Fertiglobe plc (FERTIGLB) Earnings Call Transcript

Thank you for standing by, and welcome to the Fertiglobe Investor Update. [Operator Instructions] I'd now like to turn the call over to Rita Guindy, Investor Relations Director. You may begin.

Thank you, Rob. Good morning and good afternoon, ladies and gentlemen. Thank you for joining Fertiglobe's Investor Conference Call and Webcast. With me today are Ahmed El-Hoshy, Fertiglobe's Chief Executive Officer, Haroon Rahmathulla, Chief Operating Officer; and Andrew Tait, Chief Financial Officer. On this call, we will discuss today's developments related to the completion of ADNOC acquisition of OCI's majority share in Fertiglobe, raising its ownership to 86.2%. Fertiglobe's management team will also highlight the company's updated investment proposition and vision to unlock further growth and value. The presentation will be followed by a question-and-answer session at the end of the call. The presentation we will discuss today is available on our Investor Relations website under Investor Relations and the new page we launched today. Finally, a reminder that any forward-looking statements made on this call involve risks and the actual results could differ materially from those statements. With this, I would like to now hand it over to Ahmed El-Hoshy, CEO of Fertiglobe.

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Thanks, Rita. Welcome, everyone, to today's call. Today marks a major milestone for Fertiglobe as ADNOC completes its acquisition of OCI's shares, making it the majority shareholder with 86.2% ownership and the start of our next phase of growth at Fertiglobe. The successful completion of the ADNOC transaction reinforces the positive long-term outlook for our business and unique market position while elevating our future ambitions. Now positioned as a vehicle that ADNOC plans to establish a global growth platform for low-carbon ammonia, Fertiglobe is poised to meet the increasing global demand for low carbon solutions and bring us closer to a more sustainable and equitable future. We're excited to confirm that Fertiglobe's management team remains in place, including myself, as that will be fully dedicated to Fertiglobe after having stepped down from my role at OCI today. Haroon Rahmathulla also continues to serve as Fertiglobe's COO, and Andrew Tait as the company's CFO. As always, we, as a management team, remain focused on creating value for all stakeholders through delivering on operational and cost optimization goals and driving the next stage of value accretive and disciplined growth. We will continue to foster an innovative and agile platform that evaluates value accretive and disciplined growth. We'll continue to foster an innovative and agile platform well placed for global leadership in our sectors. Going on to Slide 3. Fertiglobe, as many of you are aware, has a world-class nitrogen platform with strategic access to key import markets and an extensive customer base spanning fertilizer and industrial clients. We have also successfully established ourselves as an early mover in low-carbon ammonia, demonstrating strong financial and capital discipline by being able to balance selective growth opportunities and attractive dividend payouts. ADNOC offers an ideal home for Fertiglobe and has always been a committed shareholder supporting the company's disciplined growth ambitions. ADNOC perfectly complements our platform with a fully integrated energy ecosystem, significant carbon capture sequestration expertise, global energy customer reach and the ambition to become a leader in low carbon fuels and chemicals. Combined, Fertiglobe and ADNOC create a leading producer and exporter of both fertilizers and clean fuels with a collective customer base spanning fertilizer, industrial and clean fuels clients. With the consolidation of ADNOC low-carbon ammonia investments under Fertiglobe and by leveraging both their ecosystems, Fertiglobe is set to become ADNOC's platform for disciplined low-carbon ammonia growth. Moving on to Slide 4. ADNOC is pursuing highly attractive projects in the low carbon space and the intention is for ADNOC interest in these projects to be housed under Fertiglobe as part of its future positioning as ADNOC's low-carbon ammonia vehicle. ADNOC will contribute its stakes in its existing and future low-carbon ammonia projects to Fertiglobe at cost and when the projects are fully operational, leading to an immediate earnings contribution simultaneously with the time and requirement for funding, improving project returns and preserving the company's balance sheet during the typical and extensive development infrastructure base. This has the potential to add around 2 million tons of domestic low-carbon ammonia in the UAE, almost doubling Fertiglobe's current total net ammonia capacity of 1.6 million tons more than doubling -- sorry, Fertiglobe's current total net ammonia capacity of 1.6 million tons and taking Fertiglobe's total net ammonia and urea capacity to 8.6 million tons combined. Of course, this will further increase with the contribution of ADNOC international ammonia projects. Let me break down these 2 million tons of domestic capacity for clarity. The first one is the TA'ZIZ, 1 million tons per annum low carbon ammonia project in the UAE where Fertiglobe is already a 30% shareholder enjoys proportionate marketing rights. With the stake transfer and upon startup expected in 2027, our ownership of Fertiglobe will go up to 60% with additional marketing rights. The projects which generates attractive double-digit IRRs has already been FID this year and construction has commenced. A