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Index
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities Benchmark Analysis Financial Analysis Findings/Conclusions Recommendations: Action Plan Appendix
Terms of Reference The report was prepared for general circula4on and does not provide investment recommenda4ons to OCP Consul4ng. Any opinion expressed in this report is a statement of my judgment to this date This report is published solely for marke4ng purposes The informa4on herein is based on the OCPs Annual Reports of 2011 and sources that I believe are reliable but are not guaranteed by me
Procedure
Overview
of
OCP
Market
Analysis:
Trends
and
Opportunities
Benchmark
Analysis
Financial
Analysis
Findings/Conclusions
Recommendations:
Action
Plan
Appendix
The group is a major factor in the Moroccan economy, represen4ng 24% of the na4ons exports in 2010
Management
Team
Combina4on
of
an
experienced
team
Mostafa
Terrab,
CEO
and
Chairman
Mohamed
Ibnaddeljalil,
Execu4ve
VP
Sale,
Mohamed
El
Kadiri,
General
Secretary
Marouane
Ameziane,
Head
of
CEOs
Oce
Rachid
Mouline,
Director
of
Business
Steering
Ali
Ben
Abdeslam,
General
Counsel
Meryem
Chami,
Head
of
Human
Resources
Amar
Drissi,
Execu4ve
VP
Opera4ons
Marke4ng and Raw Material Procuremen Mbarek Karoua, Execu4ve VP Audit and Control Mohamed El Hajjouji, Execu4ve VP Finance and Management Support
Net Prot
Strategies
Strategy
with
four
components
Comfort its presence over the en4re phosphate value chain Improve its nancial protability Enhance Marke4ng Flexibility A]empt to marry social and economic progress
1stExporter
of
phosphate
rock
12%
Phosphoric
12%
Acid
76%
Phosphate Rock
1stExporter
of
phosphoric
Acid
4thExporter
of
phosphoric
ferIlizers
Phosphate is one of the three key nutrients that are used in fer4lizers. The other two nutrients are nitrogen and potash. Phosphate contains phosphorous, an important element for the human body to build and repair cell walls. It is found in the form of phosphate rock, which is processed into diammonium phosphate and other fer4liser deriva4ves.
While arable land is expected to rising, albeit slowly, arable land per person will con4nue to fall This will necessitate increased produc4vity per unit of land. More usage of phosphate fer4lizers which depends on the price
Morocco should be posiIoned to take advantage of the depleIon of the phosphate reserves
FerGlizer market
u The overall industry improved following the general strength in phosphate demand u Phosphate rock and phosphoric acid prices followed the price of DAP (Diammonium Phosphate), leaving phosphate upgrading margins virtually unchanged from 2010. u Phosphoric acid prices increased somewhat more than rock and DAP, resul4ng in higher upgrading margins from rock to acid and less from acid to DAP.
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities
Benchmark
Analysis
Financial
Analysis
Findings/Conclusions
Recommendations:
Action
Plan
Appendix
Peers
Comparison
EBITDA
Leverage 84%
36% 37% 22% 16% 22% 27% 26% 26% 28% ROE
ROA
EV/EBITDA
6.0
28.1
3.9
7.9
6.0
5.6
9.6
14.9
6.8
9.9
5.0
4.8
Sales
2011
15470
3217
6097
7067
5150
100518
8715
1514
9937
3500
105520
80352
Currency
million
USD
million
USD
million
USD
million
USD
million
EUR
million
RUB
million
USD
million
SR
million
USD
million
USD
Million
BRL
million
NOK
EBITDA
(%Sales)
14%
33%
49%
31%
24%
29%
40%
44%
27%
71%
55%
23%
Debt/Equity
1.044181705
0.727076125
0.327858881
1.358257477
0.963683528
1.800207551
1.071747165
1.168225709
0.356069066
0.571659015
0.65
0.650327162
Median
Average
Sector
(Specialty
Chemicals)
S&P
500
STOXX
Europe
600
Sector
Mining
Source:
Innancials,
Annual
Reports
2011
ValuaIon Results EBITDA 2011 6 725 m MulIples (EV/EBITDA) 6.4x EV 2011 43 billion MAD
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities Benchmark Analysis
Financial
Analysis
Findings/Conclusions
Recommendations:
Action
Plan
Appendix
P&L ratios Growth of sales Margin / Sales EBITDA /Sales ROS (Net income/Sales) ROE (Net income / Equity) RONA (Ebit / Net Assets) CFO (Net Income+Depreciation) EBIT/Financial Expenses
Sales
Cyclical sales that experienced a huge drop in 2009 ager the global economic downturn. Since 2010 sales started peaking up with consistent double digit growth. The demand for fer4lizers in par4cular is increasing which is a good indicator of business poten4al. Improving margins over 4me and above average for the last two years.
