Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to OCI MB FY twenty seventeen 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. I must advise you that this conference is being recorded today, Tuesday, March 20.
And I shall hand over the conference over to Hans Dyer, Director, Investor Relations. Please go ahead.
Yes. Good afternoon and good morning to our audience in The U. S. Thank you for joining us on the OCI N. V.
Full Year twenty seventeen Results Conference Call. You can find all the details of our results in our annual report and in the press release which we posted on our website last Friday. With me today are Inasar Sarwires, our Chief Executive Officer and Hatshan Badrawi, our Group Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the fourth quarter and the full year 2017, 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, and therefore, I'd like to refer you to the disclaimers about forward looking statements in Friday's press release. Let me introduce our Group Chief Financial Officer, Hassan Badshawi. Thank you, Hans, and
thank you all for joining us on this call. As Hans mentioned earlier, we posted our twenty seventeen results last Friday morning, so they're available on our corporate website. Allow me therefore to focus on some of the key highlights and milestones achieved during 2017. I'd like to start first by mentioning that we've continued our outstanding safety track record throughout the year 2017. Four our seven operating plants achieved zero recordable injury rates, five had zero lost time injury rates during the year, and we have now achieved a reduction of sixty four percent of our total recordable injury rates over the last four years.
With these these rates, we are outperforming the industry average by a margin of about 75%. I would like to take this opportunity to thank all our employees for their continued effort in maintaining a safe and healthy working environment. Safety remains our number one priority and we continue to target zero incidences every year. Operationally, we have made some good progress during the year and especially during the fourth quarter. Quarter.
I'm sure Nathal will shortly elaborate further on some of the drivers behind this improvement. Sales volumes produced by our own production platform overall rose by 20% to 7,400,000 tons during the year 2017 and by 31% during the fourth quarter. We achieved this growth despite an unplanned shutdown of one of our ammonia lines at Sulphur, for which lasted seven months, which also partially affected some of the urea downstream at the plant and that shutdown is fully discovered by business interruption insurance for which we've already received an initial confirmation of payment. Our Egyptian facility, EFC achieved a record volumes of 1,700,000 tons in 2017, the highest since its inception. Bio MCN also our operation in Northern Holland also recorded record volumes and we resumed our exports from our ammonia plant in Egypt last July.
And we've also continued to ramp up our IFCo state of the art facility in The United States, which has contributed to overall UAN sales volumes by 77% during 2017. Our Industrial Chemicals portfolio has performed very well in 2017 and continued to do so at the start of the year across all segments of the industrial chemicals platform. Our methanol business in both The United States and The Netherlands benefited from healthy utilization rates during the year and from an increase of an average 50% in our benchmark selling prices. Our metamined business continues to be a solid performer, benefiting from healthy demand and price increases throughout 2017 and into early twenty eighteen. As a result of the higher volumes and on average higher selling prices for most of our products, our revenues have increased by 18% to $2,250,000,000 during the year 2017.
Our adjusted EBITDA increased by 36 to $634,000,000 which we have adjusted in particular for the Sulphur shutdown and for the reduced volumes at our ammonia our Ebix ammonia plants during the first half of the year, which since has resumed exports starting July. And you will find the details of all the adjustments in our press release that was issued last Friday. IFCU's financial contribution was still relatively modest during 2017 as the funds continued to ramp up. If we normalize our results during for 2017 assuming what we have been able to achieve as a run rate for this business to date and applying the capacity efficiencies and our gas consumption rates and also applying our prevailing benchmark prices for 2017, our pro form a EBITDA would have reached $827,000,000 during the year and we feel we are pretty fairly confident about the assumptions that are assumed for this calculation. Turning to our balance sheet, our net debt stood at just around $4,450,000,000 as of thirty first December twenty seventeen compared to $4,194,000,000 at the end of twenty sixteen, and that's about the same level as at the end of the third quarter of the year twenty seventeen.
