nutrien q4 results presentation · 2018-02-12 · q4 2017 results presentation february 5, 2018....
TRANSCRIPT
Nutrien Q4 Results PresentationFebruary 5, 2018
February 5, 2018
February 5, 2018
2
Certain statements and other information included in this presentation constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements") under applicable securities laws. All statements in this presentation, other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to: Nutrien's 2018 annual guidance, including expectations regarding our diluted earnings per share and EBITDA (both consolidated and Retail); statements relating to certain strategic benefits expected to result from the merger of Agrium Inc. and Potash Corporation of Saskatchewan Inc. (the "Merger"), the nature and timing of operating synergies, cost savings and Nutrien's expected capital allocation strategy; Nutrien's strategic priorities; Nutrien's market outlook for 2018, including potash, nitrogen and phosphate outlook and including anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of currency fluctuations and import and export volumes. Forward-looking statements in this presentation are based on certain key expectations and assumptions made by Nutrien, including expectations and assumptions concerning: Nutrien's ability to successfully integrate and realize the anticipated benefits of its already completed (including the merger of Agrium and PotashCorp) and future acquisitions, and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by Nutrien, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability and cost of labor and interest, exchange and effective tax rates; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for 2018 and in the future; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and divestitures and negotiate acceptable terms; ability to maintain investment grade rating and achieve our performance targets; assumptions in respect of our ability to sell equity positions, including the ability to find suitable buyers at expected prices and successfully complete such transactions in a timely manner; the receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the projects’ approach. Although Nutrien believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Nutrien can give no assurance that they will prove to be correct.Forward-looking statements are subject to various risks and uncertainties which could cause actual results and experience to differ materially from the anticipated results or expectations expressed in this presentation. Key risks and uncertainties include, but are not limited to: general global economic, market and business conditions; the failure to successfully integrate and realize the expected synergies associated with the merger of Agrium and PotashCorp, including within the expected timeframe; weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, yield and prices; the supply and demand and price levels for our products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof; political risks, including civil unrest, actions by armed groups or conflict and malicious acts including terrorism; the occurrence of a major environmental or safety incident; innovation and security risks related to our systems; the inability to find suitable buyers for our equity positions and counterparty and transaction risk associated therewith; regional natural gas supply restrictions; counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; gas supply interruptions at our Egyptian and Argentinian facilities; any significant impairment of the carrying value of certain assets; risks related to reputational loss; certain complications that may arise in our mining processes; the ability to attract, engage and retain skilled employees and strikes or other forms of work stoppages; and other risk factors detailed from time to time in Agrium and PotashCorp reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States, including those disclosed in Agrium's annual information form for the year ended December 31, 2016 and its 2016 annual management's discussion and analysis, as well as PotashCorp's Form 10-K for the year ended December 31, 2016 and Form 10-Q filed throughout 2017. Nutrien disclaims any intention or obligation to update or revise any forward-looking statements in this presentation as a result of new information or future events, except as may be required under applicable Canadian securities legislation or applicable U.S. federal securities laws.IFRS Advisory Historical financial information relating to Agrium and PotashCorp in this presentation is prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).Non-IFRS Financial Measures AdvisoryWe consider adjusted net earnings (loss) from continuing operations before finance costs, income tax (recovery) expense and depreciation and amortization ("EBITDA"), adjusted net earnings (loss) per share and guidance relevant earnings (loss) per share, all of which are non-IFRS financial measures, to provide useful information to both management and investors in measuring our financial performance and financial condition. Refer to the disclosure under the heading “Selected Non-IFRS Financial Measures and Reconciliations” included in our press release dated February 5, 2018 announcing our fourth quarter 2017 results, each as filed on SEDAR at www.sedar.com and EDGAR at www.sec.gov under our corporate profile, for a reconciliation of these non-IFRS measures to the most directly comparable measures calculated in accordance with IFRS and for a further discussion of how these measures are calculated and their usefulness to users including management. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation may not be comparable to that of other companies. These non-IFRS financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
Forward Looking Statements
Nutrien’s Unique Global Footprint 3
~34Mmt2
Nutrient Production Capacity
500,000Grower Customers
>$32BMarket
Capitalization(as of Feb 5, ‘18)
$500MExpected Annual
Synergies
~33%
~24%~7%
~36%
Adjusted Combined EBITDA Split2017 ProForma1
Retail
PhosphateNitrogen
Potash
Nutrien operates across the globe, with a complementary footprint of
crop nutrient production and retail distribution assets in 14 countries.
