Yara International ASA Results

Bygdøy Allé 2 PO Box 2464 Solli N-0202 Oslo, Norway T +47 24 15 70 00 F +47 24 15 70 01 www.yara.com

2007

2006

57,486 4,987 8,441 6,037

48,261 3,352 6,472 4,188

Investments (NOK millions) 3) Debt/equity (%) 4) Cash flow from operations (NOK millions)

7,797 42 4,305

4,443 33 3,854

CROGI 5) Earnings per share (NOK)

16.1 20.60

14.1 13.86

21,201 251.50

16,034 141.75

8,173 1.4

7,060 1.3

Revenues and other income (NOK millions) Operating income (NOK millions) EBITDA (NOK millions) 1) Net income (NOK millions) 2)

Financial Review 2007

2)

YARA FINANCIAL REvIEw 2007

Shareholder’s equity (NOK millions) Share price (NOK) on Oslo Stock Exchange 31.12 Number of employees (year end) LTI 6)

Footnotes: 1) EBITDA: Earnings before Interest, Tax, Depreciation, and Amortization. 2) Reported net income after minority interest. 3) Investment in property, plant and equipment, long-term securities, intangibles, long-term advances and investments in non-consolidated investees. 4) Net interest-bearing debt divided by shareholders’ equity plus minority interest. 5) CROGI: Cash Return on Gross Investment. 6) Lost time injury rate per million hours worked, both Yara employees and contractors.

2007 Revenue

NOK 57.5 billion

19 %

EBITDA (NOK millions)

REVENUES

30 % 44 % EBITDA

NET INCOME

8,441 6,108

6,618

6,472

4,671

03

Knowledge grows

04

05

06

07

Another good year Yara reported record high results in 2007 with net income reaching NOK 6 billion.

Yara International ASA Results

Bygdøy Allé 2 PO Box 2464 Solli N-0202 Oslo, Norway T +47 24 15 70 00 F +47 24 15 70 01 www.yara.com

2007

2006

57,486 4,987 8,441 6,037

48,261 3,352 6,472 4,188

Investments (NOK millions) 3) Debt/equity (%) 4) Cash flow from operations (NOK millions)

7,797 42 4,305

4,443 33 3,854

CROGI 5) Earnings per share (NOK)

16.1 20.60

14.1 13.86

21,201 251.50

16,034 141.75

8,173 1.4

7,060 1.3

Revenues and other income (NOK millions) Operating income (NOK millions) EBITDA (NOK millions) 1) Net income (NOK millions) 2)

Financial Review 2007

2)

YARA FINANCIAL REvIEw 2007

Shareholder’s equity (NOK millions) Share price (NOK) on Oslo Stock Exchange 31.12 Number of employees (year end) LTI 6)

Footnotes: 1) EBITDA: Earnings before Interest, Tax, Depreciation, and Amortization. 2) Reported net income after minority interest. 3) Investment in property, plant and equipment, long-term securities, intangibles, long-term advances and investments in non-consolidated investees. 4) Net interest-bearing debt divided by shareholders’ equity plus minority interest. 5) CROGI: Cash Return on Gross Investment. 6) Lost time injury rate per million hours worked, both Yara employees and contractors.

2007 Revenue

NOK 57.5 billion

19 %

EBITDA (NOK millions)

REVENUES

30 % 44 % EBITDA

NET INCOME

8,441 6,108

6,618

6,472

4,671

03

Knowledge grows

04

05

06

07

Another good year Yara reported record high results in 2007 with net income reaching NOK 6 billion.

4

Yara Financial Review 2007 Letter from the CEO

5

Cultivating business growth Since its Stock Exchange listing in 2004, Yara has delivered an average annual shareholder return of 65 %. 2007 was another good year with a total shareholder return of 80 %. Yara’s unique business model balances a world-class manufacturing base with a global sales and distribution network. This has enabled Yara to deliver another year with strong results: the company handled 25 million tons of products and generated record revenues and profits in 2007. In a global business environment characterized by strong demand drivers, Yara is better positioned than ever to grow its business and deliver strong financial performance. 2007 saw several important strategic initiatives including the acquisition of Kemira GrowHow, and a decision to upgrade urea production at the plant in the Netherlands, both of which strengthen the company’s global position. Yara’s expanded production base and phosphates business enhance competitivity and strengthens its premium offering of nutrients to customers. Yara also made further progress in expanding in regions with access to competitively priced gas with the signing of a joint venture agreement in Libya and through the initiation of the construction of new ammonia and urea capacity in Qatar. Yara continued to make new strides in the environmental area both in terms of reducing its own footprint with 1.7 million tons of CO2 equivalents as well as through innovative approaches to solve complex environmental challenges as exemplified through the establishment of Yarwill, a new JV company that offers solutions to reduce toxic emissions from shipping activities.

Growing stronger for the future Yara’s business performance over this past year demonstrates again the attractiveness of our industry and the seriousness with which we pursue our growth ambition. We have continued to grow through 2007, with return on capital well above our 10 % target. Our fertilizer margins have increased substantially in a strong demand-driven market fuelled by higher grain prices, while our sales volumes rose by 10 %. Our Industrial segment showed growth across all product areas and our plants supported sales by delivering good production performance. This was achieved as we strengthened our strategic position through a number of step-growth initiatives including the successful acquisition of Kemira GrowHow, where we improved our sourcing of phosphate, strengthened our position in balanced fertilization and added competence and expertise to our organization. Going forward we see a number of fundamentals in the global market that are favorable for our business: global grain inventories continue to drop while new fertilizer production capacity is limited by higher construction cost and increased gas cost. At the same time, we see increased demand for fertilizer driven by population growth, an increased focus in developing nations on protein-rich diets, higher consumption of fruit and vegetables and increased demand for biofuels. Moreover the increased global focus on ecological balance and stricter environmental legislation opens new business opportunities for our Industrial applications. We are confidant Yara will benefit from these developments. We want to take a proactive approch to environmental performance both in the way we operate and the impact our products and appli-

cations have for our customers and end-users. Our business model remains unique in balancing global market demand with costeffective production. No other fertilizer company has our global scale upstream in combination with industrial activities and a worldwide marketing and distribution network. Yara’s performance for the past five years places us amongst the best in the chemical industry and with a leadership position in our own markets. This consistent year-on-year improvement has built a growing recognition of the Yara brand and today the viking ship logo means reliability, quality and competence to our stakeholders around the world. The short- and long-term outlook for the company is better than ever. We are well positiond to take advantage of the growing opportunities in an attractive industry. Our performance driven culture is based on the strong belief that we can continue to improve in all of our operations. We will never rest on our laurels and will always look for ways to improve our business and our performance. This is after all the most important factor that will continue to drive our Company forward.

Thorleif Enger, President and CEO

143

Global industry leadership

Unique business model

Yara is a leading chemical company that converts energy, natural minerals and nitrogen from the air into essential products for farmers and industrial customers. As the number one global supplier of mineral fertilizers and agronomic solutions, Yara helps provide food and bioenergy for a growing and more affluent world population. The company’s industrial product portfolio includes environmental protection agents that safeguard air and water purity and preserve food quality.

Yara has developed a unique business model built on the complementary strengths and risk profiles of the three business segments Downstream (fertilizer application), Industrial (industrial application) and Upstream (global manufacturing) - see pages 26-27 for an overweiv of the segments. By balancing demand for plant nutrition with a world-scale manufacturing base, a unique global marketing and distribution network and a comprehensive product offering, Yara’s business model mitigates cyclicality and spurs innovation in higher-margin products.

vision

Mission

2008 Quarterly Earnings Release Dates

Strategy Downstream

Aim for industry shaper performance

Strive for better yield

Leverage unique position

Business concepts that exploit combined strength

Upstream

Industrial

First quarter – 18 April 2008 Second quarter – 15 July 2008 Third quarter – 17 October 2008

Yara is uniquely equipped, and committed to driving industry shaping performance through operational excel­ lence, profitable growth and people development. Yara’s safety and environmental record shall be of the highest standard.

Yara will deliver good returns for farmers and industrial customers, and returns that create satisfied owners.

Yara will grow profitably and sustainably via its six pillars of strength and unique business model.

Six pillars of strength

Global #1 in ammonia Leadership in the ammonia value chain and a large-scale ammonia/urea production base in low-cost natural gas regions.

Global #1 in nitrates Leadingmarket market position position in Leading in nitrates. nitrates in Europe.

Global #1 in NPK Adding value to farmers through balanced fertilization.

Global #1 in speciality fertilizers

Global #1 in nitrogen applications

Global #1 in marketing and distribution

Targeting speciality fertilizers for high-margin cash crop segments in fast growing markets.

Developing higher margin industrial applications from existing production base.

Global marketing and distribution network with economies of scale delivering expertise on all continents.

“Added-value market pull” Scale advantage Balanced fertilization Unique market position Strong brand value Crop/application focus

Change management skills Global optimization Supply flexibility Trade and arbitrage opportunities

“Low-cost product push” Favourable gas cost Scale advantage Ammonia position Product quality Capacity utilization

world-scale production

Knowledge margin

Financial Strength

Yara’s production and trade business is built around worldscale plants and critical mass in ammonia and fertilizer trade. Third party sourcing enables optimal utilization of own production assets and gives flexibility in adjusting to global supply and demand balances.

Yara has developed a unique knowledge margin via its strong focus on innovation, marketing partnerships and close customer relationships. Yara’s strong brands help differentiate its products from the commodity market.

Yara has delivered strong results, based on high and stable profitability, a unique business model and global presence.

Global coverage Yars has a physical presence in 50 and sales to 120 countries and an unrivalled global coverage that enables smooth operations, reduces risks and opens up for arbitrage opportunities.

Performance culture Yara’s focus on a performanceoriented business culture is based the core values of teamwork, accountability, trust and ambition. The diversity of Yara’s employees together with common values and goals are key determinants of performance.

Attractive industry Population growth, economic growth and increased focus on biofuels are driving demand for fertilizers while stricter environmental legislation is pushing demand for industrial applications.

Concept and design: Grow Prepress: Artbox Photo: Ole Walter Jacobsen Front Cover, Back Cover and Page 2: Morocco, agriculture landscape © Yann Arthus -Bertrand (Altitude) Page 3: Equator, agriculture landscape © Yann Arthus -Bertrand (Altitude) Print: Pro-X

143

Global industry leadership

Unique business model

Yara is a leading chemical company that converts energy, natural minerals and nitrogen from the air into essential products for farmers and industrial customers. As the number one global supplier of mineral fertilizers and agronomic solutions, Yara helps provide food and bioenergy for a growing and more affluent world population. The company’s industrial product portfolio includes environmental protection agents that safeguard air and water purity and preserve food quality.

Yara has developed a unique business model built on the complementary strengths and risk profiles of the three business segments Downstream (fertilizer application), Industrial (industrial application) and Upstream (global manufacturing) - see pages 26-27 for an overweiv of the segments. By balancing demand for plant nutrition with a world-scale manufacturing base, a unique global marketing and distribution network and a comprehensive prod­ uct offering, Yara’s business model mitigates cyclicality and spurs innovation in higher-margin products.

vision

Mission

2008 Quarterly Earnings Release Dates

Strategy Downstream

Aim for industry shaper performance

Strive for better yield

Leverage unique position

Business concepts that exploit combined strength

Upstream

Industrial

First quarter – 18 April 2008 Second quarter – 15 July 2008 Third quarter – 17 October 2008

Yara is uniquely equipped, and committed to driving industry shaping performance through operational excellence, profitable growth and people development. Yara’s safety and environmental record shall be of the highest standard.

Yara will deliver good returns for farmers and industrial customers, and returns that create satisfied owners.

Yara will grow profitably and sustainably via its six pillars of strength and unique business model.

Six pillars of strength

Global #1 in ammonia Leadership in the ammonia value chain and a large-scale ammonia/urea production base in low-cost natural gas regions.

Global #1 in nitrates Leadingmarket market position position in Leading in nitrates. nitrates in Europe.

Global #1 in NPK Adding value to farmers through balanced fertilization.

Global #1 in speciality fertilizers

Global #1 in nitrogen applications

Global #1 in marketing and distribution

Targeting speciality fertilizers for high-margin cash crop segments in fast growing markets.

Developing higher margin industrial applications from existing production base.

Global marketing and distribution network with economies of scale delivering expertise on all continents.

“Added-value market pull” Scale advantage Balanced fertilization Unique market position Strong brand value Crop/application focus

Change management skills Global optimization Supply flexibility Trade and arbitrage opportunities

“Low-cost product push” Favourable gas cost Scale advantage Ammonia position Product quality Capacity utilization

world-scale production

Knowledge margin

Financial Strength

Yara’s production and trade business is built around worldscale plants and critical mass in ammonia and fertilizer trade. Third party sourcing enables optimal utilization of own production assets and gives flexibility in adjusting to global supply and demand balances.

Yara has developed a unique knowledge margin via its strong focus on innovation, marketing partnerships and close customer relationships. Yara’s strong brands help differentiate its products from the commodity market.

Yara has delivered strong results, based on high and stable profitability, a unique business model and global presence.

Global coverage Yars has a physical presence in 50 and sales to 120 countries and an unrivalled global coverage that enables smooth operations, reduces risks and opens up for arbitrage opportunities.

Performance culture Yara’s focus on a performanceoriented business culture is based the core values of teamwork, accountability, trust and ambition. The diversity of Yara’s employees together with common values and goals are key determinants of performance.

Attractive industry Population growth, economic growth and increased focus on biofuels are driving demand for fertilizers while stricter environmental legislation is pushing demand for industrial applications.

Concept and design: Grow Prepress: Artbox Photo: Ole Walter Jacobsen Front Cover, Back Cover and Page 2: Morocco, agriculture landscape © Yann Arthus -Bertrand (Altitude) Page 3: Equator, agriculture landscape © Yann Arthus -Bertrand (Altitude) Print: Pro-X

6

Goals for long term value creation

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Profitability

Relative Competitiveness

Solidity

Cash Return

Growth in Low Cost Gas Supply

Overall Growth

Environment

Corporate Citizenship

Employee Safety

Employee Satisfaction

Yara’s target is to deliver a Cash Return On Gross Investment (CROGI) of more than 10 % as an average over the business cycle. CROGI is an after-tax return on capital measured with the original acquisition cost of assets as the measure of capital.

Yara aims to deliver a Gross Return (EBITDA/ Total Assets) in the top quartile of a peer group of leading chemical companies.

Yara targets a mid investment grade credit rating, i.e. minimum BBB according to Standard & Poor’s methodology.

Yara expects the cash return to the shareholders to average 40 - 45 % of net income over the cycle. Dividends should be minimum 30 % of average net income, while share buy-backs will constitute the rest.

Yara’s target is to increase its proportion of production in lowcost gas regions in order to reduce the average production cost of its fertilizer products.

Yara’s target is to achieve a 10 % market share in the global fertilizer market within a business cycle. The current market share is approximately 7 %. Average yearly growth in the industrial segment should be 10 - 15 %.

During the period 2006 - 2008, Yara will install its new technology for the reduction of N2O emissions from nitric acid plants, leading to an overall reduction of nearly 25 % of the Company’s total greenhouse gas emissions of CO2 and N2O combined.

Yara believes that being a good corporate citizen supports longterm shareholder value creation. Yara aims to further develop its role in society as a driving force for sustainable development and good corporate governance.

Yara aims to be a leading performer in the area of worker safety. The target is to achieve an accident rate as close to zero as possible, based on active leadership and employee participation.

Yara regularly conducts an employee satisfaction survey that is benchmarked against other companies.

Yara’s return on assets (20.0) was within the top quartile in 2007, reflecting strong margin development.

Rating Standard & Poor’s

Total cash returned to shareholders in 2007 was NOK 1,141 million or roughly 27 % of 2006 net income.

Yara’s share of lowcost gas decreased to 27 % in 2007 from 34 % the year before due to the acquisition of Kemira GrowHow.

The Kemira GrowHow acquisition added approximately 4 million tons of production and sales. Letters of intent were signed in Libya and India.

GHG emission Mill. tons CO2 equivalents

Yara continued its sustainable development focus with a particular emphasis on Africa through the Yara Prize, village-level projects and value-chain partnerships. Yara joined the UN Global Compact in 2006, committing to promote sustainable corporate practice in a number of areas.

The lost-time injury (LTI) rate for employees and contractors was 1.4 in 2007. This is in line with leading safety performers in the international chemical and petroleum industry. The European fertilizer industry excluding Yara had an average LTI-rate of 5.1 in 2007.

Employee survey %

Continue to advance knowledge and solutions towards solving global challanges which intersect with Yara’s business: energy, climate change, food and health.

Keep LTI rate under 1.5 and integrate Kemira GrowHow into Yara’s HESQ system.

Successful integration of the Kemira GrowHow organization into Yara.

Performance in 2007 CROGI % 14.1 14.4 14.1

16.1

10.6

BBB

with stable outlook

03

04

05

06

18.2 19.7 19.5 18.1

16.4

9.3

10.4

10.5

9.4

8.2

8.8

9.2

9.2

8.9

8.8

04

05

06

07

07 03

CO2 from ammonia production N2O from nitric acid production

66

70

04

05

79

74

06

07

NA

03

Benchmark average is 50 %

Priorities for 2008 Price management will be in strong focus, to ensure that increased nutrient margins are captured also in end product sales. Continued emphasis on global optimization and operating capital efficiency.

Continued investment discipline to ensure new projects add value for shareholders.

Continue to deliver strong financial performance, while reviewing financing options for new growth projects.

Stable growth in dividends while buyback activity depends on balance of cash flow and available growth projects.

Establish joint venture in Libya, while continuing to look for new projects in lowcost gas regions.

Integration of Kemira GrowHow, including delivering synergies. Establish joint ventures in Libya and India. Continue to look for new growth opportunities globally.

Continue implementation of N2O reduction technology.

6

Goals for long term value creation

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Profitability

Relative Competitiveness

Solidity

Cash Return

Growth in Low Cost Gas Supply

Overall Growth

Environment

Corporate Citizenship

Employee Safety

Employee Satisfaction

Yara’s target is to deliver a Cash Return On Gross Investment (CROGI) of more than 10 % as an average over the business cycle. CROGI is an after-tax return on capital measured with the original acquisition cost of assets as the measure of capital.

Yara aims to deliver a Gross Return (EBITDA/ Total Assets) in the top quartile of a peer group of leading chemical companies.

Yara targets a mid investment grade credit rating, i.e. minimum BBB according to Standard & Poor’s methodology.

Yara expects the cash return to the shareholders to average 40 - 45 % of net income over the cycle. Dividends should be minimum 30 % of average net income, while share buy-backs will constitute the rest.

Yara’s target is to increase its proportion of production in lowcost gas regions in order to reduce the average production cost of its fertilizer products.

Yara’s target is to achieve a 10 % market share in the global fertilizer market within a business cycle. The current market share is approximately 7 %. Average yearly growth in the industrial segment should be 10 - 15 %.

During the period 2006 - 2008, Yara will install its new technology for the reduction of N2O emissions from nitric acid plants, leading to an overall reduction of nearly 25 % of the Company’s total greenhouse gas emissions of CO2 and N2O combined.

Yara believes that being a good corporate citizen supports longterm shareholder value creation. Yara aims to further develop its role in society as a driving force for sustainable development and good corporate governance.

Yara aims to be a leading performer in the area of worker safety. The target is to achieve an accident rate as close to zero as possible, based on active leadership and employee participation.

Yara regularly conducts an employee satisfaction survey that is benchmarked against other companies.

Yara’s return on assets (20.0) was within the top quartile in 2007, reflecting strong margin development.

Rating Standard & Poor’s

Total cash returned to shareholders in 2007 was NOK 1,141 million or roughly 27 % of 2006 net income.

Yara’s share of lowcost gas decreased to 27 % in 2007 from 34 % the year before due to the acquisition of Kemira GrowHow.

The Kemira GrowHow acquisition added approximately 4 million tons of production and sales. Letters of intent were signed in Libya and India.

GHG emission Mill. tons CO2 equivalents

Yara continued its sustainable development focus with a particular emphasis on Africa through the Yara Prize, village-level projects and value-chain partnerships. Yara joined the UN Global Compact in 2006, committing to promote sustainable corporate practice in a number of areas.

The lost-time injury (LTI) rate for employees and contractors was 1.4 in 2007. This is in line with leading safety performers in the international chemical and petroleum industry. The European fertilizer industry excluding Yara had an average LTI-rate of 5.1 in 2007.

Employee survey %

Continue to advance knowledge and solutions towards solving global challanges which intersect with Yara’s business: energy, climate change, food and health.

Keep LTI rate under 1.5 and integrate Kemira GrowHow into Yara’s HESQ system.

Successful integration of the Kemira GrowHow organization into Yara.

Performance in 2007 CROGI % 14.1 14.4 14.1

16.1

10.6

BBB

with stable outlook

03

04

05

06

18.2 19.7 19.5 18.1

16.4

9.3

10.4

10.5

9.4

8.2

8.8

9.2

9.2

8.9

8.8

04

05

06

07

07 03

CO2 from ammonia production N2O from nitric acid production

66

70

04

05

79

74

06

07

NA

03

Benchmark average is 50 %

Priorities for 2008 Price management will be in strong focus, to ensure that increased nutrient margins are captured also in end product sales. Continued emphasis on global optimization and operating capital efficiency.

Continued investment discipline to ensure new projects add value for shareholders.

Continue to deliver strong financial performance, while reviewing financing options for new growth projects.

Stable growth in dividends while buyback activity depends on balance of cash flow and available growth projects.

Establish joint venture in Libya, while continuing to look for new projects in lowcost gas regions.

Integration of Kemira GrowHow, including delivering synergies. Establish joint ventures in Libya and India. Continue to look for new growth opportunities globally.

Continue implementation of N2O reduction technology.

4

Yara Financial Review 2007 Letter from the CEO

5

Cultivating business growth Since its Stock Exchange listing in 2004, Yara has delivered an average annual shareholder return of 65 %. 2007 was another good year with a total shareholder return of 80 %. Yara’s unique business model balances a world-class manufacturing base with a global sales and distribution network. This has enabled Yara to deliver another year with strong results: the company handled 25 million tons of products and generated record revenues and profits in 2007. In a global business environment characterized by strong demand drivers, Yara is better positioned than ever to grow its business and deliver strong financial performance. 2007 saw several important strategic initiatives including the acquisition of Kemira GrowHow, and a decision to upgrade urea production at the plant in the Netherlands, both of which strengthen the company’s global position. Yara’s expanded production base and phosphates business enhance competitivity and strengthens its premium offering of nutrients to customers. Yara also made further progress in expanding in regions with access to competitively priced gas with the signing of a joint venture agreement in Libya and through the initiation of the construction of new ammonia and urea capacity in Qatar. Yara continued to make new strides in the environmental area both in terms of reducing its own footprint with 1.7 million tons of CO2 equivalents as well as through innovative approaches to solve complex environmental challenges as exemplified through the establishment of Yarwill, a new JV company that offers solutions to reduce toxic emissions from shipping activities.

Growing stronger for the future Yara’s business performance over this past year demonstrates again the attractiveness of our industry and the seriousness with which we pursue our growth ambition. We have continued to grow through 2007, with return on capital well above our 10 % target. Our fertilizer margins have increased substantially in a strong demand-driven market fuelled by higher grain prices, while our sales volumes rose by 10 %. Our Industrial segment showed growth across all product areas and our plants supported sales by delivering good production performance. This was achieved as we strengthened our strategic position through a number of step-growth initiatives including the successful acquisition of Kemira GrowHow, where we improved our sourcing of phosphate, strengthened our position in balanced fertilization and added competence and expertise to our organization. Going forward we see a number of fundamentals in the global market that are favorable for our business: global grain inventories continue to drop while new fertilizer production capacity is limited by higher construction cost and increased gas cost. At the same time, we see increased demand for fertilizer driven by population growth, an increased focus in developing nations on protein-rich diets, higher consumption of fruit and vegetables and increased demand for biofuels. Moreover the increased global focus on ecological balance and stricter environmental legislation opens new business opportunities for our Industrial applications. We are confidant Yara will benefit from these developments. We want to take a proactive approch to environmental performance both in the way we operate and the impact our products and appli-

cations have for our customers and end-users. Our business model remains unique in balancing global market demand with costeffective production. No other fertilizer company has our global scale upstream in combination with industrial activities and a worldwide marketing and distribution network. Yara’s performance for the past five years places us amongst the best in the chemical industry and with a leadership position in our own markets. This consistent year-on-year improvement has built a growing recognition of the Yara brand and today the viking ship logo means reliability, quality and competence to our stakeholders around the world. The short- and long-term outlook for the company is better than ever. We are well positiond to take advantage of the growing opportunities in an attractive industry. Our performance driven culture is based on the strong belief that we can continue to improve in all of our operations. We will never rest on our laurels and will always look for ways to improve our business and our performance. This is after all the most important factor that will continue to drive our Company forward.

Thorleif Enger, President and CEO

4

Yara Financial Review 2007 Letter from the CEO

5

Cultivating business growth Since its Stock Exchange listing in 2004, Yara has delivered an average annual shareholder return of 65 %. 2007 was another good year with a total shareholder return of 80 %. Yara’s unique business model balances a world-class manufacturing base with a global sales and distribution network. This has enabled Yara to deliver another year with strong results: the company handled 25 million tons of products and generated record revenues and profits in 2007. In a global business environment characterized by strong demand drivers, Yara is better positioned than ever to grow its business and deliver strong financial performance. 2007 saw several important strategic initiatives including the acquisition of Kemira GrowHow, and a decision to upgrade urea production at the plant in the Netherlands, both of which strengthen the company’s global position. Yara’s expanded production base and phosphates business enhance competitivity and strengthens its premium offering of nutrients to customers. Yara also made further progress in expanding in regions with access to competitively priced gas with the signing of a joint venture agreement in Libya and through the initiation of the construction of new ammonia and urea capacity in Qatar. Yara continued to make new strides in the environmental area both in terms of reducing its own footprint with 1.7 million tons of CO2 equivalents as well as through innovative approaches to solve complex environmental challenges as exemplified through the establishment of Yarwill, a new JV company that offers solutions to reduce toxic emissions from shipping activities.

Growing stronger for the future

Yara’s business performance over this past year demon­ strates again the attractiveness of our industry and the seriousness with which we pursue our growth ambition. We have continued to grow through 2007, with return on capital well above our 10 % target. Our fertilizer margins have increased substantially in a strong demand-driven market fuelled by higher grain prices, while our sales volumes rose by 10 %. Our Industrial segment showed growth across all product areas and our plants sup­ ported sales by delivering good production performance. This was achieved as we strengthened our strategic position through a num­ ber of step-growth initiatives including the successful acquisition of Kemira GrowHow, where we improved our sourcing of phosphate, strengthened our position in balanced fertilization and added com­ petence and expertise to our organization. Going forward we see a number of fundamentals in the global mar­ ket that are favorable for our business: global grain inventories con­ tinue to drop while new fertilizer production capacity is limited by higher construction cost and increased gas cost. At the same time, we see increased demand for fertilizer driven by population growth, an increased focus in developing nations on protein-rich diets, higher consumption of fruit and vegetables and increased demand for biofuels. Moreover the increased global focus on ecological bal­ ance and stricter environmental legislation opens new business op­ portunities for our Industrial applications. We are confidant Yara will benefit from these developments. We want to take a proactive approch to environmental performance both in the way we operate and the impact our products and appli­

cations have for our customers and end-users. Our business model remains unique in balancing global market demand with costeffective production. No other fertilizer company has our global scale upstream in combination with industrial activities and a worldwide marketing and distribution network. Yara’s performance for the past five years places us amongst the best in the chemical industry and with a leadership position in our own markets. This consistent year-on-year improvement has built a growing recognition of the Yara brand and today the viking ship logo means reliability, quality and competence to our stakeholders around the world. The short- and long-term outlook for the company is better than ever. We are well positiond to take advantage of the growing opportuni­ ties in an attractive industry. Our performance driven culture is based on the strong belief that we can continue to improve in all of our operations. We will never rest on our laurels and will always look for ways to improve our business and our performance. This is after all the most important factor that will continue to drive our Company forward.

Thorleif Enger, President and CEO

6

Goals for long term value creation

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Profitability

Relative Competitiveness

Solidity

Cash Return

Growth in Low Cost Gas Supply

Overall Growth

Environment

Corporate Citizenship

Employee Safety

Employee Satisfaction

Yara’s target is to deliver a Cash Return On Gross Investment (CROGI) of more than 10 % as an average over the business cycle. CROGI is an after-tax return on capital measured with the original acquisition cost of assets as the measure of capital.

Yara aims to deliver a Gross Return (EBITDA/ Total Assets) in the top quartile of a peer group of leading chemical companies.

Yara targets a mid investment grade credit rating, i.e. minimum BBB according to Standard & Poor’s methodology.

Yara expects the cash return to the shareholders to average 40 - 45 % of net income over the cycle. Dividends should be minimum 30 % of average net income, while share buy-backs will constitute the rest.

Yara’s target is to increase its proportion of production in lowcost gas regions in order to reduce the average production cost of its fertilizer products.

Yara’s target is to achieve a 10 % market share in the global fertilizer market within a business cycle. The current market share is approximately 7 %. Average yearly growth in the industrial segment should be 10 - 15 %.

During the period 2006 - 2008, Yara will install its new technology for the reduction of N2O emissions from nitric acid plants, leading to an overall reduction of nearly 25 % of the Company’s total greenhouse gas emissions of CO2 and N2O combined.

Yara believes that being a good corporate citizen supports longterm shareholder value creation. Yara aims to further develop its role in society as a driving force for sustainable development and good corporate governance.

Yara aims to be a leading performer in the area of worker safety. The target is to achieve an accident rate as close to zero as possible, based on active leadership and employee participation.

Yara regularly conducts an employee satisfaction survey that is benchmarked against other companies.

Yara’s return on assets (20.0) was within the top quartile in 2007, reflecting strong margin development.

Rating Standard & Poor’s

Total cash returned to shareholders in 2007 was NOK 1,141 million or roughly 27 % of 2006 net income.

Yara’s share of lowcost gas decreased to 27 % in 2007 from 34 % the year before due to the acquisition of Kemira GrowHow.

The Kemira GrowHow acquisition added approximately 4 million tons of production and sales. Letters of intent were signed in Libya and India.

GHG emission Mill. tons CO2 equivalents

Yara continued its sustainable development focus with a particular emphasis on Africa through the Yara Prize, village-level projects and value-chain partnerships. Yara joined the UN Global Compact in 2006, committing to promote sustainable corporate practice in a number of areas.

The lost-time injury (LTI) rate for employees and contractors was 1.4 in 2007. This is in line with leading safety performers in the international chemical and petroleum industry. The European fertilizer industry excluding Yara had an average LTI-rate of 5.1 in 2007.

Employee survey %

Continue to advance knowledge and solutions towards solving global challanges which intersect with Yara’s business: energy, climate change, food and health.

Keep LTI rate under 1.5 and integrate Kemira GrowHow into Yara’s HESQ system.

Successful integration of the Kemira GrowHow organization into Yara.

Performance in 2007 CROGI % 14.1 14.4 14.1

16.1

10.6

BBB

with stable outlook

03

04

05

06

18.2 19.7 19.5 18.1

16.4

9.3

10.4

10.5

9.4

8.2

8.8

9.2

9.2

8.9

8.8

04

05

06

07

07 03

CO2 from ammonia production N2O from nitric acid production

66

70

04

05

79

74

06

07

NA

03

Benchmark average is 50 %

Priorities for 2008 Price management will be in strong focus, to ensure that increased nutrient margins are captured also in end product sales. Continued emphasis on global optimization and operating capital efficiency.

Continued investment discipline to ensure new projects add value for shareholders.

Continue to deliver strong financial performance, while reviewing financing options for new growth projects.

Stable growth in dividends while buyback activity depends on balance of cash flow and available growth projects.

Establish joint venture in Libya, while continuing to look for new projects in lowcost gas regions.

Integration of Kemira GrowHow, including delivering synergies. Establish joint ventures in Libya and India. Continue to look for new growth opportunities globally.

Continue implementation of N2O reduction technology.

Yara Financial Review 2007 Table of Contents

7

8–15 Report of the Board of Directors 16–35 Management Discussion & Analysis 18 26 28 30 32 34

Value drivers and Yara’s growth strategy Yara’s business model and segments Downstream Industrial Upstream Operational data

36–104 Consolidated financial statements 36 37 38 40 41 50

Consolidated income statement Consolidated statement of recognized income & expense Consolidated balance sheet Consolidated cash flow statement Accounting policies Notes to consolidated financial statement

105–125 Financial statements Yara International ASA 105 106 108 109

Yara International ASA income statement Yara International ASA balance sheet Yara International ASA cash flow statement Notes to financial statement for Yara international ASA

126 Auditor’s Report 127–129 Non-GAAP measures 130–133 Corporate Governance 134–135 Board of Directors 136–137 Executive Management 138–141 The Yara Share Unless otherwise indicated, all figures presented are actual and prepared in accordance with IFRS. Due to rounding differences, figures or percentages may not add up to the total.

8

A good year of business expansion

Yara showed strong financial performance in 2007. Earn­ ings per share increased further from the 2006 record level due to volume growth and higher fertilizer prices. The fertilizer market remained firmly demand-driven sup­ ported by higher global grain prices. Since Yara’s listing on the Oslo Stock Exchange in 2004, Yara has delivered strong results, implemented several projects to boost growth and has taken an active role in the on-going restructuring of the fertilizer industry. During 2007, Yara delivered on its ambition with several important initiatives. The largest step was the Kemira GrowHow acquisition, but expansions were also initiated in Libya, Qatar and the Netherlands, as well as expansion of our environmen­ tal business in the Industrial segment. Yara is a chemical company with primary focus on production, dis­ tribution and sale of nitrogen chemicals. The main application is fertilizers, but industrial uses are also an important segment. Yara is the world’s number one fertilizer company by sales. Total rev­ enues and other income amounted to NOK 57.5 billion in 2007. Yara’s head office is located in Oslo. The Company has operations in approximately 50 countries and sales to more than 120 countries. The Company’s activities are organized in three business segments supported by the Trade and Supply unit which includes the global sourcing, trade and supply optimization activities: DOWNSTREAM comprises a network for global distribution of fertilizers and smaller production facilities for upgrading inter­ mediate fertilizer products, like ammonia, into finished fertiliz­ ers. The products sold are sourced from own production plants in Downstream (37 %), and Upstream (42 %) as well as from third parties (20 %). INDUSTRIAL markets nitrogen chemicals and gases for indus­ trial use. Products are sourced from own Yara plants as well as third parties. UPSTREAM comprises the main production plants for converting natural gas into nitrogen chemicals and NPK, as well as phosphate mining. All volumes are sold to Downstream and Industrial. The ammonia trade and shipping business (ATS) is included in the Up­ stream financial reporting. ATS is responsible for both trade as well as optimal balances of ammonia supply to own plants.

Market conditions and results for the year Fertilizer markets were firmly demand-driven in 2007, as the tight supply-demand balance for grain fuelled fertilizer demand. Even with last year’s strong increase in grain prices and resulting increase in plantings and fertilizer application, global grain inventories continues to drop. Fertilizer prices had to strengthen substantially to balance the market as demand grew faster than new capacity. Import demand increased from all major import regions. US demand rebounded sharply as farmers shifted from soybean to corn planting, being more fertilizer intensive, to capture increased demand for biofuel. Indian urea import continued to increase as consumption grew to supply domestic food demand while fertilizer production declined. India remained one of the most important factors driving the global in­ crease in import demand increasing 2007 imports to 6.6 million tons, 2.2 million tons higher than the previous year. Fertilizer application increased with 17 % in Brazil, boosted by higher grain and soybean prices. The market was balanced by strongly increased export from China, motivated by the higher fertilizer prices. The market for indus­ trial applications continued to grow, driven by stricter environmental legislations and strong growth in the mining industry. 1.

Yara Financial Review 2007 Report of the Board of Directors

9

2.

3. 1. Oslo, Norway, May 2007 Yara and Praxair to establish JV in industrial gases. 2.

Sluiskil, the Netherlands,

October 2007

Yara strengthens urea position with Sluiskil upgrade. 3.

Le Havre, France,

February 2007

Yara enters new gas supply agreement with Gazprom. 4.

Siilinjärvi, Finland,

May 2007

Yara launches offers to acquire Kemira GrowHow.

4.

10

Major developments for Yara in 2007 includes the acquisition of Kemira GrowHow, the signing of a Heads of Agreement for estab­ lishing a joint venture in Libya, a decision to upgrade Yara’s urea facility in the Netherlands, contracting for construction of new am­ monia and urea capacity in Qatar and the establishment of the Yara Praxair joint venture. The acquisition of Kemira GrowHow gives Yara access to phosphate through current mining and upgrading facilities, and with oppor­ tunities for further expansion. Significant synergies in fixed cost, logistics and production optimization have been identified and are being implemented. Kemira GrowHow operations are already fully integrated in Yara’s organization, and strong focus will be placed on harvesting synergies. Yara is increasing its production outside Europe in areas with more competitive gas, through the start-up of construction of the Qaf­ co-5 expansion project including two world-scale ammonia plants and one world-scale urea plant with a total cost of USD 3.2 billion, scheduled for completion in the first quarter 2011. Yara has a 25 % ownership share in Qafco and currently markets at least 50 % of Qafco’s urea production. Yara’s production in competitive gas areas is further enhanced by Yara signing a Heads of Agreement with the National Oil Company (NOC) of Libya and the Libyan Investment Authority (LIA) with the intention of establishing a joint venture owned 50 % by each partner and comprising ammonia and urea plants presently owned by NOC in Libya. Yara will be appointed the marketer for export of

5.

products from the joint venture continuing to strengthen the scale in Yara’s global distribution and marketing. The investment in an upgrade and expansion of urea facility in the Netherlands to be commissioned in 2011, will upgrade margins on ex­ cess ammonia capacity at the site. With increased natural gas prices in so-called “stranded gas” regions like the Middle East, the relative com­ petitiveness of European ammonia plants is improved, making efficient plants a more attractive target for upgrading investments. To enhance the development of Yara’s industrial gas business, a joint venture was established with Praxair, the world’s third largest industrial gas business, owned 50 % by each partner. Combining Yara’s strong market position for industrial gas in Scandinavia with Praxair’s world-scale operational expertise and technology offerings in industrial gases creates a compelling partnership. Production performance was strong in 2007, with volume totaling 20.3 million tones, up 10 % from the previous year. The addition of Kemira GrowHow volumes for the last three month of the year accounts for almost half of the increase. Yara reopened its Le Havre facility in March, and the volumes from the Burrup plant boosted ammonia production further. Net income after minority interest was NOK 6,037 million (NOK 20.60 per share) in 2007, compared with NOK 4,188 million (NOK 13.86 per share) in 2006. Yara’s after-tax measure for return on capital, CROGI (Cash return on gross investment), was at 16.1 % compared with a target of minimum 10 % as an average over the business cycle.

