Earnings Release • May 11, 2020
Earnings Release
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"We reported an improved result for the quarter despite lower selling prices as we delivered a step-up in operational performance and ramped up volumes by more than 60% during the quarter. We achieved this with an excellent safety record and best-in-class 12-month rolling recordable incident rate. In addition, production has to date not been disrupted by the COVID-19 crisis.
The nitrogen business was the main driver of the growth in sales volumes. Utilization rates of our nitrogen plants were significantly higher during the quarter than before their extensive turnarounds carried out in 2019, with particularly our Algeria and Iowa facilities reaching record rates.
We are also expecting our methanol production to reach higher utilization rates. Following a major turnaround, OCI Beaumont is already achieving steady production levels near its maximum potential since it restarted successfully in February. We expect methanol volumes to ramp up further after completion of an on-going turnaround in the Netherlands and Natgasoline improvement activities.
As a result, we maintain our forecast that we are on track to deliver robust volume growth in 2020.
All OCI's products are regarded as vital by governments to ensure uninterrupted supply of food and other essential products for everyday life. Our team has made it priority to keep our plants running and provide critical inputs for the global food supply chain, at the same time ensuring the safety and well-being of our people, partners and communities under significantly enhanced safety measures.
Despite COVID-19 challenges across the globe, nitrogen demand is looking favourable for 2020. Our order book for the second quarter is healthy as the spring application season across our main end markets is developing well.
In the US, spring planting is ahead of last year with the latest USDA data showing corn planting currently more than 50% complete. We expect this, coupled with forecast record corn acreage, to result in a strong increase in nitrogen demand compared to 2019. Additionally, urea imports into the US are significantly below last year, which would imply ending the season with minimal carry-over inventory.
In Europe, the application season started towards the end of March. Weather conditions are currently optimal for growing crops which we expect to underpin strong demand in May and June in our core European nitrate markets. Similarly, Fertiglobe benefits from ongoing demand in major importing countries or regions for urea, such as Europe, South Asian & Pacific countries and our previous commitments to East Africa.
The methanol business, which represented c.14% of adjusted EBITDA in the first quarter, has seen a decline in methanol prices as a result of COVID-19 and the significantly lower oil prices in the past few months. However, there are a number of factors that can mitigate anticipated lower demand in the near term and support the balance in the market. Many marginal cost producers, particularly in China, are already operating well below cash costs and are expected to shut down if prices continue to stay low. In addition, existing production curtailments and postponements of key projects already announced by other producers eliminate supply and will also help offset weakness in global demand.
Furthermore, OCI is one of the lowest cost producers globally and maintains a solid competitive advantage with cash costs of production significantly below current methanol sales prices. We expect to remain a beneficiary of the current natural gas price environment in the US and Europe for the foreseeable future, especially in the Netherlands where the drop in natural gas prices this year has been the most pronounced.
Our priority remains to optimize free cash flow generation and we remain committed to our financial policy to deleverage towards 2x through the cycle, with timing to achieve this greatly dependent on the pricing environment.
In an environment of low selling prices, we are fully focused on what is within our control – operational and commercial excellence, volume growth and controllable costs. Our consolidated liquidity of around \$1.3 billion as of the beginning of May, consisting of c.\$550 million cash and c.\$750 million undrawn committed facilities, is very healthy and has been helped by our strategic and refinancing actions over the past two years.
We are fortunate that we finalized our heavy-scope turnarounds for the nitrogen business last year, and that we had brought forward and finalized our major methanol turnaround activity to the first quarter this year, before the escalation of the COVID-19 pandemic. For the remaining turnarounds planned for 2020, we have the potential to postpone some capex activities without affecting safety and reliability of operations.
We have also identified additional c.\$20 million of cash savings at Fertiglobe, to be realized over the next 3 years. In addition, we continue to evaluate our capital structure to identify further cost-effective refinancing opportunities.
In light of recent developments, and COVID-19 volatility, OCI has decided to postpone the methanol process to H1 2021, allowing for an improved transaction environment for both the business and interested parties. OCI believes this is in the best interest of its stakeholders from a value creation perspective."
