Highlights:
Financial and Outlook
Revenues increased 38% to $1,120 million and adjusted EBITDA increased 134% to a record $452 million in Q1 2021 as compared to Q1 2020
Adjusted net profit of $94 million in Q1 2021 compared to adjusted net loss of $82 million in Q1 2020
Net debt of $3.4 billion as of 31 March 2021, down $306 million from 31 December 2020
Trailing net debt / adjusted EBITDA of 3.0x as of 31 March 2021, achieving our year-end net leverage target early
Based on current visibility on volumes and pricing, we expect a stronger second quarter with higher adjusted EBITDA than in Q1, and expect further deleveraging during Q2
Business Updates
Following board approvals, Fertiglobe, a 58%/42% OCI and Abu Dhabi National Oil Company (ADNOC) partnership, has started preparations for a potential IPO in Abu Dhabi, subject to market conditions
OCI has taken steps to further decarbonize its portfolio with the ability to produce up to 365 ktpa blue ammonia at OCI Beaumont in Texas starting H2 2021
OCI has established a new Clean Fuels business unit, adding low carbon products including ammonia to its current and fast-growing biofuels offering
As ammonia and methanol will play a key role to decarbonize many sectors in the hydrogen economy and outright as clean fuels, OCI has taken the decision that any potential strategic action for the methanol business will be in the form of a partnership rather than a full divestment
Statement from the Chief Executive Officer – Ahmed El-Hoshy:
Free cash flow accelerating, targets met
“We are pleased that we have reported a record quarter and have already achieved our year-end net leverage target at the end of Q1. We have benefited from our diverse stream of global revenues and our competitive position on the global cost curve, with around half of our total global gas requirement at fixed gas prices. This has benefited Fertiglobe in particular, which has more than doubled its EBITDA year-on-year.
The outlook for OCI remains positive for Q2 and beyond, supported by strong underlying demand for nitrogen fertilizers driven by healthy farm economics, and a continued recovery in our industrial markets for ammonia, methanol, melamine and DEF. We are seeing very strong demand for a wide range of downstream products used across various end markets including construction, automotive and textiles. Furthermore, the recovery in transportation applications increasingly bolsters demand for our products, keeping market conditions tight.
The recovery in global nitrogen prices is underpinned by healthy fundamentals
I would like to thank the global team for delivering this record-breaking quarter, as we emerge from a low 2020 with strong focus on operational excellence and as we stick to our commercial strategy, maintaining a disciplined sales approach. Selling prices at the end of last year and at the start of the first quarter were still at seasonally low levels, which is typically the case in the first and third quarters of the year. We did not sell forward material amounts of our products at that time.
Despite downtime and lost volumes during extreme cold weather conditions in Q1, we were able to increase our sales in March and April, which bodes well for Q2 results. This allows for strong visibility on our US Midwest operations which are benefiting from a combination of higher prices and sales volumes in the second quarter. In Europe, we also expect significantly better performance in Q2 compared to Q1, when we had some downtime at our plants, and as we benefit from higher ammonia and melamine prices in particular. For Fertiglobe, robust import demand in Latin America, Australia, and India is driving healthy urea volumes in Q2.
Looking to the remainder of 2021, nitrogen fundamentals are healthy, and we expect to remain in a demand-driven environment. Strong agricultural demand continues to drive corn prices to higher levels, supporting farm economics and nitrogen demand and prices.
Global recovery to drive significant demand for our industrial products
We are pleased to see continued improvement in our industrial businesses. Ammonia markets have been buoyed by a structural tightening in the past few months following a rebound in industrial demand, and no new major merchant capacity is expected until 2023.
Melamine markets have also tightened driven by a rebound in demand from home renovation and construction in European and US markets. Melamine quarterly contract prices have increased by 15% in the first quarter of 2021 and another 23% in the second quarter. This has strengthened our global market-leading position and is driving an expected healthy improvement in financial performance for this business in 2021.
OCI’s DEF sales in the US recorded another strong quarter in Q1 2021 with truck sales up sharply and the SCR-equipped vehicle fleet at a record high which, combined with the higher urea sales prices, supports an improving trend for Q2 and the balance of 2021.
The second quarter is also developing positively for our methanol business, as spot prices remain strong having more than tripled since reaching trough cycle levels in 2020. Demand from Methanol-to Olefins (MTO) plants in China was strong in Q1 2021 and MTO utilization rates continue to be high on the back of healthy economics. Downstream demand is expected to continue to improve as the global economy and industrial activity recovers.