Forecast of revenue

Revenue growth is affected by the three value drivers: fertilizer prices, natural gas prices and availability for raw materials. To forecast the future revenue, it is essential to divide it into two components of price and sold volume. While the associated prices are dependent on demand and industry forecasts, the sold volumes are affected by the production capacity. After a discussion of the two components, an overall discussion of other factors affecting the revenue will be conducted of each company below.

RemainCo:

Prices

The nitrogen fertilizer market is expected to grow at a CAGR of 3,2% between 2019-2024 (Mordor Intelligence, n.d.). Although the demand of fertilizers has been low in recent years, it is expected to recover to a growth of 2,6% in 2020 in absence of any geopolitical concerns and economic

downturn (IFA, 2019). Yet, the demand from Asia, which represents 60% of global nitrogen

consumption, will continue to be highly affected by fertilizer subsidies (IFA, 2019). Furthermore, as seen in figure 38, average commodity prices are predicted to have a positive average annual growth rate of 1,8% until 2025, which in turn might explain the growth prediction of 2,0% and 3,3%

in Urea and DAP prices respectively. The ammonia price is only predicted until 2021, but with the strong correlation effect from other fertilizer prices, the ammonia price is estimated to yield an average annual growth rate of 2,5% until 2025. Hence, these estimates speak in favor of a positive further revenue growth for RemainCo.

Deliveries

As shown in figure 39, Yara has experienced a boost in the production volume recently. This was especially the case in 2018 as the total production peaked with a growth of 9% while ammonia production increased by 22% the same year. This peak is mainly due to the latest investments in the fertilizer business, including the recent P&K projects, which has increased the production capacity (Yara, 2018). Most of the growth in capacity occurs from Yara’s highest revenue

USD million 2012 2013 2014 2015 2016 2017 2018 2019 Average E2020 E2021 E2022 E2023 E2024 E2025Average Urea price growth % -16 % -10 % -10 % -30 % 10 % 17 % -2 % -5,8 % 2 % 8 % -3 % 2 % 2 % 2 % 2,0 % DAP price growth % -17 % -3 % -3 % -24 % 2 % 22 % -20 % -6,2 % 3 % 3 % 3 % 3 % 3 % 3 % 3,3 % Ammonia price % -12 % 4 % -22 % -39 % 13 % 7 % -19 % -9,7 % 4 % 3 % 3 % 3 % 3 % 3 % 3,4 % Avg. commodity price % growth -16 % -9 % -1 % 15 % 0 % ^{-2,2 %} 2 % 2 % 2 % 2 % 2 % 2 % 1,8 %

contributor, urea, which in turn is the highest contributor to the increased global nitrogen capacity (IFA, 2019). In addition, The Yara Improvement Program (YIP) targets 4,2 million additional tons of production in 2023 (Yara, 2019c), which is a 13% raise compared to 2019 volumes, leading to an annual average production growth of 3,3% until 2023. Current and future acquisitions are expected to lift the capacity level even more, leading to an increase in the projected deliveries.

Overall discussion

Although global economic growth beyond 2020 is estimated to be stable at 3,6% (IFA, 2019), threats from trade wars, sanctions and unfavorable weather conditions harming the efficiency and trade of fertilizers, may contribute to uncertainties in the years ahead. On the other side, although the fertilizer demand growth is modest, the demand is expected to increase. This is due to

fertilizers possibly being the only source to increase the food production by 70% in 2050 compared with today's level, in order to fill the gap between the population growth and accessible food (FAO, n.d.). The technological initiatives, strong brand name and the fact that RemainCo’s operation delivers the largest volume of fertilizers in the world, speaks for a strong revenue growth.

Although the prices of urea, DAP and ammonia have decreased -5,8%, -6,2% and -9,7%

respectively during the historical period, RemanCo’s revenue has only declined by -1,6% despite the strong correlations. One reason may be due to Yara’s ability to add a premium price upon the spot prices. Based on the overall discussion, in addition to positive forecast predictions of fertilizer prices and increased production volume capacity from YIP, RemainCo can arguably be assigned a revenue growth of 3% in the short-term period. Further, as strategic restructuring often has a greater impact in a longer time perspective (Deloitte, 2008), the carve-out benefits are predicted to impact the medium-term growth. Since the carve-out is expected to contribute to increased

resources and further development of the fertilizer business, the company can solely work on technical and environmental solutions, in addition to increase the vertical integration to improve the market share. This in addition to other improvements and initiatives mentioned by the new

“focused strategy” will therefore lead to an expected average medium-term growth rate of 3,5%.