1 Adjusted combined EBITDA are derived from historical financial information of PotashCorp and Agrium and do not include the effects of a) intersegment eliminations, b) the equity earnings and operating results of completed or anticipated divestitures in connection with the merger, c) allocation of certain corporate costs or d) the impairment charge related to Phosphate. Determination of Adjusted Combined EBITDA required allocation of historical amounts on a basis consistent with how Nutrien will report financial information in the future. This information does not purport to project the future operating results of Nutrien, and is not necessarily indicative of what Nutrien’s results of operations would have been had the merger been completed on January 1, 2017.2 Based on nameplate capacity, which may exceed operational capability.
February 5, 2018
Nutrien Provides 2018 Guidance and Q4 Results
HIGHLIGHTS
• Agrium fourth-quarter earnings from continuing operations, adjusted for items not included in
guidance, of $0.781 per share2 (net earnings from continuing operations of $0.19 per share)
• PotashCorp fourth-quarter adjusted earnings of $0.06 per share (net loss of $0.09 per share)
• 2017 earnings for Agrium were supported by record Retail EBITDA of $1.2 billion and margins of
10 percent, while stronger potash prices, sales volumes and lower cash costs per tonne
benefited both companies
• Nutrien full-year 2018 guidance of $2.10 to $2.60 earnings per share from continuing operations,
excluding incremental D&A related to purchase price allocation of $150 million to $300 million
• Nutrien 2018 EBITDA3 of $3.2 billion to $3.7 billion
• Nutrien sold its equity stake in Israel Chemicals Ltd. (ICL) in January 2018 for net proceeds of
$685 million
• Nutrien announced an agreement to purchase Agrichem, a leading Brazilian specialty plant
nutrition company with total annual historical net sales of over $55 million
• Nutrien achieved over $40 million in run-rate synergies year-to-date 2018
February 5, 20181 All amounts are stated in U.S. dollars.2 All references to per-share amounts pertain to diluted net income per share.3 EBITDA is calculated as net (loss) income from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization.
4
Fourth Quarter Results
Q4 2017 RESULTS PRESENTATION February 5, 2018
Agrium Q4 2017 Retail Gross Profit Bridge 6
623
695
21
31
812
580
600
620
640
660
680
700
720
Q4 2016 Gross Profit Crop Nutrients Crop ProtectionProducts
Seed Merchandise, Servicesand Other
Q4 2017 Gross Profit
$U
SD M
illio
ns
Source: Nutrien
• Crop nutrient gross profit grew due to increased sales volumes, while gross profit margins per tonne remained
relatively flat.
• Crop protection products gross profit was higher due to increased sales volumes across all regions and an
increase in proprietary product sales.
• Seed results increased due to purchases in the U.S. that were delayed from Q3 pushing sales into Q4.
• Services and Other results supported by higher livestock export shipments and wool commissions in Australia
and high demand for fall nutrient and crop protection application services in North America.
February 5, 2018
Agrium Q4 2017 Wholesale Gross Profit Bridge 7
135
87
19 ( 51 )
( 11 )(5)
-
-
20
40
60
80
100
120
140
160
180
Q4 2016 Gross Profit Potash Nitrogen Phosphate Wholesale Other Q4 2017 Gross Profit
$U
SD M
illio
ns
Source: Nutrien
• Potash gross profit grew due to a combination of higher prices and sales volumes which more than
offset an increase in the cost of product sold per tonne.
• Nitrogen gross profit was significantly reduced due to plant outages and lower realized ammonia and
UAN prices.
• Phosphate results were impacted by higher rock and sulfur costs as well as an extended maintenance
shutdown at our Redwater facility, which increased cost of product sold per tonne.
• Wholesale Other results were negatively impacted by lower ammonium sulfate sales due to the
shutdown at our Redwater facility.
February 5, 2018
PotashCorp Q4 2017 Gross Margin Bridge 8
163
(276)
(78)
38
15 ( 18 )
-
(100)
(50)
-
50
100
150
200
250
Q4 2016 GrossMargin
Potash Nitrogen Phosphate* PhosphateImpairment Charge
Q4 2017 GrossMargin
$U
SD M
illio
ns
Source: Nutrien* Net of non-cash impairment charge of $276-million.
• Potash gross margin grew due to higher prices and reduced per-tonne costs.
• Nitrogen gross margin benefited from stronger sales prices, more than offsetting higher per-tonne costs.
• Phosphate gross margin declined due to lower realized selling prices and a $276-million non-cash
impairment charge relating to our White Springs and feed phosphate facilities.
