PotashCorp - 2012 Analyst Meeting - Wayne Brownlee Presentation

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PotashCorp - 2012 Analyst Meeting - Wayne Brownlee Presentation

  1. 1. WayneBrownleeExecutive VicePresident and CFOPotashCorp Growth Prospectsand Cash Flow Priorities PotashCorp.com
  2. 2. Forward-Looking StatementsThis presentation contains forward-looking statements or forward-looking information (forward-looking statements).These statements can be identified by expressions of belief, expectation or intention, as well as those statements thatare not historical fact. These statements are based on certain factors and assumptions including with respect to foreignexchange rates, expected growth, results of operations, performance, business prospects and opportunities and effectivetax rates. While the company considers these factors and assumptions to be reasonable based on information currentlyavailable, they may prove to be incorrect. Several factors could cause actual results to differ materially from thoseexpressed in the forward-looking statements, including, but not limited to: variations from our assumptions with respect toforeign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, andeffective tax rates; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets;costs and availability of transportation and distribution for our raw materials and products, including railcars and oceanfreight; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions andchanges in credit and financial markets; the results of sales contract negotiations with major markets; the Europeansovereign debt crisis and the recent downgrade of US sovereign debt and political concerns over budgetary matters;timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes incapital markets and corresponding effects on the company’s investments; unexpected or adverse weather conditions;changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflows;imprecision in reserve estimates; adverse developments in new and pending legal proceedings or governmentinvestigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; changes in and theeffects of, government policies and regulations; security risks related to our information technology systems; andearnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates.Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2011 under thecaptions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities andExchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given onlyas at the date of this presentation and the company disclaims any obligation to update or revise the forward-lookingstatements, whether as a result of new information, future events or otherwise, except as required by law.
  3. 3. Our Growth Prospects
  4. 4. World Potash Supply/DemandMarket Conditions: Balanced to Tight Market Expected in the Coming YearsMillion Tonnes KCl Operating Rate* - Percent Shipment Range Shipments Operational Capability Operating Rate 80 100 70 90 60 80 50 40 70 30 60 20 50 10 0 40 2002 2004 2006 2008 2010 2012F 2014F 2016F * Based on percentage of operational capability (estimated annual achievable production level). Shipment range based on 3-3.5% annualized demand growth rate (2002-2016). Operating rate forecast based on mid-point of shipment range divided by operational capability (including announced projects; assuming typical ramp-up period for new capacity).Source: Fertecon, CRU, IFA, PotashCorp
  5. 5. Brownfield Potash Expansion ProfileVolume Growth: Opportunity For Higher Potash Sales Volumes Relative to Peers Million Tonnes KCl – Capacity* Growth (2012 – 2016F) 6 5 4 3 2 1 0 POT MOS URKA QSLI AGU SQM ICL IPI * PotashCorp based on operational capability (estimated achievable production). Competitor capacity changes based on announced capital projects and estimated construction completion dates, which do not include ramp-up and may exceed operational capability.Source: Fertecon, CRU, Public Filings, PotashCorp
