Good afternoon from Oslo, and welcome to Yara's Third Quarter Results Presentation. Our presentation today will be by CEO, Svein Tore Rolsette CFO, Lars Roessegg and EVP, Africa and Asia, Fernando Lopez Larsson. We'll have a Q and A after the presentation. And with that, it's my pleasure to introduce CEO, Svein Toer de Wolseter.
Thank you very much, Toer, and good morning and good afternoon depending on where you're dialing in from. As usual, we'll start with safety, our number one priority. The TRI rate continued to be at a stable and low level despite the COVID-nineteen challenges. This is a slight improvement compared to a year earlier, and it's stable from the Q2. In order to deal with the COVID-nineteen, our entire organization works differently to limit the risk of spreading the virus, including running minimum manning on shifts and segregation of teams to reduce exposure.
This, of course, puts significant additional strain on the organization. And in light of this, I'm satisfied with our safety performance this quarter. Our long term goal of 0 injuries remains. Now let's take a look at the results. Our returns and cash flow continue to improve.
As a result of this, we're proposing an additional dividend of NOK 0.18 per share to be paid in the 4th quarter. Our return on invested capital has improved for the 9th quarter in a row, now at 7.9% compared with 6.1% a year earlier. Although Q3 saw lower market prices and somewhat lower total deliveries, we delivered record NPK volumes, in line with our strategy. Production also improved in the quarter, and we've broken the negative trend from previous quarters. Volumes are up, both for ammonia and finished fertilizer driven by better reliability in our plants.
Our total revenues and premiums this quarter were down year on year, mainly driven by lower urea prices and lower off season premiums in Europe. However, our crop nutrition focused business model continues to perform strongly, delivering record premium NPK volumes in the quarter. I would like to give credit to the entire As already mentioned, our positive cash flow trend continued this quarter, also when excluding the $1,000,000,000 in proceeds from the sale of our shares in Kafka. Our free cash flow is up for the 7th consecutive quarter. Our underlying free cash flow for the last 12 months is $1,500,000,000 higher versus a year earlier.
This reflects improvements both above and below the line, better cash flow from operations and lower investments. We recently made organizational changes to accelerate our ongoing transition towards sustainable solutions to the global food system. The structural changes we made back in May created operational units that drive commercial performance and continuous improvements, while the Farming Solutions Unit develops our future solutions and commercial models. Then in September, we announced 3 changes to the team. Lai, previously the EVP of Americas, took on a new role to strengthen our activities within green ammonia and initiate reviewing our asset base.
Christelle Montan, previously EVP for Africa and Asia, took on the role as EVP Americas. And Kristel has significant experience from developing commercial relationships with food chain companies, which is a key element to our strategy in the Americas. Fernando Lopez Larsson, previously our SVP for Indirect Procurement, took on the role as EVP Africa and Asia. And Fernanda will join the presentation shortly with an update on her region. Yara's crop nutrition solutions, premium products, agronomic knowledge and digital solutions help move the world towards a more sustainable global food system.
We have today published a Cicero Shades of Green report on Yara, where 38% of our revenues and 77% of our investments are classified as light green or medium green, meaning respectively environmentally friendly or supporting a transition to a low and climate low carbon and climate resilient future. We're glad to get this independent verification that our start point is good and that we are heading in the right direction. But at the same time, we have to be aware that the food industry needs a major transformation. I'll revert to this topic a little later in the presentation. Now I'll hand over to our CFO for a closer look at the financials this quarter.
Good morning, good afternoon to all of you. It's my pleasure to be able to share some more details on our financial performance. As mentioned, the EBITDA decreased by around 11% year over year, driven by lower nitrogen prices in the quarter. And correspondingly, the EPS excluding currency and special items decreased in the quarter, driven by the lower operating results. On the capital side, net operating capital decreased driven by lower receivables globally and lower inventories in Americas, and investments were also lower in the quarter.
Cash flow from operations increased compared to last year, continuing the trend over the past year of significant higher cash generation in our business. With improved total operating results, lower investments and lower operating capital, our return on invested capital has also shown a significant improvement. EBITDA, excluding special items, decreased by roughly $70,000,000 driven mainly by lower nitrogen prices, partly offset by the lower gas cost in the quarter. Positive volume effects on fertilizer were offset by a negative development for maritime, which has been particularly affected by COVID-nineteen. The negative other variance includes a fixed cost increase, although in line with our improvement target, the portfolio effect from sale of Kafka and the Trinidad closure and a number of smaller items, including higher white certificate income a year earlier.
