Ladies and gentlemen, thank you all for standing by, welcome to today's OCI N.V. first quarter 2018 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star and the number 1 on your telephone and wait for your name to be announced. I must advise you all that this conference is being recorded today, Friday the 11th of May, 2018. I would now like to hand the conference over to our first speaker for the day, Mr. Hans Zayed. Please go ahead, sir.
Thank you. Good afternoon and good morning to our audience in the U.S. Thank you for joining us on the OCI N.V. first quarter 2018 results conference call. You can find all the details of our results in our press release and financial statements, which we posted on our website this morning. With me today are Nassef Sawiris, our Chief Executive Officer, and Hassan Badrawi, our Group Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the first quarter of 2018, followed by a discussion of OCI's outlook. 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, therefore I would like to refer you to our disclaimers about forward-looking statements. Now let me introduce our Group Chief Financial Officer, Hassan Badrawi.
Thank you, Hans. Thank you all for joining us today. As Hans mentioned, we posted our first quarter 2018 results on our website this morning. This is the first time that OCI issues condensed financial statements for the first quarter. Typically, in the past, we've issued trading statements. Going forward, we will be providing this level of disclosure for the first and third quarters as well. I am pleased to report that we had solid performance in the first quarter of this year. We've achieved healthy utilization rates across our asset base and witnessed a meaningful step up in EBITDA and, more importantly, free cash flows. Our self-produced sales volumes increased by 33% compared to the same quarter last year, which was about $2.2 million during the first quarter.
On average, we realized selling prices at a higher level than those achieved in the first quarter last year as the market continues to strengthen. As a result of the higher volumes and higher selling prices, first quarter revenue increased by 57% to $745 million, and we reported an increase in our EBITDA of 95% to $252 million. We also reported an increase in our adjusted EBITDA of 44% to $235 million. The delta between the reported adjusted EBITDA this quarter is mainly the insurance proceeds or the down payment on our insurance proceeds from the Sorfert shutdown, which continues to positively progress. At the bottom line, we had a swing back into profits from a net loss attributable to shareholders of $47 million in the first quarter last year to a net profit of $25 million this quarter.
We've also achieved, as I mentioned earlier, a healthy free cash flow of $120 million during the quarter, despite an increase of $49 million in working capital, reflecting some market conditions, which Nassef will address. The free cash flow represents a conversion rate of about 48% of our reported EBITDA, and we believe our company is among the best in class going forward in free cash flow conversion. Turning to our balance sheet, our net debt stood at $4.435 billion as at 31st March 2018, reflecting some minor movement from the $4.447 billion as at 31st December 2017. This is mainly due to some adverse currency translation differences of $38 million, which are partially reversed in the Q2.
The tail end of our gross capital expenditure, which was $23 million during the quarter, mainly by MCN second line, the doubling of our capacity by MCN, which is the last piece of growth CapEx we have in our system. There was also a one-off accounting adjustment of $90 million for the implementation of the new IFRS 9 rule, which impacts the value of the opening balance of debt with no P&L impact. Finally, the net effect of $29 million of several items, mainly reflecting the expensing of the cost of debt repayments related to OCIP refinancing and the convertibles. During our last conference call in March, we shared an update on our capital restructuring plans. I am pleased to report that we have now finalized all refinancings with a number of transactions successfully completed in recent weeks.
These include, in April, we completed the offering of a well oversubscribed debut bond, consisting of a $650 million tranche and a EUR 400 million tranche of senior secured fixed-rate notes due in 2023. The dollar notes have an interest rate of 6.625%, and the euros are at 5%. I'm also pleased to say that for the first time, in conjunction with this bond issue, OCI N.V. obtained corporate credit ratings from Moody's Investors Service, S&P Global Ratings, and Fitch Ratings of Ba2, BB- and BB, respectively, all with a stable outlook. Also in April, we entered into a new revolver and term loan facility as part of our overall capital restructure. The new RCF Has a total commitment of $700 million with up to five-year maturity. The new term loan facility has a total commitment of $400 million equivalent denominated in euros with a four-year maturity.
