Notore: Champion of the Nigerian
Green Revolution
by Ikponmwosa Izedonmwen
Head, Corporate Finance
September 2011
Outline
 Introduction to Notore
 Fertilizer Market
 Addendum
1
Domestic Investors
Jite Okoloko
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TITA-KURU PETROCHEMICALS LTD
(TY HOLDINGS)
Group CEO, Notore
28% ownership in NCI
Founding Partner of Ocean & Oil Group
Fmr MD/CEO of Oando Energy Services
Non-Executive Director at Oando Plc; Director at
Union Bank
Bachelors Degree from University of Benin
Alumnus of the Harvard Business School OMP
Programme
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Mike Osime
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3% ownership in NCI
Worked with NNPC
Fmr MD/CEO of O-Secul Nigeria Limited
Corporate member of the Nigerian Society of
Engineers and COREN certified
Bachelor’s degree in Engineering from Teeside
University in the UK
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Michael Orugbo
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22% ownership in NCI
Manufacturer & exporter of hyrdo-carbon based
products
Installation, laying & maintenance of pipelines for
lifting crude oil and natural gas
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5% ownership in NCI
Private sector-led investment bank and
development finance institution created to help
mobilize and channel required capital towards
driving Africa’s economic development
Has a US$1 billion capital base to support early
and intermediate stage projects across Africa
Richard Herb
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2% ownership in NCI
MD/CEO of ICMG Securities Limited and
Chairman of Broadband Technologies Limited
Degree in Actuarial Science, obtained from the
University of Lagos in 1981
MBA from the Strathclyde Business School in
Glasgow
Fellow of the Chartered Institute of Stockbrokers
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2% ownership in NCI
Entrepreneur with 35 years experience in the fertilizer
industry
Director of the Nigerian Business Council
Chairman of Eko Hotel and Suites in Lagos.
Degree in Chemistry from the University of London
Foreign Investors
BLAKENEY MANAGEMENT
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12% ownership in NCI
Africa’s leading private equity group
$1.6 billion under management, across six
funds focused on Africa
Over 50 investments, across 40
countries, in all major regions of the African
continent
provides corporate finance support and
guidance on best-in class corporate
governance
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5% ownership in NCI
UK bases hedge fund
£5billion fund under management
Focused on emerging markets
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14% ownership in NCI
An emerging market leader in the construction and fertilizer
industries
Currently with a market capitalization of over $6 Billion USD
Ownership in three Urea factories across North Africa
Provides technical oversight via a technical service
agreement
2
Our footprints in time
1981: NAFCON incorporated as joint
venture between FGN (70%) and
Kellogg Brown and Root (30%)
2005: Notore acquired the asset
of the abandoned 500,000 MT
Urea Plant for US$152m
1987: Plant commenced production of
fertilizer and subsequently officially
commissioned with a design capacity of
1,500 MT/d of urea
2006: Notore signed 20 year gas
supply contract with Nigerian
Gas Company
2000: FGN decided to privatize
NAFCON
2003/2004: 2 attempts by the
FGN t o sell NAFCON as going
concern failed
2010: Commenced commercial
production & dispatch of ammonia
& urea in January & March
respectively
2010: Additional $55m equity
infusion through two leading
institutional investors in July
1990-92: Plant recognised as one of
KBR’s most efficient plants running at
over 110% capacity
1999: NAFCON is shut down
following key equipment failure
2009: Additional $20 m equity
injected from existing shareholder
2007:Raised record US$222m
facility from syndicate of Nigerian
Banks
2007:Overcame significant
operating challenges and begins
extensive rehabilitation of plant
2011: Average daily urea production (Jan – Jul) =
1,100MT /day. ca. 75% of name-plate capacity
5/11: Commenced implementation of Technical
Services Agreement with TATA Chemicals India
8/11: Concluded scheduled maintenance program
to improve plant reliability and efficiency
9/11: Successfully restructured our balance sheet
by extending the amortization profile our loans
3
Competitive Advantage
 Notore Industrial Complex strategically located at Onne, Rivers State, Nigeria
–
Abundant supply of natural gas
–
Land available for expansion opportunities
–
Own jetty (by the Atlantic ocean) for easy import of raw materials and export of products
 50 Megawatts of power generating capacity
 Signed 20 year gas contract at a competitive price in June 2006 for supply of sufficient gas to feed
current plant and planned expansion i.e. Trains I & II
 Own the only urea fertilizer plant in the whole of Sub Saharan and Southern Africa; annual
production capacity is 500,000 metric tonnes of Urea and 600,000 metric tonnes of blended NPK
 Asset located in Nigeria, a large and growing market for fertilizer; domestic consumption in Nigeria
is currently estimated to be between 900,000 – 1,100,000 metric tones per year
 Own Nigeria’s Largest Fertilizer Marketing, Sales and Agric Services Team as well as an effective
fertilizer supply chain
4
Overview of Businesses
Notore
Fertilizer
• Completed rehabilitation of ammonia plant in January 2010
• Completed rehabilitation of Train I for urea capacity of 500,000 MT per
annum in March 2010
• Completed scheduled maintenance to increase daily ammonia and urea
production capacity to 90% of production capacity
Notore
Seeds
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Notore
Power
• 25MW of the 50MW installed capacity is currently generated and supplied
to fertilizer plant. Excess power is available to trade
• Executed PPA with a neighboring customer to supply Power on a “Take or
Pay” basis
• Working with the Government on a pilot project to generate 250MW into the
National Grid
Secured license to operate as a seeds business
Working with partners to commercialize best available seed varieties
Plans to invest in R&D to develop next generation Miracle Seeds
Identifying sales opportunities for crop protection products
There are strong synergies with the Fertilizer business (Supply Chain)
5
Financial Highlights - Fertilizer Business
 2012 Urea production at 90% of capacity, i.e. 400,270 metric ton
•
Average urea selling price: $520 per ton
 In 2012, EBITDA is expected to be circa. $ 102 million and $ 115 million in 2013
 Concluded the restructuring of 70% of our current project loans to longer term loans to align
our cash flows/cash generation capacity with out debt service obligations
 Further expansion planned with the construction of a new 1,500, 000 Metric ton plant (Train
II) at our Onne Facility. CAPEX ca. US$900 million. Construction is expected to start in
2013.
