Cf Industries Holdings, Inc. · NYSE:CF
Cf Industries — Q4 2017 Earnings Presentation
40 slides from Cf Industries's earnings presentation, Feb 15, 2018
Slide 1: Safe harbor statement
Safe harbor statement 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 such
Slide 2: Note regarding non-GAAP financial measures
Note regarding non-GAAP financial measures The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, adjusted EBITDA, adjusted net (loss) earnings, adjusted net (loss) earnings per diluted share, controllable c
Slide 3: Table of contents
Table of contents Safe Harbor Statement/Note Regarding Non-GAAP Financial Measures 2-3 Overview of Financial Results 5-18 Emerging Global Tradeflows 19-29 Capital Allocation and Structure 30-32 Appendix 33-40 Cover Page: Donaldsonville urea complex
Slide 4: Overview of Financial Results
Port Neal truck load out Overview of Financial Results
Slide 5: Fourth quarter 2017 results
Fourth quarter 2017 results See slide 34 for reconciliation of adjusted net (loss) earnings and adjusted net (loss) earnings per diluted share See slide 35 for reconciliation of EBITDA and adjusted EBITDA Controllable cost of sales is defined as cost of sales adjusted for natural gas costs, realized
Slide 6: Financial results - fourth quarter and full year 2017
Financial results - fourth quarter and full year 2017 Depreciation and amortization was $235 million for the three months ended December 31, 2017, and $203 million for the three months ended December 31, 2016 See slide 34 for reconciliation of adjusted net (loss) earnings and adjusted net (loss) ear
Slide 7: Items affecting comparability of financial results by line item (three months)
Items affecting comparability of financial results by line item Three months ended December 31, $ in millions 2017 Pre-Tax 2016 Q3 2017 After-Tax 2015 Q3 2016 Pre-Tax 2016 Q3 2016 After-Tax 2015 Q3 Impact of U.S. Tax Cuts and Jobs Act(1) $ (491) $ (491) $ - $ - Depreciation and amortization(2) 235 1
Slide 8: Items affecting comparability of financial results by line item (year)
Items affecting comparability of financial results by line item Year ended December 31, $ in millions 2017 Pre-Tax 2016 Q3 2017 After-Tax 2015 Q3 2016 Pre-Tax 2016 Q3 2016 After-Tax 2015 Q3 Impact of U.S. Tax Cuts and Jobs Act(1) $ (491) $ (491) $ - $ - Depreciation and amortization(2) 883 558 678 4
Slide 9: Segment adjusted gross margin
Segment adjusted gross margin Q4 Adjusted Gross Margin by Segment(1) $M See slide 11 for a reconciliation of adjusted gross margin to gross margin, the most directly comparable GAAP measure Represents depreciation and amortization included in cost of sales Unrealized gains are subtracted from gross
Slide 10: Non-GAAP: reconciliation of gross margin to adjusted gross margin
Non-GAAP: reconciliation of gross margin to adjusted gross margin $ in millions (000s) $/ton Product Segment Gross Margin(1) 2016 Q3 Unrealized (Gain) Loss on Natural Gas Derivatives Depreciation and Amortization(2) 2016 Q3 Adjusted Gross Margin(3) 2015 Q3 Sales Volume by product ton Gross Margin pe
Slide 11: CF cost of sales comparison
Total Cost Cost per Ton CF cost of sales comparison Represents the portion of cost of sales consisting of natural gas costs, realized and unrealized losses (gains) on natural gas derivatives, and depreciation and amortization See slide 36 for a reconciliation of controllable cost of sales to cost of
Slide 12: CF cost of sales comparison
Total Cost Cost per Ton CF cost of sales comparison Represents the portion of cost of sales consisting of natural gas costs, realized and unrealized losses (gains) on natural gas derivatives, and depreciation and amortization See slide 37 for a reconciliation of controllable cost of sales to cost of
Slide 13: SG&A is among the lowest of peer group and is declining on a per-ton basis
SG&A is among the lowest of peer group and is declining on a per-ton basis Total SG&A ($M) 170 174 192 Chemical peer Fertilizer peer Source: peer financial information as reported by Capital IQ for trailing twelve months ended 9/30/17 Peers: Agrium, Air Products and Chemicals, LyondellBasell, Mosaic
Slide 14: Sensitivity of EBITDA to product prices and gas costs
