Q4 2021 CF Industries Holdings Inc Earnings Call

February 16, 2022

Good day, ladies and gentlemen, and welcome to the full year and fourth quarter 2021 CF industry.

Industry Holdings earnings Conference call.

My name is to Wanda and I will be your coordinator for today.

At this time all participants are in a listen only mode.

We will facilitate a question and answer session towards the end of the presentation.

To pose a question at any time. Please press Star then one on your touch telephone keypad.

Host for today, Mr. Martin <unk> with CF Investor Relations Sir Please proceed.

Good morning, and thanks for joining the CF Industries earnings Conference call with me today are Tony will CEO , Chris Bohn, CFO , and Bert Frost Senior Vice President of sales market development and supply chain.

The industry reported its results for the full year and fourth quarter in 2021 yesterday afternoon.

On this call we'll review the results discuss our outlook and then host a question and answer session statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve risks uncertainties and assumptions that are difficult to predict therefore actual outcome.

And results may differ materially from what is expressed or implied in any statements more.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website.

Also you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website now.

Now, let me introduce Tony will our president and CEO .

Thanks, Martin and good morning, everyone yesterday afternoon, we posted results for 2021 in which we generated adjusted EBITDA of $2 7 billion.

Net cash from operations of $2 9 billion.

And a company record free cash flow of nearly $2 $2 billion.

These results were made possible by the exceptional performance of the CF industries team.

We managed through two severe weather events in North America.

Complete at the highest level of maintenance activity in our company's history.

Navigated runaway gas cost in the U K.

And it definitely responded to a rapidly changing marketplace for our product.

Consistent with our do it right culture, we did all of this safely.

Our year end recordable incident rate was 0.32 incidents per 200000 labor hours outstanding by any measure, but truly remarkable given the challenges of the year.

Several of the factors that drove these terrific results in 2021 are expected to persist into the foreseeable future, namely.

Namely strong demand high energy spread differentials and outstanding execution by our team.

Let's start with the robust demand component.

Significantly improving grain prices drove strong agricultural demand, while global economic recovery led to high industrial use as well.

With December corn trading at $5 90, this year and $5 56 for next year, we see strong AG demand for at least the next two years.

On the economy, driven industrial demand side. The last two years have seen inflation in the last two months have seen inflation at 7% year over year and that doesn't appear to be slowing down.

So the combination of strong AG and industrial demand suggests overall global demand for nitrogen will continue at a torrid pace.

Energy spread differentials between North America, and high cost Europe , and Asia production exceeded $20 per ml Btu for most of the fourth quarter, which provided the opportunity for us to achieve record margins for our products.

As we look forward the energy spreads continue in the 18% to $20 range balance of this year and remain well above $10 for 'twenty, three and 'twenty four.

Those energy differentials provide an extremely attractive environment for north American producers and gives us a lot of confidence about our continuing cash generation potential.

On top of this backdrop with very strong demand and high energy spreads were set of factors that negatively impacted global supply in 'twenty one.

Turnaround and maintenance activity originally scheduled for 2020 was deferred into 'twenty, one because of the Covid pandemic and a desire to keep employees safe by limiting contractors coming on site.

The catch up in maintenance activities last year took an unusual amount of production out of the global supply.

Two significant weather events in North America Winter Storm, Yuri and Hurricane Ida further reduced production.

The natural gas price Spike in Europe and Asia.

Exceeding $30 premium Btu for weeks at a time caused plants to curtail or shut down in those regions further reducing supply.

And adding to these pressures.

<unk> important producing countries in an effort to ensure nitrogen availability and affordability in their home markets enacted export limitations or outright bands, including China, Russia.

Chip in Turkey.

The result was significantly constrained supply at the exact time demand with surging, which led to the predictable outcome of rapidly increasing nitrogen prices.

These dynamics came to ahead in the second half of the year and in particular during the fourth quarter of 'twenty, one when global nitrogen prices reached record highs.

This provided the market opportunity for the company to deliver an all time record quarter, both in terms of EBITDA and free cash flow.

This enabled us to return $800 million in capital to shareholders through share repurchases and dividends.

Repay $500 million of long term debt and returned to investment grade credit ratings.

While adding roughly $1 billion of cash to the balance sheet.

As I said earlier, we believe the market dynamics of last year have plenty of runway ahead.

To this environment, we bring unique capabilities honed over the past decade.

Our investments in people safety and growth have built the industry's highest performing manufacturing network as shown on slide six of our materials.

Slide.

Slide 10 underscores this advantage how this advantage is amplified by the low cost position that North American natural gas provides us.

As a result, we were able to capture the significant margin opportunities in front of us.

Now, let me turn it over to Bert who will discuss the global nitrogen outlook in more detail.

Thanks, Tony we believe industry fundamentals point to a continued tight global nitrogen supply and demand balance and an extended period of positive operating conditions for low cost producers like CF industries.

Global nitrogen demand remains robust underpinned by the need to replenish global grain stocks.

As you can see on slide nine global coarse grain stocks to use ratios remain low supporting high crop prices and another strong year for farm incomes.

High demand for coarse grains leads to high demand for our products as farmers are incentivized to apply fertilizer to maximize yield.