second low-carbon ammonia project in TA'ZIZ with the capacity of 1 million tons is currently undergoing Pre-FEED studies with development and commercialization activities being led by the Fertiglobe team. Synergies with the first TA'ZIZ projects are being evaluated and more details will be shared in the first half of 2025. Number 3 is, as mentioned, other global ADNOC projects will be contributed to Fertiglobe and are currently under consideration. Significant opportunity exists for Fertiglobe to fully leverage the ADNOC ecosystem, as you can see on the right, providing us a very unique competitive advantage versus our peers. To drive disciplined growth, Fertiglobe will benefit from ADNOC extensive CCS capabilities and ambitions as we look to target a new energy-focused customer base, ADNOC's global energy customer relationships that have been -- that span for decades will perfectly complement our own. In addition, Fertiglobe can greatly benefit from ADNOC's leadership in maritime energy logistics and access to the UAE and regional AdBlue/DEF markets. as well as collaboration opportunities on renewable electricity and renewable hydrogen through other ADNOC and Abu Dhabi Inc. group companies. Move to the next slide, please, Slide 5. Fertiglobe strategy continues to center around disciplined growth, maximizing our margins and cash flows and creating value for all shareholders and stakeholders. Firstly, robust double-digit IRRs for all our existing and future growth projects represents the minimum return for Fertiglobe as we seek disciplined and value-accretive growth. Secondly, we previously announced several value enhancement initiatives, including the manufacturing improvement plan with or as we call it the MIP, which is well underway to generate $100 million in incremental annual EBITDA by the end of 2025 compared to 2023 or 2022 prices by improving production and energy efficiency. In addition, we have announced a cost optimization target of $50 million by the end of 2024, and I'm happy to say that we're over 90% on this target as of September 2024. We also aim to further optimize our commercial netbacks by diversifying our products and selling further downstream in the supply chain. These initiatives should all lead to improvements in margin and cash conversion metrics. Ultimately, supported by Fertiglobe's industry-leading margins and cash conversion metrics as well as its focus on creating all value for shareholders, Fertiglobe intends to continue balancing disciplined growth with an attractive dividend payout. Since IPO in 2022, the company has distributed $2.4 billion in dividends, representing one of the highest dividend yields in our market and sector globally. Moving on to Slide 6. With ADNOC's backing, Fertiglobe is uniquely positioned to capitalize on the expected global growth in low carbon ammonia demand to 24 million tons by 2032 from close to 0 right now. This demand growth significantly outstrips the expected supply growth in the next decade by almost 11 million tons and is supported by developing regulatory frameworks, such as the European ETS program, CBAM, or the Carbon Border Adjustment Mechanism, FuelEU Maritime, among others, and incentive schemes such as the U.S. Inflation Reduction Act on the supply side as well as technological advancements and ammonia's unique features as a hydrogen carrier and clean fuel leading to the rapid emergence of new applications across the power, marine and other sectors. Moving on to Slide 7. Our investment proposition has become even stronger now, building on a highly competitive position in nitrogen fertilizers and the future potential in low-carbon Ammonia and the continued focus on shareholder value creation. Next, Slide 8. The potential addition of ADNOC's low-carbon ammonia capabilities and capacities further solidifies our existing leadership position as the largest seaborne exporter of urea and ammonia combined. Taking our export capacity -- exportable capacity to 8.6 million tons of urea and ammonia from the 6.6 million tons currently and almost doubling our -- and more than doubling our net ammonia capacity. This excludes the contribution of ADNOC's overseas ammonia investments as I discussed earlier. Moving on to Slide 9. Fertiglobe's expanded footprint provides an unparalleled global platform and reach through the addition of new geographies to our footprint, including strategically located low-carbon ammonia projects in the UAE and future projects internationally, allowing us cost advantage access to the most attractive future demand centers. We continue to be well positioned on the global ammonia cost curve supported by operations in low-cost geographies, a young asset base and favorable feedstock agreements. Next slide, Slide 10. Nitrogen market fundamentals, as we've discussed previously, continue to be healthy, supported by attractive supply and demand dynamics leading to an expected market deficit of over 3 million tons in the 2024 to 2029 period, as demand growth is expected to exceed supply growth with good visibility given the 5-year plus project lead time on average. Moving on to Slide 11. With the ammonia tradable market between 17 million and 20 million tons, the incremental low-carbon ammonia demand has the potential to significantly influence ammonia market dynamics. For example, even in the early years or earlier years, the 2 million to 3 million tons of incremental demand expected by consultants in 2027, 2028 represents an increase of 10% to 15% of current ammonia trade. Thereafter, long-term growth trajectory is exponential with demand expected to reach 24 million tons by the early 