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Plans to complete the listing and public offering of Notore Fertilizer Co. shares via an Initial
Public Offering (IPO) on the floors of the Nigerian Stock Exchange and an international
actively traded stock exchange/bourse in 2012
6
Outline
 Introduction to Notore
 Fertilizer Market
 Addendum
7
Market Size
 Global Fertilizer Market
 The global fertilizer industry is one of the largest agribusiness sectors estimated at
150million tons per year, with China and India accounting for over 40%, and the US,12%
 Fertilizers are a significant factor in improving crop yields. The primary fertilizer products
include nitrogen, phosphate, and potash.
• Collectively, these nutrients represent 90% of the world’s fertilizer consumption with
nitrogen alone representing approximately 65% of global fertilizer consumption.
 Urea prices are cyclical and driven by global supply and demand and energy prices
 Since the large increase in natural gas prices in the U.S. in 2000, the cost of urea
production in the U.S. has provided a floor to international urea prices
8
Source: IFA, IFDC
Gas Contributes 80% - 90% to the Raw Material Costs of Producing
Urea
Notore Gas Pricing in Lowest Quartile Globally
Russia
$0.93
Toronto
$4.60
New York
$4.01
Louisiana
Puerto Rico
$3.85
$4.45
Notore Gas Discount vs:
UK
$4.67
Spain
$4.50
Belgium
$4.57
Qatar
Egypt
$1.50
Notore $1.19
$1.06
India
$2.32
Korea
$6.00
China
$7.20
Japan
$6.10
China: (85%)
UK: (77%)
US: (75%)
Argentina
$4.10
Argentina: (74%)
India: (54%)
Egypt: (11%)
Sources: ONGC prices (India); EIA estimates (New York, Russia); Credit Suisse research (China); US FERC (other countries/regions: landed LNG prices); World Bank reports
(Egypt) ; ICIS (Qatar). Data in $US/mmbtu
9
Significant Growth Potential in Africa
 Africa was recently classified as one of the world’s most rapidly growing
economic regions
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It is expected that by 2015:

200 million Africans will enter into the consumer
goods market
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GDP per capita will grow at 4.5% CAGR ,
implying over 35% increase in spending power
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The continent also owns over 25% of the
world’s total arable land but generates
only 10% of global agricultural output
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Africa currently has only 20 companies
each generating a minimum annual
revenue of $3billion
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Nigeria was recently classified by the
World Bank as a Category 2 conducive
environment to do business in (same
league as Morocco, Egypt and Ethiopia)
10
Fertilizer Market Outlook
 Current consumption rate in Africa is still far below the FAO recommended
200kg/ha
 Current average fertilizer consumption in West and Central African is about 10kg/ha
 Africa’s estimated CAGR for fertilizer consumption (MT) is roughly 3.5% up to 2015
 Product supply is largely dependent on importation as only one fertilizer producing
company (i.e. Notore) exists in West and Central Africa
 The International Fertilizer Association
(IFA) Africa forum has written a position
paper on fertilizer policy proposing the
following:
Forecast on Fertilizer Consumption
(kg/ha) in West and Central Africa
60
50
2006 Abuja Declaration CAGR = 40%
Today's assumptions from research CAGR = 27%
40
 Fertilizer related taxes and custom
duties be abolished to include
eliminating tax breaks for local fertilizer
manufacturing
and/or
blending
companies
30
20
10
0
 Regional blocs should grant tax exempt
status for agricultural inputs including
Source: FAO
Statistics, Abuja Declaration of Fertilizers
fertilizers
2010
2011
2012
2013
2014
2015
11
Nigeria’s Agricultural Challenge
Whereas
 Use of inputs (fertilisers and Seeds) has been targeted as the key path to higher
yields
 Majority of Government agricultural budget goes into inputs subsidy (> $700M in
2010)
 Natural gas is abundant in the country
 There is enough arable land to produce seeds for the Sub Region
 Potential fertilizer market size over 3.5million MT
What gets to the farmer are:
 Only 10% - 20% of subsidies
 Little inputs at Very high costs (Fertiliser >$700/MT– a 37% increase over average
international FOB price)
 Isolation and desolation
 A vicious cycle of subsistence
12
The Nigerian Fertilizer Market
Place
Product
Products Used
Utilization
(kg/Ha)
•No formal distribution system
•Competition* sells primarily to government
•Three Types of Markets
*Competitors:
o Tak Continental and
o Golden Fertiliser
Promotion
•No investment in Marketing
