All right. Good afternoon and good morning to our audience in the U. S. Welcome to the OCI N. V.
First quarter 2019 results conference call. Thank you for joining us on this call to discuss our results and outlook With me today are Nasiv Sawiris, our Chief Executive Officer and Dasan Badawi, our Group Chief Financial Officer. On this call, we will review OCI key operational events and financial highlights for the first quarter of 2019 followed by a discussion of our outlook And as usual, at the end of the call, we will host a question and answer session. As a reminder, statements made on today's call contain forward looking information, These statements are based on certain assumptions and involve certain risks and uncertainties, and therefore, I'd like to refer you to our disclaimers about forward looking statements. Let me hand over to Hassan.
Thank you, Hans, and thank you all for joining us today. I'd like to start today's call with some of the usual highlights covering our first quarter performance. During our last conference call at the end of February, We communicated to the, to our, to the market, our intention to maintain a disciplined sales approach. This resulted in a large portion of our sales volume shifting, as you may have read in our press release in the first into the first quarter to 2nd quarter. During the first quarter, we witnessed some of the worst weather conditions in decades in the United States, which caused the delay in nitrogen for flight applications and consequently weak in demand.
Also in Europe, purchasing satellite plates with resulted pressure on prices visible during the late part of the quarter. Rather than selling at Materials decreased prices in March, we, we implemented a strategy to hold by product and finish off the start of the season. Resulting in a significant buildup of the inventory towards the end of the first quarter. We actually reached a peak of more than 1,100,000 tons of nitrogen fertilizer stock, at the end of March, well above the 500,000 tons that we reported at the end of December. In addition, we had some major plant turnarounds for one of the ammonia lines at our Algerian Operations Affairs, which was the first major turnarounds in commissioning the plant in 20 13.
During the turnaround, we replaced a major piece of equipment and carried out various maintenance work. As a result, This line has been able to run close to its maximum design capacity since the completion of the works, well above its average 2018 utilization rates. We also discussed in February that we had a that Natgasoline was not running during part of the first quarter due to some external utility supply issues. We're glad to report that these have been fully resolved in February. And the plan has been running very well since.
Turning to the financial results, We reported a 22% decrease in self produced sales volumes, reaching 1,700,000 tons during the quarter. In comparison to the same quarter last year. The buildup in our fertilizer inventory was the main driver of lower sales volumes, as I mentioned earlier, offsetting volume growth in our industrial chemicals portfolio. Production levels at our nitrogen facilities were healthy during the quarter. Our plants in Egypt ran well above nasal capacity If coal, our plants and Iowa showed robust reliability, despite a harsh winter, and our Dutch operations ran at healthy operating rates.
Because of the lower volumes, our 1st quarter revenue decreased by 20% to the reported $597,000,000, And our adjusted EBITDA of $129,000,000 was well below the $235,000,000 achieved in the first quarter last year. Our free cash flow was relatively neutral, about $60,000,000 negative before growth CapEx during the first quarter. Again, due to the working capital outflow of $105,000,000, which we expect to be reversed during the second quarter and not that we'll cover some of that topic. And our total CapEx was $60,000,000 in the first quarter of which $19,000,000 was for maintenance. Gross CapEx was $41,000,000, mostly related to the biopsyN 2nd line, which is nearing completion and a 30% and the 13% methanol capacity expansion at OCI Bormone.
As a result, our net debt was approximately the same level as the end of December, However, with the strong dispatches already underway in Q2, we expect to resume our deleveraging path from Q2 onwards. And at this point, I'd like to turn over the call to Melissa Ramirez, our Chief Executive Officer. Thank you, Hassan. Let me start with the current market conditions and how the second quarter is shaping up. When we last spoke, demand was delayed due to to the unprecedented weather conditions, and we have started to build up inventories which continued throughout March.
I'm pleased that we say the discipline this season is now in full swing and we have shipped record volumes in both the U. S. And Europe in the past weeks. As of this moment, we have successfully placed the extra buildup of inventories. We have sold many of our products at higher prices than if we would have sold them in March, confirming the merits of our strategy.
For example, Egypt prices are up around $40 since the lows in February. In addition, our strategic presence in the heart of the Midwest means that we are capturing high in region, logistical premiums as compared to products imported into the region from Nora. We are placed to reassurance at more than 120 dollars per short ton above in on and off-site storage capabilities across the U. S, Midwest and Europe. I would like to thank the whole team for taken to our disciplined sales strategy and for making the logistics for these record product movements possible.
As I look at our main market, the demand for nitrogen supply deposit is looking healthy and has been sent in throughout the second quarter. The outlook for our U. S. Business remains particularly good. Crop planting is behind where it has been in recent years and wet weather has delayed some corn planting.