The net effect of movement in exchange rates accounted for a $170,000,000 increase in our net debt between the 2016 and the end of twenty seventeen, mostly due to the translation of euro denominated loans into our U. S. Dollar financials, which was partly offset by a positive effect of the continued devaluation of the Algerian dinar, of which we have $750,000,000 worth of debt. In the fourth quarter, UCI and V also acquired additional UCI Partners minority units at a total cost of around $61,000,000 which has raised our stake to 88.25%. And equally, we will be benefiting from a higher share of dividends from that operating unit going forward.
Total capital expenditures have decreased from a high of $736,000,000 in 2016 to $147,000,000 during 2017, more reflective of our maintenance run rate going forward. As I said, our total capital expenditures looking forward is expected to remain low. For 2018, we expect the CapEx to be in the range of $250,000,000 to $300,000,000 of which 150,000,000 to $200,000,000 is attributable to maintenance CapEx and the balance is dedicated to the remaining growth CapEx program, which is nearing completion during the year 2018. Primarily for the refurbishment of Bio Bio MCN's second methanol line effectively doubling capacity in that facility. For 2019 and beyond, we expect total CapEx as we emphasized earlier to remain range bound between 150,000,000 to $200,000,000 reflecting the age of our assets across the board.
During our last conference call in November, we spoke about our plans to pursue the optimization of our capital structure. You may have seen since December various press releases on that subject. I'm glad to to report that we have successfully concluded two refinancings. Firstly, in January, we completed a consent solicitation and exchange offer on IFCo's 2019 and 2022 bonds with $425,000,000 of aggregate principal amounts deferred. This transaction will give IFCo will avail to IFCo more liquidity and flexibility by increasing the weighted average life of the bonds from approximately 2.5 to almost seventeen years.
The new series of bonds were priced at a rate of 5.25 compared to a weighted average coupon of 5.41, so some savings there upon settlement of the previous one. Secondly, last week, we closed a new upside $455,000,000 Term Loan B facility at OCI Partners. The new term loan was priced at $4.25 bps, which is two fifty bps lower than the previous facility and includes a leverage based pricing step down provision to capture the continued deleveraging trajectory of that business. We also extended the maturity substantially from 2019 to 2025 in line with our overall policy to extend maturities across our op cost. OCIP has used the net proceeds primarily to repay and for the previous term loan facility and upstream a total of $217,000,000 to OCI MV, thereby boosting liquidity at the Holdco company.
We're also on track to secure the refinancing of our existing debt facilities at Egyptian Fertilizer company. We have secured commitments and executed term sheets for a facility size of three eighty million dollars alongside the 1,100,000,000.0 Egyptian pound facility, the equivalent of a total equivalent of $44,445,000,000 dollars. The transaction has received robust demand from commercial banks and developmental institutions and indicates an overall oversubscription rate of around in excess of 1.6 times. The purpose of this facility is to refinance EFC's financial indebtedness as well as upsize by about $30,000,000 to support potential working capital requirements. Overall, we expect again to reduce EFC's debt service by more than $30,000,000 per annum and extend maturities by seven years and we expect to conclude this refinancing in Egypt during the second quarter of twenty eighteen.
Lastly, as you may have seen in our press release yesterday evening, we have also successfully concluded the buyback of our outstanding $339,000,000 convertible bonds through a tender that closed successfully yesterday evening. The offer was accepted by bondholders holding an aggregate amount of bonds equal to €324,000,000, which corresponds to about just over 95% of the outstanding bonds. The residual amount is therefore subject to the customary automatic squeeze out. With the convertible out of the way, which was maturing in September 2018 and the refinancing at EFC on track for a second quarter closing, we will have no material near term maturities going forward. Looking forward, we plan to opportunistically evaluate continue to opportunistically evaluate financing opportunities, which may or may not include refinancing of existing OCI and V and or other subsidiary debts at the OCI and V level.
And with our growth CapEx drive effectively complete this year and our capital structure optimization plans well underway, we believe we are on track to deliver on our deleveraging objectives with the aim to achieve an investment grade profile for OCI and V within the coming two to three years. And with that, I'd like to introduce our Chief Executive Officer, Nassir Souiris, who will provide insights into our operational performance during the year, the company outlook and our overall business strategy going forward. Thank you. Nelsus?