15 Source: CF Industries The table was created by using 2017 adjusted EBITDA of $969 million, 2017 sales volumes of approximately 20 million product tons and gas consumption of approximately 360 million MMBtus. Sales volume and gas consumption was adjusted for CF’s anticipated 2018 turnaround schedu
Slide 15: FY 2017 cash position
FY 2017 cash position CF Cash & Cash Equivalents Receipt of federal tax refund in Q2 Cash position increased $63 million YTD excluding tax refund, pension contribution and debt repayment After covering: CAPEX of $473m Interest payments on debt of $303m Cash dividend of $280m NCI distributions of $13
Slide 16: 2018 Planning Assumptions
2018 Planning Assumptions 2018 CF Planning Assumptions CF is planning a higher number of turnarounds in 2018, reducing 2018 production volumes compared to 2017, with a likely commensurate impact on sales volumes Capital expenditures for new activities in 2018 expected to be between $400 - $450 milli
Slide 17: Key Impacts of Tax Cuts and Jobs Act of 2017
Key Impacts of Tax Cuts and Jobs Act of 2017 Income Statement Impact Net income tax benefit of $491 million, mainly comprised of: Revaluation of net deferred tax liability(1) $552 million One-time deemed repatriation tax ($57) million Balance Sheet Impact Deferred Tax Liability reduced by: Revaluati
Slide 18: Emerging Global Tradeflows
Emerging Global Tradeflows Donaldsonville storage
Slide 19: Market overview
Global Supply and Demand North American Outlook Global Pricing Dynamics Market overview CF expects higher nitrogen prices in 2018 than in 2017 The US dollar is expected to remain lower against currencies in key nitrogen producing regions through at least 1H 2018, pushing up cost of nitrogen exports
Slide 20: Expected net new capacity additions below projected global demand growth post 2017
Expected net new capacity additions below projected global demand growth post 2017 CF Projected Global Net Urea Capacity Additions(1) Thousand Product Metric Tons See slides 38-40 for details of the 2017-2021 projected additions and assumed closures 2% Growth - 5,000 10,000 15,000 20,000 2015 2016 2
Slide 21: Nitrogen fertilizer imports into North America are beginning to decline
Nitrogen fertilizer imports into North America are beginning to decline as new production increases North America Offshore Urea Imports Million Tons North America Offshore UAN Imports Million Tons Five Year Range 2017 Fertilizer Year 2018 Fertilizer Year (1) 2018 dashed line shows estimated January
Slide 22: Consistent global nitrogen demand growth
China India Other Asia North America Europe Latin America Rest of World Total Nitrogen Consumption 2002-2017(1) Industrial 15-yr CAGR =3.3% Overall 15-yr CAGR=2.2% Agricultural 15-yr CAGR =2.0% (1) 2002-2016 actuals, 2017F. CAGRs calculated as 2015-2017 average demand over 2000-2002 average demand S
Slide 23: U.S. and Canada combined remain a significant importer of nitrogen products
U.S. and Canada combined remain a significant importer of nitrogen products U.S. imports, including from Canada, average approximately 1.8 million tons more than the combined U.S. and Canada import total shown on the chart above Sources: USDOC, TFI, CF Total U.S. and Canada Import Volume(1) Million
Slide 24: 2018 Monthly Delivered U.S. Gulf Urea Cost Curve
2018 Monthly Delivered U.S. Gulf Urea Cost Curve 2018 estimated cost curve 20 0 5 10 15 Appx. 2018 Price Range: $220-255 Source: Industry Publications, Fertecon, CRU, Integer, CF Does not include plants in temporary shutdown/mothball status Energy (N.G.) Other Cash Energy (Coal) Shipments: 17.1 MM S
Slide 25: 2018 cost curve assumptions
Location 2018F 2017E* Henry Hub 3.03 3.07 TTF 6.01 5.47 WEU-Russia 5.46 5.37 Brent Crude 56 55 Thermal 73 68 Anthracite Powder 116 86 Anthracite 135 113 RMB/USD 6.82 6.85 USD/EUR 1.21 1.10 USD/GBP Source NYMEX ICE Oil Index NYMEX SX Coal / Woodmac Bloomberg Composite Bloomberg Composite Bloomberg Co
Slide 26: Chinese participation in global urea supply is changing
Chinese participation in global urea supply is changing as domestic production and exports decline Source: CRU, MEP, CFMW, Industrial Publications, CF Analysis. * Includes idled capacity China Urea Reported Operating Rates CFMW Reported Data* Rolling 12 Month Urea Exports vs. Prices Million metric p
Slide 27: CF serves a global market from strong North American base
