yara Servicios Logisticos 3) As approved by General Meeting 11 May 2010 4) Related to purchase of remaining 1.46% of shares in Yara Brazil Fertilizantes S.A. 5) As approved by General Meeting 10 May 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 72 / Consolidated Financial Statement Yara Financial Report 2011

Consolidated statement of financial position

31 DECEmBER

NOK millions Notes 2011 2010

ASSETS Non-current assets Deferred tax assets 1,8 1,474 1,650 Intangible assets 1,3,9,10 5,164 4,937 Property, plant and equipment 1,3,11,29 24,118 23,470 Equity-accounted investees 4,12,34 11,092 10,223 Other non-current assets 1,13,14,22,28 1,875 2,269 Total non-current assets 4 43,723 42,549

Current assets Inventories 1,15 12,683 9,644 Trade receivables 1,16,28 8,680 6,644 Prepaid expenses and other current assets 17,28 2,935 2,866 Other liquid assets 18,28 1 802 Cash and cash equivalents 18,28 5,868 2,946 Non-current assets classified as held-for-sale 11 12 Total current assets 4 30,177 22,915

Total assets 4 73,900 65,464

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 73

Consolidated statement of financial position

31 DECEmBER

NOK millions, except number of shares Notes 2011 2010

EQUITY AND LIABILITIES Equity Share capital reduced for treasury stock 19 485 490 Premium paid-in capital 117 435 Total paid-in capital 603 926

Other reserves 282 (152) Retained earnings 19 43,737 34,411 Total equity attributable to shareholders of the parent 44,623 35,185

Non-controlling interests 21 157 149 Total equity 44,779 35,334

Non-current liabilities Employee benefits 1,22,32 2,673 2,254 Deferred tax liabilities 1,8 3,489 3,660 Other long-term liabilities 6,28 234 283 Long-term provisions 1,23 252 430 Long-term interest-bearing debt 24,28 10,280 11,139 Total non-current liabilities 16,927 17,766

Current liabilities Trade and other payables 4,25,28 8,523 8,111 Current tax liabilities 1,324 1,019 Short-term provisions 1,4,23 318 321 Other short-term liabilities 4,28 901 763 Bank loans and other interest-bearing short-term debt 26,28 707 1,968 Current portion of long-term debt 24,28 420 180 Total current liabilities 12,193 12,363

Total equity and liabilities 73,900 65,464

Number of shares outstanding 19 285,456,159 288,381,903

The Board of Directors of Yara International ASA Oslo, 22 March 2012

Øivind Lund Elisabeth Harstad Leiv L. Nergaard Hilde Merete Aasheim Chairperson Board member Board member Board member

Bernt Reitan Kristine Haukalid Svein Flatebø Geir O. Sundbø Board member Board member Board member Board member

Jørgen Ole Haslestad President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 74 / Consolidated Financial Statement Yara Financial Report 2011

Consolidated statement of cash flows

NOK millions Notes 2011 2010

Operating activities Operating income 4 13,240 7,467

Adjustments to reconcile operating income to net cash provided by operating activities Depreciation, amortization and impairment loss 4,9,11 2,677 2,440 Write-down 139 (193) Tax paid (1,827) (727) Dividend from equity-accounted investees 12 1,480 827 Interest and bank charges received/(paid) (491) (615) Gain/(loss) on sale and revaluation of non-current assets 2 (2,531) (567) Other (279) (304)

Working capital changes that provided/(used) cash Receivables (1,738) (631) Inventories (3,170) (1,621) Prepaid expenses and other current assets 239 879 Payables (82) 547 Other interest free liabilities (292) (407) Net cash provided by operating activities 7,363 7,093

Investing activities Purchases of property, plant and equipment 4,11 (2,899) (3,090) Net cash outflow on acquisition of subsidiary 3 (217) (560) Purchases of other long-term investments 2,3,4 (85) (147) Net sales/(purchases) of short-term investments 18 801 (800) Proceeds from sales of property, plant and equipment 11 34 84 Net cash inflow on disposal of subsidiary 2 - 44 Proceeds from sales of other long-term investments 2 2,797 4,993 Net cash provided by investing activities 431 524

Financing activities Loan proceeds 8,769 15,835 Principal payments (11,141) (20,178) Purchase of treasury shares 19 (647) (115) Redeemed shares Norwegian State 19 (116) - Dividend 19 (1,584) (1,300) Net cash transfers (to)/from non-controlling interests 2,21 (113) (67) Net cash used in financing activities (4,833) (5,825)

Foreign currency effects on cash (40) 180

Net increase/(decrease) in cash and cash equivalents 2,922 1,972 Cash and cash equivalents at 1 January 2,946 974 Cash and cash equivalents at 31 December 18 5,868 2,946

Bank deposits not available for the use of other group companies 18 311 196 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 75

Accounting policies

GENErAL functional currency, which is also used as the presentation currency for the Yara (the Group) consists of Yara International ASA and its subsidiaries. consolidated financial statements. In preparing the consolidated financial Yara International ASA is a public limited company incorporated in Nor­ statements, the financial statements of foreign operations are translated way. The Company’s registered office is at Bygdøy Allé 2, Oslo, Norway. using the exchange rates at year-end for statement of financial position items and monthly average exchange rates for statement of income items. The consolidated financial statements consist of the Group and the Group’s Translation gains and losses, including effects of exchange rate changes on interests in associated companies and jointly controlled entities. The princi­ transactions designated as hedges of net foreign investments, are included pal activities of the Group are described in note 4 and note 12. in shareholder’s equity as a separate component. The translation difference derived from each foreign subsidiary, associated company or jointly con­ STATEmENT OF COmpLIANCE trolled entity, accumulated from 1 January 2004, is reversed through the The consolidated financial statements have been prepared in accordance statement of income as part of the gain or loss arising from the divestment with International Financial Reporting Standards (IFRSs) and interpreta­ or liquidation of such a foreign entity. tions adopted by the International Accounting Standards Board (IASB) and approved by the European Union (EU). In individual companies, transactions in currencies other than the entity’s functional currency are recorded at the exchange rate at the date of transac­ BASIS OF prEpArATION tion. Monetary items denominated in foreign currencies are translated at The consolidated financial statements have been prepared under the his­ the exchange rate at the balance sheet date. Non-monetary items that are torical cost convention; modified to include revaluation to fair value of measured in terms of historical cost in a foreign currency are not re-trans­ investment property, of available-for-sale financial assets and derivative lated. financial instruments. Assets and liabilities in foreign currency BASIS OF CONSOLIDATION Gains and losses arising on transactions, assets and liabilities other than the The consolidated financial statements include Yara International ASA and translation gains/losses, are recognized in the statement of income, except entities controlled by Yara International ASA (its subsidiaries). Control is for gains and losses on transactions designated and effective as hedge achieved where the Company has the power to govern the financial and accounting. operating policies of an entity so as to obtain benefits from its activities. Controlling interest is usually achieved when Yara has more than 50% of Foreign exchange hedges voting rights. In some situations de facto control of an entity may be To hedge the Group’s currency exposure the Group enters into currency- achieved through other means than voting rights, such as through contrac­ based derivative financial instruments. The Group’s accounting policies for tual agreements. such contracts are explained below under financial instruments.

Income and expenses of subsidiaries acquired or disposed of during the BUSINESS COmBINATIONS year are included in the consolidated statement of comprehensive income Acquisitions of subsidiaries and businesses are accounted for using the from the effective date of acquisition and up to the effective date of disposal, acquisition method. The consideration transferred in a business combina­ as appropriate. Total comprehensive income of subsidiaries is attributed to tion is measured at fair value, which is calculated as the sum of the acquisi­ the owners of Yara International ASA and to the non-controlling interests tion-date fair values of the assets transferred by the Group, liabilities even if this results in the non-controlling interests having a deficit balance. incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acqui­ All intra group transactions, balances, income and expenses are eliminated sition-related costs are recognized in profit or loss as incurred. in full on consolidation. Profit or losses from transactions with associated companies and jointly controlled entities are recognized in the Group’s con­ At the acquisition date, the identifiable assets acquired and the liabilities solidated financial statements only to the extent of interest in the associate assumed are recognized at their fair value at the acquisition date, except for or jointly controlled entity that is not related to the Group. deferred tax assets and liabilities, share-based payment arrangements and held-for-sale assets or disposal groups. Goodwill is measured as the excess Changes in the Group’s ownership interests in subsidiaries that do not result of the sum of the consideration transferred, the amount of any non-control­ in the Group losing control over the subsidiaries are accounted for as equity ling interests in the acquiree, and the fair value of the acquire’s previously transactions. Any difference between the amount by which the non-con­ held equity interest in the acquiree (if any) over the net of the acquisition- trolling interests are adjusted and the fair value of the consideration paid or date amounts of the identifiable assets acquired and the liabilities assumed. received is recognized directly in equity and attributed to owners of the Company. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is FOrEIGN CUrrENCIES remeasured to fair value at the acquisition date through profit or loss. Translation to Norwegian krone (NOK) of foreign companies The individual financial statements of a subsidiary company are prepared in For each business combination, the acquirer measures the non-controlling the company’s functional currency, normally the currency of the country interest in the acquiree either at fair value or at the proportionate share of where the company is located. Yara International ASA uses NOK as its the acquiree’s identifiable net assets. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 76 / Consolidated Financial Statement Yara Financial Report 2011

When the consideration transferred by the Group in a business combina­ Yara’s rebate arrangements include fixed-rate rebates or variable rate rebates tion includes assets or liabilities resulting from a contingent consideration increasing with higher volumes. For variable rate rebates, the estimated rebate arrangement, the contingent consideration is measured at its acquisition- is accrued at each revenue transaction, and the accrual is adjusted at the end date fair value and included as part of the consideration transferred in a of each rebate period, which typically is the end of a fertilizer season. business combination. Changes in the fair value of the contingent consider­ ation that qualify as measurement period adjustments are adjusted retro­ In arrangements where Yara acts as an agent, such as commission sales, only spectively, with corresponding adjustments against goodwill. Measurement the net commission fee is recognized as revenue. period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year Government grants from the acquisition date) about facts and circumstances that existed at the Government grants are recognized in the consolidated financial statement acquisition date. when the Group has reasonable assurance that it will receive them and com­ ply with conditions attached to them. Government grants that compensate If the initial accounting for a business combination is incomplete by the end the Group for expenses are recognized in the statement of income as the of the reporting period in which the combination occurs, the Group reports expenses are incurred. Government grants that compensate the Group for provisional amounts for the items for which the accounting is incomplete. the cost of an asset are recognized in the statement of income on a system­ Those provisional amounts are adjusted during the measurement period (see atic basis over the useful life of the asset. above), or additional assets or liabilities are recognized, to reflect new infor­ mation obtained about facts and circumstances that existed at the acquisition Dividends received date that, if known, would have affected the amounts recognized at that date. Dividends from investments are recognized in the statement of income when the Group has a right to receive the dividends. GOODWILL Goodwill is initially measured at cost being the excess of the aggregate of Interest income the consideration transferred and the amount recognized for non-control­ Interest income is recognized in the statement of income as it is accrued, ling interest over the net identifiable assets acquired and liabilities assumed. based on the effective interest method. If this consideration is lower than the fair value of the net assets of the sub­ sidiary acquired, the difference is recognized in profit or loss. TAx Income tax expense represents the sum of the tax currently payable and After initial recognition, goodwill is measured at cost less any accumulated deferred tax. impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated Current tax to each of the Group’s cash-generating units that are expected to benefit The tax currently payable is based on taxable profit for the year. from the combination. Deferred tax Cash-generating units to which goodwill has been allocated are tested for Deferred tax is recognized on differences between the carrying amounts of impairment annually, or more frequently when there is an indication that assets and liabilities in the financial statements and the corresponding tax the unit may be impaired. If the recoverable amount of the cash-generating base used in the computation of taxable profit, and is accounted for using the unit is less than the carrying amount of the unit, the impairment loss is statement of financial position liability method. Deferred tax liabilities are allocated first to reduce the carrying amount of any goodwill allocated to generally recognized for all taxable temporary differences, and deferred tax the unit and then to the other assets of the unit prorated on the basis of the assets are generally recognized for all deductible temporary differences to the carrying amount of each asset in the unit. An impairment loss recognized extent that it is probable that taxable profits will be available against which for goodwill is not reversed in a subsequent period. On disposal of a subsid­ those deductible temporary differences can be utilized. Such assets and liabil­ iary, the attributable amount of goodwill is included in the determination of ities are not recognized if the temporary difference arises from goodwill or the gain or loss on disposal. from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor The Group’s accounting policy for goodwill arising on the acquisition of an the accounting profit. associate or jointly controlled entity is described under associated companies. Deferred tax liabilities are recognized for taxable temporary differences asso­ rEvENUE rECOGNITION ciated with investments in subsidiaries and associates, and interests in jointly Revenue is measured at the fair value of the consideration received or controlled entities, except where the Group is able to control the reversal of receivable and represents amounts receivable for products provided in the the temporary difference and it is probable that the temporary difference will normal course of business, net of discounts and sales related taxes. not reverse in the foreseeable future. Deferred tax assets arising from deduct­ ible temporary differences associated with such investments and interests are Sale of goods only recognized to the extent that it is probable that there will be sufficient Revenue from the sale of products, including products sold in international taxable profits against which to utilize the benefits of the temporary differ­ commodity markets, is recognized when all the following conditions are ences and they are expected to reverse in the foreseeable future. satisfied: • the Group has transferred to the buyer the significant risks and rewards Current and deferred tax for the period of ownership of the goods Current and deferred tax are recognized as expense or income in the state­ • the Group retains neither continuing managerial involvement to the ment of income, except when they relate to items recognized in other com­ degree usually associated with ownership nor effective control over the prehensive income, in which case the tax is also recognized as other com­ goods sold prehensive income, or where they arise from the initial accounting for a • the amount of revenue can be measured reliably business combination. In the case of a business combination, the tax effect • it is probable that the economic benefits associated with the transaction is taken into account in calculating goodwill or determining the excess of will flow to the Group Yara’s interest in the net fair value of the acquiree’s identifiable assets, liabil­ • the costs incurred or to be incurred in respect of the transaction can be ities and contingent liabilities over cost. measured reliably. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 77

INTANGIBLE ASSETS controlled entities are incorporated into the consolidated financial state­ Intangible assets with finite useful lives that are acquired separately are car­ ments using the equity method of accounting. Under the equity method of ried at cost less accumulated amortization and accumulated impairment accounting, investments are carried in the consolidated statement of finan­ losses. Amortization is recognized on a straight-line basis over their esti­ cial position at cost as adjusted for post-acquisition changes in the Group’s mated useful lives. The estimated useful life and amortization method are share of the net assets of the associated companies and jointly controlled reviewed at the end of each reporting period, with the effect of any changes entities, less any impairment in the value of the investment. in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost The consolidated statement of income reflects the Group’s share of the less accumulated impairment losses. results after tax of the associated companies and jointly controlled entities. The consolidated statement of comprehensive income reflects the Group’s Separately acquired intangible assets are recognized at fair value at the time share of any income and expense recognized by the associate or jointly con­ of acquisition. As part of business combinations, intangible assets acquired trolled entity outside the statement of income. Any excess of the cost of as a result of contracts or legal rights, or rights that can be separated from acquisition of the Group’s share of the net fair value of the identifiable assets, the acquired entity, are recognized at fair value. liabilities and contingent liabilities recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying Research costs are expensed as incurred. Costs incurred in development of amount of the investment and is assessed for impairment as part of the certain internally generated intangible assets, such as software, are expensed investment. Yara reviews the carrying amount of equity-accounted invest­ until all the recognition criteria are met. Qualifying costs incurred subse­ ments for impairment if indications of loss in value are identified. Impair­ quent to meeting the recognition criteria are capitalized. ment indicators may be operating losses or adverse markets conditions. As Yara’s associated companies and jointly controlled entities are generally not prOpErTY, pLANT AND EQUIpmENT listed on a stock exchange or regularly traded, the impairment review for Property, plant and equipment are measured at historic cost less accumu­ such investments can rarely be based on observable market prices. Fair lated depreciation and any impairment loss. If a legal or constructive obliga­ value of the investment is estimated based on valuation model techniques. If tion exists to decommission property, plant and equipment, the carrying it is considered probable that the fair value is below Yara’s carrying value, an value of the assets is increased with the discounted value of the obligation impairment loss is recognized. In preparing their individual financial state­ when it arises. ments, the accounting policies of some associated companies and jointly controlled entities do not conform with the accounting policies of Yara. Expenses in connection with periodic maintenance on property, plant and Where appropriate, adjustments are therefore made in order to present the equipment are recognized as assets and depreciated on a systematic basis consolidated financial statements on a consistent basis. until the next periodic maintenance, provided the criteria for capitalizing such items have been met. Expenses in connection with ordinary mainte­ INvENTOrY nance and repairs are recognized in the statement of income as they are Inventories are stated at the lower of cost, using the first-in, first-out method incurred. Expenses incurred in connection with major replacements and (”FIFO”), and net realizable value. Net realizable value is estimated sales renewals that materially extend the life of property, plant and equipment are price reduced by costs of completion and other sales costs. Cost is direct capitalized and depreciated on a systematic basis. materials, direct labor, other direct cost and an appropriate portion of pro­ duction overhead, or the price to purchase inventory. Property, plant and equipment are depreciated on a straight-line basis over their expected useful life. If individual parts of property, plant and equip­ ImpAIrmENT OF NON-CUrrENT ASSETS ment have different useful lives they are accounted for and depreciated OThEr ThAN GOODWILL separately. Expected useful life and residual value is, unless immaterial, re­ The Group assesses the carrying amount of tangible assets and identifiable assessed annually. An asset’s carrying amount is written down to its recover­ intangible assets annually, or more frequently if events or changes in cir­ able amount if the assets carrying amount is higher than its estimated recov­ cumstances indicate that such carrying amounts may not be recoverable. erable amount. Gain or loss due to sale or retirement of property, plant and Factors considered material by the Group and that could trigger an impair­ equipment is calculated as the difference between sales proceeds and carry­ ment test include: ing value and is recognized in the statement of income. • significant under performance relative to historical or projected future results, or Borrowing costs directly attributable to the acquisition, construction or • significant changes in the manner of the Group’s use of the assets or the production of qualifying assets, which are assets that necessarily take a sub­ strategy for the overall business, or stantial period of time to get ready for their intended use or sale, are added • significant negative industry or economic trends. to the cost of those assets. The recoverable amount of an asset or cash-generating unit is the higher of ASSOCIATED COmpANIES its fair value less cost to sell and value in use. When it is determined that the AND JOINTLY CONTrOLLED ENTITIES carrying amount of tangible assets and identifiable intangible assets may not Associated companies are investments in companies where the Group has be recoverable based upon the existence of one or more of the above indica­ significant influence, but not control. Significant influence normally exists tors of impairment, any impairment is measured based on discounted pro­ when the Group controls between 20% and 50% of the voting rights. Yara jected cash flows using a pre-tax discount rate. An impairment loss is recog­ has currently no investments with ownership level less than 20% classified nized to the extent that the carrying amount of an asset or a cash-generating as an associate. unit exceeds its recoverable amount.

A jointly controlled entity is a contractual arrangement whereby the Group Previously recognized impairment losses, except for goodwill, are reversed and one or more parties undertake an economic activity that is subject to if the assumptions for impairment are no longer present. Impairment losses joint control, which is when the strategic, financial and operating policy are only reversed to the extent that the asset’s carrying amount does not decisions relating to the activities of the jointly controlled entity require the exceed the carrying amount that would have been determined, net of depre­ unanimous consent of the parties sharing control. A jointly controlled ciation, if no impairment had been recognized. entity is a jointly controlled entity that involves the establishment of a cor­ poration, partnership or other entity in which each venture has an interest. OWN ShArES When own shares are repurchased, the amount of consideration paid, The share of results, assets and liabilities of associated companies and jointly including directly attributable costs, is recognized as a change in equity. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 78 / Consolidated Financial Statement Yara Financial Report 2011

Repurchased shares are classified as treasury shares and presented as a restructuring deduction from total equity. Gain/loss from the sale of own shares is recog­ A restructuring provision is recognized when the Group has developed a nized as a change in equity. detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to imple­ DIvIDENDS pAID ment the plan or announcing its main features to those affected by it. The Dividends are recognized as a liability in the period that they are declared measurement of a restructuring provision includes only the direct expendi­ by the Annual General Meeting tures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongo­ EmpLOYEE BENEFITS ing activities of the entity. Defined benefit plans The Group’s net obligation in respect of defined benefit plans is calculated Onerous contracts separately for each plan. The amount is an estimation of future benefits that Present obligations arising under onerous contracts are recognized and the employees have earned in return for their service in current and prior measured as a provision. An onerous contract is considered to exist where periods. The benefit is discounted to determine its present value, and the the Group has a contract under which the unavoidable costs of meeting the fair value of the plan assets and unvested past service cost is deducted. The obligations under the contract exceeds the economic benefits expected to discount rate is the yield at the balance sheet date on AA credit rated corpo­ be received from it. rate bonds or government bonds where no market for AA credit rated cor­ porate bonds exist. If the bond has a different maturity from the obligation, Site restoration the discount rate is adjusted. Qualified actuaries using the projected credit A provision for an obligation to restore a site is recognized when it occurs unit method perform the calculations. as a consequence of a constructive or legal obligation.

When the benefits of a plan are improved, the portion of the increased ben­ Guarantees efit relating to past service by employees is recognized in statement of A provision for guarantees is recognized when the products or services are income as an expense on a straight-line basis over the average period until sold. The provision is based on historical information on actual guarantee the benefits become vested. To the extent benefits vest immediately, the payments incurred and the probability that claims will be made. expense is recognized immediately in the statement of income. Gains or losses arising from curtailments and settlements of pension plans are recog­ Environmental expenditures nized immediately in the statement of income. Actuarial gains and losses in Environmental expenditures that increase the life, capacity, safety or effi­ the period are recognized as other comprehensive income. ciency of a facility are capitalized. Expenditures that relate to an existing condition caused by past operations are expensed. When environmental Defined contribution plans assessments, clean-ups or restoration are probable and the cost can be reli­ Obligations for contributions to defined contribution pension plans are rec­ ably measured, a provision is recognized. ognized as an expense in the statement of income when employees have rendered services entitling them to the contributions. Prepaid contribu­ Emission rights tions are recognized as an asset to the extent that a cash refund or deduction Due to EU regulations in regard to greenhouse gas emissions, Yara receives in future payments is available. annual emissions rights. These emission rights can be used to settle the Group’s obligation that arises as a result of actual emissions. Granted emis­ Other long-term benefits sion rights received in a period are initially recognized at nominal value (nil The Group’s obligation in respect of other long-term benefits is the amount value). Purchased emission rights are initially recognized at cost (purchase of future benefits that the employees have earned in return for their service price) within intangible assets. A provision is recognized when the level of in current and prior periods. The obligation is discounted based on the emissions exceeds the level of allowances granted. same principles as defined benefit plans. If Yara’s emissions are less than the emission rights allocated to its opera­ Share-based compensation tions, these may be sold in the market. Gains are recognized if and when In the long term incentive program for Yara Management and top execu­ such transactions occur. tives Yara shall purchase shares on behalf of the employees. The original purchase amount is recorded as reduction in equity and the recognition of FINANCIAL INSTrUmENTS costs take place during the vesting period, see note 6. If an executive do not Financial assets and financial liabilities are recognized when the Group meet the vesting conditions the net proceed must be returned to Yara and becomes part to the contractual obligations of the instrument. this will be recognized directly against equity. Cash and cash equivalents The Group may also give employees the possibility to purchase shares in Cash and cash equivalents include cash, bank deposits and monetary items Yara at a reduced price. The related cost is recognized when the employee which are due in less than three months. exercises this possibility. Other liquid assets prOvISIONS Other liquid assets comprise bank deposits and all other monetary items A provision is recognized when the Group has a present obligation (legal or which are due between three and twelve months. constructive) following a past event and it is likely that this will result in an outflow of cash or transfer of other assets to settle the obligation, and a reli­ Trade receivables and other short-term receivables able estimate can be made of the amount of the obligation. Trade receivables and other short-term receivables are measured at initial recognition at fair value and subsequently measured at amortized cost. The amount recognized as a provision is the best estimate of the consider­ Short-term receivables, which are due within three months, are normally ation required to settle the present obligation at the balance sheet date, tak­ not discounted. ing into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the Available-for-sale financial assets present obligation, its carrying amount is the present value of those cash Available-for-sale financial assets are initially recognized at fair value. flows. Available-for-sale financial assets are subsequently recognized at fair value, with gains and losses arising from changes in fair value recognized in the WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 79

statement of comprehensive income, until the asset is disposed of or is Fair value for derivatives is measured based on quoted market prices when determined to be impaired, at which time the cumulative gain or loss previ­ these are available. When quoted prices from active markets are not available, ously recognized in equity is included in the consolidated statement of the Group estimates fair value by using valuation models that make maxi­ income for the period. mum use of observable market data. The resulting change in fair value is rec­ ognized immediately in the statement of income unless the derivative is des­ Impairment of financial assets ignated and effective as a hedging instrument, in which case the timing of the Financial assets, other than those recognized at fair value through the state­ recognition in the consolidated statement of income depends on the nature of ment of income, are assessed for indicators of impairment at each balance the hedge relationship. sheet date. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recogni­ Derivatives are classified as short- or long-term subject to the same assess­ tion of the financial asset, the estimated future cash flows of the investment ments as other items in the statement of financial position. have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying Embedded derivatives amount and the present value of estimated future cash flows, discounted at Derivatives embedded in other financial instruments or other non-financial the original effective interest rate. host contracts are separated and treated as derivatives when the risks and characteristics of the derivative are not closely related to the host contract The carrying amount of the financial asset is reduced directly by the impair­ and the host contract is not measured at fair value with changes in fair value ment loss for all financial assets with the exception of trade receivables recognized in the consolidated statement of income. where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the hedge accounting allowance account. Subsequent recoveries of amounts previously written off The Group designates certain derivatives as either hedges of the fair value of are credited against the allowance account. Changes in the carrying amount recognized assets or liabilities (fair value hedges), hedges of foreign cur­ of the allowance account are recognized in the statement of income. With rency risk of recognized assets or liabilities (cash flow hedges), or hedges of the exception of available-for-sale equity instruments, if, in a subsequent net investments in foreign operations. period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recog­ The fair value of hedging derivatives is classified as a non-current asset or a nized, the previously recognized impairment loss is reversed through the non-current liability if the remaining maturity of the hedge relationship is statement of income to the extent that the carrying amount of the invest­ more than 12 months and as a current asset or a current liability if the ment at the date the impairment is reversed does not exceed what the amor­ remaining maturity of the hedge relationship is less than 12 months. tized cost would have been had the impairment not been recognized. Cash flow hedges In addition to the above impairment of available-for-sale equity securities, Changes in fair value of financial instruments used as hedging instrument in a impairment may occur if the decline in fair value is significant or prolonged. cash flow hedge are recognized in equity until the hedged transaction is recog­ In respect of available-for-sale equity securities, any increase in fair value nized. The ineffective part of the hedge is recognized in the statement of income. subsequent to an impairment loss is recognized as other comprehensive income. Fair value hedges Changes in fair value of financial instruments designated as fair value Trade payables and other short-term liabilities hedges are recognized in the consolidated statement of income. The carry­ Trade payables are initially measured at fair value and are subsequently ing amount of the hedged item is adjusted for changes in the fair value measured at amortized cost. Short-term payables, which are due within attributable to the hedged risk. three months, are normally not discounted. hedge of net investment Interest-bearing borrowings Changes in fair value of financial instruments used as hedges of net invest­ Interest-bearing borrowings are recognized initially at fair value less direct ment in foreign operations are recognized as other comprehensive income. transaction costs. Subsequent to initial recognition, interest-bearing bor­ The ineffective part of the hedge is recognized in the consolidated statement rowings are measured at amortized cost with any difference between cost of income. and redemption being recognized in the statement of income over the period of the borrowings on an effective interest basis. Hedge accounting ceases when the hedging instrument expires, is sold, ter­ minated or exercised or the hedge relationship does not fulfill the require­ Derivative financial instruments ments for hedge accounting. The Group uses derivative financial instruments to hedge exposure against foreign exchange risk, interest rate risk and commodity risk arising in operat­ LEASING ing, financing and investment activities. Derivatives are initially recognized at Property, plant and equipment which is leased on conditions which sub­ fair value at the date a derivative contract is entered into, and are subsequently stantially transfer all the economic risks and rewards to Yara (finance lease) remeasured to their fair value at each balance sheet date. The Group routinely are accounted for as property, plant and equipment at the present value of enters into sale and purchase transactions for physical gas, ammonia and minimum lease payments or fair value if this is lower. The corresponding other commodities. The majority of these transactions take the form of con­ finance lease liabilities are included in long-term debt. Property, plant and tracts that were entered into and continue to be held for the purpose of receipt equipment is depreciated over the estimated useful lives of the assets. The or delivery of the physical position in accordance with the Group’s expected related liabilities are reduced by the amount of lease payments less the effec­ sale, purchase or usage requirements, and are therefore not within the scope tive interest expense. of IAS 39 (own use exemption). Certain purchase and sales contracts are within the scope of IAS 39 as they can be settled net and do not qualify for the Other leases are accounted for as operating leases with lease payments rec­ own use exemption. Such contracts are accounted for as derivatives under IAS ognized as an expense over the lease terms. 39 and are recognized in the statement of financial position at fair value. Gains and losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recognized in the consolidated statement of income. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 80 / Consolidated Financial Statement Yara Financial Report 2011