•Major Challenges in the Market
o Distortion of Market Price
o Poor Quality Bulk Blends
o Short Weight Bags
o Availability in Season
Price
• Significant price
premium in local
market
• Customer willing
to pay premium
price for quality
13
brand
Notore in the Nigerian Market Space
 Notore currently controls 60% of the non-government urea market
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Produce Inputs (Fertilisers and Seeds)
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Notore non-government fertilizer sales activities in 23 states
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Educate farmers on inputs and best farming practices
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Give farmers access to inputs (lead with fertiliser)
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Provide inputs that are appropriate and affordable
 Crop Specific blends
 Pack size: 50kg, 10kg and 1 kg bags
 Pricing
14
Our Commercial Focus is to take Education and Good
Quality & Affordable Inputs to the Poor Farmer across
Nigeria
2009:
2010:
With Government Extension
With Private Extension (Village Promoters)
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Recruited 60 Dealer Partners,
1500 Agro Dealers, 6 Transport
Partners
Trained 210 ADP Staff of16 states
Implemented 420 demonstration
plots
Trained over 40,000 farmers
Introduced private sector extension
Trained 180 VPs in 15 states
Implemented 917 demonstration plots
Trained over 58,000 farmers
Introduced 1kg fertilizer pack size
Impact:
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175 private extension jobs each making N150,000
Resulted in 70-120% higher yields for trained farmers
Increased grain outputs of 196,000MT
Notore generated N9.8 Billion GDP
15
Our Achievements as at September 2011
Work Done
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143, 348 MT of Urea Produced
Expected Impact
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(against 71, 411 MT produced in
(already achieved)
2010)
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83, 587 MT of Ammonia
(30 VPs per state)
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Introduced 10kg fertilizer pack
size to the market in August
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Average 100% higher yields
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Increased grain outputs of
2Million MT
930 Village Promoters working
with our Agricultural Services
team
To reach 1,300,000 farmers by
December 2011
Produced
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750 additional village
promoters added in 25 states
36, 622 MT of Urea Exported
(26%)
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930 private extension jobs
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Generation of N80 Billion GDP
16
Notore 5-Year Fertilizer Strategy
 Our fertilizer business strategy is to secure the West and Central African
markets via 2.3 million MT production capacity and a world class supply chain
Train I
Refurbishment/restart
of NH3 plant
Train I
Refurbishment/restart
of Urea plant
Train II
Secure additional plant to
Increase capacity
Completed
Completed
~ Additional urea and
blended NPK production
capacity
20 year Gas Contract
Ensure Market Visibility in West and Central Africa
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Outline
 Introduction to Notore
 Fertilizer Market
 Addendum
18
Notore Seeds Market Entry Assessment
Potential Market
Market Entry Cost
•Rice and Maize Seed Market $1 Billion
Rice: $800 Million
Maize: $200 Million
•R&D: about $8 Million
Crop
Land
cultivated
Seeds
planted
per Ha
Cost per Kg of
seed
Rice
5 Million
60Kg
$2.50
Maize
5 Million
15Kg
$2.50
• Develop improved seeds with required quality
for Nigerian farmer and customers
•Infrastructure: about $10 Million
• Seeds processing mill with 100,000 MT /
annum capacity
• Processing involves applying herbicides and
removing impurities
Time to Market and Margins
Strategic Fit
•One-year time horizon
•Estimated Operating Margins of 30%
•Increase Sales From Fertilizer Business
•Diversify Revenue Streams
•Leverage on our distribution network
•Feed directly into our Foods Business
•Catalyst to Green Revolution
19
3-Year Seeds Business Strategy
2011
2012
 Launch Seeds & Crop
Protection Business
Acquire
Seeds
License
(Done)
 Grow Business
Commence
trading of
seeds
2013
 Commence Seeds Production
 Continue to grow Business
 Implement technical sales training
for the crop protection business
Phase I:
Engage farmers
to produce 1,000
MT of maize
seeds and 500
MT of rice
Phase II:
Increase production
capacity of maize
seeds to 2,000 MT
20