2030s, more than doubling the current ammonia traded market globally, which is all basically a grey market today. Moving on to Slide 12. The use of ammonia as a clean marine fuel is one of the key emerging applications due to its clean burning characteristics. Fertiglobe is ideally positioned to capitalize on this demand, given its location near the world's largest bunkering hubs as the busiest shipping lanes in the world. Fertil and the TA'ZIZ, Ruwais, low-carbon ammonia projects are nearby the Fujairah port, which is an active bunkering location, UAE and globally. EBIC and EFC are [indiscernible] Egypt and are adjacent to the Suez Canal, which represents approximately 12% of global trade. And our partnership with the Algerian Government in Sorfert is approximately 1 day sailing from Gibraltar, another major bunkering hub. Additional global ammonia projects from ADNOC are expected to further enhance this footprint along the global bunkering footprint. Ammonia vessel adoption is in motion with dual-fuel ships under order and additional ammonia ready vessels equipped to support the transition. And as you all know, we have several ships already on the water moving ammonia to global locations from our global export positions and have significant capabilities and expertise that help us enter into this market and hitting the ground running. Let's go to the next slide, please, Slide 13. Leveraging our existing infrastructure, Fertiglobe is plug-and-play for low-carbon ammonia development, which enables growth at minimal CapEx compared to our peers, maximizing our returns and value creation, really giving significant advantage to being an incumbent and allowing us to decarbonize our existing footprint as we look to grow it. As an example, in Egypt, with the minimal spend of approximately $15 million on debottlenecking, we were able to unlock potential production of more than 70,000 tons of renewable ammonia capacity, which is comfortably more than a $100 million check, if you go to do it as a greenfield outside of the logistics and OSBL or outside better than the requirements and investments. Moving on to Slide 14. TA'ZIZ and Ruwais is an example of our disciplined growth approach where investment is focused on only the back-end ammonia plant minimizing CapEx required and leading to an attractive double-digit IRR even at grey ammonia pricing, not factoring in any low-carbon ammonia premium. I'm going to skip now to Slide 17, just kind of running through it here. So Slide 17, our announced operational cost optimization programs, which I discussed earlier, further look to support our margins and cash flow profiles across the cycle. This is expecting to yield as discussed $150 million in incremental run rate EBITDA by year-end 2025 compared to 2023 through a meaningful increase in volumes and improvement in energy efficiency across our plants. Of course, we'll continue to evaluate and look to do more on the manufacturing improvement side as well as on the cost savings side and look forward to sharing that with the market in the future. Moving on to Slide 18. Our capital allocation policy is focused on maintaining investment-grade parameters, attractive dividends and a disciplined and value-accretive projects focus. All three rating agencies, S&P, Moody's and Fitch have placed Fertiglobe on a positive credit watch and are expected to raise the company's credit rating by at least or not following the completion of the transaction today, with the potential to lower the company's interest costs and improve our balance sheet positioning. Last Slide 19, which is the next slide. In terms of the next steps over the coming months, ADNOC and Fertiglobe will focus our efforts on maximizing operational and cost synergies. In the meantime, it is business as usual with continued commitment to deliver on Fertiglobe strategy, including progress on existing projects and active cash flow optimization. Finally, a detailed value creation and growth strategy will be shared with investors at Fertiglobe's Capital Market Day, which we expect to hold in Q1 of next year. We look forward to updating you with more milestones and achievements. And with that, we can open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Sashank Lanka from Bank of America.

Congratulations on the closing of the transaction. I just have one question with regards to the transfer of the blue ammonia, the TA'ZIZ blue ammonia project. So you said the CapEx is greater than $500 million and it would be [ traded ] cost. So should we assume that this payment from Fertiglobe side would be done when the project is delivered. That is -- seems like 2027. And there's nothing expected between now and then?

No, I think that's definitely the right question. And so we're already -- as the market knows, a 30% shareholder in TA'ZIZ and have been leading the development in that TA'ZIZ [indiscernible] project. What we're seeing here is that we're going to continue doing for that 30% the investment and development. And what we're going to do is at completion expected in 2027, basically purchased from ADNOC at cost there 30% to take our shareholding to 60% when we're ready to start producing volumes and earning EBITDA and cash flows. So kind of really back ending the investment, not having a premium doing it at cost to add to the potential accretion of such an investment.

Yes, that's clear.

[Operator Instructions] Your next question comes from the line of Alex Comer from JPMorgan.

Yes, could I just pick up on Sashank question. Just to be clear here, the $500 million, what does that refer to? Is that the 30% of the project? Or what is that?