NEW AND rEvISED STANDArDS - ADOpTED IFRS 9 as issued reflects the first phase of the IASBs work on the replace­ The accounting policies adopted are consistent with those of the previous ment of IAS 39 and applies to classification and measurement of financial financial year, except for the following new and amended IFRS and IFRIC assets as defined in IAS 39. The standard is proposed to change the effective interpretations effective as of 1 January 2011: date from 1 January 2013 to 1 January 2015. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge • IAS 24 Related Party Disclosures accounting and derecognition. The adoption of the first phase of IFRS 9 will • IAS 32 Financial Instrument: Presentation – Classification of Rights have an effect on the classification and measurement of the Group’s finan­ Issues cial assets. Full evaluation of the impact has not been completed at this • IFRIC 14 Prepayments of a Minimum Funding Requirement stage. • IFRIC 19 Extinguishing Financial Liabilities with equity instruments • Improvements to IFRSs (May 2010) IFRS 10 includes new definition of control. The application may result in the Group no longer consolidating some of its investees, and consolidating The amendments in IFRIC 14 now allow recognition of a pension asset in investees that were not previously consolidated. Detailed analysis of the the form of prepaid minimum funding contributions. The application of the application of this standard, including the revised IAS 27, has not been amendments has not had material effect on the Group’s consolidated finan­ completed at this stage. cial statements. Under IFRS 11, joint arrangements are classified as joint operations or joint NEW AND rEvISED STANDArDS – NOT YET EFFECTIvE ventures, depending on the rights and obligations of the parties to the At the date of authorization of these financial statements, the following arrangements. These changes might lead to changed classification of Yara’s Standards and Interpretations were in issue but not yet effective: joint arrangements. The new standard will require joint ventures to be accounted for using the equity method, and thus eliminating the choice of • IFRS 7 Financial Instruments: Disclosures - Amendments enhancing using proportionate consolidation for jointly controlled entities. This will disclosures about transfers of financial assets (issued in October 2010). have no impact for Yara since equity method is the adopted policy choice. Adoption 1 January 2012. Yara has not completed the detailed analysis of possible impact of the new • IFRS 7 Financial Instruments: Disclosures - Amendments enhancing IFRS 11 and the revised IAS 28. disclosures about offsetting of financial assets and financial liabilities. Expected adoption 1 January 2013. The revised IAS 19 introduces the net interest approach, which requires • IFRS 9 Financial Instruments (issued 2009). Expected adoption 1 Janu­ Yara to calculate interest on the net amount of pension liabilities and plan ary 2015. assets by using a single interest rate. The interest rate will be based on mar­ • IFRS 10 Consolidated Financial Statements. Expected adoption 1 Janu­ ket yield on high quality corporate bonds, resulting in a decrease in net ary 2013. income as expected additional yield on plan assets will not be taken into • IFRS 11 Joint Arrangements. Expected adoption 1 January 2013 account. The revised standard will eliminate the corridor approach but this • IFRS 12 Disclosure of Interests in Other entities. Expected adoption 1 will have no impact for Yara since actuarial gains and losses are recognized January 2013. immediately through other comprehensive income. • IFRS 13 Fair Value Measurement. Expected adoption 1 January 2013. • IAS 1 Presentation of items in Other Comprehensive Income - Amend­ The directors anticipate that adoption of other new and revised standards ments to IAS 1. Expected adoption 1 January 2013. will not significantly impact the financial statements, but might lead to • IAS 12 Income Taxes – Limited scope amendment, recovery of underly­ more extensive disclosures. ing assets (issued December 2010). Adoption 1 January 2012. • IAS 19 Employee Benefits (Revised). Expected adoption 1 January 2013. EU-DIrECTIvE 83/349 • IAS 27 Separate Financial Statements (Revised). Expected adoption 1 YARA GmbH & Co. KG with legal seat in Dülmen/Germany and its directly January 2013. and indirectly owned subsidiaries are included in the consolidated financial • IAS 28 Investments in Associates and Joint Ventures (Revised). statement of Yara International ASA as defined by sec. 291 HGB (German Expected adoption 1 January 2013. commercial code). For the purpose of sec. 264b HGB, YARA GmbH & Co. • IAS 32 Financial Instruments: Presentation - Amendments to applica­ KG makes use of the relief to not disclose any independent financial state­ tion guidance on the offsetting of financial assets and financial liabili­ ment and notes. ties. Expected adoption 1 January 2014. • IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. Expected adoption 1 January 2013. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 81

Notes to the accounts

Note 1

Key sources of estimation uncertainty, judgements and assumptions

GENErAL of goodwill at 31 December 2011 is NOK 4,189 million. Details of recog­ The preparation of consolidated financial statements in accordance with nized goodwill are provided in note 9 and the impairment loss calculation, IFRSs and applying the chosen accounting policies requires management to including sensitivity disclosures, are provided in note 10. make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and asso­ BUSINESS COmBINATIONS ciated assumptions are based on historical experience and various other Yara is required to allocate the purchase price of acquired companies to the factors that are believed to be reasonable under the circumstances. Actual assets acquired and liabilities assumed based on their estimated fair values. In results may differ from these estimates. The estimates and the underlying case of business combination achieved in stages, Yara must also estimate the assumptions are reviewed on an ongoing basis. Revisions to accounting fair value of the existing ownership interest when it gains control. The change estimates are recognized in the period in which the estimate is revised if the in fair value is recognized in the consolidated statement of income. For our revision affects only that period, or in the period of the revision and future larger acquisitions, we engage independent third-party firms to assist us in periods if the revision affects both current and future periods. The account­ determining the fair values of the assets acquired and liabilities assumed. ing policies applied by Yara in which judgements, estimates and assump­ Such valuations require management to make judgements in selecting valua­ tions may significantly differ from actual results are discussed below. tion methods, estimates and assumptions. Management’s estimates of fair value and useful lives are based upon assumptions believed to be reasonable, ImpAIrmENT OF prOpErTY, pLANT AND EQUIpmENT but which are inherently uncertain and, as a result, actual results may differ Yara has significant carrying amounts related to property, plant and equip­ from estimates. Yara had several business combinations in 2011. The business ment recognized in the consolidated statement of financial position. The combinations resulted in a gain in the consolidated statement of income of value in use of some of these assets could be influenced by changes in mar­ NOK 51 million. Further details are provided in note 3. ket conditions where Yara carries out its business. Significant and prolonged adverse market condition related for example to increases in natural gas SITE rESTOrATION AND OThEr ENvIrONmENTAL ExpENDITUrES cost and/or lower market prices for products sold could lead to temporary Yara’s future environmental cost depends on a number of uncertain factors, or permanent closures of production facilities. Such closures will be consid­ such as the extent and type of remediation required. Due to uncertainties ered as an impairment indicator and an impairment test will be carried out. inherent in the estimation process, it is possible that such estimates could be The outcome of such impairment tests may be that significant impairment revised in the near term. In addition, conditions that could require future losses are recognized in the statement of income. A reduction to the expenditures may exist for various sites, including Yara’s major production expected useful life of the assets can also lead to periods with higher depre­ facilities and product storage terminals. Such future costs are not determi­ ciation expense going forward. Yara has carried out impairment tests for nable due to the unknown timing and extent of corrective actions that may several production facilities during 2011, mainly due to uncertain eco­ be required. Yara’s operations are subject to environmental laws and regula­ nomic conditions in local markets. None of these were temporarily or per­ tions. These laws and regulations may change, and such changes may manently closed at the end of 2011. Total impairment write-down recog­ require that the Group makes investments and/or incurs costs to meet more nized on property, plant and equipment in 2011 was NOK 110 million, of stringent emissions standards or to take remedial action related to e.g. soil which NOK 59 million was related to the plant in Pardies, France. Uncer­ contamination. The carrying amount of provisions for environmental tain economic conditions coupled with required maintenance investments issues at 31 December 2011 is NOK 209 million. See note 23. are forecast to result in a deterioration of cash flow from the Pardies plant thereby leading to impairment. The carrying amount of property, plant and DEFErrED TAx equipment at 31 December 2011 is NOK 24,118 million. See note 11. Judgement is required in determining the Group’s deferred tax assets and liabilities. Yara recognizes deferred tax assets if it is probable that sufficient ImpAIrmENT OF EQUITY-ACCOUNTED INvESTEES taxable income will be available in the future against which the temporary Yara has a number of associated entities and jointly controlled entities. These differences and unused tax losses can be utilized. Management has consid­ are recognized in the financial statements based on the equity method. In addi­ ered future taxable income in assessing whether deferred income tax assets as tion to being influenced by changes in market conditions, for example increases well as the outcome of tax cases should be recognized. The carrying amounts in natural gas costs and/or lower market prices for products sold, the carrying of deferred tax assets and deferred tax liabilities are NOK 1,474 million and value will to some degree be subject to partner risk. Yara carries out impairment NOK 3,489 million, respectively, at 31 December 2011. See note 8. testing if and when there are impairment indicators. At the end of 2011, Yara tested the Lifeco investment of NOK 1,436 million for impairment. The uncer­ pENSION LIABILITIES tainties are further explained in note 12. The test determined that there is no The fair value of pension liabilities is calculated based on several actuarial and need to recognize additional impairment loss. Total carrying value of equity- economic assumptions. Any changes in the assumptions used would affect on accounted investees at 31 December 2011 is NOK 11,092 million. the estimated pension obligation. Changes in the discount rate have the most significant impact. The discount rate is determined locally for each individual ImpAIrmENT OF GOODWILL pension plan, based on the economic environment in which the plan is estab­ Determining whether goodwill is impaired requires an estimation of the lished. The discount rate and other assumptions are normally reviewed annu­ value in use of the cash-generating units to which goodwill has been allo­ ally when the actuarial calculation is carried out, unless there are significant cated. The value in use calculation requires management to estimate the changes during the year. The carrying amount of the net pension liabilities at future cash flows expected to arise from the cash-generating unit and a suit­ 31 December 2011 is NOK 2,190 million. Detailed information, including able discount rate in order to calculate present value. The carrying amount sensitivity disclosures, are provided in note 22. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 82 / Consolidated Financial Statement Yara Financial Report 2011

INvENTOrY ammonia, natural gas and naphtha. For natural gas and gas related prices Yara has significant carrying amounts related to inventory recognized in the further liberalization of the European gas market could also impact on the consolidated statement of financial position. As most of Yara’s products are valuation. Detailed information, including sensitivity disclosures, are pro­ traded in markets where there are limited observable market references availa­ vided in note 27 and 28. ble this required judgement in determining net realizable value. Management has used its best estimate in setting net realizable value for inventory. The carry­ AvAILABLE-FOr-SALE FINANCIAL ASSETS ing amount of inventory at 31 December 2011 is NOK 12,683 million and Where the fair value of available-for-sale financial assets recorded in the state­ write-down at year-end is NOK 265 million. See note 15 for more information. ment of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows DErIvATIvES model. The inputs to these models are taken from observable markets where Commodity-based derivatives and certain embedded derivatives in normal possible, but where this is not feasible, a degree of judgment is required in purchase and sales contracts require fair value recognition in the consoli­ establishing fair values. The judgments include considerations of inputs such dated financial statement. Some of these fair values are subject to uncer­ as liquidity risk, credit risk and volatility. Changes in assumptions about these tainty due to non-quoted market prices and the use of valuation models. In factors could affect the reported fair value of financial instruments. Total fair these models Yara uses information based on external sources to the great­ value of available-for-sale financial assets based on unobservable market data est possible extent. The most significant assumptions incorporated in the inputs (level 3) at 31 December 2011 is NOK 283 million. Detailed informa­ valuation techniques used are forward prices for commodity products like tion, including sensitivity disclosures, are provided in note 28.

Note 2

Business initiatives

ACQUISITIONS AND OThEr rELATED INITIATIvES On 5 October 2011, Yara reduced its ownership in the jointly controlled In January 2011, Yara acquired the remaining 60% ownership in the Austral­ entity Yara Praxair Holding AS from 50% to 34%. A gain of NOK 309 mil­ ian entity Yara Nipro Pty. Ltd. See note 3 for more information. lion was recognized in October. Yara has also recognized a fair value revalu­ ation gain on the remaining 34% ownership as Yara lost joint control over In October 2011, Yara acquired the Swedish company Yara Miljö (former the entity. This gain is NOK 658 million. The accounting gains have been Petro Miljö) from PetroKraft. See note 3 for more information. reported in the Industrial segment as part of “other income” in 2011 con­ solidated statement of income. The consideration was NOK 329 million and Yara completed the minority buyout of the shares in Yara Brazil Fertilizantes is included in investing activities in 2011 consolidated statement of cash S.A. in November. The consideration was NOK 88 million and is included in flows. Yara classifies Yara Praxair Holding AS as an associated entity after investing activities in 2011 consolidated statement of cash flows. The carrying this transaction and continues to use the equity method. The carrying value value of the minority shares was NOK 8 million and NOK 80 million has of Yara’s 34% ownership at the end of 2011 is NOK 702 million. Yara’s share been recognized as a reduction of retained earnings. of net income recognized in 2011 is NOK 47 million. Total recognized share of net income in 2010 was NOK 71 million. DISpOSALS AND OThEr rELATED INITIATIvES In August 2011, Yara sold its 37.692% stake in the associated entity Yaibera In November 2011 Yara sold its 49% stake in JSC Nordic Rus Holding. The Holding (“Rossosh”) with a gain of NOK 1,479 million, including cumula­ consideration was NOK 29 million and is included in investing activities in tive currency translation loss of NOK 160 million reclassified from equity. 2011 consolidated statement of cash flows. The accounting gains of NOK 42 The gain is included in “other income” in 2011 consolidated statement of million has been reported in the Other segment as part of “other income” in income, and is recognized in the Upstream segment. The consideration of the consolidated statement of income. NOK 2,149 million is included in investing activities in 2011 consolidated statement of cash flows. Shortly before the sale, Yara also received a divi­ Yara also sold its non-marketable shares in Hankkija Maatalous in October dend of NOK 343 million. The dividend is included in operating activities 2011. A consideration of NOK 101 million is included in investing activities in 2011 consolidated statement of cash flows. In 2011, Yara has recognized in 2011 consolidated statement of cash flows. The consideration was close NOK 112 million as its share of net income. Full year 2010 share of net to the carrying value after an impairment write-down of NOK 13 million income was NOK 138 million. The carrying value of the Rossosh invest­ recognized earlier in 2011. ment was NOK 756 million at the end of 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 83

Note 3

Business combinations

BUSINESS COmBINATIONS 2011 is preliminary and may be adjusted as a result of obtaining additional infor­ In January 2011, Yara acquired the remaining 60% ownership interest of the mation regarding the preliminary estimates of fair values made at the date of company Yara Nipro Pty. Ltd. in Australia. Yara Nipro is a market leader in purchase. The condensed consolidated financial statements include the bulk liquid fertilizers in Eastern Australia. After the transaction, Yara owns results of Nipro from the acquisition date. and controls all shares of Yara Nipro. Nipro was an associated entity to Yara before the acquisition in January 2011. The primary reason for the business combination is that Nipro represents a The ownership was incorporated using the equity method. According to IFRS business which is complementary to the already strong position held by Yara 3 (revised), the previously held equity interest in the acquiree at acquisition within the horticultural segment in Australia, and Nipro’s operations will be date shall be re-measured at its fair value with resulting gain or loss in state­ integrated with those of Yara Australia. ment of income. The fair value of the previously held equity interest has been derived from the consideration paid per share for the 60% ownership interest, The acquisition has been accounted for using the purchase method of reduced with a discount for lack of control. accounting. The purchase price allocation of the tangible and intangible assets

Opening balance Fair value Adjusted balance NOK millions 10 Jan 2011 adjustment 10 Jan 2011

Assets Deferred tax 1 - 1 Customer relationships, part of intangible assets - 57 57 Product technology, part of intangible assets - 31 31 Property, plant and equipment 40 30 69 Inventories 29 - 29 Trade receivables 77 - 77 Prepaid expenses and other current assets 12 - 12 Cash and cash equivalents 19 - 19 Total assets 176 118 294

Liabilities Deferred tax liabilities - 35 35 Long term interest-bearing debt 17 - 17 Trade and other payables 57 - 57 Current tax liabilities 17 - 17 Other short-term liabilities 15 - 15 Total liabilities 106 35 142

Total identifiable net assets at fair value 153

Goodwill arising on acquisition 107 Fair value of previously held 40% equity interest in Nipro (86) Purchase consideration transferred for 60% ownership interest 174

The goodwill comprises the value of synergies arising from the acquisition, The gross amount of receivables is equal to carrying value. None of the trade in addition to assembled workforce which does not meet the criteria for rec­ receivables have been impaired and it is expected that the full contractual ognition as intangible assets under IAS 38 Intangible assets. None of the amount can be collected. goodwill recognized is expected to be deductible for income tax purposes.

NOK millions 2011

Analysis of cash flows on acquisition Cash consideration for 60% ownership interest (included in cash flows from investing activities) (174) Net cash acquired with the subsidiary (included in cash flows from investing activities) 19 Transaction costs of the acquisition (included in cash flows from operating activities) - Net cash flow on acquisition (156)

Gain recognized on previously held 40% ownership interest Estimated fair value 86 Carrying value (49) Currency translation gain of foreign operation, previously recognized as other comprehensive income 8 Gain, recognized as "other income" 44 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 84 / Consolidated Financial Statement Yara Financial Report 2011

From the date of acquisition, Yara Nipro has contributed NOK 261 million In October 2011, Yara acquired the Swedish company Yara Miljö (former of revenue and NOK 22 million to the income before tax of the Group. If the Petro Miljö) from PetroKraft. The purchase price allocation of the tangible combination had taken place at the beginning of the year, Yara’s consoli­ and intangible assets is preliminary and may be adjusted as a result of dated revenue and income before tax would have been NOK 80,362 million obtaining additional information regarding the preliminary estimates of and NOK 14,407 million, respectively. fair values made at the date of purchase. Intangible assets of NOK 10 mil­ lion and goodwill of NOK 54 million have been recognized. Total assets In March 2011, Yara also gained control over a former associated entity in consolidated at the time Yara gained control were NOK 92 million. In addi­ Continental Europe. The previously held equity interest in the acquiree was tion to goodwill and intangible assets total assets were mainly related to re-measured at its fair value resulting in a gain of NOK 7 million in state­ other short-term receivable of NOK 16 million and external bank accounts ment of income, presented as part of other income. The net cash flow on the of NOK 5 million. Total liabilities were NOK 17 million, mainly related to transaction was positive NOK 5 million, presented as a part of investment prepayments from customers of NOK 13 million. The consideration was activities. Total assets consolidated at the time Yara gained control were NOK 67 million and is included in investing activities in 2011 consolidated NOK 149 million, mainly related to trade receivables of NOK 63 million statement of cash flows. and property, plant and equipment of NOK 37 million. Total liabilities were NOK 114 million, mainly related to accounts payable of NOK 76 million.

BUSINESS COmBINATIONS 2010 Balderton was an associated entity to Yara before the acquisition in January On 27 January 2010, Yara acquired the remaining 51% ownership interest of the 2010. The ownership was incorporated using the equity method. According holding company to Balderton Fertilisers SA (Balderton). Balderton is an unlisted to IFRS 3 (revised), the previously held equity interest in the acquire at acqui­ ammonia and fertilizer trading company based in Geneva, Switzerland. sition date shall be re-measured at its fair value with resulting gain or loss in statement of income. The fair value of the previously held 49% equity interest The primary reason for the business combination is that full ownership will sim­ has been derived from the consideration paid per share for the 51% owner­ plify and increase the integration and optimization of Balderton in Yara, and sup­ ship interest, reduced with a 30% discount for lack of control. port further growth through improved sourcing capabilities and position taking.

Opening balance Adjusted balance NOK millions 27 Jan 2010 Fair value adjustment 27 Jan 2010

Assets Customer relationships, part of intangible assets - 473 473 Property, plant and equipment 4 - 4 Trade receivables 155 - 155 Prepaid expenses and other current assets 446 - 446 Cash and cash equivalents 560 - 560 Total assets 1,166 473 1,639

Liabilities Deferred tax liabilities - 60 60 Trade and other payables 430 - 430 Current tax liabilities 12 - 12 Other short-term liabilities 71 - 71 Total liabilities 513 60 573

Total identifiable net assets at fair value 1 066

Goodwill arising on acquisition 813 Fair value of previously held 49% equity interest in Balderton (760) Purchase consideration transferred for 51% ownership interest 1,119

The table above sets out carrying amounts and the amounts recognized at the gible assets. None of the goodwill recognized is expected to be deductible for acquisition date for each class of Baldertons assets, liabilities and contingent income tax purposes. liabilities. The gross amount of receivables is equal to carrying value. None of the trade The goodwill comprises the value of synergies arising from the acquisition, receivables have been impaired and it is expected that the full contractual in addition to assembled workforce and relations with suppliers which does amount can be collected. not meet the criteria for recognition as intangible assets under IAS 38 Intan­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 85

NOK millions 2010

Analysis of cash flows on acquisition Cash consideration for 51% ownership interest (included in cash flows from investing activities) (1,119) Net cash acquired with the subsidiary (included in cash flows from investing activities) 560 Transaction costs of the acquisition (included in cash flows from operating activities) - Net cash flow on acquisition (560)

Gain recognized on previously held 49% ownership interest Estimated fair value 760 Carrying value (597) Currency translation gain of foreign operation, previously recognized as other comprehensive income 22 Gain recognized as other income 185

Note 4

Segment information

The operating segments presented are the key components of Yara’s business. UpSTrEAm These are evaluated on a regular basis by Yara’s senior management on the The Upstream segment comprises ammonia and urea production in differ­ basis of financial and operational information prepared specifically for each ent parts of the world, phosphate mining, the global trade and shipping of segment for the purpose of assessing performance and allocating resources. ammonia, as well as nitrate and NPK fertilizer production co-located with The information disclosed is on the same basis as presented internally and ammonia production, and is serving both the domestic and international used for follow-up of Yara’s development by Yara Management. markets. The Upstream segment includes our large equity-accounted inves­ tees. Because of the level of ownership in these companies, their operating SEGmENT STrUCTUrE results are not reflected in our operating income, but Yara’s share of the net The current segment structure was implemented 1 October 2003. Yara’s seg­ income in the equity-accounted investees, are included in EBITDA and net ments are managed as separate and strategic businesses. The segment infor­ income. The Upstream segment’s operating results are, to a great degree, mation is presented for operating segments . In addition, information about based on the segment’s production margins, which are primarily affected by geographical areas is provided. the price levels for ammonia, urea, nitrates, NPK and phosphoric acid and the price level of energy and raw materials such as phosphate rock and pot­ DOWNSTrEAm ash. In addition, operating results can be greatly influenced by movements The Downstream segment consists of Yara’s worldwide marketing organiza­ in currency exchange rates. The fluctuation of the Upstream segment’s tion and global distribution network for fertilizer products and agronomic operating results is typical of that of traditional fertilizer producers and is solutions. With a global network of sales offices, terminals and warehouses, normally less stable than the operating results of Yara’s Downstream and Downstream is present in about 50 countries and sells to more than 120 Industrial segments. countries. The segment also includes smaller production facilities upgrading intermediate products to finished fertilizers, which are primarily marketed in OpErATING SEGmENT INFOrmATION the regions where production takes place. While approximately ¼ of the sales Yara’s steering model reflects management’s focus on cash flow-based perfor­ volume is sourced from own production plants in Downstream, the remain­ mance indicators, before and after taxes. EBITDA is an approximation of cash ing sales volume is purchased on an arm’s-length basis from the Upstream flows from operating activities before tax and is considered an important segment or third parties. The Downstream segment is mainly a margin busi­ measure of performance for the company’s operating segments. Yara defines ness, which over time provides additional and more stable margins and EBITDA as operating income plus interest income, other financial income reduces volatility in earnings. With a relatively lower investment in chemical and results from associated companies and joint ventures. It excludes depre­ manufacturing capacity, the downstream operation, particularly outside of ciation, write-downs and amortization as well as amortization of excess value Europe, is more focused on distribution margins and operating capital man­ in equity-accounted investees. In addition the segments are followed up on agement than on manufacturing margins. The segment is characterized by a CROGI (defined as gross cash flow after tax divided by gross investment). high capital turnover, a low ratio of property, plant and equipment to total ROCE (Return on capital employed) has been included as an additional per­ assets compared to a traditional, production-oriented fertilizer operation, formance measure to CROGI to simplify benchmarking with other compa­ and by a relatively low EBITDA margin in relation to revenues. nies. ROCE is defined as EBIT minus tax divided by average capital employed. See also page 150 - 151 for more info. INDUSTrIAL The Industrial segment creates value by developing and selling chemical Inter-segment sales and transfers reflect arm’s-length prices as if sold or trans­ products and industrial gases to non-fertilizer market segments. Industrial ferred to third parties. Results of activities considered incidental to Yara’s offers nitrogen chemicals, including ammonia-derived products, as well as main operations as well as revenues, expenses, liabilities and assets not origi­ industrial explosives and environmental applications which are growing nating in, or defined as part of, either the Upstream, Downstream or Indus­ strongly. Sales of nitrogen chemicals to the European process industry and trial segment, are reported separately under the caption “other and elimina­ the global industrial explosives industry constitute the segment’s main mar­ tions”. These amounts principally include interest income and expenses, kets, while sales of chemicals for environmental applications is the main realized and unrealized foreign exchange gains and losses and the net effect of growth segment. pension plans. In addition, elimination of gains and losses related to transac­ tions between the segments will be accounted as part of “other and elimina­ tions”. General corporate overhead costs and costs related to cash manage­ ment and finance function, are also charged to “other and eliminations”.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 86 / Consolidated Financial Statement Yara Financial Report 2011

