Fertiglobe plc (FERTIGLB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Fertiglobe's First Half 2024 Results Conference Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand over to Rita Guindy, Fertiglobe's Investor Relations Director. Please go ahead.

Thank you, Annie. Good morning and good afternoon, ladies and gentlemen. Thank you for joining Fertiglobe's Q2 and H1 2024 Results Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; Haroon Rahmathulla, our Chief Operating Officer; and Andrew Tait, our Chief Financial Officer. On this call, we will review Fertiglobe's key operational events and financial highlights for the quarter, followed by a discussion of our outlook. The presentation will be followed by a question-and-answer session at the end of the call. The quarterly results report is available on our Investor Relations website and I would like to remind you that any forward-looking statements made on this call involve risks and the actual results could differ materially from those statements. With this, I will now hand over to Ahmed El-Hoshy, CEO of Fertiglobe.

Thank you, Rita, and thank you all for joining Fertiglobe's Q2 and H1 2024 Results Conference Call. Let me start by reconfirming our relentless focus and commitment to safety, which is our top priority. As of the end of June 2024, our 12-month rolling recordable incident rate was 0.05 incidents per 200,000 man hours. I'm pleased to see this decline versus last year's metrics. A clear demonstration of the team's efforts to foster a culture of 0 injuries, placing significant emphasis on both operational and process safety and targeting the highest HSE standards to ensure safe, sustainable and reliable operations across the board. Moving on to financial results. Our Q2 2024 revenues and adjusted EBITDA were 10% and 29% below their levels of Q2 of last year, respectively at $496 million and $156 million, while our H1 2024 revenues and adjusted EBITDA were at $1.378 billion, respectively. It's worth noting that these results were delivered in an environment of market volatility as nitrogen prices were impacted by delayed demand, cautious buying behavior and reduced urea imports into India, which were partially offset by some supply disruptions towards the end of the period. In addition, our operations in Egypt were also impacted by widespread gas supply disruptions during the quarter, which are now resolved at our sites. I'm proud to say that notwithstanding these issues, our Q2 2024 own-produced sales volumes fell only marginally by 2% year-over-year. Meanwhile, H1 2024 own-produced sales volumes were actually up 1% to 2.8 million tons, supported by record production levels in Egypt and Algeria during the period. This is thanks to the active efforts of our team to optimize production operations while managing commercial activities and is supported by our strategic positioning and our diversified production footprint. Excluding the gas supply issues facing Egypt and other external factors, Q2 2024 and H1 2024, own-produced sales volumes would have been up 8% and 7% on a controllable basis year -- respectively, year-over-year. And adjusted EBITDA would have been $186 million in Q2 2024 or about a 14% year-over-year decline and $410 million in H1 2024, which would have represented a 20% year-over-year decline. These figures demonstrate the interim results of the ongoing manufacturing improvement plan or as we call it, the MIP, where we've seen more tons produced at much higher efficiency rates and lower emissions. We consider this to be an achievement that despite all these external factors mentioned, our produce volumes in the first half of the year were up 4% as compared to last year. Looking ahead, we are well on track to realize the targeted $100 million in incremental annual EBITDA by the end of 2025 compared to 2023, driven by further improvements in production and energy efficiency. Also in terms of AI integration, their efforts to gradually digitalize our processes and we are on track to install infrastructure that will allow us to utilize AI across our production platform to further support reliability and energy efficiency, utilizing preventative maintenance measures. In addition, we are pleased with the progress made so far on our cost optimization program, with 84% of our $50 million run rate target implemented as of the end of June 2024 and we remain on track to realize the full target by the end of the year. Collectively, these measures are expected to add up to $150 million of EBITDA in total by the end of 2025 on a run rate basis compared to 2023. This would reflect a 15% increase to the 2023 EBITDA at unchanged pricing. These initiatives also provide additional