  6. 6. Saskatchewan Brownfield and Greenfield SensitivitiesHigher Prices: We Believe Current Prices Do Not Justify Greenfield InvestmentsUS$/Tonne Netback Required (FOB mine) 1,200 Greenfield 15% IRR Greenfield 10% IRR 1,000 Brownfield 15% IRR Brownfield 10% IRR 800 600 PotashCorp Q1 2012 Netback = $435/MT 400 200 0 $400/tonne $1,000/tonne $2,350/tonne $3,150/tonneAssumptions: Construction Cost Per Tonne• Brownfield: 1-million-tonne project constructed in Saskatchewan, excluding cost of infrastructure; 5-year construction and ramp-up timeline; does not include profit tax savings from immediate CAPEX deduction• Greenfield: 2-million-tonne project constructed in Saskatchewan, plus cost of infrastructure; minimum 7-year development and ramp-up timeline; $US$/CDN at par• IRR: Internal Rate of ReturnSource: PotashCorp
  7. 7. Potash Cost For Average US Corn FarmerAffordability: Even If Prices Rise, Cost Expected To Remain in Historical Range Percentage of Crop Revenue Percentage of Total CostsPercentage Percentage 7% $4.00/bushel 6% $5.00/bushel 6% $6.00/bushel 5% 5% 4% 4% Historical 3% 3% Range* 2% 2% 1% 1% 0% 0% 400 500 600 700 400 500 600 700 FOB SK Mine Price ($/MT) FOB SK Mine Price ($/MT) * Excludes 10-year minimum and maximum pointsSource: USDA, PotashCorp
  8. 8. Potash Cost For Average Brazilian Soybean FarmerAffordability: Even If Prices Rise, Cost Expected To Remain in Historical Range Percentage of Crop Revenue Percentage of Total CostsPercentage Percentage16% $10.00/bushel 12% $12.00/bushel14% $14.00/bushel 10%12% 8%10% Historical Range* 8% 6% 6% 4% 4% 2% 2% 0% 0% 400 500 600 700 400 500 600 700 FOB SK Mine Price ($/MT) FOB SK Mine Price ($/MT) * Excludes 10-year minimum and maximum pointsSource: CONAB, PotashCorp
  9. 9. Potential For Significant Earnings and Cash Flow
  10. 10. PotashCorp EBITDA ScenariosPotential to Generate Significant Cash FlowUS$ Billions Scenerio One 10 Scenario One (No Growth): Scenerio Two 9 Potash volumes (9.0mmt) Scenerio Three Potash netback ($435/tonne) 8 Capital Expenditure Phosphate & nitrogen gross margin ($1.3-1.6B) 7 Scenario Two (Average Growth): 6 Potash volumes rise with global demand (~3% per year) 5 Potash netback rises ~5% per year Phosphate & nitrogen gross margin ($1.3-1.6B) 4 3 Scenario Three (Strong Growth): 2 Potash volumes ~90% of operational capability Potash netback rises ~10% per year (to $600/tonne) 1 Phosphate & nitrogen gross margin ($1.3-1.6B) 0 2006 2008 2010 2012F 2014F 2016FSource: PotashCorp
  11. 11. Deploying Cash: A Track Record of Success
  12. 12. PotashCorp Share Repurchase HistoryCreating Value: Share Buybacks Have Been Opportunistic US$ per Share POT 90 Nov 18/10 80 Announced Repurchase 70 Jan 24/08 (~5% of O/S) Announced$6.3B 60 50 40 Repurchase (10% of O/S) Jan 25/05 Nov 1999 AnnouncedShare repurchases since 1999 30 Announced Repurchase Repurchase (5% of O/S) (5% o/s) 20 10 0 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 As of May 3, 2012Source: Bloomberg, PotashCorp
  13. 13. PotashCorp Equity InvestmentsCreating Value: Acquisitions Adding Significant Financial and Strategic Value US$ Billions 10.0 Market Value of Investments 9.0 8.0$2.0B 7.0 6.0 5.0 4.0Potash-related equityinvestments since 1998 3.0 2.0 1.0 0.0 1998 2000 2002 2004 2006 2008 2010 2012* * As of May 3, 2012Source: Bloomberg, PotashCorp
  14. 14. PotashCorp Capital DeploymentCreating Value: Cash Flow Return Continues to Outperform WACC Percentage 50.0% PotashCorp CFR WACC 40.0%$6.6B 30.0% 20.0%Opportunity capital deployedsince 2003 10.0% 0.0% 2003 2005 2007 2009 2011 WACC: Weighted Average Cost of CapitalSource: PotashCorp
  15. 15. PotashCorp Dividend ProgramCreating Value: Cash Flow Generation Provides Opportunity for Growth and Dividends US$ per Share 0.16 Quarterly Dividend* 0.14 0.12$0.9B 0.10 0.08Dividends paid since 2002 0.06 0.04 0.02 0.00 2002 2004 2006 2008 2010 2012 * Reflects any adjustments made to the dividend in the year. To see dividend amounts per quarter, visit www.potashcorp.comSource: PotashCorp
