CF Industries

CF Industries is a manufacturer and distributor of fertilizers across the world. The firm operates through AN, IAN, Granular Urea and phosphate segments. Its principle nitrogen fertilizer commodities include ammonium nitrate, urea ammonium nitrate, granular urea, and ammonia. The organization also provides aqua ammonia, nitric acid, urea liquor and diesel exhaust fluid. It offers commodities primarily to industrial users, independent fertilizer users, and cooperatives. The company was established in 1946 and its headquarters are based in Deerfield. The firm’s actions are primarily guided by its values. The third-party code and employee code of conduct provide detailed guidance on the action and behavior that support its values.

Existing Mission, Objectives, and Strategies

Mission: Do it Right!

Objectives

The company’s products are essential to the global food security. The company generates a greater value to the society as it works to meet the expectation and needs of the communities, customers, employees and shareholders in which it operates (“Who We Are”, 2018.) The company strives to ”do it right’. The phrase is the foundation upon which operations are based.

Strategies

The firm creates and distributes nitrogen fertilizers. The organization specializes in delivering costs, generating superior commodities and maximizing value. The costs in this company are driven by the price of natural gas. Many of its production plants are located in Northern America where the costs of natural gas are slightly lower. Operational excellence including a focus on stream and safety factor is a core capability to the company and one of the major contributor of efficient operations. The company is closer to the railway carriers which ensures that commodities reach the customers within the required time. The company enjoys the lowest delivery costs for the broad range of nitrogenous wastes in North America.

A New Mission Statement

”To be the best company on the planet, where customers can discover and find everything they want at the best price possible.”

The new mission statement guides the organization’s operations from maintaining the efficient, reliability and quality in the distribution and manufacturing operation, instilling safety as a core company’s values and protecting the environment.

The company also strives to do the correct thing for the neighborhood, towns, and cities. CF industry is a major employer and a contributor to numerous tax bases. Just the same way its commodities nourish the soil, it looks for ways to strengthen the vitality and health of the local communities and leverage the resources. The firm’s major objective is to engage with a wide range of objectives in the society and the industries where it operates.

Customers

The mission’s statement appeals to the customers because it emphasizes on the creation of value and as well as products that fulfil the needs of the customer. In general the company aims at ensuring that all customers are satisfied (”Documents | CF Industries”, 2018).

Products

The mission statement highlight the need of creating the best products that meet the market demand. In this case the customs preferences will be evaluated before a product is produced.

Market

The company targets customers worldwide. When producing the commodities, the company will collect data from all over the world in order to ensure that clients are satisfied.

Technology

The company will employ the modern technology to ensure that commodities are produced at the minimum cost possible. In addition, it will ensure that the best quality products are produced.

Concern for Survival

The mission statement highlights the company’s long-term plan which is to become the market leader in the highly competitive arena. The business emphasizes on value implying that many consumers will be attracted to its products.

Philosophy

The company exists with the intention of satisfying the consumers as well as generating revenue for the shareholders. The global expansion will ensure that consumers obtain products and it will also ensure that stakeholders receive the highest returns because of the increased revenue.

Distinctive Competence

The company aims at creating some of the best product which will ensure that it gains maximum customers from the market. In addition, the firms will improve its brand name, which has clearly been defined by the mission statement.

Concerns for the Public Image

The mission emphasizes on being the best company in the world; this is only possible through the creation of better goods that will compete with the ones available in the industry. The improved public image will see the organization increase sales.

Concerns of the Employees

In the expansion process the company will ensure that it takes care of the needs of employees. Various motivational techniques will be used to promote hard work in the organization.

Existing Business Model

The company serves a wide range of industrial and agricultural customers. The main customers are industrial entities including metal companies and chemical producers, farmers comprising of commercial agricultural producers, independent fertilizer distributors including sales agents and distributors and cooperatives comprising of supply corporative and agricultural marketing. The organization’s principal market is in the US. Majority of the firms remaining customers are located in Canada; however, CF industries do have clients across Latin America, the Middle East, and Europe (Jedliński, 2015). The company provides value to clients in a multiple of ways: commitment to innovation, its safety practices, efficient and reliable processes, and the quality of its products. The company operates a website through which it offers information on its various corporate development, activities, and products (Jedliński, 2015). However, CF industries do not operate an online sales channel.

