20
23
Annual Report
2023 Overview
Financial Performance
$1.53 Billion | $2.71 Billion | $2.76 Billion |
Net Earnings Attributable to | EBITDA(1) | Adjusted EBITDA(1) |
Common Stockholders | ||
$2.76 Billion | $1.80 Billion | |
Net Cash from Operations | Free Cash Flow(2) |
Safety | Decarbonization |
As of December 31, 2023, the Company's
12-month rolling average recordable incident rate was 0.36 incidents per 200,000 work hours
- significantly better than industry averages.
Operational Excellence
Produced 9.5M tons of gross ammonia in 2023.
Return to Shareholders
Returned $891 million to shareholders in 2023 through $580 million in share repurchases and $311 million in dividend payments.
Strategic Initiatives
Completed acquisition of Incitec Pivot Limited's ammonia production facility in Waggaman, Louisiana, adding 880,000 tons of ammonia capacity from one of North America's newest and most energy efficient ammonia plants.
Reached mechanical completion for Company's green ammonia project at its Donaldsonville Complex in Louisiana with commissioning activities underway. Once operational, project will enable North America's first commercial- scale green ammonia production.
Landmark carbon capture and sequestration project at the Donaldsonville Complex in Louisiana remains on track for start-up in 2025. Once operational, project will enable permanent sequestration of 2 million tons of CO2 annually that would otherwise have been emitted to the atmosphere.
Comprehensive ESG Goals
Pursuing comprehensive environmental, social and governance ("ESG") goals covering critical environmental, societal, and workforce imperatives. Progress in 2023 includes development of roadmaps reviewed by the Board of Directors for the Company to achieve its 2030 carbon dioxide- equivalent (CO2-e) emissions intensity reduction goal and 2050 net zero carbon goal.
- EBITDA is defined as net earnings attributable to common stockholders plus interest expense-net, income taxes and depreciation and amortization. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables on page 8.
- 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 on page 8.
Fellow
CF Industries
Shareholders:
The CF Industries team delivered outstanding results in 2023.
Net earnings attributable to common stockholders for the year were $1.5 billion, EBITDA was $2.7 billion and adjusted EBITDA was $2.8 billion. Net cash from operations was $2.8 billion and free cash flow was $1.8 billion. These results reflect global nitrogen industry conditions favorable to our North American-based production network, as we benefitted from wide energy spreads between low-cost North American natural gas and high-cost natural gas used by producers in Europe and Asia. We also saw continued strong execution across our business that included producing 9.5 million tons of gross ammonia for the year.
We believe operational excellence, outstanding safety and resulting high asset utilization, is a hallmark of the CF Industries team. This has consistently supported our ability to create substantial value for our long-term shareholders. Since the beginning of 2021:
We invested approximately $1.4 billion in cash to grow our production capacity and our cash generation capability. This includes both our initial clean
energy projects (Donaldsonville carbon capture and sequestration and green ammonia) and the purchase of the Waggaman ammonia production facility in Louisiana in December 2023. The Waggaman acquisition will deliver immediate profitable growth by adding one of the newest and most energy efficient ammonia production units in North America into our existing network while advancing our long-term strategic focus on low-carbon ammonia as a clean energy source.
We invested another $1.3 billion in sustaining maintenance activities that improve production safety, efficiency, and reliability, and ultimately cash- generation capability, of our industry-leadingassets.
We deployed $2.5 billion to repurchase more than 31 million shares, approximately 15% of the shares outstanding at the beginning of 2021. In 2023, we commenced a new $3 billion share repurchase program that expires in December 2025.
We returned $877 million to shareholders through dividend payments, with the dividend now 67% higher than it was at the end of 2020 following increases approved by our Board of Directors in April 2022 and January 2024.
Our strong operational and financial results and commitment to reward long-term shareholders have contributed to our record of outperformance in total shareholder return. We have exceeded our peer group on a 1-,3-,5-, 7- and 10-year basis and exceeded the Dow Jones U.S. Commodity Chemicals Index on a 3-, 5- and 7-year basis and the S&P 500 on a 3- and 7-year basis, with a similar return on a 5-year basis.
CF INDUSTRIES | 2023 ANNUAL REPORT | 1 |
WHAT WE DO
At our core, CF Industries is a producer of ammonia. We use the Haber-Bosch process to fix atmospheric nitrogen with hydrogen from natural gas to produce anhydrous ammonia, whose chemical composition is NH3. We then choose to sell the ammonia itself or upgrade it into ammonia-derived products such as granular urea, urea ammonium nitrate solutions (UAN) and diesel exhaust fluid (DEF).