This helped drive our strongest fall ammonia application season since 2000 to 2012.

Our expectations for a high level of course screens plantings this year.

We project that 91 to 93 million acres of corn will be planted in the United States, along with strong wheat, cotton and canola plantings across North America.

We believe it will take at least two more growing seasons at trend yields to fully replenish global stocks supporting continued strong agricultural demand at the same time increased economic activity is driving industrial demand for ammonia urea and diesel exhaust fluid.

We had record sales volumes in 2021, and expect continued growth for this important emissions control product.

Against this demand outlook, we believe global nitrogen inventory today is low this reflects the impact of both strong demand and lower global production in 2021.

Looking ahead, we expect global supply to remain challenged by high natural gas prices in Europe , and Asia, along with coal costs and tightening environmental regulations in China.

This should continue to affect the profitability of the producers in these areas and lead to lower operating rates.

Additionally, natural gas forward curves suggest continued favorable energy spreads for north American producers compared to marginal producers in Europe as you can see on slide 10.

We are well positioned for the spring fertilizer application season ahead, we are pleased with the order book, which we began to build at peak prices in the fourth quarter our.

Our manufacturing network is operating at a high level and we look forward to leveraging our logistics and distribution capabilities to meet demand as fertilizer application and planting begins in North America and a few weeks.

With that let me turn the call over to Chris.

Expert for 2021, the company reported net earnings attributable to common stockholders of $917 million.

Or $4 24 per diluted share.

EBITDA was approximately $2 2 billion and adjusted EBITDA was just over $2 7 billion.

Net earnings and EBITDA reflects pretax noncash impairment charges of $521 million.

Related to our UK operations.

For the fourth quarter of 2021 net earnings attributable to common stockholders were $705 million and EBITDA was $1 2 billion.

And adjusted EBITDA was $1 6 billion adjusted.

Adjusted EBITDA and free cash flow in the quarter were both company records.

These financial results allowed us to Opportunistically accelerate capital return to shareholders at the end of 2021 and.

In the fourth quarter, we repurchased $7 5 million shares for $490 million effectively completing the $1 billion share repurchase program that expired at the end of 2021.

Since 2019, we have repurchased nearly 19 million shares.

We continue to view share repurchases as an important tool for return on and return of capital.

As you can see on slides 13, and 14 over the last decade, we have invested in the business to grow free cash flow while at the same time lowering the outstanding share count.

As a result shareholders have accrued more of the asset base doubling their free cash flow participation on a per share basis compared to our prior free cash flow record back in 2011.

We believe our new one $5 billion share repurchase program provides us a strong platform to build on this performance.

At the same time, we remain focused on disciplined investments in clean energy that offer returns above our cost of capital.

We have begun construction on the Green ammonia project at Donaldson Bill with completion expected in 2023.

This year, we will begin work on the installation of dehydration and compression equipment at Donaldson Bill to enable production of Blue ammonia.

We believe these projects are well time to accelerate the growth of our global market for Blue and Green ammonia.

We also continue to have productive discussions with leading companies who share our belief in ammonia is clean energy attributes and its role in decarbonising economies around the world.

Our estimated capex spending for 2022 of $500 million to $550 million includes expenditures for Donaldson built blue and green ammonia projects.

And through 2025, we have committed $385 million in capital to these projects and installation of dehydration and compression equipment at Yazoo City.

We also remain committed to reducing the gross debt on the company.

From $3 5 billion to $3 billion by the middle of 2023.

We start 2022 with a strong balance sheet.

<unk> multi year industry outlook and stable maintenance Capex plans for the next few years.

We also expect gross ammonia production in the years ahead to return to typical levels of 95 to 10 million tonnes supporting higher sales volumes compared to 2021.

As a result, we expect to have significant excess free cash flow to deploy in the years ahead.

With that Tony will provide some closing remarks before we open up the call to Q&A.

Thanks, Chris.

Before we move on to your questions I want to thank everyone at CF industries for an outstanding 2021.

Our performance would not be possible without their commitment and dedication.

Our results last year highlight the success, we have had investing in the business to grow capacity and cash generation, while at the same time lowering our share count.

We are currently at an all time low for shares outstanding in fact, almost 20% below our IPO level.

With a record year for free cash flow, coupled with our lowest share count our cash flow per share is truly spectacular.

Despite that our equity appears undervalued given our free cash flow yield.

I would encourage you to look through our materials on slides 13, 14, and 15 to see exactly what I'm talking about.

But what is really exciting and has all of us very bullish as the party is just beginning.

We have reduced our fixed charges and debt levels and our again investment grade.

We have only modest capital requirements over the next couple of years, which includes our investments in clean energy and decarbonization.

Futures for grain prices and energy spreads suggests we have a long runway ahead with significant margin and cash generation opportunity.

And we are sitting at our lowest share count ever.

In short things are pretty good and we are just getting started.

With that operator, we will now open the call to your questions.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Bob on one on your telephone.

To withdraw your question press the pound key.

Thats Star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of P. J <unk> with Citi. Your line is open.

Yes, hi, good morning.

Good morning P J.

Quick question post winter, if European gas prices were to come down and how do you see global nitrogen annuity up prices would react.