CF serves a global market from strong North American base CF Industries is the largest nitrogen producer in the world with outstanding domestic and export logistical capabilities. Primarily a pure play nitrogen manufacturing company, focused on North America Largest production base and distribution
Slide 28: Best North American distribution capabilities with a global reach
CF ammonia terminal CF ammonia and UAN terminal Donaldsonville Woodward Verdigris Port Neal Courtright Medicine Hat Yazoo City Terre Haute Mount Vernon Albany Kingston Mines Fremont Garner Pine Bend Peru Aurora Blair Brandon Cowden Frankfort Glenwood Grand Forks Huntington Palmyra Ritzville Rycroft
Slide 29: Capital Allocation and Structure
Capital Allocation and Structure Port Neal rail load out
Slide 30: CF's capital allocation philosophy
CF’s capital allocation philosophy Commitment to investment grade metrics over long term Pursue growth within strategic fairway, where returns exceed risk-adjusted cost of capital and investments are cash flow accretive on a per share basis Consistently return excess cash to shareholders in a timely
Slide 31: Exercised right to purchase all publicly traded TNH units
Exercised right to purchase all publicly traded TNH units Purchase price: Approximately $390 million ($84.033 per unit) Purchase date: April 2, 2018 Simplifies CF corporate structure and reduces administrative costs ($ millions) 2017 2016 2015 Earnings attributable to TNH publicly traded units(1) 19
Slide 32: Appendix
Appendix Verdigris control room
Slide 33: Reconciliation of Net Earnings (Loss) and EPS to Adjusted Net (Loss) Earnings
Non-GAAP: reconciliation of Net Earnings (Loss) and EPS to Adjusted Net (Loss) Earnings and Adjusted EPS Loss on foreign currency transactions including intercompany loans primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently inv
Slide 34: Reconciliation of Net Earnings (Loss) to EBITDA and Adjusted EBITDA
Non-GAAP: reconciliation of Net Earnings (Loss) to EBITDA and Adjusted EBITDA Loss on foreign currency transactions including intercompany loans primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently invested Represents an accrual
Slide 35: Reconciliation of cost of sales to controllable cost of sales (Q4)
Non-GAAP: reconciliation of cost of sales to controllable cost of sales(1) $ Per Product Sales Tons 2017 Q4 2016 Q3 2016 Q4 2015 Q3 Cost of Sales $ 181 $ 165 Natural gas costs 59 53 Realized net losses on natural gas derivatives 3 1 Unrealized net mark-to-market gain on natural gas derivatives (1) (
Slide 36: Reconciliation of cost of sales to controllable cost of sales (full year)
Non-GAAP: reconciliation of cost of sales to controllable cost of sales(1) $ Per Product Sales Tons Full year 2017 2016 Q3 Full year 2016 2015 Q3 Cost of Sales $ 185 $ 168 Natural gas costs 60 45 Realized net losses on natural gas derivatives 1 8 Unrealized net mark-to-market loss (gain) on natural
Slide 37: Expected net new capacity additions slightly below projected global demand growth
Expected net new capacity additions slightly below projected global demand growth post 2017 CF Projected Global Gross Urea Capacity Additions(1) Thousand Product Metric Tons See slide 39 for details of the 2017-2021 projected additions See slide 40 for details of the 2017-2021 assumed closures The E
Slide 38: Projected urea capacity additions 2017-2021
Country Company City/Province Feedstock Capacity – K Metric Product Tons(1) Year of Addition Bolivia Ebihara Carrasco Natural Gas 700 2017 China Shandong Ruixing Shandong Thermal 800 2017 China Luxi Chem Shandong Anthracite powder 500 2017 Iran Pardis Petrochemical Co Bandar Assaluyeh Natural Gas 1,
Slide 39: Urea plants in permanent and temporary shutdown
Urea plants in permanent and temporary shutdown Plants included in closure forecast: 7,220 K Tons 2017-2021 Chinese plants in observed temporary shutdown: 3,210 K Tons currently For those plants in observed temporary status, initial report date of Aug 2016 or prior 2017 permanent shutdown Announced
Slide 40: Urea plants in permanent and temporary shutdown
Urea plants in permanent and temporary shutdown Coe ‘Year of Assumed = 7 rn = Sees ae som = sownire tes tea = om = Groat tes ne = br = trce Sea Sm = sownire flan som Plants included in [Fs us een Peet closure forecast: aot wa 7,220K Tons fo ‘So me ces) 2017-2021 iia ae iS 5S on =u ten = Be = ‘mus ma
CF Industries Holdings — Q4 2017 Earnings Presentation on 6ix