This is close to the past three years average growth of 3,9% and hence still a conservative estimation. Finally, the revenue growth will converge to the terminal rate of 2% in the long-term.

USD million 2012 2013 2014 2015 2016 2017 2018 2019 Average Avg. past 3 years

Revenue 12 392 12 402 12 763 11 743 9 655 9 555 10 848 10 751

% growth each year 0 % 3 % -8 % -18 % -1 % 14 % -1 % -1,6 % 3,9 %

Total production (thous tons) 24 555 26 009 25 924 26 259 27 001 27 662 30 192 30 539

% growth each year 6 % 0 % 1 % 3 % 2 % 9 % 1 % 3,2 % 4,2 %

Ammonia trade deliveries (thous tons) 2 566 2 203 2 041 2 013 2 043 2 023 2 478 2 527

% growth each year -14 % -7 % -1 % 1 % -1 % 22 % 2 % 0,3 % 7,8 %

NewCo:

Prices

The global industrial nitrogen demand is expected to be 2% per year until 2023 (IFA, 2019), as the industrial use stands for 21% of global nitrogen consumption, where chemicals is the largest segment, followed by civil explosives and environmental solutions. The latter is the fastest growing segment due to the need of reducing NOx gasses (Yara, 2018a), and this market has an expected CAGR of 5,42% until 2022 (Das, 2020). This is in favor for NewCo, as the NOx gas reduction product, AdBlue, is its largest revenue contributor. Among the predicted industrial nitrogen demand, China is expected to be one of the largest contributors (IFA, 2019), which may create various opportunities for NewCo in the Chinese market. Further, there are several growth opportunities in the industrial nitrogen market with a forecasted CAGR of 5,83% in 2019-2022 (Markets and Markets, n.d.). Increased demand for industrial nitrogen is expected in industries such as scrubbers, steel and food & beverage, animal feed, automotive sector and a growing concern for food safety (Market Research Future, n.d.; Market Watch, 2019a). The above price predictions provide indications of a positive future revenue growth for NewCo.

Delivers

The deliveries in industrial nitrogen products for Yara have also experienced growth in recent years and peaked in 2018 with an increased delivery of 9%. This was mainly due to the investments in the fertilizer production, while the growth in 2018 from the Industrial segment was solely 3% (Yara, 2018). Thus, the growth forecast in industrial deliveries should be viewed with caution, as NewCo may risk not experiencing the same synergies they utilized as being part of Yara.

Overall discussion

The revenue growth for NewCo is also expected to be affected to some degree by tensions in the global economy, threats of trade wars and political instabilities. Additionally, the stand-alone company might lose association to the long history and the strong brand name of Yara, creating uncertainties for further customer relations- and agreements. In addition, although RemainCo will remain an ownership share of NewCo, the benefits from RemainCo’s increased production capacity of nitrogen products is most likely to decline. Therefore, despite the strong growth

USD million 2012 2013 2014 2015 2016 2017 2018 2019 Average Avg. past 3 years

Revenue 2 153 2 088 2 371 2 140 1 913 1 845 2 205 2 185

% growth each year -3 % 14 % -10 % -11 % -4 % 20 % -1 % 1,0 % 5,0 %

Industrial deliveries (thous tons) 6 008 6 255 6 593 7 030 6 892 6 996 7 653 7 653

% growth each year 4 % 5 % 7 % -2 % 2 % 9 % 0 % 4,2 % 3,6 %

predictions in the industrial nitrogen market, a conservative revenue growth rate of 3% is predicted in the short-term. This is considered realistic, compared to the average of 5% the last three years.

As a stand-alone company, resources and focus on the industrial nitrogen business is expected to finally be prioritized. To become the “first integrated industrial nitrogen company”, NewCo is assumed to invest heavily in the development of its business. This, in addition to strong growth rates in the industrial nitrogen markets, increased demand from the Chinese market and relatively high historical average production growth, the revenue is expected to increase to an annual growth rate of 4% in the medium-term. This is supported by potential benefits from the carve-out, which are assumed to impact in the medium-term. The growth rate is arguably realistic as it is still below the average the last three years. Finally, the long-term revenue growth will converge towards the terminal growth rate of 2%.

The final forecasted revenue of both RemainCo and NewCo are presented in the table below.