And what are you assuming for European gas prices as 2022 progresses.

Yeah, I mean, I think our best information is where the forward markets are trading.

So you look at.

TTS for.

Europe and BP for the U K you look at.

Jay km for Asia.

I said in my opening remarks, the differentials between Henry hub and those locations are 18 to 20 box.

Spread value that provides a huge margin opportunity for our low cost North American production base and.

Speculating on what happens if this happens.

Obviously its energy spreads.

Come down then we would expect there to be compression in pricing, but clearly the way the market is betting on energy spreads thats not expected to happen.

Yes, I'd say.

Looking at the forward curves of what Tony mentioned on gas.

<unk>.

Efficiencies for most of the European producers, there is still going to be troubled at that $7 50 to $850 a metric ton.

Cash or a full cost range, that's an incredible margin opportunity for our North American producer when you have a substantial portion of the global ammonia capacity challenged and so therefore should then pass onto urea in UA in.

And so I think the projections that are out there for the correction in the second half of the year will be higher than what is.

Yes.

Or at least thought up today, and a very acceptable range for for CF.

The other thing I think P. J as global economic recovery is continuing at a pretty strong pace.

In the aftermath of the pandemic and against that backdrop Europe is not generating new sources of energy supply so as long as economic activity remains high and there is no supply.

Not clear, what's going to drive a drop in energy prices or gas prices in Europe .

Great great. Thanks, that's really good color and then secondly, as you build your green ammonia plant.

By next year can you discuss your technological progress that you made in design and engineering of Euro Electrolyze us any new update on cost of Green ammonia.

Given your renewable electricity prices. Thank you, yes. So.

We're not actually designing the electrolyzed, here's where we're licensing the intellectual property.

And the design.

From our IP providers.

To do that we are going with a conventional alkaline water.

Approach, because it's been proven and tested and as good reliability record.

But the cost of of Green ammonia remains particularly in North America, where we've got access to low cost gas and have options for sequestering the cotwo coming off of.

The ammonia plant the cost of producing green ammonia is four to five times that of producing conventional ammonia. So.

In energy starved regions like Europe , I think green ammonia has a real future in.

Natural gas rich low cost regions like North America, I think it's got some potential but I think it's longer term because in the near term I think blue is really going to dominate.

Thank you.

Our next question comes from the line of Steve Byrne with Bank of America. Your line is open.

Yes.

Yes. Thank you.

Fourth quarter volumes, what would you say you really had the majority of that volume booked.

How far.

Did that happened and going forward.

Much of your first and second quarter volumes would you say are already booked.

So looking at the fourth quarter we.

We launched fill for UAS $285.

For NOLA It took a substantial book for that and then we launched the second round of of UA in orders and the 420 or $30 range, if I remember correctly and so if you look back at the Q3 average and the Q4 average of around $400 that was a blend of.

Q3, and Q4 orders.

Looking into Q1, we were taking orders in Q4 for our forward book at.

At the prices you are seeing in the publications today at very attractive levels now when you look at that.

Take it back to a farmer basis or to a retail basis that inventory is being built in the interior at those tranche levels. So some of the discussion thats going on in the.

And the farm centers around cost they are taking the absolute peak costs of that UA and not the blended cost with the retailer is sitting on thats available to the farmer at very attractive levels at $6 40 spot corn or $6 forward.

<unk>.

We sold we began selling at around $600 and ended up selling probably at the peak of.

Some incremental volume at 1200, and so you saw the blended cost their urea I think our average price for the quarter was $6 50 and that was built in Q3 and then early into Q4, so the majority of urea.

That we booked will be shipping out in Q1 at very attractive prices. So.

You've seen that built over time Q2 ammonia has been sold at that.

1200 to $1400 level and so you can then.

Model out that kind of structure.

Thank you Bert.

And then Chris maybe a little bit on capital deployment should we assume youre going to continue this.

$5 billion a quarter of share repo.

And if not what else.

I'll see you guys looking at.

Wanted to specifically hear your view on whether they are there any.

Any underperforming assets out there that might be stranded that you might be interested in acquiring or are you looking at some brownfield expansions.

So I'll start with the capital deployment.

<unk> mentioned in the prepared remarks, we look at return of and return on capital to the shareholders and based on that we've sort of talked about in the past few quarters, having a ratable stream of share repurchases going through and then an opportunistic stream just given the amount of free cash flow we expect.

For the next several years and really from that opportunistic side you can see the volatility in our shares you don't have to go back that far you could probably go back just a couple of days.

See how we move.

Even when the fundamentals are extremely strong so we think there'll be opportunities through the year, Steve where we can make maybe some larger share repurchases and based on that we'll probably have at times higher cash balances than we have historically periodically throughout the year and really probably throughout the next couple of.

Given the free cash flow, but as you talked about the calls on cash right now and Tony mentioned it in his remarks too are not all that great. We have a very ratable capex that's closer to historic levels and then Additionally, just the $500 million remaining on the 2023 notes so not much there are.

Expectations is we will have a substantial amount.

<unk>.

Related to the growth side.

We continue to look at assets that are available.

Where they are trading versus.

Building New house sits in right now I'd say that.