Both facilities bear an initial interest rate margin of 4% over LIBOR, which declines as the company's deleveraging profile continues onward. We also successfully concluded the buyback of our outstanding $339 million convertible, which closed a few days ago. Finally, yesterday, we closed the refinancing of our existing debt facilities at Egyptian Fertilizer Company for a total equivalent of $445 million. The transaction has received extremely healthy demand from commercial banks, both local and regional, and also included a commitment of $100 million from the International Finance Corporation and $60 million from the European Bank for Reconstruction and Development. This was the last piece of refinancing activity in our ecosystem that is now complete. With our capital restructuring program now finalized, we do not have any major maturities in the near future and have meaningfully extended our average maturity profile going forward.
We have lowered our average cost of debt this year already by up to 35 basis points, but expect more meaningful gains through expected step-down provisions as our deleveraging continues. We have reduced the sensitivity to rising interest rates due to increasing the proportion of fixed rate debt from previously 26% to around 50% of our total debt, and just over 75% of U.S.-denominated debt following the refinancing. We believe we are now extremely well-positioned to achieve a healthy trajectory for deleveraging as we continue to target an investment-grade profile. At this point, I'd like to hand over the call to Nassef, our Chief Executive Officer, for further commentary and outlook.
Thank you, Hassan. As I already mentioned on our last conference call in March, we started 2018 with all our plants operating well. I'm very pleased that we can now confirm that as a result, we enjoyed a strong improvement in our operational and financial performance during the first quarter. All our operations were contributing to this growth through our robust increases in volumes, and our performance was supported by a well-diversified portfolio of fertilizers and industrial chemicals. I'm particularly pleased that we generated a healthy level of free cash flow of $120 million in the first quarter, despite a $49 million increase in working capital. Inventories ended at relatively high levels at the end of March as the spring application season in the U.S. and Europe was delayed from the first into the second quarter due to the adverse weather conditions.
Now, let me give you some insight on our two underlying markets. First, the nitrogen fertilizer market. Our realized selling prices increased on average during the first quarter compared to a year ago. We believe our commercial strategy is paying off as we continue our strategy to limit both the quantity of forward contracted sales and the company's participation in the annual field season selling program in North America. We believe that this could help to create a more stable environment for nitrogen fertilizer prices and stabilize price expectations for our customers. We continue to see a number of positive trends emerging for the nitrogen fertilizer market. Firstly, for the first time in a number of years, we see grain fundamentals improving. Global consumption is outpacing production. Grain inventories are expected to decline, and farmers in the U.S. may shift back to corn acres from soybeans.
Overall, higher global grain price levels should boost the use of nitrogen fertilizers in the U.S. and other major markets. Secondly, we've seen strong demand in high-growth regions this year, in particular in East Africa, a trend that we expect to continue going forward. East Africa has some of the fastest-growing urea markets in the world, including Ethiopia, Tanzania, and Mozambique. Ethiopia alone is a urea market of 500,000-plus tons, which is expected to grow at double-digit rates in the coming years. All the required urea is being imported. Our plant in Egypt, EFC, is particularly well-positioned to serve the East African markets as we have logistical advantages compared to our competitors. Thirdly, as we discussed before, we continue to have the view that nitrogen supply additions have already peaked in 2017, and that new additions will be below incremental demand over at least the next four years.
Finally, exports from China continued to fall in the first quarter. Net exports amounted to less than 250,000 tons or a drop of almost 80% compared to the first quarter last year. We expect urea exports from China to remain at low levels going forward, if at all. We move to the industrial chemicals market. Our industrial chemicals portfolio continued to perform well with healthy volumes and further increases in selling prices for methanol and melamine, and the first contributions coming through from diesel exhaust fluid. We believe that each of our industrial chemicals markets has a favorable outlook. Methanol markets have been growing at rates of 8% to 10% on average historically, and we believe the outlook remains positive.
We have strong visibility into the next four to five years and expect limited new major capacity additions to come to market relative to expected continued solid demand growth in the high single digits. We are very well placed to benefit. Our methanol portfolio will get another boost this quarter with the startup of Natgasoline within weeks from now. Natgasoline reached the major milestone of mechanical completion in April, and natural gas has already been introduced to the reformer. Our other growth project, BioMCN's second methanol line, is on track to start production in the fourth quarter of this year. Our melamine business continued a healthy trajectory and remains a good source of diversification. Melamine prices continued to increase in 2018 after consecutive quarterly price increases throughout 2017, and demand for the product remains healthy.