Margins
EBITDA
With an average of 28% over the last four years, the EBITDA has been systema4cally increasing up to a level of 36% for the 2011 year reec4ng the fundamental shig in the strategy to turn the company into a successful ecient Moroccan model. Compared to its peers the company is slight below the average 37% When compared to the nancial expenses the company has showed a healthy situa4on to cover its nancial expenses with an average of 10.4 for EBIT/Financial Expenses and reaching levels superior to 2.5 in the past ve years Slightly superior to the average when compared to its peers, 26% versus 27%, the Net Income has evolved posi4vely during the past ve years with an average of 19% , an incredible jump from 9% in 2007 to 27% in 2011 The size of the Net Income is interes4ng allowing to build a healthy balance sheet. Similar to the average of its peers, the cost of equity shows how shareholders are taking the same risk as other companies in the same sector across the world
ROS
ROE
CFO
When compared to the debt carried by the OCP it indicates a incredible recover in 2011 helping going ahead with future investments according to the expansion plan. Altough the CFO has been erra4c the debt has been under control all the 4me, new investments been made and some cash leg to shareholders equity OPERATIONAL: Sensi4vity Analysis of the Net Income to Changes in Sales and COGS
RISKS
Sales
-15%
-10%
-5%
0%
5%
10%
15%
-15%
16,067
15,026
13,984
12,943
11,902
10,860
9,819
-10%
19,099
18,058
17,016
15,975
14,934
13,892
12,851
-5%
22,131
21,090
20,048
19,007
17,966
16,924
15,883
0%
25,163
24,122
23,080
22,039
20,998
19,956
18,915
5%
28,195
27,154
26,112
25,071
24,030
22,988
21,947
10%
31,227
30,186
29,144
28,103
27,062
26,020
24,979
15%
34,259
33,218
32,176
31,135
30,094
29,052
28,011
COGS
Financial
Expenses
Net
Income
%
Change
-15%
16569.5
1.2%
-10%
16504
0.8%
-5%
16438.5
0.4%
0%
16373
0.0%
5%
16307.5
-0.4%
10%
16242
-0.8%
15%
16176.5
-1.2%
RISKS
FINANCIAL : Sensi4vity Analysis of the Net Income to Changes in the Financial Expenses
BALANCE SHORT VERSION Cash surplus NFO (with minimum cahs of 0) FA Fixed assets net NA Net assets D Debt short and long term E Equity Financing Cash surplus (+)
621 25449
Balance Sheet Ratios Receivables days Inventory days Payables days NFO/Sales Leverage (Liability/Equity) Debt/EBITDA
SUF
Sources
and
Uses
of
Funds
(SUF)
between
the
years
2011
and
2008
indicates
how
the
company
has
accompanied
the
growth
in
sales
through
an
increase
in
the
funds
used
(NFO)
which
at
the
same
4me
has
been
fueled
through
equity,
an
indicator
of
a
sound
balance
sheet.
For
the
year
2011
the
warning
signs
are
the
increase
in
the
number
of
receivable
days
from
96
to
106
and
most
importantly
the
increase
in
the
number
of
the
inventory
days
from
64
to
84.
2007
19096
20192
1096
2008
23308
24681
1373
2009
25755
27231
1476
2010
33414
35499
2085
2011
38818
41640
2822
SUF
2008-2011
15510
16959
1449
NFO vs WC
The sales are increasing and so the nancing needed to run the opera4ons. At the same 4me that the NFO is increasing the WC is also increasing but at a slightly higher pace. We can conclude that the company is in a sound nancial situa4on since according to the equa4on NFO=WC+Credit, the company has an excess of funds.