Europe saw lower realized prices in the quarter, in particular for nitrates. This reflects that the Q3 is an off season quarter where incentives for prebuying have been limited with the situation where urea prices were increasing early on in the quarter. Deliveries were in line with the year earlier, which also was a slow off season quarter. The decline in operating result also explains the negative return on invested capital development in the quarter. As we're heading towards the European application season, we currently see a supportive global nitrogen market balance and food price environment with significant market demand to cover in the months to come in Europe.
And our objective is, of course, to optimize our total returns for the season as a whole. The Americas EBITDA was in line with last year, and higher deliveries in Latin America were partly offset by lower volumes in North America. On EBITDA, lower production margins were offset by lower fixed costs and local currency depreciation, while lower working capital and currency effects also supported the return development. Global plants, which comprises the and Hau plants, saw slightly lower production volumes in the quarter, driven by smaller outages. EBITDA was down with lower commodity prices and upgrading margins.
The return was up in the quarter, driven by positive one off effects from the Cavco transaction. Industrial Solutions delivered higher EBITDA in the quarter despite lower deliveries driven by improved commercial margins. Maritime is particularly impacted by reduced activity level as a result of COVID-nineteen. Overall demand for industrial nitrogen is gradually recovering. Underlying production for the quarter improved both for finished products and ammonia, and we are pleased to have reversed the negative trend we had up until the last quarter.
Our improvement efforts are continuing while also ensuring operational continuity through COVID-nineteen in order to reduce the risk of prolonged outages. Energy efficiency improved compared with 2019, mainly reflecting the Yara Trinidad closure at the end of 2019. Fixed costs were flat compared to a year earlier, in line with our ambition. On operating capital, we saw a significant positive cash flow effect in the quarter. However, we have a significant improvement opportunity in terms of reducing operating capital days.
In recent quarters, we have consciously built some inventory in the situation with attractive margins, and that has, of course, also contributed to the increase in operating capital days. Our overall committed investment level remains unchanged across 20202021 at a maximum of USD 2,200,000,000 However, and as mentioned in the second quarter, we expect some phasing into 2021 within the ranges that we have indicated today on this slide. The quarter saw a strong reduction in net interest bearing debt, and this was driven by positive cash earnings, lower operating capital, lower investments and the receipt of the CAFCO proceeds. We are strongly committed to capital discipline and our capital allocation policy, which we introduced last year. And Yara's cash returns are outpacing industry peers, including the proposed additional dividend and already announced buybacks we have in 2020 paid and committed approximately NOK 53 per share to our shareholders.
We are proud to see that our efforts on governance and reporting are being recognized with good ratings from Cicero and the Governance Group. And we are also expecting a full integration of the TCFD recommendations in 2021. It's however important to note that we see governance reporting as a tool to driving underlying performance forward across both people, planet and prosperity. And we sincerely look forward to elaborating on our performance and plans forward during the upcoming ESG Investor Seminar on the 7th December. This concludes my part of the presentation, and it is my privilege to hand over to my colleague, Fernanda.
Thank you, Lars. Good morning and good afternoon to all of you watching this webcast. I am Fernando Lopez Larsen, the EVP for Asia and Africa. And before we go into the results, I'd like to give you a brief introduction of my region. Africa and Asia is a very diverse segment.
We have operations actually spread across 3 continents and not 2. We are present in Africa, in Asia, but also in Oceania because we have operations in Australia and New Zealand as well. And we have a very wide ranging customer base, ranging from smallholder farmers to very large professional farmers as the ones we see in South Africa and also Australia and New Zealand. Almost half of our sales are actually premium products, mainly NPKs. Our largest markets are in Asia, India, Thailand and China, and they account for more than 60% of our deliveries.