6. 5. Oslo, Norway, August 2007 Yara and Wilhelmsen enter innovative environmental collaboration. 6.

Mesaieed, Qatar,

November 2007

Yara JV Qafco signs letter of intent for expansion.

11

Operating income was NOK 4,987 million, compared with NOK 3,352 million in 2006. EBITDA was NOK 8,441 million, compared with NOK 6,472 million in 2006. Yara’s revenue and other income was NOK 57.5 billion in 2007 compared with NOK 48.3 billion in 2006. Net cash from operating activities in 2007 was NOK 4,305 million, mainly reflecting strong earnings and dividends of NOK 830 million from non-consolidated investees. Net cash from operating activities in 2006 was NOK 3,854 million. Net cash used in investing activities for 2007 was NOK 6,988 million, including both the Kemira GrowHow acquisition as well as the proceeds for the Yara Praxair joint venture. Downstream segment operating income was NOK 2,007 million in 2007, compared with NOK 1,107 million in 2006. EBITDA was NOK 3,035 million, compared with NOK 1,960 million in 2006. Down­ stream delivered strong results in 2007 supported by a 13 % increase in sales volumes. The main growth drivers were the Kemira GrowHow acquisition, a strong Brazilian market and the effect of the acquisition of Fertibras in 2006. Margins improved significantly, reflecting higher prices for all main products and a strong recovery in the US. Industrial segment operating income for 2007 was NOK 1,441 million, compared with NOK 537 million in the same period in 2006. EBITDA was NOK 1,645 million, compared with NOK 736 million in 2006. The 2007 result includes a gain of NOK 795 million realized with the estab­ lishment of the Yara Praxair joint venture. Industrial delivered strong underlying results in 2007, mainly driven by volume growth where higher environmental product sales were the biggest contributor. Upstream segment operating income was NOK 1,649 million com­ pared with NOK 1,552 million in 2006. EBITDA was NOK 3,797 mil­ lion compared with NOK 3,563 million in 2006. The results in 2006 were positively affected by gains from the ammonia fleet divestment. Upstream delivered strong results in 2007 as global fertilizer prices increased strongly while oil and gas costs decreased slightly. Yara maintained its financial flexibility during 2007. The debt/eq­ uity ratio only increased from 0.33 to 0.42 despite significant invest­ ments, the major being the Kemira GrowHow acquisition. Yara’s net interest-bearing debt at the end of the year was NOK 8,924 mil­ lion while total assets equaled NOK 47,626 million. Total major­ ity shareholders’ equity as of 31 December 2007 amounted to NOK 21,008 million. At the end of the year, Yara had NOK 2,325 million in cash and cash equivalents and NOK 7,430 million in undrawn committed bank facilities. The cash position and financial strength of the Company is considered satisfactory. Yara’s total risk exposure is analyzed and evaluated at corporate level. Risk evaluations are integrated in all business activities both at corporate and business unit level, increasing Yara’s ability to take

Yara Financial Review 2007 Report of the Board of Directors

advantage of business opportunities. Yara’s most important market risk is related to the margin between nitrogen fertilizer prices and natural gas prices. Although there is a positive long-term correla­ tion between these prices, margins are influenced by the supply/ demand balance for food relative to energy. Yara has in place a system for credit and currency risk management with defined limits for exposure both at country, customer and cur­ rency level. Yara’s geographically diversified portfolio reduces the overall credit and currency risk of the Company. As the fertilizer business is essentially a US dollar business, with both revenues and raw material costs by and large priced in US dollars, Yara seeks to keep its debt in US dollars to reduce its overall US dollar currency ex­ posure. The majority of the interest-bearing debt is in line with Yara’s conservative financing strategy, funded through long term bond and bank loans. Yara’s research and development costs were NOK 94 million in 2007 compared with NOK 122 million in 2006. Over the last years, Yara has focused on research and development activities towards commercial activities, both with respect to process and product im­ provements and agronomical activities. In the opinion of the Board of Directors, the consolidated financial statements provide a true and fair view of the group’s financial per­ formance during 2007 and financial position at 31 December 2007. According to section 3-3 of the Norwegian Accounting Act, we con­ firm that the consolidated financial statements and the financial state­ ments of the parent company have been prepared based on the going concern assumption and that it is appropriate to use this assumption. Corporate Citizenship Yara is a global company with operations in more than 50 and sales to over 120 countries. Its operations and products affect millions of people on all continents. Its business makes a large contribution to meet the world’s need for energy. environmental balance, food and health. Several critical issues that have an impact on the future of the globe are driving Yara’s business: population increases, poverty, economic growth, urbanization and climate change. As these trends unfold, they create huge challenges in the areas of securing enough food for a growing and increasingly affluent world population, gaining access to adequate and affordable energy, persevering land and pro­ tecting biodiversity, safeguarding against air and water pollution and preventing global warming. The size and scale of these chal­ lenges means that only through public-private partnerships on a global scale can they be properly addressed. Yara is uniquely positioned with its agronomic knowledge, indus­ trial innovativeness and products to play a role in solving many of

12

these complex challenges. Yara wants to take a proactive position on these issues and sees this as an opportunity to do business. Food and energy crops need nutrients from mineral fertilizers. Yara’s fertilizers boost the energy in plants by a factor of 10-15 rela­ tive to the energy needed to produce, transport and apply the prod­ ucts. Yara products allow farmers to harvest more per hectare, thus conserving land while increasing food production and mitigating the trade-off between biomass production for food and energy. Yara’s long-term R&D efforts are paying off. As an example it has developed technology that can reduce GHG emissions dramatically from own and third party operations. Yara has developed products and services that reduce the carbon footprint of agriculture and at the same time improve farm profitability. Moreover, its technology and nitrogen products have many industrial applications and the environmental business is the fastest growing part of the Company. Corporate citizenship for Yara means that it acknowledges that long-term success depends on its ability to create value for share­ holders, customers, employees and society. When the needs of so­ ciety intersect with Yara’s business it will take a proactive approach. Yara recognizes the urgent need to address these challenging issues and wants its business to be part of the solution. Yara believes it can make important contributions. Yara has a long history of corporate citizenship. In conjunction with its centenary in 2005, Yara answered the call from the then Secretary-General of the United Nations, Mr. Kofi Annan, on con­ tributing towards an African Green Revolution. Since then, Yara has developed a comprehensive Africa program, including support to UN projects, launching own initiatives, and developing business. A main approach in the Africa program is to promote publicprivate partnerships in support of the African Green Revolution. To that effect, Yara in 2004 established the Yara Foundation and the Yara Prize for the African Green Revolution. The third Yara Prize was awarded in 2007, to two young African entrepreneurs, Mr. Akin Adesina of Nigeria for his work with agro-dealer net­ works, and Ms. Josephine Okot of Uganda for her work on devel­ oping a seed company. In 2007, Yara co-hosted the second Afri­ can Green Revolution Conference in Oslo, August 31–September 2, attended by approximately 250 people from 40 countries – a successful multi-stakeholder dialogue. As part of the conference, a ministerial and high-level meeting, chaired by Dr. Jeffrey Sachs and with governmental representation from 12 African coun­ tries, was arranged, adopting the Oslo Declaration and Agenda for Action on the African Green Revolution, recommending the establishment of a global fund to support agricultural develop­ ment in Africa.

Yara has made a commitment to reduce climate gas emissions from its own manufacturing plants by 25 % from 2004 to 2009, and has developed a breakthrough catalyst technology for the reduction of nitrous oxide (N2O) from nitric acid plants. Yara has made its clean technology commercially available and implemented third party projects, which already generate annual reductions of 3 million tons of CO2 equivalents. This innovative technology developed and ap­ plied by Yara, has received international interest, and in November 2007, this was recognized by a prestigious Norwegian environmen­ tal prize, awarded by His Royal Highness Crown Prince Haakon: The Glass Bear Prize of Honor. In August 2007, Yara and the Wilhelmsen Maritime Services (WMS), subsidiary of Wilh. Wilhelmsen ASA, created the Yarwil joint venture, thereby, offering the maritime market the first com­ plete solution able to eliminate polluting nitrogen oxides (NOx). This commitment will help to reduce emissions in the shipping sec­ tor, and improve both the environment and human health. Yara and WMS will own Yarwil 50-50. NOx comprises gases harmful to hu­ man health and the environment, which form during the combus­ tion of fossil fuels. Yara’s product solution could cut such emissions from ships by 95 %. Yara has adopted the UN Global Compact and has thereby commit­ ted to ”embrace and enact” its ten principles related to human rights, labor standards, environmental protection and corruption. With this initiative, participants support UN’s goals for development through dialogue, information sharing, learning events and partnership proj­ ects. For the first time, Yara publishes a separate Citizenship Review for 2007, reporting according to the GRI standard. Health, Environment and Safety Yara has a good track record in health, environment and safety. Compared with other global chemical companies, Yara is in a lead­ ing position on HES performance. This is not only an important asset for the employees and contractors working for Yara, but it is considered a precondition for a chemical company’s ‘license to op­ erate’ in society. Yara continues its good track record on health, environment and safety. In 2007 the LTI rate (Lost-Time Injuries per million hours worked) for Yara employees and contractors was 1.4. The LTI rate is nearly the same as the year before (1.3). The safety result places Yara amongst the leading chemical companies worldwide. Produc­ tion sites managed to operate to an LTI rate of 1.0, which is a record low injury rate for Yara. The safety result does not as yet include the results of Kemira GrowHow, but includes the higher accident rates of other recent acquisitions. Strongly coordinated safety manage­ ment activities are being run at all acquired companies, to speed up the alignment to the Yara way of working.

Yara Financial Review 2007 Report of the Board of Directors

13

The Total Recordable Injury rate (recordable injuries per million hours worked) for Yara employees was 2.9 in 2007, comparable to the result the year before (2.8). This includes lost-time injuries, re­ stricted work cases where the person was allowed to carry out other tasks than the normal duties, and medical treatment cases. Absence due to sickness at Yara’s production plants were 3.7 % in 2007, com­ parable to the result a year ago (3.6). Yara did not experience any fatal accident, nor any major fire/ex­ plosion, pollution incident or property damage in 2007. However, some serious near-miss incidents occurred, underlining the need for continued emphasis on safe work practices and strict adherence to Yara’s technical and operational standards. Yara’s Behavior Based Safety program is recognized by management and Yara’s works council as key for obtaining zero accidents. Yara’s operations are subject to numerous environmental requirements under the laws and regulations of the various jurisdictions in which Yara conducts its business. Such laws and regulations govern, among other matters, air emissions, wastewater discharges, solid and hazard­ ous waste management, transportation of hazardous materials and remediation of past activities. In 2007 no legal claim was made against Yara in respect of HES matters or in relation to operational permits. Yara has a number of facilities that have been operated for a period of years. Subsurface impact to soil and groundwater and other condi­ tions are common to such sites and may require remediation or give rise to liabilities under the laws of the various jurisdictions in which the facilities are located. Yara has attempted to identify such impacts where they are apparent and has initiated remediation or contain­ ment procedures in coordination with the appropriate authorities.

6.

People development At the end of 2007, Yara had 8,173 employees. The global growth of Yara continues to increase the diversity of the workforce and the Board of Directors is mindful of society’s and employees’ expecta­ tions with regard to equal opportunities throughout the company. To secure the internal leadership pipeline, Yara launched a major initiative in 2006 (LEAD) to map and assess a large number of talents in our global organization. This assessment has provided good insight into our talent pool. A leadership development pro­ gram was launched in 2007, designed to address leadership and business challenges for Yara going forward. The first group of par­ ticipants was brought together to reflect the company’s need for talents with aspirations to take on more responsibility, willingness to be mobile, and offering diverse business experience, nationality and gender. Of the total group of 40, 20 different nationalities were represented, two thirds were working outside their home country and 23 % were women. In the Norwegian part of the organization, 19 % of the employees were women, and 7.5 % women at the senior management level. It is Yara’s ambition to increase the proportion of women in manage­ ment positions, in Norway as well as in other countries. The LEAD program is one vehicle to increase the number of women at senior management level. All female participants in the program were invited to participate in the WIN conference in September 2007. WIN (Women’s International Networking) is a large international conference with the aim to inspire women to excel in leadership. The conference was held in Oslo with Yara as one of the sponsors. In addition, emphasis was put on external recruitment. In 2007, 50 % of the external recruits on a senior management level in Nor­ way were women.

7. 6.

Oslo, Norway,

September 2007

Yara Prize awarded to Josephine Okot and Akin Adesine. 7.

Oslo, Norway,

November 2007

Crown Prince Haakon of Norway awards Yara environmental prize for technology to reduce GHG emissions.

14

ter productivity and yield for customers, and as the Company strives to maximize long-term return for its shareholders. Yara’s business concept is to convert energy, natural minerals and nitrogen from the air into useful products for farmers and industrial customers. Yara’s vision to be the Industry Shaper translates into three strategic goals: • Deliver leading operational and financial performance • Deliver growth and drive the development and consolidation of the fertilizer industry • Develop a performance culture known for strong leadership and based on a clear set of values The underlying Yara values are Ambition, Trust, Accountability and Teamwork. For each of these values, a number of correspond­ ing specific behaviors have been identified as strong guidelines for leadership behavior.

8. Chicago, USA, 2007 A tight global market resulted in record or near-record prices for corn, soybeans and other food and feed grains.

Board of Directors and Executive Management Yara’s five shareholder-elected Board members were elected for two years in 2006. The five shareholder-elected Board members all have extensive line management experience from international industrial companies. The three employee-elected Board members were elected in January 2008 and have been Yara employees for between twenty-seven and thirty-four years. Two of the eight Board members are women, both elected by the shareholders. The Board held nine meetings in 2007. Yara has decided not to constitute a corporate assembly. Consequently, the Board of Directors is responsible directly to the General Meeting and the shareholders. A Compensation Committee was established in April 2004 and an Audit Committee was established in December 2006. Corporate Governance Proactive and transparent corporate governance is key to aligning the interests of shareholders, management, employees and other stakeholders. The Board of Directors believes good corporate gov­ ernance drives sustainable business conduct and value creation. Yara’s Board of Directors has the overall responsibility for corporate governance and has decided to comply with the Norwegian Code of Practice for corporate governance. Goals Yara’s mission is “We strive for better yield”. This wording has a double meaning as Yara’s fertilizer and industrial products contribute to bet­

Yara has further improved its financial position in 2007, as demonstrat­ ed by strong cash flow and profitability. The initiatives presented earlier in this report support our ambitions within key strategic areas. Yara’s primary financial goal is to maximize shareholder value over time. Yara applies a hurdle rate of minimum 7 % real return after tax for new projects, reflecting Yara’s cost of capital, but the Company has an ambition to achieve minimum 10 %. As an average over the business cycle, Yara has a target of 10 % CROGI for existing busi­ nesses. The targets are ambitious, and there is good evidence that companies that have met these targets have delivered good share­ holder returns. Yara’s 5-year average CROGI is 13.9 %. Yara expects to return 40 - 45 % of net income to its shareholders as an average over the business cycle as the sum of dividends and share buy-backs. As long as Yara can maintain profitability at the attractive level achieved over the past 5 years, a dividend level that restricts Yara’s growth will not be desirable. Yara’s dividend policy is to pay out minimum 30 % of net income as an average over the busi­ ness cycle. Yara believes it will be beneficial for shareholders that the Company strives for a gradual increase and predictability in the ab­ solute dividend level over time, independently of the business cycle. Consequently, Yara expects to pay out somewhat more than 30 % of net income in years with weaker than average cash flow from opera­ tions and less than 30 % in years with stronger than average cash flow from operations. Yara will use share buy-back programs when certain conditions are met. Share buy-backs are more flexible than dividends, and for most shareholders buybacks provide tax advantages compared with dividends. In 2007, The General Meeting cancelled 7,274,500 shares bought back in 2006 and redeemed 4,129,587 shares from the Norwegian State, keeping the State’s ownership share constant at 36.21 %. In 2007 Yara did not buy back any shares due to the Kemira

Yara Financial Review 2007 Report of the Board of Directors

15

GrowHow acquisition. The total payment related to the redemption of shares from the Norwegian State in 2007 was NOK 402 million. Yara has decided to offer its employees in Norway the possibility of purchasing company shares within an established program. A trust for employee share purchases was established in 2005 to optimize the administration of this program. In 2007, the trust purchased 27,000 shares, and 30,894 shares were sold during 2007. The shares were sold to 813 employees. On 31 December 2007, the trust held 922 shares. Outlook for 2008 Global food markets are tight, with a further drop in global grain stocks forecast by the end of the 2007/2008 season. Grain prices re­ main at historical high levels, encouraging farmers to expand acreage and increase fertilizer application rates. Higher energy prices and in­ creased focus on greenhouse gas emissions support continued growth in bio-energy. Growth in industrial nitrogen applications continues to accelerate, with environmental applications driven by stricter legisla­ tion and technical nitrates growth supported by higher energy prices and increased coal mining. The modest level of new fertilizer capac­ ity in the pipeline improves prospects for a prolonged tight supplydemand balance in the nitrogen and phosphate fertilizer market. Yara’s European energy cost is based on forward energy prices expected to be substantially higher than last year, but current fertilizer price levels would more than compensate for these higher costs.

The necessary level of investments to maintain current capacity is estimated to be NOK 1,200-1,400 million per year. Yara’s total in­ vestment level in 2008 could be significantly higher depending on the attractiveness of growth opportunities. Yara’s financial solidity is expected to remain strong. YARA International ASA The parent company is mainly a holding company with financial activities, and only non-material operations. The parent company Yara International ASA had net income of NOK 2,488 millions in 2007. Dividend The Board proposes a dividend of NOK 4 per share, totaling a pay­ ment of NOK 1,166 million. Combined with the positive result in Yara International ASA, this results in an increase of equity of NOK 1,322 million. Distributable equity in the parent company as of 31 December 2007 was NOK 3,569 million after proposed dividend. In total Yara has paid out NOK 1,141 millions in 2007 in dividends and redeemed shares from the Norwegian State after share buy-backs. This represents 27 % of consolidated net income in 2006. The pro­ posed 2007 dividend represents 19 % of consolidated net income.

The Board of Directors of Yara International ASA: Oslo, 28 March 2008

Øivind Lund Chairperson

Elisabeth Harstad Board member

Jørgen Ole Haslestad Board member

Leiv L. Nergaard Board member

Lone Fønss Schrøder Board member

Arthur Frank Bakke Board member

Frank Andersen Board member

Svein Flatebø

Board member

Thorleif Enger President and CEO

16

Management Discussion & Analysis

Net income after minority interest was NOK 6,037 mil­ lion (NOK 20.60 per share), compared with NOK 4,188 million (NOK 13.86 per share) last year. Excluding net foreign exhange gains, the result was approximately NOK 18.29 per share, compared with NOK 12.90 per share in 2006. Operating income was NOK 4,987 million compared with NOK 3,352 million last year. EBITDA was NOK 8,441 million, compared with NOK 6,472 million last year. The 2007 result was positively influenced by non-recurring items, mainly the gain related to the establishment of the Yara Praxair joint venture. Net special items improved the result by NOK 2.38 per share. (See page 40 for details of non-recurring items and contract derivative effects).

Yara continues to deliver strong financial performance with volume growth and further margin improvement. The main volume driv­ ers were strong deliveries in Brazil and the European market de­ veloping positively during second half of 2007. The global fertilizer market was tight with growing demand and limited new capacity, resulting in substantial price increases to balance the market. All plants delivered good performance, close to full capacities. Yara continued to pursue opportunities for step growth. The ac­ quisition of the Finnish company Kemira GrowHow strengthens a world-class company’s ability to compete effectively in the global fer­ tilizer market. Combining the global business approach of Yara and its nitrogen activities with Kemira GrowHow’s European platform, within the tightening phosphate market, creates new opportunities in meeting Yara’s growth targets. The establishment of Yara Praxair joint venture enhances further development opportunities for Yara’s Scandinavian industrial gas business. These initiatives will strengthen the long-term growth and value creation prospect for Yara.

Financial highlights Millions, except per share information and CROGI Revenue and other income Operating income Share net income non-consolidated investees EBITDA EBITDA excl. special items Net income after minority interest Earnings per share 1) Earnings per share excl. currency and special items Average number of shares outstanding (millions) CROGI (12-month rolling average) 1) Yara currently has no share-based compensation programs that result in a dilutive effect on earnings per share.

2007 NOK NOK NOK NOK NOK NOK NOK NOK

57,486 4,987 1,624 8,441 7,789 6,037 20.60 15.91 293.0 16.1 %

2006 48,261 3,352 1,463 6,472 5,506 4,188 13.86 9.80 302.1 14.1 %

Yara Financial Review 2007 Management Discussion & Analysis

17

2.

1.

57.5 38.5

03

43.2

8,441

46.6 48.3 4,671

04

05

06

03

07

3.

1. Revenues NOK billons

6,108

04

6,618 6,472

05

06

2. EBITDA NOK millions 07

3. Earnings per share NOK 4. Debt/Equity %

4.

20.60 11.90 6.84

03

04

86

13.86 10.20

05

06

07

03

38

39

04

05

33

06

42

07

Key statistics 2007

2006

Sales 1) Fertilizer Industrial products (excl. industrial gases) Total

kt kt kt

21,303 3,289 24,592

18,791 2,825 21,616

Production 2) Ammonia Finished fertilizer and industrial products, excl. bulk blends Total

kt kt kt

5,759 14,550 20,309

5,296 13,183 18,479

1) 4Q 2007 Kemira GrowHow sales of 0.8 million tons included.

2) Including share of Tringen, Qafco, Rossosh, Burrup and GrowHow UK. 4Q 2007 Kemira GrowHow production of 0.8 million tons included.

18

Value drivers and Yara’s growth strategy Yara has set a 10 % global fertilizer market share as a long-term objective. Such a position will more fully utilize the Company’s marketing and distribution system. Reaching the growth objective will require productivity gains in the present business and additional volumes through organic growth and step growth initiatives.

Demand drivers Several global trends are coming together in driving increased demand for fertilizer. World population is expected to grow to 9.2 billion by 2050, according to the UN. Economic growth and higher standards of living results in in­ creased protein (primarily meat) consumption and more higher value crops such as fruit and vege­ tables. Fertilizers are essential to cope with this increasing demand. In addition, driven by ambi­ tious political targets in all major regions, biofuel output is expected to further boost demand for mineral fertilizers.

The bulk of the organic growth in the fertilizer business is expected to take place in larger growth markets like Brazil, India and China. Yara also expects significant growth in industrial applications including environmental products driven by tighter legislaton on emissions. Stepgrowth opportunities through alliances, mergers or acquisitions are possible in many markets. For all growth categories, scale, synergy and timing will be important factors together with capital discipline.

Supply Drivers











The biggest exporters of ammonia and urea general­ ly tend to be low-cost regions with large natural gas reserves, such as Trinidad and Qatar, both countries in which Yara operates. Recently, Liquid Natural Gas developments and improved pipeline capacity into Europe have improved gas supply, and in conse­ quence is reducing the exclusivity and attractiveness of low-cost regions as bases from which to export ammonia and urea. In addition to gas cost increases in previously socalled stranded areas, a strong increase in construc­ tion costs have restricted new projects giving modest new capacity in the pipeline. Due to extended lead times, it currently takes up to five years from a firm decision is taken to build a new plant and until a word-scale green field ammonia and urea facility is completed and ready for start-up.

Yara Financial Review 2007 Management Discussion & Analysis

19

The main criterion is not growth alone, but an attractive supply-demand balance. For a global company like Yara, this means that there could be opportunities on virtually every continent.

Pricing factors

Production economics

In a supply-driven market with surplus produc­ tion capacity, fertilizer prices are set by the mar­ ginal producers’ cash cost. Natural gas is the most important cash cost. For several years US producers had the highest cash cost, giving Yara’s European production a cash margin even in a supply-driven market.

A typical ammonia plant consumes 36 MMBTu of natural gas to produce 1 ton of ammonia. With a gas cost of USD 7 per MMBTu, natural gas comprise approximately 90 % of ammonia cash cost and 80 % of urea cash cost. For nitrates natural gas represents approximately 70 % of cash cost.

In a demand-driven market, were all available fertilizer capacity is running at full practical ca­ pacity, fertilizer prices will increase above mar­ ginal cash cost to balance the market. The price increase will depend on the strength in demand influenced by the development in food prices, and particularly grain prices. The continued de­ cline in global grain inventories and the resulting strong increase in grain prices strengthens fertil­ izer demand by farmers expanding acreage and increasing fertilizer application rates.

Plant efficiency and the cost advantages for fertilizer plants in low-cost gas regions are therefore extremely important. Yara has moved strategically to increase plant efficiency and build low-cost sourcing positions. As a result, Yara is a low-cost producer with roughly 1/3 of the production outside Europe. Yara’s European production has the lowest average unit costs.

20

Fertilizer market conditions Global nitrogen fertilizer consumption continued to grow in 2007. Due to increased prices for the most important crops, growth in demand was very strong, but consumption was limited by availabil­ ity of supply. As a result, fertilizer prices increased sharply. Outside China, only Saudi Arabia and Egypt added significant capacity dur­ ing 2007, and this was by far insufficient to meet demand growth. The higher prices led to a strong increase in Chinese urea export, which balanced the market at a high price level. The increase in crop prices had an even more dramatic effect for the phosphate market. As demand growth was exceptionally strong, even a substantial increase in phosphate export from China could not pre­ vent huge price increases, particularly towards the end of the year. Fertilizer volume developments For the 06/07 season, nitrogen fertilizer sales in Western Europe were down by an estimated 2 %, with a 1 %-point increase in mar­ ket share for imports. Adverse weather conditions affected fertilizer consumption negatively, and the strongest surge in crop prices took place during the second half of the year. During second half of 2007, nitrogen fertilizer sales in West Europe were up by an estimated 9 %, while imported volumes were up by 2 %. Strong grain prices, combined with increasing urea prices and attractive nitrate pricing, stimulated early nitrate purchases in Eu­ rope. Early buying interest in NPK was triggered by knowledge and anticipation of higher P and K prices through the season. In North America, a strong increase in corn plantings in 2007 due to increased demand for biofuels led to a rebound in fertilizer con­ sumption last season. Low opening stocks and prospects for another very good season resulting in strong deliveries also during the sec­ ond half of the year, as domestic deliveries were estimated 16 % up on the previous year. Asian demand, particularly in China and India, was strong in 2007. India imported approximately 6.6 million tons of urea, 2.2 million tons more than in 2006, and was a primary driver for tight global urea markets throughout 2007. In China, consumption continued to grow, but the increase was more than offset by higher domes­ tic production. Urea exports were up strongly, attracted by the in­ creased global price level.

Grain and soybean prices increased through the year, improving conditions for Brazilian agriculture. Fertilizer deliveries were up 17 % compared to 2006. Also other Latin American countries expe­ rienced strong growth in fertilizer consumption in 2007. Fertilizer price developments The average prilled urea price (fob Black Sea) was USD 308 per tonne, compared with USD 223 per tonne in 2006. The market stayed demand-driven through the year, and production curtail­ ments were not required to support prices. The price level was fairly flat through the first three quarters of the year, followed by a sharp increase in the fourth quarter. The average ammonia price (fob Black Sea) was USD 264 per tonne, compared with USD 245 per tonne in 2006. The ammonia market has not benefited from the surge in nitrogen demand, as the main import­ ers of ammonia have already been producing at close to full capacity. The market has been supply driven through most of the year. High gas costs in Ukraine and the rest of Europe led to curtailments that balanced the market. These closures finally tightened the market con­ siderably, and the ammonia market ended the year in a strong way. The average CAN price in Germany was USD 245 per tonne, com­ pared with USD 212 per tonne in 2006. The price increase was less than for urea, increasing the competitiveness of nitrates, and this led to very strong nitrate deliveries in 2007. The average DAP price fob US Gulf was USD 427 per tonne, up from USD 260 per tonne in 2006. The raw materials for phosphate fertilizer, phosphate rock and phosphoric acid, are generally traded on yearly contracts, and the price increase was delayed to 2008. Energy price developments The average US natural gas price at Henry Hub was USD 7.0 per MMBtu in 2007, compared with USD 6.7 per MMBtu last year. The average price for Brent crude oil was USD 73 per barrel in 2007, compared with USD 65 per barrel last year. The average low-sulfur fuel oil (LSFO) price in Rotterdam was USD 342 per tonne, up from USD 290 per tonne last year. Gasoil prices increased from USD 578 per tonne to USD 636 per tonne. The average European gas price at Zeebrugge was USD 6.1 per MMBtu, compared with USD 7.6 per MMBtu last year.

Yara Financial Review 2007 Management Discussion & Analysis

21

5.

6. 5. USA Demand for biofuels boosted demand for fertilizer. 6. Brazil Grain and soybean prices increased through the year, improving conditions for Brazilian agriculture. 7. India and China Demand from India and China was a primary driver for a tight market.

7.

22

Variance analysis Full-year EBITDA was NOK 8,441 million, compared with NOK 6,472 million last year. The Norwegian krone was stronger versus the US Dollar during 2007, resulting in a NOK 519 million negative conversion effect on EBITDA. Converted EBITDA was USD 1,450 million, up 436 million on 2006. Fertilizer sales increased 9 % (excluding Kemira GrowHow) compared with last year. The main growth driver was a strong Brazilian market including impact from the acquisition of Fertibras in 2006. The increase in European deliveries contribute also significantly with 6 % volume growth (excluding Kemira GrowHow). Industrial product sales were up 13 % for the year excluding the gas activity and Kemira Growhow. Product prices, primarily for urea but also for nitrates and NPK, were significantly higher than last year, representing the main contribution to the strong result. Most of the regions saw substantial margin im­ provements during the year. Especially in the US and in West Europe Variance analysis NOK millions

USD 1) millions

EBITDA 2007 EBITDA 2006 Variance EBITDA in NOK Conversion (NOK vs. USD) Variance EBITDA

8,441 6,472 1,970 519 2,489

1,450 1,014

Volume & mix Price/Margin Energy arbitrage Energy cost in Europe

861 2,734 (339) 195

Oil & gas products Electricity

146 475 (57) 29

119

16

76

13

Currency effect on net fixed cost 2) Special items

(168) (87)

Non-recurring items

(107)

Contract derivatives

19

Kemira GrowHow Other Total variance explained

436

(29) (8) (11) 3

56 (763) 2,489

10 (131) 436

1) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Net fixed cost is derived from fixed cost in NOK and euro less NOK and euro related margins.

margins recovered strongly in comparison with last year, reflecting a demand driven environment supported by higher crop prices. Oil and gas costs were slightly down in the first quarter reflecting lower LSFO prices. Following the revision of several natural gas supply contracts with increased exposure to hub-gas price, the gas cost was down in the sec­ ond and third quarter. Oil and gas costs increased in line with expectations for last quarter due to increase in both oil-linked and hub-gas prices. Euro­ pean oil and gas costs were (USD 7.41 per MMBtu) down USD 0.06 from last year. Electricty costs are also slightly better from last year due to lower market prices throughout Europe during second and third quarters. The negative energy arbitrage effect is due to the valuation of some Yara’s oil linked natural gas contracts, as European forward prices for oil-linked products increased more than forward prices for natural gas. The US dollar depreciation against the euro and the Norwegian krone compared with last year had a negative impact on Yara’s Eu­ ropean net fixed costs and consequently margins. In the third quarter last year, Yara divested most of its ammonia shipping assets, with an EBITDA and net income effect of NOK 832 million. In the fourth quarter this year, the establishment of the Yara Praxair joint ven­ ture resulted in a non recurring gain of NOK 795 million. The decision to close Yara’s plant in Terni, Italy resulted in provisions and writedowns of NOK 140 million, of which NOK 79 million EBITDA effect. “Other” reflects Qafco tax effect, increased ammonia freight costs following last year’s shipping asset divestment and higher fixed costs mainly due to IT transition costs. Kemira GrowHow (included from 4th quarter 2007) Kemira GrowHow EBITDA was NOK 56 million and excluding special items and energy arbitrage effects was NOK 227 million. Fair value inventory adjustments made as part of the purchase price allocation were a negative NOK 61 million and energy arbitrage ef­ fects were a negative NOK 28 millions. Total sales volumes were 0.8 million tons for the last quarter 2007. Restructuring costs were NOK 83 million, of which NOK 70 million was Yara’s share of restructuring costs in GrowHow UK Limited. The resulting annual synergies in GrowHow UK are approximately NOK 140 million (Yara share), fully effective from end 2009.

23

Yara Financial Review 2007 Management Discussion & Analysis

Financial items

NOK millions

2007

2006

Interest income from customers Interest income, other Dividends and net gain/(loss) on securities Interest income and other financial income

183 105 36 325

166 108 3 277

(488) 358 (370) 982 (81) 401

(381) 298 (331) 422 (56) (49)

726

229

Interest expense Return on pension plan assets Interest expense re. pension liabilities Foreign exchange gain/(loss) Other Interest expense and foreign exchange gain/(loss) Net financial income/(expense)

Financial items Yara bases its long-term funding on diversified sources of capital to avoid dependency on single markets. As the fertilizer business is essentially a US dollar business, with both revenues and raw mate­ rial costs denominated or determined in dollars, Yara keeps a major part of its debt in US dollars to reduce its overall currency exposure. At the end of 2007, more than 90 % of Yara’s long-term debt was US dollar denominated with approximately 25 % of the long-term debt carrying fixed interest rates. See Note 23 in the financial statements for further details on long-term debt. 2007 net financial income was NOK 497 million higher than last year, mainly due to higher foreign exchange gain. The net foreign exchange gain for the year totaled NOK 982 mil­ lion and was mainly explained by the depreciation of the US dol­ lar against both the euro and the Norwegian krone. Prior to the acquisition of Kemira GrowHow, the part of Yara’s US dollar debt established to hedge future earnings was kept in the range of USD 450 - 650 million. Following the acquisition, the range was adjusted to USD 1.0 - 1.5 billion. Full-year interest expense was NOK 107 million higher than last year due to an increase in the average gross debt level of NOK 2.3 billion.

Tax Full-year income tax expense was NOK 1,262 million, approximately 17 % of income before tax. The low effective tax rate was reflecting the tax-free divestment gain from establishing the Yara Praxair joint venture and one-time benefits obtained through legal restructuring in Brazil. Cash flow Net cash from operating activities was NOK 4,305 million (for defini­ tion see consolidated statements of cash flow page 40). Strong earn­ ing and dividend payments from non-consolidated investees of NOK 830 million, of which Qafco and Tringen were NOK 543 million and NOK 202 million respectively, were the main contributors. At the end of 2007, net operating capital was NOK 11,084 million, an increase of NOK 1,340 from 31 December 2006. The increase was mainly explained by price and volume effects on inventory, par­ ticularly in Brazil and North America. Net operating capital turn­ over improved from the end of 2006, caused by a tightening of credit terms outside Europe. Net cash used in investing activities was NOK 6,988 million, reflecting the Kemira GrowHow acquisition, the purchase of the remaining shares out­ standing in Fertibras and the Yara Praxair proceeds of NOK 556 million. Net cash used in investing activities was NOK 1,759 million in 2006.

24

During 2007, dividend payments to shareholders amounted to NOK 739 million and NOK 402 million was paid to the Norwegian State for purchase of own shares. Net Interest-bearing debt As a supplement to the formal consolidated statements of cash flow (page 40), this table highlights the key factors behind the develop­ ment in net interest-bearing debt.

Dividend policy Yara’s objective is to pay out minimum 30 % of net income as an average over the business cycle. Yara believes it will be beneficial for shareholders that the Company strives for a gradual increase and predictability in the absolute dividend level over time, indepen­ dently of the business cycle. Consequently, Yara expects to pay out somewhat more than 30 % of net income in years with weaker than average cash flow from operations and less than 30 % in years with stronger than average cash flow from operations.

Net interest-bearing debt increased by NOK 3,574 million during 2007, ending at NOK 8,924 million. The increase reflects growth investments in Kemira GrowHow and Fertibras , higher net operat­ ing capital due to increased business volumes, Yara dividend and share buy-backs.

Yara’s Board will propose to the Annual General Meeting a dividend payment of NOK 4.00 per share for 2007, which represents 19 % of net income.

The debt/equity ratio at the end of the fourth quarter 2007, calculat­ ed as net interest-bearing debt divided by shareholders’ equity plus minority interest, was 0.42 compared with 0.33 at the end of 2006.

Cash payments to shareholders from dividends and share buy-back programs combined are expected to be an average 40-45 % of net income over the business cycle. The Board will propose to the An­ nual General Meeting a new buy-back program along the lines of the previous one.

Net interest-bearing debt

NOK millions Net interest-bearing debt at beginning of period Cash earnings 1) Dividends received from non-consolidated investees Net operating capital change 2) Yara Praxair joint venture Investment Fertibras Investment Kemira GrowHow Other investments (net) Yara dividend and share buy-backs Foreign exchange gain/(loss) Other Net interest-bearing debt at end of period 1) Operating income plus depreciation and amortization, minus tax paid, net gain on disposals, net interest expense and bank charges. 2) Excluding Kemira GrowHow and Yara Praxair.

2007 (5,350) 4,406 830 (1,340) 556 (530) (5,339) (1,675) (1,141) 982 (323) (8,924)

25

Yara Financial Review 2007 Management Discussion & Analysis

8. 8. Record harvest but also record prices The world’s farmers reaped a record harvest in 2007, yet strong demand pushed prices of all cereals to new highs as cereal stocks declined to their lowest level in 30 years. 9. Changing structure of demand The emerging biofuels market is a new and significant source of demand as is the strong economic development and income growth in important emerging markets.