We expect to continue to be a beneficiary of a low gas price environment for the remainder of 2020:
| Q1 2020 | Q1 2019 | % Δ | |
|---|---|---|---|
| Revenue | 811.1 | 596.5 | 36% |
| Gross Profit | 77.3 | 52.5 | 47% |
| Gross profit margin | 9.5% | 8.8% | |
| Adjusted EBITDA2) | 193.0 | 129.3 | 49% |
| EBITDA2) | 176.1 | 122.2 | 44% |
| EBITDA margin | 21.7% | 20.5% | |
| Adj. net income (loss) attributable to shareholders | (82.0) | (82.2) | nm |
| Net income (loss) attributable to shareholders | (81.4) | (81.2) | nm |
| Earnings / (loss) per share (\$) | |||
| Basic earnings per share | (0.388) | (0.388) | nm |
| Diluted earnings per share | (0.388) | (0.388) | nm |
| 31 Mar 20 | 31 Dec 19 | % Δ | |
| Total Assets | 9,630.6 | 9,419.6 | 2% |
| Gross Interest-Bearing Debt | 4,942.2 | 4,662.3 | 6% |
| Net Debt | 3,967.7 | 4,061.8 | (2%) |
| Q1 2020 | Q1 2019 | % Δ | |
| Free cash flow2) | (85.4) | (15.9) | nm |
| Capital Expenditure | 95.7 | 59.7 | 60% |
| Of which: maintenance capital expenditure | 90.7 | 18.6 | nm |
| Sales volumes ('000 metric tons)3) | |||
| OCI Product | 2,737.8 | 1,694.6 | 62% |
| Third Party Traded | 552.2 | 475.4 | 16% |
| Total Product Volumes | 3,290.0 | 2,170.0 | 52% |
1) Unaudited
2) OCI N.V. uses Alternative Performance Measures ('APM') to provide a better understanding of the underlying developments of the performance of the business. The APMs are not defined in IFRS and should be used as supplementary information in conjunction with the most directly comparable IFRS measures. A detailed reconciliation between APM and the most directly comparable IFRS measure can be found in this report
3) Fully consolidated, not adjusted for OCI ownership stake in plants, except OCI's 50% share of Natgasoline volumes
| Q1 2020 | Q1 2019 | % Δ | |
|---|---|---|---|
| Own Product | |||
| Ammonia | 541.5 | 367.5 | 47% |
| Urea | 1,116.2 | 448.2 | 149% |
| Calcium Ammonium Nitrate (CAN) | 170.2 | 108.7 | 57% |
| Urea Ammonium Nitrate (UAN) | 340.0 | 239.9 | 42% |
| Total Fertilizer | 2,167.9 | 1,164.3 | 86% |
| Melamine | 30.5 | 35.2 | (13%) |
| DEF | 140.4 | 97.0 | 45% |
| Total Nitrogen Products | 2,338.8 | 1,296.5 | 80% |
| Methanol1) | 399.0 | 398.1 | 0% |
| Total Own Product Sold | 2,737.8 | 1,694.6 | 62% |
| Traded Third Party | |||
| Ammonia | 74.3 | 89.8 | (17%) |
| Urea | 158.1 | 71.7 | 121% |
| UAN | 5.8 | 6.8 | (15%) |
| Methanol | 99.8 | 96.5 | 3% |
| Ammonium Sulphate (AS) | 158.6 | 201.8 | (21%) |
| DEF | 55.6 | 8.8 | nm |
| Total Traded Third Party | 552.2 | 475.4 | 16% |
| Total Own Product and Traded Third Party | 3,290.0 | 2,170.0 | 52% |
1) Including OCI's 50% share of Natgasoline volumes
| Q1 2020 | Q1 2019 | % Δ | Q4 2019 | % Δ | |||
|---|---|---|---|---|---|---|---|
| Ammonia | NW Europe, FOB | \$/mt | 268 | 331 | -19% | 275 | -3% |
| Ammonia | US Gulf Tampa contract | \$/mt | 250 | 282 | -11% | 255 | -2% |
| Granular Urea | Egypt, FOB | \$/mt | 246 | 266 | -8% | 238 | 3% |
| CAN | Germany, CIF | €/mt | 174 | 221 | -21% | 180 | -3% |
| UAN | France, FOT | €/mt | 153 | 216 | -29% | 162 | -6% |
| UAN | US Midwest, FOB | \$/mt | 181 | 245 | -26% | 204 | -11% |
| Melamine | Europe contract | €m/t | 1,405 | 1,575 | -11% | 1,450 | -3% |
| Methanol | USGC Contract, FOB | \$/mt | 378 | 435 | -13% | 336 | 13% |
| Methanol | Rotterdam FOB Contract | €/mt | 270 | 350 | -23% | 270 | 0% |
Source: CRU, Argus, ICIS
Total own-produced nitrogen sales volumes increased 80% during the first quarter of 2020 compared to the same period last year, reflecting:
Fertiglobe was the main driver of a 49% improvement in adjusted EBITDA of the nitrogen business in Q1 2020 as higher volumes and beneficial natural gas prices in Europe and the United States were partially offset by lower selling prices for our nitrogen products.