Finally, diesel exhaust fluid has been an exciting recent addition to OCI's industrial chemicals portfolio, following the start-up of IFCO in 2017. Diesel exhaust fluid is a fast-growing and high-margin product, which has been growing at rates above 20% and is expected to maintain high growth rates in the U.S., Europe, and in China. We have been ramping up our DF operations this year. We have been rolling out the product in the United States, where we have increased production capacity at IFCO and have boosted logistical capabilities with an enlarged rail car fleet and more storage capacity. Outside the U.S., we have been increasing DF capacity as well. We executed the first shipments from Egypt in March, and we are planning to start production of diesel exhaust fluid in the Netherlands next year.
To conclude, our first quarter results support our expectation that we are on track to achieve a significant step up in free cash flow generation. Our free cash flow of $120 million in the first quarter was a good achievement, and combined with the strong increase in EBITDA, the first signs that we are on the right track, our deleveraging, driven by our building up to our run rate volumes. This year, we will see a step up in the volumes coming through from Iowa and our plants in North Africa, as well as the start-up of our methanol facilities. We will have some turnarounds in the summer and have a large list of small production improvements. These will help us achieve even higher run rates going forward in 2019. We expect to have, in 2019, all our facilities up and running for a full year.
With that, we will open the line for questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. As a reminder, should you wish to ask a question, please press star and the number 1 on your telephone and wait for your name to be announced. Again, it's star and 1 should you wish to ask a question. We have questions that came through. Our first question comes from the line of Tom Wrigglesworth. Your line is now open. Please ask your question, sir.
Hassan, thank you very much for the call and the opportunity to ask questions. I'll start with three questions, if I may. A few kind of more strategic ones to start off with. Obviously, your commentary around nitrogen pricing infers that we are kind of maybe past the trough of the cycle. In terms of the level of corporate activity that we've seen in consolidation, which I think you guys have said in the past that you think consolidation would take place, has it surprised you that there haven't been bigger deals whilst things have been more suppressed? How would you see that continuing as maybe the cycle picks up? Second question, again, is more focused on OCI. Obviously, as we exit 2018, it looks like your organic growth and investments have delivered. What should we expect next from OCI?
You're not famous for a company to not be doing something. The last question, more on the first quarter performance. You note that the run rate was 110% for March for the IFCO facility. I think we all understand that the challenges of cold weather through the fourth quarter probably provided a bit of a low run rate entering the first quarter. If IFCO hadn't had an uninterrupted first quarter, how much more EBITDA do you think that would have delivered? Could you give us some sense as to Because I appreciate it's still in ramp-up. Those are my questions. Thank you.
First, I'll start by your question on consolidation. I tend to differ because you saw already last year the Agrium PotashCorp transaction, which is the first step of a positive consolidation, not just in potash but also in nitrogen. Other players who have high government participation in their shareholding are typically not able to take advantage of changing market conditions, and hence, were not active in that part of the consolidation. We believe that moving forward from our standpoint is that we had to finish our major ramp-up of the capacity expansion, and that will be done by end of this year. Then our next priority would be to achieve investment grade and deleverage. From our side, we will not be doing any major acquisitions in the short term. On the issue of IFCO, yes, January and February had some interruptions due to the extreme weather.
That probably did not change the fact that the market pull was weak as a result of the adverse weather conditions. We finished still, despite the shutdowns, with a higher inventory level than we would have expected. It's quite difficult to assume. On a run rate basis, I can tell you that March's EBITDA contribution was multiple times more than January and February combined.
Okay. That's very interesting. Thank you.
Thank you. Sir, your next question comes from the line of Christian Faitz. Your line is now open. Please ask your question.
Yes. Good afternoon, gentlemen. Two questions, if I may. First of all, can you give us an indication of the rough tax rate for the full year 2018, please? Second of all, given the shortened application season in the Northern Hemisphere due to adverse weather conditions, prolonged winter conditions, do you believe you can, in terms of volumes, catch up in the remainder of the season despite the compressed application window? Thank you very much.
On the tax rate, Hassan will give you.