Assets out there trading at a discount to what new builds would be we do fundamentally believe that ammonia demand specifically in the back half of the decade here is going to grow and as a result of that there's probably going to be some opportunities whether inorganic or organic overtime that we will look at it.

Evaluate I think that's the important part of getting our balance sheet in order over the past few years that when those opportunities present themselves we're prepared to hit.

Thank you.

Our next question comes from Manav.

Christopher Parkinson with Mizuho Your line is open.

Great. Thank you very much.

You hit on this a little earlier and naturally there is an unit correlation between <unk> and urea.

But can you just quickly comment on the near to intermediate term respected ssds.

Trade flow developments, just given things are different in 2022, and then just also how investors should be modeling.

The relationship going forward. It seems that things are a little bit tighter than you and these days so any color would be helpful. Thank you.

Let me just give you some some high level thoughts and I'll turn it over to <unk> for some more specifics Chris but.

UAS and really should be trading at a pretty significant premium to urea.

For nitrogen unit equivalent basis.

There is a lot more capital intensity around producing UAS and theirs.

Farmer efficiency and agronomic efficacy that favors UA on particularly for certain types of crops and therefore, both the fact that it costs more to make and that there is.

More valuable and easier to use.

Suggested ought to trade at a premium the fact that for a while there it was not trading at a premium I think is directly related to some of the unfair trade practices and dumping activity that was going on by subsidized producers.

Certain countries like.

Trinidad in Russia.

Sure.

And we're starting to see things get back to where they ought to be.

On a.

And economic basis, but I'd also say, we have a fair bit of ability to move.

Our production slate.

Around in order to maximize margin opportunity, depending upon where the different products are trading so given where urea is trading today.

Versus where ammonia.

<unk> are trading today were going pretty much full on UA on dramatically, reducing our our urea production.

And in fact.

Wouldn't surprise me, if you'd see others in the world looking at that same math doing a similar kind of thing. So these things tend to even out over time and it's not really the instantaneous spot price that matters, it's more of a longer term kind of relationship.

Benefits that they that they offer but I'll turn it over to Bert for some more specifics, yes, good morning, Chris.

What Tony articulated in terms of the structural nature of UA and where it should be trading is 100% correct.

<unk> invested $5 billion from 2012 to 2017 on the new assets. The majority of that production of UAS and Donaldson Bill an additional incremental capacity and port Neal benefiting the north American farmer and that supply has not been available due to the dumping.

Anti competitive behavior of the Russian and Trinidadian supply so that.

Idled or.

Available capacity is now being utilized to supply.

Those needs.

And so how has that moved our system around us we're much more active on the coasts. We've built tanks in California, where we are now able to ship unit trains and almost looping those unit trains weekly.

And we will take I would say.

A very healthy share of that supply to California to supply those need same thing with east coast and our vessel that we had built in now.

Contracted another vessel to move additional tonnage around to the east coast, all the way up into Canada.

So how trade flows are moving are a direct reflection of our better positioned in a more even playing field, which we're now able to utilize our capacity.

And so that is to supply the American farmers. So we've decreased exports.

Maintain even at a discount to the world price. The Europeans today are paying a higher price for UA and due to the high gas costs and high ammonia imports and so.

Products should be flowing that direction based on economics. So we will see how that flows but.

So we are prepared and we have adequately staffed we have now 5000 railcars and our service as I already told you about with the vessels. So youll see that reflected in Q1 and Q2 with additional supply to the United States.

That's always helpful color and just as a follow up on Tony you hit on some of this in your prepared remarks, but just given all the moving parts for forward feedstock costs. So when we're thinking about cost curves for 'twenty three 'twenty four some of your long only investors.

As well as the uncertainty in Chinese supply over the next let's say at least two years, depending what happens midyear. This year can you just off of your updated thoughts on intermediate term operating rates for the entire industry. We can focus on urea I suppose.

Who you ultimately think the marginal cost ex border will be in 'twenty, three and 'twenty four and just your expectations for some new capacity is coming on there are also some recent facility closures. So if you could just give us the kind of the updated picture on the mosaic it would greatly be appreciated. Thank you.

First go ahead, when you look at what's going on in the world with operating rates the world was running roughly at 80%.

Operating rates, but thats distributed unevenly with the United States and the capacity that we built with the great job that <unk> does with running those plants at 110% Conversely against China at 60% and one of the interesting facts of what's going on with the gas supply globally is this $20 gas.

$25 gas in Europe is also the same structural cost for an Asian producer and so you look at the Chinese gas importer, they're having to pay that in India. Today is 50, I would say 60% of their gas supply is LNG imports paying that same type of price. So it's natural.

<unk> seen India tender and their run rates be below what.

I think a lot of people in the investment community have modeled requiring therefore larger levels of imports and so these things are constantly moving.

And for the first time in history, we've had a lack of supply as well as a high level of demand that's what's driving global prices and so those prices are attracting India had paid the highest price in the world.

Not this tender, but the previous one and a very acceptable price of around $600 done why because their production costs are so high and they have low inventory and they need that that is a reflection of what's going on in the world. That's why we're so positive looking forward in the second half of with low inventories and moderating production.

<unk>.

We see good pricing going forward, but I'd also say back to <unk> point in terms of LNG dependency.