Own-produced methanol sales volumes during the first quarter of 2020 was at the same level as the same period last year:
• Higher volumes at Natgasoline in the first quarter of 2020 compared to both the first and the fourth quarters of 2019, even though the plant was not achieving its optimal production levels yet. Natgasoline received a second insurance payment of \$15 million as compensation for business interruption losses and damages incurred in Q4 2019 and Q1 2020.
Despite lower methanol prices during the first quarter of 2020 compared to the same quarter last year and the major turnaround at OCI Beaumont, the Q1 2020 adjusted EBITDA of the methanol business improved slightly as a result of lower natural gas prices in the Netherlands and the US, and a higher average utilization rate at Natgasoline.
| \$ million | Nitrogen US |
Europe | Fertiglobe* | Elim. | Total Nitrogen |
Methanol US |
Europe | Elim.** | Total Methanol |
Other | Elim. | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total revenues | 118.7 | 162.4 | 363.3 | (11.9) | 632.5 | 130.0 | 81.8 | (20.3) | 191.5 | 0.2 | (13.1) | 811.1 |
| Gross profit | 10.2 | 14.5 | 62.6 | 1.0 | 88.3 | (1.2) | (1.9) | (7.0) | (10.1) | (0.9) | - | 77.3 |
| Operating profit | 5.7 | 5.4 | 43.3 | 1.0 | 55.4 | (9.9) | (3.6) | (2.7) | (16.2) | (5.2) | - | 34.0 |
| D&A | (35.4) | (19.9) | (66.8) | - | (122.1) | (32.1) | (5.5) | 18.7 | (18.9) | (1.1) | - | (142.1) |
| EBITDA | 41.1 | 25.3 | 110.1 | 1.0 | 177.5 | 22.2 | 1.9 | (21.4) | 2.7 | (4.1) | - | 176.1 |
| Adj. EBITDA | 41.1 | 25.3 | 113.6 | 1.0 | 181.0 | 27.4 | 1.9 | (2.4) | 26.9 | (14.9) | - | 193.0 |
| \$ million | Nitrogen US |
Europe | Fertiglobe* | Elim. | Total Nitrogen |
Methanol US*** |
Europe | Elim.** | Total Methanol |
Other | Elim. | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total revenues | 91.2 | 193.7 | 153.4 | (17.1) | 421.2 | 135.3 | 58.8 | (11.7) | 182.4 | - | (7.1) | 596.5 |
| Gross profit | 12.6 | 23.7 | 19.4 | (2.5) | 53.2 | 18.4 | (12.3) | (3.8) | 2.3 | (3.0) | - | 52.5 |
| Operating profit | 6.6 | 13.6 | 10.1 | (2.5) | 27.8 | 13.2 | (12.1) | (1.9) | (0.8) | (18.1) | - | 8.9 |
| D&A | (33.7) | (17.3) | (42.9) | - | (93.9) | (31.5) | (2.7) | 16.0 | (18.2) | (1.2) | - | (113.3) |
| EBITDA | 40.3 | 30.9 | 53.0 | (2.5) | 121.7 | 44.7 | (9.4) | (17.9) | 17.4 | (16.9) | - | 122.2 |
| Adj. EBITDA | 40.3 | 30.9 | 53.0 | (2.5) | 121.7 | 37.5 | (8.9) | (3.0) | 25.6 | (18.0) | - | 129.3 |
* Previously Nitrogen MENA segment. Fertil consolidated from Q4 2019
** Mainly related to elimination of Natgasoline, which is included in Methanol US segment
*** Until 2019 OCI Fuels Ltd. was included in segment Methanol US. Effective 1 January 2020, OCI Fuels Ltd. will be combined with OCI Fuels B.V. in the segment Methanol Europe. The comparative numbers of Q1 2019 are restated to reflect that change.