But the full ammonia application last fall and this spring means we are confident that we can continue to move urea and UAN into late June and possibly early July. We are shipping record volumes as we benefit from a shift of ammonia to urea or UAN, But despite the shift and the weak ammonia application season attracted ammonia, retail has resulted in record ammonia deliveries at some price. We are also shipping record Tier end volume in Europe. This is due to both our decision to store significant volumes in anticipation of the season, and the effect of low river levels in the second half last year. Demand is currently very strong and several price increases have been announced in the past week.
For the first half of twenty nineteen, we expect higher CN volumes than during the same period last year. Overall, across the industry, we expect ending stocks of nitrogen fertilizers to reach levels below the average of recent years by the end of June before the seasonally weaker summer period. This will help a tightening of the global supply and demand brands as we expect very few new capacity additions and we expect exports from China to remain at low annual levels. Our industrial nitrogen portfolio is performing well and growing. Metaman prices have decreased slightly from the fourth quarter of 2019 into the first quarter of this year, but remain at good levels.
I'm pleased with the continued strong growth of our DEF business and we are well on track to more than double our DEF sales volumes in 2019. We also continue to assess how we can further expand and optimize the premium product with those 2 the final look at the methanol market, despite the recent methanol price volatility, overall fundamentals of methanol markets remain positive. We expect new methanol capacity additions to remain limited in the next couple of years. Overall, economic growth and the current oil price environment are also supporter of methanol demand. NTO is coming back online and increasing operating rates.
I'll be a story partly due to trade war uncertainty affecting downstream demand in China. And 2 or 3 new NCO facilities are still on track to first start up in the next few months, that's adding more than 3,000,000 tons of additional methanol consumption. In addition, we are benefiting from significantly lower gas prices in Europe. Against this backlog, we expect to start production at the 2nd line at BioMCN in the early part of June are on track to increase methanol capacity at OCI Beaumont by midyear. Short term, we have also had a boost from Natgasoline, which is site and extended shutdown built up excess inventory relative to normal levels during Q1.
Product sales have accelerated during the second quarter, and have now returned to normalized levels. Gas prices are also looking very favorable. In Europe, gas prices are now less than half the level of last year's highs, and we expect to see the full benefit from the current quarter onwards. In the U. S, we'll also continue to benefit from low gas prices and hedges at our recent operations.
We have costless collars for the majority of our gas needs at OCI Beaumont And Natgasoline, and prices below $2.40 for almost 70% of IFCO's requirements this year. Finally, look and OCI's lives outlook for 2019 specifically, we expect a record 2nd quarter, resulting in a higher adjusted EBITDA in the first half of twenty nineteen compared to the first half of twenty eighteen. We reiterate our the pace of continued growth in adjusted EBITDA and improvement of our leverage metrics in the full 20 year, year 2019. We're now open for questions.
Thank you.
Your first question comes from the line of Roder Spitz. Please ask your question.
Thank you. Good afternoon. Can you say how much was available to draw under your revolvers as of March 2019?
In excess of $200,000,000, but you can get the specifics after the call.
Thank you. The in terms regarding nitrogen, US, why did, Q1 'nineteen EBITDA moved up to $40,000,000 from $21,000,000 year over year given your volumes were well down and ammonia prices were down. Was was that driven by higher UAN prices? I would have thought with the volumes down, that, that EBITDA, would it be up even though I understand ifco was up.
Which plan are you referring to?
I'm referring to the segment in your press release. Nextgen U S. The EBITDA was $40,000,000 in Q1 'nineteen and $21,000,000 in q1118. And I thought the volume were well down.
Yep. The Yatra combination also of volumes, gas prices and selling prices. So, despite the lower volumes and the buildup of inventories, we achieved those numbers.
I see. How about Regarding nitrogen, Middle East MENA, as you put it.
Yeah.
On the same page. Q1119 was $50,000,000 versus 1.22 year over year or down 70,000,000 Can you say how much was that due to Sulfur being under turnaround and how much was that due to holding your volumes at Sulfur and your 2 Egyptian facilities.
Thank you.
Can can you break it down that $670,000,000 between those two issues?
So the volume impact is about is more than $35,000,000. And this is at cost. So obviously, we're selling it at higher prices now than on that. So that should reflect in the second quarter. The turnaround would be part of the balance and that's about it.
Alright. Thank you very much for your time. Appreciate it.
Your next question comes from the line of Hank Cyrman. Please ask your question.
