In the Tuesday Guardian, there was an advertisement for Tringen (Trinidad Nitrogen), the Point Lisas-based ammonia manufacturer, which is 51 per cent-owned by National Enterprises Ltd (NEL). For its year ended December 31, 2010, Tringen had net sales of $2.1 billion (about US$340 million) and profit after tax of $544 million (about US$85 million). This translates to a profit margin of 25 per cent. Of Tringen's profit after tax of about $US85 million, it declared a dividend of US$80 million for the year, which means that it is paying out 94 per cent of its declared profit to its shareholders. Among Tringen's shareholders, of course, are the thousands of local shareholders of NEL: individuals from all walks of life, scores of credit unions, many of the mutual funds in the region, insurance companies, pension plans and the National Insurance Board.
In other words, when the price of ammonia increases on the world market, the thousands of people who own shares in NEL benefit as a result of increased dividends and an escalation in the share price of the investment holding company.
The converse is also true: when the world market price of ammonia declines, the financial results of NEL are likely to be impacted. But this is mitigated by the diverse nature of NEL shareholdings, which apart from its 51 per cent stake in Tringen also holds 51 per cent of TSTT, 51 of NFM, 20 per cent of Phoenix Park Gas Processors and a small percentage of Atlantic LNG. According to a press release based on the "Ammonia: 2011 World Market Outlook And Forecast" report, published this week: "The global ammonia market fueled also by new application fields and emerging end-use markets is forecast to demonstrate booming expansion – up to 170 million tonnes by 2015. "Key capacity expansions for ammonia are expected for Asia-Pacific countries, China being the leading market here. The second fastest developing region for ammonia is Eastern Europe driven by Russia, Croatia, Ukraine.
A fertiliser industry outlook published last week by CF Industries, a major player in the global fertiliser business states: "High demand, the narrower export window in China, gas limitations at some facilities and delays in certain scheduled capacity additions are expected to keep world ammonia and urea supply and demand balanced to tight. "The company expects global ammonia demand and prices to continue to receive support from rising industrial demand and high phosphate production rates."
Local ownership, foreign management
Tringen is a complex of three ammonia plants, which have an annual name-plate production capacity of 1.3 million metric tonnes, 99 per cent of which is exported. The three ammonia plants are managed and operated by Yara Trinidad Ltd, which is a subsidiary of Yara International ASA, the Norwegian successor to Norsk Hydro, whose Web site states that it is the number one global supplier of mineral fertilisers.Yara owns 49 per cent of Tringen I and II, which were constructed in 1977 and 1988 respectively, and 100 per cent of the Yara plant, which was constructed in 1966. According to the chairman's report, Tringen's sales revenues in 2010 were 70 per cent higher than in 2009 due to a combination of higher ammonia prices and increased sales volume. Its after-tax profit in 2010 was 89 per cent higher than in 2009 and, with its declared dividend of US$80 million, the company has paid out US$649 million in dividends over the period 1997 to 2010.
Tringen chairman, Carl Chatoor, stated in his report, that the ammonia market made a continued recovery from the collapse of late 2008/early 2009. "Looking ahead, the outlook for 2011 appears very favourable within the corridors of normal world business and trading conditions. The company continues to effectively manage its operating costs and its working capital requirements." The likelihood of any drastic reversal in the price of ammonia in the foreseeable future is also lessened by the fact that the demand for ammonia, for use in fertilisers and other commodities, is increasing sharply. I bought NEL shares in October at $9.55. On Monday, the share price was $13.10, which means that the stock has increased in value by 37 per cent in an eight month period. In addition, some time later this year, there is a legitimate expectation that NEL would declare a final dividend of upward of $0.80 a share, given the outstanding performance of Tringen. The final dividend plus the interim dividend, which are expected to total $1 a share, provide investors with an annual cash return on their investment of close to five per cent plus a capital appreciation of share of 37 per cent in eight months.
In effect, given the appreciation in the share's value and its payment of a dividend twice a year, anyone who is a direct NEL shareholder is participating in the wealth generated by T&T's natural resources and, through the investment, is seeing a growth in their personal wealth that far exceeds the current rate of inflation. In my view, because of its unique combination of growth and income, NEL is the perfect investment for all classes of investors.
I spent some time going into detail about Tringen, NEL and the global ammonia market because I am now convinced that the best solution for problems presented by the Clico policyholders would be to bundle all the good assets-Angostura, Lascelles deMercado, Home Construction, Republic Bank and Methanol Holdings (Trinidad) Ltd-into an investment holding company similar to NEL, which could then be divested on to the local stock market for all T&T individuals and financial institutions to participate in-first among whom, of course, would be the Clico policyholders who would be given shares in the investment holding company in return for their Executive Flexible Premium Annuities and their Core mutual funds. This solution would allow the ownership of what can be called Clico Enterprises Ltd (CEL) to remain in the hands of the Government and people of T&T, while the management and operation of the various companies, just as with NEL, could remain with those who now manage and operate them. This would allow T&T individuals, credit unions, mutual funds, pension plans and insurance companies to continue reaping the profits while the Germans continue to manage MHTL, Harford and Dulal-Whiteway continue to manage Republic Bank, Yetming and Yip Choy continue to manage Angostura, etcetera. A NEL solution to the Clico problem would allow everybody to win in the end.
Disclosure: The author of this column has shares in National Enterprises Ltd.