Consolidated revenue increased 36% to \$811 million in the first quarter of 2020 compared to the same quarter in 2019, driven by the increase in total volumes sold, partially offset by lower selling prices for our nitrogen products and methanol.
Adjusted EBITDA increased by 49% to \$193 million in Q1 2020 compared to \$129 million in Q1 2019. The nitrogen segments benefited from the higher volumes, a strongly improved performance at Sorfert and lower gas prices, offset by lower selling prices for all products. The methanol group's adjusted EBITDA was higher in Q1 2020 due to improved performance at Natgasoline and in the Netherlands compared to Q1 2019, offset by the accelerated turnaround at OCI Beaumont.
The adjusted net loss was \$82 million in Q1 2020 compared to a loss of \$82 million in Q1 2019. The reported net loss (after non-controlling interest) was \$81 million in Q1 2020 compared to a net loss of \$81 million in Q1 2019.
| \$ million | Q1 2020 | Q1 2019 |
|---|---|---|
| Net revenue | 811.1 | 596.5 |
| Cost of Sales | (733.8) | (544.0) |
| Gross profit | 77.3 | 52.5 |
| SG&A | (57.1) | (46.6) |
| Other Income | 13.8 | 3.3 |
| Other expense | - | (0.3) |
| Adjusted EBITDA | 193.0 | 129.3 |
| EBITDA | 176.1 | 122.2 |
| Depreciation & amortization | (142.1) | (113.3) |
| Operating profit | 34.0 | 8.9 |
| Interest income | 1.6 | 1.7 |
| Interest expense | (49.4) | (78.1) |
| Other finance income / (cost) | (17.2) | (15.1) |
| Net finance costs | (65.0) | (91.5) |
| Income from equity-accounted investees | (7.3) | (9.7) |
| Net income before tax | (38.3) | (92.3) |
| Income tax expense | 2.8 | 10.1 |
| Net profit / (loss) | (35.5) | (82.2) |
| Non-Controlling Interest | (45.9) | 1.0 |
| Net profit / (loss) attributable to shareholders | (81.4) | (81.2) |
* Unaudited
Adjusted EBITDA is an Alternative Performance Measure (APM) that intends to give a clear reflection of underlying performance of OCI's operations. The main APM adjustments in the first quarters of 2020 and 2019 relate to:
| Reconciliation of reported operating income to adjusted EBITDA | |||||||
|---|---|---|---|---|---|---|---|
| \$ million | Q1 2020 | Q1 2019 | Adjustment in P&L | ||||
| Operating profit as reported | 34.0 | 8.9 | |||||
| Depreciation and amortization | 142.1 | 113.3 | |||||
| EBITDA | 176.1 | 122.2 | |||||
| APM adjustments for: | |||||||
| Natgasoline | 21.4 | 8.1 | OCI's share of Natgasoline EBITDA | ||||
| Unrealized result natural gas hedging | 3.4 | (1.9) | COGS | ||||
| Gain on purchase related to Fertiglobe | (13.3) | - | Other income | ||||
| Transaction costs | 1.9 | 0.5 | SG&A / Other expenses | ||||
| Other including provisions | 3.5 | 0.4 | |||||
| Total APM adjustments | 16.9 | 7.1 | |||||
| Adjusted EBITDA | 193.0 | 129.3 |
At the net income level, the main APM adjustments relate to non-cash foreign exchange gains or losses on US\$ exposure.