February 5, 2018
Outlook and Guidance
Q4 2017 RESULTS PRESENTATION February 5, 2018
Supportive U.S. Grower Economics 10
February 5, 2018
0
50
100
150
200
250
300
350
400
450Corn Soybeans Wheat Cotton
U.S. Cash Grower Margins1
US$/Acre
Current cash crop margins support a relatively stable acreage outlook
Source: USDA, Green Markets, CME Group, Nutrien1. 2017/18 margins are based on spot cash crop prices and estimated average fertilizer costs; 2018/19 margins are based on new crop 2018 futures prices less estimated basis and estimated spot retail fertilizer prices
Selected Fertilizer Prices
Improvement in Global Crop Nutrient Prices
Source: Fertilizer Week, Nutrien
2018
Drivers
Potash
Agronomic need and affordability supporting demand and higher prices; expect increased shipments in 2018
Nitrogen
Strong demand and reduced Chinese exports supporting prices; expect seasonal volatility in 2018
Phosphate
Higher input costs and lower exports from US and China support prices; but margins continue to be pressured
150
200
250
300
350
400
450
Jan JulMar May Sep Nov Jan Mar May Jul Sep Nov Jan
DAP - FOB Tampa ($/mt)
Urea – New Orleans Barge FOB ($/mt)
Potash - CFR Brazil ($/mt)
2016 2017 2018
11
February 5, 2018
World Potash Shipments by RegionMillion Tonnes KCl
Record Potash Demand Projected in 2018
Source: CRU, Fertecon, Industry Publications, Nutrien
0
5
10
15
20
15 16 17E 18F 15 16 17E 18F 15 16 17E 18F 15 16 17E 18F 15 16 17E 18F 15 16 17E 18F
2018
Hig
hlig
hts
India
4.5 – 5.0Mmt
• Expect modest
demand growth in
line with positive
consumption trends
that occurred in
2017
9.5 – 10.0Mmt
• Demand supported
by robust crop
economics and
improved moisture
conditions
Other
9.5 – 10.0Mmt
• Steady demand
supported by strong
affordability and
significant removal
of nutrients following
consecutive large
harvests
12.0 – 12.5Mmt
• Favorable crop
economics and
acreage growth in
nutrient deficient
regions is supporting
record potash
demand
15.5 – 16.0Mmt
• Strong consumption
trends supported by
affordability and a
shift to more
potassium-intensive
crops like fruits and
vegetables
12.5 – 13.0Mmt
• Good affordability
and growing demand
for NPK fertilizers,
including in Africa,
are expected to
boost potash
demand
Other Asia Latin America ChinaNorth America
Previous Record:
6.3mmt (2010)
Previous Record:
9.6mmt (2017)
Previous Record:
11.1mmt (1997)
Previous Record:
12.2mmt (2017)
Previous Record:
15.8mmt (2015)
Previous Record:
13.7mmt (1997)
12
February 5, 2018
Tight Chinese Urea Supplies Reduce Exports
Chinese Urea ExportsMillion Tonnes
* Based on industry consultants’ estimates.
4.7
8.9
13.813.6
8.3
-15%
-47%
-36%
2018F
3.0-4.0
20172016201520142013
$149
$106$127
$151$175
2018Current
$205
20172016201520142013
Chinese
Energy
Costs(US$/MT)
China Anthracite Coal (55% of Urea Production)
Chinese
Operating
Rate*(Percentage)
2018Current
49%
2017E
55%
2016
62%
2015
72%
2014
66%
2013
77%
Slide #13
Uncertain how much of the ~50% of Chinese urea capacity not operating is
capable of restarting without significant capital investment
Source: CRU, Fertecon, Profercy, Nutrien February 5, 2018
13
Increase in Phosphate Raw Material Costs
Selected Raw Material PricesUS$/Tonne
0
50
100
150
200
250
300
350
NovSepJulMayJulJan JanNovSepMayMar JanMar
Sulfur Middle East fob
Black Sea Ammonia fob
2016
Higher input costs have lent support to phosphate prices but continue to weigh on
margins
2018
Source: Fertilizer Week, Nutrien
14
February 5, 2018
2017
Nutrien 2018 Annual Guidance 15
2018 Annual Guidance RangesAnnual
Low High
Earnings per share (a) $2.10 $2.60
Consolidated EBITDA (billions) $3.2 $3.7
Retail EBITDA (billions) $1.2 $1.3
Potash EBITDA (billions) $1.1 $1.3
Nitrogen EBITDA (billions) $0.9 $1.1
Potash sales tonnes (millions) 11.8 12.4
Nitrogen sales tonnes (millions) (b) 10.0 10.4
Effective tax rate on continuing operations 24% 25%
Sustaining capital expenditures (billions) $1.0 $1.1