The company offers customers support services through the lifespan of its sales agreements. The potential customers are in a position to contact the company via mail and receive feedback directly. In addition, customers are able to access information directly through the phone. Customers are in a position to access information of the organization through new portals and insights. The customers can also contact the company through the social media platforms. The firm collaborates with various partner institutions throughout the process of developing, manufacturing and distribution of commodities. The partners are categorized as strategic alliance partners, joint ventures, channel partners, and supplier partners. The company collaborates with a wide range of regulatory organizations and industrial bodies including National Union, Energy Intensive Users Group, British Compressed Gas Association, and Agricultural Industry Confederation.

SWOT Analysis

Strength

The company has a wide range of suppliers of raw material this gives it an opportunity to avoid the supply chain problems (Shapiro, 2014).

CF Corporation also has a record of integrating complimentary firms through acquisitions and merger. The management has been successful in streamlining the supply chain to meet a reliable supply chain.

The company has highly skilled workforce through learning programs and training. The company has invested a substantial amount of money in training.

Weaknesses

The firm has not managed to tackle the challenges presented by the new entrants in the market. The new entrants have consistently reduced the market share that is held by the company.

CF industries experience the highest rate of attrition rate in the workforce when compared to other firms. The high attrition rate has cause CF industries to incur huge sums of money in development.

The investment in the development and research is way below the growing players in the industry. The company has not managed to compete with the already established firms because of underinvestment in research.

Opportunities

The presence of the online platforms presents an opportunity for the company to expand the market by gaining more customers.

The new trends in the consumer behavior open up the market for the company. It provides a greater opportunity for CF industries to build up a new revenue stream.

Threats

The rising costs of production pose a threat to the firm’s profitability.

The changing consumer behavior can threaten the company’s physical infrastructure.

The stable profitability has created a number of players in the industry over the past years which is having a negative impact on profitability.

Source: Author

Internal Factor Evaluation (IFE) Matrix

Strengths

Weight

Rating

Weighted Score

Competent workforce

0.05 (5%)

3

0.15

Brand equity

0.07 (7%)

4

0.28

Healthy financial position

0.08 (8%)

3

0.24

Products are globally available

0.10 (10%)

4

0.40

Strong marketing

0.07 (7%)

4

0.28

Strong brand

0.09 (8%)

4

0.36

Weaknesses

Taste differentiation

0.05 (5%)

1

0.05

A weak image in India

0.06 (6%)

2

0.12

High debts

0.10 (10%)

2

0.20

Environmental Issues

0.10 (10%)

1

0.10

Some products have low sales

0.09 (9%)

2

0.18

Aggregate Weighted Score

1.0(100%)

2.65

Source: Author

External Factor Evaluation (EFE) Matrix

Opportunities

Acquisitions of smaller players.

0.07

2

0.14

Rising demand for agricultural products

0.06

1

0.06

Environmental Consciousness of People

0.09

3

0.27

Globalization

0.07

3

0.21

Expansion

0.11

3

0.33

Possible growing demand.

0.09

4

0.36

Threats

Smaller, more nimble operators/players

0.1

2

0.2

Image perception

0.05

2

0.1

Product prices growth

0.1

2

0.2

Key competitors

0.12

4

0.48

Environmental concerns

0.12

4

0.48

1

2.77

Source: Author

SWOT Bivariate Strategy Matrix

Internal Factors

External factors

Strengths(S)

Strong brand name

Skilled resources

Cost efficient

Weaknesses(W)

Product and price

Quality issues

Badly affected by financial crisis

Opportunities(O)

Improving financial conditions

Economic growth

Related and unrelated diversification

SO Strategies

Increased presence around the world (S1,S2)

Offering new improved commodities (S1,S3)

WT Strategies

Recovery revenue (W1, W3)

Reduced overall cost (W1, W2)

Recovery market image (W1,W2)

Threats(T)

Market saturation

Stiff competition

Impact of financial slowdown

ST Strategies

Producing locally(T1, S1,S2)

Offering cost efficient commodities T2, S1,S2

Producing locally T3,S3

WT Strategies

Increasing domestic facilities W1,W2

Financial recovery after crisis W1, T1

Source: Author

BCG Matrix

Source: Author

Competitive Forces

Threats for New Entrants

The entry of new firms brings new ways doing things and puts much pressure on the company through providing a value proposition to the customers, reducing costs, and lower price strategy. The company has managed some of the challenges and build an appropriate barrier to safeguard competitive edge.

