PotashCorp - BMO Capital Markets Farm to Market Conference, May 22, 2014


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PotashCorp - BMO Capital Markets Farm to Market Conference, May 22, 2014

  1. 1. PotashCorp.com BMO Farm to Market Conference May 2014 Wayne Brownlee Executive VP & CFO
  2. 2. This 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 that are not historical fact. These statements often contain words such as “should,” “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimates,” “plans” and similar expressions. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in the forward-looking statements, including, but not limited to the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; changes in competitive pressures, including pricing pressures; risks and uncertainties related to our international operations and assets; 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 ocean freight; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; unexpected geological or environmental conditions, including water inflows; economic and political uncertainty around the world; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; increases in the price or reduced availability of the raw materials that we use; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; risks related to reputational loss; and earnings, and the decisions of taxing authorities, 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, 2013 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law Forward-looking Statements Slide#1
  3. 3. PotashCorp Overview World’s largest fertilizer producer by capacity; #1 in potash and among the largest in nitrogen and phosphate. Global leader in potash; nutrient with highest margins and significant barriers to entry. Canadian potash operations and strategic offshore investments position us to benefit from growth markets. World-class nitrogen and phosphate businesses focused on more stable feed and industrial markets. Slide#2
  4. 4. • Strong cash flow • Cash flow from operating activities of $3.2B in 2013 • Reduction in capex: 93 percent complete CDN $8.3B potash expansion program • Well positioned potash business • Low-cost supplier to key markets • Operational capability aligned with anticipated near-term demand • Flexibility to significantly grow sales volume • Proven track record of returning capital to shareholders • Dividend increase of 950 percent since January 2011 • Dividend payout ratio of ~4% • Anticipate Completion of 5% share repurchase program by August 1st PotashCorp Highlights Slide#3
  5. 5. Fertilizer Fundamentals
  6. 6. Factors to Watch in 2014 Agriculture Market Update Spring planting delayed due to long cold winter. Farmers expected to plant less corn and more soybeans, cotton and rice. Political tension could disrupt grain trade. Access to credit could be an issue for Ukrainian farmers. Brazil soybean economics are strong and corn returns have improved since late 2013. Logistics modestly better than last year but still constrained. European wheat production expected to be strong and more rapeseed planting expected. China grain and oilseed imports continue to rise despite cancelation of some corn and soybean cargoes. Some concern that Indian monsoon could be below average in 2014. Source: USDA, PotashCorp Dry weather has impacted oil palm yields and supported prices. Slide#5
  7. 7. 0 2 4 6 8 10 12 14 16 18 20 Palm Oil Sugar Wheat Corn Soybeans Source: Bloomberg, PotashCorp Agricultural Fundamentals Strong Underlying Support for Robust Fertilizer Demand Slide#6 Percentage Price Change: Jan 1 – May 13, 2014 Fertilizer Affordability Index 0 50 100 150 200 250 300 350 400 450 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Crop Price Index* Fertilizer Price Index** * Based on corn, soybean and wheat prices (weighted by global consumption) ** Based on urea, DAP and KCl prices (weighted by global consumption)
  8. 8. PotashCorp's Nutrient Advantages
  9. 9. Source: USDA, PotashCorp Potash* Expect Improved Demand Across All Three Nutrients 2014 Global Nutrient Demand 0 10 20 30 40 50 60 2012 2013 2014F *Based on mid-point of PotashCorp guidance. KCl – Million Tonnes Nitrogen 0 20 40 60 80 100 120 140 160 180 200 2012 2013 2014F Ammonia – Million Tonnes Phosphate 0 10 20 30 40 50 2012 2013 2014F P205 – Million Tonnes Slide#8
  10. 10. 4.0% 2.3% 2.2% 0% 1% 2% 3% 4% 5% Potash Phosphate Nitrogen Source: Fertecon, CRU, PotashCorp The Potash Advantage Percent – CAGR (2013-2018F) Stronger Future Growth Prospects and Significant Time and Cost for New Capacity Estimated Demand Growth Rate $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 Potash* Phosphate** Nitrogen*** Greenfield Cost Profile US$ - Billions * Estimated time and cost for a 2MMT KCL conventional greenfield mine in Saskatchewan. Includes rail, utility systems, port facilities and cost of deposits ** Includes phosphate rock mine, sulfuric acid plant, phosphoric acid plant and DAP/MAP granulation plant. Does not include time for permitting, research and engineering *** Cost of ammonia/urea complex ~ 7 years 3-4 years ~3 years Slide#9