We serve many crops with our products and solutions, the main ones being rice, corn, sugarcane and potato. We are transforming Africa and Asia in line with Yara's strategy, and our focus is twofold. We want to increase efficiency, basically doing more with less. We want to extend our commercial excellence and our operational excellence as well. And we want to expand from our base with digital offerings, implementing new revenue models and also market channels together with our colleagues in Farming Solutions.
If I look a bit into the numbers now, we have had a strong premium product growth this quarter, especially in our key markets in China and Thailand. Although the total revenues were impacted by lower commodity trade volumes, Our EBITDA is up by 27% compared to last year. And the margins are significantly stronger, of course, because of the premium products. Our ROIC has come a long way from lower levels. And now as a result of the ramp up that we have in Pilbara TAN plant, we see improved results.
Actually, if we exclude Pilbara, our ROIC is 12% in the last 12 months. I'm particularly pleased about this slide, particularly pleased to see the growth that we see in NPK delivers this quarter, and this is in line with our strategic focus. And also, this is what is driving the positive EBITDA development this quarter for this region. However, our production volumes are lower, mainly due to downtimes that we have experienced in our ammonia plant in Pilbara. India as a country, as you all know, has been particularly hit by COVID-nineteen.
However, our Babrala plant, which is located in India, is performing really well without significant disruptions. And our TAN plant, as I mentioned, has reached completion and is now ramping up production, currently running at around 80% capacity. So I now hand back to Svein Tore for his closing
remarks.
Thank you very much, Fernando. Running up then, we continue to see attractive prospects for our business. Firstly, we see attractive opportunities for Yara to develop its solutions to address the significant resource and environmentally environmental challenges in global agriculture. We have a focused strategy building on our leading premium product and market position to deliver sustainable solutions to the global food system. And we have a strong track record with 9 consecutive quarters of return on invested capital growth and $1,500,000,000 of free cash flow from operations in the last four quarters.
We look forward to holding our ESG Investor Seminar on 7th December, where we will go deeper into the opportunities that we see within Farming and Food Chain Solutions, our efforts to decarbonize fertilizer production and our road map and KPIs to drive sustainable value creation. We're also happy to announce that our keynote speaker will be Paul Polman, Co Founder and Chair of Imagine. I'll now hand over to Thor, who will organize the Q and A session. Thank
you.
We have already quite a few questions sent in from the audience. So I will try as best as I can to allocate them out to our panel. So I suggest we start with a couple of questions for the CFO. It's about our dividend, and it's partly the first one is, please detail the composition of the SEK 53 per share that we mentioned. And also a related question, whether this is a cash dividend.
Yes. Thanks for that. So the NOK 53 per share, that comprises the ordinary dividend from May of NOK 15 per share. The additional dividend announced today of NOK 18, it's the buyback program of approximately NOK 18 per share. And in addition, we did some buybacks in the Q1 of 2020.
So that's totaling the SEK 53,000,000,000 and it is indeed a cash dividend.
And I can add because we've had a few questions into that also to IR that we are aiming for an EDM mid November and with a payment date towards the end of November. There's also a question on working capital guidance for Q4. I think I will just say that and feel free to contact IR on this afterwards. But I think if you look at the previous year because it's important to take account of the season and then plug in your price assumptions versus last year, that's a good start point. But as you said as I said, feel free to contact us if you want to discuss in more detail.
Then I think we have a COVID-nineteen related question, which is let's see. Yes. Has the company put up any plan or strategy in case of a scenario where COVID-nineteen hits us in future?
I think it's already hit everyone quite hard, and I don't think any organization was fully prepared for what happened at the end of last year and the beginning of this year, continuing up until today. So I'll focus more on the response then. And I think our organization's response to this situation has been tremendous. Building, of course, on a very strong safety culture and a systematic way of working with that over a number of years. I mean, we went through the results earlier to transition the capabilities that we have within that to deal with COVID-nineteen has been quite rapid.
And each and every one of our employees have stepped up. I think this is a clear result of Yara being a purpose driven company. We know that what we do matters. Half of the world's population is fed by fertilizers, and that says something about the importance of what we do. And that means that the response from everyone in our organization has been to keep production running, get the product out to our customers to keep the food system going.