Yeah. On the tax rate, as you know, this is one of the areas of strength in OCI. We're able to achieve quite a low effective tax rate. Our guidance for this year has been in the range of 15%-18% effective tax rate. Although I will note here that our actual cash tax will be lower than that. That, of course, is a reflection of a combination of some of the jurisdictions in which we operate. Egypt, where we have no taxes on our EBIC assets, Algeria, which is tax exempt, and some efficient tax structuring that we've done throughout the system where we are reaping the benefit of that. Notice on the catch-up of.
The catch-up is actually might be in the U.S. slightly different than in Europe. In the U.S., the ammonia application was really hit by the shortened season. We are seeing healthy UAN pickup. It's a bit of a shift in the product mix in the Midwest where the ammonia demand period was shortened but accelerated UAN and pick up. We believe that we should have a reasonable no buildup of inventory by the end of the quarter.
Okay. Thank you very much.
Sir, next question comes from the line of Frank Claassen. Your line is now open. Please ask your question.
Yes. Good afternoon, gentlemen. Frank Claassen, Degroof Petercam . Two questions, please. First of all, on DEF, could you elaborate a bit more on your plans? How big could it be for you, and how easily is it to switch existing plants from urea to DEF? Secondly, now that your refinancing is done, what will be the average cost of debt going forward? Thank you.
I'll start by answering your question on DEF. A urea plant that is a modern plant built in 10, 15 years can produce a urea liquid, which then you mix with high-quality water, demineralized water, and then you have a product which is called DEF. The challenge is more for the older plants, and in our case, having the youngest fleet of plants in the industry. In the case of Egypt, these are 10 to 15-years-old older plants. The process of producing DEF took us less than three weeks of calibration. The Iowa plant was planned from the beginning to have an element of DEF. What we have done is that we increased the capacity with less than $1 million of investments in pumps and other pieces of equipment. In essence, this was just a capacity increase.
We produce more liquid urea than granular urea, for example, or other downstream products like UAN. This is for new plants, and this is why we could benefit from the expansion in the DEF capacity. In the case of our Dutch facility, it requires a little bit more time, and that's why we are seeing it go into 2019 but not at a significant cost. It requires some changes that are a bit more time-consuming but not that costly. Our plan is that we will have a significant part of the Iowa plant service the busy Midwest trucking demand. Now we are seeing also agricultural tractors using DEF in their tractors and harvesters. The demand is growing in Europe and in North America by 20%.
DEF for the first time made its mark in China, the first year it only consumed the equivalent of 100,000 ton urea. As new trucks get rolled out and due to the scale in China, we expect China to be a big contributor to the growth in DEF. Our size of DEF in Iowa could reach a third of our total output in DEF. DEF trades at a premium to Midwest urea, which again trades at a premium to the rest of the world, and particularly NOLA urea. The challenge in logistics in the U.S. is increasing. There is a bigger shortage on barges, on trucks and all that, and we're very confident that the Midwest premium will continue to expand and go back to its historical differences.
Okay. Regarding your question on cost of debt, it's true we are realizing some gains of 35, 40 bps, as we mentioned earlier, in 2018, taking our weighted average cost of debt to be in the range of 5.5%-6%. Our new debt facility that we've introduced as part of the restructure, allows us to capture further meaningful reductions in our cost of debt as our leverage begins to decline. There is a built-in ratchet that allows us to get further benefits 2019 onwards.
Okay. Thank you very much.
Thank you. Next question comes from the line of Karim Sawabini. Your line is now open. Please ask your question.
Hi, guys. My question is, given the U.S. renewed sanctions on Iran, I know that there was additional capacity of some end products of yours, like methanol, that were expected to come online from Iran. Do you think that will impact pricing of methanol or any of your other end products?
[Amin] is on that. This is early times. The biggest impact really is on plants under construction. There is, under the U.S. sanctions, still something like 180 days, so shipments in place. Definitely, Iran is a big player in the methanol export market, as well as a big exporter of nitrogen. What we can say is that in the past, sanctions have resulted in a couple of things. Number one, a complete slowdown of any new capacity additions due to the effect of not receiving critical parts, et cetera. The second is that the operating rates of the existing plants dropped significantly. It was a double whammy in the past. Definitely it will have an impact. Short term will be small. There will be more clarity probably in the next 180 days.
Great. Thank you.
Thank you. Next question comes from the line of Jeff Herr. Your line is now open. Please ask your question.