OpErATING SEGmENT INFOrmATION, CONSOLIDATED STATEmENT OF INCOmE

NOK millions Notes 2011 2010

External revenues and other income Downstream 54,381 46,569 Industrial 12,539 9,216 Upstream 13,335 8,791 Other and eliminations 96 798 Total 80,352 65,374

Internal revenues and other income Downstream 1,056 1,680 Industrial 92 150 Upstream 30,176 22,871 Other and eliminations (31,323) (24,701) Total - -

revenues and other income Downstream 55,437 48,249 Industrial 12,631 9,366 Upstream 43,510 31,663 Other and eliminations (31,227) (23,903) Total 80,352 65,374

Operating expenses excl depreciation and amortization Downstream (50,629) (44,330) Industrial (10,704) (8,321) Upstream (33,848) (27,071) Other and eliminations 30,746 24,255 Total (64,435) (55,467)

Depreciation and amortization Downstream (477) (495) Industrial (260) (195) Upstream (1,905) (1,707) Other and eliminations (34) (43) Total 9, 11 (2,677) (2,440)

Operating income Downstream 4,330 3,424 Industrial 1,667 850 Upstream 7,757 2,884 Other and eliminations (515) 308 Total 13,240 7,467

Share of net income in equity-accounted investees Downstream 83 92 Industrial 68 89 Upstream 1,738 1,335 Other and eliminations - (1) Total 12 1,889 1,515

Interest income and other financial income Downstream 194 3,757 Industrial 2 1 Upstream 3 5 Other and eliminations 110 59 Total 7 309 3,822

EBITDA Downstream 5,085 7,796 Industrial 2,001 1,135 Upstream 11,446 5,975 Other and eliminations (370) 410 Total 18,163 15,315 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 87

OpErATING SEGmENT INFOrmATION, OThEr

NOK millions Notes 2011 2010

reconciliation of EBITDA to Income before tax EBITDA 18,163 15,315 Depreciation and amortization 1) (2,725) (2,511) Foreign exchange gain/(loss) (215) (676) Interest expense and other financial items (818) (948) Income before tax 14,404 11,179

EBIT Downstream 4,607 7,273 Industrial 1,737 941 Upstream 9,498 4,224 Other and eliminations (404) 367 Total 15,438 12,804

Investments 2) Downstream 892 1,095 Industrial 320 197 Upstream 2,322 2,998 Other and eliminations 109 83 Total 3,643 4,373

1) Including amortization of excess value in equity-accounted investees 2) Investments include the acquisition cost for property, plant and equipment, goodwill, intangible assets, and investments in subsidiaries and equity-accounted investees

OpErATING SEGmENT INFOrmATION, CONSOLIDATED STATEmENT OF CASh FLOWS AND OThEr NON-GAAp mEASUrES

NOK millions, except percentages Notes 2011 2010

Gross cash flow after tax 1 ) Downstream 3,728 5,642 Industrial 1,501 880 Upstream 9,118 5,108 Other and eliminations 1,449 1,086 Total 15,796 12,716

Gross investment 2) Downstream 18,891 17,593 Industrial 5,348 4,943 Upstream 51,862 50,202 Other and eliminations (616) 536 Total 75,485 73,274

Cash return on Gross Investment (CrOGI) Downstream 19.7% 32.1% Industrial 28.1% 17.8% Upstream 17.6% 10.2% Total 20.9% 17.4%

1) Defined as EBITDA less total tax expense, excluding tax on net foreign exchange gain/(loss) 2) 12 month average WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 88 / Consolidated Financial Statement Yara Financial Report 2011

NOK millions, except percentages Notes 2011 2010

Earnings before interest, after tax Downstream 3,250 5,119 Industrial 1,236 685 Upstream 7,170 3,357 Other and eliminations 1,415 1,043 Total 13,071 10,204

Capital employed 1) Downstream 14,339 13,102 Industrial 3,313 3,000 Upstream 33,911 33,257 Other and eliminations (924) 265 Total 50,640 49,624

return on capital employed (rOCE) Downstream 22.7% 39.1% Industrial 37.3% 22.8% Upstream 21.1% 10.1% Total 25.8% 20.6%

1) Capital employed is defined as total assets adjusted for deferred tax assets minus other current liabilities, and is calculated on a 12-month rolling average basis.

OpErATING SEGmENT INFOrmATION, CONSOLIDATED STATEmENT OF FINANCIAL pOSITION

NOK millions Notes 2011 2010

Assets 1) Downstream 22,356 19,018 Industrial 5,126 3,853 Upstream 40,091 37,558 Other and eliminations 6,327 5,034 Total 73,900 65,464

Current assets 1) Downstream 16,443 12,838 Industrial 2,820 2,297 Upstream 7,147 5,797 Other and eliminations 3,768 1,982 Total 30,177 22,915

Non-current assets 1) Downstream 5,913 6,180 Industrial 2,306 1,555 Upstream 32,944 31,762 Other and eliminations 2,560 3,052 Total 43,723 42,549

Equity-accounted investees Downstream 431 447 Industrial 784 92 Upstream 9,878 9,699 Other and eliminations - (15) Total 12 11,092 10,223

Debt 2) Downstream 6,241 6,063 Industrial 1,077 978 Upstream 4,819 4,073 Other and eliminations (2,395) (1,919) Total 9,742 9,196

1) Assets exclude internal cash accounts and accounts receivables related to group relief 2) Segment debt is defined as short-term interest free liabilities excluding income tax payable and short-term deferred tax liabilities. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 89

INFOrmATION ABOUT prODUCTS AND mAJOr CUSTOmErS Revenues by product group:

NOK millions 2011 2010

Ammonia 9,382 6,535 Nitrates 10,781 8,946 NPK 19,681 16,796 CN 11,336 9,425 Urea 1,945 1,822 UAN 2,029 1,310 Other fertilizer products 6,387 6,026 Industrial products 11,550 9,176 Feed phosphates 1,374 1,129 Other products 3,261 2,841 Total 77,726 64,006

Yara serves a large number of customers. No revenues from transactions with any single customer amount to 10% or more of Yara’s total revenues.

INFOrmATION ABOUT GEOGrAphICAL ArEAS, rEvENUES 1)

NOK millions 2011 2010

Belgium 1,310 1,338 Denmark 1,257 1,025 Finland 1,915 1,687 France 6,971 5,825 Germany 4,377 3,568 Great Britain 5,513 4,116 Italy 3,147 2,945 Spain 1,826 1,529 Sweden 1,799 1,561 The Netherlands 1,946 1,473 Other 3,177 2,442 Total EU 33,240 27,510

Norway 1,731 1,314 Other Europe 1,608 1,840 Total Europe 36,578 30,664

Africa 4,408 4,950 Asia 8,087 6,983 Australia and New Zealand 2,587 1,201 North America 11,842 8,811 South and Central America 2) 14,223 11,397 Total outside Europe 41,147 33,342

Total 77,726 64,006

1) Revenues are identified by customer location 2) Of which Brazil NOK 9.9 billion (2010: NOK 7.3 billion) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 90 / Consolidated Financial Statement Yara Financial Report 2011

INFOrmATION ABOUT GEOGrAphICAL ArEAS, CONSOLIDATED STATEmENT OF FINANCIAL pOSITION

Assets 1) Long-lived assets 1) Investments 1) NOK millions 2011 2010 2011 2010 2011 2010

Belgium 2,096 2,139 1,019 1,010 201 520 Denmark 411 399 197 183 3 1 Finland 5,839 5,228 3,450 3,320 502 268 France 3,381 2,864 1,287 1,043 517 219 Germany 2,758 2,523 1,293 1,344 213 433 Great Britain 3,496 3,476 1,706 2,072 34 159 Italy 2,872 2,428 968 889 244 154 Spain 750 728 52 34 35 2 Sweden 1,535 1,115 492 481 153 57 The Netherlands 5,911 6,028 4,420 4,686 560 1,303 Other 982 727 9 - 2 2 Total EU 30,031 27,653 14,893 15,061 2,463 3,119

Norway 7,305 5,764 3,020 2,104 530 319 Other Europe 4,559 3,901 (1) 770 - 539 Total Europe 41,894 37,317 17,913 17,936 2,993 3,977

Africa 2,824 2,744 1,560 1,590 9 7 Asia 7,731 5,908 5,146 4,052 5 2 Australia and New Zealand 2,380 1,791 1,969 1,724 221 - North America 13,645 13,339 8,833 9,201 143 128 South and Central America 6,367 5,639 1,663 1,460 272 258 Total outside Europe 32,947 29,420 19,172 18,026 650 396 Eliminations (941) (1,274) - - - - Total 73,900 65,464 37,085 35,962 3,643 4,373

1) The identification of assets, long-lived assets and investments is based upon location of operation. Included in long-lived assets are investments in equity-accounted investees; property, plant and equipment (net of accumulated depreciation) and non-current financial assets. Eliminations are related to internal transactions between geographical areas. Investments include the acquisition cost for property, plant and equipment, goodwill, intangible assets, and investments in subsidiaries and equity-accounted investees.

Note 5

Operating expense

NOK millions Notes 2011 2010

payroll and related costs Salaries (3,646) (3,519) Social security costs (649) (635) Social benefits (53) (59) Net periodic pension cost 22 (351) (366) Total (4,698) (4,579)

Other operating expenses Selling and administrative expense (1,035) (966) Rental of buildings etc. (163) (166) Travel expense (204) (189) Gain /(loss) on trade receivables 16 25 (2) Fees auditors, lawyers, consultants (224) (191) Other expenses (307) (231) Total (1,908) (1,746)

Research and development 1) (123) (102)

1) 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. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 91

Note 6

Stock-based compensation

LONG TErm INCENTIvE prOGrAm in Yara shares within a period of one month. The employee holds all share- A long term incentive program (LTIP) was approved by the Board of Direc- holder rights during the vesting period of three years. After this period, the tors in 2008 for Yara Management and Top Executives to increase the align- executive is free to keep or sell at their own discretion, observing possible ment between Executives and Shareholder’s interests, to ensure retention of limitations set by internal policies and/or legal restriction. The program plans key talent in the company. The program provides a fixed LTIP cash amount to for annual grants but it remains the CEO’s decision to apply the program in the eligible top executive, who is required to invest the net amount, after tax, any given year and to make the final decision on each individual grant.

At 31 December 2011, 80 top executives are part of the program. The total consideration under this program recognized in 2011, amounts to approximately NOK 31 million (2010: NOK 29 million).

ThE YArA ExECUTIvE mANAGEmENT OWNErShIp OF ShArES AT 31 DECEmBEr 2011

Number of shares

Jørgen Ole Haslestad 15,347 Hallgeir Storvik 20,000 Tor Holba 16,349 Egil Hogna 10,064 Yves Bonte 3,289 Torgeir Kvidal 2,557 Håkan Hallén 2,829 Bente G. H. Slaatten 2,129 Trygve Faksvaag 4,711

SImpLIFIED ShArE INCENTIvE prOGrAm The simplified share incentive program expired in 2011. The fair value of the share incentive rights of NOK 2.5 million at 31 December 2010 has been settled.

Note 7

Financial income and expense

NOK millions Notes 2011 2010

Interest income on customer credits 4,27 118 112 Interest income, other 4,27 201 130 Dividends and net gain/(loss) on securities 1) 2 (9) 3,580 Interest income and other financial income 309 3,822

Net foreign exchange gain/(loss) 27 (215) (676)

Interest expense 27 (682) (707) Capitalized interest 11,27 46 54 Return on pension plan assets 22 451 419 Interest expense defined pension liabilities 22 (457) (486) Reversal of value of interest rate swap 2) 27 (14) (14) Other financial expense 27 (162) (214) Interest expense and other financial items (818) (948)

Net financial income/(expense) (724) 2,197

1) The 2010 figure is mainly gain on sale of shares in Fosfertil of NOK 3.578 million 2) Interest rate swap designated as cash flow hedge transferred from equity WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 92 / Consolidated Financial Statement Yara Financial Report 2011

Note 8

Income taxes

The major components of income tax expense for the years ended 31 December 2011 and 2010 are:

CONSOLIDATED INCOmE STATEmENT

NOK millions 2011 2010

Current taxes Current year (2,279) (1,989) Prior years adjustment 38 (29) Total (2,241) (2,018)

Deferred taxes Deferred tax expense recognized in the current year (169) (536) Adjustments to deferred tax attributable to changes in tax rates and laws 6 (19) Write-downs (reversal of previous write-down) of deferred tax assets 89 188 Total (74) (368)

Total income tax expense (2,315) (2,386)

Taxable income differs from net income before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in future years (temporary differences). It also excludes items that are never taxable or deductible (permanent differences). The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

CONSOLIDATED STATEmENT OF COmprEhENSIvE INCOmE

NOK millions 2011 2010

Current tax Hedge of net investment - (5) Intercompany currency effect on debt treated as part of net investment 16 190 Total current tax 16 185

Deferred tax Pensions (155) 40 Available-for-sale financial assets 8 (18) Total (147) 22

Transfers to profit and loss Available-for-sale financial assets1) - (717) Cash flow hedges 4 4 Total 4 (713)

Total tax recognized directly in other comprehensive income (127) (506)

1) Yara sold its ownership in Fosfertil in 2010 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 93

rECONCILIATION OF NOrWEGIAN NOmINAL STATUTOrY TAx rATE TO EFFECTIvE TAx rATE

NOK millions 2011 2011 2010

Income before tax 14,404 11,179

Expected income taxes at statutory tax rate 1) 28.0% (4,033) (3,130) Tax law changes 0.0% 6 (19) Foreign tax rate differences (1.7%) 243 5 Effect of unused tax losses and tax offsets not recognized as deferred tax assets 0.4% (54) (222) Effect of previously unrecognized and unused tax losses and deductible temporary (1.0%) 137 342 differences now recognized as deferred tax assets Non-deductible expenses 0.4% (61) (69) Taxed income equity-accounted investees (4.2%) 612 424 Tax free income miscellaneous (1.6%) 231 170 Tax free gain sale of investments (4.3%) 625 142 Prior year assessment (0.3%) 37 (28) Withholding and capital tax 0.6% (91) (93) Other, net (0.2%) 33 92 Total income tax expense (2,315) (2,386)

Effective tax rate 16.1% 21.3%

1) Calculated as Norwegian nominal statutory tax rate of 28% applied to income before tax.

SpECIFICATION OF DEFErrED TAx ASSETS/(LIABILITIES) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient tax­ able profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

2011

Recognized Reclassified in other from equity Changes Opening Charged comprehen­ to profit Acquisitions/ in tax Exchange Closing NOK millions balance to income sive income or loss disposals rate differences balance

Non-current items Property, plant & equipment (2,705) (30) - - (14) 15 (9) (2,742) Pensions 397 (84) 155 - - 2 4 474 Equity securities available-for-sale (5) - (8) - - - 1 (12) Other non-current assets 168 (62) - - (28) (11) (11) 55 Other non-current liabilities and accruals (120) 41 - (4) - - (4) (87) Total (2,264) (136) 147 (4) (43) 6 (20) (2,312)

Current items Inventory valuation (86) 190 - - - (17) 2 89 Accrued expenses 80 40 - - 1 8 (7) 121 Total (6) 231 - - 1 (9) (5) 211 Tax loss carry forwards 1,038 (257) - - (10) (25) (50) 696 Unused tax credits 29 (13) - - - - - 17 Valuation allowance (809) 96 - - 13 35 40 (626) Net deferred tax asset/(liability) (2,010) (79) 147 (4) (39) 6 (35) (2,014) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 94 / Consolidated Financial Statement Yara Financial Report 2011

2010

Recognized Reclassified in other from equity Changes Opening Charged comprehen­ to profit Acquisitions/ in tax Exchange Closing NOK millions balance to income sive income or loss disposals rate differences balance

Non-current items Property, plant & equipment (2,423) (170) - - (8) (2) (101) (2,705) Pensions 487 (36) (40) - - (6) (7) 397 Equity securities available-for-sale (709) - 18 717 - - (31) (5) Other non-current assets 81 152 - - (62) 1 (4) 168 Other non-current liabilities and accruals (352) 226 - (4) - 4 6 (120) Total (2,916) 172 (22) 713 (70) (3) (137) (2,264)

Current items Inventory valuation (34) (57) - - - (6) 12 (86) Accrued expenses 189 (85) - - (18) (4) (2) 80 Total 155 (142) - - (18) (10) 10 (6) Tax loss carry forwards 1,580 (553) - - (18) (6) 34 1,038 Unused tax credits - 30 - - - - (1) 29 Valuation allowance (961) 144 - - 44 1 (37) (809) Net deferred tax asset/(liability) (2,142) (348) (22) 713 (62) (19) (131) (2,010)

UNrECOGNIzED DEDUCTIBLE TEmpOrArY DIFFErENCES, UNUSED TAx LOSSES AND UNUSED TAx CrEDITS

NOK millions 2011 2010

Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to the following: Tax losses 399 562 Deductible temporary differences 227 248 Total 626 809

NET DEFErrED TAx IS prESENTED IN ThE STATEmENT OF FINANCIAL pOSITION

NOK millions 2011 2010

Net deferred tax is presented in the balance sheet Deferred tax assets 1,474 1,650 Deferred tax liabilities (3,489) (3,660) Net deferred tax asset/(liability) (2,014) (2,010)

Undistributed earnings of foreign subsidiaries and in foreign non-consolidated investees is amounting to approximately NOK 43 billion that for the main part can be distributed as tax-free dividend.

SpECIFICATION OF ExpIrATION OF TAx LOSS CArrY FOrWArDS AND UNUSED TAx CrEDITS

NOK millions

2012 59 2013 18 2014 539 2015 121 2016 7 After 2016 149 Without expiration 1,634 Total tax loss carry forwards 2,527

Deferred tax effect of tax loss carry forwards 696 Valuation allowance (399) Deferred tax assets recognized in statement of financial position 297

Yara’s recognized tax loss carried forwards primarily relates to the business in Brazil and Italy. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 95

Note 9

Intangible assets

2011

NOK millions, Under Patents/ Other except percentages and years Goodwill development trademarks Software intangibles Total

Cost Balance at 1 January 4,031 - 176 408 954 5,570 Addition at cost - 14 1 33 6 55 Disposal - - (6) (1) (2) (10) Acquisition new companies 1) 166 - 2 - 92 260 Transfer 10 9 8 3 2 32 Foreign currency translation 24 1 (4) (9) 20 32 Balance at 31 December 4,231 24 178 435 1,071 5,938

Amortization/impairment Balance at 1 January (43) - (122) (236) (232) (634) Amortization - - (9) (55) (92) (156) Reversal impairment loss ­ - - - - 1 Disposal - - 6 1 2 10 Transfer - - (2) (2) (1) (4) Foreign currency translation 1 - 4 8 (4) 8 Balance at 31 December (41) - (122) (284) (327) (774)

Carrying value Balance at 1 January 3,989 - 54 172 722 4,937 Balance at 31 December 4,189 24 56 151 744 5,164

Useful life in years 3 - 15 3 - 15 3 - 15 Depreciation rate 5 - 35% 5 - 35% 5 - 35%

2010

NOK millions, Under Patents/ Other except percentages and years Goodwill development trademarks Software intangibles Total

Cost Balance at 1 January 3,138 - 167 316 445 4,066 Addition at cost - - 12 83 6 101 Disposal - - - (2) (5) (8) Acquisition new companies 1) 813 - - - 473 1,286 Transfer - - - 10 38 48 Foreign currency translation 81 - (3) 2 (3) 77 Balance at 31 December 4,031 - 176 408 954 5,570

Amortization/impairment Balance at 1 January (39) - (115) (170) (151) (475) Amortization - - (7) (66) (92) (165) Impairment loss (5) - - - - (5) Disposal 1 - - 2 5 8 Foreign currency translation - - - (3) 6 4 Balance at 31 December (43) - (122) (236) (232) (634)

Carrying value Balance at 1 January 3,100 - 51 146 294 3,591 Balance at 31 December 3,989 - 54 172 722 4,937

Useful life in years 3 - 15 3 - 15 3 - 15 Depreciation rate 5 - 35% 5 - 35% 5 - 35%

1) Additions to goodwill and other intangibles, as a result of acquisition of new companies, is in 2011 related to the purchase of the remaining 60% of Yara Nipro Pty Ltd. and 100% of Yara Miljö (former Petro Miljö). In 2010 it was related to the pruchase of remaining 51% of Balderton. See note 3 for more information. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 96 / Consolidated Financial Statement Yara Financial Report 2011

Note 10

Impairment testing of goodwill

Goodwill acquired through business combinations have been allocated for impairment testing to these cash-generating units (CGUs), presented together with the applicable discount rates used in the impairment testing:

Carrying value Discount rate Discount rate NOK millions after tax (WACC) before tax

2011 2010 2011 2010 2011 2010

Yara Belle plaine (Saskferco) acquisition: Upstream Yara Belle Plaine 2,071 2,059 8.1% 7.9% 10.4% 10.0% Downstream Yara Belle Plaine 116 116 8.1% 8.7% 10.7% 11.6%

Kemira Growhow acquisition: Upstream Finland 617 619 8.2% 8.3% 11.4% 11.0% Industrial Belgium 58 58 8.3% 7.8% 11.7% 10.3% Upstream Belgium 46 46 8.3% 8.0% 12.2% 11.6% Downstream Northern Europe 40 41 7.5% 6.7% 9.9% 8.8% Downstream Continental Europe 41 32 7.5% 6.7% 9.9% 8.8%

Balderton acquisition: Upstream Ammonia Trade 332 323 10.3% 10.3% 11.7% 11.6% Downstream Balderton, other trade 498 484 10.3% 10.3% 11.6% 11.6%

Other CGUs Downstream Yara Brasil 103 113 10.1% 10.6% 14.8% 17.0% Downstream Yara Ghana 40 43 11.5% 13.6% 15.8% 16.4% Downstream Yara Mexico 17 19 9.1% 9.1% 12.9% 12.3% DownstreamYara Phosyn 11 11 8.8% 9.1% 11.8% 12.0% Downstream Yara Nipro 110 - 11.0% - 15.5% - Industrial Yara Miljö (former Petro Miljö) 56 - 11.5% - 15.6% - Other 32 26 - - - -

Total 4,189 3,989

DETErmINATION OF rECOvErABLE AmOUNT: GrOWTh rATES Yara has used “value in use” to determine the recoverable amounts of all Yara uses a steady growth rate of 1.5% for all cash generating units after year cash generating units. Key assumptions used in the calculation of value in 5. This rate is estimated not to exceed the growth rate for the industry. use are : CApITAL ExpENDITUrE - EBITDA Capital expenditure necessary to meet the expected growth in revenues is - Growth rates taken into consideration. To the best of management’s judgment, estimated - Capital expenditures capital expenditures do not include capital expenditures that enhance the - Discount rate current performance of assets and related cash flows have been treated con­ sistently. EBITDA EBITDA represents the operating margin before depreciation and amorti- DISCOUNT rATE zation and is estimated based on the estimated future development in the Discount rate reflect the current market assessment of the risks specific to market. Committed operational efficiency programs are taken into consid- each cash generating unit. The discount rates were estimated based on the eration. Changes in the outcome of these initiatives may affect future esti- weighted average cost of capital for the industry. This rate was further mated EBITDA margin. EBITDA for the first year is based on the most adjusted to reflect the currency in which the CGU operates and market recent business plan for the CGU. For most Downstream CGUs, a steady assessments of any risk specific to the CGU for which future estimates of growth of 2.5% have been used for years 2 to 5. For other CGUs, mainly cash-flows have not been adjusted. Upstream units, management projections based on available forecasts for volumes, sales prices, energy and other cost components have been used for the same period. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 97

CGU INFOrmATION Yara Nipro Yara Belle plaine Yara acquired the remaining 60% of the Australian entity Yara Nipro in Goodwill in relation to the Saskferco acquisition in 2008 was allocated to two 2011 (see note 3 for more information). The entity is classified as a separate CGUs. Changes in carrying values of goodwill are only related to currency CGU. It has been concluded that the future cash flows are sufficient to sup­ translation effects (CAD/NOK). It has been concluded that the future cash port the carrying value. flows are sufficient to support the carrying values of recognized goodwill. Yara miljö (former petro miljö) Kemira Growhow Yara acquired the company in 2011 (see note 3 for more information). The Goodwill in relation to the Kemira GrowHow acquisition in 2007 was allo­ entity is classified as a separate CGU. It has been concluded that the future cated to five CGUs. Changes in carrying values of goodwill are related to cash flows are sufficient to support the carrying value. currency translation effects (EUR/NOK) and a minor reclassification. It has been concluded that the future cash flows are sufficient to support the ­car SENSITIvITY TO ChANGES IN ASSUmpTIONS rying values. Overall, there is significant headroom between the recoverable amounts of goodwill and the carrying amounts. Balderton Goodwill in relation to the Balderton transaction in 2010 was allocated to As a basis for the sensitivity evaluation, Yara has used the following changed two CGUs. Changes in carrying values of goodwill are only related to cur­ assumptions for all CGUs: rency translation effects (USD/NOK). It has been concluded that the future cash flows are sufficient to support the carrying values. - Increase of discount rate with 1.0% points (after tax) - Reduction to management projected EBITDA with 10% each year, in the Yara Brazil period years 1 to 5 Goodwill in relation to the Fertibras acquisition in 2006 and 2007 was allo­ - No growth after year 5 (instead of 1.5% steady growth) cated to Yara’s Brazilian business. The change from last year is related to currency translation (BRL/NOK). It has been concluded that the future Combined change of all three assumptions would create a total impairment cash flows are sufficient to support the carrying value. of around NOK 50 million. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 98 / Consolidated Financial Statement Yara Financial Report 2011

Note 11

Property, plant and equipment

2011

NOK millions, Machinery Plant under except percentages and year Land and equipment 2) Buildings 3) construction Other Total

Cost Balance at 1 January 632 36,774 5,296 3,356 417 46,474 Addition at cost - 1,896 161 1,195 - 3,252 Disposal (1) (907) (32) - (7) (948) Aquisition new companies 9 89 7 - - 105 Transfer 1) - 2,869 611 (3,511) - (32) Foreign currency translation (4) (65) (20) (13) (1) (103) Balance at 31 December 637 40,655 6,022 1,027 409 48,749

Depreciation and impairment Balance at 1 January (24) (20,220) (2,594) - (166) (23,005) Depreciation - (2,182) (218) - (21) (2,422) Impairment loss (1) (99) (10) - - (110) Reversed impairment - 7 2 - - 9 Disposal - 795 28 - 7 830 Transfer - 47 (41) - - 6 Foreign currency translation - 46 14 - - 61 Balance at 31 December (26) (21,606) (2,818) - (180) (24,631)

Carrying value Balance at 1 January 607 16,554 2,702 3,356 251 23,470 Balance at 31 December 611 19,049 3,204 1,027 229 24,118

Useful life in years 4 - 20 20 - 50 5 - 10 Depreciation rate 5 - 25% 2 - 5% 10 - 20%

2010

NOK millions, Machinery Plant under except percentages and year Land and equipment 2) Buildings 3) construction Other Total

Cost Balance at 1 January 666 35,451 4,829 3,101 426 44,473 Addition at cost - 1,691 116 1,869 12 3,688 Disposal (9) (783) (109) (7) (5) (913) Aquisition new companies - 4 - - - 4 Transfer 1) (4) 880 516 (1,467) - (75) Foreign currency translation (21) (469) (56) (140) (17) (703) Balance at 31 December 632 36,774 5,296 3,356 417 46,474

Depreciation and impairment Balance at 1 January (29) (19,667) (2,504) - (152) (22,352) Depreciation - (1,982) (190) - (22) (2,194) Impairment loss 1 (30) (60) - - (88) Reversed impairment - 2 10 - - 12 Disposal 2 783 91 - 5 881 Transfer - 2 9 - - 11 Foreign currency translation 1 672 51 - 2 726 Balance at 31 December (24) (20,220) (2,594) - (166) (23,005)

Carrying value Balance at 1 January 637 15,784 2,324 3,101 275 22,121 Balance at 31 December 607 16,554 2,702 3,356 251 23,470

Useful life in years 4 - 20 20 - 50 5 - 10 Depreciation rate 5 - 25% 2 - 5% 10 - 20%

1) Transfer is mainly related to transfer from plant under construction to machinery and equipment. 2) Includes net carrying value related to finance leases of NOK 176 million in 2011 (2010: NOK 180 million). 3) Includes net carrying value related to finance leases of NOK 61 million in 2011 (2010: NOK 10 million).

