Good afternoon from Oslo, and welcome to Yara's third quarter results presentation. Our presentation today will be by CEO Svein Tore Holsether, CFO Lars Røsæg, and EVP Africa and Asia, Fernanda Lopes Larsen. We'll have a Q&A after the presentation. With that, it's my pleasure to introduce CEO Svein Tore Holsether.
Thank you very much, Thor, 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-19 challenges. This is a slight improvement compared to a year earlier, it's stable from the second quarter. In order to deal with the COVID-19, 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 a significant additional strain on the organization. In light of this, I'm satisfied with our safety performance this quarter. Our long-term goal of zero injuries remains. 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 18 per share to be paid in the fourth quarter. Our return on invested capital has improved for the ninth quarter in a row, now at 7.9%, compared with 6.1% a year earlier. Although the third quarter 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, 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 Yara organization for another solid effort in a demanding environment. As already mentioned, our positive cash flow trend continued this quarter, also when excluding the $1 billion in proceeds from the sale of our shares in QAFCO. Our free cash flow is up for the seventh consecutive quarter. Our underlying free cash flow for the last 12 months is $1.5 billion 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. In September, we announced three changes to the team.
Lair, previously the EVP of Americas, took on a new role to strengthen our activities within green ammonia and initiate reviewing our asset base. Chrystel Monthean, previously EVP for Africa and Asia, took on the role as EVP Americas. Chrystel has significant experience from developing commercial relationships with food chain companies, which is a key element to our strategy in the Americas. Fernanda Lopes Larsen, previously our SVP for Indirect Procurement, took on the role as EVP Africa and Asia. 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 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. 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. 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. Correspondingly, the EPS excluding currency and special items decreased in the quarter, driven by the lower operating result. On the capital side, net operating capital decreased, driven by low receivables globally and lower inventories in Americas. 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 million, 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-19. The negative other variance includes a fixed cost increase, although in line with our improvement target, the portfolio effect from sale of QAFCO 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 third quarter is an off-season quarter, where incentives for pre-buying 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. 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 Sluiskil, Porsgrunn, and Hull 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 QAFCO transaction. Industrial Solutions delivered higher EBITDA in the quarter despite lower deliveries, driven by improved commercial margins. Maritime is particularly impacted by a reduced activity level as a result of COVID-19. 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-19, 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 a situation with attractive margins, that has, of course, also contributed to the increase in operating capital days. Our overall committed investment level remains unchanged across 2020 and 2021 at a maximum of $ 2.2 billion. However, 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, this was driven by positive cash earnings, lower operating capital, lower investments, and the receipt of the QAFCO proceeds. We are strongly committed to capital discipline and our capital allocation policy, which we introduced last year.
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, we are also expecting 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 of 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 Fernanda Lopes Larsen, the EVP for Asia and Africa . 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 three continents and not two. We are present in Africa, in Asia, but also in Oceania because we have operations in Australia and New Zealand as well. 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. 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. 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 you 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. The margins are significantly stronger, of course, because of the premium products.
Our ROIC has come a long way from lower levels. 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 deliveries this quarter. 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-19. However, our Babrala plant, which is located in India, is performing really well without significant disruptions.
Our TAN plant, as I mentioned, has reached completion and is now ramping up production, currently running at around 80% capacity. I now hand back to Svein Tore for his closing remarks.
Thank you very much, Fernanda. Rounding up, 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 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. We have a strong track record with nine consecutive quarters of return on invested capital growth and $1.5 billion of free cash flow from operations in the last four quarters. We look forward to holding our ESG Investor Seminar on the 7th of 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 roadmap 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&A session. Thank you.
Thank you, Svein Tore. We have already quite a few questions sent in from the audience, I will try as best as I can to allocate them out to our panel. I suggest we start with a couple of questions for the CFO. It's about our dividend, and the first one is, please detail the composition of the 53 NOK per share that we mentioned, and also a related question, whether this is a cash dividend?
Yeah, thanks for that. The NOK 53 per share 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 first quarter of 2020. That's totaling the NOK 53, and it is indeed a cash dividend.
I can add, because we've had a few questions into that also to IR, that we are aiming for an EGM mid-November, and with a payment date towards the end of November. There's also a question on working capital guidance for fourth quarter. 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. As I said, feel free to contact us if you want to discuss in more detail. I think we have a COVID-19 related question. Yes. Has the company put up any plan or strategy in case of a scenario where COVID-19 hits us in the 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. I'll focus more on the response then. 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, and we went through the results earlier to transition the capabilities that we have within that to deal with COVID-19 has been quite rapid. 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, that says something about the importance of what we do. 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. 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 tons of NPK fertilizer to Africa.