That has allowed us to first, help secure food supply, but also to continue to add various levels of safety net within our own organization, such as a global policy for paid sick leave and also income security. And I've been really pleased with all the local initiatives in the communities where we operate And also on a global scale, where we made an announcement back in early summer that we would donate 40,000 tonnes of NPK fertilizer to Africa. And the impact of that those 40,000 tons of fertilizer is being able to produce food to feed 1,000,000 people for 1 year. And maybe even more importantly, also helping farmers to connect digitally to help them on agronomic advice going forward. This will likely continue.
We as an organization are prepared to deal with it and we'll continue to focus on that and make sure that we do our part in both protecting our own employees, being responsible in the society and keep the food system going.
Thank you, Sven and Oudio. I have a couple that I think will go to Terje Knutsen. One is whether you can provide an update on digital. And then there's 2 that have asked a similar question on green ammonia and specifically on the Sloyskill project with Oersted, asking how we will accommodate the higher cost of this input and to what extent the project can be subject to public support.
Yes. So first to digital. I'm very pleased with the progress that we have. We are working at many fronts at the same time. We didn't cover it in this quarterly report, but that's partly because we will have a more holistic presentation of the topic at the ESG seminar on the 7th December.
But since Svein Tore brought up Action Africa, maybe I can use that as an example of the progress we are making. As was said by Sven Thore, we were looking at how we could basically contribute to society, and we decided to donate 40,000 tonnes of NPK premium fertilizer to East of Africa. But when we did that, we decided also to use this opportunity to connect that with the digital development. And now 12 weeks later, we have been able to connect with the 2,000,000 farmers in East Africa digitally, meaning that we can trace and track the fertilizer from our plant in Norway, Porchkruen, to the specific plot and farm in East Africa. And this just shows in a short period of time what is possible to achieve and we think that, that kind of gives us another example of quite unique possibilities that this can give in terms of building and large business models going forward.
But we will tell more about that on the 7th December. Yes, and then turning to quite different topic. That's the exciting part of my job these days, trying to transform Iara into the future that we work on many fronts from digital to green ammonia. Green ammonia, quite exciting because as we have tried to work towards now for quite some time, we want to be a provider of sustainable solutions to the future food system. And a part of that is to try to decarbonize the full value chain, both in terms of production, the upstream part, but definitely also the downstream part, making sure that we have a better nutrient use efficiency.
Concretely in we have gone together with Oersted to plan for a project of 100 Megawatt, which would give 75,000 tonnes of ammonia, which if that would be all used for green fertilizer, would be around 500,000 hectares of fully decarbonized input to those fields. There is a fact that green hydrogen to green ammonia is more costly, and we see this as an invitation also to public funding and that this needs to be driven in collaboration between public and private sector. We do foresee that cost over time for green hydrogen will come down like we have seen in the renewable energy sector. But I think presently, it's unrealistic to have such a project really moving in to realization without partnering with public funding. So we are seeking, among others, the EU Innovation Fund as a means to cover the gap between conventional and green technology.
If I could add, I think hydrogen is a very important part of reaching an energy sector that is with 0 emissions. And in that context, ammonia will play an important role as well because hydrogen is a very light gas. And if you want to travel distances or store it, it's not ideal as hydrogen, but when you convert it to ammonia, you get a more energy dense solution that travels better. So in many ways, you can think about ammonia as the battery for hydrogen. And being one of the largest producers of ammonia in the world and including logistics, we definitely have a role to play and we play a role in that space.
Okay. Switching gears, we have a couple of questions on the global nitrogen pricing and supply demand balance. I'll try to ask 3 questions, and then we can repeat if needed. And maybe, Svein, you can allocate around as you see fit. So the first one, there was a hope a few months ago that global nitrogen price levels would be higher now.
What are the main reasons why prices have disappointed? And can this reverse? Actually, let's start with that one. I won't go to the other 2 next.
Yes, of course. So I think short term, we have always seen and we will see volatility. But what I think is an important element to note here is that normally we see that onethree of planned expansions is on time, while twothree are either delayed or canceled. In addition to that, we always observe that around 50% of the capacity is more than 30 years old with the challenges that presents on reliability. So overall, I would say that I find that to be fundamentally supportive.
That's a probably a good lead into one of the other questions, which was can you please add some color on why you say there is a higher than normal risk for project delays? Yes.
