Cf Industries Holdings, Inc. · NYSE:CF
Cf Industries — Q3 2016 Earnings Presentation
35 slides from Cf Industries's earnings presentation, Nov 3, 2016
Slide 1: Table of contents
Table of contents Safe Harbor Statement/Notes Regarding Non-GAAP Measures 3-4 Overview of Financial Results 5-7 Capacity Expansion Project Review 8-14 Capital Structure and Allocation 15-20 CF Well Positioned For Industry Recovery 21-26 Appendix 27-36 2
Slide 2: Safe Harbor Statement
Safe Harbor Statement 3 All statements in this communication by CF Industries Holdings, Inc. (together with its subsidiaries, the “Company”), other than those relating to historical facts, are forward-looking statements. Forward-looking statements can generally be identified by their use of terms su
Slide 3: Note Regarding Non-GAAP Financial Measures
Note Regarding Non-GAAP Financial Measures 4 The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, adjusted EBITDA, adjusted net earnings, and adjusted net earnings per diluted share, which are non-GAAP fin
Slide 4: Third Quarter Results: Overview of Financial Results
Third Quarter Results Overview of Financial Results
Slide 5: Third Quarter and Year-to-Date 2016 Results
6 6 Third Quarter and Year-to-Date 2016 Results See slide 28 for reconciliation of adjusted net earnings and adjusted net earnings per diluted share. See slide 29 for reconciliation of EBITDA and adjusted EBITDA. Q3 net loss of $30 million, or ($0.13) per diluted share. Q3 adjusted net earnings of +
Slide 6: Financial Results - Third Quarter 2016
7 Financial Results- Third Quarter 2016 Depreciation and amortization related to property, plant and equipment was $139 million and $425 million for the three and nine months ended September 30, 2016, respectively, and $117 million and $317 million for the three and nine months ended September 30, 2
Slide 7: Capacity Expansion Project Review
Placeholder for Divider Title Capacity Expansion Project Review
Slide 8: Donaldsonville new urea, UAN and ammonia plants complete
9 9 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Launch: Q4 2012 1.4Mtpa Urea Plant First new world-scale urea plant to be commissioned in North America since 1998 Producing at 110-115% of nameplate capacity 1.8Mtpa UAN Plant Largest operating single train UAN plant in the world Producing at ~120% of nameplate c
Slide 9: Port Neal ammonia and urea plants online soon
10 10 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Launch: Q4 2012 1.4Mtpa Urea Plant Mechanically complete Granulation unit successfully tested in September 2016 Being started up in parallel with the ammonia plant 900ktpa Ammonia Plant Mechanically complete Steam and gas introduced to the plant Ammonia producti
Slide 10: No other new North American fertilizer plants have begun construction
CHS ND Yara Canada IFFCO Canada Agrium Midwest Northern Plains ND Ohio Valley IN Magnida ID FNA Canada Agrifos/Borealis TX MFC IN Cronus IL Eurochem LA Agrigen LA Agrium AK Dyno Nobel LA BASF/Yara TX CF IA CF LA OCI IA Possible Import Reduction Remaining Import Demand 0 4,000 8,000 12,000 16,000 Ann
Slide 11: Large North American fertilizer projects exceeded initial cost estimates
13 Large North American fertilizer projects have significantly exceeded initial cost estimates North American Fertilizer Project Capital Increases Actual Observable Spend vs. Initial Announced Cost Nitrogen Potash Completed capital spend $B Months behind original schedule 4.1 Not Complete 0.7 Not Co
Slide 12: Projected returns of capacity expansion projects remain above cost of capital
14 Projected returns of capacity expansion projects remain above cost of capital (1) After CHS strategic venture, CF cost ~$2.4B for ~2.3 million product tons per year (2) Other Adjustment include actual sales tax and other incentives received vs. projected, non-gas operating cost refinement, tax ra
Slide 13: Capital Allocation and Structure
15 Capital Allocation and Structure
Slide 14: CF's capital allocation philosophy
16 CF’s capital allocation philosophy Commitment to investment grade over the long term Growth investments within our strategic fairway, where returns exceed the cost of capital Consistently return excess cash to shareholders: historical bias toward share repurchases Disciplined stewards of sharehol