9.

26

Yara’s business model and segments Yara’s business model is built on the complementary strengths and risk profiles of the Company’s three business segments – Downstream, Industrial and Upstream. The Upstream segment has a strong and efficient manu­ facturing base with energy as a main raw material. This is achieved through a global no. 1 position in ammonia, nitrate and NPK fertilizer

production, as well as increased sourcing from low-cost natural gas regions and continuous focus on productivity improvements and simplification. Upstream plants have a global reach and all products are sold through Downstream and Industrial. Smaller dedicated plants for niche markets are located in Downstream and Industrial. The production economics of Upstream plants are based on global commodity product prices and raw material sourcing prices.

Segments

Main products

Market position

Downstream

Downstream offers differentiated prod­ ucts and services to many different mar­ ket segments, covering both commod­ ity and high-value crop segments. The product portfolio is well balanced with standard nitrogen products like urea and UAN and upgraded products like ni­ trates, NPK and other value-added fer­ tilizer products.

The Downstream business is unique in the fertilizer industry, with a physical presence in approximately 50 countries and sales to more than 120 countries. The combination of a worldwide marketing organization, a network of terminals and warehouses and a strong presence in all major regions en­ ables optimization of fertilizer shipments and sales to prevailing market conditions. Yara is the number one global brand within specialty fertilizer and the leading supplier of plant nutrient solutions for cash crops.

The Industrial segment creates value by developing and selling chemical prod­ ucts and industrial gases to non-fertilizer market segments. Nitrogen chemicals in­ clude ammonia derived products supplied to European chemical majors, as well as industrial explosives. In addition, environ­ mental applications are growing strongly, driven by new legislation in industrialized countries. The product portfolio also in­ cludes industrial gases and CO2 for the food and beverage industries.

Industrial has a broad presence across the product value chain and has a wide and diversified customer base, ranging from multinationals to small welding operators. With its strong ability to cre­ ate new product applications in different markets, Industrial adds value to Yara’s product streams over and above normal returns from the fertilizer business.

The Upstream segment includes Yara’s large-scale ammonia and fertilizer plants, the backbone of Yara’s production sys­ tem, as well as the global trade of ammo­ nia. Ammonia is the basic building block for production of urea, nitrates and other nitrogen products that are sold through the Downstream and Industrial seg­ ments.

The production and trade business is built around world-scale plants and critical mass in ammonia and fertilizer trade. The Upstream segment is exposed to both energy and fertilizer price fluctuations, but an increasing share of production in low-cost gas regions gives Yara a sig­ nificant competitive advantage. Through access to low-cost gas and a continuous focus on operational efficiency, Upstream provides a world-class manufacturing base for Yara’s global business.

- Global presence - Local market knowledge - Agronomic and application competence - Differentiation and branding

Industrial - Product and application innovation - Local market knowledge - Differentiation and branding - Technical competence

Upstream - Economies of scale - Low-cost gas - Simplification and productivity performance - HES performance

Yara Financial Review 2007 Management Discussion & Analysis

27

The Downstream and Industrial segments are, however, basically margin businesses, based on upgraded sales prices compared to global commodity prices. This provides additional and stable margins and reduce cyclicality in earnings. A knowledge margin is enhanced through partnerships with key specialty fertilizer players and industrial partners. This enables the Company to combine local knowledge and customer relations with a comprehensive and differentiated product offering.

Volumes

(Thousand tons)

EBITDA

Yara’s global presence optimizes product flows to prevailing market conditions via its comprehensive local, regional and global market intelligence, combined with a geographically balanced production, storage and distribution network. The benefits of this business model have been key to Yara’s strong financial performance over the past years.

(NOK millions)

CROGI

(%)

Sales volume

1,905 1,905

2,248 2,248

03 03

04 04

05 05

1,905 1,905 03 03

2,107 2,107 04 04

2,248 2,248 05 05

10,679 10,624 10,679 10,624

1,833 1,833 03 03

03 03 1,833 1,833

07 07 3,289 3,289

06 06

4,975 4,975

5,256 5,256

5,091 5,091

05 05

06 06

04 04

05 05

06 06

07 07 3,035 3,035

03 03 11.1 11.1

1,984 1,984 05 05

1,960 1,960 06 06

07 07

04 04

05 05

06 06

07 07

720 720

736 736

1,645 1,645

688 688

696 696

720 720

736 736

07 07 3,289 3,289

03 03

04 04

05 05

06 06

07 07

03 03

04 04 696 696

05 05 720 720

06 06 736 736

03 03

10.1 10.1

10.9 10.9

10.1 10.1

04 04 12.7 12.7

05 05

06 06

10.9 10.9

04 04

05 05

10.1 10.1 06 06

12.7 12.7

13.5 13.5

07 07 13.5 13.5

07 07

25.9 25.9 03 03 14.3 14.3

04 04 14.1 14.1

05 05 14.7 14.7

06 06 15.0 15.0

07 07

14.3 14.3

14.1 14.1

14.7 14.7

15.0 15.0

07 07 1,645 1,645

03 03

04 04

05 05

06 06

07 07

03 03 14.3 14.3

04 04 14.1 14.1

05 05 14.7 14.7

06 06 15.0 15.0

07 07

15.2 15.2

16.0 16.0

14.3 14.3

14.4 14.4 06 06

04 04

05 05

06 06

07 07

15.2 15.2

16.0 16.0

14.3 14.3

14.4 14.4

04 04

05 05

06 06

06 06 07 07

15.2 15.2

16.0 16.0

25.9 25.9

06 06 07 07 25.9 25.9 06 06

5,546 5,546

14,264 14,264

8,718 5,546 5,546 8,718 5,546 5,546

06 06

03 03

Ammonia

1,960 1,960

13.5 13.5 10.9 10.9

07 07

3,573 3,573 2,249 2,249 03 03

04 04 3,573 3,573

3,922 3,922

05 05 3,922 3,922

3,563 3,563 06 06 3,563 3,563

3,797 3,797

07 07 3,797 3,797

2,249 2,249 03 03

03 03 10.5 10.5

10.5 10.5 04 04 3,573 3,573

3,922 3,922 05 05

06 06 3,563 3,563

07 07 3,797 3,797

03 03

2,249 2,249 03 03

04 04

05 05

06 06

07 07

10.5 10.5 03 03

04 04

05 05

14.3 14.3 06 06

14.4 14.4 06 06 07 07

03 03

04 04

05 05

06 06

07 07

03 03

04 04

05 05

06 06

06 06 07 07

8,718 8,718

7 7,900 ,900 5,091

5,256 5,256

05 05

1,984 1,984

696 696

8,718 8,718

7 7,900 ,900 5,091 7 7,900 ,900 5,091

7 7,710 ,710 5,256 7,710 ,710 7 5,256

4,975 7,246 ,246 7 4,975

04 04

4,778 4,778

6,858 6,858

03 03

7 7,710 ,710

11,636 11,636

11.1 11.1

03 03

04 04 05 05 06 06 07 07 14,264 14,264 12,966 12,991 12,991 12,221 12,221 12,966 4,975 4,975

4,778 4,778

03 03

7 ,246 7,246

4,778 6,858 6,858 4,778

Production volume

2,142 2,142 04 04

3,035 3,035

688 688

05 05 06 06 07 07 14,264 14,264 12,966 12,991 12,991 12,221 12,221 12,966 7 7,246 ,246

6,858 6,858

11,636 11,636

04 04

1,960 1,960

2,439 2,439

12,966 12,966 12,991 12,991 12,221 12,221 Industrial N-Chemicals 11,636 11,636 04 04

2,142 2,142

1,984 1,984

12.7 12.7

1,645 1,645

688 688

03 03

2,142 2,142

3,289 3,289

2,439 2,439

06 06

1,833 1,833

11.1 11.1

10,624 10,624

9,327

9,851 9,851

2,439 2,439 2,248 2,248 2,107 2,107 04 04 05 05 06 06

2,107 2,107

10,679 10,679

9,327 9,327

9,107

05 05 06 06 07 07 Outside Europe

Sales volume 03 03 1,905 1,905

06 06 07 07 21,303 19,177 19,177 21,303 10,679 10,624 10,624 10,679

10,009 10,009

19,117 19,117

10,009

9,595 9,595 10,019 10,019

10,319 10,319

03 03 04 Europe04

9,936 9,936

05 05

10,019 10,019

9,936 9,936

03 03 04 04 20,254 20,254 19,613 19,613

21,303 19,177 19,177 21,303 9,327 9,851 9,327 9,851

9,107 9,107 9,107 10,009 9,107 10,009

19,117 19,117

9,595 10,019 9,595 10,019

10,319 9,936 10,319 9,936

20,254 20,254 19,613 19,613

3,035 3,035

21,303 19,177 19,177 21,303

9,851 9,851

19,117 19,117

9,595 9,595

10,319 10,319

20,254 20,254 19,613 19,613

07 07

Finished fertilizer

28

Downstream

2007 Financial highlights Revenue and other income Operating income EBITDA EBITDA excl. special items CROGI (12-month rolling average) Net operating capital turnover 1)

2006

NOK millions NOK millions NOK millions NOK millions

41,418 2,007 3,035 3,123 13.5 % 4.9

34,289 1,107 1,960 1,906 10.1 % 4.4

Sales by region 2) Fertilizer Europe Fertilizer outside Europe Total

kt kt kt

10,624 10,679 21,303

9,464 9,327 18,791

Sales by product group 2) Nitrate NPK CN Urea UAN Other products Total

kt kt kt kt kt kt kt

5,339 8,079 932 3,735 1,190 2,029 21,303

4,458 7,277 870 3,507 1,084 1,595 18,791

1) Total external operating revenues last 12 months divided by average net external operating capital for the same period. 2) 4Q 2007 Kemira GrowHow sales of 0.7 million tons included.

03

04

Europe

05

06

07

Outside Europe

Europe

North Latin America America

2007

Africa

2006

2.2

2.3

1.7

1.7

4.7 3.4

2.142 1,984 1,960 2.0 1.9

1,833

1. EBITDA NOK millons

9.9

3,035

10.6

2.

1.

Asia

2.

Downstream sales volume

Million tons

Yara Financial Review 2007 Management Discussion & Analysis

29

YARA ex Kemira GrowHow Downstream delivered strong results in 2007, supported by an in­ crease in sales volumes and significantly improved margin levels. Yara delivered 20.6 million tons of fertilizer in 2007, up 9 % on last year. European deliveries developed positively, especially during second half of 2007, and ended 6 % above last year. The growth was particularly strong in France and the UK reflecting the tight market fundamentals and higher grain prices. Yara’s deliveries in Brazil increased by 39 % compared to last year The main growth driver was a strong Brazilian market, up 17 % on 2006, and the effect of the acquisition of Fertibras in July 2006. To take advantage of the favorable market conditions in the Americas, nitrates were exported from Europe mainly in the third quarter, re­ sulting in increased sales also in North America. In total deliveries outside Europe were up 13 % compared with last year. Margins improved significantly throughout 2007 with higher prices for all main products. The strong margin development reflects a demanddriven market and a strong focus on price management in Yara. Strong demand for nitrates and NPK in Western Europe during second half of 2007 improved prices and margins, but the time lag between sales orders and deliveries increased during the autumn, as producers have struggled to keep up with demand. In the U.S. margins recovered strongly primarily reflecting strong import demand. Also the other main markets outside Europe had a positive margin development. The main special items in 2007 include first quarter restructur­ ing cost related to the integration of Fertibras into Yara Brazil, the third quarter gains from asset disposals in Glomfjord, in addition to fourth quarter provisions and write-downs following the decision to close the sub-scale Terni plant at the end of 2008. Total special items for 2007 were a negative NOK 76 million. 2006 special items were a positive NOK 55 million. As a result of the ongoing discussions with Bunge in Brazil, Yara’s influ­ ence in Fosfertil is not determined to be significant. Effective fourth quarter, the investment in Fosfertil is no longer booked as an equity accounted investee. Only dividends received from Fosfertil will there­

fore be recognized in the results. The fair value of the Yara share of the company as at 31 December 2007 was approximately NOK 3.9 billion. The negative “Other” variance primarily reflects higher fixed costs, mainly due to IT transition cost and currency effects as the USD has depreciating against most other currencies where Yara has a sub­ stantial fixed cost base. Net operating capital turnover, measured on a 12-month rolling basis, was 4.9 at the end of 2007, compared with 4.4 last year. The improvement was mainly caused by a tightening of credit terms out­ side Europe. Kemira GrowHow Kemira GrowHow’s downstream activity contributed with an EBITDA of NOK 28 million in 2007, excluding non-recurring items. Total de­ liveries were 0.7 million tons, mainly to the markets in Northern Eu­ rope. 0.1 million tons were delivered to markets outside Europe.

Variance analysis NOK millions

USD 1) millions

USD/ ton 2)

EBITDA 2007 EBITDA 2006 Variance EBITDA in NOK Conversion (NOK vs. USD) Variance EBITDA

3,035 1,960 1,075 175 1,251

521 305

25 15

215

10

Volume & mix Margin

476 1,107

82 192

4 9

Margin excl. ammonia effect

1,304

227

Ammonia effect on margin

(197)

(35)

Special items Kemira GrowHow Other Total variance explained

(124) 17 (226) 1,251

11 (2)

(22) 3 (40) 215

1) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Divided by 2007 fertilizer sales volume excl. Kemira GrowHow.

(1) (2) 10

30

Industrial

2007 Financial highlights Revenue and other income Operating income EBITDA EBITDA excl. special items CROGI (12-month rolling average)

NOK millions NOK millions NOK millions NOK millions

8,563 1,441 1,645 860 25.9 %

6,118 537 736 770 15.0 %

kt kt kt

893 2,396 3,289

727 2,098 2,825

Sales by product group (excl. industrial gases) 1) Environmental products Industrial N-chemicals (incl. TAN) Total 1) 4Q 2007 Kemira GrowHow sales of 0.1 million tons included.

2.

1.

893

1,645

688

696

720

736

03

04

05

06

07

499

539

03

04

595

NOx

05

727

06

2006

1. EBITDA NOK millons 2. Sales volume Environmental kt

07

Suflide

Yara Financial Review 2007 Management Discussion & Analysis

31

YARA ex Kemira GrowHow Industrial delivered strong results in 2007, mainly driven by volume growth for all product areas. Demand for technical ammonium nitrate continued to increase in 2007 resulting in a 21 % growth in sales. All major markets de­ veloped positively with Latin America as the main growth driver. The depreciating USD combined with higher prices on third-party sourced sales affected margins negatively mainly during the second half of 2007. The conversion of Köping into a pure TAN plant was finalized in 2007, increasing Yara’s total production capacity of TAN significantly going into 2008. Sales of N-chemicals to the European chemical industry ended up 5 %, mainly due to strong growth of Urea sales. Margins have also improved in 2007 despite higher prices both on ammonia and urea. Sales of environmental applications continued to grow at a high pace. Total volumes for the year ended 26 % higher than in 2006 with sales of AdBlue being the major growth driver. Sales of liquid CO2 to end-users ended 8 % higher for the year, mainly due to increased demand in food and beverage applications. Contractual price revisions throughout the year improved margins significantly. The Yara Praxair joint venture was established on 1 December, re­ sulting in a gain of NOK 795 millions, which is reflected in non­ recurring items. The joint venture will reduce the yearly Industrial EBIDTA by approximately NOK 200 millions going forward. Contract derivatives reflect effects on industrial urea and ammonia sales contracts with price links to LSFO. Fixed costs increased as sales and marketing activities increased during the year.

Kemira GrowHow Kemira GrowHow contributed with an EBITDA of NOK 19 mil­ lions in 2007. Total volumes were 0.1 million tons consisting mainly fo sales of nitric acid and aqueous ammonia to the European pro­ cess chemical industry.

Variance analysis NOK millions EBITDA 2007 EBITDA 2006 Variance EBITDA in NOK Conversion (NOK vs. USD) Variance EBITDA Volume & mix Margin Margin excl ammonia effect

56

Ammonia effect on margin

(33)

Special items

1,645 736 909 56 965

290 115

220 24

38 4

176

10 (6)

811

Non-recurring items

769

Contract derivatives

42

Kemira GrowHow Other Total variance explained

USD 1) millions

149 142 7

19 (109) 965

1) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports.

4 (19) 176

32

Upstream

2007 Financial highlights Revenue and other income Operating income Share net income non-consolidated investees EBITDA EBITDA excl. special items CROGI (12-month rolling average) Oil & gas cost (weighted average) 1)

NOK millions NOK millions NOK millions NOK millions NOK millions USD/MMBtu

23,659 1,649 1,316 3,797 3,842 14.4 % 5.6

22,124 1,552 1,287 3,563 2,783 14.3 % 5.6

kt kt kt

5,546 8,718 14,264

5,091 7,900 12,991

Production 2) Ammonia Finished fertilizer Total

1) Including share of Tringen, Qafco, Rossosh and Burrup. Kemira GrowHow not included.

2) Including share Tringen, Qafco, Rossosh and Burrup. 4Q 2007 Kemira GrowHow production of 0.7 million tons included.

2.

1.

1. EBITDA NOK millons

10 3,573

3,922

3,563

3,797 5

2,249 0 03 03

04 JVs

05

06

07

Shipping fleet sale

04

05

06 07 Q1

2006

07 Q2

07 Q3

07 Q4

US spot gas (Henry Hub) European spot gas (Zeebrugge Hub) Yara’s global energy cost (weighted average)

2.

Natural gas cost

USD/MMBtu

Yara Financial Review 2007 Management Discussion & Analysis

33

YARA ex Kemira Grow How Upstream delivered a strong result for 2007 while global fertilizer prices increased strongly and oil and gas costs decreased slightly. Realized urea prices for European plants were significantly higher than last year, together with a good price development for other products. Net income from non-consolidated investees was up from last year, despite Qafco units 1-3 being in a tax position from 1 January 2007, primarily reflecting stronger international urea prices and sales from the Burrup plant in Australia. Oil and gas costs were slightly down reflecting lower LSFO prices in the first quarter and higher exposure to hub-priced gas in the second and third quarter. The positive development in the three first quarters was mostly offset by higher oil and gas costs in the last quarter due to both higher oil-linked prices and hub gas prices. All plants delivered good production performance in 2007. Yara re­ opened its Le Havre facility in March, and volumes from the Burrup plant boosted ammonia production further. The negative deviation in non recurring items relates to the divest­ ment of most of the ammonia shipping assets in third quarter 2006 with an EBITDA and net income effect of NOK 832 million. This was only partly offset by the divestment of two ammonia vessels from the Carbonor joint venture in fourth quarter 2007. For these two ships there is no sale and leaseback agreement. One other vessel remain under the joint venture’s control. Other items primarily reflect Qafco units 1-3 tax effects, higher freight rates following the ammonia fleet divestment and increased fixed costs.

Kemira GrowHow Kemira GrowHow was consolidated from the fourth quarter and showed a strong performance with an underlying result of NOK 174 million. The result for the fourth quarter was charged with NOK 70 million restructuring costs (Yara’s share) related to the GrowHow UK Ltd joint venture, NOK 27 million energy arbitrage and NOK 63 million in lower realized margins as the acquired inventory position 1 October 2007 was adjusted to net market value. The business had a positive price/margin deviation of NOK 127 million compared with the fourth quarter in 2006 with the main contribution from fertilizer business. Energy cost for Kemira GrowHow was positively affected by favorable fourth quarter hub gas prices in the UK, giving an average gas cost of USD 8.7 per MMBtu for the quarter, up USD 1.8 per MMBtu from 2006.

Variance analysis NOK millions

USD 1) millions

USD/ ton 2)

EBITDA 2007 EBITDA 2006 Variance EBITDA in NOK Conversion (NOK vs. USD) Variance EBITDA

3,797 3,563 234 279 512

646 560

48 41

86

6

Volume & mix Price/Margin Energy arbitrage Energy cost in Europe

204 1,698 (339) 195

34 293 (57) 29

3 22 (4) 2

Oil & gas products Electricity

119

16

76

13

Special items

(629)

Non-recurring items

(606)

Contract derivatives

(22)

Kemira GrowHow Other Total variance explained

1 1 (8)

(104)

-

(4)

14 (630) 512

(8)

(108)

3 (108) 86

1) Based on quarterly average NOK/USD rates as detailed in Yara 2007 reports. 2) Divided by 2007 ammonia and finished fertilizer production excl. Kemira GrowHow.

­ (8) 6

34

Other and eliminations “Other and eliminations” consists mainly of Yara headquarters costs and cross-segment eliminations. Profits on sales from Upstream to Downstream and Industrial are not recognized in the consolidat­ ed Yara income statement before the products are sold to external customers. These internal profits are eliminated in the “Other and Elimination” segment. Full-year EBITDA was a negative NOK 36 million (NOK 44 million excluding Kemira GrowHow), compared with a positive NOK 212 million last year (see page 57). The negative variance reflects change of pension scheme in 2006 in Norway, lower positive elimination effects last year and transition costs related to the change of IT sup­ plier. Business and financial information The fertilizer season in Western Europe referred to in this discus­ sion starts 1 July and ends 30 June.

Yara’s business is strongly linked to the US dollar, both with regard to the purchase of energy and raw materials and prices of finished products. The discussion and analysis of financial performance is therefore mainly developed and presented in US dollars, as manage­ ment considers this to provide a better understanding of underlying business performance. Several of Yara’s purchase and sales contracts for commodities are, or have embedded terms and conditions which under IFRS are, accounted for as derivatives. The derivative elements of these con­ tracts are presented under “Commodity-based derivatives gain/ (loss)” in the income statement. In the management discussion and analysis these effects are divided into “energy arbitrage” and “con­ tract derivatives”. The former represents effects from Yara’s major energy-related contracts and energy arbitrage activities, while the latter comprises effects related to commercial sales and purchase contracts.

Operational data

Thousand tons

2007

2006

Purchase of raw materials 1) Rock Phosphate Potassium

1,276 1,641

963 1,194

Downstream production Ammonia Nitrates NPK CN UAN

212 3,034 2,087 223 488

205 2,875 1,890 181 337

Upstream production 2) Ammonia Urea Nitrate NPK CN UAN

5,546 2,543 2,224 2,550 1,049 350

5,091 2,362 1,947 2,246 1,019 326

308 264 245

223 245 212

Fertilizer prices - average monthly USD / tons Urea - fob black Sea prilled Ammonia - fob Black Sea CAN - cif Germany 1) Purchased for consumption in Yara plants, including blending in Yara Brazil 2) Including share of Tringen, Qafco, Rossoch and Burrup

Yara Financial Review 2007 Management Discussion & Analysis

35

Special items

1)

EBITDA effect (NOK millions)

2007

2006

Terni plant closure 2) Compensation Nitric Acid UAN plant closure SQM gain Brazil restructuring Köping restructuring Nitric acid plant sale Asset disposal Glomfjord Downstream

(79) 22 (17) (24) 23 (76)

(73) 62 (4) 70 55

Compensation Nitric Acid Sale gas activity Yara Praxair Köping restructuring Startup Argon plant Ceylon Oxygen Ltd. Sale Contract derivatives Industrial

22 795 (47) 15 785

(38) 36 (32) (34)

Sale of vessels Carbonor joint venture Electricity grid environmental fee Le Havre costs Shipping fleet sale Contract derivatives Upstream

116 (29) 87

(21) (25) 832 (6) 780

­

165 165

Yara ex Kemira GrowHow

797

966

Inventory fair value adjustment Restructuring costs Kemira GrowHow Downstream

2 (13) (11)

-

Inventory fair value adjustment Restructuring costs Kemira GrowHow Upstream

(63) (70) (133)

-

Kemira GrowHow

(144)

-

Pensions scheme change Other and Eliminations

Total Yara

653

1) Special items in NOK using monthly accounting exchange rates for the respective periods. Translation differences compared with variance analysis may occur. 2) Operating income effect NOK (140) million.

966

36

Consolidated income statement

NOK millions, except share information

Notes

2007

Revenue Other income Commodity based derivatives gain/(loss) Revenue and other income

4 2 1,26,27 4

56,631 930 (75) 57,486

46,969 1,154 138 48,261

46,171 303 76 46,550

29 5,6,21 4,9,11 5,26,30,31,32 4

(44,905) (223) (4,015) (1,487) (1,868) (52,499)

(38,749) 148 (3,389) (1,373) (1,546) (44,909)

(36,843) 448 (3,541) (1,348) (1,444) (42,728)

4

4,987

3,352

3,821

Share of net income in equity accounted investees Interest income and other financial income Earnings before interest expense and tax (EBIT)

4,12 7,21,26,27 4

1,624 325 6,936

1,463 277 5,092

1,144 266 5,231

Foreign exchange gain/(loss) Interest expense and other financial items Income before tax and minority interest

7,26,27 7,21,26,27

982 (581) 7,337

422 (471) 5,043

(525) (483) 4,224

8

(1,262) 6,075

(833) 4,210

(1,014) 3,210

6,037 (38) 6,075

4,188 (22) 4,210

3,198 (11) 3,210

6,037

4,188

3,198

20.60 293,028,848

13.86 302,071,267

10.20 313,393,652

Raw materials, energy costs and freight expenses Change in inventories of own production Payroll and related costs Depreciation and amortization Other operating expenses Operating costs and expenses Operating income

Income tax expense Net income Attributable to Equity holders of the parent Minority interest Net income

19

Net income after minority interest Earnings per share 1) Weighted average number of shares outstanding 2)

20 19,20

2006

2005

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 second, third and fourth quarter 2005, and first, second, third and fourth quarter 2006, and second quarter 2007, due to share buy-back program.

Yara Financial Review 2007 Consolidated Financial Statement

37

Consolidated statement of recognized income and expense NOK millions Exchange differences on translation of foreign operations Actuarial gain/(loss) on defined benefit pension plans Available-for-sale investments - change in fair value Cash flow hedges Hedge of net investments Tax on items taken directly to equity Net income recognized directly to equity Transfers Cash flow hedges Tax on items transferred from equity Net income Total recognized income and expense for the period Attributable to Shareholders of the parent Minority interest Total

Notes

2007

2006

2005

(1,267) 314 2,759 (63) 190 (969) 963

(137) 58 150 (2) (35) 35

650 (249) 102 503

19

9 (3) 6,075 7,045

(2) 1 4,210 4,244

12 (3) 3,210 3,722

19

7,006 39 7,045

4,216 28 4,244

3,700 21 3,722

13,14,27 26 26 8 19

26 8,26

38

Consolidated balance sheet 31 December

NOK millions Assets Non-current assets Deferred tax assets Intangible assets Property, plant and equipment Equity accounted investees Other non-current assets Total non-current assets Current assets Inventories Trade receivables Prepaid expenses and other current assets Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity Share capital reduced for treasury stock - Treasury shares Premium paid-in capital Total paid-in capital Retained earnings - Treasury shares Total equity attributable to shareholders of the parent Minority shareholders' interest in consolidated subsidiaries Total equity

Notes

2007

2006

1,8 1,3,9,10 1,11,28 4,12 13,14,21,27 4

1,252 1,776 10,412 6,076 5,919 25,436

1,175 577 7,600 6,019 1,393 16,765

15 16,27 17,27 18,27 4

9,291 8,465 2,110 2,325 22,191

6,689 6,834 1,974 1,003 16,499

4

47,626

33,263

19

496 1,092 1,588

515 (12) 2,183 2,686

19

19,420 21,008

13,470 (696) 15,459

3,19 19

193 21,201

575 16,034

Yara Financial Review 2007 Consolidated Financial Statement

39

Consolidated balance sheet 31 December NOK millions

Notes

Non-current liabilities Employee benefits Deferred tax liabilities Other long-term liabilities Long-term provisions Long-term interest bearing debt Total non-current liabilities

1,21,31 1,8 6,27 1,22 23,27

1,912 2,734 309 436 9,205 14,595

2,192 1,238 292 318 4,732 8,773

4,24,27

8,226 411 365 784 2,017 27 11,830

5,915 191 141 589 1,575 45 8,457

47,626

33,263

291,574,435

295,699,984

Current liabilities Trade and other payables Current tax liabilities Short-term provisions Other short-term liabilities Bank loans and other interest-bearing short-term debt Current portion of long-term debt Total current liabilities

22 25,27 23,27

Total equity and liabilities Number of shares outstanding 1)

19

2007

2006

1) Number of shares outstanding was reduced in second, third and fourth quarter 2005, and first, second, third and fourth quarter 2006, and second quarter 2007, due to the share buy-back program.

The Board of Directors of Yara International ASA: Oslo, 28 March 2008

Øivind Lund Chairperson

Elisabeth Harstad Board member

Jørgen Ole Haslestad Board member

Leiv L. Nergaard Board member

Lone Fønss Schrøder Board member

Arthur Frank Bakke Board member

Frank Andersen Board member

Svein Flatebø Board member

Thorleif Enger President and CEO

40

Consolidated cash flow statement

NOK millions Operating activities Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Tax paid Dividend from equity accounted investees Interest and bank charges recived/(paid) Gain/(loss) on sale of non-current assets Other

Notes

Financing activities Loan proceeds Principal payments Purchase of treasury shares Redeemed shares Norwegian State Dividend Net cash transfers (to)/from minority interest Net cash used in financing activities

Bank deposits not available for the use of other group companies

2005

4,987

3,352

3,821

4,9,11

1,487 (967) 830 (243) (895) (118)

1,373 (720) 1,019 (162) (1,021) (306)

1,348 (1,342) 702 (181) (291) (89)

(1,306) (1,876) 490 1,843 74 4,305

242 604 13 (496) (43) 3,854

(31) (1,242) 193 401 (183) 3,106

(2,020) (5,941) 109 863 (6,988)

(1,870) (1,615) 183 1,543 (1,759)

(1,471) (1,161) 3 201 384 (2,044)

27,357 (22,254) (402) (739) (3) 3,959

6,406 (6,746) (809) (444) (722) (3) (2,317)

8,381 (8,136) (682) (116) (712) (20) (1,284)

12 2

4,11 2,3,4 11 2

19 19 19

Foreign currency effects on cash flows Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

2006

4

Working capital changes that provided/(used) cash Receivables Inventories Prepaid expenses and other current assets Payable Other interest free liabilities Net cash provided by operating activities Investing activities Purchases of property, plant and equipment Purchases of other long-term investments Net sales/(purchases) of short-term investments Proceeds from sales of property, plant and equipment Proceeds from sales of other long-term investments Net cash used in investing activities

2007

46

18

1,322 1,003 2,325 168

118

100

(105) 1,108 1,003

(122) 1,230 1,108

122

70

41

Yara Financial Review 2007 Consolidated Financial Statement

Accounting polices

General Yara (the Group) consists of Yara International ASA and its subsidiaries. Yara International ASA is a public limited company incorporated in Nor­ way. The Company’s registered office is at Bygdøy Allé 2, Oslo, Norway. The principal activities of the Group are described in note 4 and note 12. The consolidated financial statements consist of the Group and the Group’s interests in associated companies and joint ventures. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB) and approved by the European Union (EU). Basis of preparation The consolidated financial statements have been prepared under the historical cost convention; modified to include revaluation to fair value of investment property, of available-for-sale financial assets and derivative financial instruments. Basis of consolidation The consolidated financial statements include Yara International ASA and subsidiaries where the Group holds, directly or indirectly, the majority of voting rights. Controlling interest is usually achieved when Yara has more than 50 % of voting rights. In some situations de facto control of an entity may be achieved through other means than voting rights, such as through contractual agreements. Subsidiaries that are acquired or sold during the year are included or excluded from consolidation when the Group achieves control or ceases to have control. Transactions and inter-company balances between subsidiaries, associated companies and joint ventures are eliminated. Transactions with associated companies and joint ventures are eliminated according to the Group’s share in the company. Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority in­ terests consist of the amount of those interests at the date of the original business combination (see below) and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Foreign currencies Translation to Norwegian kroner (NOK) of foreign companies The individual financial statements of a subsidiary company are prepared in the company’s functional currency, normally the currency of the country where the company is located. Yara International ASA uses NOK as its functional currency, which is also used as the presentation currency for the consolidated financial statements. In preparing the consolidated financial statements, the financial statements of foreign operations are translated using the exchange rates at year-end for balance sheet items and monthly average exchange rates for income statement items. Translation gains and losses, including effects of exchange rate changes on transactions designated as hedges of net foreign investments, are included in shareholder’s equity as a separate component. The translation difference derived from each foreign subsidiary, associated company or joint venture, accumulated from 1 January 2004, is reversed through the income statement as part of the gain or loss arising from the divestment or liquidation of such a foreign entity. In individual companies, transactions in currencies other than the entity’s functional currency are recorded at the exchange rate at the date of transaction. Monetary items denominated in foreign currencies are translated at the exchange rate at the balance sheet date. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Assets and liabilities in foreign currency Gains and losses arising on transactions, assets and liabilities other than the translation gains/losses, are recognized in the income statement, except for gains and losses on transactions designated and effective as hedge accounting. Foreign exchange hedges To hedge the Group’s currency exposure the Group enters into currency-based derivative financial instruments. The Group’s accounting policies for such contracts are explained below under financial instruments.

42

Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations, are recognized at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less cost to sell. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in the income statement. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized. Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal. The Group’s policy for goodwill arising on the acquisition of an associate or joint venture is described under associated companies. Acquisition of minority interest When acquiring minority interests the difference between the cost of the minority interest and the minority interest’s share of the assets and liabilities reflected in the consolidated balance sheet at the date of acquisition of the minority interest is accounted for partly as an adjust­ ment to goodwill (measured using IFRS 3 principles) and partly as an equity transaction. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for products provided in the normal course of business, net of discounts and sales related taxes. Sale of goods Revenue from the sale of products, including products sold in international commodity markets, is recognized when all the following condi­ tions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold • the amount of revenue can be measured reliably • it is probable that the economic benefits associated with the transaction will flow to the Group • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Yara’s rebate arrangements include fixed-rate rebates negotiated with each individual customer or variable rate rebates increasing with higher volumes. For variable rate rebates, the estimated rebate is accrued at each revenue transaction, and the accrual is adjusted at the end of each rebate period, which typically is the end of a fertilizer season. In arrangements where Yara acts as an agent, such as commission sales, only the net commission fee is recognized as revenue.

43

Yara Financial Review 2007 Consolidated Financial Statement

Government grants Government grants are recognized in the consolidated financial statement when the Group has reasonable assurance that it will receive them and comply with conditions attached to them. Government grants that compensate the Group for expenses are recognized in the income statement as the expenses are incurred. Government grants that compensate the Group for the cost of an asset are recognized in the income statement on a systematic basis over the useful life of the asset. Dividends received Dividends from investments are recognized in the income statement when the Group has a right to receive the dividends. Interest income Interest income is recognized in the income statement as it is accrued, based on the effective interest method. Tax Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Deferred tax Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the cor­ responding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary dif­ ferences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or 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 accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and inter­ ests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Current and deferred tax for the period Current and deferred tax are recognized as expense or income in the income statement, except when they relate to items recognized directly to equity, in which case the tax is also recognized directly in equity, or where they arise from the initial accounting for a business combina­ tion. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of Yara’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost. Intangible assets Separately acquired intangible assets are recognized at fair value at the time of acquisition. As part of business combinations, intangible as­ sets acquired as a result of contracts or legal rights, or rights that can be separated from the acquired entity, are recognized at fair value. Research costs are expensed as incurred. Costs incurred in development of certain internally generated intangible assets, such as software, are expensed until all the recognition criteria are met. Qualifying costs incurred subsequent to meeting the recognition criteria are capitalized. Intangible assets are amortized on a straight-line basis over their expected useful life. If the asset life is indefinite and useful life cannot be estimated, the asset is not amortized but tested for impairment annually.

