potashcorp - citi basic material symposium - dec. 4, 2013
TRANSCRIPT
PotashCorp.com
CitiBasic Materials Conference
December 2013
Wayne Brownlee
Executive VP & CFO
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 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; 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; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; economic and political uncertainty around the world; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets; 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 government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; rates of return on and the risks associated with our investments; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; 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, 2012 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 presentation 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#2
PotashCorp Overview
Slide#3
World’s largest fertilizer producer by capacity; #1 in potash, #3 in nitrogen and phosphate.
Global leader in potash; nutrient with highest margins and significant barriers to entry.
Canadian potash operations and strategic investments position us to benefit from growth markets.
Focused world-class nitrogen and phosphate businesses help provide earnings stability.
• Strong cash flow• Cash flow from operating activities of $3.2B in 2012
• Nine-month cash flow from operating activities in 2013 of $2.6B
• Well positioned potash business• Low-cost supplier to key markets
• Potential to significantly grow sales volume and further reduce per-tonne operating costs
• By year end expect to be nearly 95 percent complete CDN $8.3B potash expansion program
• Significantly lower per-tonne expansion cost relative to many competitor projects
• Strong balance sheet affords good flexibility• Low leverage relative to historical levels (Net debt to EBITDA)
• Access to $3.5B liquidity (commercial paper/credit facility) at low borrowing rates
• Proven track record of returning capital to shareholders• Dividend increase of 950 percent since January 2011
• Executing share repurchase program (authorization to repurchase up to 5 percent of o/s)
PotashCorp Highlights
Slide#4
Potash – Near-term Outlook
Source: Fertecon, CRU, Industry Publications, IFA, PotashCorp
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
F20
25
30
35
40
45
50
55
60Shipments Consumption
Million Tonnes KCl
Estimated Consumption Exceeded Shipments in 2012 and 2013
World Potash Shipments and Consumption
Significant destocking at customer level (most pronounced
in second-half 2013)
Slide#6
* Forecast per PotashCorp
Source: Fertecon, CRU, Industry Publications, PotashCorp
40
42
44
46
48
50
52
54
56
58
60
Million Tonnes KCl
World Potash DemandExpect Second-half Deferral Will Lead to More Robust Demand in 2014
* Forecast per PotashCorp
55-58 MMT
Slide#7
Thousand Tonnes KCl
Jan
Feb Mar Apr
May Ju
n Jul
Aug Sep OctNov Dec
0.0
0.2
0.4
0.6
0.8
1.0
1.2 2013 5-year average
Million Tonnes KCl
Demand Has Strengthened in Fourth Quarter; Anticipated to Continue into 2014
North America Potash Shipments
Domestic Producer Shipments* Offshore Imports*
Jan Feb Mar Apr May
Jun Jul AugSep Oct NovDec0
20
40
60
80
100
120
140 2013 5-year average
Source: IPNI, TFI, Blue Johnson, PotashCorp
* Shipments for Nov/Dec based on PotashCorp estimate. Imports for Oct-Dec based on Blue Johnson and PotashCorp estimates.
Slide#8
Potash Shipments to Key Offshore MarketsDemand Has Been Relatively Strong in Markets Outside of India
Source: Fertecon, Industry publications, PotashCorp
Million Tonnes KCl
2008 2009 2010 2011 2012 2013E 2014F**0
5
10
15
20
25
30
35 Latin America China Other Asia*
3.4% CAGR
Million Tonnes KCl
2008 2009 2010 2011 2012 2013E 2014F**
0
1
2
3
4
5
6
7 India
* Excludes India.
**Forecast per PotashCorp; represents mid-point of range.
Slide#9
Fertilizer Market UpdatePotash – Enhancing Competitive Position
Million Tonnes (KCl)
Optimizing Potash Production Portfolio; Well Positioned to Meet Anticipated Demand
Enhancing Our Competitive Position
Source: PotashCorp
• Focus on production at lower cost facilities while simultaneously balancing our customers’ expected product needs • Fully utilize lower-cost operational capability at
Rocanville and Allan • Run Lanigan and Cory at reduced levels until
market conditions warrant higher rates• Cease production at Penobsquis while
accelerating development of lower-cost Picadilly mine; build inventory through first quarter of 2014 to help satisfy near-term customer needs
• Expansion spending nearly complete• Finalize construction (nearly 95 percent spent
by end of 2013) to support approximately 17 million tonnes; operational capability will be ramped up according to market conditions
2013 2014E 2015E 2016E0
2
4
6
8
10
12
14
16
18
20
Constructed Capability* Inventory
* Reflects estimated achievable production level based on constructed capacity, assuming operations are fully staffed and ramped up.