Thank you, Hassan. I'm pleased that we produced a record amount of nitrogen fertilizers and industrial chemicals in 2017 with some outstanding results at our facilities in Egypt and The Netherlands, more than offsetting some delay to the ramp up of IFCU and the partial shutdown of our plant in Algeria. I'm particularly pleased that we achieved this in a difficult year for fertilizers with prices reaching multiyear lows during the summer. Markets for our industrial chemicals were healthy and went from strength to strength throughout the year, benefiting our results. This shows the positive impact of our increasingly diversified product portfolio, equally balanced between fertilizers and industrial chemicals.
Looking ahead, we are on track to achieve a volume driven step up in revenues. This growth will be driven by both the further ramp up to run rate production volumes across our current asset base and by the completion of our growth initiatives. We have started the year with all our plants operating well. In North Africa, all our plants are now running at high utilization rates. In Egypt, we already ramped up EFC to record production levels in 2017.
This was supported by recent gas discoveries, which is repositioning the country as a regional natural gas export. Our ammonia plant, Ebix, achieved high utilization levels in the second half of the year following the return of its export jetty in July, and we expect this to continue in 2018. And we are pleased to report that Sulphur successfully restarted the ammonia line in December. Since then, the production complex has been running at healthy utilization rates, exceeding on average 87%, well above the level it achieved prior to the shutdown. We are making good progress on improving reliability and surface and expect to maintain healthy production levels throughout the year.
We expect the loss of revenue resulting from the shutdown in 2017 to be covered by business interruption insurance, less forty five days' worth of deductions. This is supported by the recent approval of prepayments of $20,000,000 by insurance companies in anticipation of settling the full claim in 2018. IPSCO has continued to ramp up production during 2017. The plant has accelerated its ramp up at the start of the year and is currently running above nameplate capacity for ammonia and the downstream units. With some to give you indicative numbers, ammonia is running at around 110% of nameplate and some of our downstream units are running at 120%.
And DEF, with a minor tweaking of certain specification, has reached in excess of 200% of nameplate capacity. Our average daily production volumes are already significantly higher to date in 2018 compared to 2017, driven by the combined effect of the restart of Sulphur, Iowa ramping up and healthy utilization rates for our plants throughout our asset base. We are now in the final stage of our ambitious capital expenditure and capacity rollout program. Once completed this year, we will have grown from a single urea plant ten years ago into a globally diversified low cost producer of nitrogen fertilizers and industrial chemicals. Our two remaining growth projects are expected to start production this year.
Natgasoline during the second the early part of the second quarter and Bio MCN's second methanol line during the fourth quarter this year. Capturing OTI's proportionate share in Natgasoline and expansion at Bio MCN, we expect OCI Methanol Group capacity to reach 2,800,000 metric tons by the end of twenty eighteen, effectively doubling our asset footprint and positioning us as one of the largest merchant methanol reducers globally. We can now fully focus on generating significant value from our well invested asset base. Our portfolio has unique characteristics that will drive our cash flow generation going forward. Our facilities are on average the youngest in the industry with approximately 50% of our production capacity under five years old.
Our plants are based on best in class technologies which supports our above average utilization rates and low maintenance costs. Our production capacity is equally split between fertilizer and industrial chemicals, and we focus on high value added urea derivatives such as melamine and DAF in addition to downstream nitrates. For example, we are growing our footprint in diesel exhaust fluid, a product that is growing on the back of environmental legislation and does not have seasonal sales patterns like fertilizers. We more than doubled our DAF capacity at IFCo in the 2018 to 820,000 tons and successfully produced diesel exhaust fluid in Egypt with the first shipments sold in February. Finally, all our facilities are all strategically located in premium commanding locations close to our end customers and with abundant access to sustainably low cost gas, which allows us to benefit from a leading position on the global growth curve and achieve optimal netbacks.