Hi. Thank you very much for the opportunity to ask the question. I have a very basic question. I am just trying to understand the gap from volume growth of 25% to revenue growth of 57%, particularly when I look at the benchmark pricing you have, obviously prices are not up by almost 33% on average across the mix. I am just trying to understand what else is in the revenue line that is giving you that growth beyond volume.
You have higher realized prices this year in many product segments. Higher methanol prices, higher month-to-month comparables of urea prices, even higher CAN prices. A combination of volume growth as well as pricing growth and product mix. As you get to sell products like DEF, which are higher priced than a normal urea, that correlation becomes a bit skewed towards the expansion of cash flow, revenue, and margin.
Okay.
To complement Nassef's response, the positioning of our plants as part of our investment thesis, and the margin we're able to capture in our business through the commercial streamlining we mentioned a couple of calls ago, that's starting to come through our results as we now, in a quarter like this, have beaten the delta in the benchmark prices.
Okay, thank you.
Thank you. Next question comes from the line of Joe Marius. Your line is now open. Please ask your question.
Hi. Thanks for taking the question. Just in terms of questions about the overall market, can you just talk a little about, obviously the Chinese exports continue to basically drop almost quarter-on-quarter and month-by-month, and where do you think that levels out or what's your view of the Is the current level sustainable, or do you think you can continue to have decreases there? Then finally, if you can just give a little bit of color, obviously, on the corn versus soy consumption and question that you see among the farmers and what's the sort of ratio that we or what are you thinking in terms of expectations, in terms of that shift, and how does that impact your business? Thanks.
On the first question, I think China will go to zero. I have no doubt about it. It just doesn't make sense to import expensive corn, leave the pollution in China, and then export a product that only achieves the following: You leave the pollution in China, and you leave pissed off trade partners who are complaining about the trade deficit, and you make no margin. I don't see Chinese exports continuing. While DEF was only 100,000 tons, everything happens in China big and fast. The fact that they are very much focused on environmental constraints, and due to the fact that DEF affects cities more than CO2 emissions because the NOx emissions stay in each particular city, we think that DEF in China will grow extremely fast, and this is our own findings from China.
That can take any slack and any excess capacity in urea. We think urea exports are a thing of the past in the medium term. On your question about corn and soybeans, there are two issues related to that. One is the fear of Chinese sanctions. The products that have been put on the list could play a big role in that change. In general, higher grain prices could result in an increased acreage to be planted with corn in the Midwest to the magnitude of creating an additional one or two million tons of urea demand. That's just in the U.S. That is definitely a positive.
Got you. Thank you.
Thank you. Next question comes from the line of Rikin Patel. Your line is now open. Please ask your question.
Hi, everyone. Good afternoon. Thanks for taking my questions. I just had two. Firstly, I saw, obviously, the CAN volumes were down slightly in Q1. I assume that's obviously because of the colder weather. I just wanted to get your view on the outlook for that market in Europe for the rest of the year, maybe what you think about the nitrate premium with respect to CAN. Secondly, just a follow-up on the question on Iran earlier. Do you think that if these sanctions do come to fruition, that there could be a potential positive impact for your North African business if the likes of, say, Turkey, and some countries in Europe start to look away from Iran and move towards North Africa? I know it's hard to say, but just a view would be good. Thank you.
On the European, they're kind of linked to the global nitrogen market. I think the market is following very similar patterns to urea. This year, weather played a big role. The other negative that we saw on the European market was higher gas prices, and that puts a cap on where CAN prices can go down. Particularly, what was very important was the lesson learned from our CAN strategy last summer, where we only sold product one month forward. We were witnessing, late in the year and early next year, some of our competitors delivering old commitments, in some cases up to EUR 30 and EUR 40 cheaper than where we were selling our products. Basically, it's a flawed strategy to sell to a trader or a stockist that merely leaves the product in warehouses for four months. You sell him that early product at a steep discount.
Four months later, as the demand starts picking up, you have a competitor in the trader that you just sold the product cheaper early on in July and August. Part of the bigger problem of CAN is that rush to sell a lot of products off-season to stockists. We consider stockists and traders as non-end customers and potentially competitors. That is the big overhang on CAN. Your other question on Iran and Turkey, as I said before, it's early days. Definitely, Iran supplied a lot of product competing with North African product in Turkey. Should that situation change, that will boost demand for North African product going into Turkey.