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 99

Property, plant and equipment pledged as security was NOK 195 million in Asset impairment is mainly related to operations in the Netherlands NOK 2011 (2010: NOK 188 million). 39 million and France NOK 63 million. Total impairment related to prop­ erty, plant and equipment amounted to NOK 110 million. Government grants related to assets have been recognized as deduction to the carrying value of plant under construction by reducing “Addition at The amount of borrowing cost capitalized amounted to NOK 46 million in cost” with NOK 43 million in 2011. 2011 (2010: NOK 54 million). The average rate for the borrowing cost capi­ talized was 4.07% in 2011. The amount of contractual commitment for the acquisition of property, plant and equipment was NOK 232 million in 2011 (2010: NOK 527 million). Compensations from insurance companies recognized in the consoli­ dated income statement amounted to NOK 6 million in 2011 (2010: NOK 39 million).

Note 12

Associated companies and jointly controlled entities

2011

Total share Invest­ Yara's of net ments share Amortiza­ income in Foreign / (sale), net Transfers of net tion, depre­ equity- Posted currency Balance Balance at and long- to/from income/ ciation and accounted Dividends directly in translation at 31 NOK millions 1 January term loans subsidiary (loss) write-down investees received equity and other December

Qafco 3,923 156 3) - 1,018 - 1,018 (184) (57) 177 5,033 Yara Pilbara (Burrup) 1,676 - - 211 (41) 169 - - 54 1,899 Lifeco 1,539 - - (131) - (131) - - 28 1,436 GrowHow UK 1,600 - - 334 - 334 (622) (113) 48 1,248 Yara Praxair Holding 1) 23 636 - 47 (5) 42 - - - 702 Tringen 120 85 - 243 - 243 (263) (5) 8 188 NU3 90 - - 6 - 6 - - - 96 Synagri 59 - - 14 - 14 - - 2 74 Yaibera (Rossosh) 2) 756 (511) - 112 - 112 (343) - (14) - Other 2) 437 21 (57) 83 (2) 81 (69) (2) 5 417 Total 10,223 387 (57) 1,937 (48) 1,889 (1,480) (177) 306 11,092

1) Yara reduced its ownership in Yara Praxair Holding AS from 50% to 34% in 2011. 2) Yara acquired all the remaining shares of Yara Nipro and sold shares in Yaibera (Rossosh) in 2011. Further details are shown in note 2. 3) Profit attributable to foreign shareholder (Yara) is subject to tax in Qatar. The tax is paid by Qafco, but refunded by Yara.

2010

Total share Invest­ Yara's of net ments share Amortiza­ income in Foreign / (sale), net Transfers of net tion, depre­ equity- Posted currency Balance Balance at and long- to/from income/ ciation and accounted Dividends directly in translation at 31 NOK millions 1 January term loans subsidiary (loss) write-down investees received equity and other December

Qafco 3,525 - - 729 - 729 (295) (75) 38 3,923 Yara Pilbara (Burrup) 1,584 75 - (116) (40) (156) (56) - 229 1,676 GrowHow UK 1,401 - - 221 - 221 - 28 (50) 1,600 Lifeco 1,413 - - 179 - 179 (72) - 18 1,539 Yaibera (Rossosh) 769 - - 138 - 137 (154) - 4 756 Tringen 179 (88) - 227 - 227 (193) (9) 4 120 NU3 88 - - 16 - 16 (8) - (5) 90 Synagri 45 - - 12 - 12 - - 2 59 Yara Praxair Holding (41) - - 71 - 71 - (6) - 23 Carbonor 1) 28 (28) ------(1) - Balderton 1) 577 - (574) 4 (1) 3 - - (6) - Agrico 1) 67 (63) - 10 (20) (10) - - 6 - Other 448 (61) - 95 (10) 85 (49) 3 10 437 Total 10,083 (164) (574) 1,587 (71) 1,515 (827) (61) 250 10,223

1) Yara acquired all the remaining shares of Balderton, sold shares Carbonor and sold shares in Agrico in 2010.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 100 / Consolidated Financial Statement Yara Financial Report 2011

Due to it being impractical to obtain financial report at the same reporting date as Yara uses, there is for some of the associated companies and jointly con­ trolled entities a lag of 1-3 month for the numbers included.

OWNErShIp, SALES AND rECEIvABLES/pAYABLES

Percentage owned by Yara Yara’s current receivable/ (payable) Place of (equals voting rights) Sales from Investees to Yara Group 1) net with investees NOK millions, incorporation except ownership and operation 2011 2011 2010 2011 2010

Qafco Qatar 25.0% (3,382) (2,797) (31) (36) Yara Pilbara (Burrup) Australia 35.0% (2,027) (1,816) (74) (60) Lifeco Libya 50.0% (376) (1,523) (99) - GrowHow UK Ltd Great Britain 50.0% (918) (723) 42 (62) Yara Praxair Holding Norway 34.0% (7) (6) 7 (6) Tringen Trinidad and Tobago 49.0% (2,509) (2,125) (300) (377) NU3 Belgium 50.0% (395) (352) (40) - Synagri Canada 50.0% - - (54) (37) Yaibera (Rossosh) 2) Cyprus - (2,514) (1,894) - (81) Other (105) (92) - 49 Total (12,234) (11,328) (548) (612)

1) Included in raw materials, energy cost and freight expenses. 2) Sold in 2011.

BUSINESS IN EQUITY-ACCOUNTED INvESTEES about material physical damage to or depletion of the assets not reflected in Lifeco’s financial statements. Yara will continue to take all new information Qafco into consideration going forward. Approximately NOK 839 million of the Yara is the owner of 25% of Qatar Fertiliser Company (S.A.Q.), (“Qafco”), carrying value of Yara’s investment is related to bank deposits in Libyan the owner and operator of a fertilizer complex in Mesaieed in Qatar. The banks, and NOK 611 million is related to the plant in Marsa el Brega. The remaining 75% of Qafco is owned by Industries Qatar, a Doha Stock Market plant is insured by a Libyan insurance company. The policy does not cover listed company, owned 70% by Qatar Petroleum and 30% by general public. damage caused by war, civil war, revolution or terrorism. See note 23 related Qafco operates 4 ammonia plants and 4 urea plants, and has under con­ to ongoing investigations of the establishment and follow-up of Yara’s inter­ struction another two ammonia plants and one urea plant which are est in Lifeco. expected to commence production during first quarter 2012. In addition Qafco is constructing another urea plant with planned start-up towards the Growhow UK end of 2012. Yara provides marketing support and technical assistance for Yara has a 50% interest in GrowHow UK Group Limited, a jointly con­ Qafco’s fertilizer operations. Qafco has 70% ownership in Gulf Formalde­ trolled entity with CF Industries Inc. with a turnover in excess of EUR 600 hyde Company, which produces and sell Urea Formaldehyde Concentrate, million. The company is based in Ince and is the UK’s leading manufacturer mainly used in the urea production process. In addition Qafco owns 60% of of ammonium nitrate and compound fertilizers, and a major supplier for Qatar Melamine Company who owns a melamine plant located at the process chemicals and utilities. GrowHow UK Group Ltd operates produc­ Qafco site, and with a capacity of 60,000 tons per year. Qafco is operating tion sites in Billingham and Ince. The company is responsible for the sales and providing marketing services for this plant. of the jointly controlled entities’ fertilizer and associated process chemical products in the UK. Yara pilbara (Burrup) During 2011, Yara has had a 35% ownership interest in the Australian com­ Yara praxair holding pany Yara Pilbara Holdings (former Burrup Holdings). In February 2012, In 2011 Yara has reduced its ownership in the jointly controlled entity Yara Yara acquired additional 16% and gained control over the entity. See note 34 Praxair Holding AS from 50% to 34%. Yara Praxair is one of the leading for more information about post-balance sheet business combination. Yara industrial gases companies in Scandinavia. The company supplies atmo­ Pilbara Holdings owns and controls Yara Pilbara Fertilizers with an ammo­ spheric, process and speciality gases to a wide variety of industries: food nia plant based in Burrup Peninsula in Western Australia. The ammonia and beverages, healthcare, fish farming, chemicals, refining, primary metals plant started production in 2006 and is world scale with a capacity of and metal fabrication as well as other areas of general industry. The entity 760,000 tons per year. Yara markets the entire output of the plant pursuant comprises Yara’s previous industrial gases business located in Norway, Den­ to a long-term exclusive marketing agreement. In 2010, Yara recognized mark and Sweden. Yara classifies Yara Praxair Holding AS as an associated NOK 165 million as its share of impairment write-down of certain balance entity after this transaction and continues to use the equity method. sheet items in the company. Tringen Lifeco Tringen owns an Ammonia complex consisting of two separate Ammonia Yara owns 50% in Libyan Norwegian Fertiliser Company (Lifeco), together plants which are managed and operated by Yara under a management and with Oil Corporation of Libya (NOC) and the Libyan Investment Authority operating agreement. In addition Yara provides marketing support through (LIA) each holding a 25% stake. More than 90% of the ammonia and urea Sales Agency agreements. Yara has a 49% ownership stake in Tringen, the from Lifeco is exported, and Yara is Lifeco’s exclusive global export product remaining 51% of Tringen is owned by National Enterprises Limited, which distributor. Lifeco suspended its operations in February 2011, following the is a publicly listed Company, in which the Government of the Republic of unrest in Libya. Yara has tested the investment for impairment. The main Trinidad and Tobago has majority shareholding. uncertainty is the length of the suspension period. Yara is targeting a third- quarter 2012 start-up, with full production by end of the year, contingent on site preparations on schedule and natural gas supplies being available by summer. Other important assumptions are estimated prices of ammonia and urea, stability of deliveries of natural gas and the discount rate. Internal and external sources of information have been used when estimating selling prices and natural gas cost. At this point in time, Yara has no information WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 101

NU3 Yara had an indirect share of 30% of OAO Minudobrenyia, a Russian nitro- NU3 owns and operates two specialty fertilizers production facilities, one in gen fertilizer producer based in Rossosh in the Voronesh region. Until the the Netherlands and one in Belgium. NU3, is a 50/50 jointly controlled divestment, Yara had a marketing agreement for NPK fertilizers to be entity between Yara and NutriSi (owned by Rotem, an Israeli company). exported from the Russian plant. NU3 sells specialty fertilizers. Carrying value and share of net income by segment for associated compa­ Synagri nies and jointly controlled entities are disclosed in note 4. Synagri LP provides product and services to the retail agricultural sector. Yara has a 50% ownership in Synagri and Cargill Limited owns the remain­ ASSOCIATED COmpANIES AND JOINTLY CONTrOLLED ENTITIES ing 50%. The joint venture sells in the Canadian provinces of Eastern - 100% BASIS Ontario and Quebec. The following table sets forth summarized unaudited financial information of Yara’s associated companies and jointly controlled entities on a 100% Yaibera (rossosh) combined basis. Yara’s share of these investments, which is also specified Yara sold its 37.692% stake in Yaibera Holdings Limited (Yaibera) in August above, is accounted for using the equity method. 2011. See note 2 for more information. Through the investment in Yaibera,

NOK millions (unaudited) 31 Dec 2011 31 Dec 2010

Total assets 50,984 47,055 Total liabilities (20,422) (19,471) Net assets 30,562 27,584

Yara's share of total equity 8,996 8,795

NOK millions (unaudited) 2011 2010

Total revenues 23,797 26,227 Net income 7,232 5,104

Yara's share of net income 1,937 1,587

Note 13

Equity securities

NOK millions Notes 2011 2010

1 January 340 3,885 Foreign currency translation (1) 161 Additions 25 24 Disposals 1)2) (101) (3,660) Reclassification - (23) Write-down recognized in income statement (13) - Net gain/(loss) transferred to equity 34 (48) Total at 31 December 283 340

Listed securities - 3 Unlisted equity securities 28 283 337 Total at 31 December 283 340

1) The disposal in 2011 is related to the sale of shares in Hankkija Maatalous. See note 2 for more information. 2) The disposal in 2010 is related to the sale of directly and indirectly owned shares in Fosfertil. Amount includes accumulated unrealized gain from ownership of shares in Fosfertil of NOK 2,129 million that was transferred from equity at disposal of shares.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 102 / Consolidated Financial Statement Yara Financial Report 2011

Note 14

Other non-current assets

NOK millions, except percentages Notes 2011 2010

Prepayments for defined benefit plans 22 483 457 Equity investments available-for-sale 2,13,28 283 340 Interest rate swap designated as hedging instrument 27,28 167 66 Freestanding interest rate swap 27,28 - 64 Long-term loans and receivables 1) 28 942 1,341 Total 1,875 2,269

Long-term loans and receivables Effective interest rate, interest-bearing loans and receivables 2.4% 2.2%

1) Mainly related to tax and VAT credits

The long-term loans and receivables bear interest at variable rates with minimum annual repricing.

Note 15

Inventories

NOK millions 2011 2010

Finished goods 7,952 5,617 Work in progress 536 395 Raw materials 4,195 3,632 Total 12,683 9,644

Write-down Balance at 1 January (98) (291) Write-down (272) (112) Products sold (previously written down) 90 245 Reversal 19 60 Foreign currency translation (3) (1) Balance at 31 December (265) (98)

Note 16

Trade receivables

NOK millions Notes 2011 2010

Trade receivables 9,181 7,278 Allowance for impairment loss (502) (634) Total 28 8,680 6,644

mOvEmENT IN ThE ALLOWANCE FOr ImpAIrmENT LOSS

NOK millions Notes 2011 2010

Balance at 1 January (634) (729) Net impairment reversal/(loss) recognized this year 111 93 Currency translation effects 25 (2) Other changes (including disposal/acquisition of companies) (4) 3 Balance at 31 December (502) (634)

Net impairment reversal on trade receivables recognized in the statement of income amounts to NOK 28 million (2010: loss of NOK 2 million). WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 103

AGEING ANALYSIS OF TrADE rECEIvABLES AT 31 DECEmBEr

Gross trade receivables

Not past due gross Past due gross trade receivables NOK millions Total trade receivables < 30 days 30 - 90 days 91 - 180 days > 180 days

2011 9,181 7,420 753 346 74 589 2010 7,278 5,664 678 254 81 602

Net trade receivables

Neither past due Past due but not impaired NOK millions Total nor impaired < 30 days 30 - 90 days 91 - 180 days > 180 days

2011 8,680 7,398 749 334 71 127 2010 6,644 5,601 666 239 65 74

Impairment of trade receivables

Impairment on not Impairment on past due receivables NOK millions Total past due receivables < 30 days 30 - 90 days 91 - 180 days > 180 days

2011 (502) (21) (4) (13) (3) (461) 2010 (634) (63) (11) (16) (16) (528)

Note 17

Prepaid expenses and other current assets

NOK millions Notes 2011 2010

VAT and sales related taxes 28 875 625 Financial derivatives 28 30 81 Commodity derivatives and embedded derivatives 28 75 139 Prepaid income taxes 543 762 Prepaid expenses 723 732 Other current assets 28 689 526 Total 2,935 2,866

Note 18

Cash, cash equivalents and other liquid assets

NOK millions Notes 2011 2010

Cash and cash equivalents 28 5,868 2,946 Other liquid assets 28 1 802

Cash and cash equivalents have a maturity of three months or less. External bank deposits in subsidiaries that are not available for the use of the Group at 31 December 2011 is NOK 311 million (2010: NOK 196 million).

Other liquid assets comprise bank deposits with maturity between three months and one year.

The average interest rate for liquid assets is approximately 2.9% as of 31 December 2011 (2010: 2.9%).

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 104 / Consolidated Financial Statement Yara Financial Report 2011

Note 19

Share information

On 10 May 2011, the General Meeting of Yara approved a share buy-back 2,200,000 shares for a total consideration of NOK 558.7 million under the program, authorizing the Board of Directors for a period of 12 months to 2011 share buy-back program. Yara also purchased 19,137 own shares that let the Company acquire up to 5% of total shares in the open market and were reissued to employees together with the 15 shares held by the employee from the Norwegian State. The purchase price shall not be less than NOK 10 trust at the beginning of the year. At 31 December 2011, no shares were nor more than NOK 1,000. Shares acquired may either be used for cancel­ owned by the employee trust. The trust is included in the consolidated lation, or, according to decision by the Board of Directors, as consideration financial statements. in commercial transactions. The 2011 buy-back program is similar to previ­ ous years’ programs. During 2010, Yara purchased 450,000 shares for a total consideration of NOK 115.4 million under the share-buy back program. Yara also purchased Yara’s largest shareholder, the Norwegian State, has committed to sell a pro­ 15,500 own shares that were reissued to employees together with 652 shares portionate part of its shares, leaving the State’s ownership unchanged at held at the beginning of the year. At 31 December 2010, 15 shares were still 36.21%. The compensation to the State will be equal to the average price held by the employee trust. paid in the market for the buy-back of shares, plus interests of NIBOR +1%, calculated from the date of the acquisition of the corresponding shares. Dividend proposed for 2011 is NOK 7.00 per share, amounting to NOK 1,998 million. Dividend approved for 2010 and paid out in 2011 was NOK During 2011, Yara purchased 300,000 shares for a total consideration of 1,584 million. NOK 88.7 million under the 2010 share buy-back program, and further

Ordinary shares Own shares 1)

Total at 31 December 2009 288,831,918 (667)

Treasury shares - share buy-back program 2) - (450,000) Treasury shares - employee trust - 652 Total at 31 December 2010 288,831,918 (450,015)

Treasury shares - share buy-back program 2) - (300,000) Redeemed shares Norwegian State 3) (425,759) - Shares cancelled 3) (750,000) 750,000 Treasury shares - employee trust - 15 Treasury shares - share buy-back program 3) - (2,200,000) Total at 31 December 2011 287,656,159 (2,200,000)

1) Including employee trust. 2) As approved by General Meeting 11 May 2010. 3) As approved by General Meeting 10 May 2011. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 105

Note 20

Earnings per share

NOK millions, except number of shares 2011 2010

Earnings Net income for the purposes of basic earnings per share 12,066 8,729 (profit for the year attributable to the shareholders of Yara International ASA)

Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 287,321,413 288,680,758

The denominators for the purpose of calculating basic earnings per share have been adjusted for the buy-back of own shares and redemption of shares held by the Norwegian State, see note 19.

Note 21

Non-controlling interests

NOK millions 2011 2010

Total at 1 January (149) (158) Share of profit for the year (24) (64) Dividends distributed 22 71 Disposals 10 - Share capital increase - (4) Companies acquired (17) - Currency effect 2 5 Total at 31 December (157) (149)

NON-CONTrOLLING INTErESTS ArE mAINLY rELATED TO ThE FOLLOWING UNITS

Non-controlling Non-controlling Company name Registered office interests 2011 interests 2010

AS Ammonia Denmark 33.3% (57) 33.3% (58) Yara Agri Trade Misr SAE Egypt 49.0% (34) 49.0% (39) Yara East Africa Ltd Kenya 30.0% (30) 30.0% (30) Yara Cameroun s.a. Cameroun 35.0% (14) 35.0% (13) Yara Alboran S.A. Spain 47.0% (13) - - Yara Brasil Fertilizantes S.A. Brazil - - 1.5% (4) Other (8) (6) Total at 31 December (157) (149) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 106 / Consolidated Financial Statement Yara Financial Report 2011

Note 22

Employee retirement plans and other similar obligations

The Group companies provide various retirement plans in accordance with Defined contribution plans require the companies to make agreed contri­ local regulations and practices in the countries in which they operate. butions to a separate fund when employees have rendered services entitling them to the contributions. The companies have no legal or constructive Defined benefit plans are generally based on years of service and final salary obligation to pay further contributions. levels, offering retirement benefits in addition to what is provided by state pension plans. Most of the defined benefit plan obligations are covered by Some companies make contributions to multi-employer pension plans external insurance companies or by pension funds that are legally separated included in a joint arrangement with others. All multi-employer plans are from the companies. By definition, both investment risk and actuarial risk accounted for as defined contribution plans. (i.e. the actual level of benefits to be paid in the future) are retained by the Group companies. Some companies have recognized provisions for jubilee benefits, which are classified as Other long-term employee benefits.

LONG-TErm EmpLOYEE BENEFIT OBLIGATIONS rECOGNIzED IN ThE STATEmENT OF FINANCIAL pOSITION

NOK millions Notes 2011 2010

Defined benefit plans (2,529) (2,077) Prepayments for defined benefit plans 14 483 457 Net liability for defined benefit plans (2,045) (1,620)

Termination benefits (59) (92) Other long-term employee benefits (86) (86) Net long-term employee benefit obligations recognized in Statement of financial position (2,190) (1,797)

ExpENSES FOr LONG-TErm EmpLOYEE BENEFIT OBLIGATIONS rECOGNIzED IN ThE STATEmENT OF INCOmE

NOK millions Notes 2011 2010

Defined benefit plans (161) (199) Defined contribution plans (109) (92) Multi-employer plans (37) (41) Termination benefits (20) (63) Other long-term employee benefits (31) (38) Net expenses recognized in Statement of income (358) (433)

Of which classified as Payroll and related costs 5 (351) (366) Of which classified as Interest expense and other financial items 7 (6) (67)

DEFINED BENEFIT pLANS for a flexible retirement age from 63 to 68 based on the employee’s salary Yara International ASA and Norwegian subsidiaries have incurred obliga­ each year and with accelerated earning of retirement benefits beyond the tions under a funded defined benefit plan. The pension plan was closed to age of 63. There is also a possibility for early retirement at the age of 62 with new entrants in 2006 and employees below the age of 55 received a paid-up a permanent reduction of benefits. policy for previously earned benefit entitlements. The defined benefit plan was replaced by a defined contribution plan from the same date. Further Subsidiaries of Yara are also liable to retirement benefits in France, Ger­ pension obligations in Norway include certain unfunded pension arrange­ many, Belgium and Italy within the Eurozone. ments as well as an early retirement scheme. Normal retirement age is 67 with the option for early retirement from the age of 62. The pension plan in Great Britain is funded and provides retirement bene­ fits based on final salary. Normal retirement age is 62 except for some con­ A majority of Yaras obligations under defined benefit plans are related to tracts with retirement age of 65. subsidiaries within the Eurozone. Other defined benefit plan obligations include employees of subsidiaries in Employees of Yaras Dutch subsidiaries are members of a funded pension Sweden, Trinidad and South Africa. plan. Employees born before 1950 and who were in service before 2006 are entitled to a pension scheme based on final salary at the age of retirement. Most defined benefit plans include benefits in case of disability, death in Normal retirement age is 65 with the option for early retirement from the service and death after retirement, which are included in the valuation of age of 61. All other employees are members of an Average Pay scheme. liabilites.

Obligations in Finland include the statutory TyEL pension scheme as well The provision for defined benefit plans also includes liabilities for medical as a further defined benefit plan which is closed to new entrants. Both plans in Great Britain, Trinidad and South Africa with a total of NOK 35 schemes are covered by pension funds. The TyEL pension scheme provides million (2010: NOK 34 million). WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 107

Defined benefit obligations by origin:

NOK millions 2011 2010

Eurozone (5,810) (5,545) Great Britain (2,447) (2,182) Norway (1,925) (1,829) Other (363) (315) Total (10,544) (9,870)

vALUATION OF DEFINED BENEFIT OBLIGATIONS The discount rate is a weighted average of the yields at the balance sheet The defined benefit plans are valued at 31 December using updated finan- date on AA credit rated corporate bonds, or government bonds where no cial and demographical assumptions and taking into account the relevant deep market exists for AA credit rated corporate bonds. The discount rate is economic environment of each pension plan. adjusted by extrapolation if neccessary, to take into account differences in maturities.