support to our healthy free cash flow conversion and robust balance sheet, which stands at approximately 1x net debt to LTM adjusted EBITDA and enable us to continue balancing selective growth spending on value-accretive opportunities and dividend payments, reinforcing our commitment to shareholder value creation. As announced in our earnings release today, we are going to present the proposal for the H1 2024 dividend amount to the Board in September. Once aligned with shareholders and we'll share it with the market then, with payment expected in October as usual. As everyone is aware, there are several moving factors currently, particularly in light of the ongoing ownership transaction and the dividend development is currently being finalized for Board approval. The quarter was also eventful on the project side with several major milestones we are proud to celebrate. We're glad to announce having taken a final investment decision on the 1 million ton low-carbon ammonia project in the UAE, along with our partners, TA’'ZIZ which is an ADNOC and ADQ joint venture, GS Energy out of Korea and Mitsui out of Japan and are on track to start construction this year, following the awarded construction contract to Tecnimont S.p.A. with production slated to begin in 2027. With a 30% equity stake, our equity investment amounts to approximately $30 million to $35 million, implying double-digit project and equity IRR. These returns are supported by a focused investment approach on the back end of the prior [indiscernible], so only an ammonia backend synthesis -- utilizing an existing [indiscernible] infrastructure and facilities and over the fence raw material supply, namely hydrogen and nitrogen. The project located in the UAE enjoys strategic access to new key markets, including Asia and Fertiglobe is entitled to market a proportionate share or 30% of the project's low carbon ammonia production. The first phase of this project will produce ammonia with approximately 50% lower carbon intensity compared to conventional ammonia with further reductions in carbon intensity plan in the second phase by capturing and sequestering CO2 emissions. Additionally, I'm excited about our selection as the winning bidder in first-of-its-kind H2Global auction. As the winning bidder, which was announced the last couple of months, Fertiglobe will supply renewable ammonia out of Egypt into Europe under an offtake contract worth up to EUR 379 million in terms of support at a delivered price EUR 1,000 per ton until 2033. The agreement provides a framework for demand and pricing support helping Fertiglobe and the consortium behind each of green hydrogen reach final investment decision on the first integrated green hydrogen plant in Africa by H1 2025. Fertiglobe has secured long-term supply of renewable hydrogen from the adjacent Egypt green hydrogen, which Fertiglobe has a 20% stake in. I have to thank the team for their tireless efforts to get this done. The unique offtake at this price gives us a great starting point to create a highly economic project, leveraging our existing asset base and providing decarbonized products to the European and global markets. Finally, supported by ADNOC, we played a key role in delivering the world's first-ever certified bulk commercial shipment of low-carbon ammonia enabled by carbon capture and storage to Mitsui for use in clean power generation in Japan. The landmark low-carbon ammonia shipment was produced at Fertiglobe's Abu Dhabi facility and supported by ADNOC's $23 billion allocation towards decarbonization and low carbon solutions further demonstrating the unique value proposition behind our partnership with ADNOC and the case for ammonia being a key instrument in the decarbonization of hydrogen-based sectors. These steps and initiatives align well with ADNOC's overall efforts to grow low carbon volume value chains and capture 5% of the global low carbon hydrogen market. With regards to the pending ADNOC acquisition, OCI Global's 50% stake in Fertiglobe, the approval process has been progressing well with closing expected later this year, and we will provide a further update to the market once all the remaining conditions to completion are satisfied. As previously highlighted, this transaction supports both ADNOC's ambitious chemical strategy and its plan to establish a global growth platform for ammonia as well as Fertiglobe's growth plans by unlocking further potential in its core products of ammonia and urea while accelerating a fuel of new market and product opportunities and expanding its focus on clean ammonia. With that, let me hand it over to Haroon to discuss the market outlook as well as our commercial and operating performance.