To conclude, this ramp up serves us well under any market condition. Although we believe these are looking increasingly favorable in the fertilizer segment and in our industrial chemicals platform continues to benefit from a healthy demand and pricing environment, the key driver for our expected improved financial results in 2018 will be organic ramp up in volumes. Against this backdrop, our near term strategy is to continue to focus on the optimization of our capital structure and path of deleveraging. We will now open for any line of questions.
Thank you. And the first question comes from the line of Christian Page from Kepler Cheuvreux. First
of all, can you please shed some more light on the expected proceeds on the insurance payment in terms of cash inflow this year? And then second of all, in your outlook from Friday, in your printed outlook, you say that that if go is continuing its ramp phase and you expect the plant to achieve stable utilization rates in 2018. So at which rate is IFSCO operating at present overall? And then third, maybe, can you talk about current demand trends you are seeing in key crop areas S.
And Brazil heading into the Northern Hemisphere season and coming out of the Southern Hemisphere season? Thank you.
Hatin, if you can comment on the insurance claim, and I will handle the other two points.
Sure. Regarding the Algeria insurance claim, all of our business, as you know, benefits from a comprehensive insurance coverage as part of our financial policy. And in Algeria, the shutdown is currently subject to the same coverage. We've already received confirmation of an initial prepayment of $20,000,000 that gets paid directly into Sulfate in the coming weeks. The process from this point onwards is relatively mechanical.
The final insurance amount to be achieved is yet to be disclosed to the market. Most likely, it will be concluded during the second quarter, at which time we will make the appropriate announcement.
On the run rate capacity for Iowa, I'd like to highlight that this plant now has operated for significant amounts periods at above significantly above nameplate capacity. So for example, ammonia is operating at around 110%. Urea is operating at around 120%. DEF with minor adjustments to certain pumps is now able to produce close to 250% of the original nameplate. So we're very pleased of the plant's performance.
And obviously, we are we could operate UAN at 120% of nameplate, but we optimize the product mix and to benefit with the arbitrage between that gives us the highest netbacks and fulfills our sales obligation and market timing and all that. So all in all, we consider the ramp up not just to achieve the original nameplate, all this is behind us and the debt, but to find a good place for the plant to settle at where it will be operating for the next thirty years at what production rates. And this is what we are focused on to optimize production way beyond the original nameplate capacity. Your third question on the outlook for demand. I think the outlook for demand is significantly better than last year if we compare 2018 to 2017 across the globe.
We start with India. India consumed a lot of the storage capacity that they had in the system and are now operating hand to mouth with imports that are way below what they need to, to be at the same inventory level of last year. So they issued a tender. We expect them to come back to the market very shortly, and it's going to continue like this for the coming few months. Consumption is very healthy there.
We look at China, the environmental policies that affected coal based chemical plants as well as the continuous consolidation in the industry and the industry the Chinese industry being a bit more focused on results and cash flows rather than volumes. So out of China, we are seeing a very good discipline and the trajectory there is that China will be barely an exporter going forward. Also in China, the first year that they start consuming DEF, DEF was consumed in 2017 at the equivalent of 100,000 tons. That is a minimal that's the first year that they adopt that product. That could go into the millions in the coming two to three years as all new trucks and tractors shift to the mandatory DEF requirements.
So China and DEF can be also another positive source of demand. In Europe, we've had reasonable demand. The last two, three weeks have been awful weather, as all of you sitting in London, I confirm. And that has delayed a bit the spring buying, but we see very solid fundamentals. Warehouses are not full.
And compared to last year, I would say that also the European market is in a better place today, talking March compared to March. Prices are higher than what they were at last year. So Europe is also doing better on the demand side. Brazil is continuing to they had a good demand year in 2017 and continuing that trend. So all in all, we're very confident that 2018 is definitely a significantly better year than 2017 in terms of market fundamentals, in
terms
of drawdown on inventories, whether in Europe, U. S. Or India. So that's where we see the but obviously, there is seasonality and there could be the normal seasonal pullback on prices in the summer. However, we are doing our part.
Since last year, we have stopped selling what is known in The U. S. Into the what is known in The U. S. As the FIL program.