44

Property, plant and equipment Property, plant and equipment are measured at historic cost less accumulated depreciation and any impairment loss. If a legal or construc­ tive obligation exists to decommission property, plant and equipment, the carrying value of the assets is increased with the discounted value of the obligation when it arises. Expenses in connection with periodic maintenance on property, plant and equipment are recognized as assets and depreciated on a systematic basis until the next periodic maintenance, provided the criteria for capitalising such items have been met. Expenses in connection with ordinary maintenance and repairs are recognized in the income statement as they are incurred. Expenses incurred in connection with major replace­ ments and renewals that materially extend the life of property plant and equipment are capitalized and depreciated on a systematic basis. Property, plant and equipment are depreciated on a straight-line basis over their expected useful life. If individual parts of property, plant and equipment have different useful lives they are accounted for and depreciated separately. Expected useful life and residual value is, un­ less immaterial, re-assessed annually. An asset’s carrying amount is written down to its recoverable amount if the assets carrying amount is higher than its estimated recoverable amount. Gain or loss due to sale or retirement of property, plant and equipment is calculated as the difference between sales proceeds and carrying value and is recognized in the income statement. Interest is capitalized as part of the historical cost of major assets constructed. Associated companies Associated companies are investments in companies where the Group has significant influence, but not control. Significant influence nor­ mally exists when the Group controls between 20 % and 50 % of the voting rights. The share of results, assets and liabilities of associated companies are incorporated into the consolidated financial statements using the equity method of accounting. Under the equity method of accounting, investments in associated companies are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the Associated companies, less any impairment in the value of the investment. The consoli­ dated income statement reflects the Group’s share of the results after tax of the associated companies. The consolidated statement of recog­ nized income and expense reflects the Group’s share of any income and expense recognized by the associated companies outside the income statement. Any excess of the cost of acquisition of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associated companies recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Yara reviews the carrying amount of associated companies for impairment if indications of loss in value are identified. Impairment indica­ tors may be operating losses or adverse markets conditions. As Yara’s associated companies are generally not listed on a stock exchange or regularly traded, the impairment review for such associated companies can rarely be based on observable market prices. Fair value of the investment is estimated based on valuation model techniques. If it is considered probable that the fair value of an associated company is below Yara’s carrying value, an impairment loss is recognized. In preparing their individual financial statements, the accounting policies of some associated companies do not conform with the account­ ing policies of Yara. Where appropriate, adjustments are therefore made in order to present the consolidated financial statements on a consistent basis. Joint ventures A joint venture is a contractual arrangement whereby the Group and one or more parties undertake an economic activity that is subject to joint control, which is when the strategic and financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control. Participation in joint ventures is accounted for on an equity accounted basis as described under the accounting principles for associated companies. Inventory Inventories are stated at the lower of cost, using the first-in, first-out method (”FIFO”) and net realizable value. Net realizable value is estimated sales price reduced by costs of completion and other sales costs. Cost is direct materials, direct labor, other direct cost and an ap­ propriate portion of production overhead, or the price to purchase inventory. Impairment of non-current assets other than goodwill The Group assesses the carrying amount of tangible assets and identifiable intangible assets annually, or more frequently if events or changes in circumstances indicate that such carrying amounts may not be recoverable. Factors considered material by the Group and that could

45

Yara Financial Review 2007 Consolidated Financial Statement

trigger an impairment test include: • significant underperformance relative to historical or projected future results, or • significant changes in the manner of the Group’s use of the assets or the strategy for the overall business, or • significant negative industry or economic trends. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less cost to sell and value in use. When it is determined that the carrying amount of tangible assets and identifiable intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, any impairment is measured based on discounted projected cash flows using a pre-tax discount rate. An impairment loss is recognized to the extent that the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. Previously recognized impairment losses, except for goodwill, are reversed if the assumptions for impairment are no longer present. Im­ pairment losses are only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment had been recognized. Own shares When own shares are repurchased, the amount of consideration paid, including directly attributable costs, is recognized as a change in equity. Repurchased shares are classified as treasury shares and presented as a deduction from total equity. Gain/loss from the sale of own shares is recognized as a change in equity. Dividends paid Dividends are recognized as a liability in the period that they are declared by the Annual General Meeting. Employee benefits Defined benefit plans The Group’s net obligation in respect of defined benefit plans are calculated separately for each plan. The amount is an estimation of future benefits that the employees have earned in return for their service in current and prior periods. The benefit is discounted to determine its present value, and the fair value of the plan assets and unvested past service cost is deducted. The discount rate is the yield at the balance sheet date on AA credit rated corporate bonds or government bonds where no market for AA credit rated corporate bonds exist. If the bond has a different maturity from the obligation, the discount rate is adjusted. Qualified actuaries using the projected credit unit method perform the calculations. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in income statements as an expense on a straight-line basis over the average period until the benefits become vested. To the extent benefits vest imme­ diately, the expense is recognized immediately in the income statement. Gains or losses arising from curtailments and settlements of pension plans are recognized immediately in the income statement. Actuarial gains and losses in the period are recognized directly in equity. Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement when employees have rendered services entitling them to the contributions. Prepaid contributions are recognized as an asset to the extent that a cash refund or deduction in future payments is available. Other long-term benefits The Group’s obligation in respect of other long-term benefits is the amount of future benefits that the employees have earned in return for their service in current and prior periods. The obligation is discounted based on the same principles as defined benefit plans. Share-based compensation The Group’s cash-settled share-based incentive program Share Incentive Rights (SIRs) is recognized as an expense at fair value. Fair value is initially mea­ sured at grant date and spread over the period during which the employees become unconditionally entitled to the payments. The fair value of the SIRs is measured based on the Black Scholes Merton option pricing model, taking into account the terms and conditions upon which the instruments were granted. The liability is re-measured at each balance sheet date and at settlement date. Any changes in fair value are recognized in the income statement. The Group may also give employees the possibility to purchase share in Yara at a reduced price. The cost of this is recognized when the employee exercises this possibility.

46

Provisions A provision is recognized when the Group has a present obligation (legal or 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 reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows esti­ mated to settle the present obligation, its carrying amount is the present value of those cash flows. Restructuring A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid ex­ pectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Onerous contracts Present obligations arising under onerous contracts are recognized and measured as a provision. An onerous contract is considered to ex­ ist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceeds the economic benefits expected to be received from it. Site restoration A provision for an obligation to restore a site is recognized when it occurs as a consequence of a constructive or legal obligation. Guarantees A provision for guarantees is recognized when the products or services are sold. The provision is based on historical information on actual guarantee payments incurred and the probability claims will be made. Environmental expenditures Environmental expenditures that increase the life, capacity, safety or efficiency of a facility are capitalized. Expenditures that relate to an existing condition caused by past operations are expensed. When environmental assessments, clean-ups or restoration are probable and the cost can be reliably measured, a provision is recognized. Emission rights Due to EU regulations regarding of greenhouse gas emissions, Yara receives annual emissions rights. These emission rights can be used to settle the Groups obligation that arises as a result of actual emissions. Granted emission rights received in a period are initially recognized at nominal value (nil value). Purchased emission rights are initially recognized at cost (purchase price) within intangible assets. A provision is recognized when the level of emissions exceeds the level of allowances granted. If Yara’s emissions are less than the emission rights allocated to its operations, these may be sold in the market. Gains are recognized if and when such transactions occur. Financial instruments Financial assets and financial liabilities are recognized when the Group becomes part to the contractual obligations of the instrument. Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and monetary items which are due in less than three months. Other liquid assets Other liquid assets comprise bank deposits and all other monetary items which are due between three and twelve months. Trade receivables and other short-term receivables Trade receivables and other short-term receivables are measured at initial recognition at fair value and subsequently measured at amortized cost. Short-term receivables, which are due within three months, are normally not discounted.

47

Yara Financial Review 2007 Consolidated Financial Statement

Available-for-sale financial assets Available-for-sale financial assets are initially recognized at fair value. Available-for-sale financial assets are subsequently recognized at fair value, with gains and losses arising from changes in fair value recognized directly in equity and presented in the statement of recognized income and expense, until the asset is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the consolidated income statement for the period. Impairment of financial assets Financial assets, other than those recognized at fair value through the income statement, are assessed for indicators of impairment at each balance 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 recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets car­ ried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of esti­ mated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables 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 allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in the income statement. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the income statement to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In addition to the above impairment of available-for-sale equity securities, impairment may occur if the decline in fair value is significant or prolonged. In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity. Trade payables and other short-term liabilities Trade payables are initially measured at fair value and are subsequently measured at amortized cost. Short-term payables, which are due within three months, are normally not discounted. Interest-bearing borrowings Interest-bearing borrowings are recognized initially at fair value less direct transaction costs. Subsequent to initial recognition, interestbearing borrowings are measured at amortized cost with any difference between cost and redemption being recognized in the income state­ ment over the period of the borrowings on an effective interest basis. Derivative financial instruments The Group uses derivative financial instruments to hedge exposure against foreign exchange risk, interest-rate risk and commodity risk arising in operating, financing and investment activities. Derivatives are initially recognized at fair value at the date a derivative contract is entered into, and are subsequently remeasured to their fair value at each balance sheet date. The Group routinely enters into sale and pur­ chase transactions for physical gas, ammonia and other commodities. The majority of these transactions take the form of contracts that were entered into and continue to be held for the purpose of receipt or delivery of the physical position in accordance with the Group’s expected sale, purchase or usage requirements, and are therefore not within the scope of IAS 39 (own use exemption). Certain purchase and sales con­ tracts are within the scope of IAS 39 as they can be settled net and do not qualify for the own use exemption. Such contracts are accounted for as derivatives under IAS 39 and are recognized in the balance sheet 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 income statement. Fair value for derivatives is measured based on quoted market prices when these are available. When quoted prices from active markets are not available, the Group estimates fair value by using valuation models that make maximum use of observable market data. The resulting change in fair value is recognized in the income statement immediately unless the derivative is designated and effective as a hedging instru­ ment, in which case the timing of the recognition in the consolidated income statement depends on the nature of the hedge relationship. Derivatives not designated into an effective hedge relationship are classified as current assets or current liabilities.

48

Embedded derivatives Derivatives embedded in other financial instruments or other non-financial host contracts are separated and treated as derivatives when the risks and characteristics of the derivative are not closely related to the host contract and the host contract is not measured at fair value with changes in fair value recognized in the income statement. Hedge accounting The Group designates certain derivatives as either hedges of the fair value of recognized assets or liabilities (fair value hedges), hedges of foreign currency risk of recognized assets or liabilities (cash flow hedges), or hedges of net investments in foreign operations. The fair value of hedging derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months and as a current asset or a current liability if the remaining maturity of the hedge relationship is less than 12 months. Cash flow hedges Changes in fair value of financial instruments used as hedging instrument in a cash flow hedge are recognized in equity until the hedged transaction is recognized. The ineffective part of the hedge is recognized in the income statement. Fair value hedges Changes in fair value of financial instruments designated as fair value hedges are recognized in the income statement. The carrying amount of the hedged item is adjusted for changes in the fair value attributable to the hedged risk. Hedge of net investment Changes in fair value of financial instruments used as hedges of net investment in foreign operations are recognized directly in equity. The ineffective part of the hedge is recognized in the income statement. Hedge accounting ceaces when the hedging instrument expires, is sold, terminated or exercised or the hedge relationship does not fulfil the requirements for hedge accounting. Leasing Property, plant and equipment which is leased on conditions which substantially transfer all the economic risks and rewards to Yara (finance lease) are accounted for as property, plant and equipment at the present value of minimum lease payments or fair value if this is lower. The corresponding finance lease liabilities are included in long-term debt. Property, plant and equipment is depreciated over the estimated useful lives of the assets. The related liabilities are reduced by the amount of lease payments less the effective interest expense. Other leases are accounted for as operating leases with lease payments recognized as an expense over the lease terms. Adoption of new and revised Standards In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures, which is effective for annual reporting periods be­ ginning on or after 1 January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group’s financial instruments and management of capital (see notes 16, 26 and 27). Four new Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: • IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies • IFRIC 8 Scope of IFRS 2 • IFRIC 9 Reassessment of Embedded Derivatives • IFRIC 10 Interim Financial Reporting and Impairment In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2007. Except as stated above the adoption of these new and revised Standards and Interpretations has not resulted in changes to the Group’s accounting policies.

49

Yara Financial Review 2007 Consolidated Financial Statement

Standards issued but not adopted At the date of authorization of these financial statements, the following Standards and Interpretations were in issue but not yet effective: • ­ IFRS 2 Share-based Payment (effective 1 January 2009) • ­ IFRS 3 Business combinations (effective 1 January 2009) • ­ IFRS 8 Operating Segments (effective 1 January 2009) • ­ IAS 1 (Revised) Presentation of Financial Statements (effective 1 January 2009) • ­ IAS 23 (Revised) Borrowing costs (effective 1 January 2009) • ­ IAS 27 Consolidated and Separate Financial Statements (effective 1 January 2009) • ­ IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obliga­ tions Arising on Liquidation (effective 1 January 2009) • ­ IFRIC 11 IFRS 2 Group and Treasury Share Transactions (effective 1 March 2007) • ­ IFRIC 12 Service Concession Arrangements (effective 1 January 2008) • ­ IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008) • ­ IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective 1 January 2008) The directors anticipate that all of the above Standards and Interpretations will be adopted in the Group’s financial statements in the relevant period commencing and that the adoption of those Interpretations will, except for IFRS 3 and IFRS 8, have no material impact on the financial statements of the Group in the period of initial application. Both IFRS 3 and IFRS 8 may have impact on the financial statements of the group compared to the current accounting policies. IFRS 3 will mainly require changes to how business combinations are accounted for compared to current policies with regards to treatment of direct acquisition costs, determination of acquired liabilities and acquisition of minority interests. The impact of this is not determinable as it will be dependent on transactions subsequent of the effective date of the Standard. IFRS 8 may lead to changes in the information presented for operating segments. The impact of this has not been determined at this stage. EU-directive 83/349 YARA GmbH & Co. KG with legal seat in Dülmen/Germany and its directly and indirectly owned subsidiaries are included in the consoli­ dated financial statement of Yara International ASA as defined by sec. 291 HGB (German commercial code). For the purpose of sec. 264b HGB, YARA GmbH & Co. KG makes use of the relief to not disclose any independent financial statement and notes.

50

NOTE 1 Key sources of estimation uncertainty, judgements and assumptions General The preparation of consolidated financial statements in accordance with IFRSs and applying the chosen accounting policies requires man­ agement to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The accounting policies applied by Yara in which judgements, estimates and assumptions may significantly differ from actual results are discussed below. Impairment of tangible assets and other non-current assets Yara has significant carrying amounts related to property, plant and equipment recognized in the consolidated balance sheet. The value in use of some of these assets could be influenced by changes in market conditions where Yara carries out its business. Significant and pro­ longed adverse market condition related for example to increases in natural gas cost and/or lower market prices for products sold could lead to temporary or permanent closures of production facilities. Such closures will be considered as an impairment indicator and an impairment test will be carried out. The outcome of such impairment tests may be that significant impairment losses are recognized in the income state­ ment. There are at 31 December 2007 no plants temporarily or permanently closed. The carrying amount of property, plant and equipment at 31 December 2007 is NOK 10,412 million. See note 11. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cashgenerating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at 31 December 2007 is NOK 982 million. See note 9. Details of the impairment testing calculations are provided in note 10. Business combinations Yara is required to allocate the purchase price of acquired companies to the assets acquired and liabilities assumed based on their estimated fair values. For our larger acquisitions, we engage independent third-party firms to assist us in determining the fair values of the ¬assets acquired and liabilities assumed. Such valuations require management to make judgements in selecting valuation methods, estimates and assumptions. Management’s estimates of fair value and useful lives are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates. See note 3. Site restoration and other environmental expenditures Yara’s future environmental cost depends on a number of uncertain factors, such as the extent and type of remediation required. Due to uncertainties inherent in the estimation process, it is possible that such estimates could be revised in the near term. In addition, conditions that could require future expenditures may exist for various sites, including Yara’s major production facilities and product storage terminals. Such future costs are not determinable due to the unknown timing and extent of corrective actions that may be required. Yara’s operations are subject to environmental laws and regulations. These laws and regulations are subject to change, and such changes may require that the Group makes investments and/or incurs costs to meet more stringent emissions standards or to take remedial action related to e.g. soil contamination. The carrying amount of provisions for environmental issues at 31 December 2007 is NOK 184 million. See note 22.

51

Yara Financial Review 2007 Consolidated Financial Statement

Deferred tax Judgement is required in determining the Group’s deferred tax assets and liabilities. Yara recognises deferred tax assets if it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilized. Man­ agement has considered future taxable income in assessing whether deferred income tax assets as well as the outcome of tax cases should be recognized. The carrying amounts of deferred tax assets and deferred tax liabilities are NOK 1,252 million and NOK 2,734 million, respec­ tively, at 31 December 2007. See note 8. Pension liabilities The fair value of pension liabilities is calculated based on several actuarial and economic assumptions. Any changes in the assumptions used would affect on the estimated pension obligation. Changes in the discount rate have the most significant impact. The discount rate is deter­ mined locally for each individual pension plan, based on the economic environment in which the plan is established. The discount rate and other assumptions are normally reviewed annually when the actuarial calculation is carried out, unless there are significant changes during the year. The carrying amount of the net pension liabilities at 31 December 2007 is NOK 1,065 million. See note 21. Derivatives Commodity-based derivatives and certain embedded derivatives in normal purchase and sales contracts require fair value recognition in the consolidated financial statement. Some of these fair values are subject to uncertainty due to non-quoted market prices and the use of valuation models. In these models Yara uses information based on external sources to an extent as great as possible. The most significant assumptions incorporated in the valuation techniques used are forward prices for commodity products like ammonia, natural gas, LFSO and Gasoil. For natural gas and gas-related prices further liberalisation of the European gas market could also impact on the valuation. See notes 26 and 27.

52

NOTE 2 Acquisitions and disposals Acquisitions In January, Yara acquired the remaining minority interest of 51.91 % of the non-voting shares in Fertibras for NOK 530 million. The dif­ ference between the cost of the additional interest in Fertibras and the minority’s interest’s share of the assets and liabilities reflected in the consolidated balance sheet at the date of acquisition of the minority interest is reflected partly as an adjustment to goodwill (measured using IFRS 3 principles) and partly as an equity transaction. Due to the significant increase in the value of Fertibras investment in Fosfertil up to the date of acquisition of the minority interest and allocation to identified assets have resulted in reduced goodwill of NOK 286 million and an amount recognized in equity of NOK 316 million. In April, Yara signed a Heads of Agreement with the National Oil Corporation (NOC) of Libya with the intention to establish a joint venture for production and marketing of mineral fertilizer. The planned joint venture will be owned 50 % by each partner and will comprise the ammonia and urea plants located in Marsa el Brega in Libya, presently owned by NOC. The negotiations have not been finalized at the end of 2007. In April, Yara signed a Heads of Agreement with Kribhco of India with the intention to establish a joint venture for production and market­ ing of mineral fertilizer. The partners will each own 50 % of the planned joint venture. The joint venture’s objective is to establish an Indian production base by acquiring existing production facilities, combined with import. In August, Yara International ASA and the Wilhelmsen Maritime Services (WMS), subsidiary of Wilh. Wilhelmsen ASA, announced the cre­ ation of Yarwil joint venture. This vehicle will be used to launch environmental solutions for the maritime market. This commitment will help reduce emissions in the shipping sector, and improve both the environment and human health. Yara and WMS will own Yarwil 50-50. Disposals In May, Yara International ASA and Praxair Inc., the world’s third largest industrial gases company, signed a Heads of Agreement with the intention of establishing a joint venture Yara Praxair to further enhance development opportunities for Yara’s industrial gases business. The transaction was completed on 1 December 2007. The joint venture is owned 50 % by each partner and comprise Yara’s existing industrial gases business located in Norway, Denmark and Sweden. The transaction resulted in a one-time net income for Yara of NOK 795 million. In 2006, the industrial gases business had sales of NOK 940 million and for the 11 month period ending 30 November 2007 the sales were NOK 902 million.

Yara Financial Review 2007 Consolidated Financial Statement

53

NOTE 3 Business combinations In May, Yara acquired 30.05 % of all shares and votes in Kemira GrowHow Oyj from the State of Finland. The purchase price paid for the shares was EUR 12.12 per share. As a result of the acquisition, Yara launched a mandatory tender offer on 20 July for the remaining shares in the company at the same price of EUR 12.12 per share in accordance with the Finnish Securities Markets Act. On 21 September 2007 Yara International ASA received clearance from the European Commission to acquire Kemira GrowHow Oyj, and waived the remaining preconditions for its tender offer. The extended tender offer period ended on 27 September 2007. On 5 October 2007 Yara announced that Yara Nederland B.V.’s ownership, after the completion of the Tender Offer, was 97.55 % of the shares and votes in Kemira GrowHow Oyj, excluding the shares held by Kemira GrowHow Oyj. The Tender Offer was completed with respect to all Kemira GrowHow’s shareholders who have validly accepted the Tender Offer on 4 October 2007 (Completion Date). The shares were transferred on 9 October 2007 and this has been deemed as the date of acquisition. Cost of combination Assumed debt

NOK 5,339 million NOK 1,195 million

The table below sets out carrying amounts and the amounts recognized at the acquisition date for each class of Kemira GrowHow Oyjs as­ sets, liabilities and contingent liabilities.

NOK millions

Opening balance 09.10.2007

Assets Non-current assets Deferred tax assets Intangible assets Property, plant and equipment Equity accounted investees Other non-current assets Total non-current assets

45 91 1,754 1,128 346 3,365

Current assets Inventories Trade receivables Prepaid expenses and other current assets Other liquid assets Cash and cash equivalents Total current assets

1,107 1,317 302 39 133 2,897

Total assets

6,262

Fair value adjustment

120 1,182 894 340 149 2,685

61 (5) 35 90 2,775

Adjusted balance 09.10.2007

166 1,273 2,648 1,468 495 6,050

1,166 1,312 339 39 133 2,988 9,037

54

NOK millions

Opening balance 09.10.2007

Fair value adjustment

Adjusted balance 09.10.2007

Equity and liabilities Total equity

3,102

Non-current liabilities Employee benefits Deferred tax liabilities Other long-term liabilities Long-term provisions Long-term interest bearing debt Total non-current liabilities

99 137 10 122 784 1,152

(29) 487 458

71 623 10 122 784 1,610

Current liabilities Trade and other payables Short-term provisions Other short-term liabilities Bank loans and other interest-bearing short-term debt Current portion of long-term debt Total current liabilities

789 41 636 304 238 2,008

81 81

789 122 636 304 238 2,089

Total equity and liabilities

6,262

2,775

9,037

2,236

5,338

The fair values stated are provisional because a final determination has not yet been reached on all aspects of the fair value exercise. The goodwill recognized in the balance sheet is NOK 797 million. The recognition of goodwill is based on payment included in the cost price made in anticipation of future economic benefits from Kemira GrowHow Oyj other than assets individually identified and recognized separately. The European Commission approved the transaction subject to the fulfillment by Yara of the commitments primarily related to divestment of part of the nitrogen chemicals business in Sweden and Belgium and divestment of the CO2 liquefaction plant in Billingham, UK currently owned and operated by the newly established joint venture GrowHow UK Limited. In aggregate these correspond to less than 3 % of Kemira GrowHow Oyj revenues. For the fourth quarter 2007 revenue of NOK 2,152 million and a net loss of NOK 59 million from Kemira GrowHow Oyj has been included in the consolidated income statement of Yara International ASA. Pro forma revenue and net income for the combined entity for 2007 is ap­ proximately NOK 63,651 million and NOK 6,088 million respectively. For the nine months ended 30 September 2007, Kemira GrowHow Oyj reported net sales of EUR 1,006 million, operating profit of EUR 61 million, net income after minority interest of EUR 43 million and total assets of EUR 851 million. For the year ended 31 December 2006, Kemira GrowHow Oyj reported net sales of EUR 1,166 million, operating profit of EUR 11 million, a net loss after minority interest of EUR 8 million and total assets of EUR 845 million. 2006 and 2007 numbers are based on Kemira GrowHow Oyj accounting policies.

55

Yara Financial Review 2007 Consolidated Financial Statement

NOTE 4 Segment information The operating segments presented are the key components of Yara’s business. These are evaluated on a regular basis by Yara’s senior management on the basis of financial and operational information prepared specifically for each segment for the purpose of assessing performance and allocating resources. The information disclosed is on the same basis as presented internally and used for follow up of Yara’s development by Yara Management. Segment structure The current segment structure was implemented 1 October 2003. Yara’s segments are managed as separate and strategic businesses. The seg­ ment information is presented on an operating level (primary reporting format) as well as a geographical level (secondary reporting format). Downstream The Downstream segment contains the global fertilizer distribution and marketing system, but also includes production facilities that pri­ marily serve the regions in which such production facilities are located. Approximately ¼ of the segment’s sales volumes are related to the segment’s own chemical production of fertilizers. The remaining sales volume is purchased on an arm’s-length basis from the Upstream seg­ ment or third parties. The Downstream segment’s activities are margin or commission-based. This reduces volatility in income significantly compared with a traditional fertilizer production company, since the margins and commissions will remain relatively stable, not much in­ fluenced by market prices for fertilizers and the cost of energy inputs used to make fertilizers. The Downstream segment is characterized by a high capital turnover, a low ratio of property, plant and equipment to total assets compared to a traditional, production-oriented fertilizer operation, and by a relatively low EBITDA margin in relation to revenues. Industrial The Industrial segment markets chemicals and industrial gases to non-fertilizer market segments. Around 20 % of the products sold are coming from Industrial’s own production plants while the rest is primarily bought at market based prices from Yara’s Upstream plants. Sales of nitrogen chemicals to the European process industry and the global industrial explosives industry constitute today the main market segments, while sales of chemicals for environmental applications is the main growth segment. The nature of the Industrial business is less seasonal compared to the downstream business, thereby contributing to a more stable cash flow for the group as well as to the overall production profitability of Yara. Upstream The Upstream segment comprises ammonia and urea production in different parts of the world, the global trade and shipping of ammonia, as well as nitrate and NPK fertilizer production co-located with ammonia production and is serving both the domestic and international markets. The Upstream segment includes our large equity accounted investees (e.g., Qafco, Tringen, Burrup and Rossosh). Because of the level of ownership in these companies, their operating results are not reflected in our operating income, but Yara’s share of the net income in the equity accounted investees, are included in EBITDA and net income. The Upstream segment’s operating results are, to a great de­ gree, based on the segment’s production margins, which are primarily affected by the price levels for ammonia, urea, nitrates and NPK and the price level of energy and raw materials such as phosphate rock and potash. In addition, operating results can be greatly influenced by movements in currency exchange rates. The fluctuation of the Upstream segment’s operating results is typical of that of traditional fertilizer producers and is normally less stable than the operating results of Yara’s Downstream and Industrial segments. Operating segment information Yara’s steering model reflects management’s focus on cash flow-based performance indicators, before and after taxes. EBITDA is an approximation of cash flows from operating activities before tax and is considered an important measure of performance for the company’s operating segments. Yara defines EBITDA as operating income plus interest income, other financial income and results from associated companies and joint ventures. It excludes depreciation, write-downs and amortization as well as amortization of excess value in associated companies and joint ventures. In addition the segments are followed up on CROGI (defined as gross cash flow after tax divided by gross investment). See also page 127 - 129 for more info. Inter-segment sales and transfers reflect arm’s-length prices as if sold or transferred to third parties. Results of activities considered inciden­ tal to Yara’s main operations as well as revenues, expenses, liabilities and assets not originating in, or defined as part of, either the Upstream, Downstream or Industrial segment, are reported separately under the caption “other and eliminations”. These amounts principally include interest income and expenses, realized and unrealized foreign exchange gains and losses and the net effect of pension plans. In addition, elimination of gains and losses related to transactions between the segments will be accounted as part of “other and eliminations”. General corporate overhead costs and costs related to cash management and finance function, are also charged to “other and eliminations”.

56

Operating segment information, Consolidated income statement

NOK millions

2007

2006

2005

External revenue and other income Downstream Industrial Upstream Other and eliminations Total

40,498 8,499 7,885 605 57,486

33,135 6,070 8,875 180 48,261

32,032 5,569 8,705 243 46,550

Internal revenue and other income Downstream Industrial Upstream Other and eliminations Total

921 64 15,324 (16,309) -

1,154 48 13,248 (14,450) -

898 47 11,740 (12,685) -

Revenue and other income Downstream Industrial Upstream Other and eliminations Total

41,418 8,563 23,659 (16,155) 57,486

34,289 6,118 22,124 (14,270) 48,261

32,930 5,616 20,445 (12,442) 46,550

Operating expenses excl depreciation and amortization Downstream Industrial Upstream Other and eliminations Total

(38,943) (6,925) (21,209) 16,064 (51,012)

(32,697) (5,393) (19,884) 14,437 (43,536)

(31,272) (4,899) (17,609) 12,400 (41,380)

(469) (197) (802) (19) (1,487)

(485) (189) (687) (12) (1,373)

(409) (202) (723) (14) (1,348)

2,007 1,441 1,649 (110) 4,987

1,107 537 1,552 156 3,352

1,249 515 2,113 (57) 3,821

Depreciation and amortization Downstream Industrial Upstream Other and eliminations Total Operating Income Downstream Industrial Upstream Other and eliminations Total

Yara Financial Review 2007 Consolidated Financial Statement

57

Operating segment information, Consolidated income statement

NOK millions

2007

2006

2005

Share of net income in equity accounted investees Downstream Industrial Upstream Other and eliminations Total

312 (1) 1,316 (3) 1,624

165 5 1,287 6 1,463

78 (1) 1,069 (1) 1,144

EBIT Downstream Industrial Upstream Other and eliminations Total

2,549 1,448 2,994 (55) 6,936

1,469 547 2,875 200 5,092

1,539 518 3,199 (24) 5,231

EBITDA Downstream Industrial Upstream Other and eliminations Total

3,035 1,645 3,797 (36) 8,441

1,960 736 3,563 212 6,472

1,984 720 3,922 (9) 6,618

2007

2006

2005

Operating segment information, Other

NOK millions Investments Downstream Industrial Upstream Other and eliminations Total External interest income Downstream Industrial Upstream Other and eliminations Total

1,074 776 5,860 87 7,797

2,659 333 1,358 93 4,443

589 186 1,631 250 2,656

204 8 29 47 289

187 5 36 46 274

207 4 17 33 261

58

Operating segment information, Consolidated cash flow and other Non-GAAP measures

NOK millions, except percentages Gross cash flow after tax 1) Downstream Industrial Upstream Other and eliminations Total Gross investment 2) Downstream Industrial Upstream Other and eliminations Total Cash Return on Gross Investment (CROGI) Downstream Industrial Upstream Other and eliminations Total 1) Defined as EBITDA less total tax expense, excluding tax on net foreign exchange gain/(loss). 2) 12 month average.

2007

2006

2005

2,375 1,211 3,293 572 7,451

1,569 574 3,087 541 5,770

1,547 564 3,283 47 5,442

17,602 4,679 22,834 1,294 46,410

15,471 3,819 21,560 24 40,874

14,212 3,850 20,498 (684) 37,876

13.5 % 25.9 % 14.4 % Negative 16.1 %

10.1 % 15.0 % 14.3 % Negative 14.1 %

10.9 % 14.7 % 16.0 % Negative 14.4 %

59

Yara Financial Review 2007 Consolidated Financial Statement

Operating segment information, Consolidated balance sheet

NOK millions

2007

2006

Assets 1) Downstream Industrial Upstream Other and eliminations Total

23,067 4,952 19,492 115 47,626

17,646 2,874 11,556 1,187 33,263

Current assets 2) Downstream Industrial Upstream Other and eliminations Total

14,349 3,764 5,791 (1,713) 22,191

11,925 1,676 3,565 (667) 16,499

Non-current assets Downstream Industrial Upstream Other and eliminations Total

8,719 1,188 13,701 1,828 25,436

5,722 1,198 7,991 1,854 16,765

Equity accounted investees Downstream Industrial Upstream Other and eliminations Total Debt 3) Downstream Industrial Upstream Other and eliminations Total 1) Assets excludes internal cash accounts and accounts receivable related to group relief

2) Current assets excludes internal cash accounts and accounts receivable related to group relief.

3) Segment debt is defined as short-term interest free liabilities excluding income taxes payable and short-term deferred tax liabilities.

1,197 (104) 4,992 (9) 6,076

2,246 28 3,555 189 6,019

6,223 1,007 4,283 (2,137) 9,375

4,882 861 2,430 (1,527) 6,646

60

Geographical segment information, Revenue

NOK millions

1)

2007

2006

2005

Belgium Denmark Finland France Germany Great Britain Italy Spain Sweden The Netherlands Other Total EU

1,076 961 569 5,179 3,648 3,218 3,149 1,426 1,322 1,134 2,151 23,834

1,005 716 175 4,568 3,227 2,610 2,797 1,174 1,145 851 1,680 19,949

643 641 187 4,733 2,850 2,653 2,700 1,733 1,057 946 1,620 19,763

Norway Other Europe Total Europe

2,662 1,381 27,877

2,217 1,411 23,577

2,093 943 22,800

Africa Asia Australia and New Zealand North America South and Central America Total outside Europe

4,213 5,773 562 7,266 10,940 28,754

3,992 5,352 494 6,469 7,085 23,392

3,945 5,038 317 8,050 6,021 23,371

Total

56,631

46,969

46,171

1) Revenue are identified by customer location

Yara Financial Review 2007 Consolidated Financial Statement

61

Geographical segment information, Consolidated balance sheet Assets 1) NOK millions

Long-lived assets 1)

Investments 1)

2007

2006

2007

2006

2007

2006

Belgium Denmark Finland France Germany Great Britain Italy Spain Sweden The Netherlands Other Total EU

2,106 520 5,094 4,194 2,285 3,006 2,640 876 1,068 4,432 1,107 27,328

942 344 4,400 2,253 1,629 2,370 638 798 3,063 389 16,826

544 226 2,612 700 997 1,438 958 82 478 3,077 206 11,316

74 230 1,100 1,016 158 884 83 292 1,825 7 5,667

545 194 3,595 271 177 1,384 151 8 320 394 257 7,298

23 233 182 66 342 15 98 371 1 1,332

Norway Other Europe Total Europe

4,139 2,448 33,915

4,946 2,133 23,905

300 926 12,542

1,812 900 8,379

445 17 7,760

541 355 2,228

Africa Asia Australia and New Zealand North America South and Central America Total outside Europe Eliminations Total

2,301 4,335 743 1,698 9,160 18,237 (4,525) 47,626

2,097 3,954 788 1,468 5,793 14,100 (4,742) 33,263

99 3,175 705 285 5,599 9,862 22,407

94 2,660 674 273 2,933 6,633 15,012

85 11 15 (75) 36 7,797

13 284 75 21 1,823 2,215 4,443

1) The identification of assets, long-lived assets and investments is based upon location of operation. Included in long-lived assets are investments in non-consolidated investees; property, plant and equipment (net of accumulated depreciation) and non-current financial assets. Eliminations are related to internal transactions between geographical areas.

62

NOTE 5 Operating expense NOK millions Payroll and related costs Salaries Social security costs Social benefits Net periodic pension cost Total Other operating expense Selling and administrative expense Rental of buildings etc. Travel expense Loss on trade receivables Other expenses Total Research and development 1)

Notes

21

16

2007

2006

2005

(3,003) (548) (116) (348) (4,015)

(2,638) (493) (91) (166) (3,389)

(2,697) (495) (88) (261) (3,541)

(1,367) (165) (60) (21) (255) (1,868)

(994) (141) (55) (71) (285) (1,546)

(986) (129) (59) (47) (222) (1,444)

(94)

(122)

(104)

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 estimate of possible future financial returns of these activities.

Yara Financial Review 2007 Consolidated Financial Statement

63

NOTE 6 Share-based compensation A one-time cash-settled share-based incentive program was established in 2004 and nine persons in Yara’s Executive Management were granted 2,055,000 share incentive rights (SIRs) for a period covering 6 years. The SIRs vesting schedule is based on the performance of the Yara share on the Oslo Stock Exchange (OSE). Under the share-based incentive program the employees will receive a bonus if certain market performance criteria are met. Executive Management who are eligible for the share-based incentive program must remain in service for the whole vesting period. The bonus vests after two and three years, with 1/3 (grant A) and 2/3 (grant B) respectively, and can be exercised during the period 8 May 2007 to 8 May 2010. To participate in the SIRs, it was mandatory for the Executive Management to hold a certain number of Yara shares throughout the period of the program. The Executive Management has consented to invest half of the bonus net of taxes in the company’s shares and not sell the shares within one year from the exercise date. Number of shares held by Executive Manage­ ment 31 December 2007 is disclosed below. Edward Cavazuti was appointed Head of Downstream in October 2006 and as part of this appointment he was granted 200,000 SIRs. The SIRs vest 30 September 2009 and can be excersised during the period 1 October 2009 to 29 September 2012. Share incentive rights Yara has recorded a liability related to the SIRs plan of approximately NOK 143 million at 31 December 2007 (2006: NOK 163 million, 2005: NOK 96 million). During 2007 an expense of NOK 66 million has been recognized in the income statement in relation to the incentive pro­ gram (2006: NOK 67 million, 2005: NOK 75 million).The estimated fair values of grant A and B were at the time of granting NOK 12-17 per right. The market share price at 31 December 2007 was NOK 251,50 (2006: NOK 141.75, 2005: NOK 98.25). The fair value at 31 December 2007 for Executive Managements rights is disclosed in the table below.

Excecutive Management

Outstanding 01.01.2007

Granted 2007

Exercised 2007 3) 4)

Forfeited 2007

Expired 2007

Outstanding 31.12.2007

Strike NOK

Fair Value NOK 31.12.2007 1)

Total cap

Thorleif Enger Hallgeir Storvik Tor Holba Sven Ombudstvedt Terje Bakken Anne Grethe Dalane Arne Cartridge Kendrick T. Wallace Edward Cavazuti

500,000 200,000 200,000 200,000 150,000 90,000 90,000 125,000 200,000

-

(70,341) (30,785) (30,785) (30,785) (23,088) (13,853) (13,853) (19,240) -

-

-

429,659 169,215 169,215 169,215 126,912 76,147 76,147 105,760 200,000

46.16 46.16 46.16 46.16 46.16 46.16 46.16 46.16 83.15

205,10 205,10 205,10 205,10 205,10 205,10 205,10 205,10 173,05

- 2) 11,160,000 11,160,000 11,160,000 8,370,000 5,022,000 5,022,000 6,975,000 23,370,000

Daniel Clauw

350,000

-

(350,000)

-

-

-

46.16

-

-

1) Fair value is full fair value of the SIRs per unit. All of the Executive Management group have annual payout’ caps in their SIRs agreement.The total cap is the maximum payout the employee is entitled to under the SIRs program during the three annual periods in the remaining exercise period. 2) Thorleif Enger has a total cap for all remuneration including salary, performance related bonus, pensions and exercising of SIRs within the share-based incentive program of NOK 15 million per year in the excercise period. Remuneration other than SIRs described in note 31. 3) The Share Incentive Rights were exercised at the closing share price of NOK 167 with a strike price of NOK 46.16 per right. See also note 31 regarding SIRs exercised in 2007. 4) In february 2008 part of Yara’s Executive Management exercised additional SIRs.

The number of outstanding SIRs 1 January 2007 is in accordance with the original grant 7 May 2004 and of these 1/3 vested in May 2006 and 2/3 in May 2007. The estimated fair values are calculated using the Black Scholes Merton option pricing model.

64

2007 Initial grant (A&B) Expected volatility Risk free rate Expected life (years) Expected dividend (NOK)

33.6 % 4.78 % 2.4 5.16

2007 Edward Cavazuti 32.4 % 4.64 % 4.8 12.78

2006 Initial grant (A&B) 31.9 % 3.70 % 3.3 4.88

2006 Edward Cavazuti 31.9 % 4.36 % 5.8 12.01

Some minor adjustments have been included in the calculation to reflect special individual terms and conditions in the share-based incen­ tive program. Expected volatility has been determined by calculating the historical volatility of Yara’s share price for a period corresponding to the expected life of the options. The Yara Executive Management ownership of shares at 31 December 2007 Thorleif Enger 1) Hallgeir Storvik Tor Holba Sven Ombudstvedt Terje Bakken 1) Anne Grethe Dalane Arne Cartridge Kendrick T. Wallace 2) Edward Cavazuti

Number of shares 73,302 11,000 17,230 15,000 9,255 10,633 10,500 35,400 2,700

1) Includes shares owned directly and through fully owned companies. 2) Including 100 ADRs (American Depository Receipts).