The following financial assumptions have been applied for the valuation of liabilities (weighted average in %):

2011 2010

Discount rate 4.4 4.7 Expected rate of salary increases 3.5 3.6 Future rate of pension increases 2.1 2.2

Actuarial valuations provided the following results:

NOK millions 2011 2010

Present value of fully or partially funded liabilities for defined benefit plans (8,939) (8,323) Present value of unfunded liabilities for defined benefit plans (1,605) (1,547) Present value of liabilities for defined benefit plans (10,544) (9,870)

Fair value of plan assets 8,573 8,355 Past service cost not recognized in the Statement of financial position (unvested) 13 16 Increase in defined benefit obligation due to regulations in IFRIC 141) - (61) Social security tax liability on defined benefit plans (87) (60) Net liability recognized for defined benefit plans (2,045) (1,620)

1) Yara is committed to making minimum contributions to the pension fund in Great Britain until 2015 to compensate a past service funding deficit from 2008. In 2010 the present value of the agreed deficit contributions exceeded the net pension obligation. As Yara does not have an unconditional right to a refund of surplus from the pension fund, IFRIC 14 required the recognition of an additional liability in 2010. Following the valuation at 31 December 2011, the minimum funding requirement is not expected to lead to excess value of pension plan assets over the recoverable amount, and there is no longer a need to recognize an additional liability. pENSION COST rECOGNIzED IN STATEmENT OF INCOmE The assumptions used to value the defined benefit obligations at 31 December are used in the following year to determine the net pension cost.

The expected long-term rate of return on plan assets is based on forecasts of expected return for individual asset classes and the determined long-term portfolio structure for each of the pension funds. Forecasts are based on long-term historical average returns, taking into account current yield level and expected inflation.

The following financial assumptions have been applied for the valuation of pension cost items (weighted average in %):

2011 2010

Discount rate 4.7 5.1 Expected rate of return on plan assets 5.4 5.6 Expected rate of salary increases 3.6 3.6 Future rate of pension increases 2.2 2.3 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 108 / Consolidated Financial Statement Yara Financial Report 2011

The following items have been recognized in the Statement of income:

NOK millions 2011 2010

Current service cost (180) (173) Contribution by employees 20 15 Past service cost (vested) (8) (4) Settlements 1) 17 32 Social security cost (5) (4) Payroll and related costs (156) (134)

Interest on obligation (456) (484) Expected return on plan assets 451 419 Interest expense and other financial items (5) (65)

Net pension cost recognized in Statement of income (161) (199)

1) Settlements are related to termination of certain employee benefit obligations in France (2010: Norway and France)

SENSITIvITY OF ASSUmpTIONS benefit obligation (DBO) and pension cost items, by showing the result Measurement of defined benefit obligations and pension costs requires the from an increase or decrease in any one of the assumptions applied (all use of a number of assumptions and estimates. Below table indicates the other assumptions held constant). sensitivity of the most material financial assumptions applied to the defined

NOK millions DBO at 31 Dec 2011 Service Cost 2011 Interest cost 2011

Actual valuation (10,544) (180) (456)

Discount rate +0.5% (9,812) (160) (501) Discount rate -0.5% (11,324) (201) (410)

Expected rate of salary increase +0.5% (10,647) (187) (462) Expected rate of salary increase -0.5% (10,441) (172) (450)

Expected rate of pension increase +0.5% (11,199) (192) (482) Expected rate of pension increase -0.5% (9,967) (168) (432)

Development of defined benefit obligations

NOK millions 2011 2010

Defined benefit obligation at 1 January (9,870) (9,808) Current service cost (180) (173) Interest cost (456) (484) Actuarial gains / (losses) (457) (340) Past service cost (6) - Obligation transferred on disposal of subsidiaries 1) - 20 Settlements 2) 17 32 Benefits paid 464 495 Transfer of obligation (in)/out (18) (7) Exchange difference on foreign plans (40) 394 Defined benefit obligation at 31 December (10,544) (9,870)

1) Obligations transferred were related to disposal of subsidiaries in Italy and South Africa 2) Settlements are related to termination of certain employee benefit obligations in France (2010: Norway and France) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 109

Development of plan assets

NOK millions 2011 2010

Fair value of plan assets at 1 January 8,355 7,975 Expected return on plan assets 451 419 Actuarial gains / (losses) on plan assets (233) 444 Employer contributions 298 207 Employees' contributions 20 15 Benefits paid (354) (357) Transfer of plan assets in/(out) 5 5 Exchange difference on foreign plans 30 (353) Fair value of plan assets at 31 December 8,573 8,355

The actual return on plan assets in 2011 was a positive NOK 218 million (2010: positive NOK 863 million).

plan assets are comprised as follows:

NOK millions 2011 2011 2010 2010

Equity instruments 2,761 32% 2,981 36% Debt instruments 4,597 54% 4,389 53% Investments/lending to Yara Group companies 1) 146 2% 147 2% Property 215 3% 177 2% Bank deposits 395 5% 134 2% Other 459 5% 527 6% Total plan assets 8,573 100% 8,355 100%

1) Loan from Pension fund to Yara Suomi Oy (Finland)

Contributions expected to be paid to the defined benefit plans for 2012 is NOK 657 million (including benefits to be paid for unfunded plans). The increase from 2011 company contributions total of NOK 408 million, is primarily due to an additional contribution required to meet coverage ratio requirements of the Dutch pension plan.

Actuarial (gains) / losses recognized in other comprehensive income

NOK millions 2011 2010

Actuarial (gains) / losses on obligation for defined benefit plans 457 340 Actuarial (gains) / losses on plan assets for defined benefit plans 233 (444) Increase / (decrease) in social security tax liability on actuarial (gains) / losses for defined benefit plans (Norway only) 27 (1) Increase/ (decrease) in recognized liability for defined benefit plans due to regulations in IFRIC 14 (current period) (61) (41) Other - 2 Net change in actuarial (gains) / losses for defined benefit plans 655 (144)

Change in deferred tax related to actuarial (gains) / losses for defined benefit plans1) (151) 41 Actuarial (gains) / losses recognized from equity-accounted investees (net of tax) 118 (16) Total actuarial (gains) / losses recognized in other comprehensive income 622 (119)

1) Includes impact from reduction of tax percentage in Finland ang Great Britain.

Actuarial gains and losses include experience adjustments, reflecting the differ- Actuarial gains and losses are permanently recognized directly in retained ence between estimated and actual changes in obligations and plan assets dur- earnings in the period in which they occur. The cumulative amount of actuarial ing the year, as well as the impact of change in assumptions when measuring the losses recognized in other comprehensive income is NOK 1,846 million (2010: present value of pension liabilities at year-end with revised assumptions. NOK 1,224 million).

historical information

NOK millions 2011 2010 2009 2008 2007

Present value of the defined benefit obligation (10,544) (9,870) (9,808) (10,339) (8,759) Of which impact of experience adjustments (50) 113 81 (380) 53

Fair value of plan assets 8,573 8,355 7,975 7,827 7,761 Of which impact of experience adjustments (233) 444 516 (1,204) (183) Deficit in the plan 1) (1,972) (1,515) (1,833) (2,513) (997)

1) Social security cost is not included WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 110 / Consolidated Financial Statement Yara Financial Report 2011

Note 23

Provisions and contingencies

NOK millions Environmental Restructuring Legal Claims Decommission Other Total

Balance at 1 January 2010 148 152 186 131 43 660

Additional provision in the year 63 85 32 87 134 401 Interest expense on liability 1 - 13 - - 14 Reclassification1) 1 (1) 1 - (1) - Unused provision (3) (8) (48) (5) (12) (76) Utilisation of provision (23) (90) (53) (19) (16) (201) Companies purchased/sold - - - (45) - (45) Currency translation effects (6) (7) 8 (8) 12 (1) Balance at 31 December 2010 181 131 138 142 160 751

Additional provision in the year 55 14 55 47 130 301 Interest expense on liability 1 2 10 - - 13 Reclassification1) - - - - 20 20 Unused provision (3) (9) (65) - (17) (94) Utilisation of provision (23) (69) (26) (39) (256) 2) (413) Companies purchased/sold - - - - 1 1 Currency translation effects (2) (1) (8) - 2 (9) Balance at 31 December 2011 209 67 105 150 39 571

1) Reclassification of items previously presented as other liabilities 2) Mainly related to Hydrochem Africa

prOvISIONS prESENTED IN ThE CONSOLIDATED STATEmENT OF FINANCIAL pOSITION

NOK millions 2011 2010

Current liabilities 318 321 Non-current liabilities 252 430 Total 571 751

ENvIrONmENTAL OThEr Yara’s future cost for environmental clean-up depends on a number of uncer­ Other consists of various provisions for constructive obligations as a result tain factors, such as the extent and type of remediation’s required. Due to of past events. uncertainties inherent in the estimation process, it is possible that such esti­ mates could be revised in the near term. In addition, conditions which could CONTINGENCIES require future expenditures may be determined to exist for various sites, A subsidiary has received a claim for payment of local sales taxes of approx­ including Yara’s major production facilities and product storage terminals. imately NOK 150 million. Yara contests the claim, both as to the actual lia­ The amount of such future costs is not determinable due to the unknown bility and the amount, and has undertaken appropriate legal actions to timing and extent of corrective actions which may be required. reject the claim. Based on external legal advice, the main part of the claim has not been recognized. The case is ongoing and subject to uncertainty Yara’s operations are subject to environmental laws and regulations. These with regard to timing and final outcome. laws and regulations may change, and such changes may require that the Group makes investments and/or incurs costs to meet more stringent emis­ In April 2011 Yara decided to initiate an external investigation related to the sions standards or to take remedial action related to e.g. soil contamination. establishment and follow-up of Yara’s interest in Libyan Norwegian Fertilizer Company (Lifeco), and in parallel notified The Norwegian National Author­ rESTrUCTUrING ity for Investigation and Prosecution of Economic and Environmental Crime Restructuring mainly relates to closure or significant reorganisation of busi­ (Økokrim) of the possibility that criminal offenses may have occurred before ness locations in a country or region. The provision is a best estimate based October 2008 in connection with the negotiations preceding the company’s on the detailed formal plan for the business and location affected. investment in Libya. Yara subsequently widened its investigation to comprise other issues including an earlier unrealized project aimed at establishing a LEGAL CLAImS joint venture in India, and an initial investigation uncovered a payment of Yara is party to a number of lawsuits in various jurisdictions arising out of USD 1 million to a third party. Økokrim launched an investigation following the conduct of its business. None of these lawsuits, individually or in aggre­ these notifications from Yara, and subsequently charged the company with gate, is anticipated to have a material adverse effect on Yara. violation of the Norwegian penal code paragraph 276a, cf paragraph 276b. At this stage, it is not possible to estimate the outcome of these investigations and DECOmmISSION potential financial effects for Yara. Provisions have been made where Yara has legal or constructive obligations for decommission as a result of past events. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 111

Note 24

Long-term debt by currencies

Weighted average Denominated NOK millions, except percentages and denominated amounts interest rates amounts 2011 2011 2010

NOK (Coupon NIBOR + 2.50%) 1) 5.5% 300 300 300 NOK (Coupon NIBOR + 3.75%) 1) 6.7% 300 300 299 NOK (Coupon 7.40%) 2) 7.5% 325 341 324 NOK (Coupon 8.80%) 3) 8.9% 1,000 1,068 998 USD (Coupon 5.25%) 2) 5.9% 500 3,059 2,969 USD (Coupon 7.88%) 4) 8.3% 500 2,966 2,879 Total unsecured debenture bonds 8,032 7,769

USD 0.9% 370 2,219 2,955 EUR 6.3% - 2 156 BRL (Brazil) 5.4% 10 32 43 COP (Colombia) 6.5% 1,500 5 5 MXN (Mexico) - - - 53 Total unsecured bank loans 1) 2,257 3,212

Lease obligation 231 191 Mortgage loans 146 147 Other long-term debt 33 - Total 410 337

Outstanding long-term debt 10,700 11,319 Less: Current portion (420) (180) Total 10,280 11,139

1) Repricing within a year. 2) Fixed interest rate until 2014. Subject to fair value hedge accounting, see note 27. 3) Fixed interest rate until 2016. Subject to fair value hedge accounting, see note 27. 4) Fixed interest rate until 2019.

At 31 December 2011, the fair value of the long-term debt, including the balances include issuance discount, capitalised issuance costs and fair value current portion, was NOK 11,835 million and the carrying value was NOK adjustments (see note 27 for further information about fair value of finan­ 10,700 million. cial instruments).

Yara builds its funding on a negative pledge structure with the basic funding Yara’s additional long-term funding is based on bank loans. At year end, ranging pari passu. Substantially all unsecured debenture bonds and unse­ Yara had a USD 180 million term loan from the Nordic Investment Bank cured bank loan agreements therefore contain provisions restricting the that will be repaid with linear instalments between June 2012 and Decem­ pledging of assets. The exisiting pledge through mortgage loans is due to ber 2023 and a USD 190 million drawing on the bank facility due 2013. A legal requirements. further minor portion of long-term debt was borrowed in emerging mar­ kets. A USD 300 million bank facility due 2015 was not drawn, as were USD Of the long-term debt at the end of 2011, the USD 1,003 million bond debt 200 million of the facility due 2013. originated from Yara’s December 2004 and June 2009 bond issues in the US market according to 144A/Regulation S. A further NOK 2,008 million orig­ Of the fixed interest rate debenture bonds, NOK 1,325 million and USD 100 inated from Yara’s March 2009 bond issues in the Norwegian market. These million is exposed to floating interest rates through interest rate swaps.

CONTrACTUAL pAYmENTS ON LONG-TErm DEBT

Capital lease and NOK millions Debentures Bank Loans other long-term loans Total

2012 300 99 21 420 2013 - 1,243 25 1,268 2014 3,699 96 34 3,829 2015 - 92 17 109 2016 1,068 94 22 1,184 Thereafter 2,966 633 290 3,889 Total 8,032 1) 2,257 410 10,700

1) Of which Yara International ASA is responsible for NOK 8,032 million. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 112 / Consolidated Financial Statement Yara Financial Report 2011

Note 25

Trade payables and other payables

NOK millions Notes 2011 2010

Trade payables 27 6,309 5,605 Payroll and value added taxes 27 972 855 Prepayments from customers 945 1,392 Other liabilities 27 297 260 Total 28 8,523 8,111

Note 26

Bank loans and other short-term interest-bearing debt

NOK millions Notes 2011 2010

Bank loans and overdraft facilities1) 384 804 Commercial papers - 577 Other 324 587 Total 28 707 1,968

Weighted Average Interest Rates Bank loans and overdraft facilities2) 6.3% 3.0% Commercial papers - 3.0% Other 2) 1.4% 1.1%

1) Overdraft facilities mainly in emerging markets 2) Repricing minimum annually

At 31 December 2011, Yara has unused short-term credit facilities with various banks totalling approximately NOK 7.5 billion. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 113

Note 27

Risk management and hedge accounting

rISK mANAGEmENT pOLICIES The Group may seek to manage the effects of these risks by using derivative Risk management in Yara is based on the principle that risk evaluation is an financial instruments to hedge these risk exposures. The use of financial integral part of all business activities. Yara has established procedures for derivatives is governed by the Group’s policies approved by the Board of determining appropriate risk levels for the main risks and monitoring these Directors, which provide written principles on foreign exchange risk, interest risk exposures. Based on the overall evaluation of risk, Yara may use deriva­ rate risk, credit risk, the use of financial derivatives and non-derivative finan­ tive instruments such as forward contracts, options and swaps to reduce cial instruments, and the investment of excess liquidity. exposures. CUrrENCY rISK Yara’s business model and positions provide natural hedges to reduce busi­ Prices of Yara’s most important products are either directly denominated or ness risks inherent in the market. The most important of these is the quality determined in US dollars. In markets outside the US, local prices will generally and efficiency of Yara’s production facilities, which ensures its competitive adjust to fluctuations in the US dollar exchange rate, however with a certain position. Furthermore, Yara’s geographical spread supports a diversified gas time lag. Yara’s raw materials costs, such as natural gas used in the production supply, reducing the impact of regional price changes, and a reduced expo­ of ammonia, are either denominated in US dollars or highly correlated to sure to the inherent seasonality of the fertilizer business. Yara’s substantial changes in the US dollar exchange rate. In order to hedge Yara’s long-term expo­ sales of differentiated products, comprising specialty fertilizers and industrial sure to fluctuations in the US dollar exchange rate, Yara incurs most of its debt products, also contribute to more stable margins for the business as a whole. in US dollars. A certain portion of the total debt is, however, kept in various Finally, a certain correlation between energy prices and fertilizer prices local currencies in order to finance local currency exposed business positions. reduces the volatility in Yara’s results. Yara manages foreign currency exchange rate risks by adjusting the composi­ Yara is focused on maintaining a sound funding structure. Main elements of tion of the debt portfolio to changes in Yara’s overall risk exposure. Derivative the funding strategy are to secure long-term debt and to base the funding of instruments are also utilized to manage foreign currency exchange rate risk Yara on diversified capital sources to avoid dependency on single markets. related to forecast purchases and sales or to offset short-term liquidity needs in one currency with surplus liquidity in another currency. Such forward con­ The financial structure of Yara gives Yara the necessary flexibility to capture tracts are not designated as hedging instruments for accounting purposes. the right industrial opportunities when they arise. As such opportunities Changes in fair value are therefore recognized in the income statement. typically materialize in periods characterized by industry margins and earn­ ings below peak levels, Yara will seek to maintain adequate financial capacity The foreign exchange loss for the year was NOK 215 million, compared with a throughout the business cycle. Yara aims to maintain a long-term mid invest­ loss of NOK 676 million in 2010. Throughout the year, the part of Yara’s US ment grade rating level, i.e. minimum BBB according to Standard & Poor’s dollar debt established to hedge future earnings was kept in the range of USD methodology and Baa2 according to Moody’s methodology. Yara maintained 900 -1,000 million (2010: USD 1,100-1,400 million). the Baa2 rate from Moody’s and the BBB rate from Standard & Poor’s during 2011. Exchange differences from foreign operations resulted in a gain of NOK 313 million recognized in the statement of other comprehensive income (2010: gain The debt/equity ratio at the end of 2011, calculated as net interest-bearing NOK 517 million). Yara’s exposure is mainly related to subsidiaries with func­ debt divided by shareholders’ equity plus non-controlling interests, was 0.12 tional currencies US dollars, Canadian dollars and Euro. At 31 December 2011 compared with 0.27 at the end of 2010. The Yara Group is not subject to any Yara’s equity exposure to US dollar was 15% of the total book value of equity, to externally imposed capital requirements. Canadian dollar 20% and to Euro 28% (2010: US dollar: 37%, Canadian dollar: 28%, Euro: 18%). There were no principal changes in the Group’s approach to capital manage­ ment during the years ending 31 December 2011 and 31 December 2010. Sensitivity However, due to strong cash flow and significant divestments, including sale A 10% weakening of US dollars or Euro against Norwegian kroner and other of Yaibera Holding (Rossosh), the Group has through the year accumulated a functional currencies at 31 December would have increased/(decreased) liquidity surplus kept in short-term bank deposits. profit or loss by the amounts shown below. This analysis is done for illustra­ tive purposes only, taking into consideration only the effect on financial Yara’s Finance & Treasury function provides services to the business, co-ordi­ instruments in the balance sheet as at year-end. Since all other variables are nates access to domestic and international financial markets, monitors and assumed to remain constant, the analysis does not reflect subsequent effects manages the financial risks relating to the operations of the Group through on operating income, EBITDA or equity. The analysis was performed on the internal risk reports which analyses exposures by degree and magnitude of same basis for 2010. risks. These risks include market risk (including currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Finance & Treasury function reports regularly to the Group’s management.

NOK millions 2011 2010

USD -10%, gain/(loss) 1,125 757 EUR -10%, gain/(loss) 1) 511 (214)

1) The shift in EUR sensitivity from 2010 to 2011 reflects changes in internal positions. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 114 / Consolidated Financial Statement Yara Financial Report 2011

A 10% weakening of the Norwegian kroner against the above currencies at 31 (decreased) other comprehensive income by the amounts shown below. This December would have had the equal but opposite effect to the amounts analysis is done for illustrative purposes only, taking into consideration only shown above. the effect on equity in foreign operations as at year-end. Since all other vari­ ables are assumed to remain constant, the analysis does not reflect subsequent A 10% weakening of US dollars, Canadian dollars or Euro against Norwegian effects on equity. The analysis was performed on the same basis for 2010. kroner and other functional currencies at 31 December would have increased/

NOK millions 2011 2010

USD -10%, increase/(decrease) in other comprehensive income (654) (1,113) CAD -10%, increase/(decrease) in other comprehensive income (917) (840) EUR -10%, increase/(decrease) in other comprehensive income (1,272) (538)

A 10% weakening of the Norwegian krone against the above currencies at chosen to retain a significant part of its debt at fixed interest rates. During 31 December would have had the equal but opposite effect to the amounts 2011, Yara has kept USD 400 million of the USD 500 million fixed interest shown above. bond issued in 2004 and the entire USD 500 million fixed interest bond issued in 2009 as fixed interest rate debt. Information about financial INTErEST rATE rISK instruments designated as hedge instruments is presented in the derivative Yara’s exposure to changes in interest rates is mainly linked to fair value risk section below. and cash flow risk from its debt portfolio as disclosed in note 24. Yara has

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

NOK millions 2011 2010

Net interest-bearing debt at 31 December 5,539 9,540

Fixed portion of bonds 5,358 5,257 Net interest-bearing debt less fixed portion of bonds 180 4,283

Sensitivity established by the risk management policies. A limited number of ordinary The Group does not account for any fixed rate financial assets and liabilities sales and purchase contracts contain price links against other products that at fair value through profit or loss. Therefore changes in interest rates will are regarded as embedded derivatives recognized at fair value. The reason not affect the interests on the USD 900 million portion of the bond debts for embedding other price links in these contracts is normally to secure a which are not hedged. Yara Group has no interest-bearing financial instru­ margin for Yara. Information about commodity derivatives is presented in ments where effects are booked in other comprehensive income. Therefore the derivative section below. Besides that, there are no other financial equity will not be affected by interest rate changes. instruments that are exposed to the commodity price risk.

An increase of 100 basis points in USD interest rates at the reporting date CrEDIT rISK would have decreased profit or loss by NOK 26 million (2010: NOK 36 mil­ Yara has a well-established system for credit management with established lion). An increase of 100 basis points in NOK interest rates at the reporting limits at both customer and country level. Yara’s geographically diversified date would have increased profit or loss by NOK 22 million (2010: NOK 8 portfolio reduces the overall credit risk of the Group. Credit risk arising million decrease). All other variables remain constant. This analysis is done from the inability of the counterparty to meet the terms of Yara’s financial for illustrative purposes only, taking into consideration only the effect on instrument contracts is generally limited to amounts, if any, by which the financial instruments in the balance sheet as at year-end. The analysis is counterparty’s obligations exceed Yara’s obligations. Yara’s policy is to enter performed on the same basis for 2010. A decrease of 100 basis points at the into financial instruments with various international banks with estab­ reporting date would have increased/decreased profit or loss with the same lished limits for transactions with each institution. Due to Yara’s geographi­ amounts. cal spread and significant number of customers there are no significant concentrations of credit risk. Therefore, Yara does not expect to incur mate­ COmmODITY prICE rISK rial credit losses on its portfolio or other derivative financial instruments. A major portion of Yara’s operating revenues is derived from the sale of ammonia, urea and other fertilizers that may generally be classified as com­ The exposure to credit risk is represented by the carrying amount of each modities. Yara also purchases natural gas, electricity and other commodi­ class of financial assets, including derivative financial instruments, recorded ties. The prices of these commodities can be volatile and may create fluctua­ in the statement of financial position. Yara undertakes a number of meas­ tions in Yara’s earnings. To manage this risk, Yara’s financial policy ures that reduce credit risk of particular receivables. Such measures include prioritizes maintaining a low debt/equity ratio and maintaining liquidity letters of credit, bank guarantees and credit insurance agreements. Effect of reserves. Periodically Yara utilizes derivative instruments to manage certain credit risk reduction from these measures is not considered to be material price risk exposures and also for some position taking within the limits for the Group. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 115

FUNDING AND LIQUIDITY rISK Yara manages liquidity risk by maintaining adequate reserves and committed The capital structure of the Group consists of debt, which includes the borrow- bank facilities and by continuously monitoring forecast and actual cash flows ings disclosed in notes 24 and 26, cash and cash equivalents and equity attribut- and matching the maturity profiles of financial assets and liabilities. Yara aims able to equity holders of the parent, comprising paid-in capital and retained at an even debt repayment schedule and has secured committed undrawn earnings as disclosed in notes 19, 20 and statement of changes in equity. credit facilities to provide sufficient reserves to meet unforeseen liquidity needs.

Main elements of the funding strategy are the establishment of a long-term debt Included in notes 24 and 26 are overviews of undrawn facilities that the Group base and the security and flexibility obtained by funding through diversified has at its disposal. capital sources and avoidance of dependency on single institutions or markets.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

31 DECEmBEr 2011

Carrying Contractual On 6 months 6-12 1-2 2-5 More than NOK millions amount cash flows demand or less months years years 5 years

Non-derivative financial liabilities Short-term interest-bearing debt (707) (708) (310) (284) (114) - - - Long-term interest-bearing debt (10,469) (13,097) - (526) (340) (649) (6,180) (5,402) Obligations under finance leases (231) (233) - (12) (10) (21) (58) (132) Accrued interest expense (105) (105) - (105) - - - - Accounts payables (6,309) (6,309) (135) (5,848) (326) - - - Payroll and value added taxes (972) (970) (52) (855) (62) (1) - - Other short-term liabilities (224) (224) (9) (103) (112) - - - Other long-term liabilities (32) (35) (6) 1 (1) (18) (5) (6)

Derivative financial instruments Freestanding financial derivatives (5) Outflow (3,295) - (3,295) - - - - Inflow 3,284 - 3,284 - - - - Commodity derivatives 37 Outflow (38) - (38) - - - - Inflow 85 - 60 25 - - - Hedge designated derivatives 167 Outflow (132) - - (53) (44) (35) - Inflow 307 - 72 9 87 139 -

Total (18,850) (21,470) (512) (7,649) (984) (646) (6,139) (5,540)

31 DECEmBEr 2010

Carrying Contractual On 6 months 6-12 1-2 2-5 More than NOK millions amount cash flows demand or less months years years 5 years

Non-derivative financial liabilities Short-term interest-bearing debt (1,968) (2,016) (477) (1,393) (146) - - - Long-term interest-bearing debt (11,128) (14,738) - (187) (458) (952) (7,091) (6,050) Obligations under finance leases (191) (293) - (15) (16) (55) (77) (130) Accrued interest expense (121) (121) - (121) - - - - Accounts payables (5,605) (5,607) (133) (5,472) (1) - - - Payroll and value added taxes (855) (855) (51) (760) (43) - - - Other short-term liabilities (190) (192) (6) (81) (105) - - - Other long-term liabilities (72) (75) (6) (1) (1) (8) (27) (32)

Derivative financial instruments Freestanding financial derivatives 105 Outflow (5,763) - (5,504) (52) (57) (150) - Inflow 5,874 - 5,618 - 60 156 40 Commodity derivatives 105 Outflow (35) - (35) - - - - Inflow 143 - 73 46 24 - - Hedge designated derivatives 66 Outflow ------Inflow 70 - 13 10 23 24 -

Total (19,854) (23,608) (674) (7,867) (766) (965) (7,166) (6,171) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 116 / Consolidated Financial Statement Yara Financial Report 2011

DErIvATIvE INSTrUmENTS

NOK millions 2011 2010

Fair value of derivatives Share options - (5) Forward foreign exchange contracts (5) 45 Interest rate swaps - 64 Interest rate swaps designated for hedging 167 66 Embedded derivatives in sales and purchase contracts 1) 42 102 Commodity derivatives 1) (4) 3 Balance 31 December 199 276

Derivatives presented in the statement of financial position Non-current assets 167 130 Current assets 105 221 Non-current liabilities - (5) Current liabilities (73) (70) Balance 31 December 199 276

1) Mainly natural gas and oil products.