So for example, OCI Nitrogen in Holland has only sold one month forward during the course of 2017 and kept supplying actual true customers. And we intend to do the same with Iowa in 2018. We will we have communicated to our customers that we'll be participating in that program, but only for one month forward sales, I. E, we will not take orders in the summer that take five months to delivery because this is a phenomenon that is unique to this particular industry where you are selling to large buyers who are not end consumers in the summer at low prices. And then come Christmas time, they become your competitors at higher prices.
So we will not continue to do that. And we've seen that some of the traders have also pulled back some of these activities because of lack of support from financial institutions on their working lines, lack of profits. So we see a lot of pullback on the traders. And hopefully, that will bode well for the industry at large that these large price swings will not be around for a long time.
Okay. Very helpful. Thank you very much.
Thank you. The next question comes from the line of Tom Wriggersworth from Citi. Please go ahead.
Good afternoon, gentlemen. Thank you very much for your presentation. A couple of questions, if I may. Just firstly, with regards to the methanol price outlook, I'm wondering where you saw price support, where you think the marginal cost of production is for methanol and what you expect the outlook for methanol to be through the course of 2018? Secondly, just regards to IFCo following up on Christian's question, you kindly gave the 8,000,000 to £7,000,000 pro form a number of Efco had been delivering at full rate.
Should we expect that full rate to be achieved in the second half? Or can that be achieved and can that be achieved sooner? And then lastly, just versus my expectations, rightly or wrongly, it looked like The Netherlands output was a touch weaker in CAM. Can we expect a full contribution should we expect a full contribution in the first half from The Netherlands with regards to CAN and melamine also? Thank you.
So I'll start by the outlook on methanol. I think methanol is in a very good place right now. And we I don't want to comment on short term swings. We've had methanol prices come down a little bit two, three weeks ago just to see them start coming up back up again after the end of the Chinese New Year. So they're right now way around where they were like three weeks ago.
So methanol is a product that is growing at 6% to 7% annually in the last ten years and has taken a significant turnover of events witnessed a significant turnover of events with the introduction of methanol to olefin plants in China. To give you an idea, the next two to three MTO plants in China We'll take out the entire capacity additions in 2018, whether Natgasoline or the other methanol plant coming out of Iran or Bio MCN. So two of the three new capacities are actually OCI projects and the third one coming out of Iran. Just in the MTO additional capacity that demands methanol to keep those running is creates the exact demand that those three facilities are going to produce without benefiting from the new introductions of methanol, whether it's marine shipping or standard or legacy sources of clients for methanol in the building materials industry and resins and paints and all that. So methanol, we also see another very positive phenomenon is that we have a good visibility on the new capacity that is coming in the next four years other than the projects that are announced.
And we don't take every project announced as serious. But even so, we most of these projects will not start producing until 2022. So we have good visibility on methanol for the coming four years. The same applies to melamine. You had another question on CEN.
There might have been a few weeks of on the nitric acid in Holland in the last quarter, but CEN production and melamine production is going extremely well. The ramp up on IFCo, I think there is a combination in terms of the EBITDA of having sold some of the products in last year that were delivered at lower prices in the last quarter. All these old product sales are almost behind us. So you would see a significant uptick in cash flows from EFCO starting from March, April. And that is a combination of higher production volumes exceeding nameplate, but also selling at current prices rather than summer twenty seventeen prices.
So that should be you should start seeing that or we are starting to see that right now. I hope that answers your questions.
Yes. Thank you very much. Very clear.
You. And the next question of the day comes from the line of Frank Klassen from Degroof Petercam. Go ahead.
Good afternoon. Frank Claassen, Degroof Petercam. Two questions, please. First of all, on the ramp up of net gasoline. How quickly do you expect you after the start of production to go to full ramp up after Q2?
And secondly, on the tax rate, what do you expect now you've become likely to become profitable, Ken, what kind of tax rate can we expect going forward? Thank you.
I'll answer your first question and Hassan, you can answer the effective tax rate So after I on so Natgasoline, we expect that within ten days, we achieve an important milestone, which is construction completion by the March. The commissioning is well underway, whether on the main plant or on the air separation unit. Those should be coming on stream April. After that, we will push the button early May, mid May to start production. And you can methanol plants are much less sophisticated than ammonia and urea plants.