Simplified share incentive program Within the scope of the program approved by the Board of Directors in 2004, a simplified share incentive program was introduced in 2005 for some managers who have signed an employment contract with Yara International Employment Company, to make themselves fully mobile on the request of the company. There are currently five employees in this program that have been granted 300,000 units in total.The fair value of the share incentive rights under this program at 31 December 2007 is NOK 51.2 million (2006: NOK 17.8 million, 2005: NOK 263,000). The calculation of fair value of these is based on the same principles and methodology as those of the Executive Management group. The strike prices are from NOK 76.50 to NOK 97.87 depending on the grant date. The assumptions used are also similar but take into consideration a longer vesting and exercise periods giving a risk-free rate of 4.65 %, expected life of 3.5 - 4,8 years and expected dividend of NOK 10.28 - 12.78. In 2008 an individual cap has been introduced limiting the aggregate maximum payout to NOK 37.9 million.

Yara Financial Review 2007 Consolidated Financial Statement

65

NOTE 7 Financial income and expense NOK millions Interest income on customer credits Interest income, other Dividends and net gain/(loss) on securities Interest income and other financial income Net foreign exchange gain/(loss) Interest expense Return on pension plan assets Interest expense re. pension liabilities Reversal of value of interest rate swap 1) Other financial expense Interest expense and other financial expense Net financial income/(expense) 1) Interest rate swap designated as cash flow hedge transferred from equity.

Notes

2007

2006

4 4

183 105 36 325

166 108 3 277

982

422

(480) 358 (370) (8) (81) (581)

(378) 298 (336) 1 (56) (471)

726

229

66

NOTE 8 Income taxes Specification of income tax expense The tax benefit/(expense) is calculated based on income before tax and consists of current tax and deferred tax. NOK millions Current taxes Current year Adjustments recognized in the current year in relation to the current tax of prior years Total Deferred taxes Relating to the origination and reversal of temporary differences Effect of changes in tax rates and laws Write-downs (reversals of previous write-downs) of deferred tax assets Reduction of deferred tax assets in relation to tax losses recognized Total Total income tax expense

2007

2006

2005

(1,247) 20 (1,227)

(631) 18 (613)

(845) 50 (795)

90 (31) 56 (150) (35)

(40) 62 (73) (169) (220)

(153) 11 128 (205) (219)

(1,262)

(833)

(1,014)

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 dif­ ferences). The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Reconciliation of Norwegian nominal statutory tax rate to effective tax rate Tax rate 2007

2007

2006

2005

Income before taxes and minority interest Expected income taxes at statutory tax rate 1) Tax law changes Losses and other deductions with no tax benefit Non-deductible expenses Foreign tax rate differences Tax free income equity accounted investees Tax free income miscellaneous Dividend exclusion Losses and other benefits not previously recognized 2) Tax free gain sale of investments Other, net Total income tax expense

28.0 % 0.2 % 2.0 % 0.6 % (0.3 %) (5.5 %) (1.1 %) (0.4 %) (2.0 %) (3.0 %) 1.4 % -

7,337 (2,054) (13) (147) (46) 23 400 80 30 146 215 104 (1,262)

5,043 (1,412) 70 (124) (27) (41) 306 77 (79) 43 233 121 (833)

4,224 (1,182) 18 (114) (66) (114) 145 122 71 165 (59) (1,014)

Effective tax rate

17.1 %

16.5 %

24.0 %

NOK millions

1) Calculated as Norwegian nominal statutory tax rate of 28 % applied to income before taxes and minority interests. 2) Use of deferred tax assets previously not recognized due to valuation allowances.

-

Yara Financial Review 2007 Consolidated Financial Statement

67

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 taxable 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. 2007

NOK millions

Balance 1 January

Charged to income

Charged Acquisitions/ to equity disposals

Changes in tax rate

Exchange Balance differences 31 December

Non-current items Property, plant and equipment Pensions Other non-current assets Other non-current liabilities and accruals Deferred gains/losses on sales Total

(201) 435 56 (49) (383) (142)

19 (29) 262 (40) (131) 81

(78) 18 (880) (940)

(76) (60) (172) (4) (71) (384)

16 (24) (4) 10 (11) (13)

16 (16) (4) 1 33 30

(226) 227 138 (64) (1,442) (1,366)

Current items Inventory valuation Accrued expenses, short-term Marketable securities Unrealized exchange gains/losses Total Tax loss carry forwards Valuation allowance Net deferred tax asset/(liability)

(135) 244 (11) (4) 94 435 (451) (63)

(37) 44 11 (10) 9 (150) 56 (4)

(940)

1 40 41 485 (607) (465)

5 (10) (5) (43) 30 (31)

4 (1) 3 (27) 16 22

(162) 317 (14) 142 699 (956) (1,482)

2006

NOK millions

Balance 1 January

Charged to income

Charged Acquisitions/ to equity disposals

Changes in tax rate

Exchange Balance differences 31 December

Non-current items Property, plant and equipment Pensions Other non-current assets Other non-current liabilities and accruals Deferred gains/losses on sales Total

(142) 434 63 (61) (195) 99

(50) (70) (5) (6) (13) (143)

22 22

(2) 40 (2) 11 (207) (160)

3 10 18 31

(8) 6 1 (2) 14 10

(201) 435 56 (49) (383) (141)

Current items Inventory valuation Accrued expenses, short-term Marketable securities Unrealized exchange gains/losses Total Tax loss carry forwards Valuation allowance Net deferred tax asset/(liability)

(138) 89 16 (34) 585 (414) 237

(14) 148 (11) (19) 103 (169) (73) (282)

22

(6) 33 27 24 (110)

31 (19) 13 (10) 29 62

(8) (7) (15) 5 7 8

(135) 244 (11) (4) 94 435 (451) (63)

68

Net deferred tax is presented in the balance sheet NOK millions Deferred tax assets Deferred tax liabilities Net deferred tax asset/(liability)

2007

2006

1,252 (2,734) (1,482)

1,175 (1,238) (63)

Undistributed earnings of foreign subsidiaries and in foreign equity accounted investees is approximately NOK 21 billion that for the main part can be distrubuted as tax-free dividends. For the part of undistributed earnings that is not tax exempted, a deferred income tax liability of NOK 206 million has been provided for. Specification of expiration of tax loss carry forwards NOK millions 2008 2009 2010 2011 2012 After 2012 Without expiration Total tax loss carry forwards Deferred tax effect of tax loss carry forwards

Yara’s tax losses carried forward primarily relates to the business in Belgium and Germany.

28 74 35 6 63 203 1,935 2,344 699

Yara Financial Review 2007 Consolidated Financial Statement

69

NOTE 9 Intangible assets NOK millions, except precentages and years Cost Balance at 1 January 2007 Addition at cost Disposal Acquisition new companies Acquisition of minority shares 1) Transfer Foreign currency translation Balance at 31 December 2007

Goodwill

463 852 (232) (95) (7) 982

Indefinite intangibles 2)

340 (2) 338

Patents/ trademarks

Software

Other intangibles

Total

52 1 (1) 139 67 (6) 252

81 18 (9) 13 51 155

159 (30) 174 (17) (10) 275

755 20 (40) 1,519 (232) 6 (26) 2,002

(37) (29) 2 (64)

(39) (32) 6 (19) (84)

(102) (23) 25 19 4 (78)

(178) (84) 31 6 (225)

15 188

42 71

56 198

Amortization/impairment Balance at 1 January 2007 Amortization Impairment loss Disposal Transfer Foreign currency translation Balance at 31 December 2007

-

-

Carrying value Balance at 1 January 2007 Balance at 31 December 2007

463 982

338

Cost Balance at 1 January 2006 Addition at cost Disposal Acquisition new companies Transfer Foreign currency translation Balance at 31 December 2006

38 410 16 464

-

43 (8) 15 2 52

70 1 (1) 2 8 81

137 11 (2) 3 7 2 159

288 422 (11) 20 15 20 755

Amortization/impairment Balance at 1 January 2006 Amortization Impairment loss Disposal Foreign currency translation Balance at 31 December 2006

-

-

(37) (1) 2 (1) (37)

(23) (17) 1 (39)

(86) (15) 1 (2) (102)

(146) (32) 4 (3) (178)

Carrying value Balance at 1 January 2006 Balance at 31 December 2006

38 463

-

5 15

48 42

51 56

142 577

-

-

3 - 15 5 - 35 %

3 - 15 5 - 35 %

3 - 15 5 - 35 %

-

Useful life in years Amortization rate

577 1,776

1) In January 2007, Yara acquired the remaining minority interests of 51,9 % of the non-voting shares in Fertibras for NOK 530 million. The difference between the cost of the additonal interest in Fertibras and the minority interest’s share of the assets and liabilities reflected in the concolidated balance sheet at the date of acquisition of the minority interest is reflected partly as an adjustment to goodwill (measured using IFRS 3 principles) and partly as an equity transaction. Due to the significant increase in the value of Fertibras investment in Fosfertil up to the date of acquisition of the minority interest, this has resulted in reduced goodwill of NOK 232 million. 2) Related to electricity contract in Kemira GrowHow with favourable tems. The contract is for an indefinite period

70

NOTE 10 Impairment testing of goodwill In accordance with IFRS 3 Business combinations, the net assets of the acquired companies were fair valued upon acquisition. The remain­ ing excess consideration after allocating the purchase price to all identifiable assets and liabilities is treated as goodwill. Goodwill is tested for impairment annually, or more frequently if there are indications that amounts might be impaired. The impairment test involves determining the recoverable amount of the cash-generating units, which corresponds to the fair value less costs to sell or the value in use. Where value in use calculations have been used to determine recoverable amounts for the cash-generating units these are determined using cash flows, which are based on business plans. The plans are based on past experience as well as future expected market trends. Discount rates applied to the cash flow forecasts in determining recoverable amounts are derived from the Group’s weighted average cost of capital. Growth rates used to extrapolate cash flow projections beyond the period covered by the most recent business plans. The goodwill allocated to the specific cash-generating units that have been tested are:

NOK millions

2007

2006

Carrying amount of goodwill Yara Brasil Yara Phosyn Kalthenbach Yara Ghana Yara Mexico Kemira GrowHow Other Total

98 13 37 12 20 801 1 982

371 38 38 16 1 463

Yara Brasil The goodwill tested for impairment in respect of Yara Brasil is NOK 98 million. The carrying amount recognized upon the aquisition of Fertibras has been allocated to the Brazilian business of Yara (including Fosfertil) as a cash-generating unit. The carrying values recognized upon acquisition have been assessed for impairment against the recoverable amount of the cash-generating unit and it has been concluded that the future cash inflows are sufficient to support the carrying value of recognized goodwill. See note 9. Yara Phosyn The goodwill tested for impairment in respect of Yare Phosyn is NOK 13 million. The carrying values recognized upon acquisition of Phosyn have been assessed for impairment against the expected future cash flows of Yara Phosyn and it has been concluded that the future cash inflows are sufficient to support the carrying value of recognized goodwill. Kaltenbach The goodwill tested for impairment in respect of Kaltenbach is NOK 37 million. The carrying values recognized upon acquisition have been assessed for impairment against the expected future cash flows of the business and it has been concluded that the future cash inflows are sufficient to support the carrying value of recognized goodwill. Yara Mexico The goodwill tested for impairment in respect of Yara Mexico is NOK 20 million. The carrying values recognized upon the acquisition of Olmeca have been assessed for impairment against the expected future cash flows of the entity and it has been concluded that the future cash inflows are sufficient to support the carrying value of recognized goodwill.

Yara Financial Review 2007 Consolidated Financial Statement

71

Kemira GrowHow Oyj As Yara recently acquired the business in Kemira GrowHow Oyj and its performance is as expected, the purchase price remains an appropri­ ate measure of the fair value taking into consideration costs to sell. Goodwill in relation to the transaction has been allocated to the following cash generating units: Upstream Finland (including phosphates business) NOK 601 million, Downstream Northern Europe NOK 57 mil­ lion, Downstream Continental Europe NOK 37 million, Upstream Belgium NOK 47 million, Industrial Belgium NOK 59 million. Yara has used a combination of value in use and fair value less cost to sell to determine the recoverable amounts of the cash generating units. Value in use is based on cash flow projections reflecting the financial business plans. In addition, the calculation includes estimated cash flows for the years 2 to 5. Key assumptions used in the calculation of value in use are growth rates, EBITDA, capital expenditure and discount rates. Cash flows beyond the five-year period are extrapolated with a long-term growth rate. The recoverable amounts have been determined for the cash generating units based on the following key assumptions for the years ending 31 December 2006 and 2007: Discount rate after tax (WACC) NOK millions Yara Brasil Yara Phosyn Kalthenbach Yara Ghana Yara Mexico Kemira GrowHow

Growth rate 2–5 years

Long-term growth rate

2007

2006

2007

2006

2007

2006

10.5 % 8.0 % 8.0 % 11.0 % 8.0 % 8.0 %

11.0 % 7.5 % 7.5 % 8.0 % -

3.0 % 3.0 % 2.0 % 3.0 % 3.0 % 3.0 %

3.0 % 3.0 % 2.0 % 3.0 % -

1.5 % 1.5 % 1.0 % 1.5 % 1.5 % 1.5 %

1.5 % 1.5 % 1.0 % 1.5 % -

In the calculation Yara has used estimated cash flows after tax and discount rate after tax. The 2007 pre tax discount rates were: Yara Brasil: 16.1 %, Yara Phosyn: 11.2 %, Yara Ghana: 14.1 % Kaltenbach: 12.2 % and Yara Mexico 10.8 %. Discount rates are based on Weighted Average Cost of Capital (WACC). The cost of a company’s debt and equity capital, weighted accord­ ingly to reflect its capital structure, gives its weighted average cost of capital. The WACC rates used to discount the future cash flows are based on risk free interest rates adjusted for country risk premium and also take into account the debt premium, market risk premium, gearing, corporate tax rate and asset beta. Average growth rates in revenues in the period 2 to 5 years, are based on Yara’s expectation to the market development in which the business operates. Yara uses steady growth rates to extrapolate the cash flows beyond 5 years. EBITDA represents the operating margin before depreciation and amortization and is estimated based on the estimated future development in the market. Committed operational efficiency programs are taken into consideration. Changes in the outcome of these initiatives may affect future estimated EBITDA margin. Capital expenditure necessary to meet the expected growth in revenues is taken into consideration. To the best of management’s judgement, estimated capital expenditures do not include capital expenditures that enhance the current performance of assets and related cash flows have been treated consistently. Cash generating units where a reasonable possible change in a key assumption could result in an impairment charge Overall, there is significant headroom between the recoverable amounts of goodwill and the carrying amounts. Yara management is of the opinion that, based on current knowledge, expected changes in key assumptions on which the determination of the recoverable amounts are based would not cause the carrying amounts of the cash-generating units to exceed the recoverable amounts.

72

NOTE 11 Property, plant and equipment NOK millions, except percentages and years Cost Balance at 1 January 2007 Addition at cost Disposal Acquisition new companies Transfer Foreign currency translation Balance at 31 December 2007 Depreciation and impairment Balance at 1 January 2007 Depreciation Impairment loss Reversed impairment Disposal Transfer Foreign currency translation Balance at 31 December 2007 Carrying value Balance at 1 January 2007 Balance at 31 December 2007 Useful life in years Depreciation rate

Machinery and Equipment 1)

Buildings 2)

384 14 (11) 420 1 (15) 793

22,778 1,016 (1,864) 1,425 607 (682) 23,280

3,353 140 (162) 705 125 (75) 4,086

(5) ­ (3) (8)

(17,168) (1,207) (62) 1,362 (2) 504 (16,572)

(2,204) (127) (4) 2 155 58 (2,119)

379 785

5,610 6,709

1,149 1,967

-

4 - 20 5 - 25 %

20 - 50 2-5%

Land

Plant under construct.

453 859 (94) 193 (737) (19) 655

Other

Total

123 14 (3) 277 (2) 409

27,090 2,044 (2,135) 3,021 (3) (793) 29,223

(113) (2) 3 (112)

(19,490) (1,336) (69) 2 1,520 (2) 563 (18,811)

453 655

10 297

7,600 10,412

-

5 - 10 10 - 20 %

-

1) Includes NOK 17 million related to finance leases for 2007 and NOK 5 million related to finance leases for 2006. 2) Includes NOK 11 million related to finance leases for 2007 and NOK 14 million related to finance leases for 2006.

Property, plant and equpitment pledged as security were NOK 16 million at 31 December 2007 and NOK 16 million at 31 December 2006.

The amount of contractual commitment for the aquisition of property, plant and equipment was NOK 629 million at 31 December 2007

and NOK 520 million at 31 December 2006.

Asset impairment is basically related to plant closure of Nuova Terni Industrie Chimiche SpA. Total impairment amounted to NOK 61 million.

Compensations from insurance companies recognized in the consolidated income statement amounted to NOK 2 million in 2007.

Yara Financial Review 2007 Consolidated Financial Statement

73

NOK millions, except percentages and years Cost Balance at 1 January 2006 Addition at cost Disposal Acquisition new companies Transfer Foreign currency translation Balance at 31 December 2006 Depreciation and impairment Balance at 1 January 2006 Depreciation Impairment loss Reversed impairment Disposal Transfer Foreign currency translation Balance at 31 December 2006 Carrying value Balance at 1 January 2006 Balance at 31 December 2006 Useful life in years Depreciation rate

Machinery and Equipment 2)

Buildings 3)

371 (33) 34 11 384

21,485 1,168 (807) 53 403 475 22,778

3,334 52 (163) 64 25 40 3,353

(5) (1) 1 (5)

(16,306) (1,122) (16) ­ 654 (1) (378) (17,168)

(2,107) (124) (60) 120 1 (33) (2,204)

366 379

5,180 5,610

1,227 1,149

-

4 - 20 5 - 25 %

20 - 50 2-5%

Land

Plant under construct.

391 485 (2) 2 (439) 17 453

Other

Total

794 195 (867) 123

26,375 1,901 (1,872) 153 (11) 544 27,090

(422) (19) 328 (113)

(18,839) (1,265) (78) 1,103 (411) (19,490)

391 453

372 10

7,536 7,600

-

5 - 10 10 - 20 %

-

-

74

NOTE 12 Associated companies and joint ventures Specification

NOK millions Qafco Tringen Carbonor NU3 SQYA Synagri Yaibera Burrup Fosfertil 1) Balderton GrowHow UK Ltd Yara Praxair Holding Other Total

NOK millions Qafco Tringen NHFL Carbonor NU3 SQYA Synagri Phosyn Yaibera Burrup Fosfertil 1) Balderton Other Total

Balance 01.01. 2007 2,089 198 49 73 570 44 535 672 1,176 357 256 6,019

Balance 01.01. 2006 1,875 230 59 72 73 678 54 42 423 624 268 4,400

Invest­ ments / (sale), net (1,187) 1,311 (149) 14 (11)

Invest­ ments / (sale), net 36 1,154 355 (33) 1,512

Longterm loans (187) (79) 31 (235)

Longterm loans (122) 74 1 (47)

Transfers to/from subsidiary (31) (31)

Transfers to/from subsidiary (42) (8) (50)

Yara's share of net income/ (loss) 787 184 120 8 72 11 104 151 (38) 45 (33) 1 231 1,643 Yara's share of net income/ (loss) 793 176 226 (25) 3 39 1 4 105 (19) 64 3 85 1,455

Depre­ ciation and writedown (12) (7) (19) Depre­ ciation and writedown (3) (1) (3) (7)

Dividends received (540) (203) (6) (31) (11) (39) (830)

Dividends received (458) (186) (279) (6) (2) (8) (2) (18) (60) (1,019)

Foreign currency translation and other (286) (26) (2) (3) (81) (1) (43) (40) 60 (23) 19 (34) (459) Foreign currency translation and other (121) (22) (2) 2 3 (58) (3) 1 7 (7) (24) 2 (223)

Balance 31.12. 2007 2,050 153 168 73 374 55 564 704 367 1,298 (148) 419 6,076

Balance 31.12. 2006 2,089 198 3 49 73 570 44 535 672 1,176 357 253 6,019

1) As a result of the ongoing discussions with Bunge in Brazil, Yara’s influence in Fosfertil is determined to be not significant. Effective fourth quarter 2007, the investment in Fosfertil was no longer booked as an equity-accounted investee, and only dividends received from Fosfertil will therefore be recognized in the results.

Due to it being impractical to obtain financial reporting at the same reporting date as Yara uses, there are for some of the associated compa­ nies and joint ventures a time-lag of 1-3 month for the numbers included.

Yara Financial Review 2007 Consolidated Financial Statement

75

NOK millions, except ownership Qafco Tringen Carbonor NU3 SQYA Synagri Yaibera Burrup Balderton GrowHow UK Ltd Yara Praxair Holding Other Total

Place of incorporation and operation Qatar Trinidad Italy Netherlands Chile Canada Cyprus Australia Switzerland UK Norway

Percentage owned by Yara (equals voting rights) 2007 25.0 % 49.0 % 50.0 % 50.0 % 49.0 % 50.0 % 30.0 % 30.0 % 50.0 % 50.0 % 50.0 %

Sales from Investees to Yara group 1)

Yaras ’ current receivable/ (payable) net with investees

2007

2006

2007

2006

(3,066) (1,510) (233) (281) (1,425) (1,104) (4,132) (140) 87 (11,804)

(2,110) (1,557) (158) (246) (830) (1) (921) (539) (303) (210) (6,875)

(502) 131 (17) 2 (54) 41 (8) 43 (17) (382)

(307) 132 (15) 3 (2) 50 (114) (254)

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

Business in equity-accounted investees Qatar Fertiliser Company (S.A.Q.), (“Qafco”), owns and operates a fertilizer complex for which Yara provides marketing support and tech­ nical assistance. Yara has 25 % ownership stake in Qafco, the remaining 75 % of Qafco is owned by Industries Qatar, a Doha Stock Market listed company, owned 70 % by Qatar Petroleum and 30 % by general public. QAFCO operates 4 ammonia plants and 4 urea plants. QAFCO has an ownership interest of 70 % in Gulf Formaldehyde Company, which produces and sell Urea Formaldehyde Concentrate. Tringen owns and operates an Ammonia complex for which Yara provides marketing support and technical assistance, regulated by Sales Agency agreements and a Management and Operating agreement, respectively. Yara has a 49 % ownership stake in Tringen, the remaining 51 % of Tringen is owned by National Enterprises Limited, which is a public registered Company, in which the Government of Trinidad & Tobago has majority shareholding. Tringen operates two separate plants for production of Ammonia Carbonor S.p.A, an Italian incorporated company, based in Milan, managed three ships on time charter contracts with Yara in 2007. Two of the vessels where sold during 2007 in line with last year’s ammonia fleet divestment. For these ships there is no sale and lease back agreement. Yara has a 50 % ownership in Carbonor, the remaining 50 % is owned by Carbofin S.p.A. At 31 December 2007 the company manages ships on time charter contracts with Yara. NU3 owns and operates two specialty fertilizers production facilities, one in the Netherlands and one in Belgium. NU3, which is a 50/50 joint venture between Yara and NutriSi (owned by SQM of Chile and Rotem, an Israeli company), is part of a worldwide alliance between Yara and SQM. NU3 sells specialty fertilizers through the Yara - SQM sales and marketing network. Yara has a 49 % interest in Inversiones SQYA s.a (“SQYA”), a Chilean investment company, as part of the strategy to strengthen its specialty fertilizer operations. Through this company Yara indirectly owns approximately 8 % of the shares in SQM, a Chilean company listed on the Chilean and New York Stock Exchanges, with a strong position in nitrate and potassium-based specialty fertilizer products as well as iodine and lithium. Synagri LP provides product and services to the retail agricultural sector. Yara has a 50 % ownership in Synagri and Cargill Limited owns the remaining 50 %. The joint venture sells in the Canadian provinces of Eastern Ontario and Quebec. Yara owns 30 % of OAO Minudobrenyia (“Yaibera”), a Russian nitrogen fertilizer producer based in Rossosh in the Voronesh region. The position is owned through a 37,692 % interest in Yaibera Holdings Limited, a company registrated in Cyprus, which owns 79,59 % in OAO Minudobreniya, The minority position is combined with a marketing agreement for NPK fertilizers to be exported from the Russian plant. This partnership represents an important element in Yara’s global market position within nitrophosphate based balanced fertilization. Yara owns 30 % of Burrup Holdings Pty Ltd. (“Burrup”), an Australian company based in Burrup Peninsula in Western Australia. The am­ monia plant is world scale with a capacity of 760,000 tons per year and started production in 2006. The natural gas supply to the plant is provided by an undersea field off the north-western coast of Australia. In addition to its ownership interest, Yara markets the entire output of the plant pursuant to a long-term exclusive marketing agreement.

76

As a result of the ongoing discussions with Bunge in Brazil, Yara’s influence in Fosfertil is determined to be not significant. Effective fourth quar­ ter, the investment in Fosfertil is no longer booked as an equity accounted investee, and only dividends received from Fosfertil will therefore be recognized in the results. The market value of Yara’s share of Fosfertil at 31 December 2007 was approximately NOK 3,9 billion. Yara owns 50 % of Geneva-based Balderton Fertilizers SA (“Balderton”). Balderton is one of the leading fertilizer and ammonia trading companies in Europe trading approximately 4,3 million tons of various products in 2007. This joint venture will strengthen Yara’s existing ammonia and fertilizer trade business, and will support further growth through improved sourcing capabilities and new distribution chan­ nels. Yara has a 50 % interest in GrowHow UK Limited, a joint venture company with Terra Industries Inc. with a turnover in excess of 500 mil­ lion euros. The company is based in Ince and is the UK’s leading manufacturer of ammonium nitrate and compound fertilizers, and a major supplier for process chemicals and utilities. GrowHow UK operates production sites in Billingham and Ince . The company is responsible for the combined Terra and Kemira GrowHow fertilizer and associated process chemical businesses in the UK and the Republic of Ireland. Yara has a 50 % interest in Yara Praxair Holding AS a joint venture company with Praxair, Inc. Yara Praxair is one of the leading industrial gases companies in Scandinavia. The company supplies atmospheric, process and speciality gases to a wide variety of industries: Food and beverages, healthcare, fish farming, chemicals, refining, primary metals and metal fabrication as well as other areas of general industry. The joint venture comprises Yara`s previous industrial gases business located in Norway, Denmark and Sweden. Carrying value and share of net income by segment for associated companies and joint ventures is disclosed in note 4. Associated companies and joint ventures - 100 % basis The following table sets forth summarized unaudited financial information of Yara’s associated companies and joint ventures on a 100 % combined basis. Yara’s share of these investments, which is also specified above, is accounted for using the equity method. NOK millions (unaudited) Current assets Non-current assets Current liabilities Non-current liabilities Net assets Yara's share of total equity Operating revenues Operating expenses Net income Yara's share of net income

2007

2006

13,728 20,769 (8,313) (6,312) 19,871

11,196 18,432 (4,288) (6,987) 18,354

5,944

5,458

10,718 (5,091) 5,626

12,546 (7,742) 4,804

1,643

1,455

Yara Financial Review 2007 Consolidated Financial Statement

77

NOTE 13 Equity securities NOK millions Total at 1 January Exchange Additions Disposals Reclassification Fosfertil from equity-accounted investee 1) Net gain/(loss) transferred to equity Total at 31 December Listed securities China BlueChemical, Ltd. Fosfertil 1) Other Unlisted equity securities Total at 31 December

Notes

2007

2006

12 12,19 14

582 (42) 127 (4) 1,356 2,759 4,778

28 (9) 412 150 582

14

571 3,925 5 277 4,778

420 162 582

1) As a result of the ongoing discussions with Bunge in Brazil, Yara’s influence in Fosfertil is determined to be not significant. Effective fourth quarter 2007, the investment in Fosfertil was no longer booked as an equity-accounted investee, and only dividends received from Fosfertil will therefore be recognized in the results. See note 12.

Sensitivity analysis - listed equity securities Fosfertil is listed on the Brazilian Stock Exchange. China BlueChemical is listed on Hong Kong Stock Exchange. Five percent increase in the share price of both China BlueChemical and Fosfertil will increase the equity with NOK 225 million (2006: NOK 21 million). Five percent decrease in share price will give the equal change in the opposite direction.

78

NOTE 14 Other non-current assets NOK millions, except percentages

Notes

Prepaid pensions Equity investments available-for-sale Interest rate swap designated as hedging instrument Long-term loans and receivables Total

21 13,27 26,27 27

Long-term loans and receivables Effective interest rate

2007

2006

680 4,778 8 453 5,919

314 582 497 1,393

4.7 %

4.4 %

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

NOTE 15 Inventories NOK millions Finished goods Work in progress Raw materials Total

2007 5,133 274 3,884 9,291

Write-down Reversal write-down

Previous write down has been reversed following increase in net realizable value due to improved sales prices.

(32) 17

2006 4,084 138 2,466 6,689 (40) 5

Yara Financial Review 2007 Consolidated Financial Statement

79

NOTE 16 Trade receivables NOK millions

Notes

2007

2006

9,324 (859) 8,465

7,728 (895) 6,834

NOK millions

2007

2006

Balance at 1 January Impairment reversal / (loss) recognized this year Balance at 31 December

(895) 36 (859)

(729) (166) (895)

Trade receivables Allowance for impairment loss Total

27

Movement in the allowance for impairment loss

Total impairment loss on trade receivables recognized in the income statement amounts to NOK 21 million (NOK 71 million in 2006 and NOK 47 million in 2005). Yara has sold receivables under a factoring agreement that does not qualify for derecognition due to provided recourse guarantee. The carry­ ing amount of the asset included in trade receivables and the associated liability included in other interest-bearing short-term debt is NOK 137 million at 31 December 2007. As at 31 December, the ageing analysis of trade receivables is as follows: Gross trade receivables Past due gross trade receivables

NOK millions

Total

Not past due gross trade receivables

2007 2006

9,324 7,728

6,870 5,731

NOK millions

Total

Neither past due nor impaired

< 30 days

30 - 90 days

90 - 180 days

> 180 days

2007 2006

8,465 6,834

6,848 5,727

1,038 534

318 246

114 208

147 118

NOK millions

Total

Impairment on not past due receivables

2007 2006

(859) (895)

< 30 days

30 - 90 days

90 - 180 days

> 180 days

1,051 537

328 257

147 248

927 955

Net trade receivables Past due but not impaired

Impairment of trade receivables

(23) (4)

Impairment on past due receivables < 30 days (13) (3)

30 - 90 days (10) (11)

90 - 180 days (32) (40)

> 180 days (780) (836)

80

NOTE 17 Prepaid expenses and other current assets NOK millions VAT and sales related taxes Financial derivatives Interest rate swap designated as hedge intrument Commodity derivatives and embedded derivatives Other current assets Prepaid expenses Total

Notes

27 27 27

2007 744 75 4 40 581 666 2,110

2006 734 27 280 500 432 1,974

NOTE 18 Cash and cash equivalents NOK millions Cash and cash equivalents

Notes 27

2007 2,325

2006 1,003

Cash and cash equivalents have an original maturity of three months or less. External bank deposits in subsidiaries that are not available for the use of the group at 31 December 2007 is NOK 168 million (NOK 122 million at 31 December 2006). The average interest rate for bank deposit is approximately 5.5 % at 31 December 2007 (5.6 % at 31 December 2006).

Yara Financial Review 2007 Consolidated Financial Statement

81

NOTE 19 Consolidated Shareholders’ Equity

NOK millions Balance at 31 December 2005 Net income Foreign currency translation, net Actuarial gain/loss recognized in equity Available for sale investments - change in fair value Hedge of net investments Cash flow hedges Total recognized income and expense Companies purchased/sold Treasury shares Redeemed treasury shares 3) Redeemed shares Norwegian State 3) Dividend's distributed Balance 31 December 2006 Net income Foreign currency translation, net Actuarial gain/loss recognized in equity Available for sale investments - change in fair value Cash flow hedges Hedge of net investments Cash flow hedges Total recognized income and expense Companies purchased/sold 4) Redeemed treasury shares 5) Redeemed shares Norwegian State 5) Dividend's distributed Balance 31 December 2007

Share Capital 1)

Premium paid-in capital

Hedging, fair value, translation and Other actuarial retained reserves 2) earnings 2)

Total retained earnings

Attributable to shareholders of the parent 13,219

Minority Interests

524

3,389

(329)

9,634

9,306

-

-

(143) 23 150 (2) (1) 28

4,188 4,188

4,188 (143) 23 150 (2) (1) 4,216

4,188 (143) 23 150 (2) (1) 4,216

22 6 28

4,210 (137) 23 150 (2) (1) 4,244

(301)

(26) (722) 13,073

(26) (722) 12,773

(27) (782) (444) (722) 15,459

486 (16) 575

486 (27) (782) (444) (738) 16,034

6,037 6,037

6,037 (1,267) 207 1,879 (46) 190 7 7,006

6,037 (1,267) 207 1,879 (46) 190 7 7,006

38 1 39

6,075 (1,267) 207 1,879 (46) 190 7 7,045

(316) 696 (739) 18,751

(316) 696 (739) 19,420

(316) (402) (739) 21,008

(407) (14) 193

(723) (402) (753) 21,201

(1) (13) (7) 503 (7) 496

1) Par value 1.70.

2) Included in retained earnings.

3) As approved by extraordinary General Meeting 16 October 2006, cancelled in 2006.

4) Related to Fertibras, see note 2.

5) As approved by General Meeting 10 May 2007.

(769) (437) 2,183 (696) (395) 1,092

(1,267) 207 1,879 (46) 190 7 969 669

77

Total equity 13,296

82

Minority interests are mainly related to the following units: Company

Country

Yara Brazil s.a. Yara Cameroun s.a. Yara Agri Trade Misr SAE Yara East Africa Ltd Yara Fertilizers Phillipines Inc Kemira GrowHow Thailand Ltd. AS Ammonia

Brazil Cameroun Egypt Kenya Phillipines Thailand Denmark

Minority interests in % 1.7 % 35.0 % 49.0 % 30.0 % 44.0 % 51.0 % 33.3 %

On 19 October 2004, Yara started to purchase own shares, as is part of the buy-back programs approved by Yara’s General Meeting 16 June 2004, 19 May 2005, 11 May 2006 and 10 May 2007. The programs opened for buy-back of up to 5 % of Yara’s shares in the market. The cur­ rent buy-back program is valid until 9 May 2008. According to the current buy-back program, the purchase price shall not be less than NOK 10 or more than NOK 300. As part of the program approved in 2006, Yara bought 7,274,500 shares that were cancelled in May 2007. For the current program, the intention is either to cancel the shares or to use the shares as payment in business transactions. The decision must be made by Yara’s General Meeting. For the current share buy-back program, Yara’s largest shareholder, the Norwegian State, has committed to sell a proportional part of its shares, leaving the State’s ownership unchanged at 36.21 %. The compensation to the State will be equal to the average price paid in the mar­ ket for the buy-back shares, plus interests of NIBOR +1 %, calculated from the date of the acquisition of the corresponding shares. Dividend proposed for 2007 is NOK 4 per share, amounting to NOK 1,166 million. As part of the program approved in 2006, 4,129,587 shares were bought from the Norwegian State, leaving the State’s 36.21 % ownership unchanged. The price for the shares bought from the Norwegian State was NOK 402 million. Yara also purchased own shares that were reissued to employees. At 31 December 2007, 922 of these shares were still with the employee trust which was established for this special purpose. The trust is included in Yara’s consolidated financial statements. Ordinary shares

Own shares 1)

Balance at 31 December 2005

314,737,356

(6,500,800)

Redeemed shares Norwegian State 2) Shares cancelled 2) Treasury shares Balance at 31 December 2006

(4,257,712) (7,500,200) 302,979,444

7,500,200 (8,278,860) (7,279,460)

Redeemed shares Norwegian State 3) Shares cancelled 3) Treasury shares 4) Balance at 31 December 2007

(4,129,587) (7,274,500) 291,575,357

7,274,500 4,038 (922)

1) Including employee trust.

2) As approved by extraordinary General Meeting 16 October 2006.

3) As approved by General Meeting 10 May 2007.

4) Adjustment of shares held by employee trust.

Yara Financial Review 2007 Consolidated Financial Statement

83

NOTE 20 Earnings per share NOK millions, except number of shares

2007

2006

2005

Earnings Net income for the purposes of basic earnings per share (profit for the year attributable to the equity holders of Yara International ASA)

6,037

4,188

3,198

Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share

293,028,848

302,071,267

313,393,652

The denominators for the purposes of calculating basic earnings per share have been adjusted for the buyback of shares held by the the Norwegian State from the time of approval at the Annual General Meeting. Yara currently has no share-based compensation that results in a dilutive effect on earnings per share.

