Financial and Outlook
- Q4 2021 revenues increased 112% to $2.2 billion and adjusted EBITDA +291% to $1.04 billion versus Q4 2020
- Q4 2021 adjusted net income was $447 million as compared to adjusted net loss of $45 million in Q4 2020
- Full year 2021 revenues were $6.3 billion, adjusted EBITDA $2.53 billion and adjusted net income $732 million
- OCI generated free cash flow from operations (before IPO proceeds) of $789 million during Q4 2021 and $1.6 billion during the full year 2021
- Net debt declined to $2.2 billion as of 31 December 2021, down from $3.0 billion as at 30 September 2021 and $3.7 billion as at 31 December 2020. OCI expects a further substantial reduction in net debt during Q1 2022
- OCI ended 2021 with net debt / adjusted EBITDA of 0.9x, or pro forma 0.7x post gross proceeds of $375 million for 15% Methanol Group stake sale in February 2022
- The Board of Directors has approved new capital returns policy which combines a consistent base profit distribution to shareholders of $400 million per year with a variable component linked to FCF generated
- OCI announces a semi-annual interim distribution for the period H2 2021 of €1.45 per share (or c.$350 million including a $200 million base)
- As the company continues to operate in a healthy environment and based on the current outlook for volumes and prices, OCI expects to pay a variable component when returning capital to shareholders in October 2022
OCI Advances Clean Hydrogen Projects
- In January 2022, Fertiglobe announced a partnership with Masdar and ENGIE to study development of a globally cost-competitive green hydrogen facility with capacity of up to 200MW for ammonia production in Abu Dhabi
- In February 2022, OCI signed definitive agreements for a strategic alliance with ADQ and Alpha Dhabi Holding, to acquire a 15% stake in the OCI Methanol Group for $375 million, enabling the Group to pursue growth initiatives in hydrogen-based applications, including fuel
Ahmed El-Hoshy, CEO of OCI NV commented: “We are pleased that we can start returning capital to our shareholders through consistent semi-annual dividends and focus on growing our future cash flows through targeted investments in hydrogen and other growth opportunities. Going forward, our new capital allocation strategy is supported by healthy fundamentals of our core markets, our robust balance sheet and healthy FCF as we also expand our FCF conversion via the step-down in gross debt and focus on operational excellence.
Our end markets continued their upward trend during the fourth quarter, and we expect H1 2022 also to be strong, driven by attractive farm economics for our nitrogen fertilizers; strong demand in our industrial end markets for ammonia, methanol, melamine and DEF; and our advantaged feedstock costs in MENA and the US.
Our current order book looks healthy with some sales into Q2 2022. Our distribution capabilities, including the ability to manage inventories close to key demand centres coupled with a disciplined commercial strategy, allow us to optimise benefits from the current market conditions. This bodes well for our outlook, as exemplified by the recent award to Fertiglobe to supply 500kt urea to Ethiopia this quarter and in the second quarter this year at an average price of c.$725 / ton.
We continue to strengthen our world-leading ammonia production, logistics and trading platform. During the past quarter, we have increased throughput capabilities at our ammonia import terminal in Rotterdam by an annualized rate of c.300 kt, which has enabled us to continue our downstream production in Europe, and combat volatility in feedstock prices by sourcing record volumes of ammonia from our operations at Fertiglobe and in the US as well as third party volumes to our Dutch operations.
We continue to make good progress in our efforts to capture value creative opportunities from emerging demand for clean ammonia and methanol as we aim to become one of the largest producers of clean fuel and feedstock in the world. We recently strengthened our methanol platform considerably through a new strategic partnership in Abu Dhabi, highlighting our growing leadership in the renewable energy markets and commitment to a greener future.”
Our nitrogen businesses are underpinned by healthy market fundamentals
OCI’s earnings momentum has been underpinned by several factors which suggest a structural shift to a multi-year demand driven environment for nitrogen products over the medium term.
- Demand for nitrogen fertilizers is robust in key import markets, further supported by low inventories, with Europe, Ethiopia, US, and India importing product ahead of the season in Q2 2022. The USDA highlights tighter global grains markets in 2022 and 2023 versus 2021, with strong support for corn above $5/bushel and spot prices currently at $6.50 / bushel.
- Low grain inventory levels and stocks-to-use ratios globally, which need at least two years to replenish, amplify the need for nitrogen fertilizers application to ease food security concerns. Recent weather concerns in South America have contributed to further tightness in the global grains market.
- Supply has been limited due to several other factors and medium-term dynamics are attractive:
- Urea export bans by the Chinese government are limiting their participation in future Indian tenders at least until July, with China implementing mandatory requirements for summer stocking and tighter environmental restrictions.
- Russia, one of the bigger nitrogen exporting countries in the world, also has export quotas on urea, nitrates and a ban on ammonium nitrate exports until H2 2022, further tightening global nitrogen balances.
- Projected new urea capacities are below the level seen over the past five years, below projected demand growth and are slow to ramp up.
- The US nitrogen outlook remains strong, supported by low inventories and strong demand with higher grain prices driving expanding crop area in the 2022 and 2023 seasons.
- In Europe, demand for nitrates is strong with limited pre-buying this season and low producer inventories resulting in further tightness in the spring season.
- Globally, higher marginal feedstock costs are also providing support to markets, with prices, particularly natural gas in Europe currently at c.$26 / mmBtu, resetting at higher levels and providing support for selling prices over the medium-term.