Great. Thank you.
The next question comes from the line of Christian Faitz. Your line is now open. Please ask your question, sir.
Yes. Thanks for taking a quick follow-up question. Could you talk about, talking about a different region now, the entire Trinidad situation and how that is affecting, potentially, your assets in Beaumont? Thank you.
I think the methanol market is quite tight. The outages and all that are playing an important role, but it's really a demand story that is helping the methanol market. You have to think that methanol is very sensitive to oil prices. We are seeing a lot of the methanol go in China ending up in cars, for example. The higher the oil price, the more demand for methanol as a fuel. The higher the oil price, the more competitive MTO plants are that are using methanol versus using naphtha crackers. Methanol primarily has two sides to the story right now. One is the higher oil price, and the other one, the tightness and the demand. I mean, a very strong demand.
Okay, thanks a lot.
Thank you. The next question comes from the line of Tom Wrigglesworth. Your line is now open, sir.
Thank you. Some follow-up questions, if I may. Corn Belt pricing has been at a premium to the NOLA price, certainly through the first quarter. Is that something that you've been able to lock in for the second quarter? Obviously, we're looking at OTC, kind of trader prices. I'm just interested to know if that situation is going to be alleviated or if you think that that premium will continue throughout the course of this year and actually will never catch up. That's the first question. Second question, if I may, following on from the questions around interest expense. I understand that you have kind of stepped-down mechanisms in some of the new debt instruments that you've issued. Could you just elaborate what that means?
As we see the cash generation pick up and the net debt fall, will there be just a mechanical drop in your interest cost, rather than you needing to reissue new instruments to capture your stronger balance sheets? Thank you.
Okay. I'll start with the first question on the Midwest premium, and I'll leave Hassan to walk you through the step-down process and the flexibility in the financing. On the Midwest premium, the Midwest premium has a floor, which is the logistical cost of moving product from NOLA into barges and all that. There is an added premium because of the difficulty in logistics at peak season, the availability of barges, the availability of trucks and double handling, which is becoming a big issue more and more. I mean, a lot of other industries are starting to feel the pinch of increased logistics.
We always said that we think of the Iowa Fertilizer Company as a hybrid between a manufacturing plant and a logistics center because we are located in a very attractive location in the middle of the biggest nitrogen demand, as well as the biggest trucking demand in the Midwest. We see actually the Midwest premium growing rather than coming down. That will continue even if in nominal terms, as far as the premium is concerned, we see a possibility that we will see more of it in the second quarter than we saw in the first quarter. We are seeing that right now.
In regard to your question on the debt. All our new bank facilities at the holding company level, which have been issued in conjunction with the bond, have basically a leverage-based margin grid. That is the sort of the grid that I mentioned earlier, which allows us to benefit from the decrease that is naturally going to be happening to our leverage metrics as the ramp-up of our EBITDA happens and as we continue to hit our run rates with our free cash flow conversion profile, which is quite unique. That means that deleveraging can occur very rapidly, and we can approach being an investment-grade profile within two years plus, that could be even depending on pricing, of course. This is fairly standard for these type of debt facilities.
As you accurately mentioned, this allows us to save on having to reissue future debt to capture that deleveraging benefit.
We get actually two benefits. One is a step down in interest expense on the revolver as well as the OCIP term loan B. You also get a reduction in absolute debt because the revolver is very flexible and sizable. As we deleverage, we do not need to issue any new debt. It is just an on-demand facility.
In terms of quantifying that, if I may. In two years, if you were investment grade, would your interest expense be, do you think that could be, what? 20% lower than it is today? Or would it be more like 40%?
A lot of metrics, including interest rate and all that, I think we'll give you the basis of our loans and you do the math based on your expectations of where interest rates are going to be in two years.
Okay. Understood.
All right, the next question comes from the line of Rob Fong. Your line is now open. Please ask your question.
Hey, thanks. One quick admin question first off. In your disclosure, when in the segmental reports you give revenues and you give a net profit line, I think what would be really helpful to investors, especially us on the debt side, would be getting EBITDA by division, just because obviously that's the way that the deal was presented. We kind of had the breakdown, that would be really helpful in the reporting going forward. Is that something that you think you can do in future reports?