Slide 15: CF's capital structure modified for OCI combination and standalone
17 CF’s capital structure was modified for the proposed OCI combination, and then again for standalone CF in current conditions Gross Debt: $4.6 billion with investment grade covenant structure $1 billion revolver, upsized to $1.5 billion in March 2015 Pre-OCI Announcement 2014 – July 2015 Proposed
Slide 16: CF's share repurchase approach changed in 2013
18 CF’s share repurchase approach changed in 2013 Source: Capital IQ Capped repurchase program; share price range-bound Consistent and timely return of capital to shareholders as available CF Stock price and share repurchase program, 2011 to date Y-axis: stock price, X-axis: time, including duration
Slide 17: Capital returned to shareholders more than 2x net investment
19 Total capital returned to shareholders since 2012 is more than 2x net investment in the business Major Portfolio Actions Return of Excess Capital Action Year Business Growth / (Shrink) Expansion of Port Neal and Donaldsonville 2012 to 2016 5.2 Sale of equity interest in CF Industries Nitrogen, LL
Slide 18: Excludes 34% of Canadian Fertilizers Limited (CFL) that was owned by Viterra. CFL operations
20 Excludes 34% of Canadian Fertilizers Limited (CFL) that was owned by Viterra. CFL operations were treated as a consolidated variable interest entity in CF Industries Holdings, Inc. financial statements. Acquisition of all outstanding interests in CFL that closed on April 30, 2013 and ammonia debo
Slide 19: CF Well Positioned for Industry Recovery
21 CF Well Positioned for Industry Recovery
Slide 20: CF is well-positioned for sector recovery
22 CF is well-positioned for sector recovery Nitrogen demand has grown at 2.2% per year for the last 15 years Population and protein consumption growth Industrial demand Only “non-discretionary” nutrient Although the nitrogen market is currently oversupplied, demand growth is expected to outpace new
Slide 21: Global cost curve has guided global nitrogen floor prices
23 The global cost curve has been an effective guide to global nitrogen floor prices Note: Initial cost curve published by CF for the year referenced 2013 Cost Curve: June 11, 2013 Investor Day Presentation; 2014 Cost Curve: February 19, 2014 Q4 Earnings Presentation; 2015 Cost Curve: May 6, 2015 Q1
Slide 22: 2017 forecast price range at the US Gulf
Assuming a 2% growth in demand, the 2017 forecast price range is ~$210-230 per ton at the US Gulf 2017 Monthly Delivered U.S. Gulf Urea Cost Curve(1) Y-axis: USD/short ton, X-axis: Monthly Production Capacity at 95% Operating Rate, million short tons (1) Assumptions on exchange rates, coal, gas, and
Slide 23: CF has outperformed competitors in a strengthening market
CF has outperformed competitors in a strengthening market 25 Note: assumes dividends reinvested pre-tax Source: Capital IQ as of 10/31/16 Overall Strengthening Price Environment Declining Price Environment Jan 2010 - Today Jan 10 – Jun 15 Jul 15 – Today CF 45% 272% (62%) Agrium 68% 84% (9%) Mosaic (
Slide 24: Price and natural gas sensitivity
26 Source: CF Industries Note: Assumes that a $25 per ton change in urea price is equivalent to a $17.39 per ton change in UAN price, $18.47 per ton change in AN price and a $44.57 per ton change in ammonia price, including products sold by CF Fertilisers UK. Products sold under the CHS supply agree
Slide 25: CF is well positioned for expected pricing recovery
CF is well positioned for expected pricing recovery Table illustrates the resiliency of CF Industries’ business model across a broad range of industry conditions EBITDA Sensitivity to Natural Gas and Urea Prices S ilions cr eRe Btu) - | __szso_ [8275 asa 2 so7 $06 = 8 $1.0 $1.0 $09 $08 os = 3 $4 $13
Slide 26: Reconciliation of Net Earnings and EPS to Adjusted Net Earnings and Adjusted EPS
28 Non-GAAP: Reconciliation of Net Earnings and Net Earnings Per Diluted Share (EPS) to Adjusted Net Earnings and Adjusted EPS Represents the unrealized mark-to-market loss in the third quarter of 2016 on the embedded derivative included within the terms of the company’s strategic venture with CHS.