And the expectation is that the ramp up to capacity should not take more than a couple of months until you reach steady state.
Okay.
And in regards to your second question on the tax rate, as you can see in 2017, obviously, was a negligible number. Our guidance going forward for cash taxes, that is going
to be
sub-fifteen percent. And I believe that is reflecting a combination of the jurisdictions in which we operate, the fact that Algeria tax exempt, Egypt has sufficient existing historical NOLs to support not paying tax for a period of time and our effective structuring our investments into The U. S. All in all is translating to a relatively low effective tax rate going forward.
Okay, that's clear. Thank you very much.
Thank you. And the next one from today, it comes from the line of Joe Morris from Triumph Capital. Please go ahead.
Hi, and thanks for taking my questions. Can you just provide a little bit more insight on the methanol to olefins market in terms of what is driving that investment? Is that environmentally driven? Or is that because of the lower cost of methanol relative to say a naphtha or a natural gas? Or is it because they basically don't want to use coal because it's so polluting in that process?
I think it's a combination of reasons. But also, let's not neglect the capital cost of building an MTO plant compared to building a $4.5000000000 dollars naphtha cracker. So the barriers of entry for an MTO are extremely a fraction of that of building the same capacity to go to build an olefins plant. So the attractiveness of the MTO model starts really not with what you mentioned, but with the low CapEx and especially in China where they have really perfected these MTO plants. And it makes a ton of sense for China.
You are importing methanol as an energy gas derivative in liquid manner with much less cost than imported LNG. So by importing methanol, you're basically buying the energy component and delivered in a very competitive manner. And then you're leaving all the value add, which is a cleaner industry, is not pollutant, does not rely on imported coal or CO2 emissions and hence the economics also work. So you have a combination. I'm not really a fan of just looking at absolute cash cost when people tend to forget about the major decision on capital allocation, which is the return on the capital employed.
So while the MTO plants could have some periods where they're not as competitive as an olefin plant that buys spot oil issue when oil prices are below 70 or 60, But let's not forget that these units compared to you're talking about a five to seven fold multiple to build an MTO plant versus naphtha based olefin crack.
Great. Thanks very much for your answer. Appreciate it.
Thank you. The next one from the day comes from the line of Evgenia Molotova from Pixote. Please go ahead.
Hello. Thanks a lot for taking my questions. I had said also one on IFCo and UAN. Because UAN, you kind of mentioned the last when you were naming them nameplate capacity utilization rates. I was just wondering because obviously with your capacity additions, the market balance in The U.
S. Changes a lot. So you're just trying to understand what sort of utilization rate wouldn't disturb the pricing in the market? Or how do you see your end market in The U. S?
The second one is on the costs of The U. S. Plants. They were obviously somewhat higher than I expected. But do you think so what sort of guidance can you give when the when you're fully ramped up?
How will it affect the costs? And the last question on your prices in Africa and Egypt and Algeria and their relationship to the benchmark. So as far as I understand, there should be some sort of discount relative to benchmark. Can you comment on how this is determined? Thank you.
Okay. So on UAN, the plant Iowa Fertilizer Company can produce anywhere between 1,000,000 tons or less of UAN and 2,000,000 tons of UAN. If we produce 1,000,000 tons of UAN, we will produce other products like granular urea, DEF, or in some cases, just sell outright ammonia for in certain periods where ammonia is attractive. So the flexibility that we have gives us this range of below 1,000,000 tons up to 2,000,000 tons of UAN. I will not go into giving guidance beyond what is in the printed script.
But on the prices in North Africa, I will tell you that North Africa commands a premium to other producers that have to pay taxes coming into Europe. For example, that tax could be 67%. Chinese metal mine is taxed higher. So North African urea trades at a premium to FOB Ukraine or to Arab Gulf.
And costs in EVCO going forward?