We'll look into it. I appreciate the comment, we'll look into what we can do in terms of our disclosure. There's quite a bit of data already available on the various opcos based on existing debt, we can look into it.
Got it. Thank you. That's really helpful. Obviously at the time of the debt deal, you were talking about Q1 and saying you had strong expectations. Is there any short-term guidance you're willing to give on Q2 in terms of volume increases year-on-year or anything along those lines?
No, I think we made a statement that the effect overall in the year that our guidance didn't change. What we can say is that, we look at year-on-year performance in terms of plant reliability and in terms of the trends and prices. I would say that on both metrics are supportive of our statement that we're not changing our guidance.
Okay. Thank you.
Thank you. The next question comes from the line of Senan Kiran. Your line is now open. Please ask your question.
Hi. You mentioned that investment grade is a possibility in the next two years or so. Is it a target on its own right, or you would be just happy to have an investment grade profile?
Can you repeat the question? The line wasn't very clear.
You mentioned that you would get back in two years time, you could potentially get to investment grade profile, so your metrics would be good enough. Is it a target on its own right, like if the right acquisition came along, or you wanted to dividend out a certain amount of the cash generation? Is it a strong target for you to become investment grade?
Yes, it is.
Okay. You mentioned that the average selling prices were higher in Q1 for most of your products. Are you able to quantify what was the average selling price increase year-over-year in Q1 2018?
No, we can tell you that the key products have had increases in pricing and magnitudes of $30, $40 on urea. You're talking about a significantly higher number on methanol. Melamine is up 5%. It's a whole list of products. I would say that across all products, we're seeing improvements year-on-year.
Okay. You also mentioned that Natgasoline is about to start its commercial production. When do you think you would ramp up fully this site?
We have introduced gas to the reformers. It's mechanically complete to introduce gas into the reformer. The process started towards production. As with any new plant, very difficult to predict, but so far the pre-commissioning, the commissioning and the startup is going very smooth. I wouldn't put an exact time on it, but sometime in the summer, we think we'll be in good shape to have steady operations.
Okay. If the methanol prices were where they are today, what sort of a EBITDA potential this operation has? I think during the roadshow, we were given maybe $300-$400 kind of a range. Obviously, it's a bit of a range, but given the methanol prices stay where they are, what's the contribution?
That range would be a good description.
Okay. Just the turnarounds that you expect to have in Sorfert at the end of the year, is that a major turnaround? Do you expect it to have a big impact in terms of contribution to EBITDA?
No, the Sorfert turnaround is not necessarily going to happen this year. Might be pushed further down to next year. It's not a multi-month stoppage. It's two to three weeks. It's not a major disruption.
Okay. I'm guessing the EBIC turnaround that happened already, that was also a small one.
Yeah.
Okay. Just to comment on what Rob just said on the breakdown of EBITDA by operations, that would be helpful for all of us investors.
Okay. We look into it.
Okay. Thank you so much.
Thank you. The next question comes from the line of Hari Tirumalai. Your line is now open. Please ask your question.
Hi, thanks for taking my question. I have two, please. You mentioned that Natgasoline's production could commence any time in the summer. Assuming you have about five to six months of clean run rate of production this year, do you expect recapitalization of the Natgasoline balance sheet to happen this year? Or do you think that's something that you would consider for 2019? That's the first question. The second question, you said that the insurance for the Sorfert claim that's been settled at $20 million, is that the final amount that we can expect, or is there anything incremental that we can expect during the course of this year? Thank you.
First, I'll answer your first question. You probably misunderstood. We plan to hopefully start producing methanol in the coming two to three weeks. We said that normalized production should happen this summer. Depending on that, we will see where we are and where the credit markets are, and make a decision around the summer about the financial structure of Natgasoline. On the insurance, the numbers reflected in Q1, that's a down payment or a prepayment on the insurance amount, and we have not yet disclosed the full outcome of that insurance claim. That continues to progress. This is a partial payment.
Understood. Thank you. That's very helpful. Thank you.
Thank you, Hari. There's no further question at this time. Please continue, sir.
Okay. Thank you, everybody, for joining us for this call, and looking forward to our next call. Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Have a good day, everyone.