We are the largest producer of ammonia in the world. The 16 ammonia plants in our network, which are all located in North America, have a total annual average capacity of 10.4 million tons. We produce ammonia and/or ammonia-derived products at nine manufacturing facilities.
We have significant advantages compared to our peers that underpin our cash generation capability.
Underpinned by outstanding safety performance, we consistently deliver capacity utilization rates well above our peers. We have built, and maintain to the highest standards, what we believe to be the industry's most reliable, efficient, and flexible assets. This operational excellence leads to capital and operating efficiency, saving our shareholders billions of dollars of capital and the accompanying annual maintenance and overhead costs while allowing us to produce meaningfully greater volumes of ammonia with the same assets.
Our access to low-cost and plentiful North American natural gas provides a significant production margin advantage.
We have leading distribution and logistics capabilities that enable a global reach.
We are disciplined stewards of the business, with SG&A costs as a percent of sales among the lowest in both the chemicals and fertilizer industries.
We also continually invest in the training and development of our team. We are focused on ensuring that all employees - from new hires to executives - have access to the tools and knowledge they need to grow their careers and reach their potential. Our commitment to growth and development includes on-the-job training, professional and technical development, leadership development and tuition reimbursement programs.
Total Recordable Incident Rate
Total injuries per 200,000 work hours
BLS Fertilizer Manufacturing | CF Industries |
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2011 | 2014 | 2017 | 2020 | 2023 |
As of December 31, 2023, our 12-month rolling average recordable incident rate was 0.36 per 200,000 work hours
(1) Source of data: December 19, 2023 CRU Ammonia Database
North American Ammonia Percent of Capacity Utilization (1)
5-Year Rolling Avg. Percent of Capacity
North America Excl. CF (2) | CF North America (3) |
100% | ||||
98% | 96% | 96% | 97% | |
96% | ||||
94% | ||||
92% | ||||
90% | ||||
88% | 86% | 87% | ||
86% | ||||
84% | ||||
84% | ||||
82% | ||||
80% |
5 Years Ending 2021 | 5 Years Ending 2022 | 5 Years Ending 2023 |
CF's 10% greater capacity utilization yields an additional
~0.9 million tons of ammonia annually(4)
- Calculated by removing CF Industries' annual reported production and capacity from the CRU data for all North American ammonia production peer group, Waggaman production/capacity included for one month only
- Represents CF Industries' historical North American production and CRU's capacity estimates for CF Industries
-
~0.9 million tons represents the difference between CF Industries' actual trailing 5-year average ammonia production of 9.3 million tons at 97% of capacity utilization and the 8.4 million tons CF Industries would have produced if operated at the 87% CRU North American benchmark excluding CF Industries
Note: CRU North American peer group includes AdvanSix, Austin Powder (US Nitrogen), Carbonair, CF Industries, Chevron, CVR Partners, Dakota Gasification Co, Dyno Nobel, Fortigen, Incitec Pivot (11 months production/capacity), Koch Industries, LSB Industries, LSB Industries/Cherokee Nitrogen, Mississippi Power, Mosaic, Nutrien, OCI N.V., RenTech Nitrogen, Sherritt International Corp, Shoreline Chemical, Simplot, Yara International
CF INDUSTRIES | 2023 ANNUAL REPORT | 2 |
OUR MISSION IS TO FEED AND FUEL
THE WORLD SUSTAINABLY
What we do makes a difference to billions of people. Simply, ammonia is one of the most important chemical compounds on earth, essential to human life.
For decades, CF Industries has focused on producing and selling ammonia and other ammonia-derived products for use as nitrogen fertilizer. The nitrogen content in these products provides energy to crops to increase yields and is critical to the formation of protein within the plant.
Along with advancements in seed technology and farming practices, the use of nitrogen fertilizer and other nutrients dramatically increased food production in the second half of the 1900s, supporting world population growth and lifting countless people out of hunger. It is estimated that fertilizer is responsible for 50% of the world's food. At the same time, fertilizer allows more food to be grown on fewer acres. This reduces the amount of land cleared for agriculture, preserving carbon-sequestering forests and the biodiversity of wildlife ecosystems.
More recently, we have grown a business focused on emissions reduction. We are one of the world's largest producers of DEF.
DEF, when combined with selective catalytic reduction technology, reduces nitrogen oxide (NOX) emissions from diesel
trucks by up to 90% and increases fuel efficiency by 3-4%.