Hi, good afternoon, gentlemen. I have a Escalade few questions. So, if I can, I'll ask them 1 by 1. Firstly, you produced in fertilizer you produced about 1,160,000,000 tons of fertilizers in Q1, and you also produced for the inventory about 600,000 tons. So total production, in the quarter, it's about, it's about, like, 1,700,000,000.
That's about the same level as in, stop at so far? Is that a fair assumption? Just an understanding.
Yes. Yes. That's, the bulk of that assumption. And also, Europe had a good production. But the bulk of
it is, IO ramp up.
Yeah. And then related to that, so let's say from Q1 to Q2, so let's let's take that 1,700,000,000 as a starting points, then in q 2, you sell. So you produce another 1.7. So you sell, the 600,000 of, of your inventory. And then let's say Solfair also produces, a couple of 100,000.
Is it then fair say that, let's say, sequentially in Q2 versus Q1, your total and more or less doubles? Is that how we should think about your, seasonality?
Not production. You mean, outflows?
Yes, sir. You can. Product sold. That's what I mean.
We'll have to do the, I would say, not doubles, but increases. If you add this, the 600 inventory built up and you assume the same production, that's not a double. That's almost like a 40%, 50% increase.
Yeah. Okay. Okay. Okay. Then my second question is on Natgasoline.
So Natgasoline, EBITDA on a full full ownership basis was about 16,000,000 in the quarter. So 8,000,000 for you and 8,000,000 for your partner. Where it only produced for 1 month, basically, in March. And in that month, So you you you let's say the the the the business, the the asset produced $16,000,000 of EBITDA, can we then assume, let's say, if the if if Natgasoline wouldn't have the, supply constraints that you, experienced, that let's say, the quarterly run rate on on on the sort of the pricing level that we're at is about 60 to 80,000,000 EBITDA for the remainder of the year. Assuming we'll have, like, a a clean quarter.
Is that how we should think about that?
You you you're not too far. But also, I mean, you have to take into consideration the gas prices and all that, but you're not too far.
Okay. Okay. Okay.
We've achieved that already, in, Q4. So that's not and prices have come down a bit, but not a lot.
Okay. That's clear. And then on death, on the debt production, you mentioned that year on year for the full year, your outputs will more than double yet Q1 seems a bit, let's say, low. And and I I'm assuming there's no seasonality in there. Could you maybe comment on that?
Yeah, we actually like this seasonality in the U. S, because peak driving season, is at a time when there is low a farm application in the summer. So, we're starting to see that, come and usually starts after Memorial Day when I But we see the F demand picking up. And yes, there is technicality in the DEF. The demand related to trucking and dialing fees.
Okay. Okay. My last question is on, the press release you send out on the 4th March where you say there has been inbound interest in the methanol assets. Could you could you confirm that discussions are sort of less more or less ongoing given there has been no comments as of that date?
We're not going to comment on specifics, on that, but as a general statement, we do review our portfolio very vigorously. And methanol is taking an increased, amount of time for us to evaluate all strategic options.
Okay. Let me ask one follow-up on that then. That's my last my last question. Let's say you put a replacement value on those Methanol assets in the presentations of your, the company presentation. But let's say in your view, would it make sense that in today's markets, the assets are worth more than the replacement value numbers you put in that, in the presentation?
In the rest
of the world without any tensions or trade or lack of predictability of the coming, in the short term, replacement value means that you're giving away 4 years of cash flows. So in a rational market, you should be expecting a higher value than replacement value because you're compounding also the cash flows which otherwise would have been deferred until the completion of construction. So, that's our belief.
Okay. That's very clear.
Thank you. While the while assets could trade below replacement value in methanol, no transactions would like to occur below replacement price.
Perfect. Thank you, gentlemen.
Your next question comes from the line of Thomas Wrigglesworth Please ask your question.
Thank you very much. A couple of questions, if I may.
Obviously, we've seen this big step up
in the corn Belt, nitrogen prices, can we assume that you will realize this new level that's been achieved in May rather than averaging in through in 2Q through, you know, have you resisted selling tons in April, noting that we've seen the spike that you kind of indicated that the 4th quarter results. Secondly, I think you've been clear, but just to clarify, your point is that inventories are low. And even if we do lose some planting, it should lead to a good a good supply and demand balance at least in country in the U S as we go into the as we go into, year end? Is that what I should understand. Without and thirdly, outside of the US, can you give us your thoughts on on what pricing is gonna look like over that summer period.
Obviously, we we don't have the gas price support that we had during the summer season, for those seaborne tons. So if you have any insights you could share on how the summer is going to progress, do you think China is going to step back in and start buying tons again from the seaborne market if prices go low enough?