European and certain Asian producers.

Are going to be very comparable in terms of high cost production and competing in terms of what that marginal ton is I think China is very serious about their environmental controls.

And also trying to manage.

<unk> coal and emissions and therefore, although we expect them to return to be a supplier in the export stage I don't think.

I'm not afraid of this boogeyman out there thats going to come in.

Dump excess product into the global marketplace and so what what is really telling for us is to forward energy curves.

Look even if they compressed from today is huge differentials to $10 in 'twenty, three and 'twenty four.

Phil.

Basis like $350 of margin.

<unk> for a north American producer per ton of ammonia and those.

Those are.

Our energy spreads that this industry has never really seen over a prolonged period of time. So the fact that we're talking about three years or four years of.

Huge margin opportunities for North American production is really a unique time in this industry.

Thank you very much.

Thank you.

Our next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.

Yes. Thank you good morning.

I was actually hoping to maybe follow up on some of the color you just provided Tony Bert.

<unk> kind of cost curve dynamics, and if you could just help frame <unk>.

What proportion of separately ammonia urea.

UAS.

Seaborne product and global production actually is at the high end of the cost curve and I think there is some meaningful distinctions amongst the different products in terms of how much.

Of the curve is actually buying that very expensive gas.

And just how do we think about the differences in terms of the cost curve between the different products because certainly the current ammonia urea <unk> and price are not telling all the same thing as it relates to.

The cost curve today, yes, I mean, I would extract your re pricing at the Gulf out of this equation for a minute and look at UA in ammonia pricing and I think you do see a relatively more consistent story in that regard.

I think what you see.

With urea, particularly during a period of time, where it's not going to ground in North America is theres, a tendency by certain rogue traders to want to try to manipulate the market and either build a position or take shorts or do other things and so theres not a lot of volume transacting.

At what looks like a pretty discounted price relative to the other products and certainly we're not anxious to go out and book forward on those kind of prices because we don't think that really reflects the underlying value that nitrogen provides as you get into the growing season.

So I think the place to look at them. It really is more on global ammonia prices because remember if youre, making urea you first got to make ammonia and if you can make ammonia and sell it at a much higher margin structure is just ammonia then youll do that in pretty soon urea supply starts drying up pretty quickly so.

I mentioned this in response to a question earlier, which is I wouldnt fixate on the instantaneous price on these things, but really look at the broader kind of economics that underpin it in Europe .

For a while had about 11 million tons of ammonia production offline during the third and fourth quarter of last year because of very high energy prices, we need to tighten up the market by that much.

We're going to have a seismic impact across all products.

No.

Our view is.

There is a very significant portion of the supply curve.

Running at really high energy cost and that's going to ultimately dominate where.

Products should trade in the value of those products and if there is some short term discontinuities because of some sloppiness or some trading activity.

And urea that doesn't really tell the story of ammonia is a much clearer picture.

Yes.

Further commentary on the support of the end products to be able to pay for these prices.

And when you look at the subsidized markets subsidized on the outputs.

Europe and India.

It's an amazing opportunity because the farmers are still going to make money at these prices. When you look at a market like the United States that has subsidies of crop insurance, but the prices today relative to total inputs is going to be the second best year of.

Profitability in the last 10 years and even in Brazil for the second crop corn is profitable even at lower levels of yield.

And so when you look at the cost curve dynamics on the production side as well as the demand side.

For the outputs, we have a very solid structural basis for the future like we've articulated.

Okay. That's all really helpful and maybe just separately.

<unk> about the.

Carbon capture and sequestration that youre evaluating down in Louisiana can you just help us think about what.

What still has to happen.

Before that can actually move forward and how 45 Q would play into that or what it would take to ensure that you are getting that 45 credits.

We have board authorization to move forward with the dehydration and compression and are engaged in.

We've done some preliminary engineering and are engaged in the detailed engineering and beginning to.

To place orders for the larger pieces of equipment. So we expect that to be online probably in the next two and half to three years and.

Even under the existing 45 Q credit.

It still is very attractive returns and it's the right thing to do because we want to be able to decarbonize. Our network and we also believe that there's going to be a premium on blue ammonia that will be able to produce a lot of reasons. We're excited about that.

If.

Some of the proposals that have been talked about that increased the price of carbon.

Actually get turned into policy then.

Those investments are going to look even more attractive, but we're full steam ahead, it's not like we are.

Leading on.

Some other approval or anything else that needs to be done we are moving forward in.

Commencing construction, yeah, and we feel confident about the transport sequestration side, whether it be you are initially and then the classics Theres a lot more activity going on with the classics.

Should expect some of those.

And the locations of some of our plants specifically the Donaldson.

<unk> city.

We're in quite a few discussions with different groups on that so we don't view that as a risk either and as Tony said these projects even at their existing.

Very good.

Returns to the to the.

<unk>.

Alright, great. That's really helpful color I'll pass it on thank you.

Thank you.

Our next question comes from the line of Joel Jackson with BMO. Your line is open.

Hi, good morning.

I wanted to follow up on Adam's question, you answered that burden Tony gave.

It's such a big discrepancy between cost curve support for urea looking at European gas costs, and what we're seeing in NOLA.