  11. 11. Source: Fertecon, CRU, IFA, PotashCorp 0 10 20 30 40 50 60 70 80 1998 2000 2002 2004 2006 2008 2010 2012 2014F 2016F 2018F Shipments Shipment Range* Operational Capability Million Tonnes KCl Potash Operational Capability Historically in Excess of Demand World Potash Supply and Demand * Midpoint of shipment range based on ~2.5% annualized demand growth rate (1998-2018F). Slide#10
  12. 12. Source: Fertecon, CRU, PotashCorp PotashCorp is Uniquely Positioned Low-cost Producer with Significant Percentage of Global Capacity Slide#11 POT (SK) POT (NB) Potash Industry Site Cost Profile* * Site cost includes all cash operating costs, estimated per-tonne sustaining capital expenditures, royalties and taxes. Darker shaded bars represent CRU estimated mine site production costs at actual production levels; lighter shaded bars represent PotashCorp’s estimate of competitors cost range based on company reported data. Includes impact of PotashCorp’s announced changes for 2014 (upper end of range) and 2016 target (lower end of range). ** Competitive position dependent on end-market destination. *** Based on nameplate capacity at year-end 2013, which may exceed operational capability US$ Per Tonne (FOB Mine**) PotashCorp Rest of World Percentage of Global Capacity***
  13. 13. Source: PotashCorp Gross Margin Advantage Potash: Gross Margin % of Net Revenue Nitrogen: Gross Margin % of Net Revenue 0 10 20 30 40 50 60 70 80 90 1999 2002 2005 2008 2011 2014F 5-Year Average 15-Year Average -10 0 10 20 30 40 50 60 70 80 90 1999 2002 2005 2008 2011 2014F 5-Year Average 15-Year Average Potash Margins Support Premium Earnings Multiple Slide#12 Percentage Percentage
  14. 14. Source: PotashCorp PotashCorp Gross Margin by Category PotashCorp’s Portfolio is Directed to Higher Margin, Less Volatile Products Nitrogen: Focused on Greater Stability 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2009 2010 2011 2012 2013 Industrial Fertilizer Percentage of Five-year Average 0 500 1,000 1,500 2,000 2,500 Trinidad Augusta Geismar Lima Industrial Fertilizer Thousand Tonnes Product – 2013 PotashCorp Sales by Nitrogen Plant Slide#13
  15. 15. Optimize Delivered Cost Advantages; US Advantaged Position Nitrogen: Advantaged Competitive Position Source: PotashCorp 0 100 200 300 400 500 600 700 Ammonia Urea POT Avg US Netback US Benchmark Price* • Geographic positioning and lower transportation costs provide opportunity for higher average realized prices • Proximity to corn belt allows for reduced freight costs on fertilizer sales • Industrial ammonia production located near consumers, some via pipeline direct to customers * Represents average Tampa Ammonia and NOLA Urea prices for 2013 Slide#14 US$ Per Tonne
  16. 16. 0% 20% 40% 60% 80% 100% PotashCorp OCP** Mosaic* Agrium* Feed & Industrial Fertilizer Source: Company Reports, CRU, PotashCorp PotashCorp’s Product Mix Provides Flexibility and Enhances Stability Phosphate: Diversified Product Offering PotashCorp Gross Margin by Category 0% 5% 10% 15% 20% 25% 30% Feed & Industrial Fertilizer Percentage of Net Sales (2014 YTD) Finished Product Mix * Based on most recently reported 12-month sales volume totals as per publicly available data ** Estimate per CRU. Excludes phosphate rock sales Percentage Slide#15
  17. 17. PotashCorp's Potential
  18. 18. 50 60 70 80 90 100 110 120 2013 Cash Cost 2014 Cash Cost Target 2016 Cash Cost Target Source: Fertilizer Week, PotashCorp Potash: Improving Outlook Prices Strengthening in Spot Markets; Costs Trending Lower Slide#17 250 300 350 400 450 500 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Brazil CFR (US$/MT) US Midwest Del (US$/ST) SE Asia CFR (US$/MT) US$ per tonne Potash Price By Select Market PotashCorp Per Tonne Cash Cost of Goods Sold US$ per tonne * As compared to 2013 levels (not adjusted for inflation); target assumes successful ramp-up of expansions at lower-cost facilities Annualized improvement*: ~$15-$20 per tonne Annualized improvement*: ~$20-$30 per tonne
  19. 19. Million Tonnes KCl Matching Operational Capability with Expected Market Demand Enhancing Our Competitive Position in Potash Source: PotashCorp 0 2 4 6 8 10 12 14 16 18 20 2013 2014F 2015F 2016F Nameplate Capacity* Operational Capability** Inventory * Estimated capacity as per design specifications or completed Canpotex entitlement runs; does not necessarily represent operational capability. ** Estimated annual achievable production level at current staffing and operational readiness. Estimate does not include inventory-related shutdowns and unplanned downtime. 0 1 2 3 4 5 6 7 8 2014F 2015F 2016F Rocanville New Brunswick Incremental Capability** - Million Tonnes KCl Slide#18
  20. 20. 49.2% PotashCorp Other Canpotex Members Source: Company Reports, PotashCorp Canpotex Entitlement Growth Expected to Support Sales Volumes Growth Potash: Increasing Canpotex Entitlement Percentage of Canpotex Entitlement >53% PotashCorp Other Canpotex Members First-half 2014 Second-half 2014 (Estimate)* Slide#19 * Based on PotashCorp preliminary results.