Yara is committed to outstanding forward foreign exchange contracts as follows

NOK millions 2011 2010

Forward foreign exchange contracts, notional amount 4,820 6,591

All outstanding contracts at 31 December 2011 have maturity in 2012. Buy effective. The changes in fair value of the derivatives are recognized in consoli­ positions are mainly in Norwegian kroner and US dollars. Sell positions are dated statement of income, and is offset by opposites change in fair value of the in various operating currencies, mainly Euro and Canadian dollars. corresponding portions of the bond debt. At 31 December 2011 the loss on the fair value hedges included in the carrying amounts of the fixed rate debt was The total gain recognized in the net income on derivative designated as fair NOK 99 million (2010: loss NOK 64 million). The ineffectiveness recognized as value hedge was NOK 103 million (2010: NOK 26 million). expense in statement of income in 2011 is NOK 13 million.

hEDGE ACCOUNTING Cash flow hedges Fair value hedge In 2004, Yara used interest rate swaps to hedge the future cash flows of a USD 300 million portion of the December 2004 bond issue. The loss on USD bond debt these contracts was recognized directly in equity and will be reclassified The interest rate swap designated as a hedge instrument outstanding at 31 into interest expense and income tax over the duration of the bond (due in December 2011 is a fixed to floating interest rate swap for USD 100 million. 2014). The reclassification into interest expense for 2011 was NOK 11.5 mil­ The hedged risk is the change in fair value due to changes in risk-free interest lion (2010: NOK 11 million) and the related deferred tax benefit was NOK rates (LIBOR) of a USD 100 million portion of the US dollar bond debt from 3.2 million (2010: NOK 3 million). 2004. The swap has identical interest basis, interest payment dates and matu­ rity (2014) to the hedged debt and is assessed to be highly effective. The In 2007, Yara used interest rate derivatives to hedge the future cash flows of change in fair value of the derivative is recognized in consolidated statement a USD 300 million portion of the June 2009 bond issue. The loss on these of income, and is offset by an opposite change in fair value of the correspond­ contracts was recognized directly against equity and will be reclassified into ing portion of the bond debt. At 31 December 2011 the loss on the fair value interest expense and income tax over the duration of the bond (due in hedge included in the carrying amount of the fixed rate debt was NOK 68 2019). The reclassification into interest expense for 2011 was NOK 3 million million (2010: loss NOK 66 million). There is not recognized any ineffective­ (2010: NOK 2.8 million) and the related deferred tax benefit was NOK 0.8 ness in 2010 or 2011. million (2010: NOK 0.8 million).

NOK bond debt hedge of net investment In 2011, Yara has reclassified the long term NOK interest swaps from freestand­ At 31 December 2011, the Group held in total USD 290 million (2010: USD ing to designated for hedging. The hedged risk is the change in fair value due to 490 million) of debt designated as hedges of net investments in foreign enti­ changes in risk-free interest rates (NIBOR) of the NOK 1,000 million and NOK ties. The hedges were assessed to be highly effective. At 31 December 2011 325 million bond debt from 2009. The swaps have different interest payment the hedges had a fair value of NOK 90 million recognized as a gain in other dates (semi-annualy vs. annually), but identical interest basis and maturity comprehensive income (2010: gain NOK 90 million). There is not recog­ (2016 and 2014 respectively) to the hedged debt and are assessed to be highly nized any ineffectiveness in 2011 and 2010. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 117

Note 28

Financial instruments

CArrYING AmOUNTS ShOWN IN ThE STATEmENT OF FINANCIAL pOSITION, prESENTED TOGEThEr WITh FAIr vALUE pEr CATEGOrY

31 DECEmBEr 2011

Derivatives at fair value Derivatives Available- Financial Non­ through designated for-sale liabilities financial profit and as hedging Loans and financial at amortized assets and NOK millions Notes loss instruments receivables assets cost liabilities Total

Non-current assets Other non-current assets 13,14,22,27 - 167 942 283 - 483 1,875

Current assets Trade receivables 16 - - 8,680 - - - 8,680 Prepaid expenses and other current assets 17,27 105 - 1,564 - - 1,267 2,935 Other liquid assets 18 - - 1 - - - 1 Cash and cash equivalents 18 - - 5,868 - - - 5,868

Non-current liabilities Other long-term liabilities - - - - (32) (202) (234) Long-term interest-bearing debt 24 - - - - (10,280) - (10,280)

Current liabilities Trade and other payables 25 (73) - - - (7,505) (945) (8,523) Other short-term liabilities - - - - (105) (796) (901) Bank loans and other interest-bearing debt 26 - - - - (707) - (707) Current portion of long-term debt 26 - - - - (420) - (420)

Total 32 167 17,054 283 (19,049) (193) (1,706)

Fair value 32 167 17,054 283 (20,270) Unrecognized gain/loss - - - - (1,221) 1)

1) Unrecognized loss on financial instruments at amortized cost is mainly related to long-term interest-bearing debt with fixed interest rate. See note 24.

31 DECEmBEr 2010

Derivatives at fair value Derivatives Available- Financial Non­ through designated for-sale liabilities financial profit and as hedging Loans and financial at amortized assets and NOK millions Notes loss instruments receivables assets cost liabilities Total

Non-current assets Other non-current assets 13,14,22,27 64 66 1,341 340 - 457 2,269

Current assets Trade receivables 16 - - 6,644 - - - 6,644 Prepaid expenses and other current assets 17,27 221 - 1,151 - - 1,494 2,866 Other liquid assets 18 - - 802 - - - 802 Cash and cash equivalents 18 - - 2,946 - - - 2,946

Non-current liabilities Other long-term liabilities (5) - - - (72) (206) (283) Long-term interest-bearing debt 24 - - - - (11,139) - (11,139)

Current liabilities Trade and other payables 25 (70) - - - (6,649) (1,392) (8,111) Other short-term liabilities - - - - (121) (642) (763) Bank loans and other interest-bearing debt 26 - - - - (1,968) - (1,968) Current portion of long-term debt 26 - - - - (180) - (180)

Total 210 66 12,885 340 (20,130) (288) (6,917)

Fair value 210 66 12,886 340 (21,159) Unrecognized gain/loss - - 2 - (1,029) 1)

1) Unrecognized loss on financial instruments at amortized cost is mainly related to long-term interest-bearing debt with fixed interest rate. See note 24. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 118 / Consolidated Financial Statement Yara Financial Report 2011

Below is an overview of gains and losses from financial instruments recognized in the consolidated statement of income and consolidated statement of other comprehensive income, including amounts recognized on disposal of financial instruments:

Derivatives at fair value Derivatives Available- Financial through designated for-sale liabilities profit and as hedging Loans and financial at amortized NOK millions Notes loss instruments receivables 2) assets cost 2) Total

2011 Consolidated statement of income Commodity based derivatives gain/(loss) 27 (72) - - - - (72) Interest income/(expense) and other financial income/ 27 (35) 56 - 3 - 23 (expense) Foreign exchange gain/(loss) 27 21 - - - - 21

Consolidated statement of comprehensive income Available-for-sale investments - change in fair value 1) 13 - - - 37 - 37 Hedge of net investments 1) 27 ------Reclassification adjustments related to: - cash flow hedges 1)2) 27 - 15 - - - 15 - available-for-sale investments disposed of in the year 1)2) 13 - - - (3) - (3)

Total (87) 71 - 37 - 20

2010 Consolidated statement of income Commodity based derivatives gain/(loss) 27 (61) - - - - (61) Interest income/(expense) and other financial income/ 27 49 12 - 3,580 - 3,641 (expense) Foreign exchange gain/(loss) 27 190 - - - - 190

Consolidated statement of comprehensive income Available-for-sale investments - change in fair value 1) 13 - - - (48) - (48) Hedge of net investments 1) 27 - - - - (17) (17) Reclassification adjustments related to: ------cash flow hedges 1)2) 27 - 14 - - - 14 - available-for-sale investments disposed of in the year 1)2) 13 - - - (1,961) - (1,961)

Total 178 26 - 1,571 (17) 1,758

1) Amounts are presented before tax 2) Effects of foreign currency exchange on other financial instruments than derivatives are not included in the overview.

prINCIpLES FOr ESTImATING FAIr vALUE Trade payables and other short-term debt The following summarizes the major methods and assumptions used in Interest-free short-term payables are discounted if it has material impact on estimating fair values of financial instruments reflected in the table. fair value. Fair value is assumed to be equal to the carrying amount.

Equity securities available-for-sale Foreign exchange contracts and interest rate swaps The fair value of investments in listed companies is based on year-end The fair value of foreign exchange contracts and interest rate swaps is based quoted market prices. Available-for-sale instruments that are not traded in on their listed market price, if available. If a listed market price is not avail- active markets are measured based on recent market transactions and valu- able, fair value is estimated by discounting the difference between the con­ ation techniques. An approach to maximize the use of market inputs and tractual forward price and the current forward price for the residual matu­ rely as little as possible on entity-specific inputs is used when measurements rity of the contract using a risk-free interest rate (based on government are based on valuation techniques. bonds) if this has material impact on fair value.

Trade receivables and other receivables Commodity derivatives and embedded derivatives Interest-free receivables are discounted if it has a material impact on fair Certain purchase and sales contracts constitute derivatives or contain value. The carrying amount has been reduced for impaired receivables and embedded derivatives within the scope of IAS 39. Derivatives under IAS 39 reflects a reasonable approximation of fair value. are recognized at fair value in the statement of financial position with changes through the statement of income. The commodity derivative cate- Cash and cash equivalents gory constitutes derivatives with a wide range of different caracteristics and Fair value is assumed to be equal to the carrying amount. comprises both commodity based financial contracts as well as non-finan­ cial purchase and sales contracts with maturity mainly from 3 months to 15 Long-term interest-bearing debt and other long-term liabilities months. Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows. Since there is no active market with quoted prices, we have used valuation techniques to estimate the fair value. It is estimated by using LIBOR with different maturities as a benchmark rate and adding a credit margin derived from recent transactions or other information available. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 119

The fair value of commodity contracts constitute the unrealized gains and FAIr vALUE hIErArChY losses represented by the present value of future gains and losses for which The table below analyses financial instruments carried at fair value, by valu­ the price is fixed in advance of delivery. Fair value of the embedded deriva- ation method at 31 December 2011. The different levels have been defined tives is calculated as present value of the difference between the price of as follows: non-closely related commodity (embedded derivative) and a pricing model which in the best way reflects market price of the contract commodity. All Level 1: Quoted prices (unadjusted) in active markets for identical assets or commodity contracts are bilateral contracts, or embedded derivatives in liabilities. bilateral contracts, for which there are no active markets. Fair value of all Level 2: Inputs other than quoted prices included within Level 1 that are items in this category, is therefore calculated using valuation techniques observable for the asset or liability, either directly (i.e., as prices) or with maximum use of market inputs and assumptions that reasonably indirectly (i.e., derived from prices). reflect factors that market participants would consider in setting a price, Level 3: Inputs for the asset or liability that are not based on observable mar- relying as little as possible on entity-specific inputs. Fair values of commod- ket data (unobservable inputs). ity contracts are especially sensitive to changes in forward commodity prices. None of the derivatives in this category are designated in hedge rela­ tionships.

NOK millions Level 1 Level 2 Level 3 Total

Equity securities available-for-sale - - 283 283 Foreign exchange contracts - 30 - 30 Interest rate contracts designated as hedging instrument - 167 - 167 Commodity derivatives and embedded derivatives - - 75 75

Total assets at fair value - 196 358 555

Foreign exchange contracts - (35) - (35) Commodity derivatives and embedded derivatives - (4) (34) (38)

Total liabilities at fair value - (39) (34) (73)

There were no transfers between Level 1 and 2 in the period.

The following table shows a reconciliation from the beginning balances to the ending balances at 31 December 2011 for fair value measurements in Level 3 of the fair value hierarchy:

Equity securities Derivatives Derivatives NOK millions available-for-sale - assets - liabilities Share option Total

Opening balance 337 136 (34) (5) 434 Total gains or (losses): in income statement 1) (13) (61) - 5 (69) in other comprehensive income 2) 34 - - - 34 Purchases 25 - - - 25 Disposals (101) - - - (101)

Closing balance 283 75 (34) - 324

1) Loss of NOK 13 million is included in “Interest income and other financial income”, loss of NOK 61 million is included in “Other income” and gain of NOK 5 million is included in “Payroll and related cost”. 2) Gain of NOK 34 million is disclosed as “Available-for-sale investments – change in fair value”. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 120 / Consolidated Financial Statement Yara Financial Report 2011

Although Yara believes that its estimates of fair value are appropriate, the use of different assumptions could lead to different measurements of fair value. For fair value measurements in Level 3 of the fair value hierarchy, changing one or more of the assumptions would have the following effects:

Sensitivity of fair value measurement for Level 3 financial instruments

Effect on profit or loss Effect on other comprehensive income NOK millions Favourable (Unfavourable) Favourable (Unfavourable)

Embedded derivative in energy contract 34 (15) - - Unlisted equity securities - - 64 (63)

Total 34 (15) 64 (63)

The favourable and unfavourable effects on the embedded derivative in an energy contract are calculated by increasing/ decreasing the input of relevant oil-product forward prices by 20%. All other variables remain constant.

The favourable and unfavourable effects on the fair value of the unlisted equity securities are calculated using the same model but with an increasing/ decreasing of the electricity prices used in the model by 20%. All other variables remain constant.

Note 29

Secured debt and guarantees

NOK millions 2011 2010

Amount of secured debt 146 147

Assets used as security Machinery and equipment, etc. 31 1 Buildings and structural plant 160 183 Other (including land and shares) 3 5 Total 195 188

Guarantees (off-balance sheet) Contingency for discounted bills 9 15 Guarantees of debt in the name of equity-accounted investees 16 218 Non-financial guarantees 2,671 4,335 Total 2,696 4,568

Guarantees of debt include parent company guarantees issued on behalf of Total non-financial guarantees decreased by NOK 1,664 million from last equity-accounted investees covering external credit facilities in the name of year end. The decrease is mainly a result of the completion of the Urea 7 pro­ the equity-accounted investees. Yara could be required to perform in the ject. event of a default by the entity guaranteed. CONTINGENT LIABILITIES rELATED Guarantees of debt issued on behalf of consolidated companies are not TO ThE DE-mErGEr FrOm NOrSK hYDrO ASA included since at any time the drawings under such credit lines are included Under the Norwegian Public Limited Companies Act, Yara may be contin­ in the consolidated statement of financial position. The guarantee obligations gently liable for obligations established by Norsk Hydro ASA prior to the under such guarantees are at any time limited to the amount drawn under the de-merger, unless the right to enforce against Yara any rights to payments credit facility. (or other rights) has been specifically waived by the party holding the right. Following the de-merger of Hydro’s oil and gas division in 2007, these obli­ Non-financial guarantees consist of commercial guarantees related to con­ gations may now be allocated to either Hydro or Statoil ASA. At the end of tract obligations (Bid Bonds, Performance Guarantees and Payment Guaran­ 2011, Yara remains contingently liable for approximately NOK 400 million tees) and various mandatory public guarantees (Customs Guarantees, Receiv­ of such outstanding guarantees. able VAT Guarantees) recorded as off-balance sheet liabilities. These guarantees are issued on behalf of Yara International ASA, its subsidiaries and Hydro also has unfunded pension liabilities. To the extent such liabilities equity-accounted investees. The guarantor could be required to perform in have accrued prior to the consummation of the de-merger, Yara is contin­ the event of a default of a commercial contract or non-compliance with public gently liable for such liabilities as a matter of the joint and several liability authority regulations. NOK 1,865 million of the non-financial guarantees are provided by Norwegian law. Hydro’s unfunded pension liabilities, calcu­ issued as parent company guarantees, while NOK 806 million are issued as lated in accordance with Hydro’s accounting policies, amounted to approx­ bank guarantees, mainly on behalf of Yara International ASA. imately NOK 2 billion at demerger March 24, 2004 and have been reduced by payments thereafter. Guarantees issued to public authorities covering tax and VAT liabilities are not included as these obligations are already included in the consolidated statement of financial position. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 121

Note 30

Contractual obligations and future investments

NOK millions Investments 2012 Investments Thereafter Investments Total

Contract commitments for investments in property, plant and equipment 232 - 232 Contract commitments for other future investments 29 - 29 Total 261 - 261

TAKE-Or-pAY AND LONG-TErm CONTrACTS 1) Yara has entered into take-or-pay and long-term contracts providing for future payments to transportation capacity, raw materials and energy. Yara has marketing and off-take agreements with some of our equity-accounted investees, see note 12.

ThE NON-CANCELABLE FUTUrE OBLIGATION AT 31 DECEmBEr 2011

NOK millions Transport and other Raw materials Energy related Total

2012 (337) (2,005) (906) (3,059) 2013 (180) (1,828) (575) (2,583) 2014 (180) (1,551) (547) (2,279) 2015 (42) (795) (406) (1,242) 2016 - (458) (24) (483) Thereafter - (218) (24) (242) Total (739) (6,855) (2,482) (9,887)

1) The amounts are calculated based on minimum contracted quantities and market prices at 31 December 2011.

The total purchases under the take-or-pay agreements and long-term contracts were NOK 1,194 million in 2011(2010: NOK 841 million).

NOK millions 2012 2013 2014 2015 2016 Total

Sales commitments 2) 1,060 649 377 42 21 2,149

2) Sales commitments are mainly related to industrial products.

See note 22 for future obligations related to pensions. See note 23 for provisions and contingencies. See note 27 for future commitments to outstanding forward foreign exchange contracts. See note 31 for future commitments related to lease arrangements. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 122 / Consolidated Financial Statement Yara Financial Report 2011

Note 31

Operating lease commitments

Operating leases related to buildings, offices, equipment and vessels. Total minimum future rentals due under non-cancelable operating leases are:

NOK millions 2011 2010

Within year 1 888 945 Within year 2 625 609 Within year 3 501 508 Within year 4 465 446 Within year 5 329 426 After 5 years 545 859 Total 3,354 3,793

Due to the strategic importance of shipping capacity of ammonia for Yara’s business, Yara has a number of operating leases on vessels. The commitments in relation to this are the main part of total minimum future rentals amounting to NOK 2,104 million. The commitments due to these arrangements vary depending on the contract length for each vessel.

No purchase options exist on the vessels. There are no restrictions imposed by lease arrangements, such as those concerning dividends and additional debt. For some of the vessels there are renewal options that Yara can exercise.

OpErATING LEASE ExpENSES INCLUDED IN OpErATING COST AND ExpENSES ArE:

NOK millions 2011 2010

Operating lease expense (1,094) (1,107)

Note 32

Related parties

ThE NOrWEGIAN STATE YArA pENSION FUND At 31 December 2011 the Norwegian State owned 104,164,517 shares, rep­ Yara International ASA has arranged most of the company’s pension plans resenting 36.2% of the total number of shares issued. The National Insur­ through Yara Pension Fund and Yara has during 2011 contributed premium ance Fund, Norway owns 18,730,105 shares, representing 6.5% of the total to the pension plans. number of shares issued. BOArD OF DIrECTOrS EQUITY-ACCOUNTED INvESTEES Members of the Board of Directors are elected for two year terms. Their rights Transactions with equity-accounted investees are described in note 12. and obligations as board members are solely and specifically provided for the company’s articles of association and Norwegian law. The company has no significant contracts in which a board member has a material interest. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 123

BOArD OF DIrECTOrS COmpENSATION 2011 AND NUmBEr OF ShArES OWNED 31 DECEmBEr 2011

NOK thousands, except number of shares Compensation Number of shares

Øivind Lund, Chairperson 3) 477 6,000 Elisabeth Harstad 3) 289 - Leiv L. Nergaard 1) 4) 324 26,923 Kristine Haukalid 2) 164 380 Svein Flatebø 2) 3) 272 1,438 Thor Giæver, Board secretary 2) - 490 Hilde Merete Aasheim 4) 330 - Bernt Reitan 4) 312 8,000 Geir Olav Sundbø 2) 254 147

1) Includes shares owned directly and through fully owned companies. 2) Interest-free loan of NOK 5 898 given through a trust in accordance with a Yara share purchase offer. 3) Members of the compensation committee in 2011. 4) Members of the audit committee in 2011.

Compensation of Board of Directors was NOK 2,290 thousand in 2010.

The chairperson and the members of the board have no agreements for further compensation due to termination or changes in the position.

COmpENSATION 2011 AND NUmBEr OF ShArES OWNED BY ThE DEpUTY BOArD mEmBErS AT 31 DECEmBEr 2011

NOK thousands, except number of shares Compensation Number of shares

Frank Andersen 1) 88 424 Geir Dahlman 1) - 426 Tone Petersheim 1) - 226 Stig Myrland 1) - 147 Karl Edvard Juul 1) - 147 Per Rosenberg 1) - 147

1) Interest-free loan of NOK 5 898 given through a trust in accordance with a Yara share purchase offer.

YArA ExECUTIvE mANAGEmENT

Long term Performance bonus incentive Other Pension NOK thousands Salary related to 2010 plan 1) benefits benefits

Jørgen Ole Haslestad 5,440 2,020 1,570 257 2,392 Hallgeir Storvik 3,509 1,459 835 224 769 Tor Holba 2,615 1,269 630 1,111 1,790 Egil Hogna 3,159 1,309 749 245 709 Yves Bonte 4,117 1,987 1,047 1,432 525 Terje Bakken (till March 31, 2011) 564 - - 214 237 Torgeir Kvidal (From April 1, 2011) 1,511 - 520 166 278 Trygve Faksvaag 2,170 702 416 297 456 Hakan Hallén 2,507 908 472 204 978 Bente Slaatten 1,870 548 364 201 414

1) Fixed cash amount as part of new Long Term Incentive plan (see description below) WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 124 / Consolidated Financial Statement Yara Financial Report 2011

The total salary, including performance-based bonuses for Yara Executive GUIDELINES FOr rEmUNErATION Management was NOK 29,945 thousand in 2010. Other benefits amounted to TO mEmBErS OF ExECUTIvE mANAGEmENT NOK 5,306 thousand in 2010. In addition pension benefits earned during In accordance with the Norwegian Public Limited Companies Act § 6-16 a, 2010 were NOK 8,679 thousand. Remuneration related to share incentive the Board of Directors will prepare a separate statement related to the deter­ rights was NOK 10,230 thousand in 2010. The Remuneration related to Long mination of salary and other benefits for the Executive Management. The Term Incentive Plan was NOK 6,199 thousand in 2010. statement will be presented for the Annual General Assembly. The guidelines for the coming accounting year are unchanged from the previous year and the Of the Executive Management one member is currently on international remuneration to Executive Management has been in accordance with these assignment contract, namely Tor Holba. The base salary in the international guidelines. assignment contract is a guaranteed net compensation. Yara covers any taxes and/or social security premiums due. In the above table the net compensation Yara’s policy concerning remuneration of the CEO and the other members of is grossed-up using the applicable tax rate. For the international assignment Yara’s Executive Management Group is to provide remuneration opportuni­ contracts, the benefits linked to their agreement are included in ‘other bene­ ties which: fits’ and are grossed-up using the applicable tax rate. • Are competitive to recruit and retain executives • Reward the Executives’ performance, measured as his/her contribution to pErFOrmANCE rELATED BONUS the overall success of Yara For the Executive Management a performance related bonus scheme is estab­ • Support the creation of sustainable shareholder value lished. Awards are depending on the achievement of specified performance crite­ ria for Yara and the individual. The on-target bonuses range from 28% to 35% of Yara’s remuneration of the Executive Management Group consists of the the base salary depending on management position. The maximum bonus is following elements: Base pay, an annual incentive bonus, a retirement plan, 200% of the target bonus with an absolute maximum of 50% of the base salary. death and disability coverage and other components such as car, phone expenses, etc. In addition, executives on expatriate contracts have various pENSIONS BENEFITS other costs covered by the company. Executive Management members Jørgen Ole Haslestad participates in the ordinary pension scheme of employ­ being employed in Norway can take part in the annual offer to all perma­ ees in Norway (as described in note 22) with retirement age of 65 years. He is nent Yara employees in Norway where they can buy Yara shares to a value also entitled to an early retirement benefit at age 62 of 70% of the pensionable of NOK 7,500 with a tax-exempt discount of NOK 1,500. income calculated on a 10 years earning period. A deduction shall be made pro rata in case of less than 10 years earning period. The annual incentive bonus represents performance-driven variable com­ pensation components based on financial and non-financial performance, Tor Holba is a members of the Yara IEC (International Employment Com­ such as profitability and HES (Health, Environment and Safety) results, at pany) Pension Plan. This plan is a defined contribution plan and provides the Company and/or Segment level. The maximum pay-out will not exceed members with a lump sum when they reach the age of 60. 50% of annual base salary, unless special circumstances dictate otherwise.

Yves Bonte is a member of the Yara Belgium pension plan. This plan is a defined To increase the alignment between Executives and Shareholder’s interests contribution plan and provides the members with a lump sum when they reach and to ensure retention of key talent in the company, a Long Term Incentive the age of 65. The employer contribution is calculated on the annual base salary plan has been approved by the Board. This Long Term Incentive program and amounts to 4.79% up to the legal ceiling and 15% above that. provides a fixed cash amount to the eligible top executive, who is required to invest the net amount after taxes in Yara shares within a period of one The other members of Yara Executive Management are included in Yara’s ordi­ month after grant. The acquired shares are locked in for a period of three nary pension scheme for employees in Norway. Until 1 July 2006 this was a final years after the purchase. After this period the executive is free to keep or sell salary based defined benefit scheme. From 1 July 2006 it has been switched to a the shares at his/her discretion. defined contribution scheme for all employees under the age of 55. All new pension plans in Yara shall be Defined Contribution plans. All TErmINATION AGrEEmENTS Executives below age 55 (per 1 July 2006) on Norwegian employment con­ The members of Yara Executive Management are subject to termination in tracts are part of the Defined Contribution Retirement plan. The retirement accordance to applicable law. There are however a few specific termination age is 65 and there are no special severance clauses in the contract. agreements. For Jørgen Ole Haslestad a notice of 6 months is applicable, in case of termination, and a minimum severance payment of 6 months base Salary and other benefits earned in 2011 are disclosed above. For additional salary. For Tor Holba a notice of 3 months is applicable, in case of termina­ information about existing pension plans see note 22. tion, and a minimum severance payment of 1.5 months per year of service with a maximum of 24 months (that he has reached).

