CF Industries Holdings, Inc. shares financial results

“The CF Industries team continues to deliver outstanding results as we work safely, run our plants extremely well and leverage our distribution and logistics capabilities to serve customers in North America and around the world,” said Tony Will, President and Chief Executive Officer, CF Industries Holdings, Inc. “The conditions that have supported nitrogen prices for the last year - reduced global supply availability from lower operating rates due to high energy costs for marginal production in Europe and Asia - show no signs of abating. As a result, we expect the global nitrogen supply-demand balance to remain tight with attractive margin opportunities for low-cost producers further into the future.”

Nitrogen market outlook

Management expects the global nitrogen supply-demand balance will remain tight into 2025 due to agriculture-led demand and forward energy curves that point to persistently high energy prices in Europe and Asia.

The need to replenish global grains stocks, which has supported high prices for corn, wheat and canola, continues to drive global nitrogen demand. Below-trend yields are expected in key growing regions, including the US, due to unfavourable weather during 2022, preventing any meaningful increase to global grains stocks this year. Management believes that it will take at least two more seasons at trend yield to fully replenish global grains stocks, supporting strong grains plantings and incentivising nitrogen fertilizer application over this time period.

North America: Highcrop futures prices, along with healthy farm economics, are projected to support high corn and wheat planted acreage in 2023.

India: Management expects that India will tender for urea throughout the remainder of the year and into 2023 to fully meet increased demand as farmers maximise grain production.

Europe: Ammonia and upgraded fertilizer production curtailments in Europe have led to significantly higher nitrogen imports to the region in the second half of 2022. Imports of urea into Europe are well-above their typical pace in part to replace lower nitrate supply.

Global nitrogen supply availability remains constrained as high energy prices in Europe and Asia have led to substantial curtailments of ammonia production in these regions. During the third quarter of 2022, an estimated 60% of ammonia capacity in Europe did not operate. For facilities able to do so, production economics continue to favour importing ammonia to manufacture upgraded products.

China: Urea exports from China remain lower than prior years due to measures the Chinese government has implemented to promote availability and affordability of fertilizers domestically. Management continues to expect that full year urea exports from China will be in the range of 1.5 – 2 million metric t, well below the three-year average.

Russia: Exports of ammonia from Russia are significantly lower in 2022 compared to prior years due to geopolitical disruptions arising from Russia’s invasion of Ukraine and related logistics bottlenecks. In contrast, exports of other nitrogen products from the country are at near-normal levels.

Forward energy curves suggest that production economics in Europe and Asia are likely to remain challenged for at least the next two years. Additionally, the forward curves point to an extended period of wide energy differentials between Europe and Asia and low-cost regions. As a result, the company believes the global nitrogen cost curve will be steeper for longer, supporting increased margin opportunities for low-cost North American producers.

Operations overview

The company continues to operate safely and efficiently across its network. As of 30 September 2022, the 12-month rolling average recordable incident rate was 0.29 incidents per 200 000 work hours, significantly better than industry benchmarks.

Gross ammonia production for the first nine months and third quarter of 2022 was approximately 7.4 million t and 2.3 million t, respectively. The company expects that gross ammonia production for 2022 will be in the range of 9.5 to 10.0 million t.

Financial results overview

First nine months 2022 financial results

For the first nine months of 2022, net earnings attributable to common stockholders were US$2.49 billion, or US$12.04 per diluted share, and EBITDA was US$4.30 billion, which include the impact of pre-tax impairment and restructuring charges of US$257 million related to the company’s UK operations; adjusted EBITDA was US$4.58 billion. These results compare to the first nine months of 2021 net earnings attributable to common stockholders of US$212 million, or US$0.98 per diluted share and EBITDA of US$984 million, which included the impact of pre-tax impairment charges of US$495 million related to the company’s UK operations; and adjusted EBITDA of US$1.49 billion.

Net sales in the first nine months of 2022 were US$8.58 billion compared to US$4.00 billion in the first nine months of 2021. Average selling prices for the first nine months of 2022 were higher than the first nine months of 2021 across all segments due to decreased global supply availability, as higher global energy costs reduced global operating rates and geopolitical factors disrupted the global fertilizer supply chain. Sales volumes in the first nine months of 2022 were higher than the first nine months of 2021 due to greater supply availability from higher production in 2022 compared to 2021.

Cost of sales for the first nine months of 2022 was higher compared to the first nine months of 2021 due primarily to higher natural gas costs.

In the first nine months of 2022, the average cost of natural gas reflected in the company’s cost of sales was US$7.28 per MMBtu compared to the average cost of natural gas in cost of sales of US$3.51 per MMBtu in the first nine months of 2021.