Why don't you just ship.

Two Europe and take advantage of the arbitrage is it not that simple.

This is bert and that is possible.

But we've made a commitment to the American farmer, and we believe that the supply and demand balance here is such that we need to supply and utilize our distribution system.

Given the end market premium as well, but.

There is an opportunity we have export it we're looking at that all the time and looking at arbitrage opportunities and timing against our commitments.

You've seen us act against or for those opportunities in the past and we continue to evaluate them today, but Joel I'd say, even on top of that because vessel freights are pretty high for some of those things.

As we look at it we've got terrific opportunities just to maximize UAS production and keep that here as well as sell ammonia.

Both of those products are.

Far superior.

Margin per unit even basis than urea is right now so we're really dialing back or are you re up production and we tend to be netback driven focused.

If that means.

Export then then we'll do that but to <unk> point there.

There's really good opportunities for us when you think about cost of vessel traded demurrage and supply chain costs continued to go up for us to keep a lot of that production domestic and focus on the products that are not as manipulated tissue.

My second question is different.

Tony Chris.

You see it doesn't give guidance, we all know that but over.

Over the last handful of quarters, we started to dabble in giving guidance.

Give a little bit of maybe what Q1 is going to look like say Q4 is that look like.

The current quarter, so near term guidance. So the question is why did you decide not to give any kind of.

Input so far into what Q1 might look like and then part of that can you talk about do you think that Q1 earnings will be similar higher or lower than Q4.

So let me let me start off with historically, we had not given guidance there was <unk>.

So much.

Of rapidly evolving movement of price and everything that was going on last year and we had felt like we had a pretty solid order book on both.

Forward.

Product as well as gas prices that.

When we did our Q3 earnings call, which was November .

Thought we were in pretty safe ground to give full year guidance well four weeks later here, we are announcing our press release that we completely missed it and we were off by like 25%.

So that's why we don't give guidance because.

The pricing environment is so volatile that within the span of four weeks, we got it really wrong.

Suffice it to say that.

<unk> 2021 was a fantastic year for us.

And if you look at where we're entering 2022 versus where we entered 2021. We're miles ahead of where we were last year. So we're pretty excited about where we sit today.

Yes.

Thank you.

Our next question comes from the line of Jeff.

We're talking with.

Jpmorgan Your line is open.

Alright, thanks very much.

Hi.

There are.

Suggested tariffs that are.

That would be placed on the Russian companies.

The tariffs are different on the proposed tariffs are different on the different Russian companies.

Acron has one level in euro Cam has another.

<unk> got another.

When you look at the.

Imports of UA and into the United States from Russia can you sort of divide up.

What percentage would have higher tariffs what percentage would have lower or how the tariff calculation would.

Would actually work.

Hey, Good morning, Jeff This is on an average.

Thanks Robert.

And so where we are in this process. We brought the case forward in June of last year and that was adjudicated by the International Trade Commission and we won on all counts unanimously then it goes to the Commerce department to determine the next step and so we are still in the middle of that process, where the final results.

We will be known we expect at the end of Q2 or beginning of Q3 I don't have the exact date.

So.

The basis of those findings, though is that they were dumping they were anti competitive we won all good and so yes, there are different levels for different companies.

<unk>.

I would take it to a generalization of Theres, roughly a 1 million tons of.

Russian imports into the United States, and a 1 million tons of Trinidadian imports into the United States and UA in supply and demand.

Demand is it roughly.

I would say for North America. So you have some Canadian production 16 million tonnes and so of those imports you extract that out.

The United States.

Like I said earlier, we have latent capacity.

Capacity, we're able to replace those.

And so what we expect to happen is through this case that some of those tons will be redirected to other markets.

Whether that be South America or Europe .

In the United States will be fully supplied by North American production, Yes, I think thats really the key point here, which is north American producers has the ability to satisfy all the demand in North America.

And Thats really from a logistics standpoint, and everything else the right most efficient way to make that happen and so we don't anticipate that there should be.

Larger.

Any as far as that goes longer term.

Imports from Russian and Trinidadian producers, because domestic producers can take care of the local market.

Okay, great. Thank you very much.

Thank you.

Our next question comes from the line of Michael <unk> with Cleveland Research. Your line is open.

Yes, just wanted to talk a little bit about the pace of the imports of urea into the U S. It seems like the.

The number of total amount of imports are up year to date. Despite the fact that no. One has been at a discount to the rest of the World and then also with respect to the last India tender. It looks like they took about one 4 million tons, but it looked like there were about 3 million tons or so that.

People were offering so how do you see kind of these trade flows going in is this increase in imports of function of the shift in production towards UAS, among domestic producers or any color that would be great.

So you are correct in that the imports to date on a fertilizer year, which as of July through June . So July of 'twenty. One through June of 'twenty. Two so July through our February estimates I'll give you, let's say through January .

Our imports on a year to date basis compared to last year as well as a three year basis are higher and that was a reflection of higher prices for so shipments that were.

From let's say North Africa, or the middle East.

Departed in September and October arrived in October November and we are at a higher level how's.

However, you have to remember that production was lower in North America due to the hurricane and due to some turnarounds and <unk>.