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Consolidated Financial Statement / 125

Note 33

External audit remuneration

Deloitte AS (Deloitte) is Yara’s auditor. A few subsidiaries of Yara International ASA have appointed other audit firms. The following table shows total audit and other services delivered to the group by the appointed auditor.

NOK thousands Audit fee Assurance services Tax services Other audit services Total

2011 Deloitte Norway 4,509 145 53 64 4,771 Deloitte Abroad 18,394 310 2,205 831 21,741 Total Deloitte 22,903 455 2,258 895 26,512

Others 1,196 304 437 380 2,317 Total 24,099 759 2,695 1,275 28,829

2010 Deloitte Norway 4,822 664 46 17 5,549 Deloitte Abroad 22,523 635 1,106 1,220 25,484 Total Deloitte 27,345 1,299 1,152 1,237 31,033

Others 841 120 106 134 1,201 Total 28,186 1,419 1,258 1,371 32,234

Note 34

Post balance sheet events

Yara International ASA and OCP S.A. have agreed to establish a 50/50 joint sured at fair value, and the gain or loss, if any, will be recognized in first quar­ venture in Brazil and the entry into corresponding phosphate rock supply and ter 2012 statement of income. The carrying value of this investment was NOK other commercial arrangements. The proposed joint venture will as a first 1,899 million as at 31 December 2011. step involve OCP gaining a 50% interest in Yara’s existing terminal and pro­ duction plant in Rio Grande. Through the joint venture, OCP and Yara will On 1 March 2012 Yara signed a heads of agreement with Orica and Apache have access to the existing port, terminal and storage facilities, which they via joint venture to build a 330,000 metric tons ammonium nitrate plant on plan to develop through investments in the short to medium term. Yara’s Rio the Burrup peninsula and to distribute ammonium nitrate and other explo­ Grande SSP plant has an annual capacity of approximately 650 kilotons, con­ sives products to mining customers in the Pilbara region. Yara will be the suming approximately 350 kilotons of phosphate rock. OCP and Yara expect operator of the ammonium nitrate plant and Orica will manage the sales and that completion of the investment and the agreements will take place in sec­ distribution. Final agreement is subject to concluding negotiations on the ond quarter 2012, subject to regulatory approval. contract for the engineering, procurement and construction of the ammo­ nium nitrate plant and Board approvals. The parties are targeting commence­ On 1 February 2012, Yara acquired additional 16% of Burrup Holdings Lim­ ment of construction by mid 2012. Yara and Orica will each have a 45% inter­ ited (BHL) for USD 143 million, increasing its ownership share in the com­ est and Apache the remaining 10%. pany to 51%. Concurrently, Apache Energy has acquired the remaining 49% of the shares in BHL, and signed a new shareholders’ agreement with Yara. In April 2011 Yara International ASA initiated an external investigation of The wholly-owned BHL subsidiary, Burrup Fertilisers Pty Ltd (BFPL), oper­ possible corruption. During 2012 the investigation has uncovered unaccept­ ates an ammonia plant completed in 2006 and located at the Burrup Penin­ able payments from the company’s former associated entity in Switzerland. sula in Western Australia, with an annual production capability of approxi­ The Norwegian National Authority for Investigation and Prosecution of Eco­ mately 850,000 metric tons. BFPL entered into a revised long-term natural nomic and Environmental Crime (ØKOKRIM) has been notified of the new gas supply contract with Apache Energy in November 2011. findings. Further investigations are now taking place to clarify how such pay­ ments have been carried out and authorized. The main findings will be pub­ Yara will consolidate BHL and its subsidiaries from the acquisition date, lished when the investigation report is finalized. See also note 23, page 110. including possible goodwill, and measure all identifiable assets acquired and liabilities assumed at their acquisition-date fair values. The 49% interest of The Board of Directors propose to the Annual General Meeting a dividend of Apache will be presented as non-controlling interests in Yara’s statement of NOK 7 per share for 2011. financial position. Yara’s previously held 35% equity interest will be remea­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 126 / Financial Statement Yara International ASA Yara Financial Report 2011 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 127 Yara International ASA Income statement

NOK millions Notes 2011 2010

Revenues 6,16 772 757 Other income - 667 Revenues and other income 772 1,424

Raw materials, energy costs and freight expenses (22) (31) Change in inventories of own production 8 (7) Payroll and related costs 2,3 (418) (384) Depreciation and amortization 4,5 (29) (27) Other operating expenses 6 (583) (576) Operating costs and expenses (1,044) (1,025)

Operating income (272) 399

Financial income/(expense), net 7,16 2,538 4,706 Income before tax 2,266 5,106

Income tax expense 8 (363) (409) Net income 1,903 4,697

Appropriation of net income and equity transfers Dividend proposed 14 1,998 1,584 Retained earnings (95) 3,113 Total appropriation 1,903 4,697 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 128 / Financial Statement Yara International ASA Yara Financial Report 2011 Yara International ASA Balance sheet

31 DECEmBER

NOK millions Notes 2011 2010

ASSETS Non-current assets Deferred tax assets 8 139 188 Intangible assets 5 74 72 Property, plant and equipment 4 14 13 Shares in subsidiaries 9 5,286 5,352 Intercompany receivables 16 21,381 21,013 Shares in associated companies 10 18 20 Other non-current assets 11,13 203 153 Total non-current assets 27,115 26,812

Current assets Inventories 11 40 39 Trade receivables 5 59 Intercompany receivables 16 10,716 11,599 Prepaid expenses and other current assets 13 207 175 Other liquid assets 11 - 800 Cash and cash equivalents 4,971 1,486 Total current assets 15,940 14,158

Total assets 43,055 40,970 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 129 Yara International ASA Balance sheet

31 DECEmBER

NOK millions Notes 2011 2010

LIABILITIES AND ShArEhOLDErS' EQUITY Equity Share capital reduced for treasury stock 485 490 Premium paid-in capital 117 435 Total paid-in capital 603 926

Retained earnings 7,873 8,044 - Treasury shares (555) (115) Shareholders' equity 14 7,921 8,855

Non-current liabilities Employee benefits 2 509 388 Other long-term liabilities 1 155 Long-term interest bearing debt 15 7,732 8,800 Total non-current liabilities 8,242 9,344

Current liabilities Bank loans and other interest-bearing short-term debt 11,16 343 1,764 Current portion of long-term debt 15 300 - Dividends payable 14 1,998 1,584 Intercompany payables 16 23,491 18,632 Current income tax 8 329 424 Other current liabilities 13 431 367 Total current liabilities 26,893 22,772

Total liabilities and shareholders' equity 43,055 40,970

The Board of Directors of Yara International ASA Oslo, 22 March 2012

Øivind Lund Elisabeth Harstad Leiv L. Nergaard Hilde Merete Aasheim Chairperson Board member Board member Board member

Bernt Reitan Kristine Haukalid Svein Flatebø Geir O. Sundbø Board member Board member Board member Board member

Jørgen Ole Haslestad President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 130 / Financial Statement Yara International ASA Yara Financial Report 2011 Yara International ASA Cash flow statement

NOK millions Notes 2011 2010

Operating activities Operating income (272) 399

Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization 4,5 29 27 Tax received/(paid) 8 (376) (41) Dividend received from subsidiaries and associated companies 51 312 Group relief received 3,170 2,081 Interest and bank charges received/(paid) 669 786 Other 5 (15)

Change in working capital Trade receivables 53 (31) Short term intercompany receivables/payables 4,241 2,364 Prepaid expenses and other current assets 287 730 Trade payables (15) 26 Other current liabilities (373) (383) Net cash provided by operating activities 7,469 6,254

Investing activities Acquisition of property, plant and equipment 4 (5) (1) Acquisition of other long-term investments (27) (18) Net sales/(purchases) of short-term investments 11 800 (800) Net cash from/(to) long term intercompany loans (29) (678) Proceeds from sale of long-term investments 98 22 Net cash provided by/used in investing activities 838 (1,475)

Financing activities Loan proceeds - 6,784 Principal payments (2,506) (8,923) Purchase of treasury stock 14 (647) (115) Redeemed shares Norwegian State 14 (116) - Dividend paid 14 (1,584) (1,300) Net cash used in financing activities (4,854) (3,554)

Foreign currency effects on cash flows 31 50

Net increase/(decrease) in cash and cash equivalents 3,484 1,276 Cash and cash equivalents at beginning of period 1,486 211 Cash and cash equivalents at the end of period 4,971 1,486 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 131

Notes to the accounts

Note 1

Accounting policies

GENErAL Interest income The financial statements for Yara International ASA have been prepared in Interest income is recognized in the income statement as it is accrued, accordance with the rules of the Norwegian Accounting Act and generally based on the effective interest method. accepted accounting practice in Norway (NGAAP). Financial statement preparation requires management to make estimates and assumptions that rECEIvABLES affect the reported amounts of assets, liabilities, revenues and expenses as well Trade receivables and other receivables are recognized at nominal value, as disclosures of contingencies. Actual results may differ from estimates. less the accrual for expected losses of receivables. The accrual for losses is based on an individual assessment of each receivable. Yara International ASA was established on 10 November 2003, for the pur­ pose of acting as the transferee company in the demerger of Hydro Agri from COST OF SALES AND OThEr ExpENSES Norsk Hydro ASA. Until the completion of the de-merger, there were no sub­ In principle, cost of sales and other expenses are recognized in the same sidiaries or operational activity in Yara International ASA. period as the revenue to which they relate. In instances where there is no clear connection between the expense and revenue, the apportionment is For information about risk management see note 13 to the Yara International estimated. Other exceptions to the matching criteria are disclosed where ASA financial statements and note 27 to the consolidated financial state­ appropriate. ments. INCOmE TAxES Yara International ASA provides financing to most of the subsidiaries in Nor­ Deferred income tax expense is calculated using the liability method in way as well as abroad. See note 16. The information given in note 24 to the accordance with Norsk RegnskapsStandard (“NRS”) regarding Income consolidated financial statements on payments on long-term debt also applies Taxes (“Resultatskatt”). Under this standard, deferred tax assets and liabili­ to Yara International ASA. ties are measured based on the differences between the carrying values of assets and liabilities for financial reporting and their tax basis, which is con­ The accompanying notes are an integral part of the financial statements. sidered temporary in nature. Deferred income tax expense represents the change in deferred tax asset and liability balances during the year except for FOrEIGN CUrrENCY TrANSACTIONS deferred tax related to items charged in other comprehensive income. Realized and unrealized gains and losses on transactions, assets and liabili­ Changes resulting from amendments and revisions in tax laws and tax rates ties denominated in a currency other than the functional currency of Yara are recognized when the new tax laws or rates are enacted. International ASA that do not qualify for hedge accounting treatment, are included in net income. INTANGIBLE ASSETS Intangible assets acquired individually or as a group are recorded at fair rEvENUE value when acquired. Intangible assets with finite useful lives are amortized Sale of goods on a straight-line basis over their benefit period. Revenue from sale products including products sold in international com­ modities markets is recognized when the products are delivered to the cus­ prOpErTY, pLANT AND EQUIpmENT tomer, assuming the risk and rewards have been transferred to the cus­ Property, plant and equipment are carried at historical cost less accumu­ tomer. Yara’s rebate arrangements include fixed-rate rebates or variable rate lated depreciation. Long-lived assets are reviewed for impairment when­ rebates increasing with increasing volumes. For variable rate rebates, the ever events or changes in circumstances indicate that the carrying amount estimated rebate is accrued at each revenue transaction, and the accrual is may not be recoverable. Depreciation is determined using the straight-line adjusted at the end of each “rebate period”, which typically is the end of a method. fertilizer season. SUBSIDIArIES AND ASSOCIATED COmpANIES Sale of services Shares in subsidiaries and associated companies are in Yara International Revenues from the sale of intercompany services are recognized when the ASA’s financial statements presented according to the cost method. Group services are delivered. relief received is included in dividends from subsidiaries. Yara reviews sub­ sidiaries and associated companies for impairment if indications of loss in Dividends and group contribution value are identified. Impairment indications may include operating losses, Dividends and group contribution from subsidiaries are recognized in the or adverse market conditions. Fair value of the investment is estimated income statement when the subsidiary has proposed these. based on valuation model techniques. If it is considered probable that the fair value is below Yara’s carrying value, the investment is written down as impaired. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 132 / Financial Statement Yara International ASA Yara Financial Report 2011

INvENTOrIES FOrWArD CUrrENCY CONTrACTS Inventories are valued at the lower of cost, using the “first-in, first-out Forward currency contracts are initially recognized in the balance sheet at method” (“FIFO”), and net realizable value. Cost includes direct materials, fair value and are subsequently recognized at fair value with changes in fair direct labor, other direct cost, and the appropriate portion of production value recognized in the income statement. overhead or the price to purchase inventory. INTErEST rATE AND FOrEIGN CUrrENCY SWApS CASh AND CASh EQUIvALENTS Interest income and expense relating to swaps that are not designated as Cash and cash equivalents include cash, bank deposits and all other mone­ hedge instruments are netted and recognized as income or expense over the tary instruments with a maturity of less than three months at the date of life of the contract. Foreign currency swaps are translated into Norwegian purchase. krone at applicable exchange rates at the balance sheet date with the result­ ing unrealized exchange gain or loss recorded in interest expense and for­ The level of cash held by Yara International ASA reflects that most external eign exchange gain/(loss). bank deposits are channeled through the group treasury function and should thus be seen in context with the intercompany receivables and pay­ LONG-TErm INCENTIvE prOGrAm ables. The long term incentive program for Yara Management and top executives provides a fixed cash amount to the eligible top executive, who is required LEASED ASSETS to invest the net amount in Yara shares within a period of one month after Leases that provide Yara with substantially all the rights and obligations of the grant. The acquired shares are locked in for a period of three years after ownership are accounted for as finance leases. Such leases are valued at the the purchase. After this period the executive is free to keep or sell the shares present value of minimum lease payments or fair value if this is lower, and at his or her discretion. If an executive do not meet the vesting conditions recorded as assets under property, plant and equipment. The liability is the net proceed must be returned to Yara.The Company also gives employ­ included in long-term debt. The assets are subsequently depreciated and the ees the possibility to purchase share in Yara at a reduced price. The cost of related liabilities are reduced by the amount of the lease payments less the this is recognized when the employee exercises this possibility. effective interest expense. Other leases are accounted for as operating leases with lease payments recognized as an expense over the lease term. EmpLOYEE rETIrEmENT pLANS Pension costs are calculated in accordance with the NRS. Prior service costs FINANCIAL ASSETS AND LIABILITIES are amortized on a straight-line basis over the average remaining service Financial assets are initially recognized in the balance sheet at fair value period of active participants. Actuarial gains and losses are recognized in (cost) and subsequently at the lower of cost or fair value. Financial liabilities retained earnings. are initially recognized in the balance sheet at fair value (cost) and subse­ quently at cost. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 133

Note 2

Employee retirement plans and other similar obligations

Yara International ASA has incurred obligations under a funded defined ben- Other long-term employee benefits include a provision for jubilee benefits. efit plan. The pension plan was closed to new entrants in 2006 and employees below the age of 55 received a paid-up policy for previously earned benefit enti- Yara International ASA is obliged to and does fulfill the requirements of the tlements. The defined benefit plan was replaced by a defined contribution plan act regarding mandatory occupational pension scheme (“Lov om obligatorisk from the same date, which requires Yara International ASA to make agreed tjenestepensjon”) in addition to the further pension arrangements described contributions when employees have rendered service entitling them to the con- below. tributions. Yara International ASA has no legal or constructive obligation to pay further contributions. This new plan applies to the future pension earnings of existing employees below the age of 55 in 2006 and all new employees.

LONG-TErm EmpLOYEE BENEFIT OBLIGATIONS rECOGNIzED IN ThE STATEmENT OF FINANCIAL pOSITION

NOK millions 2011 2010

Pension liabilities defined benefit plans (498) (367) Termination benefits and other long-term employee benefits (11) (21) Net long-term employee benefit obligations recognized in Statement of financial position (509) (388)

ExpENSES FOr LONG-TErm EmpLOYEE BENEFIT OBLIGATIONS rECOGNIzED IN ThE STATEmENT OF INCOmE

NOK millions 2011 2010

Defined benefit plans (35) (38) Defined contribution plans (17) (14) Termination benefits and other long-term employee benefits (1) 1 Net expenses recognized in Statement of income (53) (51)

DEFINED BENEFIT pLANS retire from the age of 62. Participating entities are required to pay an annual Yara International ASA is the sponsor of a funded pension plan which also fee for each of its active employees. As the information required to account covers employees of its subsidiaries Yara Norge AS and Yaraship Services for this part of the plan as a defined benefit plan is not available from the AS. Plan benefits are based on years of service and final salary levels. Deter­ plan administrator, it is rather accounted for as if it were a defined contribu­ mination of the required annual contribution to the pension fund from tion plan. The provision for defined benefit plans includes however the cal­ each of the participating legal entities is defined by the bylaws of the pen­ culated obligation to pay a percentage of benefits paid to its employees who sion fund, and is based on actuarial calculations. The distribution of pen­ choose early retirement under this plan. A further defined benefit obliga­ sion costs to the participating entities is based on the same calculations. At tion is recognized to account for a gratuity offered by Yara International 31 December 2011, the number of active participants in the funded defined ASA to its employees who retire with the AFP scheme. benefit plan was 51 and the number of retirees was 82. In addition, 339 existing and previous employees of Yara International ASA have earned Following a change in the AFP scheme in 2010 Yara International ASA rec­ paid-up policies in the pension fund (Yara Pensjonskasse). ognized a curtailment and settlement gain of NOK 5 million in 2010. The legislative changes were concluded to impose a discontinuation of the old Further pension obligations include certain unfunded pension arrange­ plan and the introduction of a new plan for accounting purposes. The new ments as well as an early retirement scheme and including an unfunded plan is also a defined benefit plan, but it is accounted for as if it were a defined contribution pension scheme covering part of salary in excess of defined contribution plan due to the fact that sufficient information is not 12G. Normal retirement age is 67 with the option for early retirement from available to use defined benefit accounting. The net gain from curtailment the age of 62. Benefits earned from defined benefit plans are generally based and settlement includes an additional liability recognized to cover Yara on years of service and final salary levels. International ASA’s estimated share of the current underfunding of the old plan. The underfunding will be recovered from the participating employers Yara International ASA participates in a multi-employer plan (AFP - through additional premiums to be paid from 2011 until 2015. “Avtalefestet pensjon”) which entitles most of its employees the right to

vALUATION OF DEFINED BENEFIT OBLIGATIONS date of Norwegian government bonds. If the bonds have different maturi­ The defined benefit plans are valued at 31 December using updated finan­ ties than the obligations, the discount rate is adjusted. Normal assumptions cial and demographical assumptions and taking into account relevant eco­ for demographical and retirement factors have been used by the actuary nomic environment factors. when calculating the obligation. Estimated future mortality is based on published statistics and mortality tables. The actuary has used the K2005 Since there is no deep market for high quality corporate bonds in Norway, mortality table. the discount rate used is a weighted average of the yields at the balance sheet WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 134 / Financial Statement Yara International ASA Yara Financial Report 2011

The following financial assumptions have been applied for the valuation of liabilities (in %):

2011 2010

Discount rate 3.2 3.6 Expected rate of salary increases 4.0 4.0 Future rate of pension increases 1.3 1.6

Actuarial valuations provided the following results

NOK millions 2011 2010

Present value of unfunded obligations (572) (551) Present value of wholly or partly funded obligations (601) (569) Total present value of obligations (1,173) (1,119)

Fair value of plan assets 737 797 Social security on defined benefit obligations (61) (45) Total recognized liability for defined benefit plans (498) (367)

pENSION COST rECOGNIzED IN STATEmENT OF INCOmE The expected long-term rate of return on plan assets is based on forecasts of The assumptions used to value the defined benefit obligations at 31 Decem- expected return for individual asset classes and the determined long-term ber are used in the following year to determine the net pension cost. portfolio structure. Forecasts are based on long-term historical average returns, taking into account current yield level and expected inflation.

The following financial assumptions have been applied for the valuation of pension cost items (in %):

2011 2010

Discount rate 3.6 4.4 Expected rate of return on plan assets 5.8 6.3 Expected rate of salary increases 4.0 4.0 Future rate of pension increases 1.6 2.1

The following items have been recognized in the Statement of income:

NOK millions 2011 2010

Current service cost (36) (37) Settlements 1) - 5 Social security cost (4) (5) Payroll and related costs (41) (37)

Interest on obligation (41) (46) Expected return on plan assets 47 45 Interest expense and other financial items 6 (1)

Total expense recognized in income statement (35) (38)

1) Gain on settlement of early retirement plan (AFP)

SENSITIvITY OF ASSUmpTIONS benefit obligation (DBO) and pension cost items, by showing the result Measurement of defined benefit obligations and pension costs requires the from an increase or decrease in any one of the assumptions applied (all use of a number of assumptions and estimates. Below table indicates the other assumptions held constant). sensitivity of the most material financial assumptions applied to the defined WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 135

NOK millions DBO at 31 Dec 2011 Service Cost 2011 Interest cost 2011

Actual valuation (1,173) (36) (41)

Discount rate +0.5% (1,102) (35) (46) Discount rate -0.5% (1,252) (38) (35)

Expected rate of salary increase +0.5% (1,184) (37) (41) Expected rate of salary increase -0.5% (1,163) (35) (41)

Expected rate of pension increase +0.5% (1,243) (37) (41) Expected rate of pension increase -0.5% (1,110) (36) (41)

Development of defined benefit obligations

NOK millions 2011 2010

Defined benefit obligation at 1 January (1,119) (1,049) Current service cost (36) (37) Interest cost on obligation (41) (46) Actuarial gains / (losses) on obligation (9) (26) Settlements 1) - 5 Benefits paid 37 34 Transfer of obligation from Other long-term employee benefits (5) - Defined benefit obligation at 31 December (1,173) (1,119)

1) Gain on settlement of early retirement plan (AFP)

Development of plan assets

NOK millions 2011 2010

Fair value of plan assets at 1 January 797 713 Expected return on plan assets 47 45 Actuarial gains / (losses) on plan assets (95) 28 Employer contributions - 21 Benefits paid (11) (9) Fair value of plan assets at 31 December 737 797

The actual return on plan assets in 2011 was a negative NOK 48 million (2010: positive NOK 73 million).

plan assets are comprised as follows:

NOK millions 2011 2011 2010 2010

Equity instruments 280 38% 348 44% Debt instruments 435 59% 440 55% Property 21 3% - - Bank deposits 2 - 10 1% Total plan assets 737 100% 797 100%

Yara Pensjonskasse (the pension fund) does not hold any financial instruments issued by Yara Group companies.

Contributions expected to be paid to the defined benefit plans for 2012 are NOK 42 million (including benefits to be paid for unfunded plans) movement in actuarial (gains) / losses recognized directly in retained earnings

NOK millions 2011 2010

Cumulative amount recognized directly in retained earnings pre tax at 1 January 66 68 Actuarial (gain) / loss recognized during the period 119 (2) Cumulative amount recognized directly in retained earnings pre tax at 31 December 186 66

Deferred tax related to actuarial (gains) / losses recognized directly in retained earnings (52) (19) Cumulative amount recognized directly in retained earnings after tax at 31 December 134 48 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 136 / Financial Statement Yara International ASA Yara Financial Report 2011

historical information

NOK millions 2011 2010 2009 2008 2007

Present value of the defined benefit obligation (1,173) (1,119) (1,049) (1,078) (920) Fair value of plan assets 737 797 713 597 497 Deficit in the plan 1) (436) (322) (336) (481) (423)

Experience adjustments arising on plan liabilities 9 27 39 (37) 30 Experience adjustments arising on plan assets (95) 28 42 (116) 13

1) Social security cost is not included.

Note 3

Remunerations and other

Remuneration and direct ownership of shares of the chairpersons and of tional ASA’s fee to Deloitte AS (Norway) for ordinary audit was NOK 3,609 the Board of Directors are disclosed in note 32 to the consolidated financial thousand (2010: 3,974 thousand), fee for assurance services NOK 28 thou­ statement. sand (2010: 562 thousand), fee for tax services NOK 53 thousand (2010: 46 thousand) and fee for non-audit services NOK 64 thousand (2010: 0 thou­ Remuneration to the President and Yara Management, as well as number of sand). Audit remuneration for the group is disclosed in note 33 to the con­ shares owned and Long Term Incentive Plan, are disclosed in notes 6 and 32 solidated financial statement. to the consolidated financial statements. At 31 December 2011 the number of employees in Yara International ASA Partners and employees of Yara’s independent auditors, Deloitte AS, own no was 275 (2010: 246). shares in Yara International ASA or in any of its subsidiaries. Yara Interna­

NOK millions 2011 2010

payroll and related costs Salaries (367) (343) Social security costs (49) (46) Net periodic pension costs (58) (51) Internal invoicing of payroll related costs 57 55 Sum (418) (384)

External commercial banks provide the Norwegian employees with a range of Yara continued to give employees in Norway an opportunity to take part in a banking services, including unsecured personal loans at favorable rates of inter­ share purchase program in 2011. All permanent employees in Norway have est. Yara does not compensate the banks for these services. In connection with been offered shares with a discount and given an interest-free loan with a the replacement of transferred employee loans related to the demerger from 12-month repayment profile. In order to handle this arrangement in an effi­ Hydro, Yara provides a guarantee for all such loans as well as of new unsecured cient way, Yara has established a foundation for employees’ shares in Yara. The loans by the banks to the Norwegian employees. For most employees the fundation owned 15 shares in Yara at the beginning of 2011 and has pur­ amount guaranteed will not exceed NOK 100,000. At 31 December 2011, the chased additional 19,137 shares during the year. In total 19,152 shares have aggregate balance of all the outstanding loans for which Yara is providing a been sold during 2011 to 684 persons, and each person was alloted 28 shares. guarantee, is approximately NOK 3 million, and the number of loans is 39. At 31 December 2011 the foundation owns no shares in Yara. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 137

Note 4

Property, plant and equipment

2011

Machinery Plant under NOK millions, except percentages and years and equipment Buildings construction Total

Cost Balance at 1 January 39 7 1 47 Addition at cost 3 - 2 5 Transfer 1 - (1) - Balance at 31 December 43 7 2 53

Depreciation Balance at 1 January (32) (3) - (35) Depreciation (2) (1) - (4) Balance at 31 December (34) (4) - (39)

Carrying value Balance at 1 January 7 4 1 13 Balance at 31 December 9 3 2 14

Useful life in years 4 - 20 20 - 50 Depreciation rate 5 - 25% 2 - 5%

2010

Machinery Plant under NOK millions, except percentages and years and equipment Buildings construction Total

Cost Balance at 1 January 39 8 - 47 Addition at cost - - 1 1 Disposal - (1) - (1) Balance at 31 December 39 7 1 47

Depreciation Balance at 1 January (30) (2) - (32) Depreciation (2) (1) - (3) Balance at 31 December (32) (3) - (35)

Carrying value Balance at 1 January 9 6 - 15 Balance at 31 December 7 4 1 13

Useful life in years 4 - 20 20 - 50 Depreciation rate 5 - 25% 2 - 5%

There were no assets pledged as security at 31 December 2011 (2010: NOK 0.6 million).