Although the company has been run by a variable leverage, the last year it has shown a debt/equity ra4o of 0.22 far below 0.43 of the previous year. The leverage not only seems to be under control but also decreasing despite the recovery of the commodity market and the increase in the turnover.
u Sales: I assumed that sales will grow at constant 8% every year 4ll the horizon 2020. I used 8% in order to double the capacity produc4on in hereager the turnover in the next 9 years. Beyond 2020 the grow is zero since Im assuming no more capacity expansion. u EBITDA Margin: The EBITDA growth is constant at 3.9% which what I needed to have a 30% reduc4on in the costs in 9 years. u DepreciaIon: I took 1% of the sales every year u CAPEX: Considering that the total amount planned to be invested is 120 billion MAD in the period 2010-2020, the CAPEX per year is assumed to be 1 billion MAD. u Tax: Assumed 25% which is the result of the average tax rate paid during the last ve years. u Working Capital Requirements: taking an NFO propor4onal to sales. In this case I took the average of the last ve years, NFO=69% of Sales u Discount Rate (WACC): For the cost of equity I took the ROE of the last year, 24%and for the cost of debt the risf free rate of 3%. The cost of capital total is 20%. u Terminal Value: The perpetuity of the cash ow generated in 2012 with a growth of zero and a cost of capital of 20%.
2012 Sales EBITDA Deprecia4on CAPEX Tax NFO Inc NFO FCF Terminal Value Present Value of Cash Flows 65,491 22,682 655 10,000 5,507 45,189 3,347 3,828
2020 121,220 30,804 1,212 10,000 7,398 83,642 6,196 7,210 35,589
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities Benchmark Analysis Financial Analysis
Findings/Conclusions
Recommendations:
Action
Plan
Appendix
Findings/Conclusions
DOES OCP CREATE VALUE? DOES OCP CAPTURE VALUE? CAN OCP SUSTAIN THE VALUE CREATED/CAPTURED?
Value
CreaGon
Percentage
of
global
demand
met
by
OCP
in
phosphate
in
all
forms
Value
Captured
Revenue Model
q OCP becoming a leader as reserves are depleIng q Need to grow in ferIlizer markets
q Market characterized by its cyclicity q SensiIve price; dependent on the size of the client
OperaIng Model
Sustainability
Resources
and
CapabiliIes
Tangibles
Assets
Intangible
Assets
OrganizaIonal
Assets
Sustainability
How it is used
imitability
Low
High
Medium
Sustainability
Findings/Conclusion
highly
complex
and
uncertain
industry
As the market for raw materials of fer4lizer is oligopolis4c at the global level
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities Benchmark Analysis Financial Analysis Findings/Conclusions
AnIcipate change which will erode the sustainability of your posiIon, decide on new direcIons and go back to 1
Choose a posiIon (scope and acIviIes) that takes an advantage of your capabiliIes and protect the rm from the industry forces eroding prots
Determine which resources and capabiliIes the organizaIon needs to develop to make this posiIon more sustainable
Terms of Reference and Procedure Overview of OCP Market Analysis: Trends and Opportunities Benchmark Analysis Financial Analysis Findings/Conclusions Recommendations: Action Plan
Appendix
Benchmarking
Analysis
Comparables
Key
Figures
(
2011F)
Company
Name
Agrium
Belaruskali
CF
Industries
Israel
Chemicals
K+S
PhosAgro
Potash
Corpora4on
of
Saskatchewan
Saudi
Arabian
Mining
Company
The
Mosaic
Company
Uralkali
Vale
Fer4lizantes
Yara
EV/EBITDA
5.99
28.08988764
3.93
7.94
5.95
5.61
9.64
14.94
6.84
9.93
4.95
4.76
Sales
2011
15470
3217
6097
7067
5150
100518
8715
1514
9937
3500
105520
80352
Currency
million
USD
million
USD
million
USD
million
USD
million
EUR
million
RUB
million
USD
million
SR
million
USD
million
USD
Million
BRL
million
NOK
EBITDA
(%Sales)
14%
33%
49%
31%
24%
29%
40%
44%
27%
71%
55%
23%
ROS
9%
37%
25%
21%
11%
20%
35%
36%
25%
34%
36%
15%
ROE
21%
52%
31%
49%
18%
34%
39%
3%
22%
15%
26%
27%
ROA
10%
30%
23%
21%
9%
12%
19%
1%
16%
9%
16%
16%
LEVERAGE
1.04
0.73
0.33
1.36
0.96
1.80
1.07
1.17
0.36
0.57
0.65
0.65
Median Average
6.4 9.0
32% 37%
25% 25%
26% 28%
16% 15%
0.8 0.9
Source
DescripIon
Agrium
Inc.
is
a
retail
supplier
of
agricultural
products
and
services
in
North
and
South
America,
a
wholesale
producer
and
marketer
of
the
three
major
agricultural
nutrients
and
a
supplier
of
specialty
fer4lizers
in
North
America
through
its
Advanced
Technologies
business
unit.
