Strategically, 2015 was a breakthrough year for CF Industries, and it was a strong year for us operationally as well. Although product prices were significantly lower year-on-year, our adjusted EBITDA was still $2.0 billion compared to $2.1 billion in 2014. Our business benefits from abundant, low-cost natural gas and operations in regions with continued dependence on imports. These structural benefits provide us strong margins and robust cash flow from operations.
Our Strategy
We produce and distribute nitrogen fertilizer, a commodity chemical. To generate superior returns, we focus on achieving the lowest delivered costs and maximizing price realization. While our strategy sounds pretty simple, a lot of work goes into executing it.
Costs are driven by the price of natural gas, our primary feedstock, efficiency of operations, and distribution distances and modes. The majority of our manufacturing assets are located in North America, one of the lowest gas cost regions in the world. Operational excellence, including our focus on safety and on-stream factor, is a core capability of our organization and a significant driver of efficient operations. Scale also contributes to efficiency, enabling us to leverage everything from outstanding engineering talent to pooled spare parts across a broad network of assets. Our North American plants and distribution terminals span the cornbelt and provide access to all major rail carriers, both ammonia pipelines, navigable river systems and even deep water docks for export. As a result of these structural benefits, we have some of the lowest delivered costs for a broad range of nitrogen products to North America and the U.K.
To maximize price realization for our products, we focus on providing the products which are most in demand to those customers with the most urgent needs. To accomplish this, we have increased both the flexibility of our asset base and our access to a wider range of customers, both domestic and abroad. We optimize our production mix between ammonia, urea, urea ammonium nitrate (UAN) and other products in order to maximize total margin dollars. We have also made significant investments in our distribution terminals to increase the inbound and outbound loading rates, increasing our inventory turns on those assets and reducing customer wait and load times. Access to different rail lines and export options allows us to serve our customers wherever they are in the world.
All of our investments and strategic initiatives are in support of our strategy to reduce delivered costs for our products and maximize price realization.
Capital Allocation to Drive Shareholder Returns
Our goal is to drive cash generation per share, and our capital allocation philosophy flows from that. We first look to reinvest in our business where we can identify opportunities that fit our strategy to reduce delivered costs and improve price realization. These opportunities must also generate risk-adjusted rates of return well above our cost of capital. We expect to distribute any available capital beyond that to shareholders in the form of dividends and share repurchases. Over the past five years, we have invested over $6 billion into the business to expand our production capacity and distribution assets, while at the same time, we have also returned over $5 billion to shareholders in the form of share repurchases.
Investing in the business to grow cash generation, while at the same time reducing the outstanding share count, has had a dramatic impact for our shareholders. Since 2010, cash generation capacity per share has increased over 170 percent.
Growth
Our $4.6 billion capacity expansion projects in North America are quickly finishing up. In November 2015, the new urea plant at Donaldsonville, LA was the first expansion unit to begin production. In March 2016, the new Donaldsonville UAN plant also began to produce. We expect the final unit at Donaldsonville, the ammonia plant, will be mechanically complete by the end of the second quarter. Our Port Neal, IA, expansion is expected to be mechanically complete within the first half of 2016, with commissioning to take place in the third quarter. Once completed, these projects will increase our production capacity by over 25 percent, relative to our capacity at the end of the third quarter of 2015.
In July 2015, we acquired the remaining 50 percent interest in GrowHow, the largest fertilizer manufacturer in the United Kingdom, and renamed it CF Fertilisers UK. Our new U.K. operations, similar to our North American ones, have a cost-advantaged position in an import-dependent region.
In August 2015, we entered into a definitive agreement to combine with the European, North American and global distribution businesses of OCI N.V., a leading global producer of nitrogen and methanol. Following the combination, the newly formed holding company will be domiciled and tax resident in the Netherlands. We believe this combination offers significant operational cost savings within both North America and Europe, along with structural synergies, including the expectation that our effective tax rate will drop from 35 percent into the low 20’s. Overall, we expect to achieve approximately $500 million in after-tax run-rate synergies from the combination. Between our capacity expansion projects and the new facilities we expect to acquire from OCI, our productive capacity is projected to grow by over 60 percent by the end of 2016.
Finally, in August 2015, we entered into a definitive agreement to form a strategic venture with CHS where they would purchase a minority equity interest in a CF subsidiary for $2.8 billion. Additionally, we entered into a long-term supply agreement where CHS is entitled to purchase, at market prices, up to approximately 1.7 million tons of urea and UAN annually. The strategic venture commenced in February 2016, at which time we received the $2.8 billion investment from CHS and began delivering product under the supply agreement.
Delivering our Promising Future
I want to thank all of our employees for their unwavering commitment to continuously improve our safety performance while delivering strong operating results, a truly remarkable accomplishment.
Many of the strategic initiatives and investments we have made are already showing strong results. I am excited that over the next few months all of our initiatives are slated to move from planning and development into actually generating cash flow, delivering value to our shareholders. The future is extremely bright for us, and we are focused on delivering that promising future in 2016.
W. Anthony Will
President and
Chief Executive Officer