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 138 / Financial Statement Yara International ASA Yara Financial Report 2011

Note 5

Intangible assets

2011

NOK millions, except percentages and years Intangible assets

Cost Balance at 1 January 172 Addition at cost 27 Balance at 31 December 199

Amortization Balance at 1 January (100) Amortization (25) Balance at 31 December (125)

Carrying value Balance at 1 January 72 Balance at 31 December 74

Useful life in years 3 - 5 Depreciation rate 20 - 35%

2010

NOK millions, except percentages and years Intangible assets

Cost Balance at 1 January 159 Addition at cost 14 Balance at 31 December 172

Amortization Balance at 1 January (76) Amortization (24) Balance at 31 December (100)

Carrying value Balance at 1 January 82 Balance at 31 December 72

Useful life in years 3 - 5 Depreciation rate 20 - 35%

Intangible assets are amortized on a straight line basis over their benefit period.

The intangible assets basically consist of computer software systems. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 139

Note 6

Specificationof items in the income statement rEvENUE Information about sales to geographical areas

2011 2010 NOK millions External Internal Total External Internal Total

Norway 10 40 50 9 23 32 European Union 22 666 688 23 622 644 Europe, outside European Union 1 1 2 3 1 4 Asia 1 - 1 7 - 7 North America 6 - 6 41 - 41 South America 25 - 25 29 - 29 Total 65 707 772 111 646 757

OThEr OpErATING ExpENSE

NOK millions 2011 2010

Selling and administrative expense (426) (461) Rental and leasing 1) (36) (34) Travel expense (38) (38) Other (83) (43) Total (583) (576)

Research and development expense 2) 3) (51) (45)

1) Expenses mainly relate to property and lease contracts for company cars. 2) 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. 3) Included in other operating expense.

Note 7

Financial income and expense

NOK millions 2011 2010

Dividends and group relief from subsidiaries 1,796 3,799 Sale of subsidiaries - (140) Write-down shares subsidiaries - (38) Gain/(loss) on receivables from subsidiaries 41 (105) Sale of associated companies 27 - Dividends from associated companies 15 13 Interest income group companies 1,306 1,566 Other interest income 92 36 Interest expense group companies (183) (77) Other interest expense (563) (552) Interest expense defined pension liabilities (41) (47) Return on pension plan assets 47 45 Net foreign exchange gain/(loss) 85 325 Other financial income/(expense) (84) (119) Financial income/(expense), net 2,538 4,706 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 140 / Financial Statement Yara International ASA Yara Financial Report 2011

Note 8

Income taxes

SpECIFICATION OF INCOmE TAx ExpENSE

NOK millions 2011 2010

Current tax expense (285) (462) Deferred tax income/(expense) (78) 52 Income tax expense (363) (409)

rECONCILIATION OF NOrWEGIAN NOmINAL STATUTOrY TAx rATE TO EFFECTIvE TAx rATE

NOK millions 2011 2010

Income before taxes 2,266 5,106 Expected income taxes at statutory tax rate, 28% (635) (1,430) Non-deductible expenses (2) (1) Dividend exclusion 10 83 Effect of valuation allowances (29) - Loss and write-down shares, not tax deductible 7 (39) Group relief received from subsidiaries with no tax effect 280 980 Other, net 5 (3) Income tax expense (363) (409)

rECONCILIATION OF CUrrENT TAx LIABILITY

Current tax NOK millions 2011 2010

Balance at 1 January (424) (81) Payments 376 39 Current year (281) (367) Adjustment in relation to the current tax of prior years - (15) Balance at 31 December (329) (424)

SpECIFICATION OF DEFErrED TAx ASSETS/(LIABILITIES)

Deferred tax NOK millions 2011 2010

Non-current items Accrued expenses 15 46 Pension liabilities 189 156 Total 205 201

Current items Other accrued expenses (68) (51) Receivables 29 35 Inventory 2 2 Total (37) (13)

Valuation allowance (29) - Net deferred tax assets 139 188

Change in deferred tax Balance at 1 January 188 140 Charge (credit) to equity for the year 29 (4) Charge (credit) to profit or loss for the year (78) 52 Balance at 31 December 139 188

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 141

Note 9

Shares in subsidiaries

Net income Carrying Ownership Total equity in the in 2011 value by other group Local company 2011 local local currency 2011 NOK Company name Ownership 1) companies Registered office currency currency thousands thousands thousands

Subsidiaries owned by Yara International ASA Yara China Ltd. 100% - China HKD (97,194) (27,271) - Yara Guatemala S.A. 100% - Guatemala GTQ 47,395 24,185 24,258 Yara Colombia Ltda. 100% - Colombia COP 45,613,710 9,756,701 16,749 Hydro Agri Russland AS 100% - Norway NOK 40,451 522 21,200 Yaraship Services AS 100% - Norway NOK 16,285 921 1,039 Yara Hellas S.A. 100% - Greece EUR 13,450 2,844 20,942 Yara Norge AS 100% - Norway NOK 2,148,684 491,089 1,303,377 Fertilizer Holdings AS 100% - Norway NOK 3,743,866 1,552,653 2,315,200 Yara Lietuva UAB 100% - Lithuania LTL - (318) - Yara Rus Ltd. 100% - Russia RUB (43,754) (1,623) - Yara North America Inc. 100% - USA USD 143,769 14,461 467,948 Yara Asia Pte. Ltd. 100% - Singapore USD 475,344 104,085 1,114,364 Yara International Employment Co. AG 100% - Switzerland EUR 1,069 132 1,076 Yara México Profesionales / Operativos S. 10% 90% Mexico MXN (24,348) (12,913) 6 de R.L. de C.V. Total 5,286,159

1) 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.

Note 10

Shares in associated companies

Total equity in the Carrying value Carrying value NOK millions, except ownership Ownership 1) Country company 2) Net income 2) in 2011 in 2010

Name Abonos del Pacifico, S.A. 34% Costa Rica 234 45 18 18 JSC Nordic Rus Holding 3) - Russia - - - 2 Talconor AS 50% Norway 1 - - - Total 18 20

1) Equals voting rights. 2) According to the last Annual Report. 3) Shares were sold in 2011.

There are no significant transactions between the associated companies listed above and other Yara group companies.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 142 / Financial Statement Yara International ASA Yara Financial Report 2011

Note 11

Specificationof items in the balance sheet

NOK millions 2011 2010

Other non-current assets Long term loans, mortgage bonds and non-marketable shares 0-20% 23 23 Interest rate swap designated as hedging instrument 167 130 Other 13 - Total 203 153

Inventories Raw materials 6 12 Work in progress 7 - Finished goods 28 27 Total 40 39

Other liquid assets Bank deposits with maturity between three months and one year - 800 Total - 800

Bank loans and other short-term interest-bearing debt External loans (208) (1,028) Bank overdraft (134) (235) Commercial papers - (500) Total (343) (1,764)

Bank deposits with maturity between three months and one year presented at 31 December 2010 have been repaid and there have been no new time depos­ its in 2011.

Commercial papers and loan from GrowHow UK Ltd. presented at 31 December 2010 have been settled in 2011. Details regarding external loans are dis­ closed in note 15 to the financial statements for Yara International ASA.

Note 12

Guarantees

NOK millions 2011 2010

Guarantees (off-balance sheet) Guarantees in the name of equity-accounted investees 16 218 Guarantees of debt in subsidiaries 1,296 1,416 Non-financial guarantees 3,282 4,890 Total 4,593 6,524

Yara International ASA provides guarantees arising in the ordinary course of business, including performance bonds and various payment or financial guarantees. See note 29 to the consolidated financial statements for further information about guarantees. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 143

Note 13

Risk management and hedge accounting

Risk management in Yara and the use of derivative instruments are described in note 27 to the consolidated financial statement. Yara International ASA has the following derivative instruments outstanding at 31 December:

NOK millions 2011 2010

Fair value of derivatives Forward foreign exchange contracts (external) (18) 56 Forward foreign exchange contracts (Yara Group internal) 285 153 Interest rate swaps (external) - 64 Interest rate swaps designated for hedging (external) 167 66 Balance at 31 December 433 338

Derivatives presented in the balance sheet Non-current assets 167 130 Current assets 295 229 Current liabilities (28) (21) Balance at 31 December 433 338

FOrWArD FOrEIGN ExChANGE CONTrACTS Yara is committed to outstanding forward foreign exchange contracts as follows:

NOK millions 2011 2010

Forward foreign exchange contracts (external), notional amount 3,264 5,542 Forward foreign exchange contracts (Yara Group internal), notional amount 13,660 12,975

All outstanding contracts at 31 December 2011 have maturity in 2012. ent interest payment dates (semi-annualy vs. annually), but identical inter­ External buy positions are mainly in Norwegian kroner and US dollars. est basis and maturity (2016 and 2014 respectively) to the hedged debt and External sell positions are in various operating currencies, mainly Euro and are assessed to be highly effective. The changes in fair value of the deriva­ Canadian dollars. tives are recognized in consolidated statement of income, and is offset by opposites change in fair value of the corresponding portions of the bond hEDGE ACCOUNTING debt. At 31 December 2011 the loss on the fair value hedges included in the Fair value hedge carrying amounts of the fixed rate debt was NOK 99 million (2010: loss NOK 64 million). The ineffectiveness recognized as expense in statement of USD bond debt income in 2011 is NOK 13 million. The interest rate swap designated as a hedge instrument outstanding at 31 December 2011 is a fixed to floating interest rate swap for USD 100 million. Cash flow hedge The hedged risk is the change in fair value due to changes in risk-free interest In 2004, Yara used interest rate swaps to hedge the future cash flows of a USD rates (LIBOR) of a USD 100 million portion of the US dollar bond debt from 300 million portion of the December 2004 bond issue. The loss on these con­ 2004. The swap has identical interest basis, interest payment dates and matu­ tracts was recognized directly against equity and will be reclassified into inter­ rity (2014) to the hedged debt and is assessed to be highly effective. The est expense and income tax over the duration of the bond (due in 2014). The change in fair value of the derivative is recognized in consolidated statement reclassification into interest expense for 2011 was NOK 11.5 million (2010: of income, and is offset by an opposite change in fair value of the correspond­ NOK 11 million) and the related deferred tax benefit was NOK 3.2 million ing portion of the bond debt. At 31 December 2011 the loss on the fair value (2010: NOK 3 million). hedge included in the carrying amount of the fixed rate debt was NOK 68 million (2010: loss NOK 66 million). There is not recognized any ineffective­ In 2007, Yara used interest rate derivatives to hedge the future cash flows of a ness in 2010 or 2011. USD 300 million portion of the June 2009 bond issue. The loss on these con­ tracts was recognized directly against equity and will be reclassified into inter­ NOK bond debt est expense and income tax over the duration of the bond (due in 2019). The In 2011, Yara has reclassified the long term NOK interest swaps from free­ reclassification into interest expense for 2011 was NOK 3 million (2010: NOK standing to designated for hedging. The hedged risk is the change in fair 2.8 million) and the related deferred tax benefit was NOK 0.8 million (2010: value due to changes in risk-free interest rates (NIBOR) of the NOK 1,000 NOK 0.8 million). million and NOK 325 million bond debt from 2009. The swaps have differ­ WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 144 / Financial Statement Yara International ASA Yara Financial Report 2011

Note 14

Number of shares outstanding, shareholders, equity reconciliation etc.

Yara International ASA was established 10 November 2003. The company was established with a share capital of 108,610,470 consisting of 63,888,512 shares at NOK 1.70 per share. At 31 December 2011, the company has a share capital of 489,015,470 consisting of 287,656,159 ordinary shares at NOK 1.70 per share. For further information on these issues see note 19 to the consolidated financial statement.

Shareholders holding 1% or more of shares issued at 31 December 2011 are according to information in the Norwegian securities’ registry system (Verdi­ papirsentralen):

Name Number of shares Holding (%)

Norwegian Ministry of Trade and Industry 104,164,517 36.2% The National Insurance Fund (Folketrygdfondet) 18,730,105 6.5% Clearstream banking (nominee) 9,713,353 3.4% State Street Bank (nominee) 5,917,776 2.1% Treaty Account United States (nominee) 5,664,190 2.0% State Street Bank (nominee) 5,163,470 1.8% Fidelity Low-Priced 4,750,000 1.7% State Street Bank & Trust (nominee) 3,917,598 1.4% State Street Bank and Trust (nominee) 3,526,892 1.2% J.P.Morgan Chase Bank (nominee) 3,422,531 1.2% Bank of New York Mellon (nominee) 3,382,238 1.2% State Street Bank and Trust (nominee) 3,055,210 1.1% J.P.Morgan Chase Bank (nominee) 2,974,601 1.0%

ShArEhOLDErS EQUITY

Total shareholders NOK millions Paid-in-capital Retained earnings equity

Balance 31 December 2009 926 4,920 5,847

Net income of the year - 4,697 4,697 Dividend proposed - (1,584) (1,584) Cash flow hedges - 10 10 Actuarial gain/(loss) 1) - 1 1 Treasury shares (1) (114) (115) Balance 31 December 2010 926 7,929 8,855

Net income of the year - 1,903 1,903 Dividend proposed - (1,998) (1,998) Cash flow hedges - 11 11 Actuarial gain/(loss) 1) - (86) (86) Allocated to fund (203) 203 - Repayment to shareholders (116) - (116) Shares cancelled - (203) (203) Treasury shares (4) (440) (445) Balance 31 December 2011 603 7,318 7,921

1) Yara International ASA has decided to use the option in NRS to adopt IAS 19. For further information, see Accounting principles note 1.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Financial Statement Yara International ASA / 145

Note 15

Long-term debt

LONG-TErm DEBT pAYABLE IN vArIOUS CUrrENCIES

Weighted average Denominated NOK millions, except percentages and denominated amounts interest rates amounts 2011 2011 2010

Unsecured debenture bonds in NOK (Coupon NIBOR + 2.50%) 1) 5.5% 300 300 300 Unsecured debenture bonds in NOK (Coupon NIBOR + 3.75%) 1) 6.7% 300 300 299 Unsecured debenture bonds in NOK (Coupon 7.40%) 2) 7.5% 325 341 324 Unsecured debenture bonds in NOK (Coupon 8.80%) 3) 8.9% 1,000 1,068 998 Unsecured debenture bonds in USD (Coupon 5.25%) 2) 5.9% 500 3,059 2,969 Unsecured debenture bonds in USD (Coupon 7.88%) 4) 8.3% 500 2,966 2,879 Unsecured bank loans in USD 1) - - - 1,031 Outstanding long-term debt 8,032 8,800

Less: Current portion 300 -

Total 7,732 8,800

1) Repricing within a year. 2) Fixed interest rate until 2014. Subject to fair value hedge accounting, see note 27 to the consolidated financial statements. 3) Fixed interest rate until 2016. Subject to fair value hedge accounting, see note 27 to the consolidated financial statements. 4) Fixed interest rate until 2019.

At 31 December 2011, the fair value of the long-term debt, including the current portion, was NOK 9,239 million and the carrying value was NOK 8,032 million. The USD 180 million term loan from the Nordic Investment Bank was transferred from Yara International ASA to Yara SA/NV in December with tenor and conditions unchanged. See note 24 to the consolidated financial statements for further information about long-term debt.

pAYmENTS ON LONG-TErm DEBT FALL DUE AS FOLLOWS:

Other long-term NOK millions Debentures Bank loans debt Total

2012 300 - - 300 2013 - - - - 2014 3,699 - - 3,699 2015 - - - - 2016 1,068 - - 1,068 Thereafter 2,966 - - 2,966 Total 8,032 - - 8,032 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 146146 / FinanFinan/ cial StStcial atatemement YYent ara IntIntara erernational ASAA YYarara FinanFinana cial RepRepcial orort 22t 001111

Note 16

Transactions with related parties

Transactions with related parties are mainly associated with the group treasury function and rendering of group services by the employees of Yara Interna­ tional ASA .

NOK millions 2011 2010

Yara Belgium S.A. 592 557 Yara Norge AS 39 22 Yara Sluiskil B.V. 18 14 Yara GmbH & Co. KG 11 7 Other 47 45 Internal revenues 707 646

Yara Nederland B.V. 473 494 Fertilizer Holdings AS 381 624 Yara Holding Netherlands 168 189 Yara UK Limited 64 25 Other 220 235 Interest income group companies 1,306 1,566

Yara AS (44) (19) Yara Nederland B.V. (34) (12) Yara GmbH & Co. KG (19) (4) Yara Suomi Oy (19) (4) Other (67) (39) Interest expense group companies (183) (77)

Non-current assets Yara Nederland B.V. 10,367 10,318 Fertilizer Holdings AS 6,004 5,838 Yara Holding Netherlands 3,002 2,919 Yara UK Limited 1,329 1,298 Other 679 640 Intercompany receivables 21,381 21,013

Current assets Fertilizer Holdings AS 2,497 923 Yara Norge AS 2,140 1,311 Yara Suomi Oy 1,777 2,000 Yara Italia S.p.A. 1,488 1 ,314 Yara Switzerland Ltd 777 232 Yara North America Inc. 358 101 Other 1,679 5,719 Intercompany receivables 10,716 11,599

Current liabilities Yara Nederland B.V. (5,338) (1,287) Yara Suomi Oy (3,272) (3,885) Yara GmbH & Co. KG (2,518) (1,626) Yara Norge AS (2,443) (1,863) Yara AS (1,678) (1,751) Yara S.A. (1,144) (558) Yara Caribbean Ltd (963) (1,365) Yara Tertre SA (953) - Yara France (596) (1,107) Yara Belle Plaine Inc. (252) (1,220) Other (4,335) (3 ,970) Intercompany payables (23,491) (18,632)

Qatar Fertiliser Company (117) (253) Trinidad Nitrogen Company (92) (210) GrowHow UK Ltd. - (566) External loans (208) (1,028)

Remuneration to the Board of Directors and Yara Management are disclosed in notes 6 and 32 to the consolidated financial statements. Yara International ASA has transactions with Yara Pensjonskasse (pension fund). See note 2 for more information.

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Directors responsibility statement / 147

Directors responsibility statement

2011

WE CONFIrm TO ThE BEST OF OUr KNOWLEDGE ThAT: • the consolidated financial statements for 2011 have been prepared in accordance with IFRS as adopted by the EU, as well as additional information require­ ments in accordance with the Norwegian Accounting Act, and that • the financial statements for the parent company for 2011 have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting practice in Norway, and that • the information presented in the financial statements gives a true and fair view of the Company’s and Group’s assets, liabilities, financial position and result for the period viewed in their entirety, and that • the Board of Directors’ report gives a true and fair view of the development, performance and financial position of the Company and Group, and includes a description of the principle risks and uncertainties.

The Board of Directors of Yara International ASA Oslo, 22 March 2012

Øivind Lund Elisabeth Harstad Leiv L. Nergaard Hilde Merete Aasheim Chairperson Board member Board member Board member

Bernt Reitan Kristine Haukalid Svein Flatebø Geir O. Sundbø Board member Board member Board member Board member

Jørgen Ole Haslestad President and CEO WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 148 / Auditor’s report Yara Financial Report 2011

Deloitte AS Karenslyst alle 20 Postboks 347 Skøyen NO-0213 Oslo Norway

Tel: +47 23 27 90 00 Fax: +47 23 27 90 01 www.deloitte.no

To the Annual Shareholders' Meeting of Yara International ASA

INDEPENDENT AUDITOR’S REPORT

Report on the Financial Statements We have audited the accompanying financial statements of Yara International ASA, which comprise the financial statements for the parent company and the financial statements for the group. The financial statements for the parent company comprise the balance sheets as at 31 December 2011, the income statement and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information. The financial statements for the group comprise the statement of financial position as at 31 December 2011, the statement of income, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information.

The Board of Directors and the President and CEO’s Responsibility for the Financial Statements The Board of Directors and the President and CEO are responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian accounting act and accounting standards and practices generally accepted in Norway for the company accounts and in accordance with International Financial Reporting Standards as adopted by EU for the group accounts, and for such internal control as the Board of Directors and the President and CEO determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK Limited company, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/no/omoss for a detailed description of the legal structure of Deloitte Touche org.nr: 980 211 282 Tohmatsu and its member firms. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Auditor’s report / 149

page 2

Opinion on the financial statements for the parent company In our opinion, the financial statements of the parent company are prepared in accordance with the law and regulations and give a true and fair view of the financial position of Yara International ASA as at 31 December 2011, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian accounting act and accounting standards and practices generally accepted in Norway.

Opinion on the financial statements of the group In our opinion, the financial statements of the group are prepared in accordance with the law and regulations and give a true and fair view of the financial position of the group Yara International ASA as at 31 December 2011, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report and the allocation of the profit Based on our audit of the financial statements as described above, it is our opinion that the information concerning the financial statements presented in the Board of Directors report and in the statement of corporate governance principles and practices, the going concern assumption, and the proposal in the financial statements for the allocation of the profit complies with the law and regulations and that the information is consistent with the financial statements.

Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.

Oslo, 22 March 2012 Deloitte AS

Ingebret G. Hisdal State Authorised Public Accountant (Norway)

WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 150 / Reconciliation of non-GAAP measures Yara Financial Report 2011

Reconciliation of non-GAAP measures

2011

rECONCILIATION OF OpErATING INCOmE TO GrOSS CASh FLOW

NOK millions 2011 2010

Operating income 13,240 7,467 Share of net income in equity-accounted investees 1,889 1,515 Interest income 318 242 Net gain/(loss) on securities (10) 3,578 Dividend from 0-20% companies 1 2 Earnings before interest expense and tax (EBIT) 15,438 12,804 Depreciation and amortization 2,677 2,440 Amortization of excess value in equity-accounted investees 48 71 Earnings before interest, tax and depreciation/amortization (EBITDA) 18,163 15,315 Income tax less tax on net foreign exchange gain/(loss) (2,366) (2,600) Gross Cash Flow 15,796 12,716

rECONCILIATION OF NET INCOmE AFTEr NON-CONTrOLLING INTErESTS TO GrOSS CASh FLOW

NOK millions 2011 2010

Net income attributable to shareholders of the parent 12,066 8,729 Non-controlling interests 24 64 Interest expense and foreign exchange gain/(loss) 1,033 1,625 Depreciation and amortization 2,677 2,440 Amortization of excess value in equity-accounted investees 48 71 Tax effect on foreign exchange gain/(loss) (52) (213) Gross Cash Flow 15,796 12,716

rECONCILIATION OF TOTAL ASSETS TO GrOSS INvESTmENTS 12 months average

NOK millions, except percentages 2011 2010

Total assets 68,409 64,839 Cash and cash equivalents (4,524) (2,615) Other liquid assets (346) (356) Deferred tax assets (1,640) (1,816) Fair value adjustment recognized in equity (1) (729) Other current liabilities (11,257) (9,699) Accumulated depreciation and amortization 24,844 23,650 Gross investment 12 months average 75,485 73,274

Cash Return on Gross Investment, CROGI 20.9% 17.4%

rECONCILIATION OF EBIT TO EBIT AFTEr TAx

NOK millions 2011 2010

Earnings before interest expense and tax (EBIT) 15,438 12,804 Income tax less tax on net foreign exchange gain/(loss) (2,366) (2,600) EBIT after tax (EBITAT) 13,071 10,204 WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara Financial Report 2011 Reconciliation of non-GAAP measures / 151

rECONCILIATION OF TOTAL ASSETS TO CApITAL EmpLOYED 12 months average

NOK millions, except percentages 2011 2010

Total assets 68,409 64,839 Cash and cash equivalents (4,524) (2,615) Other liquid assets (346) (356) Deferred tax assets (1,640) (1,816) Fair value adjustment recognized in equity (1) (729) Other current liabilities (11,257) (9,699) Capital employed 12 months average 50,640 49,624

Return on capital employed, ROCE 25.8% 20.6%

rECONCILIATION OF EBITDA TO INCOmE BEFOrE TAx AND NON-CONTrOLLING INTErESTS

NOK millions 2011 2010

EBITDA Downstream 5,085 7,796 EBITDA Industrial 2,001 1,135 EBITDA Upstream 11,446 5,975 EBITDA Other and eliminations (370) 410 EBITDA Yara 18,163 15,315 Depreciation, amortization and impairment loss (2,677) (2,440) Amortization of excess value in equity-accounted investees (48) (71) Interest expense (1,153) (1,207) Capitalized interest 46 54 Foreign exchange gain/(loss) (215) (676) Other financial income/expense, net 289 205 Income before tax and non-controlling interests 14,404 11,179

rECONCILIATION OF OpErATING INCOmE TO EBITDA

NOK millions 2011 2010

Operating Income 13,240 7,467 Share of net income in equity-accounted investees 1,889 1,515 Interest income 318 242 Dividends and net gain/(loss) on securities (9) 3,580 EBIT 15,438 12,804 Depreciation and amortization 1) 2,725 2,512 EBITDA 18,163 15,315

1) Including amortization of excess value in equity-accounted investees. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be 152 / Yara Financial Report 2011

Yara has signed the United Nations Global Compact, embracing its principles. The UN GC is a strategic policy initiative for businesses com­ mitted to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be financial calendar 2011

First quarter results / 27 April 2012 Annual General Meeting / 10 May 2012 Ex-dividend date / 11 May 2012 Dividend payment date / 23 May 2012 Second quarter results / 18 July 2012 Third quarter results / 19 October 2012 Fourth quarter results / 12 February 2013 our addresses headQuarTers: reGisTrar in norWay: dePosiTary Bank in The usa: Yara International AsA dnB Nor AsA JPMorgan Adr group Bygdøy allé 2 Verdipapirservice 4 New York Plaza, 13th Fl. P.O. Box 2464 solli stranden 21 New York, NY 10004 NO­0202 Oslo N­0021 Oslo UsA Norway Norway Phone (Us): 800­990­1135 Tel: + 47 24 15 70 00 Phone: +47 22 48 35 90 Phone (outside Us): +1­201­680­6630 Fax: + 47 24 15 70 01 Fax: +47 22 48 11 71 E­mail: [email protected] Web: www.yara.com Web: www.dnbnor.com Web: www.adr.com

Text: Yara, styrkr Photo: Ole Walter Jacobsen Concept: styrkr, Creuna design: Creuna Prepress: Artbox Print: Zoom­grafisk WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be Yara International ASA Bygdøy allé 2 P. O. Box 2464, Solli NO–0202 Oslo Norway Tel: +47 24 15 70 00 Fax: +47 24 15 70 01 www.yara.com

yara Pioneered mineral fertilizers a hundred years ago, creating impact within world agriculture – increasing yields, improv­ ing food security. Building on our industrial experience and leveraging our agricultural expertise, we have developed crop nutri­ tion concepts and environmental solutions, creating value for our shareholders and stakeholders, and for society at large.

As a world leader within agricultural productivity and environmental solutions, Yara remains determined to contribute solutions to some of the major global challenges of our time. Creating impact. Creating value. WorldReginfo - 333c0594-ce97-4086-8fb2-9a21163082be