Bargaining Power of Suppliers

The company relies on numerous suppliers; this means that it has greater power when compared to the suppliers implying that it can control the prices. The company has developed a dedicated supplier chain to ensure production is not disrupted (Easton, 2016).

Bargaining Power of Buyer

The market is quite competitive with numerous suppliers offering commodities that have close substitutes. The company has continuously invented new commodities as the way of remaining dominant in the market.

Threats of Substitute Services and Products

The market is highly competitive with numerous suppliers offering commodities that have closer substitutes; this means the CF industries must have transformed its services and presently emphasizes on the needs of customers.

Rivalry among the Existing Competitors

The current rivalry among the existing manufacturers is relatively high and this creates pressure on CF industries to reduce the prices of goods. The company has built a sustainable differentiation to reduce the level of competition.

Competitive Profile Matrix (CPM)

Key Success Factors

Weight

Monsanto Co (USD)

Nutrient Ltd (USD)

The Scotts Miracle Gro Co (USD)

Score

Weighted

Score

Score

Weighted

Score

Score

Weighted

Score

Technological competencies

Price Competitiveness

Customer services

Product quality

Brand Image

Advertising

Innovation

0.25

0.20

0.20

0.15

0.10

0.05

0.05

4

2

1

4

3

3

3

1.00

0.40

0.20

0.60

0.30

0.15

0.15

4

3

4

2

2

3

1

1.00

0.60

0.80

0.30

0.20

0.15

0.05

3

4

2

2

1

4

2

0.75

0.80

0.40

0.30

0.10

0.20

0.10

Total

1.00

2.80

3.10

2.65

Source: Author

Competitor’s Ratios and Analysis

Monsanto Co (USD)

Nutrient Ltd (USD)

The Scotts Miracle Gro Co (USD)

Asset turnover

44.2

1.91

1.79

Current ratio (current assets/current liabilities)

1.35

1.32

3.27

Debt to asset ratio (debt/asset)

38.05

39.05

24.35

Gross profit margin (gross profit/sales

54.37

55.64

32.57

Source: Author

The three competitors have unique strengths and weaknesses. For instance, Monsanto Co (USD) has a greater gross profit margin which is a positive trend. However, the firm is highly geared. The Scotts Miracle Gro Co (USD) has a lower gross margin ratio but it relies on fewer debts to finance its operations.