Thanks, Ahmed. Let me start by briefly highlighting the outlook for nitrogen fertilizer and ammonia markets. Starting with ammonia. The Northwest Europe benchmark eased by 7% quarter-over-quarter, during the quarter, as the spring demand season came to a close. Price reductions were tempered by supply disruptions across the U.S., [indiscernible], Europe and the Middle East towards the end of Q2. We expect ammonia markets to remain firm in the short term and broadly balanced through year-end, notwithstanding anticipated new merchant supply from the U.S. Gulf and a new Russian export terminal in Taman, expected late 2024. Promisingly, several key ammonia markets have been showing signs of tightness and improved import demand in Q2 2024 reflecting strengthening economic conditions as well as growth in industrial uses for ammonia. More recently, the latest Tampa settlement for August of $60 per tonne increase has highlighted the tightening market conditions, West of Suez, where prolonged production outages [indiscernible] export hubs from limited product availability. This indicator provides further support to an expectation of firmer CFR, Northwest European prices and an upward trend from current $520 per tonne limit. Collectively, these dynamics are expected to support a period of relative price stability and a broader global trade recovery in ammonia following 2 years of prolonged contraction. In the medium to long term, we see accelerating incremental demand from new applications for low-carbon ammonia, such as fuel for power generation as a maritime bunker fuel and as a clean hydrogen carrier. Consultants' forecast incremental demand from these new applications to reach 22 million tons by 2030, more than doubling the quantity traded today. Phase 2 of Europe's carbon [ powder ] adjustment mechanism expected in 2026 is capitalizing growth interest in decarbonization opportunities within the existing fertilizers and chemicals value chain. Europe's position as a global marginal producer suggests that European carbon costs could support an increase in global ammonia fertilizer prices. In terms of urea, while the Q2 2024 urea Egypt FOB benchmark was down 14% compared to Q1 2024 and 4% lower year-over-year, pricing has recovered in recent weeks since reaching lows in May. This reflected weak sentiment early in the second quarter due to reduced demand for urea imports from India in April. However, sentiment improved as the quarter progressed, with demand from the tail end of the Northern Hemisphere spring application season met tight supply conditions, reflecting the continued absence of Chinese exports, production outages in Asia and gas curtailments in Egypt. Chinese urea exports at [indiscernible] in the first half 2024 compared to the same period last year, reaching record lows. Exports are expected to remain at low levels, below 2 million tonnes in 2024 compared to 4.3 million tonnes in 2023 due to strong domestic demand for both agricultural and industrial applications combined with low urea inventories in the country. Looking ahead, consultants expect a firmer urea market supported by renewed appetite for urea imports in the U.S., a degree of European price support, given underlying cost pressures, the continued absence of China from the export market and a slower pace of new urea capacity additions. These factors collectively suggest more balanced markets in the short term with potential further upside from outstanding purchases from Brazil. Longer term, demand growth of 12 million tonnes is still expected to materially outstrip additional capacity growth of 9 million tonnes by 2028. Now moving on to the highlights of our performance in the second quarter of 2024. We're very pleased to end the quarter with a mild 2% year-over-year drop in our own-produced sales volumes despite the gas supply issues faced in Egypt, which has impacted our operation. Notwithstanding these, as Ahmed mentioned, we're also able to increase -- we were also able to increase our production by 1% year-over-year in the first half of this year. As [indiscernible] mentioned, our own produced sales volumes and EBITDA would be materially higher compared to last year, excluding the impact of uncontrolled factors like the gas supply issues, thanks to the strides taken on the manufacturing improvement front, which has impacted our operating rates positively. In addition, significant focus continues to be made on energy efficiency, where we have reached a very meaningful records at some of our facilities recently. We've also delivered significant improvements on HSE, which remains a top priority with one of the lowest incident rates in our industry and continued efforts to reach our rate of 0 injuries. We expect to realize and be able to show more efficiencies and positive progress over the coming quarters. Between our cost optimization program and our manufacturing improvement plan, we expect to generate incremental annual EBITDA of around $150 million by the end of 2025 compared to 2023 which represents almost 15% of our 2023 adjusted EBITDA of $1 billion, the $150 million calculated at 2023 prices. With that, I would like to hand it over to Andrew to discuss the financial results in more detail.