| \$ million | Q1 2020 | Q1 2019 | Adjustment in P&L |
|---|---|---|---|
| Reported net loss attributable to shareholders | (81.4) | (81.2) | |
| Adjustments for: | |||
| Adjustments at EBITDA level | 16.9 | 7.1 | |
| Add back: Natgasoline EBITDA adjustment | (21.4) | (8.1) | |
| Result from associate (change in unrealized gas hedging Natgasoline) | (1.5) | (8.0) | Finance expenses |
| Forex gain/loss on USD exposure | 4.7 | 9.8 | Finance income and expense |
| Non-controlling interest adjustment / release interest accrual | 1.2 | 0.9 | Interest expense / minorities |
| Tax effect of adjustments | (0.5) | (2.7) | Income tax |
| Total APM adjustments at net income level | (0.6) | (1.0) | |
| Adjusted net loss attributable to shareholders | (82.0) | (82.2) |
Free cash flow amounted to (\$85) million during Q1 2020 reflecting reported EBITDA for the quarter, offset by capital expenditures and a usual seasonal increase in net operating working capital.
Total cash capital expenditures were \$96 million in Q1 2020 compared to \$60 million in Q1 2019. Maintenance capital expenditure was \$91 million during Q1 2020, higher than the expected quarterly average for 2020, reflecting a comprehensive and accelerated turnaround at OCI Beaumont in particular, as well as carry-over payments from Q4 2019 and turnarounds at our operations in the Netherlands. Growth capital expenditure was limited at \$5 million following the completion of OCI's growth capital expenditure program.
Net debt decreased by \$94 million from \$4,062 million as at 31 December 2019 to \$3,968 million at 31 March 2020, which reflects the operating FCF, as well as positive currency effects of \$33 million and a cash consideration of \$167 million received from ADNOC in March 2020 in relation to the Fertiglobe business combination.
OCI maintains a healthy liquidity:
| \$ million | Q1 2020 | Q1 2019 |
|---|---|---|
| EBITDA | 176.1 | 122.2 |
| Working capital | (125.0) | (104.9) |
| Maintenance capital expenditure | (90.7) | (18.6) |
| Tax paid | (5.3) | (0.5) |
| Interest paid | (39.6) | (46.8) |
| Dividends from equity accounted investees | - | 0.2 |
| Insurance receivable / received Sorfert | - | 31.8 |
| Adjustment non-cash expenses | (0.9) | 0.7 |
| Free Cash Flow | (85.4) | (15.9) |
| Reconciliation to change in net debt: | ||
| Growth capital expenditure | (5.0) | (41.1) |
| Cash received for Fertiglobe closing settlement | 166.8 | - |
| Lease payments | (8.9) | (7.7) |
| Other non-current items | 1.7 | 5.6 |
| Net effect of movement in exchange rates on net debt | 32.6 | 17.1 |
| Other non-cash items | (7.7) | (1.3) |
This report contains unaudited first quarter consolidated financial highlights of OCI N.V. ('OCI', 'the Group' or 'the Company'), a public limited liability company incorporated under Dutch law, with its head office located at Honthorststraat 19, 1071 DC Amsterdam, the Netherlands.
OCI N.V. is registered in the Dutch commercial register under No. 56821166 dated 2 January 2013. The Group is primarily involved in the production of nitrogen-based fertilizers and industrial chemicals.
The financial highlights and the reported data in this report have not been audited by an external auditor.
On 11 May 2020, at 16:00 CET, OCI N.V. will host a conference call for investors and analysts. Investors can access the call by dialing +44 (0) 20 3009 5710 or 1 (866) 869 2321 using conference ID 9863369.
OCI N.V. (Euronext: OCI) is a leading global producer and distributor of nitrogen products and methanol providing sustainable solutions to agricultural and industrial customers around the world. OCI's production capacity spans four continents and comprises approximately 16.1 million metric tons per year of nitrogen fertilizers, methanol, diesel exhaust fluid, melamine, and other nitrogen products. OCI is headquartered in the Netherlands and listed on Euronext in Amsterdam.
Hans Zayed Director Email: [email protected]
Tel: +31 (0) 6 18 251 367
For additional information on OCI:
OCI stock symbols: OCI / OCI.NA / OCI.AS
Honthorststraat 19 1071 DC Amsterdam The Netherlands
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