The cost the production costs are also dependent on gas prices. That's the main cost item. And we have excellent visibility for the rest of the year on gas pricing. We've done some hedges for Q2 that will ended up being at around $2.01 per MMBtu. So the gas environment in The U.
S. Is very favorable. So and that's the key element. The plant has confirmed that it's very efficient in terms of converting gas to ammonia. We are operating at one of the lowest consumption rates to produce ammonia in the world.
Thanks to the state of the art technology and thanks also to the plant operating at 110%.
Great. Thank you very much.
Thank you. The next question of today comes from the line of Christian Faitz from Kepler Cheuvreux. Just
a quick follow-up.
Are there any foreseeable downtimes at any of your plants for this year, which we should count on? You.
Hartaj, can you give a guidance? I think we have a turnaround in Holland. Can you give a guidance on Yes,
of course. I mean, generally, the all fertilizer plants have routine turnaround schedules that average between three to four years, every three to four years. In 02/2018, we do have several turnarounds planned in the system. We have our part of our capacity, Ocea nitrogen, is expected to undergo a planned turnaround for a few weeks in the second quarter. Our EBIK plant is also expected to have a two week shutdown in order to ramp up capacity to the 100% run rate through some minor tweaking of the plant, effectively replacing a catalyst.
And we also are planning a turnaround in Algeria as part of our production reliability program to ensure that the plant continues achieving the rates that are today in excess of 90% on average since the plant came back online in December. These are the major turnarounds that are in the system for 2018, which means that in 2019, we also get an incremental step up further incremental step up in our cash flows.
But in general, nothing that goes beyond four weeks as a single turnaround. And when you talk about Holland, Holland is actually 11 plants. Or you might have one of the two ammonia lines, for example, down for a four week turnaround, but that's a fraction of the capacity. You have four nitric acid plants, four melamine plants. So having a four week turnaround in one of the plants doesn't mean that you lose 100% of what is produced in those four weeks, but just a minor portion of the overall production.
Okay. Thank you very much. Yes.
All right.
Thank you. The next question of today comes from the line of Tom Wrigglesworth from Citi. Please go ahead.
Hi, again. Sorry. Just a couple of follow ups, if I may. Firstly, I saw an announcement early in the month that we'll be at a small facility, but there would be a new plant, ammonia plant being built in Iowa for 2020 target. Do you think we should expect there to be further build out of kind of corn belt fertilizer capacity in the medium term?
Is that something that you'd expect? Your opinion on that would be much appreciated. And secondly, obviously, you've changed the duration of your debt quite substantially. But should we but is it right to assume that there'll be little change in kind of net financial expense for the financial year 2018? Thank you.
So first of all, on the new capacity announced, we don't comment I mean, we wish everybody good luck. But history has shown that five years ago, we were talking about somewhere 20 nitrogen plants being built in The States. And at the end of the day, two plants were built by CF and one plant was built by us. And all the other capacity additions came from converting ammonia to downstream urea, whether in what Agrium did, what Coke did, what Dakota gasification did. But in terms of new net adds into this U.
S. In the last forty years has been the two plants that CF has built, the one plant that OCI has built. And I don't think we are going to given what it costs to build these plants in The U. S, I don't think we're going to see any uptick in building activity anytime soon. Your other question on the cost of financing, yes, there is a reduction in financial expenses despite being in a higher interest rate environment.
So it would have been even greater at if interest rates haven't caught up a bit, especially on the dollar. But we're very pleased with our refi initiatives because they not just extended maturities and reduced costs, but give us tons of flexibility in terms of their covenants and all that. And huge sign of support from the our banks, our financial backers, and that bodes well for the coming few years.
Okay. But you're not giving a financial expense guidance for 2018? Or have I missed that, sorry?
No, I'm not going to give a financial expense guidance because a lot of our interest expenses are variable rates. You're I'm not going comment on what the hedge is going to be.
Okay, great. Thank you. Thank you.
There seems to be no further question at this stage. Please continue.
I want to thank everybody for participating on the call and looking forward to our next call. Thank you.
Thank you.
Ladies and gentlemen, now that concludes our conference for today. Thank you all for participating. You may now disconnect.