So first on the question of if I may, this is really a week by week exercise. To give you an idea, this week, there's if you're calling from the U. S, there's a lot of wetness in the Midwest. So this week is different. That is expected to go away beginning of next week, and we expect the month to even accelerate even further next week to to take catch up in a very time sensitive period.
So it's very tough to give you an average of Eastern May, but for sure, all pricing in the Midwest stating at historical premiums, as well as, in general, urea is saving higher in April and May than it did in February March. What we need to explain in general is that this strategy is not just opportunistic. We consider a sale of season to a stock as a virtue in non sale. Because it did not hit the ultimate demand, sources. It's merely creating volume in the hand of an intermediate at a low price in the off season, which is counterproductive once the season starts.
So we are we have invested in distribution and all that to prevent that from, recurring. Now as far as the summer, we expect that, this summer, pricing to be, significantly higher than last summer. On the back of, multiple, number 1, the inventory levels at the end of June are expected to be extremely low. People have delayed purchasing decisions. Yesterday, the stock of another Indian Asian tenders till June.
So we go into the season, which is the off season, which starts in July with very little carryover and the same in Europe with very little carryover from May June. So, with that in mind, we expect summer pricing or what some people in the U. S. Referred to as freight pricing to be significantly higher than last year. And we've seen that already in Europe with TN prices announced for July, almost 20% higher than same time last year.
So, for the second half, we believe pricing will be stronger. And we don't see China coming back with the with big volumes. It just doesn't make sense for China to import energy, keep the pollution at home and export a product that produces very little margin for the Chinese economy. So that's our outlook for the second half.
Okay. And just a follow-up, if I may. I think you said that the full year results that U. S. Gas prices in 2Q would be $2 30 in MMBtu.
Does that still stand? I appreciate it's probably so flexible, you know, that that things may have mark to market developments may have changed. It's $2 30, the kind of right level for 2 q 2q gas in the US?
Not too far from that. Yeah. Very close.
Great. Thank you very much. Very clear. Thank you.
Next question comes from the line of Frank Lesson. Please ask your question. Yes, good afternoon. Frank Claasson of Petercam. First of all, question on your CapEx guidance.
Is that still SEK 200,000,000 to SEK 220,000,000 for this year? Secondly, on SureFET, do you any dividend payments related to Farfetch for this year? And finally, related to DEF, we've talked about the U. S. Can you update us on your plans for DEF outside of the U.
S? So Europe or maybe also Egypt What are what progress are you making with launching DEF in those regions?
Yes. It's still being launched in small volumes in the emerging markets yet. I mean, we, to give you an example, major introduction of a DEF in China only happened last year. So that's going to grow exponentially, but it's, it's not as material as adblue in Europe or DF and US.
Let me take the other question.
On the CapEx guidance. The CapEx guidance hasn't changed.
Okay. And and on Swarford, do you expect any dividends, payments from Swarford this year, or what is Yes. On that?
Yes, we expect dividends to reflect 2018 earnings, and this is already a break.
Okay. And when will that happen? Is that Q2, Q3?
Summer. So kind of July is where we expect that to happen. We still have all the AGMs and all that, which is underway. And, and then the process starts. We expect probably, I would say, Q3.
Okay. Maybe coming back on the F, I thought you also had plans to launch in Europe. Is that still the case? And and what is your progress over there?
So we have made a few trial shipments from Egypt, and we're still evaluating, And it's it's merely based on the economics of, granular urea versus DEF. But this year in Europe, we realized higher netbacks with granular urea.
Okay. That's clear. Okay. Thank you very much. Next question comes from the line of Jeff Hair.
Please ask your question.
Hi, good afternoon. Thank you for the opportunity to ask the questions. Just got 2. First of all, can you just outline what your pricing strategy is for, nitrates in Europe? Will you be following ARRA?
Or have you got a different strategy? For what yara's, announced, last week. And then just just on q on q2 EBITDA that you've commented, just if you could outline what gives you so much confidence that you can generate more than GBP 310,000,000 of adjusted EBITDA in the 2nd quarter, that would be very helpful. Thank you.
So on pricing, I do not prefer to comment on competitor pricing. But all we can say is that, we're extremely disciplined in terms of not offering products that is not needed at reduced prices. That is our strategy and we think we're going to implement it. And it worked for us summer in the Q3 and Q4 last year. So, there will be, you know, bargains offered in the summer of 2019, especially on the back of low inventory, ending inventory globally by endofJune.
So without going into numbers, we believe that this summer is going to be materially higher prices across all nitrogen products. The second question was the Yeah. We're confident. Obviously, it helps that we are now almost end of May, and we've sold a portion of June production already. So you can, have that kind of confidence when you've locked in your gas price for the quarter.