I can maybe answer a bit on that one as well. So we are in a very special year with COVID-nineteen. And that, of course, restricts travel. And of course, health and safety will always come first in the way we approach our projects. So by definition, that will also increase the risk on projects, both for us as a company.
But if I look at the nitrogen market more generally, I think the same logic applies there.
And let's see, there was the yes, there's also a question. What is our urea demand outlook for 2021? Was 2020 above or below trend? Or was there any stock build in 2020? What's your outlook on India urea consumption in 2021?
I say this is one question, but it was 4. I think perhaps we've answered the 2021 in part regarding the risks of delays and so on. Should we add anything to that?
I think we touched on that. With regards to India and the inventory situation, I don't see that there's been any significant inventory buildup and the while we don't have all the results from the last tender, I believe that was 2,100,000 to 2,200,000 tons with the delivery to up until November 16. So I don't see anything out of the ordinary with that.
Good. Thank you. Now we have some let me see bring them into the queue here. A few questions on nitrates and NPKs. Let me see if we can.
Okay. So we have seen pressure on nitrate premiums in Europe, but Q3 has seen a strong rally in commodity phosphate prices. Will this weigh on NPK premiums in 4th quarter? I mean, I could maybe, as an initial comment here that when you measure premiums, if phosphate or urea prices increase, that on your measure reduces the premium, all other things equal. But over time, we tend to match this with our own pricing.
The other one on Europe is low nitrate inventories in Europe compared to previous season. What are your thoughts on pricing for the upcoming buying season in Europe for nitrates?
I'm trying to stay focused on transforming Yara, but always interesting to follow the market, of course. So Q3 is a typical off season quarter, and there is substantial market lift. So I think in a way, what we typically see is that the running up to the peak of the season is quite important. So I think looking forward now, the trend on nitrogen prices and more globally, the utilization and the demand there will obviously dictate price to some extent into Europe. We always try to manage this by the season, and that's definitely our target also for the coming season.
And as such, we see the situation now as quite normal, I would say, and exciting times during the next months, how well we both hit with tactics and obviously in the setting of a global market.
Okay. Still some questions coming in. I have one which may go to you, Sven Tore. It's what is the status of your unmanned Yara Bilqilan project?
Well, as we announced in connection with our Q1 results, key for Yara in this situation is is to have some main priorities. And the first one was to the safety of our employees secondly, to support the local communities where we operate to reduce the risk of the virus and then 3, to keep the supply chains going to support the food system. And then we went through our entire project portfolio to see what was most important to the core and to driving those 3 top priorities. And given the complexity of Yara Birkland and the need to get expertise in to support that, we decided to put that on a slower pace for a while. While it's still being finalized at the wider that at the moment, but we're progressing that slower than we would under normal circumstances.
Thank you, Santolio. We have a question on Africa and Asia for Fernanda. What is the potential for premium products in this region?
I think it's huge. We already have a very good footprint when it comes to premium products. And of course, we can expand that even more. And I think that is something that we'll look heavily, in the years to come, together with farming solutions as well, helping us in offering better solutions, not only the product but also digital solutions together with that.
Very good. Thank you. One for the CFO. What are your expectations for 2020 2021 CapEx given that year to date is running meaningfully below last year?
Yes. So as we also touched on in the presentation, we do see some phasing effects. So what we've been very clear on is that there is no change to our committed CapEx for 20202021 combined, which is at the maximum of SEK 2,200,000,000. But we do expect within the ranges we also indicated in the presentation, some phasing towards 2021 on that.
I think we there are a couple of questions in the queue that I think we can take are more detailed and can be taken direct with IR. But I have one more that I think we can take now, and that is on dividend, ordinary versus special. It's the question is, should we take this year's split between special dividend and buyback as a good proxy or guide, I guess, for the future of any cash returns over and above the ordinary dividend?
Yes. So I think we have a very clear capital allocation policy, which we stick with here, where we said that dividend is our primary channel, and then we do supplementary buybacks and then guided by the mid- to long term 1.5% to 2% net debt to EBITDA range.
Thank you, Lars. I think we will round off at that point. If you have either submitted a question or think of a question later on, please feel free to contact me or anyone else in the IR team. But with that, thank you very much for attending our Q3 presentation.