Today we have an opportunity to strengthen our existing business and set the Company on a significant growth trajectory by doing what we do best - produce ammonia - while significantly reducing the carbon emissions associated with ammonia production. We believe that doing so:
Is the right thing to do, in line with our long-standing commitment to environmental stewardship and our stakeholders' and society's interests in reducing greenhouse gas (GHG) emissions.
Meets growing interest in low-carbon ammonia and low-carbon nitrogen fertilizers for traditional agriculture- related applications to lower the carbon footprint of food production and enable ethanol as a sustainable aviation fuel. The use of low-carbon nitrogen fertilizer as a clean energy source to increase crop yields is a certifiable and quantifiable pathway to achieve these objectives.
Positions the Company to succeed under new regulatory regimes.
Unlocks new growth opportunities from energy-intensive industries, such as power generation and marine shipping, that have identified ammonia as a clean energy source. This is due to the hydrogen atoms that make
up a molecule of ammonia. Hydrogen is widely viewed as a scalable source of clean energy, and ammonia represents an efficient mechanism to both ship and store hydrogen, as well as a clean energy source in its own right as ammonia does not contain or emit carbon. The use of ammonia for its clean energy capability represents
a significant source of new demand for those who can produce low-carbon ammonia.
CF INDUSTRIES | 2023 ANNUAL REPORT | 3 |
OUR STRATEGY
As a result, our strategy is to leverage our unique capabilities to accelerate the world's transition to clean energy.
Decarbonization is at the heart of this strategy. As we decarbonize, we will be doing our part while providing clean energy to existing and new customers so that they can decarbonize their industries. We believe this will enable us to grow profitably while doing good for the environment.
Our committed goals include reducing Scope 1 CO2-equivalent emissions intensity by 25% by 2030 (compared to a 2015 baseline) and achieving net zero carbon emissions by 2050. We also have committed to reducing our Scope 3 emissions by 10% by 2030.
We have made tangible progress against these goals.
At the end of 2023, the installation of one of the world's largest alkaline water electrolyzers at our Donaldsonville Complex in Louisiana was mechanically complete. This gives our Company the ability to produce up to 20,000 tons of green ammonia annually (ammonia produced with hydrogen from water through an electrolysis process that produces no carbon emissions). This represents North America's first commercial-scale green ammonia capacity.
Our landmark carbon capture and sequestration (CCS) project, also at Donaldsonville, continues to advance and is expected to start-up in 2025. Once operational, our partner ExxonMobil will sequester 2 million tons of carbon dioxide annually from our facility that would otherwise be emitted to the atmosphere.
In 2023, we expanded our efforts to address our Scope 3 emissions by entering into an agreement with bp to purchase
4.4 billion cubic feet of certified natural gas in 2024, which is double our purchase in 2023. This natural gas is certified by not-for-profit MiQ to have a 90% lower methane emissions intensity - the ratio of methane emissions to natural gas produced - than the industry average. Methane emissions are the second largest source of our Scope 3 emissions.
In 2023, our Board of Directors reviewed roadmaps to achieve our 2030 and 2050 decarbonization goals. These roadmaps identify projects we believe we can execute in the coming years
- such as implementing CCS at our Medicine Hat, Yazoo City and Waggaman sites - as well as identify the sources of GHG emissions from our facilities that require additional technology development and are thus longer-term focus areas.
We believe our industry-leading capabilities, decarbonization commitments, and the concrete steps we have taken towards our goals make us a producer and partner of choice for those who share our view of low-carbon ammonia's potential to support the world's transition to clean energy. We continue to take a disciplined approach to these opportunities, and remain focused on ensuring the greenfield low-carbon ammonia production capacity we have been evaluating with partners is well-matched with global demand.
CF INDUSTRIES | 2023 ANNUAL REPORT | 4 |
CREATING LONG-TERM SHAREHOLDER VALUE
As we execute our strategy, we expect to generate superior free cash flow supported by exciting growth opportunities within our business. Our goal is to increase our cash generation and your participation in our free cash flow. We do this four ways:
Disciplined growth initiatives in clean energy - This includes the potential new low-carbonammonia capacity additions with equity partners, as appropriate, that we are evaluating. It also includes implementing clean energy projects within our existing network that have rates of return above our cost of capital. For example, we expect our investment into the Donaldsonville CCS project will increase our free cash flow in the range of $100 million per year due to the United States' 45Q tax credit for permanently sequestering CO2.