Slide 27: Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA
29 Non-GAAP: Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA Includes the tax benefit of $11 million on loss on sale of non-operating equity investment for the nine months ended September 30, 2015. EBITDA is defined as net earnings attributable to common stockholders plus interest expen
Slide 28: Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA (2015)
30 Non-GAAP: Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA Twelve months ended December 31, 2015 2015 (in millions) Net earnings attributable to common stockholders $ 700 Interest expense (income) – net 131 Income taxes(1) 385 Depreciation and amortization 480 Less: Other adjustments(
Slide 29: Leading North American footprint
31 Leading North American footprint 2015 Nitrogen Demand (‘000 Nitrogen Tons) 0 - 249 250 - 499 500 - 999 1,500+ 1,000 - 1,499 Ammonia terminal (owned & leased) CF Plants UAN terminal (leased / transload) Ammonia / UAN terminal (owned & leased) Magellan Pipeline NuStar Pipeline Location Key Donaldso
Slide 30: Significant annual investment needed to meet nitrogen demand growth
32 China India Other Asia North America Europe Latin America Rest of World Total Nitrogen Consumption 2000-2015 (Million Nutrient Tonnes) Agricultural 15-yr CAGR =2.0% Industrial 15-yr CAGR =3.0% Overall 15-yr CAGR=2.2% Sources: Fertecon, IFA, AAPFCO, Fertilizers Europe, ANDA, CF Industries Note: *A
Slide 31: 2017 North America nitrogen landscape
0 20 40 60 80 100% NH3 Urea UAN AN 7,150 2,300 850 850 2,350 7,400 CF Agrium PCS 1,550 Koch 2,050 IPL OCI LSB 550 Yara 550 Others Imports 28% 29% 9% 6% 8% 2% 2% 8% North American Supply Share (incl. Imports) 33 2017 North America Nitrogen Landscape (‘000 short nutrient tons) After all North American
Slide 32: ~40% of expansion project capital spent by end of 2014
34 ~40% of final estimated expansion project capital was spent by end of 2014 $/short ton Major equipment ordered Construction contractors selected Necessary permits received Site clearing and piling under way Most major equipment on site Piling completed, concrete work under way Steel erection unde
Slide 33: Sources for slide
35 Sources for slide 13 Fertilizer Project Annual Capacity (000 st) Initial Cost ($M) Updated Cost ($M) Sources K+S Legacy 2,205 $3,250 $4,100 Initial est.: http://www.k-plus-s.com/en/news/presseinformationen/2011/presse-111129.html Update: http://www.k-plus-s.com/en/pdf/2016/quartalsmitteilung_1-3.
Slide 34: 2017 cost curve assumptions
36 Location Source 2015 2016F 2017F Henry Hub NYMEX 2.63 2.51 3.07 TTF ICE 6.42 4.53 5.47 WEU-Russia Oil Index 7.30 4.43 5.37 Brent Crude NYMEX 54 44 55 Thermal SX Coal / 49 47 53 Anthracite Powder Woodmac 83 67 71 Anthracite 124 111 109 RMB/USD Bloomberg 6.28 6.62 6.85 USD/EUR Bloomberg 1.11 1.11 1
Slide 35: 2017 cost curve assumptions
2017 cost curve assumptions Location Source 2015 2016F 2017F Gas Prices ($/Mmbtu) Henry Hub NYMEX 2.63 2.51 3.07 TTF ICE 6.42 4.53 5.47 WEU-Russia Oil Index 7.30 4.43 5.37 Oil ($/Bb!) Brent Crude NYMEX 54 44 55 China Coal ($/tonne) Thermal SX Coal / 49 47 53 Anthracite Powder Woodmac 83 67 71 Anthra
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