So let me start with some highlights of our performance in Q2 and H1 '24, which, as Ahmed mentioned, was impacted by price volatility as well as external factors outside of our control, such as the gas supply issues in Egypt. So for Q2 '24, our revenues were $496 million, that's 10% below the same quarter last year. Meanwhile, our adjusted EBITDA decreased 29% year-on-year to $156 million leading to adjusted EBITDA margins of 31%. Excluding external factors, EBITDA would have been $186 million, that's 14% lower to last year, and that's mainly impacted by prices. Our adjusted net income attributable to shareholders was $15 million compared to the $84 million in the same quarter last year. In the first 6 months of 2024, our revenues were $1.408 million -- billion, excuse me, 16% lower than the same period last year. Meanwhile, our adjusted EBITDA decreased 27% year-on-year to $378 million, leading to adjusted EBITDA margins of 36%. Excluding the external factors, our adjusted EBITDA would be $186 million for Q2 '24 and $410 million in H1 2024, a 20% year-on-year reduction. The adjusted net income attributable to shareholders was $134 million compared to $219 million in the same period last year. Now turning to the balance sheet and cash flow performance. As of 30th of June '24, Fertiglobe reported a net debt position of $880 million in net debt for the last 12 months adjusted EBITDA of about 1x, which allows the company to balance selective growth opportunities and dividend payout, supported by robust free cash generation and a healthy balance sheet. In early '24, Fitch and Standard & Poor's announced placing Fertiglobe on a ratings watch positive and credit watch positive respectively, on the pending acquisition of OCI's 50% stake by ADNOC, with the expectation to raise Fertiglobe's credit raising by at least 1 notch following completion of the transaction. And recently, Moody's has also upgraded Fertiglobe's outlook to positive from stable. So as a reminder, in 2022, Fertiglobe achieved investment-grade credit ratings by all 3 rating agencies S&P, BBB-; Moody's, BAA3 and Fitch, BBB- supported by an attractive cash flow profile and a prudent financial policy, and we are committed to maintaining and improving these ratings. The free cash flow before growth CapEx amounted to $70 million in Q2 '24 compared to $60 million in Q2 '23, reflecting the performance for the quarter, the lowering working capital inflows, the higher maintenance capital expenditures and an increase in net interest as well as lower tax and lease payments. Meanwhile, our H1 '24 free cash flow before growth CapEx was $225 million compared to $331 million in H1 '23. Our total cash capital expenditures, including growth CapEx were $23 million in Q2 '24 compared to $35 million in Q2 '23, of which $16 million was related to maintenance capital expenditures compared to $31 million in the previous period last year. H1 '24 total CapEx was $44 million compared to $47 million last year, including $35 million of maintenance CapEx compared to $42 million in the same period last year. We maintain our guidance of $110 million, $130 million for maintenance CapEx this year, with a total growth CapEx expected to be below $50 million and will ultimately depend on the progress of our growth projects, which are in various stages. Fertiglobe remains committed to creating shareholder value, leveraging our active cost optimization and manufacturing improvement initiatives to bolster the cash flow generation across cycles and maintain a robust balance sheet and as discussed before, we are well on track to meet our previously communicated targets of optimizing the controllable cash flow drivers, and I look forward to reporting even more progress in the coming quarters. I'll now hand back to Ahmed for our outlook and concluding remarks.

Thank you, Andrew. To conclude, we continue to believe that the medium- to long-term outlook for ammonia and nitrogen markets, supported by material incremental demand from new and existing sources with limited supply additions over the medium term. And Fertiglobe is well positioned to leverage the growing demand for renewable and low-carbon ammonia supported by it's projects and platforms. We are proud of all the efforts exerted by the entire team to support the most of our performance in a tough operating environment and in the context of market volatility, but will not be stopping here as our goal is excellence at all fronts, and we'll continue to pursue that growth. Supported by our active cash flow support initiatives, a top quartile cost positioning, healthy cash conversion capacity and our strategic platform, Fertiglobe is uniquely placed to continue delivering robust results and major milestones while always focusing on creating shareholder value. With that, we'll open the line for questions.

We are now opening the floor for question-and-answer session. [Operator Instructions] comes from [ Waleed Cheema ] from Goldman Sachs.

First one is on the Algeria contract. Could you please provide us with any updates on the discussions happening on that front? And second of all, how do we think about sales volumes going into Q3 in the context of seasonality and your plans of operational performance so far into the quarter?