The impact of those 40,000 tons of fertilizer is being able to produce food to feed 1 million people for one 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 will 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, Svein Tore. 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 two that have asked a similar question on green ammonia, and specifically on the Sluiskil project with Ørsted, asking how we will accommodate the higher cost of this input, and to what extent the project can be subject to public support?
Yes. 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 Investor Seminar on the 7th of 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 Svein Tore, we were looking at how we could basically contribute to society, and we decided to donate 40,000 tons of NPK premium fertilizer to East Africa. But when we did that, we decided also to use this opportunity to connect that with the digital development.
Now, 12 weeks later, we have been able to connect with the 2 million farmers in East Africa digitally, meaning that we can trace and track the fertilizer from our plant in Norway, Porsgrunn, to the specific plot and farm in East Africa. This just shows in a short period of time what is possible to achieve. We think that that gives us another example of quite unique possibilities that this can give in terms of building enlarged business models going forward. We will tell more about that on the 7th of December. Turning to a quite different topic that's the exciting part of my job these days, trying to transform Yara 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. 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 Sluiskil, we have gone together with Ørsted to plan for a project of 100 MW, which would give 75,000 tons 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. I think presently it's unrealistic to have such a project really moving into realization without partnering with public funding. 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 zero emissions. 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 is not ideal as hydrogen. When you convert it to ammonia, you get a more energy dense solution that travels better. 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 three questions and then we can repeat if needed and maybe, Svein Tore, you can allocate around as you see fit. 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? Can this reverse? Actually, let's start with that one. I won't go to the other two next.
Yeah, of course. I think short term, we have always seen, and we will see volatility. What I think is an important element to note here is that normally we see that 1/3 of planned expansions is on time while 2/3 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. Overall, I would say that I find that to be fundamentally supportive.
That's 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?
Yeah, I can maybe answer a bit on that one as well. We are in a very special year with COVID-19, and that of course restricts travel. Of course, health and safety will always come first in the way we approach our projects. 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.
Let's see. 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 four. 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. While we don't have all the results from the last tender, I believe that was 2.1 million-2.2 million tons with the delivery up until November 16th. I don't see anything out of the ordinary with that.
Good. Thank you. Let me see. Bring them into the queue here. A few questions on nitrates and NPKs. Let me see if we get this. Okay. We have seen pressure on nitrate premiums in Europe, but third quarter has seen a strong rally in commodity phosphate prices. Will this weigh on NPK premiums in fourth quarter? 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. Over time, we tend to match this with our own pricing. Don't know if there's anything to add.
I think answered.
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?
You want to?
I'm trying to stay focused on transforming Yara, always interesting to follow the market, of course. Third quarter is a typical off-season quarter, and there is substantial market left. I think in a way, what we typically see is that the running up to the peak of the season is quite important. 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. Yeah. 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, Svein Tore. It's what is the status of your unmanned Yara Birkeland project?
As we announced in connection with our first quarter results, key for Yara in this situation is to have some main priorities. The first one was the safety of our employees. Secondly, to support the local communities where we operate to reduce the risk of the virus. Three, to keep the supply chains going to support the food system. We went through our entire project portfolio to see what was most important to the core and to driving those three top priorities. Given the complexity of Yara Birkeland 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 moment, we're progressing that slower than we would under normal circumstances.
Thank you, Svein Tore. We have a question on Africa and Asia for Fernanda. What is the potential for premium products in this region?
I think it is huge. We already have a very good footprint when it comes to premium products, and of course, we can expand that even more. I think that is something that will 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 and 2021 CapEx, given that year -to -date is running meaningfully below last year?
As we also touched on in the presentation, we do see some phasing effects. What we've been very clear on is that there is no change to our committed CapEx for 2020 and 2021 combined, which is at a maximum of $ 2.2 billion. But we do expect within the ranges we also indicated in the presentation, some phasing towards 2021 on that. Yeah.
There are a couple of questions in the queue that I think 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. The question is, should we take this year's split between special dividend and buyback as a good proxy or a guide, I guess, for the future of any cash returns over and above the ordinary dividend?
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, 1.5x-2.0x 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. With that, thank you very much for attending our third quarter presentation.