84

NOTE 21 Employee retirement plans and similar obligations The Group companies have various pension schemes in accordance with the local conditions and practices in the countries in which they operate. Some companies have defined benefit retirement plans that cover substantially all of their employees and most of the defined benefit retirement plans are funded with plan assets that have been segregated in separate funds or pension funds. Benefits are generally based on years of service and final salary levels. Other companies have defined contribution plans. In these defined contribution plans the companies make agreed contributions when employees have rendered services entitling them to the contributions. The Group has no legal or construc­ tive obligations to pay further contributions. Some companies make contributions to multi-employer pension plans included in a joint ar­ rangement with others. All multi-employer plans are accounted for as defined contribution plans. Balance sheet obligations NOK millions Pension liabilities defined benefit plans Termination benefits and other Prepaid pensions defined benefit plans Total net employee benefits recognized in balance sheet

2007

2006

(1,745) (167) 680 (1,232)

(2,058) (134) 314 (1,877)

Income statement charge NOK millions

2007

2006

2005

Defined benefit plans Defined contribution plans Multi-employer plans Termination benefits and other Total pension cost

(150) (56) (40) (129) (375)

(17) (32) (38) (113) (200)

(216) (10) (35) (51) (312)

2007

2006

(1,300) (7,458) (8,759) 7,761 13 (80) (1,065)

(1,401) (6,264) (7,665) 5,995 10 (84) (1,743)

Defined benefit plans Specification of recognized liability NOK millions Present value of unfunded obligations Present value of wholly or partly funded obligations Total present value of obligations Fair value of plan assets Past service cost not recognized in the balance sheet (unvested) Social security on defined benefit obligations Total recognized liability for defined benefit plans

Yara Financial Review 2007 Consolidated Financial Statement

85

Expense recognized in profit or loss NOK millions

2007

2006

2005

Current service cost Contribution by employees Past service cost (vested) Interest on obligation Expected return on plan assets Curtailments Social security cost Total expense recognized in profit or loss

(153) 14 (7) (365) 358 12 (8) (150)

(165) 14 (15) (331) 298 170 12 (17)

(157) 13 (1) (315) 262 (18) (216)

With effect from 1 July 2006 Yara implemented a new pension plan in Norway. All Norwegian companies changed from a defined benefit plan to a defined contribution plan. This plan will apply to the future pension earnings of existing employees under 55 and all new employ­ ees. Employees aged 55 and over will remain in the existing defined benefit plan. The net impact on the income statement for 2006 from this change was a gain of NOK 165 million. In 2007 there was a curtailment gain of NOK 12 million in Italy. The expense is recognized in the following line items in the income statement NOK millions

2007

2006

2005

Payroll and related costs Interest expense and other financial items Total expense recognized in profit or loss

(143) (7) (150)

16 (34) (17)

(163) (52) (216)

2007

2006

(7,665) (153) (365) 444 (9) 211 (2,098) 12 36 384 446 (8,759)

(7,176) (165) (331) (175) (13) 50 (99) 170 312 (238) (7,665)

Movement in the liability for defined benefit obligations NOK millions Liability for defined benefit obligations at 1 January Current service cost Interest cost on obligation Actuarial gains / (losses) on obligation Past service cost Obligation transferred on disposal of subsidiaries Obligation acquired on acquisition of subsidiaries Curtailments Settlements Benefits paid Exchange difference on foreign plans Liability for defined benefit obligations at 31 December

86

Movement in fair value of plan assets NOK millions

2007

2006

5,995 358 (175) 210 14 (171) 2,248 (338) (379) 7,761

5,278 298 218 211 14 (31) 71 (253) 190 5,995

NOK millions

2007

2006

Cumulative amount recognized directly in equity pre tax at 1 January Recognized during the period 1) Cumulative amount recognized directly in equity pre tax at 31 December Deferred tax related to actuarial (gains) / losses recognized directly in equity Cumulative amount recognized directly in equity after tax at 31 December

218 (382) (163) 25 (138)

227 (8) 218 (74) 144

Fair value of plan assets at 1 January Expected return on plan assets Actuarial gains / (losses) on plan assets Employer contributions Employees contributions Plan asset transferred on disposal of subsidiaries Plan asset acquired on acquisition of subsidiaries Benefits paid Exchange difference on foreign plans Fair value of plan assets at 31 December

The actual return on plan assets in 2007 was NOK 175 million (2006: NOK 522 million). Movement in actuarial (gains) / losses recognized directly in equity

1) Only related to defined benefit plans.

Plan assets are comprised as follows NOK millions, except for percentages Equity instruments Debt instruments Investments/lending to Yara Group companies 1) Bank deposits Other Total plan assets

2007 2,762 4,341 262 40 357 7,761

1) Loan from Pension fund to Kemira GrowHow Oyj.

Contributions expected to be paid to the defined benefit plans for 2008 are NOK 287 million.

2006 36 % 56 % 3% 1% 5% 100 %

2,307 3,554 73 61 5,995

38 % 59 % 1% 1% 100 %

Yara Financial Review 2007 Consolidated Financial Statement

87

Principal weighted average actuarial assumptions at 31 December 2007 Discount rate Expected rate of return on plan assets Expected rate of salary increases Future rate of pension increases

2006

5.2 % 5.4 % 3.3 % 2.3 %

4.6 % 5.8 % 3.2 % 2.2 %

The discount rate is a weighted average of the yields at the balance sheet date on AA credit rated corporate bonds, or government bonds where no market for AA credit rated corporate bonds exists. If the bonds have different maturities than the obligations, the discount rate is adjusted. Yara provides defined benefit plans in several countries and in various economic environments that will effect the actual weighted average discount rate applied. The weighted average discount rate applied at 31 December 2007 was 5.2 %. Normal assumptions for demographical and retirement factors have been used by the actuaries when calculating the obligation. Future mortality are based on published statistics and mortality tables. The weighted average expected long-term rate of return on plan assets is 5.4 %. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments. The expected rate of return on plan assets as seen in the income statement for 2007 was 5.8 %. Historical information NOK millions Present value of the defined benefit obligation Fair value of plan assets Deficit in the plan 2) Experience adjustments arising on plan liabilities 1) Experience adjustments arising on plan assets 1)

2007

2006

2005

2004

(8,759) 7,761 (997)

(7,665) 5,995 (1,670)

(7,176) 5,278 (1,898)

(6,348) 4,591 (1,757)

53 (183)

15 219

-

-

1) In accordance with the transitional provisions for the amendments to IAS 19 “Employee Benefits” in December 2004, the disclosures above about experience adjustments are determined prospectively from the 2006 reporting period. Yara Group first applied the amendments in paragraph 120A in 2006. It is impractical to obtain numbers for experience adjustments for 2005 and previous years. 2) Social security cost is not included.

88

NOTE 22 Provisions and contingencies NOK millions

Environmental

Restructuring

Legal Claims

Other

Total

Balance at 1 January 2006 Additional provision in the year Unused provision Utilisation of provision Companies purchased/sold Currency translation effects Balance at 31 December 2006

122 33 (17) (10) (2) 127

101 138 (21) (93) (1) 5 129

16 109 (1) 26 (2) 148

31 51 (15) (13) 2 56

270 330 (53) (117) 25 3 459

Additional provision in the year Unused provision Utilisation of provision Companies purchased/sold Currency translation effects Balance at 31 December 2007

28 (17) 50 (4) 184

164 (7) (85) 2 (5) 197

36 (7) (4) 34 4 211

97 (37) (11) 109 (4) 209

324 (52) (117) 195 (9) 801

Provisions and contingencies presented in the balance sheet NOK millions Current Non-Current Total

Actual 2007 365 436 801

Actual 2006 141 318 459

Yara’s future cost for environmental clean-up depends on a number of uncertain factors, such as the extent and type of remediations re­ quired. Due to uncertainties inherent in the estimation process, it is possible that such estimates could be revised in the near term. In addi­ tion, conditions which could require future expenditures may be determined to exist for various sites, including major production facilities and product storage terminals. The amount of such future costs is not determinable due to the unknown timing and extent of corrective actions which may be required. Yara’s operations are subject to environmental laws and regulations. These laws and regulations are subject to change, and such changes may require that the company make investments and/or incur costs to meet more stringent emissions standards or to take remedial actions related to e.g. soil contamination. Restructuring mainly relates to closure or significant reorganisation of business locations in a country or region. The provision is a best estimate based on the detailed formal plan for the business and location affected. Yara is party to a number of lawsuits in various jurisdictions arising out of the conduct of its business. None of these lawsuits, individually or in aggregate, is anticipated to have a material adverse effect on Yara. Other consists of various provisions for constructive obligations as a result of past events.

Yara Financial Review 2007 Consolidated Financial Statement

89

NOTE 23 Long-term debt Long-term debt payable in various currencies Weighted average interest rates

Denominated amounts 2007

Balance in NOK 2007

Balance in NOK 2006

5.9 % -

496 -

2,685 2,685

3,091 3,091

4.9 % 4.5 % 9.5 % 11.0 % 3.9 % -

1,100 33 14,000 12 -

5,946 261 170 37 6,415

1,406 176 76 1,659

Lease obligation Mortgage loans Other long-term debt Total

-

-

17 109 6 132

7 21 28

Outstanding long-term debt Less: Current portion Total

-

-

9,232 (27) 9,205

Amounts in millions USD (Coupon 5.25 %) 1) Total unsecured debenture bonds USD EUR XOF (Ivory Coast) BRL (Brazil) MYR (Malaysia) Total unsecured bank loans 2)

4,777 (45) 4,732

1) Fixed interest rate until 2014. 2) Repricing within a year.

At 31 December 2007, the fair value of the long-term debt, including the current portion, was NOK 9,264 million and the carrying value was NOK 9,232 million. Yara builds its funding on a negative pledge structure with the basic funding ranging pari passu. Substantially all unsecured debenture bonds and unsecured bank loan agreements therefore contain provisions restricting the pledging of assets to secure future borrowings. Of the long-term debt at the end of 2007, the USD 496 million bond debt originated from Yara’s December 2004 bond issue according to 144A/ Regulation S. The balance includes issuance discount and capitalized issuance costs. Yara’s additional long-term funding is based on bank loans, where the USD 1 billion committed bank facility due 2012 still constitutes a major part. USD 500 million was drawn on this facility at year end. In December 2007 Yara obtained a term loan of USD 180 million from the Nordic Investment Bank (NIB) in connection with the acquisition of Kemira GrowHow. The loan has a grace period of 4 years followed by linear instalments over 12 years. At year end, Yara’s bridge fund­ ing related to the Kemira GrowHow acquisition totalled USD 420 million due 2009. This bridge funding was refinanced in February 2008 through the establishment of a EUR 300 million syndicated bank facility due 2013. A minor portion of the long-term debt was arranged in OECD.

90

Payments on long-term debt fall due as follows

NOK millions 2008 2009 2010 2011 2012 Thereafter Total

Debentures

Bank loans

Lease and other l.t. loans

Total

2,685 2,685 1)

19 2,457 104 160 2,788 886 6,415 2)

7 4 8 1 112 132

27 2,461 112 161 2,788 3,684 9,232

1) Of which Yara International ASA is responsible for NOK 2,685 million. 2) Of which Yara International ASA is responsible for NOK 5,946 million.

NOTE 24 Trade payables and other payables NOK millions

Notes

Trade payables Payroll and value added taxes Prepayments from customers Other liabilities Total

26,27 27 27

2007 6,233 1,012 439 542 8,226

2006 4,502 764 161 488 5,915

NOTE 25 Bank loans and other short-term interest bearing debt NOK millions, except for percentages Bank loans and overdraft facilities 1) Commercial papers Other 1) Total Weighted Average Interest Rates Bank loans and overdraft facilities Commercial papers Other

Notes

27

2007

2006

756 831 430 2,017

1,448 127 1,575

7.26 % 4.81 % 4.13 %

5.93 % 6.89 %

1) Repricing minimum annually.

At 31 December 2007, Yara International ASA has unused short-term credit facilities with various banks totalling approximately NOK 800 million.

91

Yara Financial Review 2007 Consolidated Financial Statement

NOTE 26 Risk management and hedge accounting Risk management policies Risk management in Yara is based on the principle that risk evaluation is an integral part of all business activities. Yara has established pro­ cedures for determining appropriate risk levels for the main risks and monitoring these risk exposures. Based on the overall evaluation of risk, Yara may use derivative instruments such as forward contracts, options and swaps to reduce exposures. Yara’s business model and positions provide natural hedges to reduce business risks inherent in the market. The most important of these is the quality and efficiency of Yara’s production facilities, which ensures its competitive position. Furthermore, Yara’s geographical spread supports a diversified gas supply, reducing the impact of regional price changes, and a reduced exposure to the inherent seasonality of the fertilizer business. Yara’s substantial sales of differentiated products, comprising specialty fertilizers and industrial products, also contribute to more stable margins for the business as a whole. Finally, a certain correlation between energy prices and fertilizer prices reduces the vola­ tility in Yara’s results. Yara manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimization of the debt and equity balance. Main elements of the funding strategy are to secure long-term debt and to base the funding of Yara on diversified capital sources to avoid dependency on single markets. Yara aims at an even debt repayment schedule and has secured committed undrawn credit facilities to provide financial flexibility. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 23, cash and cash equivalents and equity attributable to equity holders of the parent, comprising paid-in capital and retained earnings as disclosed in notes 18 and 19. The financial structure of Yara should give Yara the necessary flexibility to capture the right industrial opportunities when they arise. As such opportunities typically materialize at low points in the business cycle, Yara will seek to build financial capacity in good times. Yara aims to maintain a long-term mid investment grade rating level, i.e. minimum BBB according to Standard & Poor’s methodology and Baa2 according to Moody’s methodology. Yara maintained the Baa2 rate from Moody’s, but was downgraded from BBB+ in 2006 to BBB in 2007 by Standard & Poor’s. The debt/equity ratio at the end of 2007, calculated as net interest-bearing debt divided by shareholders’ equity plus minority interest, was 0.42 compared with 0.33 at the end of 2006. The Yara Group are not subject to any externally imposed capital requirements. There were no changes in the Group’s approach to capital management during the years end 31 December 2007 and 31 December 2006. See also the Report of the Board of Directors for Yara’s financial goals and dividend policy. Yara’s Finance function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Finance function reports regularly to the Group’s management. The Group may seek to manage the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, inter­ est rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Currency risk Prices of Yara’s most important products are either directly denominated or determined in US dollars. In markets outside the US, local prices will generally adjust to fluctuations in the US dollar exchange rate, however with a certain time lag. Yara’s raw materials costs, such as natural gas used in the production of ammonia, are either denominated in US dollars or highly correlated to changes in the US dollar exchange rate. In order to hedge Yara’s long-term exposure to fluctuations in the US dollar exchange rate, Yara incurs most of its debt in US dollars. A certain portion of the total debt is, however, kept in various local currencies in order to finance local currency exposed business positions. Yara utilizes derivative instruments to manage foreign currency exchange rate risks by adjusting the composition of the debt portfolio to changes in Yara’s overall risk exposure. Derivative instruments are also utilized to manage foreign currency exchange rate risk related to forecast

92

purchases and sales or to offset short-term liquidity needs in one currency with surplus liquidity in another currency. Such forward contracts are not designated as hedging instruments for accounting purposes. Changes in fair value are therefore recognized in the income statement. The foreign exchange gain for the year was NOK 982 million, compared with NOK 422 million in 2006. Throughout the year, the part of Yara’s US dollar debt established to hedge future earnings was kept in the range of USD 1,000-1,500 million (2006: USD 450-650 million). Sensitivity A 10 % strengthening of the Norwegian kroner against the following currencies at 31 December would have increased (decreased) profit or loss by the amounts shown below. Changes in currency rates would not affect equity. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2006. NOK millions 31 December 2007 USD EUR

1,022 (309)

31 December 2006 USD EUR

496 (222)

A 10 % weakening of the Norwegian kroner against the above currencies at 31 December would have had the equal but opposite effect to the amounts shown above. Interest rate risk Yara is exposed to fair value risk and cash flow risk from its debt portfolio as disclosed in note 21. Yara aims to secure a significant part of its debt at fixed interest rates. During 2007, this was achieved by keeping USD 400 million of the USD 500 million fixed interest bond issue. This was done by an interest rate swap of USD 100 million from fixed to floating. Information about financial instruments designated as hedge instruments are presented in the derivative section below. At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: NOK millions Fixed portion of bond Net interest-bearing debt less fixed portion of bond Net interest-bearing debt at 31 December

2007 2,148 6,776 8,924

2006 2,473 2,877 5,350

Sensitivity The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore changes in interest rates will not affect the interests on the USD 400 million portion of the bond debt which is not hedged. Yara Group has no interest-bearing financial instruments where effects are booked directly to equity. Therefore equity will not be affected by interest rate changes. An increase of 100 basis points in interest rates at the reporting date would have decreased profit or loss by NOK 68 million (2006: NOK 29 million). This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2006. A decrease of 100 basis points at the reporting date would have had the equal but opposite effect to the amounts shown above. Commodity price risks 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 commodities. Yara also purchases natural gas, electricity and other commodities. The prices of these commodities can be volatile and may create fluctuations in Yara’s earnings. To manage this risk, Yara’s financial policy prioritizes maintaining a low debt/equity ratio and maintain­ ing liquidity reserves. Yara utilizes derivative instruments to manage certain price risk exposures and also for some position taking within the limits established by the risk management policies. A limited number of ordinary sales and purchase contracts contain price links against other products that are regarded as embedded derivatives recognized at fair value. The reason for embedding other price links in these contracts is normally to secure a margin for Yara. Information about commodity derivatives is presented in the derivative section below.

Yara Financial Review 2007 Consolidated Financial Statement

93

Credit risk Yara has a well-established system for credit management with established limits at both customer and country level. Yara’s geographically diversified portfolio reduces the overall credit risk of the group. Credit risk arising from the inability of the counter-party to meet the terms of Yara’s financial instrument contracts is generally limited to amounts, if any, by which the counter-party’s obligations exceed Yara’s obliga­ tions. Yara’s policy is to enter into financial instruments with various international banks with established limits for transactions with each institution. Due to Yara’s geographical spread and significant number of customers there are no significant concentrations of credit risk. Therefore, Yara does not expect to incur material credit losses on its portfolio or other derivative financial instruments. The maximum exposure to credit risk is represented by the carrying amount of each class of financial assets, including dervative financial instruments recorded in the balance sheet. Liquidity risk Yara manages liquidity risk by maintaining adequate reserves and committed bank facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in notes 23 and 25 are overviews of undrawn facilities that the Group has at its disposal to further reduce liquidity risk. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of net­ ting agreements: 31 December 2007

NOK millions Non derivative financial liabilities Short-term interest-bearing debt Long-term interest-bearing debt Obligations under finance leases Accrued interest expense Accounts payable Payroll and value added taxes Other short-term liabilities Other long-term liabilities Derivative financial instruments Freestanding financial derivatives Outflow Inflow Commodity derivatives Outflow Inflow Hedge designated derivatives Outflow Inflow Total

Carrying amount

Contrac­ tual cash flows

On demand

6 months or less

6-12 months

1-2 years

2-5 years

More than 5 years

(2,017) (9,215) (17) (37) (6,233) (1,012) (231) (95)

(2,315) (11,824) (19) (67) (6,246) (1,013) (231) (96)

(671) (169) (56) (31) (7)

(1,219) (228) (1) (40) (5,920) (745) (145) (13)

(425) (195) (2) (4) (269) (164) (85) (5)

(2,815) (10) (8) (56) (3)

(3,819) (6) (15) (4) (30)

(4,597) (14) (37)

(6) (190) 12 -

(5,133) 5,138 (224) (25) 50

(5,133) 5,138 (28) 28 1

(136) 5 6

(60) (53) 12

(5) 22

(19,041)

(22,004)

(8,305)

(1,275)

(2,992)

(3,858)

(934)

8 (4,641)

94

31 December 2006

NOK millions Non derivative financial liabilities Short-term interest-bearing debt Long-term interest-bearing debt Obligations under finance leases Accrued interest expense Accounts payable Payroll and value added taxes Other short-term liabilities Other long-term liabilities Derivative financial instruments Freestanding financial derivatives Outflow Inflow Commodity derivatives Outflow Inflow Hedge designated derivatives Outflow Inflow Total

Carrying amount

Contrac­ tual cash flows

On demand

6 months or less

6-12 months

1-2 years

2-5 years

More than 5 years

(1,575) (4,770) (7) (14) (4,502) (764) (318) (68)

(1,576) (7,411) (7) (14) (4,501) (764) (318) (68)

(300) (167) (41) (4) (2)

(1,230) (131) (14) (4,302) (515) (253) (10)

(47) (128) (2) (31) (147) (61) (6)

(432) (2) (52) ­ (3)

(729) (3) ­ (8) (8)

(5,990) ­ (1) (39)

1 131 (16) -

(3,707) 3,719 64 92 (19) -

(3,707) 3,719 64 82 (2) -

10 (2) -

(3) -

(4) -

(7) -

(11,903)

(14,511)

(6,300)

(416)

(492)

(752)

(6,038)

­ (514)

Derivative instruments

NOK millions

2007

2006

Fair value of derivatives Forward foreign exchange contracts Interest rate swaps Embedded derivatives in sales and purchase contracts 1) Commodity derivatives 1) Balance 31 December

38 (32) (142) (48) (184)

1 (16) (22) 153 116

Derivatives presented in the balance sheet Assets Liabilities Balance 31 December

127 (311) (184)

307 (191) 116

1) Mainly natural gas and oil products.

95

NOK millions

Forward foreign exchange contracts, notional amount

Yara Financial Review 2007 Consolidated Financial Statement

2007

4,751

2006

3,438

All outstanding contracts at 31 December 2007 have maturity in 2008. Buy positions are mainly in euro and Norwegian kroner. Sell posi­ tions are in various operating currencies, mainly US dollar. The total net gain recognized in the consolidated income statement during the year on derivatives held for trading recognized at fair value through profit or loss was NOK 229 million (2006: gain NOK 246 million). Hedge accounting Fair value hedge The interest rate swap outstanding at 31 December 2007 is a fixed to floating interest rate swap for USD 100 million. This derivative is des­ ignated as a hedge instrument for the change in fair value due to changes in risk free interest rates of a USD 100 million portion of the bond debt. The swap has identical interest basis, interest payment dates and maturity (2014) to the hedged debt and is assessed to be highly effec­ tive. The change in fair value of the derivative is recognized in the consolidated income statement, and is offset by an opposite change in fair value of the corresponding portion of the bond debt. At 31 December 2007 the loss on the fair value hedge included in the carrying amount of the fixed rate debt was NOK 8 million (2006: gain NOK 16 million). There are not recognized any ineffectiveness in 2006 and 2007. Cash flow 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 these contracts was recognized directly against equity and will be reclassified into interest expense and income tax over the duration of the bond (due in 2014). The reclassification into interest expense for 2007 was NOK 9 million (2006: NOK 9 million) and the related deferred tax benefit was NOK 3 million (2006: NOK 2 million). By the acquisition of Kemira GrowHow in 2007, the Group entered into a hedge of a euro 20 million floating rate loan. The hedge was initial entered into in 2004 by Kemira GrowHow. The hedging instrument is a interest rate swap where the Group pays 5 year fixed and receives 6 month EURIBOR. It is semiannual interest fixing. Interests are paid on fixing dates. There are not recognized any ineffectiveness in fourth quarter 2007. NOK 1 million is recognized directly in equity in fourth quarter 2007. Hedge of net investment At 31 December 2007, the Group held USD 250 million (2006: USD 150 million) of debt designated as hedge of net investment in foreign entities. The hedge was assessed to be highly effective. At 31 December 2007 the hedge had a fair value of NOK 188 million recognized as gain in equity (2006: loss NOK 2 million). There are not recognized any ineffectiveness in 2006 and 2007.

96

NOTE 27 Fair value financial instruments The fair values together with the carrying amounts shown in the balance sheet Carrying amount 2007

Fair value 2007

Carrying amount 2006

Fair value 2006 value

NOK millions

Notes

Available-for-sale financial assets Equity securities available-for-sale

13,14

4,778

4,778

582

582

14 16 18

453 10,416 2,325

453 10,416 2,325

497 8,418 1,003

497 8,418 1,003

23 23 23

(2,685) (6,503) (17) (107) (7,915) (2,044)

(2,726) (6,503) (17) (107) (7,915) (2,044)

(3,091) (1,634) (7) (86) (5,745) (1,621)

(3,028) (1,634) (7) (86) (5,745) (1,621)

75 (37)

75 (37)

27 (26)

27 (26)

(44)

(44)

40 (230)

40 (230)

280 (149)

280 (149)

12 (1,483)

12 (1,523)

(16) (1,568)

(16) (1,505)

Loans and receivables Long-term loans and receivables Trade receivables and other receivables Cash and cash equivalents Financial liabilities measured at amortized cost Unsecured bond issue 1) Unsecured long-term interest-bearing debt Finance lease liabilities Other long-term liabilities Trade payables and other payables Short-term interest-bearing loans Derivatives measured at fair value through profit or loss held for trading Foreign exchange contracts Assets Liabilities Interest rate derivative contracts Assets Liabilities Commodity derivatives and embedded derivatives Assets Liabilities Derivatives designated for hedging Interest rate contracts designated as hedging instrument Assets Liabilities Total Unrecognized gain/(loss)

24 25

26 17

26 17

-

-

26

(40)

63

1) Fixed rate debt.

Principles for estimating fair value The following summarizes the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table. Equity securities available-for-sale The fair value of investments in listed companies is based on year-end quoted market prices. For non-listed investments carrying value is assessed to give a reasonable approximation of fair value. There were no disposals or impairment for available-for-sale financial assets in 2006 or 2007.

97

Yara Financial Review 2007 Consolidated Financial Statement

Trade receivables and other receivables Interest-free receivables are discounted if it has a material impact on fair value. The carrying amount has been reduced for impaired receiv­ ables and reflects a reasonable approximation of fair value. Cash and cash equivalents Fair value is assumed to be equal to the carrying amount. Long-term interest-bearing debt and other long-term liabilities Fair value is calculated based on discounted expected future principal and interest cash flow. Trade payables and other short-term debt Interest-free short-term payables are discounted if it has material impact on fair value. Fair value is assumed to be equal to the carrying amount. Forward exchange contracts and interest rate swaps The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, fair val­ ue is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of interest rate swaps is based on broker quotes. Commodity derivatives and embedded derivatives Certain of the Groups purchase and sales contracts constitute derivatives or contain embedded derivatives within the scope of IAS 39. De­ rivatives under IAS 39 are recognized at fair value in the balance sheet with changes through the income statement. The commodity deriva­ tive category constitute derivatives with a wide range of different caracteristica and comprise both commodity based financial contracts as well as non-financial purchase and sales contracts with maturity mainly from 3 months to 24 months. The fair value of commodity contracts constitute the unrealized gains and losses represented by the present value of future gains and losses for which the price is fixed in advance of delivery. All commodity contracts are bilateral contracts, or embedded derivatives in bilateral contracts, for which there are no active markets. Fair value of all items in this category, are therefore calculated using valuation techniques, with maximum use of market inputs and assumptions that reasonably reflect factors that market participants would consider in setting a price, relying as little as possible on entity-specific inputs. Fair value of commodity contracts are especially sensitive to changes in forward commodity prices. None of the derivatives in this category are designated in hedge relationships. The total change in fair value that was recognized in the consolidated income statement during the year was a loss of NOK 75 million (2006: gain NOK 138 million). This is recognized in the consolidated income statement within revenue and other income on the separate line for commodity-based derivatives gain/(loss).

98

NOTE 28 Secured debt and guarantees NOK millions

2007

Amount of secured debt

109

-

Assets used as security Machinery and equipment, etc. Buildings and structural plant Total

1 175 176

1 15 16

Guarantees (off-balance sheet) Contingency for discounted bills Guarantees of debt

14 5

14 93

1,360 803 2,183

1,919 851 2,877

Non-financial guarantees Commercial guarantees Public guarantees Total

2006

Guarantees of debt include parent company guarantees issued on behalf of non-consolidated investees covering external credit facilities in the name of the non-consolidated investees. Yara could be required to perform in the event of a default by the entity guaranteed. Guarantees of debt issued on behalf of consolidated companies are not included since at any time the drawings under such credit lines are included in the consolidated balance sheet. The guarantee obligations under such guarantees are at any time limited to the amount drawn under the credit facility. Non-financial guarantees consist of commercial guarantees related to contract obligations (Bid Bonds, Performance Guarantees and Pay­ ment Guarantees) and various mandatory public guarantees (Customs Guarantees, Receivable VAT Guarantees) recorded as off-balance sheet liabilities. These guarantees are issued on behalf of Yara International ASA, its subsidiaries and non-consolidated investees. The guar­ antor could be required to perform in the event of a default of a commercial contract or non-compliance of public authority regulation. NOK 1,080 million of the non-financial, off-balance sheet guarantees are issued as parent company guarantees. Guarantees issued to public authorities covering tax and VAT liabilities are not included as these obligations are already included in the consolidated balance sheet. Contingent liabilities related to the de-merger from Norsk Hydro ASA Under the Norwegian Public Limited Companies Act, Yara may be contingently liable for obligations established by Norsk Hydro ASA prior to the de-merger, unless the right to enforce against Yara any rights to payments (or other rights) has been specifically waived by the party holding the right. At the end of 2007, Yara remains contingently liable for approximately NOK 1.65 billion of Hydro’s outstanding guaran­ tees. There is no remaining liability for Hydro’s external loans and debt securities, nor for Hydro’s debt to its subsidiaries. Hydro also has unfunded pension liabilities. To the extent such liabilities have accrued prior to the consummation of the de-merger, Yara is contingently liable for such liabilities as a matter of the joint and several liability provided by Norwegian law. Hydro’s unfunded pension liabilities, calculated in accordance with Hydro’s accounting policies, amounted to approximately NOK 2 billion at demerger 24 March 2004 and reduced by payments thereafter.

Yara Financial Review 2007 Consolidated Financial Statement

99

NOTE 29 Contractual obligations and future investments Investments 2007

NOK millions, 31 December 2007 Contract commitments for investments in property, plant and equipment Additional authorized future investments in property, plant and equipment Contract commitments for other future investments Total

629 260 7 896

Investments Thereafter 239 239

Investments Total 868 260 7 1,135

Additional authorized future investments include projects formally approved for development by the Board of Directors or management given the authority to approve such investments. General investment budgets are excluded from these amounts. 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 en­ ergy. Sales commitments are mainly related to industrial products. The non-cancelable future obligation at 31 December 2007 NOK millions 2008 2009 2010 2011 2012 Thereafter Total

Transport and other

Raw materials

Energy related

Sale commitments

(191) (180) (180) (180) (180) (360) (1,271)

(357) (184) (32) (25) (1) 3 (602)

(620) (542) (542) (542) (542) (1,491) (4,279)

(530) (282) (210) (192) (184) (167) (1,566)

1) The amounts are calculated based on minimum contracted quantities and market prices at 31 December 2007.

The total purchases under the take-or-pay agreements and long-term contracts were in 2007 NOK 750 million (2006: NOK 738 million,

2005: NOK 857 million).

See note 21 for future obligations related to pensions.

See note 22 for provisions and contingencies.

See note 30 for future committments related to lease arrangements.

100

NOTE 30 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 Within year 1 Within year 2 Within year 3 Within year 4 Within year 5 After 5 years Total

2007 729 660 567 473 372 1,448 4,249

2006 909 681 620 505 434 1,980 5,129

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 3,596 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 Operating lease expense

2007

2006

(1,103)

(891)

101

Yara Financial Review 2007 Consolidated Financial Statement

NOTE 31 Related parties and remuneration The Norwegian State At 31 December 2007 the Norwegian State owned 105,583,715 shares, representing 36.2 % of the total number of shares issued. The National Insurance Fund, Norway owns 16,456,703 shares, representing 5.6 % of the total number of shares issued. Equity accounted investees Transactions with non-consolidated investees are described in note 12. Yara Pension fund Yara International ASA has arranged most of the company’s pension plans through Yara Pension Fund and Yara has during 2007 contributed premium to the pension plans. Board of directors Members of the Board of Directors are elected for two year terms. Their rights 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. Board of Directors compensation 2007 and number of shares owned 31 December 2007. NOK thousands, except number of shares

Compensation 393 220 297 220 308 287 250 220 -

Øyvind Lund, Chairperson 4) Elisabeth Harstad 4) Lone Fønss Schrøder 1) 5) Jørgen-Ole Haslestad 2) 4) Leiv L. Nergaard 1) 5) Arthur Frank Bakke 3) 5) Charlotte Dyrkorn (to 21 January 2008) 3) Frank Andersen 3) Svein Flatebø (from 21 January 2008) Torgeir Kvidal, Board secretary

Number of shares 6,000 2,800 26,923 1,062 178 277 511 178

1) Includes shares owned directly and through fully owned companies.

2) Jørgen-Ole Haslestad is Chairman of the Board in US Filter Corporation, which is a customer and collaborating partner of Yara.

3) Interest-free loan of NOK 5,964 given through a trust in accordance with a Yara share purchase offer.

4) Members of the compensation committee in 2007.

5) Members of the audit committee in 2007.

Compensation of board of directors was NOK 1,822 thousand in 2006 and NOK 1,750 thousand in 2005. The chairperson and the members of the board have no agreements for further compensation due to termination or changes in the position. Compensation 2007 and number of shares owned by the deputy board members at 31 December 2007 NOK thousands, except number of shares Geir Thorson Solvi (to 21 January 2008) Terje Lie (to 21 January 2008) Karl Edvard Juul Morten Ødegård (from 21 January 2008) Geir Olav Sundbø (from 21 January 2008)

Compensation -

Number of shares 268 178 88 -

102

Yara Executive Mangement

NOK thousands

Salary

Thorleif Enger Hallgeir Storvik Tor Holba Sven Ombudstvedt Terje Bakken Anne Grethe Dalane Arne Cartridge Kendrick T. Wallace Edward Cavazuti

4,722 2,262 2,208 2,518 1,907 1,520 1,441 2,427 2,971

Performance related bonus 1,607 418 406 432 360 178 159 560 961

Share incentive rights 8,500 3,720 3,720 3,720 2,790 1,674 1,674 2,325 -

Other benefits 213 223 1,793 240 1,607 194 254 1,865 3,238

Pension benefits 411 548 1,422 585 437 341 341 1,245 2,601

The total salary, including performance-related bonuses for Yara Executive Management was NOK 31,696 thousand in 2006 and NOK 33,728 thousand in 2005. Other benefits amounted to NOK 7,759 thousand in 2006 and NOK 4,482 thousand in 2005. In addition pension benefits earned during 2006 were NOK 10,404 thousand and NOK 5,384 thousand in 2005. No remuneration related to share incentive rights were paid in 2006 and 2005. Of the Executive Management of nine, four members are on international assignment contracts, namely Tor Holba, Terje Bakken, Kendrick T. Wallace and Edward Cavazuti. The base salary in the international assignment contracts is a guaranteed net compensation.Yara covers any taxes and/or social security premiums due. In the above table the net compensation is grossed-up using the applicable tax-rate. Included in other benefits are housing, company car, travel allowances etc. For the international assignment contracts, the benefits linked to their agree­ ment are included in ‘other benefits’ and are grossed-up using the applicable tax rate. Performance related bonus For managers a performance related bonus scheme is established. Awards are depending on the achievement of specified performance criteria for Yara and the individual. The on-target bonuses range from 28 % to 35 % of the base salary depending on management position. The maximum bonus is 200 % of the target bonus with an absolute maximum of 50 % of the base salary. Until a minimum shareholding requirement of 50 % of a yearly base salary is reached, 20 % of any gross bonus payment to the Executive Management must be used to buy Yara shares in the market with one-year lock-up period. Pensions benefits Thorleif Enger was entitled to step down at age 59 with final retirement at 62. This agreement was part of the Hydro’s scheme for senior executives. Thorleif Enger has not utilized this entitlement. If he retires before 65, he is entitled to a pension benefit representing 70 % of his salary between the retirement age and 65 years, and a pension benefit of 65 % thereafter. Thorleif Enger’s pension rights where fully earned for retirement at age 62. The net annual pension cost for Yara until he retires will therefore be less than ordinary earning would be. Terje Bakken and Tor Holba are both members of the Yara IEC (Internation Employment Company) Pension Plan. This plan is a defined contribution plan and provide the members with a lump sum when they reach the age of 60. The employer contribution amounts to 25 % of the individual’s annual pensionable income. Kendrick T. Wallace and Edward Cavazuti are both members of the North America Executive Retirement Plan. This is a defined benefit plan which provides at the age of 59 an annual retirement benefit equal to 65 % of the individual average compensation of the three highest compensation years. The other members of Yara Executive Management are included in Yara’s ordinary pension scheme for employees in Norway. Until 1 July 2006 this was a final salary based defined benefit scheme. From 1 July 2006 it has been switched to a defined contribution scheme for all employees under the age of 55. This pension scheme is described in note 21. Termination agreements The members of Yara Executive Management are subject to termination in accordance to applicable law. There are however a few specific termination agreements. For Thorleif Enger a notice of 6 months is applicable, in case of termination. Terje Bakken and Tor Holba, are both entitled to a notice of 1.5 month per year of service with a maximum of 24 months. Tor Holba has a guaranteed employment until the age of 55. Edward Cavazuti has a guaranteed employment until 2012.

103

Yara Financial Review 2007 Consolidated Financial Statement

Guidelines for remuneration to members of Executive Management In accordance with the Norwegian Public Limited Companies Act § 6-16 a, the Board of Directors will prepare a separate statement related to the determination of salary and other benefits for the Executive Management. The statement will be presented for the Annual General Assembly. The guidelines for the coming accounting year are unchanged from the previsous year and the remuneration to Executive Man­ agement has been accordance with these guidelines. Yara’s policy concerning remuneration of the CEO and the other members of Yara’s Executive Management Group is to provide remunera­ tion opportunities which: • Are competitive to recruit and retain executives • Reward the Executives’ performance, measured as his/her contribution to the overall success of Yara • Support the creation of sustainable shareholder value Yara’s remuneration of the Executive Management Group consists of the following elements: Base pay, an annual incentive bonus, a retire­ ment plan, death and disability coverage and other components such as car, phone expenses, etc. In addition, executives on expatriate con­ tracts have costs such as housing, school, home trips etc. covered by the company. The annual incentive bonus represents performance-driven variable compensation components based on financial and non-financial per­ formance, such as profitability and HES (Health, Environment and Safety) results, at Company and/or Segment level. The maximum pay-out will not exceed 6 months Base Salary, unless special circumstances dictate otherwise. Share incentive rights granted under the 2004 Share Incentive Program will be honoured. No new share incentive rights will be granted in the coming year. To retain a competitive compensation package for executive managers, an increase in base pay will be considered by the Board. All new pension plans in Yara shall be Defined Contribution plans. All Executives below age 55 (per 1 July 2006) on Norwegian employment con­ tracts are part of the Defined Contribution Retirement plan. The retirement age is 65 and there are no special severance clauses in the contract. Salary and other benefits earned in 2007 are disclosed above. For additional information regarding share incentive rights granted see note 6. For additional information about existing penson plans see note 21.