Thanks, Waleed. And just kind of answer that first question with regards to Algeria, obviously, a very relevant one. We've been having constructive discussions with Sonatrach, the Algerian government, with regards to the extension of the gas agreement. It's been delayed versus our initial expectations. As we had mentioned earlier, there were some changes after our gas contract -- around the time of our gas contract expiry in November of last year. There were changes in leadership in Sonatrach. And we also see a presidential election coming up in September. So we've been kind of, in Algeria, approximately once a month over the last few months. The focus from the Algerian government is one of finding a good path forward, a constructive path forward to be able to monetize their gas but also keep a flourishing downstream petrochemical industry. Just so -- just as a reminder, we own 51% of Sonatrach, but we get 36% of the economics. So the Algerian government is our partner in that project. And what happens on our gas expiry here will not just affect ourselves, but also affect other fertilizer producers whose gas contracts expire over the next 12 months as well as the broader gas industry -- gas consuming industries, including steel. So for the Algerian government ,it's a lot of stake, it's not just with Sonatrach and we'll provide updates to the market as we develop these negotiations further. With regards to your second question, regarding Q3 volumes, obviously, we don't provide, Waleed, volume guidance during the quarter. As I said during the prepared remarks, the plants are running well and from a gas supply perspective in Egypt, we've seen the gas supply resume versus Q2. So we see an improvement there. Also, I really have to commend the team for the improvements in the manufacturing improvement plan on energy efficiency. Actually, we can produce the same amount of tonnes with less gas now with some of the tweaks that have been happening on the sites. And obviously, in our Q3 results conference call, we'll be sharing that performance on a retrospective basis.

Our next question comes from Prateek Bhatnagar from HSBC.

I have 2. Look, you mentioned that you had some volume impact because of the gas issues in Egypt, Should we consider them as lost volumes? Or is there any way you can kind of compensate for it during Q3? So that's my first question. Second question is on urea demand from India. Could you give some color? You said it's been weak in the past, but what's the outlook here?

Sure. I mean with regards to the compensation in Q3, obviously, what we produce is not always exactly what we sell, right? So I think that's where your question is coming from. But in terms of what we're seeing in Q3, as I stated, the plants are -- have gotten more gas versus that kind of Q2, that May, June period. And so we've been able to run it at higher rates into Q3. But in terms of Q3 compensating for Q2, we did have some lost tons, and we gave some statistics in the press release around, what our EBITDA would have been, but this was reflective of the onetime hit because once those volumes of ammonia and urea were not produced, obviously, we're not able to kind of recreate them in the third quarter. With regards to your second question on Indian imports, I think through June, we saw a decrease in Indian imports of the back of stronger domestic production year-over-year. So that's been a factor in kind of that market volatility where we've seen less Indian demand. But when you think about it more broadly, we -- from a supply perspective, we also saw the Chinese supply, not just year-to-date, has been very low, but even in August, we're not seeing really vessel movements where China is going to be exporting a lot. So what's helped offset some of the decreased imports into India or the reduced production or sale -- the reduced sales of Chinese urea as export. And that's driven by also not just the Chinese government policy for less exports, but also significantly higher industrial demand, for example, for NOx abatement as well as one of the best fertilizer consumption years as well. On the India side, we're -- from the kind of the historical kind of 8 million, 9 million tonnes of import demand, this year, I think the market is seeing something like a 5 million, 6 million tonne import demand. The monsoon season for this year is looking to be -- and progressing very positively. We -- the market expects a tender during the month of August where India will need to come back to the market and buy production. I think, as you can see, producers have kind of been more comfortable on the back of some of the supply disruptions and being able to place product. So with the Indian tender coming hopefully over the next few weeks, there will be more visibility on that demand, and it's also kind of bridges us into that September, October time period where some of the Northern Hemisphere markets, particularly Europe, which has been very subdued to start their buying activities again.

Our next question comes from Akash Tomar from [ SICO. ]

I have one question on freight cost. So we have heard from the players that credit costs are going up for other players. For you, we know you can ship to Europe from Algeria and Egypt. So can you give us more color, how were your cost base impacted from freight cost? Were you able to capture some upside from your cost advantage of being located in Europe -- being located in Egypt or the higher cost elsewhere has offset it? Any color on that?