Third quarter 2022 financial results overview

For the third quarter of 2022, net earnings attributable to common stockholders were US$438 million, or US$2.18 per diluted share, and EBITDA was US$826 million, which include the impact of pre-tax impairment and restructuring charges of US$95 million related to the company’s UK operations; and adjusted EBITDA was US$983 million. These results compare to 2021 net loss attributable to common stockholders of S$185 million, or a net loss of US$0.86 per diluted share and EBITDA loss of US$10 million, which included the impact of pre-tax impairment charges of US$495 million related to the company’s UK operations; and adjusted EBITDA of US$488 million.

Net sales in the third quarter of 2022 were US$2.32 billion compared to US$1.36 billion in 2021. Average selling prices for 2022 were higher than 2021 across all segments due to decreased global supply availability, as higher global energy costs reduced global operating rates and geopolitical factors disrupted the global fertilizer supply chain. Sales volumes in the third quarter of 2022 were higher than 2021 due to greater supply availability from higher production as well as higher starting inventories in the third quarter of 2022 compared to 2021.

Cost of sales for the third quarter of 2022 was higher compared to 2021 primarily due to higher natural gas costs.

In the third quarter of 2022, the average cost of natural gas reflected in the Company’s cost of sales was US$8.35 per MMBtu compared to the average cost of natural gas in cost of sales of US$4.21 per MMBtu in 2021.

Capital management

Capital expenditures

Capital expenditures in the third quarter and first nine months of 2022 were US$190 million and US$319 million, respectively, which incorporates expenditures related to the company’s clean energy initiatives, including the purchase of property on the west bank of Ascension Parish, Louisiana, to facilitate potential growth of blue ammonia production capacity. Management projects capital expenditures for full year 2022 will be in a range of US$500 million.

Share repurchase programs

The company repurchased approximately 12.7 million shares for US$1.12 billion during the first nine months of 2022. As of 30 September 2022, the company had completed approximately 75% of the US$1.5 billion share repurchase authorisation that went into effect 01 January 2022, and is effective through the end of 2024.

On 02 November 2022, the Board of Directors of CF Industries Holdings, Inc., authorised a new US$3 billion share repurchase program. The program will commence upon completion of the current share repurchase program and runs through the end of 2025.

CHS Inc. distribution

CHS Inc. is entitled to semi-annual distributions resulting from its minority equity investment in CF Industries Nitrogen, LLC. The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2022 is US$106 million.

Clean energy initiatives

CF Industries continues to advance its plans to support the global hydrogen and clean fuel economy, which is expected to grow significantly over the next decade, through the production of blue ammonia (ammonia produced with the corresponding CO₂ byproduct removed through carbon capture and sequestration) and green ammonia (ammonia produced from carbon-free sources).

Joint venture with Mitsui & Co., Ltd.

CF Industries and Mitsui & Co., Ltd. have initiated a front-end engineering and design (FEED) study for their proposed joint venture to construct an export-oriented greenfield blue ammonia facility in Ascension Parish, Louisiana. The companies had previously signed a joint development agreement that provides the framework for the FEED study.

CF Industries and Mitsui have signed an agreement with thyssenkrupp UHDE to conduct the FEED study. Additionally, CF Industries acquired land during the third quarter of 2022 on the west bank of Ascension Parish, Louisiana, on which the proposed facility would be constructed should the companies agree to move forward. CF Industries and Mitsui expect to make a final investment decision on the proposed facility in the second half of 2023. Construction and commissioning of a new world-scale capacity ammonia plant typically takes approximately 4 years from that point.

Carbon capture and sequestration agreement to enable blue ammonia production at Donaldsonville Complex

CF Industries has entered into the largest-of-its-kind commercial agreement with ExxonMobil to capture and permanently store up to 2 million t of CO₂ emissions annually from its Donaldsonville Complex in Louisiana. As previously announced, CF Industries is investing US$200 million to build a CO₂ dehydration and compression unit at the facility to enable captured CO₂ to be transported and stored. Under the agreement, ExxonMobil will then transport and permanently store the captured CO₂ in secure geologic storage it owns in Vermilion Parish, Louisiana. As part of the project, ExxonMobil has signed an agreement with EnLink Midstream to use EnLink’s transportation network to deliver CO₂ to permanent geologic storage. Start-up for the project is scheduled for early 2025.

Donaldsonville green ammonia project

The Donaldsonville green ammonia project, which involves installing an electrolysis system at Donaldsonville to generate carbon-free hydrogen from water that will then be supplied to an existing ammonia plant to produce green ammonia, continues to progress. Major equipment is being fabricated and site work has begun for installation of the new electrolyser unit and integration into Donaldsonville’s existing operations. Once complete, the project will enable the company to produce approximately 20 000 tons of green ammonia per year.

References

1. Certain items recognised during the first nine months and third quarter of 2022 impacted our financial results and their comparability to the prior year period.

2. EBITDA is defined as net earnings attributable to common stockholders plus interest expense – net, income taxes and depreciation and amortisation. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.

3. Free cash flow is defined as net cash from operating activities less capital expenditures and distributions to noncontrolling interest. See reconciliation of free cash flow to the most directly comparable GAAP measure in the table accompanying this release.

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