104

NOTE 32 External audit remuneration NOK thousands

Audit fee

Assurance services

Tax services

Other audit services

Total

2007 Deloitte Norway Deloitte Abroad Total Deloitte Others Total

2,935 18,839 21,555 2,759 24,314

429 2,093 2,263 184 2,447

1,466 1,466 5,594 7,060

124 1,040 1,751 3,800 5,551

3,596 23,439 27,035 12,337 39,372

2006 Deloitte Norway Deloitte Abroad Total Deloitte Others Total

3,196 16,305 19,501 2,445 21,946

123 1,363 1,486 564 2,050

2,480 2,480 3,160 5,640

9 379 388 1,199 1,587

3,328 20,527 23,856 7,368 31,223

2005 Deloitte Norway Deloitte Abroad Total Deloitte Ernst & Young Others Total

3,166 11,212 14,378 3,312 904 18,594

518 1,227 1,745 310 656 2,711

1,963 1,963 2,470 811 5,244

357 1,826 2,183 917 483 3,583

4,041 16,229 20,270 7,009 2,854 30,132

NOTE 33 Post balance sheet events In February, Yara International signed a Heads of Agreement with Deepak Fertilisers and Petrochemicals for establishing a joint venture company for production and marketing of technical ammonium nitrate (TAN) and specialty fertilizers in India. The joint venture company will be 49 % owned by Yara. The objective of the JV is to develop the technical ammonium nitrate market in India. The JV will also invest in the 300,000 MT per annum TAN plant under construction at Paradip in Orissa on the east coast of India. The heads of agreement will be converted into a final agreement after due diligence and the necessary company and regulatory approvals. DFPCL is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) with a market capitalization of approximately USD 250 million.

Yara Financial Review 2007 Financial Statement Yara International ASA

105

YARA INTERNATIONAL ASA Income statement NOK millions

Notes

Revenues Other income Revenues and other income Raw materials, energy costs and freight expenses Change in inventories of own production Payroll and related costs Depreciation and amortisation Other operating expenses Operating costs and expenses

2,3 4,5 6

Operating income

2007

2006

2005

935 40 975

802 15 816

1,009 18 1,027

(39) 7 (363) (13) (924) (1,331)

(32) 6 (277) (11) (681) (996)

(28) 4 (439) (13) (921) (1,396)

(356)

(179)

(369)

Financial income (expense), net Income before tax

7

3,084 2,727

1,527 1,348

387 17

Income tax expense Net income

8

(239) 2,488

(61) 1,287

(12) 5

14

1,166 1,322 2,488

739 548 1,287

724 (719) 5

Appropriation of net income and equity transfers Dividend proposed Retained earnings Total appropriation

106

YARA INTERNATIONAL ASA

Balance sheet 31 December NOK millions Assets Non-current assets Deferred tax assets Intangible assets Property, plant and equipment Shares in subsidiaries Intercompany receivables Non-consolidated investees Other non-current assets Total non-current assets Current assets Inventories Trade receivable Intercompany receivables Prepaid expenses and other current assets Cash and cash equivalents Total current assets Total assets

Notes

8 5 4 9 10 11

11

2007

2006

228 36 7 3,490 14,916 19 42 18,738

211 24 8 3,201 10,209 19 36 13,707

34 29 12,497 233 110 12,902

25 7 11,399 156 1 11,589

31,640

25,296

Yara Financial Review 2007 Financial Statement Yara International ASA

107

YARA INTERNATIONAL ASA Balance sheet 31 December NOK millions

Notes

2007

2006

Liabilities and shareholders' equity Equity Share capital - Treasury shares Premium paid-in capital Total paid-in capital

496 1,092 1,588

515 (12) 2,183 2,686

Retained earnings - Treasury shares Shareholders' equity

5,145 6,733

3,852 (696) 5,842

537 6 8,632 9,175

527 26 376 4,497 5,426

151 1,166 13,846 146 421 15,731

943 739 11,910 45 390 14,027

31,640

25,296

14

Non-current liabilities Pension liabilities Other long-term liabilities Intercompany payables Long-term interest bearing debt Total non-current liabilities

2

15

Current liabilities Bank loans and other interest-bearing short-term debt Dividends payable Intercompany payables Current income tax Other current liabilities Total current liabilities

11 14

Total liabilities and shareholders' equity

The Board of Directors of Yara International ASA: Oslo, 28 March 2008

Øivind Lund Chairperson

Elisabeth Harstad Board member

Jørgen Ole Haslestad Board member

Leiv L. Nergaard Board member

Lone Fønss Schrøder Board member

Arthur Frank Bakke Board member

Frank Andersen Board member

Svein Flatebø Board member

Thorleif Enger President and CEO

108

YARA INTERNATIONAL ASA

Cash flow statement NOK millions

Notes

Operating activities Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Tax received/(paid) Dividend received from subsidiary and associated companies Group relief received/(paid) Interest and bank charges received/(paid) Gain/(loss) on sale of non-current assets Other

4,5

7

Change in working capital Trade receivables Short-term intercompany receivables/payables Prepaid expenses and other current assets Trade payable Other current liabilities Net cash from/(to) operating activities Investing activities Acqiusition of property, plant and equipment Acquisition of other long-term investments Net cash from/(to) long-term intercompany loans Proceeds from sales of long-term investments Net cash from/(to) investing activities Financing activities Loan proceeds Principal payments Purchase of treasury shares Redeemed shares Norwegian State Dividend paid Net cash from/(to) financing activities Foreign currency effects on cash flows Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

4

14 14 14

2007

2006

2005

(356)

(179)

(369)

13 (12) 403 (60) 390 (34)

11 (46) 13 46 252 ­ (104)

13 (53) 26 168 280 (18) (1)

(23) 457 479 50 (276) 1,031

35 22 212 (18) (200) 44

(14) 6,576 253 11 (191) 6,680

(1) (27) (5,489) 1,468 (4,049)

(2) (16) 118 1,342 1,443

(3) (17) (5,980) 32 (5,969)

25,653 (21,463) (402) (739) 3,049

6,515 (6,238) (809) (444) (722) (1,698)

8,398 (7,974) (682) (116) (712) (1,085)

78

111

85

108 1 110

(101) 102 1

(289) 391 102

109

Yara Financial Review 2007 Financial Statement Yara International ASA

NOTE 1 Accounting policies General The financial statements for Yara International ASA have been prepared in accordance with the rules of the Norwegian Accounting Act and generally accepted accounting practice in Norway (NGAAP). Financial statement preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingencies. Actual results may differ from estimates. Yara International ASA was established on 10 November 2003, for the purpose of acting as the transferee company in the demerger of Hydro Agri from Norsk Hydro. Until the completion of the de-merger, there were no subsidiaries or operational activity in Yara International ASA. For information about risk management in Yara International ASA see note 26 to the consolidated financial statements. Yara International ASA provides financing to most of the subsidiary companies in Norway as well as abroad. The information given in note 23 to the consolidated financial statements on payments on long-term debt also applies to Yara International ASA. The accompanying notes are an integral part of the financial statements. Foreign currency transactions Realized and unrealized gains and losses on transactions, assets and liabilities denominated in a currency other than the functional currency of Yara International ASA that do not qualify for hedge accounting treatment, are included in net income. Revenue Revenue from sale products including products sold in international commodities markets is recognized when the products are delivered to the customer, assuming the risk and rewards have been transferred to the customer. Yara’s rebate arrangements include fixed-rate rebates negotiated with each individual customer or variable rate rebates increasing with increasing volumes. For variable rate rebates, the estimated rebate is accrued at each revenue transaction, and the accrual is adjusted at the end of each “rebate period”, which typically is the end of a fertilizer season. Income taxes Deferred income tax expense is calculated using the liability method in accordance with Norsk RegnskapsStandard (“NRS”) regarding Income Taxes (“Resultatskatt”). Under this standard, deferred tax assets and liabilities are measured based on the differences between the carrying values of assets and liabilities for financial reporting and their tax basis, which is considered temporary in nature. Deferred income tax expense represents the change in deferred tax asset and liability balances during the year except for deferred tax related to items charged directly to equity. Changes resulting from amendments and revisions in tax laws and tax rates are recognized when the new tax laws or rates are enacted. Intangible assets Intangible assets acquired individually or as a group are recorded at fair value when acquired. Intangible assets with finite useful lives are amortized on a straight-line basis over their benefit period. Property, plant and equipment Property, plant and equipment are carried at historical cost less accumulated depreciation. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Depreciation is determined using the straight-line method. Subsidiaries and associated companies Shares in subsidiaries and associated companies are in Yara International ASA’s financial statements presented according to the cost method. Group relief received is included in dividends from subsidiaries.

110

Yara reviews subsidiaries and associated companies for impairment if indications of loss in value are identified. Impairment indications may include operating losses, or adverse market conditions. Fair value of the investment is estimated 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. Inventories Inventories are valued at the lower of cost, using the “first-in, first-out method” (“FIFO”), and net realizable value. Cost includes direct ma­ terials, direct labor, other direct cost, and the appropriate portion of production overhead or the price to purchase inventory. Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and all other monetary instruments with a maturity of less than three months at the date of purchase. Leased assets Leases that provide Yara with substantially all the rights and obligations of ownership are accounted for as finance leases. Such leases are val­ ued at the present value of minimum lease payments or fair value if this is lower, and recorded as assets under property, plant and equipment. The liability is included in long-term debt. The assets are subsequently depreciated and the related liabilities are reduced by the amount of the lease payments less the effective interest expense. Other leases are accounted for as operating leases with lease payments recognized as an expense over the lease term. Financial assets and liabilities Financial assets are initially recognized in the balance sheet at fair value (cost) and subsequently at the lower of cost or fair value. Financial liabilities are initially recognized in the balance sheet at fair value (cost) and subsequently at cost. Forward currency contracts Forward currency contracts are initially recognized in the balance sheet at fair value and are subsequently recognized at fair value with changes in fair value recognized in the income statement. Interest rate and foreign currency swaps Interest income and expense relating to swaps that are not designated as hedge instruments are netted and recognized as income or expense over the life of the contract. Foreign currency swaps are translated into Norwegian kroner at applicable exchange rates at the balance sheet date with the resulting unrealized exchange gain or loss recorded in interest expense and foreign exchange gain/(loss). Share-based payments The Company’s cash-settled share based incentive program Share Incentive Rights (SIRs) is recognized as an expense at fair value. Fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to the payments. The fair value of the SIRs is measured based on the Black Scholes Merton option pricing model, taking into account the terms and conditions upon which the instruments were granted. The liability is remeasured at each balance sheet date and at settlement date. Any changes in fair value are recognized in the income statement. The Company also gives employees the possibility to purchase share in Yara at a reduced price. The cost of this is recognized when the em­ ployee exercises this possibility. Employee retirement plans Pension costs are calculated in accordance with the NRS no. 6A. Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses are recognized directly in equity.

111

Yara Financial Review 2007 Financial Statement Yara International ASA

NOTE 2 Employee retirement plans and other similar obligations Yara International ASA is a part of the Yara Group pension plans in Norway. With effect from 1 July 2006 Yara implemented a new pension plan in Norway. The company changed from defined benefit plans to defined contribution plans. In the defined contribution plans Yara International ASA makes agreed contributions when employees have rendered service entitling them to the contributions. Yara International ASA has no legal or constructive obligations to pay further contributions. This new plan will apply to the future pension earnings of existing employees below 55 and all new employees. Employees aged 55 and above will remain in the existing defined benefit plans. All employees below 55 received a paid-up policy of previous earned rights. Employees below age 55, who are departement managers and above, remain members of a defined benefit early retirement plan. The net impact on the income statement for 2006 from this change was a gain of NOK 72 million. At 31 December 2007, the number of active participants in the defined benefit plan was 84 and the number of retirees was 68. In addition the net liability in Yara International ASA consists of 181 existing and previous employees who have earned paid-up policies in Yara Pensjonskasse. The benefits from the defined benefit plan are generally based on years of service and final salary levels. Yara International ASA are obliged to, and do fulfil the requirements in act relating to mandatory occupational pension scheme (“Lov om obligatorisk tjenestepensjon”). Balance sheet obligations for NOK millions

2007

2006

Pension liabilities defined benefit plans Termination benefits and other Total net employee benefits recognized in balance sheet

(482) (55) (537)

(464) (62) (527)

Income statement charge for NOK millions

2007

2006

2005

Defined benefit plans Defined contribution plans Termination benefits and other Total pension cost

(48) (13) (25) (86)

30 (9) 2 23

(60) (20) (81)

NOK millions

2007

2006

Present value of unfunded obligations Present value of wholly or partly funded obligations Total present value of obligations Fair value of plan assets Social security on defined benefit obligations Total recognized liability for defined benefit plans

(469) (451) (920) 497 (60) (482)

(430) (420) (850) 443 (57) (464)

Defined benefit plans Specification of recognized liability

112

Expense recognized in profit or loss NOK millions

2007

2006

2005

Current service cost Interest on obligation Expected return on plan assets Curtailments Social security cost Total expense recognized in profit or loss

(31) (39) 29 (6) (48)

(36) (36) 25 72 4 30

(39) (33) 20 (8) (60)

NOK millions

2007

2006

2005

Payroll and related costs Financial income (expense), net Total expense recognized in profit or loss

(37) (11) (48)

41 (10) 30

(47) (13) (60)

NOK millions

2007

2006

Liability for defined benefit obligations at 1 January Current service cost Interest cost on obligation Actuarial gains / (losses) on obligation Curtailments Benefits paid Liability for defined benefit obligations at 31 December

(850) (31) (39) (11) 11 (920)

(774) (36) (36) (87) 72 11 (850)

NOK millions

2007

2006

Fair value of plan assets at 1 January Expected return on plan assets Actuarial gains / (losses) on plan assets Employer contributions Benefits paid Fair value of plan assets at 31 December

443 29 13 18 (6) 497

393 25 3 26 (4) 443

NOK millions

2007

2006

Cumulative amount recognized directly in equity pre tax at 1 January Recognized during the period Cumulative amount recognized directly in equity pre tax at 31 December Deferred tax related to actuarial (gains) / losses recognized directly in equity Cumulative amount recognized directly in equity after tax at 31 December

41 (2) 39 (11) 28

(56) 97 41 (12) 30

The expense is recognized in the following line items in the income statement

Movement in the liability for defined benefit obligations

Movement in fair value of plan assets

The actual return on plan assets in 2007 was NOK 42 million (2006: NOK 28 million). Movement in actuarial (gains) / losses recognized directly in equity

Yara Financial Review 2007 Financial Statement Yara International ASA

113

Plan assets are comprised as follows NOK millions, except percentages

2007

Equity instruments Debt instruments Property Bank deposits Total plan assets

176 304 10 6 497

2006 35 % 61 % 2% 1% 100 %

143 277 22 443

32 % 63 % 5% 100 %

Yara Pensjonskasse (Yara Pensionfund) does not held any financial instruments issued by Yara Group companies. Contributions expected to be paid to the defined benefit plans for 2008 are NOK 38.9 million.

Principal weighted average actuarial assumptions at 31 December 2007 Discount rate Expected rate of return on plan assets Expected rate of salary increases Future rate of pension increases

2006

4.6 % 6.4 % 4.1 % 2.6 %

4.4 % 6.2 % 3.9 % 2.3 %

Since there is no deep market in high quality corporate bonds in Norway, the discount rate used is a weighted average of the yields at the bal­ ance sheet date of Norwegian government bonds. If the bonds have different maturities than the obligations, the discount rate is adjusted. The weighted average discount rate applied at 31 December 2007 was 4.6 %. Normal assumptions for demographical and retirement factors have been used by the actuary when calculating the obligation. Future mortality are based on published statistics and mortality tables. The actuary has used the K2005 mortality table,. The weighted average long-term rate of return on plan assets is 6.4 %. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments. The expected rate of return on plan assets as seen in the income statement for 2007 was 6.2 %.

Historical information NOK millions

2007

2006

2005

2004

Present value of the defined benefit obligation Fair value of plan assets Deficit in the plan 2)

(920) 497 (423)

(850) 443 (407)

(774) 393 (381)

(722) 346 (377)

Experience adjustments arising on plan liabilities 1) Experience adjustments arising on plan assets 1)

30 13

(4) 3

-

-

1) In accordance with the transitional provisions for the amendments to IAS 19 “Employee Benefits” in December 2004, the disclosures above about experience adjustments are determined prospectively from the 2006 reporting period. Yara Group first applied the amendments in paragraph 120A in 2006. It is impractical to obtain numbers for experience adjustments for 2005 and previous years. 2) Social security cost is not included.

114

NOTE 3 Remunerations and other Remuneration and direct ownership of shares of the chairperson and of the Board of Directors are disclosed in note 31 to the consolidated financial statement. Remuneration to the President and remaining Yara Executive Management, as well as number of shares owned and SIRs, are disclosed in note 6 and 31 to the consolidated financial statements. Partners and employees of Yara’s independent auditors, Deloitte AS, own no shares in Yara International ASA, or in any of its subsidiaries. For the parent company, Yara International ASA, the audit fee in 2007 to Deloitte AS for ordinary audit was NOK 2,214,000. Fees for assur­ ance services and other services was NOK 321,600 and NOK 27,500 respectively. Deloitte Consulting AS and Deloitte Advokatfirma DA, affiliate companies of Deloitte AS in Norway, have provided no service to Yara during 2007. Audit fee etc. for the group is disclosed in note 32 to the consolidated financial statement. At 31 December 2007 the number of employees in Yara International ASA was 255. NOK millions

2007

2006

2005

Payroll and related costs Salaries Social security costs Social benefits Net periodic pension costs Internal invoicing of payroll related costs Sum

(316) (44) (6) (69) 72 (363)

(339) (39) 1 32 67 (277)

(385) (44) (8) (60) 58 (439)

External commercial banks provide the Norwegian employees with a range of banking services, including unsecured personal loans at fa­ vorable rates of interest. Yara does not compensate the banks for these services. In connection with the replacement of transferred employee loans related to the demerger from Norsk Hydro, Yara provides a guarantee for all such loans as well as for new unsecured loans by the banks to the Norwegian employees. For most employees the amount guaranteed will not exceed NOK 100,000. At 31 December 2007, the aggre­ gate balance of all the outstanding loans for which Yara are providing a guarantee is NOK 7.2 million, and the number of loans are 98. Yara continued to give employees in Norway an opportunity to take part in a share purchase program in 2007. All permanent employees in Norway have been offered shares with a discount and given an interest-free loan with a 12-month repayment profile. In order to handle this arrangement in an efficient way, Yara has established a foundation for employees’ shares in Yara. The foundation purchased 27,000 shares of which 30,894 were sold as per 31 December 2007. The shares were sold to 813 persons, and each person was alloted 38 shares.

Yara Financial Review 2007 Financial Statement Yara International ASA

115

NOTE 4 Property, plant and equipment Machinery and equipment

Buildings

Total

Cost Balance at 1 January 2007 Addition at cost Disposal Transfer Balance at 31 December 2007

33 1 34

1 1

34 1 35

Depreciation Balance at 1 January 2007 Depreciation Disposal Balance at 31 December 2007

(25) (2) (27)

(1) (1)

(26) (2) (28)

Carrying value Balance at 1 January 2007 Balance at 31 December 2007

8 7

-

8 7

Cost Balance at 1 January 2006 Addition at cost Disposal Transfer Balance at 31 December 2006

31 2 (1) 33

1 1

33 2 (1) 34

Depreciation Balance at 1 January 2006 Depreciation Disposal Balance at 31 December 2006

(24) (2) (25)

(1) (1)

(25) (2) ­ (26)

Carrying value Balance at 1 January 2006 Balance at 31 December 2006

8 8

-

8 8

4 - 20 5 - 25 %

20 - 50 2-5%

-

NOK millions, except percentages and years

Useful life in years Depreciation rate

Total assets pledged as security were NOK 1,1 million at 31 December 2007 and NOK 0,6 million at 31 December 2006.

116

NOTE 5 Intangible assets NOK millions, except percentages and years

Intangible assets

Cost Balance at 1 January 2007 Addition at cost Disposal Balance at 31 December 2007

51 26 (7) 70

Amortization Balance at 1 January 2007 Amotization Disposal Balance at 31 December 2007

(27) (11) 5 (34)

Carrying value Balance at 1 January 2007 Balance at 31 December 2007

24 36

Cost Balance at 1 January 2006 Addition at cost Disposal Balance at 31 December 2006

49 2 51

Amortization Balance at 1 January 2006 Amortization Disposal Balance at 31 December 2006

(18) (9) (27)

Carrying value Balance at 1 January 2006 Balance at 31 December 2006

31 24

Useful life in years Depreciation rate

3-5 20 - 35 %

Intangible assets are amortized on a straight line basis over their benefit period. The intangible assets basically consist of computer soft­ ware systems.

117

Yara Financial Review 2007 Financial Statement Yara International ASA

NOTE 6 Other operating expense NOK millions

2007

2006

2005

Selling and administrative expense Rental and leasing Travel expense Other Total

(859) (32) (44) 11 (924)

(582) (32) (37) (29) (681)

(849) (33) (42) 3 (921)

(52)

(52)

(50)

Research and development expense 1) 2)

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 estimate of possible future financial returns of these activities. 2) Included in other operating expense.

NOTE 7 Financial income and expense NOK millions Dividends from subsidiaries including group relief Sale of companies Non-consolidated investees Write down shares 0-20 % Interest from group companies Other interest income Interest paid to group companies Other interest expense Return on pension plan assets Net foreign exchange gain/(loss) Other financial income/(expense) Financial income/(expense), net

2007

2006

2005

455 1,422 6 1,365 90 (529) (497) 29 751 (9) 3,084

52 1,134 8 861 27 (352) (301) 25 84 (10) 1,527

228 8 (1) 696 33 (197) (285) 20 (102) (14) 387

118

NOTE 8 Income taxes Specification of income tax expense NOK millions

2007

2006

2005

Current tax expense Deferred tax income/(expense) Income tax expense

(245) 6 (239)

(29) (32) (61)

(58) 46 (12)

2007

2006

2005

2,727 (764) (2) 111 398 17 (239)

1,348 (377) (1) 2 284 31 (61)

17 (5) (1) 7 (13) (12)

Current tax 2007

Current tax 2006

(45) 39 (127) (14) (146)

(62) 46 (25) (4) (45)

Reconciliation of Norwegian nominal statutory tax rate to effective tax rate NOK millions Income before taxes Expected income taxes at statutory tax rate, 28 % Non-deductible expenses Dividend exclusion Tax free gain selling of shares 1) 2) Other, net Income tax expense 1) For 2007 - includes effect of tax free gain of NOK 1,422 million related to the divestment of Yara Industrial AS 2) For 2006 - includes effect of tax free gain of NOK 1,016 million related to the divestment of ammonia shipping assets

Reconciliation of current tax liability

NOK millions Balance at 1 January Payments Current year Adjustment in relation to the current tax of prior years Balance as at 31 December

119

Yara Financial Review 2007 Financial Statement Yara International ASA

Specification of deferred tax assets/(liabilities) Deferred tax 2007

Deferred tax 2006

Non-current items Accrued expenses Pension liabilities Investment in general partnership Property, plant & equipment Other long-term Total

58 163 1 (1) 14 235

62 160 1 (1) 222

Current items Other accrued expenses Receivables Inventory Unrealized gain/loss Total

1 2 2 (12) (7)

1 3 2 (17) (11)

Net deferred tax asset/(liability)

228

211

Change in deferred tax Balance at 1 January Charge (credit) to equity for the year Charge (credit) to profit or loss for the year Balance at 31 December

211 12 6 228

218 26 (32) 211

NOK millions

Deferred income taxes have not been provided for on undistributed earnings of foreign subsidiaries, amounting to approximately NOK 8 billion since those earnings are considered to be indefinitely invested. No deferred income taxes have been recognized on undistributed earnings of subsidiaries and non-consolidated investees from the EU, since such earnings can be distributed to the parent company as taxfree dividends.

120

NOTE 9 Shares in subsidiaries Company name

Percentage of shares owned

Percentage of shares owned by other group companies

Total share capital of the company in local currency thousands

Registered office

Book value 31.12.2007 NOK thousands

Subsidiaries owned by Yara International ASA Yara Russia AS Yara China Ltd. Yara Guatemala S.A. Yara Colombia Ltda. Hydro Agri Russland AS Yaraship Services AS Yara Hellas S.A. AS Djupvasskaia Yara Norge AS Fertilizer Holdings AS Yara Rus Ltd. Yara North America Inc. Yara Asia Pte. Ltd. Yara International Employment Co. AG Yara Phosyn Ltd. Yara Mexico Profesionales S. de R.L. de C.V. Yara Mexico Operativos S. de R.L. de C.V. Total

100 100 100 100 100 100 100 100 100 100 100 100 100 100 35 10 10

65 90 90

Norway China Guatemala Colombia Norway Norway Greece Norway Norway Norway Russia USA Singapore Switzerland United Kingdom Mexico Mexico

NOK HKD GTQ COP NOK NOK EUR NOK NOK NOK RUB USD USD EUR GBP MXN MXN

3,750 50 8,515 4,842,549 21,200 1,039 3,000 1,000 400,400 10,000 54,158 1,000 141,623 128 94 6 157,299

3,750 24,258 16,749 21,200 1,039 20,942 3,523 1,057,569 738,400 467,948 1,114,364 1,076 19,432 3 3 3,490,256

Subsidiaries owned by Fertilizer Holdings AS Yara Chemicals Holding Danmark AS Yara Holding Sverige AB Yara Brasil Fertilizantes S.A. Yara Caribbean Ltd. Yara UK Ltd. Yara Canada, Inc. Yara Insurance Ltd. Yara Holding Netherlands B.V. Yara AS Chapa Meli Tanzania Ltd. Yara Argentina S.A. Yara Mexico Profesionales S. de R.L. de C.V. Yara Mexico Operativos S. de R.L. de C.V. Total

100 100 95.9 100 100 100 100 100 100 100 2 90 90

98 10 10

Denmark Sweden Brazil Trinidad and Tobago United Kingdom Canada Ireland The Netherlands Norway Tanzania Argentina Mexico Mexico

DKK SEK BRL USD GBP CAD EUR EUR NOK TZS USD MXN MXN

500 172,972 372,372 59,510 49,441 16,008 1,000 19 1,000,000 2,559,614 30,093 6 157,299

554 159,065 1,996,040 716,064 344,297 83,732 56,800 4,890,478 4,000,000 12,808 4,151 28 28 12,264,046

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.

Yara Financial Review 2007 Financial Statement Yara International ASA

121

NOTE 10 Shares in associated companies and joint ventures NOK millions, except ownership Name Abonos del Pacifico, S.A. Talconor AS Yara Ammonia Chartering AS Total 1) Equals voting rights.

Percentage owned 1)

34 % 50 % 50 %

Country

Costa Rica Norway Norway

Total equity in the company in 2007

106 2 -

Net income in 2007

26 -

Carrying value in 2007

Carrying value in 2006

18 1

18 1

19

19

122

NOTE 11 Specification of balance sheet items NOK millions

2007

2006

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

34 8 42

36 36

Inventories Raw materials Finished goods Total

5 29 34

3 22 25

(151) (151)

(943) (943)

2007

2006

Bank loans and other short-term interest-bearing debt Bank overdraft Total

NOTE 12 Guarantees NOK millions Guarantees (off-balance sheet): Guarantees for debt of non-consolidated investees Commercial guarantees Public guarantees Total

5 1,181 797 1,983

93 1,919 845 2,857

Yara International ASA provides guarantees arising in the ordinary course of business, including performance bonds and various payment or financial guarantees. See note 28 to the consolidated financial statements for further information about guarantees.

123

Yara Financial Review 2007 Financial Statement Yara International ASA

NOTE 13 Risk management and hedge accounting Risk management in Yara and the use of derivative instruments are described in note 26 to the consolidated financial statement. Yara Inter­ national ASA has the following derivative instruments outstanding at 31 December: NOK millions

2007

2006

Fair value of derivatives Forward foreign exchange contracts (external) Forward foreign exchange contracts (Yara Group internal) Interest rate swaps (external) Balance at 31 December

60 (17) (36) 7

6 57 (16) 47

Derivatives presented in the balance sheet Assets Liabilities Balance at 31 December

75 (67) 7

81 (34) 47

2007

2006

Forward foreign exchange contracts Yara is committed to outstanding forward foreign exchange contracts as follows: NOK millions Forward foreign exchange contracts (external), notional amount Forward foreign exchange contracts (Yara Group internal), notional amount

4,888 5,697

3,438 6,533

All outstanding contracts at 31 December 2007 have maturity in 2008. Buy positions are mainly in Norwegian kroner and euro. Sell posi­ tions are in various operating currencies, mainly US dollars, British pounds, euro and Norwegian kroner. Hegde accounting Fair value hedge The interest rate swap outstanding at 31 December 2007 is a fixed to floating interest rate swap for USD 100 million. This derivative is des­ ignated as a hedge instrument for the change in fair value due to changes in risk free interest rates of a USD 100 million portion of the bond debt. The swap has identical interest basis, interest payment dates and maturity (2014) to the hedged debt and is assessed to be highly effec­ tive. The change in fair value of the derivative is recognized in the consolidated income statement, and is offset by an opposite change in fair value of the corresponding portion of the bond debt. At 31 December 2007 the loss on the fair value hedge included in the carrying amount of the fixed rate debt was NOK 8 million (2006: gain NOK 16 million). There are not recognized any ineffectiveness in 2006 and 2007. Cash flow 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 these contracts was recognized directly against equity and will be reclassified into interest expense and income tax over the duration of the bond (due in 2014). The reclassification into interest expense for 2007 was NOK 9 million (2006: NOK 9 million) and the related deferred tax benefit was NOK 3 million (2006: NOK 2 million).

124

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 2007, the company has a share capital of 495,678,107 consisting of 291,575,357 ordinary shares at NOK 1.70 per share. For further information on these issues see note 19 to the consolidated financial statement. Shareholders holding one percent or more of the total 291,575,357 shares outstanding at 31 December 2007 are according to information in the Norwegian securities’ registry system (Verdipapirsentralen):

Name

Number of shares

Ministry of Trade and Industry, Norway National Insurance Fund, Norway State Street Bank 1) Morgan Stanley & Co 1) Brown Brothers Harrison The Northern Trust Co. Investors Bank & Trust Company Clearstream Banking S.A JPMorgan Chase Bank Bank of New York 1) Euroclear Bank S.A/N.V Morgan Guaranty Trust Co. of NY 1) Vital Forsikring ASA Mellon Bank

105,583,715 16,456,703 10,405,147 9,529,210 7,000,000 6,327,202 6,043,989 4,214,411 4,178,110 4,070,000 3,489,145 3,190,505 2,967,499 2,920,944

1) Client accounts and similar.

NOK millions

Paid in capital

Retained earnings

Total shareholders equity

Equity 31 December 2005 Net income of the year Adjustment dividend 2005 Dividend proposed Cash flow hedges Actuarial gain/(loss) 1) Shares cancelled Treasury stock Equity 31 December 2006 Net income of the year Dividend proposed Cash flow hedges Actuarial gain/(loss) 1) Shares cancelled Treasury stock Equity 31 December 2007

3,913 (1,226) (1) 2,686 (1,110) 12 1,588

2,698 1,287 2 (739) 4 (70) (26) 3,156 2,488 (1,166) (31) 2 696 5,145

6,611 1,287 2 (739) 4 (70) (1,226) (27) 5,842 2,488 (1,166) (31) 2 (1,110) 708 6,733

1) Yara International ASA has decided to use the option in NRS 6A to adopt IAS19. For further information, please see the accounting principles page 110.

Yara Financial Review 2007 Financial Statement Yara International ASA

125

NOTE 15 Long-term debt Long-term debt payable in various currencies

Amounts in millions Unsecured debenture bonds in USD (Coupon 5.25 %) 1) Unsecured bank loans in USD 2) Mortgage loans

Weighted average interest rates

Denominated amounts 2007

5.9 % 4.9 %

496 1,100

Outstanding long-term debt

Balance in NOK 2007

Balance in NOK 2006

2,685 5,946 1

3,091 1,406 -

8,632

4,498

­

Less: Current portion

8,632

Total long-term debt

­ 4,497

1) Fixed interest rate until 2014. 2) Repricing within a year.

At 31 December 2007, the fair value of the long-term debt, including the current portion, was NOK 8,664 million and the carrying value was NOK 8,632 million. See note 23 to the consolidated financial statements for further information about long-term debt. Payments on long-term debt fall due as follows NOK millions 2008 2009 2010 2011 2012 Thereafter Total

Debentures 2,685 2,685

Bank loans 2,273 2,787 886 5,946

Total 2,273 2,787 3,571 8,632

126

127

Yara Financial Review 2007 Auditor’s report & Use of non-GAAP measures

Use of non-GAAP measures In the discussion of operating results, Yara refers to certain non-GAAP financial measures including EBITDA and CROGI. Yara’s Management makes regular use of these measures to evaluate the performance, both in absolute terms and comparatively from period to period. These measures are viewed by management as providing a better understanding - both for management and for investors - the underlying operating results of the business segments for the period under evaluation. Yara manages long-term debt and taxes on a group basis. Therefore, net income is discussed only for the Group as a whole. Yara’s management model, referred to as Value Based Management, reflects management’s focus on cash flow-based performance indicators. EBITDA, which Yara defines as income/(loss) before tax, interest expense, foreign exchange gains/losses, depreciation, amortization and writedowns, is an approximation of cash flow from operating activities before tax and net operating capital changes. EBITDA is a measure that in addition to operating income, also includes interest income, other financial income, and results from equity accounted investees. It excludes depreciation, writedowns 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. EBITDA should not be considered as an alternative to operating income and income before tax as an indicator of the company’s operations in accordance with generally accepted accounting principles. Nor is EBITDA an alternative to cash flow from operating activities in accordance with generally accepted accounting principles. Yara management uses CROGI (Cash Return On Gross Investment) to measure performance. CROGI is defined as gross cash flow, divided by average gross investment and is calculated on a 12-month rolling basis. “Gross cash flow” is defined as EBITDA less total tax expense, excluding tax on net foreign exchange gains/ losses. “Gross Investment” is defined as total assets (exclusive of deferred tax assets, cash and cash equivalents, other liquid assets and fair value adjustment recognized in equity) plus accumulated depreciation and amortization, less all short-term interest-free liabilities, except deferred tax liabilities. In order to track underlying business developments from period to period, Yara’s management also uses a variance analysis methodology, developed within the Company (“Variance Analysis”), that involves the extraction of financial information from the accounting system, as well as statistical and other data from inter­ nal management information systems. Management considers the estimates produced by the Variance Analysis, and the identification of trends based on such analysis, sufficiently precise to provide useful data to monitor our business. However, these estimates should be understood to be less than an exact quantification of the changes and trends indicated by such analysis.

Reconciliation of operating income to gross cash flow

NOK millions Operating income Equity in net income equity accounted investees Interest income Net gain on securities Dividends from 0-20 % companies Earnings before interest expense and tax (EBIT) Depreciation Amortization of excess value in equity accounted investees Earnings before interest, tax and depreciation/amortization (EBITDA) Income tax less tax on net foreign exchange gain/(loss) Gross Cash Flow

2007

2006

2005

4,987 1,624 289 37 6,936 1,487 19 8,441 (991) 7,451

3,352 1,463 274 2 1 5,092 1,373 7 6,472 (702) 5,770

3,821 1,144 261 5 5,231 1,348 38 6,618 (1,176) 5,442

128

Reconciliation of net income after minority interest to gross cash flow

NOK millions Net income after minority interest Minority interest Interest expence and foreign exchange gain/(loss) Depreciation Amortization of excess value in equity accounted investees Tax effect on foreign exchange gain/(loss) Gross Cash Flow

2007 6,037 38 (401) 1,487 19 271 7,451

2006 4,188 22 49 1,373 7 131 5,770

2005 3,198 11 1,008 1,348 38 (162) 5,442

Reconciliation of total assets to gross investments 12 months average NOK millions Total assets Cash and cash equivalents Other liquid assets Deferred tax assets Fair value adjustments recognized in equity Other current liabilities Accumulated depreciation and amortization Gross investment 12 months average Cash Return On Gross Investment, CROGI

2007

2006

2005

36,574 (1,003) (1,082) (481) (7,456) 19,856 46,410

30,765 (966) (10) (1,350) (7,032) 19,564 40,971

28,750 (1,158) (21) (1,521) (7,026) 18,852 37,876

16.1

14.1

14.4

Yara Financial Review 2007 Use of non-GAAP measures

129

Reconciliation of EBITDA to income before tax and minority interest

NOK millions EBITDA Downstream EBITDA Industrial EBITDA Upstream EBITDA Other and eliminations EBITDA Yara Depreciation Amortization of excess value in equity accounted investees Interest expense Net foreign exchange gain/(loss) Other financial income/expense, net Income before tax and minority interest

2007

2006

2005

3,035 1,645 3,797 (36) 8,441 (1,487) (19) (859) 982 277 7,337

1,960 736 3,563 212 6,472 (1,373) (7) (712) 422 242 5,043

1,984 720 3,922 (9) 6,618 (1,348) (38) (700) (525) 217 4,224

2007

2006

2005

Reconciliation of operating income to EBITDA

NOK millions Operating Income Equity accounted investees Interest income Selected financial items EBIT Depreciation and amortization 1) EBITDA 1) Including amortization of excess value in equity accounted investees.

