Statement from the Chief Executive Officer – Nassef Sawiris:
“We ended 2018 with a robust quarter. We more than doubled our Adjusted EBITDA compared to the same quarter a year ago and generated strong free cash flow which delivered a significant reduction of $295 million in net debt during the fourth quarter and excellent progress on our deleveraging priority.
This growth demonstrates that our previous investments in new capacities are starting to pay off with a solid performance at Iowa Fertilizer Company and the ramp-up and first cash dividend from Natgasoline. We achieved this volume and earnings growth despite a shutdown at Natgasoline during the fourth quarter due to utilities supply issues that have now been resolved, coupled with low water levels in the Rhine which affected despatches of CAN in Europe.
As a company we view selling forward large quantities of product to wholesalers during the low season at low prices as value destructive, as it creates an unnecessary overhang in the market when distributors become competitors during the peak season. We believe that our approach, combined with our strategic locations, and the strong execution of our operational teams has allowed us to capture the benefits of a rising pricing environment during the third and fourth quarters of 2018, maximize netback prices and outperform the industry in North America.
Our positioning in the Upper Midwest of the United States is unique and gives us significant freight and logistical advantages. This becomes even more prominent in the spring season, when the availability of river barges and other logistical challenges (such as congestion on the rivers and railroads) become a bottleneck for product that is to be transported into the Midwest originating from New Orleans (NOLA).
We expect our low-cost operations in the United States to be a key source of growth in 2019. Towards the end of 2018, IFCo reached record production levels of 115% of nameplate capacity as a result of both optimization work and an increase in our permitted production levels as described last quarter. This has resulted in a significant improvement in EBITDA performance at IFCo during the fourth quarter. We expect continued improvement at IFCo in 2019 due to several factors, including consistent production performance, the full effect of the increase in allowable operating rates, and a significant increase in diesel exhaust fluid volumes.
We also expect our methanol business to grow in 2019 to reach 2.95 million metric tons of proportionate production capacity. Natgasoline will have its first full year of operations, BioMCN’s second line is due to start up this spring and we expect to finalize the c.13% methanol capacity increase at OCI Beaumont this summer.”
Focus on Nitrogen Products
Our diversified portfolio of nitrogen products consists of fertilizer, diesel exhaust fluid and melamine:
Focus on Methanol
Fundamentals of methanol markets are unchanged:
Our cost position is looking favourable with a low blended average natural gas cost. We have a mix of long-term contracts with fixed gas prices in Egypt and Algeria, and spot prices in Europe and the Unites States.
Gas prices have moderated in both Europe and the United States since the levels reached in 2018. We expect to see the full benefit of the lower gas prices from the second quarter onwards as our European winter exposure hedges expire. In the United States, we continue to benefit from the hedges of $2.42 per mmBtu at IFCo for the majority of our gas needs in Q1 and have secured prices below $2.30 per mmBtu for Q2.
Despite US sanctions, Iran has continued to export significant volumes at heavily discounted prices in recent months, negatively impacting methanol and fertilizer markets. With export volumes of more than 4 million tons each of urea and methanol in 2018, Iran is one of the largest exporters of both these products globally. However, as sanctions are now being fully implemented and export opportunities for the country diminish, Iranian exports are likely to decline in 2019.
We are well-positioned to benefit from improving end markets through the unique strategic positioning of our assets in key regions, our globally competitive low-cost asset base and best-in-class free cash flow conversion.
We expect continued growth in EBITDA and improvement of our leverage metrics in 2019. Net interest and capital expenditures are expected to decrease in 2019, which should contribute positively to our cash flows:
We remain committed to our financial policy to prioritise these expected strong free cash flows towards deleveraging to 2x through the cycle.
A conference call for investors and analysts will be hosted on Tuesday 26th February 2019 at 3:30 PM CET (2:30 PM GMT, 9:30 AM ET) by Nassef Sawiris, Chief Executive Officer, and Hassan Badrawi, Chief Financial Officer.
Investors can access the call by dialing:
Standard International: +44 (0) 20 3009 5710
United Kingdom FreeCall: 0800 376 7425
Netherlands LocalCall: +31 (0) 20 715 7366
United States FreeCall: 1 (866) 869 2321
Conference ID: 1870057
A conference call replay will be available until 26th March 2019. The replay access numbers are:
Standard International: +44 (0) 333 300 9785
Netherlands: 020 713 2967
United States: 1 (866) 331-1332
Conference ID: 1870057