Investing in high-return projects within our current network - This includes expansions of DEF and nitric acid capacity, along with other logistical investments.
Pursuing inorganic growth opportunities - We continue to explore acquisitions, such as 2023's purchase of the Waggaman ammonia production facility, that offer returns well above our cost of capital.
Returning excess capital to shareholders - We are committed to returning excess cash to shareholders through quarterly dividend payments and share repurchases, including our current $3 billion authorization.
Investing in the business to grow cash generation, while at the same time reducing the outstanding share count, has dramatically increased shareholder participation in our business. Over the last 10 years, nitrogen participation per share has increased 80 percent.
Capacity growth coupled with share repurchases continue to drive nitrogen participation per share
CF Industries' Nitrogen Volumes and Shares Outstanding as of Year-end
2013 - 2023 Nitrogen per share CAGR: 6.3%
Annual Nitrogen Equivalent Tons per 1,000 Shares Outstanding | Shares Outstanding (Millions)(7) | Production Capacity (M Nutrient Tons) | ||||||||||
50 | 43 | 300 | ||||||||||
45 | 41 | |||||||||||
37 | 38 | 39 | 40 | 250 | ||||||||
40 | 35 | 35 | ||||||||||
35 | 30 | 200 | ||||||||||
30 | 27 | |||||||||||
24 | ||||||||||||
25 | 150 | |||||||||||
20 | 100 | |||||||||||
15 | ||||||||||||
10 | 50 | |||||||||||
5 | ||||||||||||
0 | 0 | |||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||
6.6(1) | 6.6 | 7.0(2) | 8.1(3) | 8.1 | 8.2(4) | 8.2 | 8.2 | 8.2 | 7.9(5) | 8.2(6) |
All N production numbers based on year end figures per 10-K filings.
- Beginning in 2013 includes incremental 34% of Medicine Hat production to reflect CF acquisition of Viterra's interests
- Beginning in 2015 includes incremental 50% interest in CF Fertilisers UK acquired from Yara
- Beginning in 2016 excludes nitrogen equivalent of 1.1 million tons of urea and 0.58 million tons of UAN under CHS supply agreement and includes expansion project capacity at Donaldsonville and Port Neal
- Beginning in 2018 includes incremental 15% of Verdigris production to reflect CF's acquisition of publicly traded TNH units
- Decrease in production capacity due to Ince plant closure
- Includes decrease in production capacity due to Billingham ammonia plant closure and additional production capacity from Waggaman ammonia production facility
- Share count based on end of period common shares outstanding; share count prior to 2015 based on 5-for-1split-adjusted shares
CF INDUSTRIES | 2023 ANNUAL REPORT | 5 |
BUILT FOR THE LONG-TERM
The last 10 years have been a time of tremendous progress for CF Industries. We have significantly grown our production capacity, strengthened our balance sheet, invested in our people and transformed our technology and business capabilities.
We believe the next 10 years will be just as impactful. We have 2,700 employees, led by an outstanding Senior Leadership Team, that are the foundation of everything we do. Our operational excellence remains unmatched. And our focus on decarbonization and clean energy strengthens our current business while positioning the Company for tremendous growth opportunities. Taken together, we expect to create significant long-term shareholder value in the years ahead.
Thank you for your confidence in CF Industries. We are excited about the future and look forward to continuing to earn your support in the years ahead.
Tony Will
Tony Will
President and Chief Executive Officer
CF Industries Holdings, Inc.