Current and Historical Financial Statements

Income Statement

2017

2016

2015

Shares Outstanding

233.26

233.11

233.08

Net Sales Or Revenues

4130

3685

4308.3

Cost Of Goods Sold

3700

2845

2761.2

Gross Profit

430

840

1547.1

Selling General And Admin Expense

201

706

354

Income Before Depreciation Depletion Amortization

229

134

1193.1

Interest Expense

315

200

133.2

Pre-tax Income

-125

-226

1057.6

Provision for Income Taxes

-575

-68

395.8

Minority Interest

92

119

34.2

Investment Gains Losses

-

-

72.3

Income Before Extra ordinaries And Disc Operations

450

-158

734.1

Net Income

358

-277

699.9

Source: Author

Balance Sheet

Balance Sheet

2017

2016

2015

Shares Outstanding

233.26

233.11

233.08

Cash

835

1169

308.8

Receivables

307

236

267.2

Inventory

275

339

321.2

Raw Materials

42

339

321.2

Finished Goods

233

-

-

Other Current Assets

48

911

229.9

Total Current Assets

1465

2655

1127.1

Property Plant And Equipment

13246

12891

11313.2

Accumulated Depreciation

4071

3239

2774.2

Net Property Plant And Equipment

9175

9652

8539

Investment And Advances

108

139

297.8

Intangibles

2371

2345

2390.1

Deposits And Other Assets

344

340

384.9

Total Assets

13463

15131

12738.9

Accounts Payable

472

638

917.7

Income Taxes Payable

2

1

5.5

Other Current Liabilities

106

47

292

Total Current Liabilities

580

686

1215.2

Deferred Charges Taxes Income

1047

1630

916.2

Long-Term Debt

4692

5778

5592.7

Other Long-Term Liabilities

460

545

627.6

Total Liabilities

6779

8639

8351.7

Common Stock Net

2

2

2.4

Capital Surplus

1397

1380

1377.4

Retained Earnings

2443

2365

3057.9

Treasury Stock

-

1

152.7

Other Liabilities

2842

2746

102.2

Shareholders’ Equity

6684

6492

4387.2

Total Liabilities And Shareholders’ Equity

13463

15131

12738.9

Source: Author

Ratios from the Most Current and Available 3 Years

Workings

Calculation

Gross profit ratio

Gross profit/Sales

2017= 430/4130=

2016= 840/3685=0.23

2015=1547.1/4308.3=0.36

2017=0.104

2016= 0.23

2015=0.36

Asset turnover

Assets/Sales

2017= 13463/4130

2016=15131/3685

2015=12738.9/4308.3

2017=3.26

2016=4.11

2015=2.96

Current ratio

= Current assets/Current liabilities

2017= 1465/580

2016= 2655/686

2015=1127.1/1215.2

2017= 2.53

2016= 3.87

2015=0.93

Quick ratio

= (Cash + Short-term marketable investments + Account receivables)/Current liabilities

2017= (1465-275)/ 580

2016=(2655-339)/ 686

2015=(1127.1-321.2)/ 1215.2

2017= 2.05

2016= 3.38

2015=0.66

Cash ratio

= (Cash + Short-term marketable investments)/ Current liabilities

2017= 835/580

2016= 1169/686

2015=308.8/1215.2

2017=1.44

2016= 1.70

2015=0.25

Source: Author

Alternative Strategies

The company should focus on the provision of commodities that are most in demand to those clients with urgent needs, this makes it possible maximize price. The organization has increased the flexibility of its asset base to make sure commodities reach the customers as scheduled. The firm should optimize a product mix between urea ammonium nitrate, urea, ammonia, and other in order to maximize returns (Easton, 2016).