  16. 16. Share Repurchases and Dividend Payments (5 Years)PotashCorp Has Returned More Cash To Shareholders Than North American Peers US$ Billions 7 6 5 4 3 2 1 0 POT MOS* CF AGU IPI * Mosaic based on their fiscal period (ending November 2011)Source: Bloomberg
  17. 17. Deploying Cash: A Focus On Shareholder Value
  18. 18. Cash Flow PrioritiesFocused on Using Free Cash Flow to Drive Long-Term Shareholder Value 2012 2013 2014 2015 2016 Potential: Dividend Increases / Share Buybacks / M&A Potash Brownfield Projects (Existing) Phosphate & Nitrogen Brownfield Projects
  19. 19. Cash Flow Consideration Opportunities Compete for Use of Free Cash Flow to Drive Long-Term ValueConsiderations: Organic Growth M&A Share Buybacks Dividends 1. Priority is completing 1. Continue to evaluate 1. Potential given 1. Potential given existing potash offshore potash anticipated cash flow anticipated cash flow expansion projects opportunities that generation capability generation capability (>75% capital improve delivered spending complete) cost advantages to 2. Focus on relatively 2. Focused on key growth markets quick repurchase enhancing dividend 2. Potential Nitrogen (India, China and timeline (typically value while and phosphate Brazil) one year) simultaneously projects to optimize growing earnings existing plants with 2. Evaluate quick payback opportunities in periods other nutrients that enhance long-term value
  20. 20. USE OF CERTAIN NON-IFRS MEASURESPotashCorp prepares its financial statements in accordance with International Financial Reporting Standards(“IFRS”).In this presentation, figures in respect of EBITDA are provided in respect of PotashCorp. References in thisPresentation to “EBITDA” are to income or loss from continuing operations before depreciation andamortization, interest and income taxes; “CFR” are to cash flow return. EBITDA and CFR are not measures offinancial performance (nor does it have a standardized meaning) under IFRS. The Company uses both IFRSand certain non-IFRS measures to access performance. Management believes these non-IFRS measuresprovide useful supplemental information to Shareholders in order that they may evaluate PotashCorp’sfinancial performance using the same measures as management. These non-IFRS financial measures shouldnot be considered as a substitute for, nor superior to, measures of financial performance prepared inaccordance with IFRS. For historical periods, a reconciliation of EBITDA to net income (loss) from continuingoperations is contained in PotashCorp’s Financial Review Annual Report for the fiscal year ended December31, 2011 on pages 78-84, which is attached as Exhibit 13 to the Company’s Annual Report on Form 10-K forthe year ended December 31, 2011.
  21. 21. Appendix – Forward-looking EBITDA Scenario Reconciliation Scenario One (US$ billions) 2012 2013 2014 2015 2016 Net Income (loss) $2.9 $2.9 $2.8 $2.8 $2.8 Adjusted For: Finance Costs $0.1 $0.1 $0.1 $0.1 $0.1 Income Taxes 1.0 1.0 1.0 1.0 1.0 Depreciation and Amortization 0.6 0.7 0.7 0.7 0.7 EBITDA $4.6 $4.7 $4.6 $4.6 $4.6 Scenario Two (US$ billions) 2012 2013 2014 2015 2016 Net Income (loss) $2.9 $3.1 $3.2 $3.4 $3.7 Adjusted For: Finance Costs $0.1 $0.1 $0.1 $0.1 $0.1 Income Taxes 1.0 1.0 1.1 1.2 1.3 Depreciation and Amortization 0.6 0.7 0.7 0.8 0.8 EBITDA $4.6 $5.0 $5.2 $5.5 $5.9 Scenario Three (US$ billions) 2012 2013 2014 2015 2016 Net Income (loss) $2.9 $4.0 $4.8 $6.0 $6.0 Adjusted For: Finance Costs $0.1 $0.1 $0.1 $0.1 $0.1 Income Taxes 1.0 1.4 1.7 2.1 2.1 Depreciation and Amortization 0.6 0.8 0.8 1.0 1.0 EBITDA $4.6 $6.3 $7.4 $9.2 $9.2Source: PotashCorp
  22. 22. Thank You There’s more online PotashCorp.com Visit us online Facebook.com/PotashCorp Find us on Facebook Twitter.com/PotashCorp Follow us on Twitter PotashCorp.com

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