Global recovery to drive demand for our industrial products
The ammonia market is structurally tightening over the medium term with limited net capacity additions and higher industrial demand. Ammonia prices in Q4 2021 and into Q1 2022, have been supported by a strong US fall ammonia season lowering inventories ahead of the spring season, higher demand from downstream phosphates production and a number of planned and unplanned outages. Further, over the medium term there is upside for ammonia from the expected incremental demand for clean ammonia in new applications across a range of sectors including marine fuel and power, and as a hydrogen carrier.
Melamine markets have continued to tighten driven by strong demand from home renovation and construction markets, tight supply and low global inventories across the supply chain. Quarterly contract prices increased by 35% in Q4 2021 and increased by a further €775 to €3,965 / ton in Q1 2022.
The recovery in truck sales and freight activity has continued, supporting an improving trend for OCI’s Diesel Exhaust Fluid (DEF) sales in the US for 2022. DEF now represents more than 30% of our sales volumes from IFCo and DEF prices have been supported by the recovery in transportation demand. The higher netbacks for this product enable us to continue to enhance returns for our US nitrogen operations going forward. We have renewed a 3-year offtake contract with Dyno Nobel for DEF and other industrial urea products via our successful N-7 partnership and have successfully grown our contractual volumes for the 2022 season.
Methanol market fundamentals also remain positive. Prices have been supported by a continued recovery in demand, low global inventories, and the recovery in oil prices whereas there is no new supply expected to come onstream in 2022. Transportation applications also continue to lag other sectors which is expected to keep market conditions tight in 2022.
Further, operating rates for major derivatives segments are reported to be near maximum rates, which provides good visibility on our sales and prices in H1 2022. Methanol-to-Olefins (MTO) operating rates in China have recovered in Q1 2022 and are expected to remain healthy in the quarters ahead, and a new 1.8 mtpa MTO facility is starting up in China later this year which should provide a further boost. Long term, we continue to expect tighter methanol market fundamentals with demand growth exceeding capacity growth.
ESG – decarbonization initiatives continue
Ammonia and methanol are the most effective green hydrogen carriers. With green hydrogen essential to decarbonize industry, food, transport and energy, there are significant opportunities for ammonia and methanol to deliver green hydrogen all over the world to fuel the clean economy and meet growing demand for renewable sources of clean energy.
As one of the largest producers and traders of ammonia and methanol globally, with a strategically located asset base and access to abundant low-cost renewable energy sources, OCI is a pioneer in helping the decarbonisation of sectors that make up around 90% of global greenhouse gas emissions.
We have recently announced several new clean energy projects including a partnership with Masdar and ENGIE to study a globally cost-competitive green hydrogen facility of up to 200MW to supply Fertiglobe’s ammonia production plants in Abu Dhabi.
We achieved our net leverage goals during 2021, as our growth strategy and competitive business model started to pay off. During 2021, we redeemed bonds at OCI NV and IFCo for a total of $1.8 billion and have reduced net debt by $1.5 billion to c.$2.2 billion, lowered our weighted average cost of debt from c.4.3% at end 2020 to c.3.2% at end 2021 and reduced cash interest by more than $60 million per year from 2022 onwards, thus enhancing our ongoing FCF conversion.
In addition, on 27 October 2021 ADNOC and OCI successfully listed 13.8% of their partnership Fertiglobe on the Abu Dhabi Securities Exchange (ADX), generating gross proceeds to OCI of c.$461 million ($447 million net). Following the IPO, OCI continues to own a majority of Fertiglobe’s share capital. In October 2021, Fertiglobe paid dividends of $1,165 million (of which $850 million was a special dividend and $315 million were dividends from the ordinary course of business) to its two shareholders (OCI 58% and ADNOC 42%), of which $676 million was paid to OCI and $489 million to ADNOC
Following the transformation in our capital structure during 2021 and the healthy free cash flow generated, we are now quickly approaching our objective to reach an Investment Grade credit rating.
As a result, we are well-positioned to start returning capital to shareholders, as well as invest in growth opportunities in the hydrogen energy transition and other opportunities to enhance our future free cash flows. Looking ahead, we will continue to evaluate opportunities to optimize our capital structure.
Credit rating upgrades
In November 2021, Moody’s upgraded the corporate family rating (CFR) of OCI NV from Ba2 to Ba1 and the instrument rating from Ba3 to Ba1 (both with a stable outlook). In December 2021, Fitch upgraded the OCI NV rating from BB to BB+ (stable outlook). Following S&P’s upgrade in Q3 2021, all ratings are now equalised at BB+ / Ba1 (stable outlook).
Dividend / capital allocation policy
OCI’s Board has approved a new dividend / capital allocation policy, which combines a consistent base return of capital of $400 million per year with an additional variable component linked to FCF generated. Distributions will be made twice per year.
Going forward, the policy is subject to maintaining an investment grade credit profile with a target of net leverage below 2x through the cycle, and balance availability of funds and excess FCF for profit distribution to shareholders while pursuing value accretive ESG and other growth opportunities.
H2 2021 Semi-annual interim distribution
OCI announces a proposed payment of an interim distribution for the period H2 2021 of €1.45 per share (or c.$350 million including a $200 million base).
OCI is convening an extraordinary shareholders meeting (EGM) on 28 March 2022 to resolve on the distribution through a repayment of capital with an option to shareholders to elect for a dividend distribution instead, resulting in a distribution to shareholders scheduled for June, subject to a statutory two-month creditor opposition period.
Shareholder approval will be asked for the H2 2021 distribution and for a subsequent distribution scheduled for October of up to €305 million (or c.$350 million). However, the actual amount of the capital return to shareholders pursuant to such second distribution will be subject to further approval by the board at its full discretion with due observance of the applicable dividend policy and applicable regulations. The convening notice and other materials can be found on our website at www.oci.nl.