Projected inventories coming into the fertilizer year for June of 'twenty, one to July of 'twenty. One. We're also at historical lows. So the estimates today are around 1 million tonnes.

Over that estimate or over the comparative basis from the year before but as you add back our take out inventory and take out production.

You are probably less than a half a million tons now you have to remember the.

And are the urea market in the North America is roughly 15 five to 16 million tonnes. We import about five 5 million tonnes. So we still have a significant amount of imports to make up and those India tenders have basically soaked up the latent are available.

Shippable capacity that might come to North America or might go to Brazil, and Europe is behind and they need to order or put those vessels on the water.

To replace the production there so we see a fairly positive.

Environment going forward not only for North America, but for the world based on those dynamics.

Thanks, and then just as a follow up I just wanted to clarify in terms of your volume commentary and getting back to $90 five to 10 million tons of gross ammonia production and then I think later in the remarks, you mentioned that you guys could potentially produce up to.

110% of nameplate capacity I guess.

I mean, you probably came into the year with low inventories, but if you ship more production from <unk> into <unk>. This year, what should we be thinking about in terms of the total number of product tons range 2022.

Well, yes, as you shift.

Urea into UA and you certainly make more UA in tons, but you also end up.

With.

With less ammonia tons, but net net product tons go up a little bit we really think about it in terms of nutrient tons.

Even though we report sort of product segment lines.

And the nutrient tons goes back to the ammonia production to begin with so as you said, Michael we're looking at kind of nine five to 10.

Ammonia tons.

10 is probably a little bit on.

The outside range just because.

Our <unk> plant in the U K continues to be down right now and so.

No.

10 is probably a stretch but.

Somewhere in that range is very likely and then Bert is going to manage the product upgrade slate in order to maximize net backs for us and.

<unk> typically has gone anywhere from kind of 19, 5% to 20 million tons in and maybe a few more here and there as you said low inventories coming into the year I would think we're still probably in the 19 to 20 range depending upon what the product mix ends up looking like overall, so it's pretty much of a normal.

A year for us.

The only thing I would add is with the UK plants.

Being a little bit lower from an ammonia production. If you recall, we've mentioned before that really the profitability that comes from the UK is pretty de Minimis.

That level, so really the margin benefit that Tony mentioned of even with being below the tenant is still going to be comparable to what we saw historically.

Thank you.

Our next question comes from the line of John Roberts with UBS. Your line is open.

Thank you maybe another attempt to maybe give you get you to give us some guardrails on how much stock you might buyback if your stock stays over at 10% free cash flow yield.

<unk> share reduction kind of look like.

Green Light Green line in 13, and 14 at least the early years.

Well, what I would say is John I don't think were going to give an actual number as to what.

We're going to be repurchasing on the opportunistic side, but obviously you pointed out a very true point that where the free cash flow yield is now on a per share shows that our share price and what our outlook is not only for the remainder of 'twenty two but in the 'twenty three 'twenty four shows that they're very undervalued I think I'd point back.

Two really the volatility in our shares and opportunities throughout the year. So while we don't have a lot of calls on capital. This year when it comes to Capex and other things, we will be deploying that to share repurchase the timing of that.

Going to be different throughout the year, just based on not only the free cash flow yield where where we see that but also on the volatility of the shares.

Just to amplify that as Chris said earlier in his remarks, there is a component of this that it's going to be ratable and then there is a component that's going to be opportunistic and I think we want to be in a position where if there is a.

Some sort of.

Negative movement in our share price, we're in a position to really capitalize.

On that for the benefit of our our longer term shareholders.

So we're going to be aggressive when the time is right.

And but.

There is a ratable portion of this that it will just continue to chug along day in and day out.

And then how long do you think it's going to take before we start having more ammonia capacity announcements by the global majors like you and nutrient in euro or is this a little bit like the oil and gas industry, where it doesn't seem to be supply response to the high oil prices.

Yes, I think that the.

Important thing here is by the time you decide to announce a project is probably four to five years until you're actually on stream.

So what what's less important about that decision is where today's prices are trading what's more important is the longer term SMB balance and what you believe is going to happen as Chris mentioned earlier, we firmly believe that ammonia and hydrogen are going to play a critical role.

Decarbonising economies and that demand is going to well exceed supply.

The question is kind of when do you begin that build process and.

Right now as Chris also said existing capacity trades at a discount to new construction. So as we think about it.

Preserve the <unk> balance.

You get immediate cash flow youre buying it at a relative discount if you can find existing assets that you like as opposed to build new but.

The world is going to need more ammonia by the time you get to the back end of this decade and I think.

Announcements are coming but I think theyre going to come in a different form from how that happened in the past.

In the past Theres been fertilizer plants that have been built and I think what youre going to see is more clean energy ammonia plants being built ones that are either purpose built around carbon capture and sequestration for blue ammonia production or possibly green production that Joel.

<unk> like it happened in Australia, and the Middle East and in Europe .

And those tend not to be quote unquote fertilizer plants, those tend to be more energy oriented plants and I think.

That's what we will see more of.

The cost point on those is substantially less than building and fully integrated fertilizer complex.

So.

I think.

John it's probably not too too far in the future before youll start seeing some some real interest there and you've already seen a raft of announcements around green projects.