** Reflects estimated achievable production level based on current staffing levels and operational readiness.
Slide#11
US$ Per Tonne
Cost Improvement Through Optimization of Production at Lower-Cost Facilities
Enhancing Our Competitive Position
Source: PotashCorp
2013ECash Cost*
2014ECash Cost
2016Cash Cost Target
50
60
70
80
90
100
110
120
* Based on October 24, 2013 guidance.
** 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
Cash Cost of Production (Estimate) – Potash
Annualized Improvement**:
~$20-$30 per tonne
Slide#12
POT (SK)
POT (NB)
Enhancing Our Competitive PositionPotashCorp’s Strong Competitive Position Expected to Improve
* Site cost includes all cash operating costs, estimated per-tonne sustaining capital expenditures, royalties and taxes. Darker shaded bars represent CRU estimated mine site production costs at actual production levels; lighter shaded bars represent PotashCorp’s estimate of competitors cost range based on company reported data.
** Competitive position dependent on end-market destination.
*** Post announcement includes impact of PotashCorp’s announced changes for 2014 (upper end of range) and 2016 target (lower end of range).
Source: CRU, Public Filings, PotashCorp
POT (SK)
POT (NB)
Potash Industry Site Cost Profile*(Pre-announcement)
Potash Industry Site Cost Profile*(Post-announcement)***
US$ Per Tonne (FOB Mine**) US$ Per Tonne (FOB Mine**)
Slide#13
Source: Fertecon, CRU, IFA, PotashCorp
Other***
FSU***
Other North America***
PotashCorp
0 5 10 15 20 25
2014 Operational Capability* 2016F Constructed Capability** Series4
Million Tonnes KCl
PotashCorp Retains Operational Flexibility; Greatest Volume Growth Potential
Enhancing Our Competitive Position
* Reflects estimated achievable production level based on current staffing levels and operational readiness.
** Reflects estimated achievable production level based on constructed capacity, assuming operations are fully staffed and ramped up.
*** PotashCorp’s estimate of production and constructed capability by region (based on publically available data).
PotashCorp’s 2014 operational capability* plus inventory position estimated to be over 10 million tonnes.
Slide#14
Source: Fertecon, CRU, PotashCorp
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
E
2014
F50
55
60
65
70
75
80
85
90
95
100
Global Potash Operating Rate*
Anticipate Global Potash Operating Rate in 2014 Will Approach 90 percent
Enhancing Our Competitive Position
* Based on percentage of operational capability (estimated annual achievable production level). 2014F based on mid-point of PotashCorp’s demand forecast range of 55-58 MMT.
Historical Average (20 year)
Estimated Rate Post-Announcement
Estimated Rate Pre-Announcement
Slide#15
Phosphate
Source: PotashCorp
Q3-
09
Q4-
09
Q1-
10
Q2-
10
Q3-
10
Q4-
10
Q1-
11
Q2-
11
Q3-
11
Q4-
11
Q1-
12
Q2-
12
Q3-
12
Q4-
12
Q1-
13
Q2-
13
Q3-
13
0
100
200
300
400
500
600
700
800 Fertilizer Feed & Industrial
PotashCorp Average Realized Sales Price
Industrial and Feed Products Provide Flexibility and Enhance Stability in Phosphate
PotashCorp Phosphate Profile
US$/tonne
Slide#17
Gross Margin Contribution by Product Category
Fertilizer Feed & Industrial0
50
100
150
200
250
300 2012 YTD* 2013 YTD*
US$ - Millions
* Represents first nine months of respective year.