And you have a solid order book that gives you visibility. So yes, we are confident on that.
Thank you.
Your next question comes from the line of Mustafa Kai. Please ask your question. Hi.
I just wanted to clarify, when you are saying you are looking to meet your methanol, portfolio. Do you have an advisor at the moment and what's the timeline for this strategic review? Thank you.
We'd rather not comment on that, but we typically engage advisors on transactions. So, but we'd rather not comment on that now.
We expect a update. Thank you.
We'll probably, give a further update, with the next call to results late in this summer. Can you hear
Next question comes from the line of Roger Spitz. Please ask your question.
Thank you very much for the follow ups. First, I don't know if you'd be willing to provide this, but would it be possible to provide the q 1 nineteen year over year, volume declines in each of nitrogen US, nitrogen, Europe, and nitrogen, MENA.
I'm I'd I'd rather do this off the call so you can check with the or the handset and some of it is already, segmented. But I'd rather you can get that off the call, if you don't mind.
Of course. Would it be possible to provide the off balance sheet, accounts receivable, securitization, the amounts outstanding at March 31st?
Again, I mean, you that would be probably easier for us to answer on a separate call. It's very specific and the amounts very obviously with the buildup in inventory. So there is a decline because we didn't sell in March. Some of it has already been actually cashed.
Got it. My last one is regarding the ammonia prepay program, just for my edification. Is this the same or different from the fill program? I feel like it's different. And and, also, if you delivered all this volume but the the the US farmers weren't planted because of the extraordinarily wet weather.
What has happened to this ammonia? Is it sitting in warehouses you know, along the Mississippi or somewhere, that will be sold down in Q2?
No. It's been of it is already being delivered and has been delivered in April May. So these are especially in early April. So this is ongoing. It's orders that have been placed a few months earlier, with targeted days and a lot of it has already been shifting it at this higher price.
Got it. Just so I'm clear, is this is this also known as the fill program, or is this different from the fill program that people speak of?
It's kind of different. It's, because ammonia doesn't store that much, so I mean, that well. So it's mostly a commitment for volumes yet to be produced. So what we believe is the understanding on the field program is that you sell to traders, they put us in the warehouses, wait 4 months and make 20, 30%. Something that, a practice that we have, try to avoid and consistently try to avoid.
Your next question comes from the line of Harry Tiranalai. Please ask your question.
Hi. Thanks for taking my question. And this was more, in relation to trying to understand your business a little better. Obviously, it's, comforting to see a very strong guidance for the second quarter, and that's great. But just in terms of trying to reconcile your guidance and confidence in terms of, not only just hitting your EBITDA numbers, but also saying that good momentum in volumes.
How do I reconcile that with the information that's released by the USDA, especially in relation to con planted And so being planted, especially in Midwest where we still see a significant backlog in relation to, where, you know, the acreages related to where it was last year. For example, in Brazil like Illinois, it's still way below what it was in, mid May, 12 or 95% planted. Now it's still 25%. So I need to just try and understand how does it work in terms of your ability to shift volumes when acreage planted for common soybean in the Midwest continues to be low. Thank you.
So first of all, we
are now talking and we're already end of May. We do not have a lot of volumes to sell in order to meet our guidelines and enhance our confidence. What we have to sell from here till end of June are not a lot of quantities. So that is one thing. You can look at it two ways.
You can look at having 45% of the corn planted taking place as, a potential significant uptake next week when the weather should dry up in the Midwest. And this is the current dictation. And we have the volume is not placed exclusively in our plant. But it's also been distributed to a lot of leased storage facilities. So on a single day, you're not capped by the logistical constraints of shipping out of one plant.
We're shipping out of, in that case, 6 or 7 different locations. And the same in Europe. So, we've done a lot of work on logistics and then, and we can ship a lot in a very short period of time. So but again, on the guidance, we have not a lot of volumes to sell in June in order to meet our targets for a stronger H1.
That's helpful.
Next question is from the line of Henk Seerman. Please ask your question.
Hi. One small follow-up from my side. When you talk about the growth in EBITDA half year 'nineteen versus half year 'eighteen, should we assume that includes the IFRS 16 impact of about 25,000,000 for for for that half year, which it's helpful for your, adjusted EBITDA? Or, can we also expect the growth in EBITDA on a, let's say, on an IFRS 16 adjusted basis?
It includes the, the IFRS adjustment.
Okay. Thank you.
There are no further questions at this time. Please continue.
Okay. I'd like to thank everybody and looking forward to our next call. Thank you.
That does conclude our conference today. Thank you for participating. Connect.