Pro-Forma Financial Statements

Income Statement

2017

2018

2019

Shares Outstanding

233.26

256.586

282.2446

Net Sales Or Revenues

4130

4543

4997.3

Cost Of Goods Sold

3700

4070

4477

Gross Profit

430

473

520.3

Selling General And Admin Expense

201

221.1

243.21

Income Before Depreciation Depletion Amortization

229

251.9

277.09

Interest Expense

315

346.5

381.15

Pre-tax Income

-125

-137.5

-151.25

Provision for Income Taxes

-575

-632.5

-695.75

Minority Interest

92

101.2

111.32

Income Before Extra ordinaries And Disc Operations

450

495

544.5

Net Income

358

393.8

433.18

Source: Author

Pro forma Balance Sheet

balance Sheet

2017

2018

2019

Shares Outstanding

233.26

256.586

282.2446

Cash

835

918.5

1010.35

Receivables

307

337.7

371.47

Inventory

275

302.5

332.75

Raw Materials

42

46.2

50.82

Finished Goods

233

256.3

281.93

Other Current Assets

48

52.8

58.08

Total Current Assets

1465

1611.5

1772.65

Property Plant And Equipment

13246

14570.6

16027.66

Accumulated Depreciation

4071

4478.1

4925.91

Net Property Plant And Equipment

9175

10092.5

11101.75

Investment And Advances

108

118.8

130.68

Intangibles

2371

2608.1

2868.91

Deposits And Other Assets

344

378.4

416.24

Total Assets

13463

14809.3

16290.23

Accounts Payable

472

519.2

571.12

Income Taxes Payable

2

2.2

2.42

Other Current Liabilities

106

116.6

128.26

Total Current Liabilities

580

638

701.8

Deferred Charges Taxes Income

1047

1151.7

1266.87

Long-Term Debt

4692

5161.2

5677.32

Other Long-Term Liabilities

460

506

556.6

Total Liabilities

6779

7456.9

8202.59

Common Stock Net

2

2.2

2.42

Capital Surplus

1397

1536.7

1690.37

Retained Earnings

2443

2687.3

2956.03

Other Liabilities

2842

3126.2

3438.82

Shareholders’ Equity

6684

7352.4

8087.64

Total Liabilities And Shareholders’ Equity

13463

14809.3

16290.23

Source: Author

Performa Cash Flow

2017

2018

2019

Shares Outstanding

233.26

256.586

282.2446

Net Income Cash Flow

450

495

544.5

Depreciation Depletion Amortization C F

883

971.3

1068.43

Net Increase Decrease In Assets Liabilities

839

922.9

1015.19

Other Adjustments Net

-541

-595.1

-654.61

Net Cash From Used By Operating Activities

1631

1794.1

1973.51

Increase Decrease In Prop Plant And Equipment

-453

-498.3

-548.13

Increase Decrease In Investments

25

27.5

30.25

Other Cash Inflow From Investment Activities

20

22

24.2

Net Cash From Used By Investment Activities

-408

-448.8

-493.68

Issuance Purchase Of Equity Shares

1

1.1

1.21

Issuance Repayment Of Debt Securities

-1148

-1262.8

-1389.08

Payment Of Dividends And Other Cash Distributions

-280

-308

-338.8

Other Cash From Used By Financing Activities

-137

-150.7

-165.77

Net Cash From Used By Financing Activities

-1564

-1720.4

-1892.44

Effect Of Exchange Rate Changes On Cash

12

13.2

14.52

Net Change In Cash And Cash Equivalents

-329

-361.9

-398.09

Cash And Equivalents At Beginning Of Year

1164

1280.4

1408.44

Cash And Equivalents At Year End

835

918.5

1010.35

Source: Author

Net Present Value Analysis of Proposed Strategy’s New Cash Flow and EPS/EBIT

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

cash flow

(5523.84)

835

918.5

1010.35

1111.385

1222.524

1344.776

(12%)

1

0.8929

0.7972

0.7118

0.636

0.5674

0.5066

(5523.84)

745.57

732.23

719.15

706.84

693.66

681.26

NPV

1245.13

Source: Author

Specific Recommended Strategy and Long Term Objectives

Product Diversification

In the long-term the company will consider strategies that improve revenues on the existing products and diversity into new markets with new and existing models. The strategy will give the firm a chance to grow the business by increasing the sales for the existing customer and opening up new branches in other nations. The company will also modify the current commodities so that they appeal to the new class of customers. The company will only focus on product diversification that represent an attractive opportunity for the business.

The long-term objective is to see the company attain a greater market share when compared to other firms in the industry through product diversification. The company will also make a significant improvement in its distribution terminals to increase the outbound and inbound loading and increasing the loading rime (Whittington, 2015). All the investments and strategic initiatives will be in support of the strategy to maximize the price realization and reduce the delivery costs for its products. The company’s long-term goal is to drive cash generated on each unit of share.

Why I Chose the Strategy and the Cost

The new strategies will enable the company to receive more revenues in future. In addition, the business will not by be adversely affected by economic problems that arises in one country because of the numerous businesses and products spread all over the world. The proposed will cost the company 98 million dollars which is part of the initial investment cost.

Timetable Agenda

The new plan strategy will be accomplished within a year. In it will be split into three parts (4 months) to ensure that it is done smoothly. In that period progress will be measured on quarterly basis and any problems corrected.

Proposed New Business Model

Growth Oriented and Offering Customer Cheap but Quality Products

The new business model emphasizes on rapid growth and expansion as well as offering customers quality commodities at the most favorable prices. The model will prioritize on the growth of the net accumulating income. Producing in large quantities will mean that the organization will reduce the cost of production because of the economies of scale.

The company intends to offer its customers unique products for less. The company aims at outshining its competitor by offering commodities that are not available in the market. The organization will come up with lower cost offering in the emerging markets, this will give the customers a chance to test different commodities.

The company will gain leverage on from its assets by utilizing the internet and the social media platforms. In the new system high sales numbers will be attributed to the fast shipping system that the company will employ. In the new model the company’s revenue streams will be classified unto two divisions: the local and the international markets.

References

Documents | CF Industries. (2018). Retrieved from https://www.snl.com/IRW/Docs/4533245.

Easton, P. (2016). Financial reporting: An enterprise operations perspective. Journal Of Financial Reporting, 1(1), 143-151. doi: 10.2308/jfir-51333

Jedliński, M. (2015). Dynamic logistics strategies in the company logistics potential management. Russian Journal Of Logistics And Transport Management, 2(1), 3-10. doi: 10.20295/2313-7002-2015-1-3-10

Shapiro, A. (2014). Multinational financial management. Hoboken (NJ): J. Wiley.

Whittington, G. (2015). Measurement in Financial Reporting: Half a Century of Research and Practice. Abacus, 51(4), 549-571. doi: 10.1111/abac.12061

Who We Are. (2018). Retrieved from https://www.cfindustries.com/who-we-are