Yes. I mean I think it is one of the unique attributes that Fertiglobe enjoys. Despite being -- having all our production in the Middle East, it stands over a very wide spread geographical footprint where Algeria has very attractive freight costs into stay into Western Europe and Southern Europe, a few days sailing, for example, there's some key markets there. We're able to get very attractive freight rates, whether it's for ammonia and urea. The ability to get into the West and even East Coast of India is quite advantageous, even Eastern Africa and going as far east as Austria, we're one of the largest suppliers in Australia. We're well positioned and as a reminder, we -- the market operates off a freight cost, and it basically gets added on to the cost of production. So we pass the freight cost generally on to the customers. So while great cost overall go up. The destination price goes up to help give us the same net back. And so it affects as we call it the CFR price. In terms of our logistics and chartering team, that's a major focus of us, one of our biggest cost items is freight and they've done a great job of optimizing where we have a few ammonia vessels on the water on a time charter basis, and we use spot vessels with urea deliveries where we look at attractive, for example, backhauls, right? So you send urea somewhere and then the -- that will come back carrying grain from that agricultural producing market. So I think that's one thing. But another thing to point out is Egypt. Egypt is very strategically located in the Northeast corner of Africa. We're able to deliver urea from the northern part of Egypt into the Mediterranean to supply Europe on a very attractive basis. But if we find it advantageous to go East and we do at times, we can go East from the Red Sea. And when it comes to ammonia, our positioning is very strategic with production in Ain Sokhna, which is 35 kilometers south of Suez where -- and there have been some questions on this, despite the Red Sea supply disruptions, we're able to get -- take advantage of sending ammonia into Europe while other AG producers in the Arab Gulf or elsewhere, will have to go through the Suez Canal and pay higher freight costs. We're at the -- basically just advantage that we are able to go there quite swiftly.

[Operator Instructions] Our next question comes from Lisa De Neve from Morgan Stanley.

I have one, and it's actually on the green ammonia project that is up for FID and there was a deal announced with Europe that you would be supplying a green ammonia, EUR 1,000 a ton. And so I'm very interested in understanding the composition of that EUR 1,000 a ton because there was a presentation from H2Global, which included the slide on Fertiglobe and it quoted that 16% of the EUR 1,000 a ton mix up freight and transportation costs. And I was just very curious because that number seems a little bit higher than I would normally expect a ton to be incurred in terms of level of freight and transportation and logistical expenses. So I wonder if you could sort of shed a bit of light of what's included in that EUR 160 a ton.

Absolutely, Lisa. It's a good question. So from our perspective, and it's actually related to the prior question, we just received, I think, as well from the other gentlemen. Basically, we're going to utilize that same freight and logistics team to optimize logistics to get that green ammonia into Europe. The estimate that was provided by H2Global was more of a German government requirement to try to estimate what is the netback to a producer based on their own estimates. So I would take it more as what we would do, what we typically do for ammonia even on a gray basis. And we obviously get that CBAM advantage starting 2026, where we are able to avoid having to pay large carbon importer adjustment taxes and duties into that market. We obviously also enjoyed duty-free access from Egypt into Europe, unlike other sellers in Europe like the U.S. markets who -- or the GCC markets, they have to pay a 5.5% duty automotive. So I think your question is absolutely correct. There's no reason why we should be paying $160 for all those costs to get into Europe, and we're going to aim to have a much more attractive netback than what's been published on this illustrative freight and logistics cost estimate.

Our next question comes from Jarryd Thomas from JPMorgan.

I just want to understand some of the reasons why the margin was as low as it was for Q2. Is it just the result of gas disruptions or freight costs? I just want to unpack that a bit more, please?

Yes. I'll let Andrew, our CFO, go through that. I mean it's an appropriate question. And some of it has to do with unique elements of Q2 2024. But equally, it also has to do with what was happening in Q2 2023, where there is some occurrences. So Andrew, can you take that question, please?

Yes, sure. Thanks. So essentially a large chunk of that is the pricing, as we said, it's those external factors on pricing. So we've got the negative price impact of the urea that was basically, that dropped from $335 million last quarter -- last year, down to $321 million. And there's also an element of our sales volumes as well due to sort of lower production. So those are sort of essentially sort of most of the elements in terms of price impact. We did also have some sort of reversal of some accruals in the previous year, which basically potentially sort of exaggerated the upside as of last year as well. So that's essentially also having an impact on that, but it's predominantly price impact.

Our next question comes from Sashank Lanka from Bank of America.

I have one question on your low-carbon ammonia project. I think you provided some detail on that, saying that the Phase 1 of the plant will produce about 50% lower carbon intensity ammonia. And then the second stage will use carbon sequestration. So I'm just wondering what's the difference? Are you not using carbon sequestration in the first phase? And what's leading to that lower -50% lower carbon intensity ammonia. That's the first question. And the second question is just in terms of offtake. Is it fair to assume that ADNOC here takes the offtake risk and the pricing.