Production - Million Tonnes (P2O5)
Optimizing P2O5 Production Portfolio; Well Positioned to Meet Customer Needs
Enhancing Our Competitive Position
Source: PotashCorp
• Focus on improving efficiency and utilizing product mix flexibility to maximize gross margin• Close Suwannee River chemical plant – one of
two plants at White Springs
• Net reduction of P2O5 (after offset from higher operating rates at Aurora) is ~215,000 tonnes; no expected impact to customers given ability to flex production of end products
• Reduce workforce levels at Aurora to improve efficiency
2013E 2014E 2015E0.0
0.5
1.0
1.5
2.0
2.5 Aurora White Springs Geismar
Slide#18
Optimizing Production Profile and Product Mix
Enhancing Our Competitive Position
Source: PotashCorp
US$ Per P205 Tonne
2015E*Gross Margin Improvement
0
5
10
15
20 Annualized Estimated Improvement:$10-$15 per tonne
Gross Margin Improvement (Estimate) – Phosphate
* As compared to 2013 levels (not adjusted for inflation)
Slide#19
Nitrogen
Source: PotashCorp, Green Markets
Year-over-Year* Realized Price Change
Portfolio of Products Provides Less Exposure to More Volatile Urea Market
PotashCorp Nitrogen Profile
35%
19%
46%
Ammonia Urea Solutions/NA/AN
2013 YTD* Nitrogen Product Mix (Sales Volume)
Ammonia Solutions/NA/AN Urea
-20%
-15%
-10%
-5%
0%
5%
10%Percentage Change
* Represents first nine months of respective year.
Slide#21
Source: PotashCorp
Ammonia Capacity*
New Ammonia Capacity Adds Margin Growth Potential
PotashCorp Nitrogen Profile
2012 2013F 20150.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5 Trinidad Augusta Lima Geismar
Million Tonnes
* All estimated capacity amounts as at beginning of year.
Highlights
• Geismar Expansion: New capacity brought on-stream in early 2013, expected to add approximately ~$100M of incremental gross margin in 2013
• Lima Expansion: $190 million expansion anticipated to add additional ammonia (+88K st/year) and urea capacity (+80K st/year) by late 2015. New capacity at Lima also anticipated to help grow higher-margin DEF sales potential and supply lower cost ammonia to Aurora
Slide#22
Source: PotashCorp, Bloomberg
Q3-
10
Q3-
11
Q3-
12
Q3-
13
0
1
2
3
4
5
6
7
8 Trinidad Gas* US Gas
Gross Margin – US$ Millions**
US Facilities Benefitting From Low Gas Cost; Trinidad Relative Position Improving
Nitrogen Gross Margin by Country
Gas Cost – US$ Per MMBtu
2010 2011 2012 20130
100
200
300
400
500
600
700
800
900 Trinidad US
Slide#23
* Estimate based on Tampa ammonia priced divided by 100. Actual price based on specific contract, which may vary slightly.
** Represents first nine months of respective year.
Creating Shareholder Value
US$ - Millions
Anticipate One-time Cash Charge in Fourth-Quarter 2013
Financial Impact: Workforce and Operational Changes
Source: PotashCorp
Potash Phosphate Nitrogen0
20
40
60
80
100
Estimated One-time Cash Charge*
* Charges expected to be recorded in fourth-quarter 2013; currently reviewing the carrying value of our affected assets and a write-down, if required, will be incorporated into our fourth quarter results
Total One-time Cost Estimate*:~$70M
Slide#25
Strong Cash Flow + Reduced Capital Spending = Greater Financial Flexibility
PotashCorp’s Opportunity
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000 Cash Provided by Operating ActivitiesCapital Spending
US$ Millions
Source: PotashCorp
* As we adopted International Financial Reporting Standards (IFRS) with effect from January 1, 2010; 2003 to 2009 information is presented on a previous Canadian Generally Accepted Accounting Principals (GAAP) basis. Accordingly, information for 2003 to 2009 may not be comparable to 2010, 2011 and 2012.
2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000US$ Millions
** Excluding capitalized interest and major repairs and maintenance.
Annual Cash Provided by Operating Activities* PotashCorp Capital Spending**
Slide#26
Utilizing Strong Cash Flow to Enhance Long-term Shareholder Returns
PotashCorp’s Opportunity
* Dividends declared each quarter** $0.10 per share dividend adjusted for 3 for 1 stock split; rounded to nearest cent.
Source: PotashCorp
5 PercentShare Repurchase
ProgramAnnounced July 24, 2013 (up to $2 billion through August 1, 2014)
POT AGU MOS CF IPI0%
1%
2%
3%
4%
5%4.5%
3.4%
2.1%1.8%
0.0%
Percent Yield
Slide#27
As at November 28, 2013.
Q4-10**
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-14
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.03
$0.35
Dividend* per Share – US$
950% Increase
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