But I also think Theres only a few places in the World, where you really want to go build the blue plant in.

In North America is one of them, we've got access to very plentiful low cost natural gas, we have the right regulatory and legal framework and we've got.

The regulations in place in order to facilitate carbon sequestration.

And so I think.

This really is the ideal place for blue production too.

To really develop then.

Become a significant part of the clean energy source for the world.

Thank you.

Our next question comes from the line of Vincent Andrews with Morgan Stanley . Your line is open.

Thanks for taking my question and I'll leave it at one given the lateness of the hour.

Given everything that we've discussed.

Is there any consideration for maybe refinancing the 2023 maturity.

Rather than paying it down and how are you thinking about the balance sheet now given sort of the parameters that you outlined for the earnings power over the next few years.

Yes, I think I don't think theres any change to that.

Our goal is the $3 billion and it's really looking at it over a longer wavelength and allowing us as we said.

To have a balance sheet, that's strong enough, where we do see opportunities that we can take advantage of the.

Historically, sometimes taken out a little too much debt, where those when those opportunities came we may not have been able to go with both feet.

So right now Theres nothing thats changed from our balance sheet commitment to be a $3 billion.

Take out those 2020 threes rather than refinancing those.

The good news is based on the <unk>.

What we're seeing in the marketplace looking forward is it is not impeding us from doing all of the other things that we want to do we can easily take out.

The $500 million of maturities coming due next year and still do all the other things.

Just look back to last year, we returned $800 million of capital to shareholders. While we took $500 million of debt out and added $1 billion to the balance sheet and that was last year. So again, we're feeling like we've got capacity to do all of the things we're looking to do here based on.

The app environment in front of us.

Okay, great. Thanks very much.

Thank you.

Ladies and gentlemen that is all the time, we have for questions.

I would now like to turn the call back over to Martin for closing remarks.

Thanks to everyone for joining us and we look forward to continued conversations at the conferences, we have coming over the next few weeks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

[music].

Good day, ladies and gentlemen, and welcome to the full year and fourth quarter 2021 industry.

Industry Holdings earnings Conference call.

My name is to Wanda and I will be your coordinator for today at.

At this time all participants are in a listen only mode.

We will facilitate a question and answer session towards the end of the presentation.

To pose a question at any time. Please press Star then one on your touch telephone keypad.

Your host for today, Mr. Martin Jarosik with CF Investor Relations. Sir Please proceed.

The industry reported its results for the full year and fourth quarter in 2021 yesterday afternoon.

<unk> and results may differ materially from what is expressed or implied in any statements more.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website.

Also you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website now let me introduce Tony will our president and CEO .

Thanks, Martin and good morning, everyone yesterday afternoon, we posted results for 2021 in which we generated adjusted EBITDA of $2 7 billion.

Net cash from operations of $2 9 billion and a company record free cash flow of nearly $2 $2 billion.

These results were made possible by the exceptional performance of the CF industries team.

We managed through two severe weather events in North America completed.

<unk> completed the highest level of maintenance activity in our company's history now.

Navigated runaway gas cost in the U K.

And it definitely responded to a rapidly changing marketplace for our product.

Consistent with our do it right culture, we did all of this safely.

Our year end recordable incident rate was 0.32 incidents per 200000 labor hours outstanding by any measure, but truly remarkable given the challenges of the year.

Several of the factors that drove these terrific results in 2021 are expected to persist into the foreseeable future, namely.

Namely strong demand high energy spread differentials and outstanding execution by our team.

Let's start with the robust demand component.

Significantly improving grain prices drove strong agricultural demand, while global economic recovery led to high industrial use as well.

With December corn trading at $5 90, this year and $5 56 for next year, we see strong AG demand for at least the next two years.

On the economy, driven industrial demand side. The last two years have seen inflation over the last two months have seen inflation at 7% year over year and that doesn't appear to be slowing down.

So the combination of strong AG and industrial demand suggests overall global demand for nitrogen will continue at a torrid pace.

Energy spread differentials between North America, and high cost Europe , and Asia production exceeded $20 <unk> for most of the fourth quarter, which provided the opportunity for us to achieve record margins for our products.

As we look forward the energy spreads continue in the 18% to $20 range balance of this year and remain well above $10 for 'twenty, three and 'twenty four.

Those energy differentials provide an extremely attractive environment for north American producers and gives us a lot of confidence about our continuing cash generation potential.

On top of this backdrop of very strong demand and high energy spreads were set of factors that negatively impacted global supply in 'twenty one.

Turnarounds and maintenance activity originally scheduled for 2020 was deferred into 'twenty, one because of the Covid pandemic and a desire to keep employees safe by limiting contractors coming on site.

The catch up in maintenance activities last year took an unusual amount of production out of the global supply.

Two significant weather events in North America Winter Storm, Yuri and Hurricane Ida further reduced production.

The natural gas price Spike in Europe and Asia.

Exceeding $30 <unk> for weeks at a time caused plants to curtail or shut down in those regions further reducing supply.

And adding to these pressures.

<unk> important producing countries in an effort to ensure nitrogen availability and affordability in their home markets enacted export limitations or outright bans, including China, Russia, Egypt and Turkey.