Sure. No, good question. Maybe, Haroon, why don't you take it and discuss kind of how we're getting over the dense hydrogen and what the second stage would look like?

Yes, sure. Sashank, so in essentially 2 stages -- first stage, we are going to get, as Ahmed was just saying, hydrogen over the fence from [indiscernible] and when you look at the carbon intensity of that hydrogen, it is -- it results in -- when you synthesize that in the back end plant that Ahmed was saying, it results in ammonia, which has 50% lower carbon intensity than gray. So the reason behind that lower carbon intensity is just securing this hydrogen stream, which is a byproduct from the cracking process upstream from [indiscernible] that has a lower carbon intensity. In the second stage, and you've probably seen ADNOC's own ambitions around developing their CCS infrastructure in the second stage, and this is about 2030, 2031, we would then envision moving from this 50% lower carbon intensity product to a higher CO2 sequestered from this ammonia production and that links to the CCS infrastructure that we expect will come online in 2030 and 2031. I think just in terms of point that we have made always, we are just constructing a back end plant. So when you think about CapEx estimates, these are much more favorable than when you build a front end and the back end. So the CapEx estimate is much more attractive, which also then results in very attractive IRRs, double-digit, we mentioned in the press release, double-digit IRR for this project. In terms of offtake, we -- in terms of offtake, we have a 30% equity stake in the project and we are entitled to a 30% share of the offtake as well. In the future, we look to come back to the market with some guidance on how that offtake percentage increases or not post kind of -- post the ownership change. And again, this last point, again, goes back to our focus on capital discipline. We would look to put debt on this project. And as a result, our equity share is what we've guided in the press release, post debt financing around the $30 million to $35 million range.

Okay. If I can just follow up with one question. When you mentioned double-digit IRR and you mentioned you get 30% of the offtake, obviously, I think that's also subject to the pricing of ammonia that's realized, right? So what's your assumption there when you say double-digit IRR? And does it also include some fixed cost kind of payment or margin payment that ADNOC does to you guys?

Yes. It was based on fairly conservative assumptions. So it's based on gray ammonia pricing. There's no premium for that lower carbon intensity or factoring in any Stage 2 benefits from a pricing perspective when we -- when that intensity reduces even further. So based on conservative assumptions, it doesn't include any margin on the sale of that subsequent offtake as well. And Sashank, that's really driven by the -- and that's really driven by the fact that, that CapEx number is very attractively positioned from a CapEx cost per ton perspective.

As of right now, we don't have any pending questions. I'd now like to hand back over to the management for the web questions.

Thank you, Ellie. We have one question on the webcast on the marginal cost of production for ammonia and urea. Ahmed, do you want to take that?

Sure, can you read out the question?

Any sense of marginal cost of production for ammonia and urea today?

Yes. So obviously, that fluctuates with pricing of the feedstocks and maybe starting with Europe more broadly and then moving into other markets. The European TTF market is around EUR 35, EUR 36 a megawatt hour today. And going into winter, there's several factors where we've seen, for example, lower output from nuclear and wind generation in Europe as well as some concerns on the ability to import gas in Europe continue to kind of support the forward curve for TTF and that's obviously driving the marginal cost of both ammonia and urea in those markets. With regards to some of the other producers, we're seeing that China FOB costs for the higher cost producers are kind of in the high 200s, almost at the $300 a ton level. And that's providing kind of a bit of a floor with regards to that, but we are seeing pricing above that floor currently. In addition, the continued demand growth we're seeing both the industrial and agricultural side for urea and the industrial side ammonia and the clean ammonia demand growth, those are all elements with the medium-term outlook seeing demand outweigh supply, are ones that can result in more kind of demand-driven pricing as we've seen and we've seen that in the last several months, for example, on the ammonia side in Europe, demand-driven pricing rather than kind of floor-driven or marginal cost pricing that we've seen there.

There is no other questions on the webcast at this time.

All right. Thanks, everyone, for joining this conference call and looking forward to the next discussion.

Thank you so much, everyone, for attending today's call. You may now disconnect. Have a wonderful day.