4,987 1,624 289 36 6,936 1,506 8,441

3,352 1,463 274 3 5,092 1,380 6,472

3,821 1,144 261 5 5,231 1,386 6,618

130

Corporate Governance

Business values (reference to Norwegian

Code of Practice for corporate governance, point 1)

Proactive and transparent corporate governance is key to aligning the interests of shareholders, management, employees and other stakeholders. Yara believes good corporate governance drives sus­ tainable business conduct and value creation. Yara aims to exercise corporate governance in a manner represen­ tative of an ambitious multinational company, and has established practices adapted to the specific challenges facing it as the world’s largest and only truly global fertilizer company. Yara’s Board of Di­ rectors has the overall responsibility for corporate governance and has decided to comply with the Norwegian Code of Practice for corporate governance, first published in December 2004. This Code has stricter requirements than what is mandated by law. The main features of the Code are detailed below. Yara’s Code of Conduct and Corporate Responsibility Policy State­ ment aims to ensure that all Yara employees act in a consistent man­ ner in line with quality standards and business needs. Business scope (Code’s point 2) Yara has grown through a combination of scientific research and commercial daring that revolutionized modern agriculture. From the beginning the Company has combined strong commercial prin­ ciples with a long-term growth perspective. This included a nationbuilding role that created an awareness of social responsibility. The scope of Yara’s business is defined in its Articles of Associa­ tion, published at www.yara.com, and is presented in the Report of the Board of Directors together with its goals and strategies. Yara is listed on the Oslo Stock Exchange and is subject to Norwegian securities legislation. Financial reporting is done in accordance with International Financial Reporting Standards (IFRSs). Equity level (Code’s point 3) Yara’s strong balance sheet is closely linked to the overall strategy, goals and risk position of the company. The dividend policy, which is described in the Report of the Board of Directors and the sec­ tion on the Yara share, aims to provide a predictable payout over the years. New equity will only be issued when defined opportuni­ ties arise. Yara executes share buy-back programs as an integral

part of its shareholder policy. In 2007 Yara did not buy back any shares, but redeemed approximately 4.1 million shares from the Norwegian State and cancelled approximately 7.3 million shares. The Board will recommend that the Annual General Meeting au­ thorize the company to buy back to a maximum of approximately 15 million shares before 8 May 2009. The rationale behind the share buy-backs is further described in the Report of the Board of Directors. Equal treatment of shareholders (Code’s point 4) All Yara shareholders have equal rights and the company has one class of shares. Transactions involving own shares, like the share buy­ back program, are normally done over the stock exchange, ensuring that market prices are used. Shares redeemed from the Norwegian State are also priced at market value. There are no restrictions on the purchase or sale of shares by directors and executives as long as insider regulations are adhered to. Certain management compensa­ tion programs, including the share based incentive compensation scheme, mandate the use of a portion of the funds received by man­ agement for the purchase of Yara shares and restrict the sale of such shares for varying periods following such purchase. Transactions with closely related parties (Code’s point 4) In 2007 there were no significant transactions between closely re­ lated parties, except for ordinary commercial transactions with sub­ sidiaries and non-consolidated investees. In addition to the manda­ tory regulations in the Norwegian Public Limited Companies Act (§§ 3-8 and 3-9), Yara uses IFRS rules to define related parties. Re­ lated party transactions are disclosed in note 31 to the consolidated financial statements. The members of the Board of Directors and management are required to disclose all entities that would be con­ sidered to be “related parties” under applicable laws and regulations. Transactions with such entities are subject to disclosure and special, independent approval requirements. Freely transferable shares (Code’s point 5) The company puts no restrictions on the transferability of shares. Annual General Meeting (Code’s point 6) The Company’s shareholders are primarily represented at the com­ pany’s Annual General Meeting. In accordance with Norwegian corporate law, shareholders registered in VPS (Norwegian Registry

Yara Financial Review 2007 Corporate Governance

131

Nomination Committee

Annual General Meeting

Compensation Committee

Board of Directors

President and CEO

Executive Management

Audit Committee

Corporate Governance structure

of Securities) can vote in person or by proxy. Notice of the meet­ ing and documents are made available on The Company’s web page minimum three weeks in advance of the meeting, and is sent to all shareholders individually, or to their depository banks, a minimum of two weeks in advance of the meeting. The Annual General Meeting of shareholders: • elects the Nomination Committee and shareholders’ represen­ tatives to the Board of Directors. • elects the external auditor based on the Board of Directors’ pro­ posal, and approves the remuneration to be paid to the external auditor of the parent company. • approves the remuneration to the Board of Directors, the finan­ cial statements and any proposed dividend payment. • approves any new share based incentive programs and advises on remuneration to executive management The chairperson of the Board and the CEO are present at the An­ nual General Meeting, normally along with the Board of Directors, the Nomination Committee and the Company Auditor. An inde­ pendent, qualified person chairs the meeting. The protocol of the Annual General Meeting is published on The Company’s web page. Nomination Committee (Code’s point 7) The Company’s Articles of Association states that The Company shall have a Nomination Committee consisting of four members elected by the Annual General Meeting. The members are elected for two years at a time. All four members are independent of the Board and the Management. The Nomination Committee had two meet­ ings in 2007. The Committee nominates shareholder’s candidates to the Board of Directors presenting relevant information about the candidates and an evaluation of independence, and proposes the re­

muneration of the Directors to the Annual General Meeting. Mem­ bers of the Nomination Committee receive a remuneration of NOK 4,000 per meeting. Corporate Assembly (Code’s point 8) According to an agreement between Yara and the employees, Yara does not have a Corporate Assembly. Yara believes this supports a more direct communication between shareholders and manage­ ment, increases accountability and improves the speed and quality of decision-making in the company. Board of Directors (Code’s point 8, 9 and 11) Consists of eight members, elected for a period of two years. Two of five shareholder-elected directors are women. The Yara Board decided not to elect a deputy chairperson for the time being. When the Chairperson is occasionally absent or should not lead the meeting, it would be natu­ ral for the Board to elect a Board member to chair the meeting. All shareholder-elected members are independent of the Manage­ ment and the main shareholders. Neither the President and CEO nor any other member of the Executive Management is a Director of the Board. According to Norwegian corporate law, the (non-ex­ ecutive) Board of Directors assumes the overall responsibility for the company, ensures that appropriate steering and control systems are in place and supervises day-to-day management as carried out by the President and CEO. The Board’s work follows an annual plan, and it conducts a self-evaluation every year of its work and proce­ dures, being presented for the Nomination Committee. In 2007 the Board held nine meetings. The chairperson of the Board of Direc­ tors received a fixed compensation of NOK 382,500 in 2007 while each of the other seven board members received NOK 220,000.

132

For more details on the Board members competence and indepen­ dence, please see page 134 - 135 and note 31 in the consolidated financial statements. Compensation Committee (Code’s point 9) Consists of three members elected by and among the members of the Board. The Committee reviews the performance and proposes terms and compensation for the CEO to the Board of Directors. Future policies for possible option arrangements or share incentive rights (SIRs) will be presented for the Annual General Meeting for approval. The Compensation Committee held five meetings in 2007. Members of the Compensation Committee receive a remuneration of NOK 5,000 per meeting. Audit Committee (Code’s point 9) Consists of three members of the Board. The Chairperson of the Audit Committee is not the Chairperson of the Board. The Audit Committee assists the Board of Directors relating to the integrity of the Company’s financial statements, financial reporting processes and internal controls, risk management and performance of the ex­ ternal auditor. The Committee conducts an annual self-evaluation according to its mandate. The chairperson of the Audit Committee received a fixed compensation of NOK 76,500 in 2007 while each of the other two members received NOK 66,000. Risk management and internal control (Code’s point 10) Yara Steering System is one of the pillars in Yara’s internal control system. The steering system provides all employees with an oversight of the prevailing policies and procedures for the group. The compli­ ance with the steering system is monitored by monthly reviews of the achievement of key performance indicators. The key performance indicators cover both operational, hereunder HESQ, and financial ac­ tivities. Every business unit monitors their own set of key performance indicators that are based on a common set of rules derived from the policies, procedures and other governing documents in Yara. Yara’s risk management system aims to reveal both strategic, opera­ tional, compliance and financial risks coming from all levels of the group. Annually the segment leaders perform work shops to iden­ tify new risks and prepare actions to handle the identified risks in their segments. Yara management performs a separate risk evalua­ tion based on a top-down approach. The responsibilities related to risk management and internal control over financial reporting are clearly communicated to the relevant employees. Yara has implemented structured and standardized reporting pro­ cedures including relevant control activities along the financial re­ porting line from the local business unit and segments to group re­

porting and analysis. Yara group reporting and analysis carries out regular risk assessments of the financial reporting environment. The reporting environment includes monthly monitoring and analysis of reporting from business units. Yara management performs a quar­ terly business review with all the segment leaders. This is based on the established procedures and controls, group accounting polices and that all material accounting and reporting issues are addressed in timely and uniform matter. Procedures and controls have been established to maintain the confidentiality of financial information and communication of financial information internally and exter­ nally in an appropriate way to all shareholders at the same time. Yara continuously focuses on further formalizing and strengthen­ ing of the processes related to monitoring control activities and risk management in the group. Yara Internal Audit assists Yara Management by bringing a system­ atic, disciplined approach to evaluating and improving the effective­ ness of risk management, control and governance processes. The Chief Audit Executive reports functionally to the Board of Direc­ tors and administratively to the Chief Financial Officer. Yara Inter­ nal Audit has no direct operational responsibility or authority over any of the activities they review. They have unrestricted access to all functions, records, physical properties, and personnel relevant to the performance of engagements as well as full and free access to the Board of Directors, the Audit Committee and the Board of Directors. Included in Yara Steering System is Yara’s code of conduct applicable for all employees. Yara’s code of conduct and Corporate Responsibil­ ity Policy Statement aims to ensure that all Yara employees act in a consistent matter in line with quality standards and business needs. All Yara employees are encouraged to raise questions or issues about such matters with line management and through alternative chan­ nels. Yara also has procedures on how to deal with accidents and other unexpected events like natural disasters. Practice drills are conducted regularly to ensure that procedures are operational. Financial market communication (Code’s point 13) Communication with the financial markets is based on the principles of openness and equal treatment of all shareholders. Yara’s web site (www.yara.com) contains an updated financial calendar, financial reports and other investor-related information. Yara holds the Infor­ mation and English certificates of the Oslo Stock Exchange testifying that Yara complies with a set of information requirements going be­ yond defined minimum standards. Yara’s Board of Directors receives regular updates from the Management as to how the company is per­ ceived by the financial markets. Yara has received several awards for its investor communication and financial reporting.

133

Yara Financial Review 2007 Corporate Governance

Global company One code of conduct all over the world.

Take-over attempt (Code’s point 14) In the event of a take-over attempt, the Board of Directors and Management will give its recommendation to the shareholders as to whether it believes such a transaction will be beneficial for the shareholders. The Norwegian Securities Act regulates take-over at­ tempts. Shareholders at the Annual General Meeting will, according to law, make the decision on a potential take-over bid. External audit (Code’s point 15) The external auditor participates in the meetings of the Audit Com­ mittee and in the Board meeting that approves the financial state­ ments, and meets with the Board without Yara Management being present minimum once per year. Norwegian laws and regulations stipulate the type of non-audit service that external auditors can perform for Yara, in addition to the core audit assignment. Remu­ neration to Yara’s external auditor is disclosed in note 32 to the con­ solidated financial statements. President and CEO The Chief Executive Officer constitutes a formal corporate body according to Norwegian corporate law. The CEO is responsible for the day-to-day management of the company. Yara’s division of func­ tions and responsibilities are defined in more detail in the Rules of Procedures established by the Board, which are published on Yara’s web site, www.yara.com. Executive Management The Management of the Company is appointed by the President and CEO to assist the President and CEO in his or her stewardship duties delegated by the Board and in the day-to-day management, includ­ ing the organization and operation of the company. The President and CEO determines the instructions for Management after prior discussion with the Board. The instructions for Management, and

the function descriptions and the authority delegated to each mem­ ber of the Management, reflect a joint obligation for these members to safeguard the overall interests of Yara and to protect Yara’s finan­ cial position. For more information, please see www.yara.com. Remuneration to the CEO and

Executive Management (Code’s point 12)

The Board of Directors determines the remuneration to the Presi­ dent and CEO based on a proposal from the Compensation Com­ mittee and decides on the general terms of the Company’s incentive plans for officers and certain key employees of the Company. The President and CEO decides on the compensation to other members of Management. The actual compensation to the Executive Manage­ ment and the company’s corporate bodies in 2007 is disclosed in note 31 in the consolidated financial statements. A declaration of remuneration of the executive management pre­ pared in accordance with the Norwegian Public Limited Companies Act is disclosed in note 31 in the consolidated financial statements. Corporate directives Yara’s corporate directives encompasses: • Articles of Association • Instructions for the Nomination Committee • Rules of Procedure for the Board • Internal Audit Charter • Mandate for the Board’s Compensation Committee • Mandate of the Board’s Audit Committee • Insider Regulations • Code of Conduct For more detailed information, please see under the section “Inves­ tor relations” on Yara’s web site, www.yara.com.

134

Board of Directors

1.

1. Øivind Lund, Chairperson Dr. Lund held the position of President and Country Manager of ABB Holding AS in Turkey until September 2006. From 2001 to 2003, he served as Senior Vice President and Group Func­ tion Manager with ABB Asea Brown Boveri Ltd in Switzer­ land. From 1998 to 2001, he was CEO with ABB AS in Norway. Dr. Lund has held senior manage­ ment positions with EB National Transformer AS in Norway, with Tanalec-Arusha Ltd. in Tanzania and with National Industri AS. He holds an M.S. and a Ph.D. in Electrical Engineering and a degree in Industrial Economy from BI Norwegian School of Management. Dr. Lund is a member of the Board of Directors of Norske Skog ASA and Marine Accurate Well ASA, Chair­ personoftheBoardofDirectorsof Tandberg Storage ASA and has been Chairperson of the Yara Board of Directors since 2004. He is also Chairperson of the Compensation Committee.

2.

2. Elisabeth Harstad Ms. Harstad is Senior Vice Pres­ ident and Managing Director of DNV Research & Innovation, responsible for DNV’s strate­ gic research and innovations activities. From 2002 to 2006, Ms. Harstad was respon­ sible for the DNV business area Technology Services, and in 2001 she was respon­ sible for this area within DNV Consulting. In 1999–2000, she was responsible for planning, development and marketing within the DNV oil, gas and process industry segment. From 1993 to 1998, she held senior positions within the field of environment and safety in sev­ eral DNV units. Ms. Harstad holds an M.S. degree in en­ gineering from the NTNU and is a board member of the D&F Group AS and TGS-NO­ PEC ASA. Ms. Harstad was elected to the Yara Board of Directors in May 2006. She is also a member of the Compensation Committee.

3.

3. Jørgen Ole Haslestad Mr. Haslestad is CEO of the Sie­ mens Industry Solution, a divi­ sion of Siemens AG. From 1994 to 2001, he held several senior management positions within Siemens AG and its subsidiar­ ies in Asia and the US. From 1989 to 1994, he served as CEO of Kongsberg Offshore AS. Mr. Haslestad holds an M.S. degree in Mechanical Engineering from the Norwegian Institute of Tech­ nology (presently the Norwegian University of Science and Tech­ nology) and is a member of the Board of Directors of Tandberg ASA. He has served as a board member of Yara since 2004. He is also a member of the Com­ pensation Committee.

4.

4. Leiv L. Nergaard Mr. Nergaard is a partner in the consulting company Norscan Partners AS. From 2003 to au­ tumn 2006, he was advisor to the Hydro corporate manage­ ment, and prior to that, he was CEO of Hydro in Germany. Mr. Nergaard served as CFO of Norsk Hydro from 1991 to 2002, and has held a number of senior management positions with Hydro since 1969. He holds a degree in Business Econom­ ics from the Norwegian School of Economics and Business Administration (NHH). Mr. Nergaard is Chairperson of the Board of Directors of Storebrand ASA, Chairperson of the Board of Directors of Clean Marine AS, Chairperson of the Board of Directors of GRIP - the Norwe­ gian Foundation for Sustainable Consumption and Production and Chairperson of the Board of Directors of Joma International AS. Mr. Nergaard has served as a Board member of Yara since 2004. He is also Chairperson of the Audit Committee.

Yara Financial Review 2007 Board of Directors

135

7.

5. Lone Fønss Schrøder Ms. Schrøder is CEO and Presi­ dent of Wallenius Lines AB and is a member of the Board of Directors of a number of public companies, such as Aker ASA, Vattenfall AB and DSB. From 1982 through 2002, she held several senior management positions with A.P. MøllerMaersk A/S, one of the world’s largest shipping and oil companies. Ms Schrøder holds a law degree from the Univer­ sity of Copenhagen and a Mas­ ter of Economics degree from Copenhagen Business School. She has served as a Board member of Yara since 2004. She is a also member of the Audit Committee.

5.

6. Arthur Frank Bakke Mr. Bakke has been a Yara (Hydro) employee for 33 years. He became a local union rep­ resentative at Herøya in Pors­ grunn in 1985. Mr. Bakke is head of Yara’s European Work Council, which represents Yara employees throughout Europe. He is also a member of the Au­ dit Committee.

6.

7. Frank Andersen Mr. Andersen has been a Yara (Hydro) employee for 35 years. He has been actively engaged in union matters at the Glomfjord plant since 1980, and served as deputy leader of the local union chapter at Glomfjord from 1994 to 2002, when he was elected union leader. Mr. Andersen is also a member of the local Council on Industrial Policy.

8.

8. Svein Flatebø Mr. Flatebø has been a Yara (Hydro) employee since 1981. He is presently employed in Yara’s Corporate Communica­ tions Department at the Oslo Office. He has worked in varius leading positions including strategy planning, global plan­ ning, reasearch and develop­ ment and purchasing. Before joining Hydro he worked in an consultant company as pro­ cess engineer and head of the Process Department. He has been a Board Member of The Norwegian Society of Chartered Scientific and Aca­ demic Professionalsis (Tekna) in Yara since 2006 and Chair­ person of Yara Tekna since 2007. From 2008 Mr. Flatebø is also one of three Norwegian employee representatives in EWC. Mr. Flatebø was educat­ ed at the Norwegian Institute of Technology, receiving a Master of Science degree in Chemical Engineering.

136

Executive Management 1.

1. Thorleif Enger President and Chief Executive Officer Dr. Enger has acted as Execu­ tive Vice President of Hydro Agri since 1999 and CEO of Yara since March 2004. Em­ ployed at Hydro since 1973, Dr. Enger has held numerous posi­ tions. He served as Executive Vice President of Oil & Energy from 1996 to 1999, President of Hydro’s Exploration & Pro­ duction Division from 1987 to 1996, and Project Director of the Oseberg field from 1982 to 1986. Prior to 1973, he worked as a senior research engineer for the Shell Development Company in the United States. Dr. Enger has a Ph.D., an M.Sc. and a B.Sc. in Structural Engi­ neering from the University of Colorado, USA.

2.

2. Sven Ombudstvedt Chief Financial Officer and Head of Strategy Mr. Ombudstvedt has served as CFO and Head of Strategy of Yara since October 2006. He held the post of Senior Vice President, Upstream, from 2003 until 2006. Previously, he was Senior Vice President, Corporate Strategy, for the Hydro Group from 2002 to 2003, and deputy to Hydro Agri’s Chief Operating Officer from 2000 to 2002, with commercial strategy and industrial restruc­ turing as his main responsibil­ ity. Prior to 2000, he worked in several senior positions in Hydro Agri’s European operations be­ tween 1993 and 1999, and was a senior systems analyst on sev­ eral large projects from 1991 to 1993. Mr. Ombudstvedt earned a Bachelor of Business Admin­ istration from Pacific Lutheran University in Tacoma, Washing­ ton and a Master of International Management from the American Graduate School of International Management (Thunderbird) in Glendale, Arizona, USA.

3.

3. Tor Holba Head of Upstream Mr. Holba has served as Senior Vice President, Upstream since October 2006. He was Senior Vice President, Downstream from 2003 until 2006. He has held numerous positions in Hydro since 1981. From 2001 to 2003, he served as Senior Vice President of Global Supply Chain Management, from 2000 to 2001, he acted as President of Trevo, from 1998 to 2000, he served as head of Business Unit Latin America, from 1993 to 1997, he worked as President of Hydro Agri Mexico, and from 1991 to 1993, he was employed as Regional Marketing Director for Asia and Managing Director of Hydro Far East. Mr. Holba was educated at the Norwegian Institute of Technology, receiv­ ing a Master of Science degree in Mechanical Engineering.

4.

4. Ed Cavazuti Head of Downstream Mr. Cavazuti has served as Senior Vice President, Down­ stream since October 2006. He was President of Yara Asia from 2004 until 2006. From 1998 until 2004, he was President of Hydro North America. He acted as Vice President, Mar­ keting International, at Hydro from 1989 until 1998 and prior to this he was Vice President, Finance, at Hydro’s US opera­ tions. He started his career at Arthur Andersen in 1975. Mr. Cavazuti studied at Colby Col­ lege and New York University. He holds a Masters degree in Business Administration and is a Certified Public Accountant.

Yara Financial Review 2007 Executive Management

137

5.

5. Terje Bakken Head of Industrial Mr. Bakken has served as Senior Vice President, Industrial since September 2004. Previously, he was Head of Business Unit Ammonia Trade and Shipping, Brussels from 2000 to 2004, Managing Director of Hydro Asia Trade, Singapore from 1996 to 2000, Managing Director of Hydro Far East. from 1994 to 1996, and in different sales and marketing positions in the agricultural area in Oslo before he moved to Hong Kong in 1993. He worked in Sintef, Trondheim before starting with Hydro in 1988. Mr. Bakken obtained a Master of Business Administration degree in the UK from Bath University, School of Management. 6. Hallgeir Storvik Head of Supply and Trade Mr. Storvik has served as Senior Vice President, Supply and Trade, since October 2006. He was Chief Financial Officer of Hydro Agri from 2000 and

6.

7.

was CFO of Yara until 2006. He was employed by Hydro in 1984, and was responsible for the strategy that led Hydro Agri to undertake a major turnaround from 1999 to 2000. Mr. Storvik also acted as CFO of Hydro Agri International from 1995 to 1999, with responsibil­ ity for developing a risk man­ agement system for the grow­ ing fertilizer business outside of Europe. Mr. Storvik gradu­ ated from the Norwegian School of Economics and Business Administration in Bergen. 7. Arne Cartridge Chief Communication Officer Mr. Cartridge has served as Chief Communication Officer of Yara since 2004. From 1996 to 2003, he worked for Telenor, Norway’s largest telecommu­ nication company, where he served as Head of Public Rela­ tions and Public Affairs. Prior to his association with Telenor, Mr. Cartridge was for three years the head of daily operations

8.

and business development for one of Norway’s leading com­ munications agencies, Gazette. Before that he was employed as Marketing Manager and Director of Communications of Digital Equipment Corp. and a Public Relations consultant and journalist in Publicity AS and Informativ AS. Mr. Cartridge has a Bachelor of Science degree in International Politics and Middle Eastern History from the University of Bergen. 8. Anne Grethe Dalane Chief Personnel Officer Ms. Dalane has served as Chief Personnel Officer of Yara and Hydro Agri since 2003. Em­ ployed at Hydro since 1984, Ms. Dalane held numerous financial positions. She served as Vice President, Human Resources, for Hydro Oil and Energy from 2001 to 2003, Vice President, Corporate Strategy, from 2000 until 2001, and Vice President, Finance, of Oil and Gas, Nor­ way, from 1996 to 1999. Ms. Dalane graduated from the

9.

Norwegian School of Econom­ ics and Business Administration in Bergen and is also a Certified Financial Analyst. 9. Ken Wallace Chief Legal Counsel Mr. Wallace has served as Chief Legal Counsel of Yara and Hydro Agri since 2003. He was Vice President and General Counsel, Hydro Americas, the Hydro corporate center for North, Central and South America and the Carib­ bean, from 1997 to 2003. Previ­ ously, he was a partner in the law firm of Bryan Cave LLP and predecessor firms in Kansas City, Missouri, United States from 1976 to 1997. Mr. Wallace received his Bachelor of Arts degree from California State University at Long Beach and his Juris Doctor degree from the Harvard Law School.

138

The Yara Share

Investor Relations policy Yara is committed to serve all its shareholders and potential inves­ tors by providing consistent, open and prompt disclosure of rele­ vant information. Yara’s policy is equal treatment of all stakehold­ ers, including analysts, banks, institutional investors and private shareholders. All information that may be important and relevant to Norwegian and international markets is provided in the form of notices to the Oslo Stock Exchange and through press releases. Yara presents its quarterly results as live webcasts and at its headquarters at Bygdøy Allé 2 in Oslo. In addition, Yara holds regular meetings with investors both in Europe and in North America. Yara aims to provide its shareholders with competitive returns com­ pared with other investment alternatives with similar risk. The Yara share shall be liquid and an attractive investment opportunity. Share facts Symbol: YAR.OL Listing: Oslo Stock Exchange (OSE) Average common shares outstanding (1 January – 31 December 2007): 293,028,848 In 2007, a total of 746.3 million Yara shares were traded on the OSE, at a total value of NOK 129.24 billion. The average daily trading vol­ ume for Yara shares on the OSE during 2007 was 2.99 million. Analyst coverage 18 financial analysts provide market updates and estimates for Yara’s financial results. This includes 7 analysts located in the UK and North America. Share price performance The highest closing price during the year was NOK 251.50 and the lowest was NOK 131.25. The highest closing price during the year was on the last trading day of the year, representing an increase of 77 % over the 2006 year-end close.

investors owned approximately 44 % of the total stock, of which most were from the United States and the United Kingdom. The Norwegian State, through the Ministry of Trade and Industry, is the largest single owner with 36.21 % of the shares. Norwegian private ownership of Yara shares was approximately 20 %. Cash distribution policy Yara expects to return 40-45 % of average net income to sharehold­ ers over a business cycle. Dividends should be minimum 30 % of average net income, with share buy-backs making up the balance. Total cash returned to shareholders in 2007 was NOK 1,141 mil­ lion or roughly 27 % of 2006 net income. Yara did not buy back any shares during 2007 due to the Kemira GrowHow acquisition. Yara believes it will be beneficial for shareholders that the Company aims for a gradual increase and predictability in the absolute divi­ dend level over time, independently of the business cycle. Conse­ quently, Yara expects to pay out somewhat more than 30 % of net in­ come in years with weaker than average cash flow from operations, and less than 30 % in years with stronger than average cash flow. Yara’s board will propose to the Annual General Meeting a dividend payment of NOK 4.00 per share for 2007, representing an increase of NOK 1.50 from the year before. The dividend pertaining to a fiscal year will be declared at Yara’s an­ nual general meeting in the following year.

2008 Dividend schedule Ex-dividend date: 9 May 2008 Payment date: 21 May 2008

Yara’s market value as of 31 December 2007 was NOK 73.33 billion, making Yara the seventh-largest company quoted on the Oslo Stock Exchange.

The General Meeting on 10 May 2007 authorized Yara’s Board to buy back up to 5 % of total shares (14,578,767 shares) before 9 May 2008, at a purchase price not less than NOK 10 and not more than NOK 300. A precondition for the program was that an agreement was entered into with the Norwegian State where the State com­ mitted to sell a proportional share of its holdings to leave the State’s ownership (36.21 %) unchanged.

Shareholder distribution At year-end 2007, Yara had 33,007 shareholders. Non-Norwegian

As of 31 December 2007 Yara had not bought back any own shares under the existing authorization.

Yara Financial Review 2007 The Yara Share

139

Common share data

NOK, except where otherwise noted

Q1

Basic earnings per share Adjusted earnings per share 1) Average number of shares outstanding Period end number of shares outstanding Average daily trading volume Average closing share price Closing share price (end of period) High share price Market capitalization (end of period NOK billion) Dividend per share

Q2

Q3

Q4

3.67 3.59 295,700,128 295,700,128 2,292,029 164.71 167.75 185.75

4.85 4.56 293,385,744 291,570,541 3,164,512 173.43 178.00 187.50

5.10 3.90 291,570,541 291,570,541 3,263,947 157.22 170.50 181.00

7.01 3.86 291,565,814 291,574,435 3,238,100 200.25 251.50 251.50

49.60

51.90

49.71

73.33

2007

2006

20.60 15.91 293,028,848 291,574,435 2,985,259 173.63 251.50 251.50

13.86 9.80 302,071,267 295,699,984 1,706,810 100.64 141.75 141.75

73.33

42.95

4.00 2)

2.50

1) Adjusted for foreign exchange gain/loss and special items 2) Proposed

1. Yara OSEBX

180 140 100 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Index, end 2006 = 100

2.

36.2% Norwegian State 14.0% Other

32% ipsum

13.2% UK 16,9% US

24% dolor

19.7% Norwegian Private 30% amet

1.

Yara share price and OSEBX performance in 2007

The Yara share delivered an 80 % total return in 2007, while the OSEBX index returned 11 %. 2.

Shareholding distribution end of 2007

Foreign share ownership in Yara increased to approximately 44 % during 2007

140

Yara ADR Yara has a sponsored level 1 ADR (American Depository Receipt) program in the United States. The ADRs are not listed, but are bought and sold OTC, i.e. through any broker licensed to buy and sell US securities. One ADR represents one ordinary Yara share. Yara ADR performance On 29 December 2006 the Yara ADR was quoted at USD 22.85. On 31 December 2007, the ADR was quoted at USD 46.30, which de­ notes a 103 % increase for the year. To find a recent price quote for Yara ADRs please go to JPMorgan’s website www.adr.com. The ticker symbol is YARIY. Voting rights through ADR ownership In accordance with Norwegian corporate law, the physical presence of shareholders or their authorized representatives is required in or­ der to vote. Shares must be registered with the Norwegian Registry of Securities in the name of the real owner if the holders want to vote for their shares at the shareholders’ meeting. Holders of Yara ADRs should check their voting rights with JPMorgan, which is the deposi­ tory bank for Yara ADRs. The contact details are given below. Rating Rating agencies Moody’s and Standard & Poor’s have rated Yara as solid investment grade. Reflecting its strong market position and cost leadership, Yara is rated investment grade ‘Baa2’ with Moody’s and ‘BBB’ with Standard & Poor’s. 2008 Annual General Meeting Yara’s shareholder meeting will take place at 18.00 (CET) Thursday 8 May, at Yara headquarters in Bygdøy Allé 2, Oslo. Shareholders who wish to attend the Annual General Meeting are asked to inform Yara’s registrar by 12.00 CET on Tuesday 6 May. DnB Nor Bank Verdipapirservice Stranden 21 N-0021 Oslo Tel: (+47) 22 48 35 90 Fax: (+47) 22 48 11 71

Shareholders may also register electronically on the Yara webpage www.yara.com/register or at the Verdipapirservice investor services site at www.vps.no. For more information on how to vote, consult our proxy voting form or visit our website. Registrar information Registered shareholders may contact our Registrar in Norway re­ garding share transfers, address change and other issues related to their holding of Yara shares. The contact details are: DnB Nor ASA Verdipapirservice Stranden 21 N-0021 Oslo Phone: +47 22 48 35 90 Fax: +47 22 48 11 71 www.dnbnor.com Yara’s ADR depositary bank JPMorgan is the depositary bank for Yara ADRs. The contact details are: JPMorgan ADR Group 4 New York Plaza, 13th Fl. New York, NY 10004 USA Phone (US): 800-990-1135 Phone (outside US): +1-201-680-6630 E-mail: [email protected] www.adr.com Change of address Shareholders registered in the Norwegian Registry of Securities should send information on changes of address to their registrars and not directly to the company. Continuously updated information on shareholder related matters can be found on our website www.yara.com/en/investor_relations

Yara Financial Review 2007 The Yara Share

141

Yara’s 20 largest shareholders as of 31 December 2007

Shareholders Ministry of Trade and Industry, Norway National Insurance Scheme Fund State Street Bank and Trust Co (Nominee) Brown Brothers Harriman & Co Morgan Stanley & Co (Nominee) Bank of New York, Brussels Branch Clearstream Banking S.A. (Nominee) Euroclear Bank S.A./N.V. (Nominee) Investors Bank & Trust Co (Nominee) The Northern Trust Co (Nominee)

Shares (%) 36.2 5.6 3.6 2.4 2.0 1.4 1.4 1.2 1.2 1.1

Shareholders

Shares (%)

Morgan Guaranty Trust Co (Nominee) Vital Forsikring ASA The Northern Trust Co (Nominee) Mellon Bank (Nominee) Investors Bank & Trust Co (Nominee) Morgan Stanley & Co Intl plc JPMorgan Chase Bank (Nominee) Storebrand Livsforsikring AS JPMorgan Chase Bank (Nominee) Morgan Stanley & Co Inc

1.1 1.0 1.0 1.0 0.9 0.8 0.8 0.7 0.6 0.6

Ownership structure

No. of shares 1-100 101-1,000 1,001-10,000 10,001-100,000 100,001-one million Over one million

No. of shareholders

Percentage of share capital

19,920 10,702 1,710 477 158 40

0.23 1.19 1.76 5.38 17.63 73.81

142

Yara is awarded both the Information Symbol and the English Symbol by the Oslo Stock Exchange. The Information Symbol is awarded to companies that meet, among other things, defined standards for information on their web-site. The English Symbol is awarded to companies that meet all the requirements for the Information Symbol in English.

The “FTSE4Good Index Series” has been designed to measure the performance of companies that meet globally recognized corporate responsibility standards, and to facilitate investment in those companies.

The ”Best in Class” designation from Storebrand Investments is awarded to companies that meet the highest environmental and social standards within their industry.

Yara has decided to embrace, support and enact the UN Global Compact and its ten principles, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption.

143

Global industry leadership

Unique business model

Yara is a leading chemical company that converts energy, natural minerals and nitrogen from the air into essential products for farmers and industrial customers. As the number one global supplier of mineral fertilizers and agronomic solutions, Yara helps provide food and bioenergy for a growing and more affluent world population. The company’s industrial product portfolio includes environmental protection agents that safeguard air and water purity and preserve food quality.

Yara has developed a unique business model built on the complementary strengths and risk profiles of the three business segments Downstream (fertilizer application), Industrial (industrial application) and Upstream (global manufacturing) - see pages 26-27 for an overweiv of the segments. By balancing demand for plant nutrition with a world-scale manufacturing base, a unique global marketing and distribution network and a comprehensive product offering, Yara’s business model mitigates cyclicality and spurs innovation in higher-margin products.

vision

Mission

2008 Quarterly Earnings Release Dates

Strategy Downstream

Aim for industry shaper performance

Strive for better yield

Leverage unique position

Business concepts that exploit combined strength

Upstream

Industrial

First quarter – 18 April 2008 Second quarter – 15 July 2008 Third quarter – 17 October 2008

Yara is uniquely equipped, and committed to driving industry shaping performance through operational excellence, profitable growth and people development. Yara’s safety and environmental record shall be of the highest standard.

Yara will deliver good returns for farmers and industrial customers, and returns that create satisfied owners.

Yara will grow profitably and sustainably via its six pillars of strength and unique business model.

Six pillars of strength

Global #1 in ammonia Leadership in the ammonia value chain and a large-scale ammonia/urea production base in low-cost natural gas regions.

Global #1 in nitrates Leadingmarket market position position in Leading in nitrates. nitrates in Europe.

Global #1 in NPK Adding value to farmers through balanced fertilization.

Global #1 in speciality fertilizers

Global #1 in nitrogen applications

Global #1 in marketing and distribution

Targeting speciality fertilizers for high-margin cash crop segments in fast growing markets.

Developing higher margin industrial applications from existing production base.

Global marketing and distribution network with economies of scale delivering expertise on all continents.

“Added-value market pull” Scale advantage Balanced fertilization Unique market position Strong brand value Crop/application focus

Change management skills Global optimization Supply flexibility Trade and arbitrage opportunities

“Low-cost product push” Favourable gas cost Scale advantage Ammonia position Product quality Capacity utilization

world-scale production

Knowledge margin

Financial Strength

Yara’s production and trade business is built around worldscale plants and critical mass in ammonia and fertilizer trade. Third party sourcing enables optimal utilization of own production assets and gives flexibility in adjusting to global supply and demand balances.

Yara has developed a unique knowledge margin via its strong focus on innovation, marketing partnerships and close customer relationships. Yara’s strong brands help differentiate its products from the commodity market.

Yara has delivered strong results, based on high and stable profitability, a unique business model and global presence.

Global coverage Yars has a physical presence in 50 and sales to 120 countries and an unrivalled global coverage that enables smooth operations, reduces risks and opens up for arbitrage opportunities.

Performance culture Yara’s focus on a performanceoriented business culture is based the core values of teamwork, accountability, trust and ambition. The diversity of Yara’s employees together with common values and goals are key determinants of performance.

Attractive industry Population growth, economic growth and increased focus on biofuels are driving demand for fertilizers while stricter environmental legislation is pushing demand for industrial applications.

Concept and design: Grow Prepress: Artbox Photo: Ole Walter Jacobsen Front Cover, Back Cover and Page 2: Morocco, agriculture landscape © Yann Arthus -Bertrand (Altitude) Page 3: Equator, agriculture landscape © Yann Arthus -Bertrand (Altitude) Print: Pro-X

Yara International ASA Results

Bygdøy Allé 2 PO Box 2464 Solli N-0202 Oslo, Norway T +47 24 15 70 00 F +47 24 15 70 01 www.yara.com

2007

2006

57,486 4,987 8,441 6,037

48,261 3,352 6,472 4,188

Investments (NOK millions) 3) Debt/equity (%) 4) Cash flow from operations (NOK millions)

7,797 42 4,305

4,443 33 3,854

CROGI 5) Earnings per share (NOK)

16.1 20.60

14.1 13.86

21,201 251.50

16,034 141.75

8,173 1.4

7,060 1.3

Revenues and other income (NOK millions) Operating income (NOK millions) EBITDA (NOK millions) 1) Net income (NOK millions) 2)

Financial Review 2007

2)

YARA FINANCIAL REvIEw 2007

Shareholder’s equity (NOK millions) Share price (NOK) on Oslo Stock Exchange 31.12 Number of employees (year end) LTI 6)

Footnotes: 1) EBITDA: Earnings before Interest, Tax, Depreciation, and Amortization. 2) Reported net income after minority interest. 3) Investment in property, plant and equipment, long-term securities, intangibles, long-term advances and investments in non-consolidated investees. 4) Net interest-bearing debt divided by shareholders’ equity plus minority interest. 5) CROGI: Cash Return on Gross Investment. 6) Lost time injury rate per million hours worked, both Yara employees and contractors.

2007 Revenue

NOK 57.5 billion

19 %

EBITDA (NOK millions)

REVENUES

30 % 44 % EBITDA

NET INCOME

8,441 6,108

6,618

6,472

4,671

03

Knowledge grows

04

05

06

07

Another good year Yara reported record high results in 2007 with net income reaching NOK 6 billion.