  21. 21. Source: PotashCorp Ammonia Capacity* New Ammonia Capacity Adds Margin Growth Potential Nitrogen: Focused Growth Initiatives 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2012 2013 2016E Trinidad Augusta Lima Geismar Million Tonnes * All estimated capacity amounts as at beginning of year. ** Contributions based on 2013 per-tonne margins for anticipated capacity additions. Augusta Expansion • Completed: 2012 (August) • Incremental Capacity: 70K MT • Incremental Gross Margin (2013): ~$15M Geismar Expansion • Completed: 2013 (February) • Incremental Capacity: 500K MT • Incremental Gross Margin (2013): ~$100M Lima Expansion • Anticipated Completion: 2015 (September) • Incremental Capacity: • 100K MT (Ammonia) • 80K MT (Urea solution) • Incremental Gross Margin (Potential)**: ~$40M Slide#20
  22. 22. Focus on Efficiencies and Optimization of P2O5 Production Portfolio Phosphate: Improving Cost Structure Source: PotashCorp 150 250 350 450 550 2012 2013 2014F US$ Per Product Tonne Costs of Goods Sold • Greater efficiency and improved procurement practices expected to reduce costs in 2014 • Reduced workforce levels expected to improve cost structure • Mining efficiencies (course ore recovery in Aurora) to lower rock costs • Optimizing sulfur sourcing points and freight terms to reduce delivered cost • Lower ammonia prices and shifting sales mix away from more ammonia intensive fertilizer products Slide#21
  23. 23. Creating Shareholder Value
  24. 24. 0.0 0.5 1.0 1.5 2.0 2.5 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Source: PotashCorp PotashCorp Total Capital Spending** CAPEX Spending Largely Complete PotashCorp’s Opportunity 93% 7% Completed Remaining PotashCorp Potash Projects Estimated Capital Spending* US$ Billions Slide#23 * As at March 31, 2014. Includes both debottleneck and expansion spending. ** Cash additions to property, plant and equipment per cash flow statement (2006-2013)
  25. 25. Utilizing Strong Cash Flow to Enhance Long-term Shareholder Returns PotashCorp’s Opportunity Source: Bloomberg, PotashCorp 5 Percent Share Repurchase Program Announced July 24, 2013 (up to $2 billion through August 1, 2014) Authorized amount = ~43M shares ~70% 30% Completed Remaining Share Authorization Percentage Completion* Slide#24 * As at May 15, 2014.
  26. 26. $0.03 $0.35 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Q4-10** Q3-11 Q2-12 Q1-13 Q4-13 Utilizing Strong Cash Flow to Enhance Long-term Shareholder Returns PotashCorp’s Opportunity * Dividends declared each quarter ** $0.10 per share, adjusted for 3 for 1 stock split; rounded to nearest cent. Source: Bloomberg, PotashCorp 3.8% 3.3% 2.0% 1.7% 0.0% 0% 1% 2% 3% 4% POT AGU MOS CF IPI Percent Yield* * Indicated yield percentage as per Bloomberg at May 15, 2014. Dividend* per Share – US$ Slide#25
  27. 27. There’s more online: PotashCorp.com Visit us online Facebook.com/PotashCorp Find us on Facebook Twitter.com/PotashCorp Follow us on Twitter Thank you
  28. 28. Try Our Overview Site: www.potashcorp.com/overview Looking For More Industry and Company Information? Explore our Key Markets… Find Data on Key Crops… Learn about our Company