Joint
Stock
Company
"Belaruskali"
produces
and
supplies
potash
mineral
fer4lizers.
It
produces
mineral
potash
fer4lizers
in
the
form
of
ne,
ne
crystallized,
and
granulated
concentrate
of
the
potassium
chloride;
potassium
chloride
technical;
and
sodium
chloride
technical,
common
edible
rock
salts,
common
edible
rock
salt
iodized,
and
common
feeding
salts.
The
company
also
oers
cooking
and
technical
salts.
It
provides
its
products
in
Europe,
East
Asia,
Mediterranean
countries,
South
Africa,
India,
China,
and
South
and
North
America.
Joint
Stock
Company
"Belaruskali"
was
founded
in
1970
and
is
based
in
Soligorsk,
Belarus
a
North
American
manufacturer
and
distributor
of
agricultural
fer4lizers,
based
in
Deereld,
Illinois,
a
suburb
of
Chicago.
It
was
founded
in
1946
as
the
Central
Farmers
Fer4lizer
Company,
and
for
its
rst
56
years,
it
was
a
federa4on
of
regional
agricultural
supply
coopera4ves.
CF
then
demutualized,
and
made
an
ini4al
public
oering
of
shares
of
equity
stock
in
2005
mul4-na4onal
Israeli
manufacturing
concern
that
develops,
produces
and
markets
fer4lizers,
metals
and
other
special-purpose
chemical
products.
Belaruskali
CF Industries
Israel Chemicals
DescripIon
The
K+S
Group
is
one
of
the
world's
leading
suppliers
of
standard
and
speciality
fer4lizers.
In
the
salt
business,
measured
by
produc4on
capacity,
K+S,
with
sites
in
Europe
as
well
as
North
and
South
America,
is
the
worlds
leading
producer
a
chemical
Russian
company
producing
fer4lizer,
phosphates
and
feed
phosphates.
The
company
is
based
in
Moscow,
Russia,
and
its
subsidiaries
include
Apa4t,
a
company
based
in
the
Murmansk
Region
and
engaged
in
the
extrac4on
of
apa4te
rock
Canadian
corpora4on
based
in
Saskatoon,
Saskatchewan.
The
company
is
the
world's
largest
potash
producer
and
the
third
largest
producers
of
nitrogen
and
phosphate,
three
primary
crop
nutrients
used
to
produce
fer4lizer.
MA'ADEN
(Saudi
Arabian
Mining
Co.)
is
a
diversied
mining
company,
ac4ve
in
gold
base
metals
mining
and
infrastructure
industry.
The
company
is
structures
as
headquarter
corporate
based
in
Riyadh
with
several
subsidiaries.
PhosAgro Potash Corpora4on of Saskatchewan Saudi Arabian Mining Company The Mosaic Company
a Fortune 500 company based in Plymouth, Minnesota. Mosaic mines two key crop nutrientsphosphate and potashand produces specialty products MicroEssen4als, K-Mag and Pegasus
DescripIon
Uralkali
is
a
Russian
potash
fer4lizer
company.
It
is
traded
on
the
London
Stock
Exchange
using
the
symbol,
URKA.
and
its
largest
shareholder
is
billionaire
Suleyman
Kerimov.
The
company
is
based
in
Berezniki,
Perm
Krai,
Russian
Federa4on.
the
fer4lizer
unit
of
Brazilian
mining
giant
Vale
SA,
Vale
S.A.
is
a
Brazilian
mul4na4onal
diversied
metals
and
mining
corpora4on
and
one
of
the
largest
logis4cs
operators
in
Brazil.
In
addi4on
to
being
the
second-largest
mining
company
in
the
world,
Vale
is
also
the
largest
producer
of
iron
ore,
pellets,
and
second
largest
of
nickel.
Vale
also
produces
manganese,
ferroalloys,
copper,
bauxite,
potash,
kaolin,
alumina
and
aluminium.
In
the
electric
energy
sector,
the
company
par4cipates
in
consor4a
and
currently
operates
nine
hydroelectric
plants.
Yara
Interna4onal
ASA
is
a
Norwegian-based
chemical
company.
Its
largest
business
area
is
the
produc4on
of
nitrogen
fer4lizer,[2][3]
however
it
also
encompasses
the
produc4on
of
dry
ice,
nitrates,
ammonia,
urea
and
other
nitrogen-based
chemicals.