CF INDUSTRIES | 2023 ANNUAL REPORT | 6 |
Board of
Directors
Javed Ahmed | John W. Eaves | |
Former Chief Executive Officer | Executive Chairman | Anne P. Noonan |
Tate & Lyle PLC | Arch Resources, Inc. | President and Chief Executive Officer |
Summit Materials, Inc. | ||
Robert C. Arzbaecher | Susan A. Ellerbusch | |
Former Chairman and | Former Chief Executive Officer | Michael J. Toelle |
Chief Executive Officer | Air Liquide North America, LLC | Owner |
Actuant Corporation | T & T Farms | |
Stephen J. Hagge | ||
Christopher D. Bohn | Chairman of the Board | Theresa E. Wagler |
Executive Vice President and | CF Industries Holdings, Inc. | Chief Financial Officer and Executive |
Chief Operating Officer | Former Chairman of the Board and | Vice President |
CF Industries Holdings, Inc. | Chief Executive Officer | Steel Dynamics, Inc. |
Aptar Group, Inc. | ||
Deborah L. DeHaas | Celso L. White | |
Former Vice Chairman and | Jesus Madrazo | Former Global Chief Supply |
Managing Partner | Chief Executive Officer | Chain Officer |
Center for Board Effectiveness | and President | Molson Coors Brewing Company |
Deloitte | Reiter Affiliated Companies | |
W. Anthony Will | ||
President and Chief Executive Officer | ||
Senior | CF Industries Holdings Inc. | |
Management | ||
W. Anthony Will | Bert A. Frost | Michael P. McGrane |
President and Chief Executive Officer | Executive Vice President, Sales, Market | Vice President, General Counsel |
Development and Supply Chain | and Secretary | |
Christopher D. Bohn | ||
Executive Vice President and Chief | Ashraf K. Malik | Susan L. Menzel |
Operating Officer | Senior Vice President, Manufacturing | Executive Vice President and |
and Distribution | Chief Administrative Officer | |
Linda M. Dempsey | ||
Vice President, Public Affairs |
CF INDUSTRIES | 2023 ANNUAL REPORT | 7 |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, adjusted EBITDA, and free cash flow, which are non-GAAP financial measures, provide additional meaningful information regarding
the Company's performance and financial strength. Management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. In addition, because not all companies use identical calculations, EBITDA, adjusted EBITDA, and free cash flow, included in this annual report may not be comparable to similarly titled measures of other companies. Reconciliations of EBITDA, adjusted EBITDA, and free cash flow, to the most directly comparable GAAP measures are provided in the tables below.
EBITDA is defined as net earnings attributable to common stockholders plus interest expense - net, income taxes, and depreciation and amortization. Other adjustments include the elimination of loan fee amortization that is included in both interest and amortization, and the portion of depreciation that is included in noncontrolling interest. The Company has presented EBITDA because management uses the measure to track performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry.
Adjusted EBITDA is defined as EBITDA adjusted with the selected items as summarized in the table below. The Company has presented adjusted EBITDA because management uses adjusted EBITDA, and believes it is useful to investors, as a supplemental financial measure in the comparison of year-over-year performance.
Free cash flow is defined as net cash provided by operating activities, as stated in the consolidated statements of cash flows, reduced by capital expenditures and distributions to noncontrolling interest. The Company has presented free cash flow because management uses this measure and believes it is useful to investors, as an indication of the strength of the Company and its ability to generate cash and to evaluate the Company's cash generation ability relative to its industry competitors. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
Non-GAAP: reconciliation of net earnings to EBITDA and adjusted EBITDA
Year ended December 31,
2023 | 2022 |
IN MILLIONS | ||||
Net earnings | $ | 1,838 | $ | 3,937 |
Less: Net earnings attributable to noncontrolling interest | (313) | (591) | ||
Net earnings attributable to common stockholders | 1,525 | 3,346 | ||
Interest (income) expense-net | (8) | 279 | ||
Income tax provision | 410 | 1,158 | ||
Depreciation and amortization | 869 | 850 | ||
Less other adjustments: | ||||
Depreciation and amortization in noncontrolling interest | (85) | (87) | ||
Loan fee amortization(1) | (4) | (4) | ||
EBITDA | $ | 2,707 | $ | 5,542 |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | (39) | 41 | ||
Loss on foreign currency transactions, including intercompany loans | - | 28 | ||
U.K. long-lived and intangible asset impairment | - | 239 | ||
U.K. operations restructuring | 10 | 19 | ||
Acquisition and integration costs | 39 | - | ||
Impairment of equity method investment in PLNL | 43 | - | ||
Unrealized gain on embedded derivative liability | - | (14) | ||
Pension settlement loss and curtailment gains - net | - | 17 | ||
Loss on debt extinguishment | - | 8 | ||
Total adjustments | 53 | 338 | ||
Adjusted EBITDA | $ | 2,760 | $ | 5,880 |
Year ended December 31,
Non-GAAP: reconciliation of cash from operations to free cash flow | 2023 | 2022 | ||
IN MILLIONS | ||||
Net cash provided by operating activities | $ | 2,757 | $ | 3,855 |
Capital expenditures | (499) | (453) | ||
Distributions to noncontrolling interest | (459) | (619) | ||
Free cash flow | $ | 1,799 | $ | 2,783 |
- Loan fee amortization is included in both interest expense-net and depreciation and amortization
CF INDUSTRIES | 2023 ANNUAL REPORT | 8 |
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CF Industries Holdings Inc. published this content on 06 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 March 2024 16:29:10 UTC.