2018 Annual Assumptions and Sensitivities
FX rate CAD to USD $1.26
NYMEX natural gas ($US/MMBtu) $3.00
$20/tonne change in realized Potash selling prices ($/share) (c) $0.24
$20/tonne change in realized Ammonia selling prices ($/share) (c) $0.07
$20/tonne change in realized Urea selling prices ($/share) (c) $0.09
(a) All references to per-share amounts pertain to diluted net income per share(b) Excludes ESN®, Rainbow and Europe sales.(c) Sensitivities are calculated pre-synergies
February 5, 2018
Nutrien Strategic Priorities
Q4 2017 RESULTS PRESENTATION February 5, 2018
1. Complete Integration
• Bring people, systems, assets and operations together
• Align operations and reporting to work as one
2. Deliver Synergies
• $500M annual run-rate expected by the end of 2019
• Costs to achieve synergies are below industry benchmark standards
3. Business Unit Strategy
• Complete portfolio review of combined company
• Determine key priorities for each business unit
• Complete required sales of equity investments
4. Capital Priorities
• Continue to invest in growth opportunities –focus on Retail
• Enhance shareholder returns
• Strong balance sheet - maintain investment grade credit ratings
Nutrien Strategic Priorities
February 5, 2018
17
Significant Value Creation from Merger Synergies 18
$150
$500
$125
$100
$125
$0
$100
$200
$300
$400
$500
$600 Distribution /
Optimization• Rail Fleet
Optimization
• Distribution
and
Warehouse
Optimization
• Logistics
Savings
• Portfolio
Integration
Production
Optimization• Phosphate
Integration
• Potash cost
efficiencies
• Nitrogen
optimization
Procurement• Procurement
optimization
SG&A• SG&A
Efficiencies
Target
Highly confident in full synergy realization of synergies by the end of 2019
++
+
February 5, 2018
Run-Rate SynergiesUS$ Millions
Appendix
Q4 2017 RESULTS PRESENTATION February 5, 2018
Nutrien Potash and Nitrogen Sales Volumes 20
10.9
11.7 11.8
12.4
5
6
7
8
9
10
11
12
13
2016 2017 2018 Guidance
10.09.7
10.0
10.4
5
6
7
8
9
10
11
2016 2017 2018 Guidance
Expect an increase in potash sales volumes in line with global demand growth and higher
nitrogen sales partly due to greater on-stream time for our plants
Source: Nutrien1 Adjusted Combined Sales Volumes2 Excludes ESN®, Rainbow and Europe sales
1
February 5, 2018
2
1 1 1
Potash Sales VolumesMillion Tonnes
Nitrogen Sales VolumesMillion Tonnes
Ammonia Capacity Utilization – Legacy Agrium
Notes: Capacity utilization represents production volumes divided by Factbook production capacity (excluding Joffre facility).
89%91%
92% 93%
96%
100%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Agrium Ammonia (Excl. Joffre)
Cap
acit
y u
tilizati
on
2013-15 Ave.
2014-16 Ave.
2015-17 Ave.
2016-18F Ave.
2018 Forecast
2020 Target
February 5, 2018
2017 was a challenging year due to a heavy turnaround schedule but the
utilization trend continues to improve, which has supported revenues and costs
21
Ammonia Capacity Utilization – Nutrien
Notes: Capacity utilization represents production volumes divided by Factbook production capacity (excluding Joffre and Trinidad facilities). Historic capacity adjusted for Lima debottleneck. 2020 target adjusted for comparability with Legacy Agrium definition of available capacity.
89%91% 90% 91%
93%
98%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Nutrien Ammonia (Excl. Joffre & Trinidad)
Cap
acit
y u
tilizati
on
2013-15 Ave.
2014-16 Ave.
2015-17 Ave.
2016-18F Ave.
2018 Forecast
2020 Target
February 5, 2018
Synergy opportunity within our nitrogen portfolio is significant:
- Leverage best-practices across Nutrien business
- Larger production footprint brings increased marketing flexibility
- Increased production presents EBITDA opportunity
- Lower capex risk
22
Thank you!
Q4 2017 RESULTS PRESENTATION February 5, 2018
For further information please visit Nutrien’s website at: www.nutrien.com
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