Vale Fer4lizantes
Yara
Yun4anhua Group Co., Ltd., through its subsidiaries, produces and supplies chemical fer4lizers, ber glass materials, and organic and phosphate chemicals
Benchmarking
Analysis
EBITDA(%Sales)
Uralkali
Vale
Fer4lizantes
CF
Industries
Saudi
Arabian
Mining
Company
Potash
Corpora4on
of
Saskatchewan
OCP
Belaruskali
Israel
Chemicals
PhosAgro
The
Mosaic
Company
K+S
Yara
Agrium
0%
10%
20%
30%
40%
50%
60%
70%
80%
Benchmarking
Analysis
Net
Income(%Sales)
Belaruskali
Vale
Fer4lizantes
Saudi
Arabian
Mining
Company
Potash
Corpora4on
of
Saskatchewan
Uralkali
OCP
The
Mosaic
Company
CF
Industries
Israel
Chemicals
PhosAgro
Yara
K+S
Agrium
0%
5%
10%
15%
20%
25%
30%
35%
40%
Benchmarking
Analysis
ROE
Belaruskali
Israel
Chemicals
Potash
Corpora4on
of
Saskatchewan
PhosAgro
CF
Industries
Yara
OCP
Vale
Fer4lizantes
The
Mosaic
Company
Agrium
K+S
Uralkali
Saudi
Arabian
Mining
Company
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Benchmarking
Analysis
ROA
Belaruskali
CF
Industries
OCP
Israel
Chemicals
Potash
Corpora4on
of
Saskatchewan
Yara
The
Mosaic
Company
Vale
Fer4lizantes
PhosAgro
Agrium
Uralkali
K+S
Saudi
Arabian
Mining
Company
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
Benchmarking
Analysis
Leverage
(D/E)
PhosAgro
Israel
Chemicals
Saudi
Arabian
Mining
Company
Potash
Corpora4on
of
Saskatchewan
Agrium
K+S
Belaruskali
Yara
Vale
Fer4lizantes
Uralkali
The
Mosaic
Company
CF
Industries
OCP
0.00
0.50
1.00
1.50
2.00
2007 30766 25091 5675 1050 700 350 6025 2127 7294 -5167 858 -1894 2752
2008 67446 39600 27846 2748 1908 840 28686 28199 28362 -163 28523 5109 23414
2009 28671 25113 3558 1290 1391 -101 3457 1340 2280 -940 2517 1111 124 1282 0
2010 46272 31851 14421 1940 1475 465 14886 7158 11152 -3994 10892 2428 -426 8890 1 8889 40 8849
2011 60640 38601 22039 1897 1310 587 22626 537 3731 -3194 19432 4292 -1223 16363 1 2 16360 26 16334
OperaIng Income Opera4ng expenses OperaIng Prot Financial Income Financial Expenses Financial prot Prot before Tax and Extraordinary Items Non-Recurrent products Extraordinary Expenses Prot From Extraordinary AcIviIes Prot Before Tax Tax on Prot Deferred Taxes Net Income of Integrated Companies Income From Companies Consolidated by the equity Method Net Goodwill amor4za4on Write Down Net Consolidated Income Minority Interest Group Share Net Income
2752 2752
23414 23414
1282 1282
2007 1096 8021 4064 14635 53 27869 96 76 10082 0 328 51 10633 38502
2008 1372 10792 6775 18260 58 37257 119 133 11707 0 964 45 12968 50225
2009 1476 10642 6236 17087 25 35466 0 298 13178 1 2211 47 15735 51201
2010 2085 12361 5671 24997 49 45163 0 380 15795 1 1855 41 18072 63235
2011 2823 17826 8970 24094 14 53727 0 203 20409 0 1426 41 22079 75806
Cash Accounts Receivable Inventory Securi4es and Investment Securi4es Currency Adjustments - Assets (current items) Current Assets Fixed Assets in Non-Values Intangible assets Tangible Assets Investment in associates Financial Assets Currency Adjustments-Assets Fixed Assets Net Total Assets
Current Liabili4es Debts Other provisions for risks and charges Currency adjustments -Liabili4es (current items) Current Liabili4es Cash Liabili4es (Credit Bank) Total LiabiliIes
Shareholders's Equity Minority Interests Assimilated Shareholders' Equity Financing Debts Sustainable provisions for risks and charges Currency Adjustments- Liabili4es Total Equity Total Equity&Liability