SHAREOur business model is compelling, advantaged and straightforward. There is strong, growing demand for our products, and we are able to leverage a low-cost asset base to generate significant cash flow.
Demand for our product starts with basic agronomy. Unlike other crop nutrients, nitrogen must be applied annually. The amount of nitrogen applied directly correlates with crop yield. This incentivizes farmers to apply the appropriate amount of nitrogen every season.
Compared with other crop nutrients and many other commodities, nitrogen application is simply not discretionary if the world is going to feed its growing population, which is currently 7 billion people and is expected to increase to 9 billion by 2050. The ability to feed another 2 billion people is largely dependent upon the increased use of crop nutrients to help ensure affordable food for everyone. Since the start of this century, global nitrogen demand has increased steadily and is expected to grow at roughly two percent per year.
A low-cost asset base is the other major component of our business. Natural gas is the primary feedstock used to make nitrogen fertilizer. North America has abundant natural gas resources — now measured in multiple quadrillion cubic feet — that ensure a sustainable, low-cost supply for years to come. As a result, our North American assets enjoy a significant cost advantage over producers in other parts of the world, where feedstock costs are more volatile and supplies are often prone to disruptions.
Consistent and growing demand for our products, along with our cost advantaged asset base, provide a superior margin structure for our company. This has enabled us to grow cash flow capacity per share — measured by nitrogen tons per thousand shares — by over 170 percent since 2010.
SHARE2012 through 2016 represents one of the largest investment phases in our history, as we will have invested roughly $4.6 billion in organic expansion. This investment phase is wrapping up, and we are transitioning quickly into
delivery mode.
In 2012, we began the journey to expand our production capacity by over 25 percent. Upon completion, brownfield projects at our Donaldsonville, LA, and Port Neal, IA, nitrogen complexes will increase our annual production capacity by approximately 3.7 million tons. We are in the final stages of these projects and expect them to be mechanically complete or producing by mid-2016.
In late-2015, the first operating unit in the expansion, the Donaldsonville urea plant, began production. In March 2016, the urea ammonium nitrate (UAN) plant began production. The ammonia plant is expected to be mechanically complete by the end of the first half of 2016. The remaining projects — Port Neal ammonia and urea plants — are also scheduled to be mechanically complete by mid-2016. By the end of 2016, we expect all these capital projects to be online and generating cash flow.
SHAREOur ability to generate strong margins, cash flow and returns reflects a portfolio of world-class nitrogen-manufacturing complexes, leveraged through an unmatched distribution network and a culture of operational excellence that is committed to Doing It Right every day.
The scale and strategic location of our manufacturing assets and distribution facilities in North America are unmatched. We have seven nitrogen-manufacturing complexes and a distribution network that spans North America’s corn-growing region. This provides us with a tremendous degree of flexibility to meet shifts in demand due to weather, regional supply and other variables.
A fundamental requirement in the crop nutrient business is the ability to get the right product to the right crops at the right time. We maintain 88 company-owned or leased distribution facilities strategically positioned throughout North America. These facilities are connected to our manufacturing complexes and our customers through a transportation network of pipelines, barges, rail cars and trucks.
The foundation of our asset base is an organization that is widely considered to be among the best operators in the chemical industry. We believe safety is a leading indicator of operational excellence within a manufacturing environment. During 2015, we achieved our lowest recordable incident rate in history — the fifth consecutive year of improving our record.
SHAREOur intent is to leverage our core capabilities to create a unique, global nitrogen platform, able to realize superior profitability through operational efficiencies and serving customers and regions with the most urgent demands.
This expansion began in the United Kingdom (U.K.), where, in July 2015, we acquired the remaining 50 percent equity interest in CF Fertilisers UK (formerly GrowHow), the country’s largest producer of nitrogen fertilizer. As in North America, the U.K. depends heavily on imports — up to 40 percent — to meet its nitrogen requirements. The country also enjoys favorable natural gas pricing dynamics and trends.
Our U.K. operations include two facilities. Ince is located in northwestern England and the Billingham facility is located in northeastern England. Combined, the two facilities have the capacity to produce approximately 0.9 million tons of gross ammonia, 1.2 million tons of ammonium nitrate (AN) and 0.4 million tons of nitrogen potash phosphate (NPK) compound fertilizer products.
In addition to CF Fertilisers UK, we are further expanding our presence in Western Europe through our proposed combination with OCI’s European, North American and global distribution businesses under a new holding company domiciled in the Netherlands. This combination is expected to add 5.3 million tons of capacity by adding three world-class facilities to our portfolio: one in Geleen, Netherlands, another in Wever, IA, and a methanol and ammonia plant in Beaumont, TX. These facilities complement our assets by creating significant synergies, sharing capabilities and enabling product flows that leverage existing distribution systems and customer relationships.
Upon completion, the OCI combination also allows us the opportunity to expand global distribution of our products through OCI’s global distribution network operating through offices in the Netherlands and Dubai, United Arab Emirates. Our nitrogen complex in Donaldsonville, LA, is strategically located on the Mississippi River just outside New Orleans. From there, five docks — including two deepwater docks for ocean-going vessels — provide us with direct access to the Gulf of Mexico and global
agricultural customers.
In addition to all of the operational synergies, the combination is expected to allow us to reduce our tax rate from approximately 35 percent to a rate in the low 20’s. This provides an opportunity to become a much more efficient generator of cash flow.
