potashcorp - citi basic materials symposium - november 28, 2012
TRANSCRIPT
PotashCorp.com
Citi Basic Materials SymposiumNovember 28, 2012
Wayne Brownlee
Executive VP and 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. Several factors could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to: 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 with major markets; economic and political uncertainty around the world, including the European sovereign debt crisis; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital 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 government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; and earnings, 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 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
SQM
ICL
APC
Nitrogen
Phosphate
(Mining/Processing)
Potash
Investments
Sinofert
Source: Fertecon; CRU; Blue, Johnson & Associates; PotashCorp
A Global Crop Nutrient Company
PotashCorp Profile
Potash Phosphate Nitrogen
% of Global Capacity 20% 5% 2%
Global Position #1 #3 #3
% of Gross Margin (2011) 64% 15% 21%
20042005
20062007
20082009
20102011
2012F*0
1
2
3
4
5
6Potash GM Phosphate GM Nitrogen GM
* 2012F as at October 25, 2012
Percent – Sept 2012 YTDUS$ Billions
Unique Potash Position Drives Earnings Growth
PotashCorp Profile
Source: PotashCorp
Potash Phosphate Nitrogen0%
10%
20%
30%
40%
50%
60%
70%
Gross Margin by Segment Gross Margin Percentage of Net Sales
Top Investor Questions: US Potash and Phosphate Demand
Affordability of Fertilizer Remains Extremely Strong
North American Market Update
Source: DTN, Bloomberg, USDA, PotashCorp
US Corn and Retail Fertilizer Prices
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-1280
90
100
110
120
130
140
150
160
170Corn Potash DAP Urea
Price Index (January 2011 = 100)
2013 Return Over Variable Costs Scenarios
US$/Acre
$4 $5 $6 $70
200
400
600
800
1,0002013F 10-Year Average
Corn Price Scenarios - $/bushel
Source: IPNI, USDOC, AAPFCO, PotashCorp
Anticipate North American Demand Will Remain Robust
North American Potash Market Update
2004/05 2006/07 2008/09 2010/11 2012/13F
0
2
4
6
8
10
12Shipments Jul-Dec Shipments Jan-Jun Consumption
Million Tonnes KCl
Source: TFI, AAPFCO, PotashCorp
Spring Demand Expected to Be Strong
US Phosphate Market Update
2004/05 2006/07 2008/09 2010/11 2012/13F
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5Shipments Jul-Dec Shipments Jan-Jun Fertilizer Consumption
Shipments - Million Tons DAP/MAP Fertilizer Consumption – Million Tons P205
Top Investor Questions: Indian Potash Demand
Nov 19, 2010 Mar 9, 2011 May 5, 2011 April 1, 20120
50
100
150
200
250
300
350
400
450
500
69%
20%
11%
Source: Fertecon, India Department of Fertilizers, PotashCorp
Note: Rupee to US$ conversion is at the rate of 46 Rupees per US$ for 2010-11 and 50 for 2012
Percentage of Indian Fertilizer Subsidy
US$ Subsidy per Product Tonne
Government Actions Counter to Agronomic Needs…
Indian Fertilizer Subsidies
DAP
Potash
Urea
Nitrogen
Phosphate
Potash
Fertilizer Subsidies
Source: IPNI, PotashCorp
Despite Supportive Economics, Subsidy “Shock” Has Impacted Potash Demand
India Potash Situation
Return on Potash Fertilizer
Rice Wheat0
2
4
6
8
10
12
142010 2012
Return Per Dollar Spent
Source: Fertecon, USDA, PotashCorp
Crop Production is Impacted by Poor Fertilization Practices
India Potash Situation
Tonnes of Grain Produced Per Tonne of Fertilizer Use
India World US0
5
10
15
20
25
30
35
20022003
20042005
20062007
20082009
20102011
2012F0
1
2
3
4
5
6
7
8
9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 Potash Fertilizer Consumption N:K Ratio
Million Tonnes of K20 N:K Ratio
Potash Consumption and Fertility Imbalance Crop Production*
* Based on 2011/12 crop year
Source: Canpotex, PotashCorp
Limited Inventory Expected to act as Catalyst for Demand in 2013
India Potash Situation
2011 2012F0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Millions Tonnes of KCL
Year End Inventory
Source: Fertecon, PotashCorp
4 mmt 5.5 mmt 7 mmt0
2
4
6
8
10
N:K Ratio
Strong Imports Required to Move Toward Proper Nutrient Balance
India Potash Import and N:K Ratio Scenarios
2013 Potash Import Scenarios
10-Year High (2012)
10-Year Low (2010)
Top Investor Questions: Potash S&D Outlook
Source: Fertecon, CRU, Industry Publications, PotashCorp
12F
13F
Rec
ord
12F
13F
Rec
ord
12F
13F
Rec
ord
12F
13F
Rec
ord
12F
13F
Rec
ord
12F
13F
Rec
ord
0
2
4
6
8
10
12
14
Million Tonnes KCl
World Potash ShipmentsExpect Strong Rebound in 2013
India China
Latin America
Other Asia
North America
Other
Source: Fertecon, IFA, PotashCorp
1962-2007 1962-2012 1993-2007 1993-2012 2001-20070.0
1.0
2.0
3.0
4.0
5.0
Cumulative Annual Growth Rate
Long-term Trends Support Rising Demand Outlook
Potash Consumption Trends
• 1962-2007: Long-term growth rate excluding global financial collapse
• 1962-2012: Long-term growth rate including global financial collapse
• 1993-2007: Period of growth following collapse of FSU - excludes global financial collapse
• 1993-2012: Period of growth following collapse of FSU - includes global financial collapse
• 2001-2007: Strong period of offshore growth fueled by rising demand for food
Source: Fertecon, PotashCorp
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
2011
2012F0
10
20
30
40
50
60
Million Tonnes KCl
World Potash ShipmentsSlower Demand Periods Have Historically Been Followed by Robust Growth
6.5% CAGR
5.3% CAGR
Source: Fertecon, CRU, Public Filings, PotashCorp
* Estimated annual achievable production level from existing operations; announced probable and possible projects; assuming typical ramp-up periods for new capacity. Probable and possible projects based on PotashCorp’s view of project probabilities.
2012F POT Other NA FSU Middle East
Other 2016F50
54
58
62
66
70
74
78
Million Tonnes KCl
PotashCorp Represents Majority of New Capability Coming Online
Global Potash Operational Capability*
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012F
2013F
2014F
2015F
2016F
0
10
20
30
40
50
60
70
80
40
50
60
70
80
90
100
Shipment Range Shipments Operational CapabilityOperating Rate
• Based on percentage of operational capability (estimated annual achievable production level).• 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).
Operating Rate* - PercentMillion Tonnes KCl
World Potash Supply/DemandStrong Operating Rates Expected in Coming Years
Source: Fertecon, CRU, IFA, PotashCorp
Top Investor Questions: Nitrogen Position and Expansion Potential
Source: IPNI, DTN, USDA, Bloomberg, PotashCorp
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-120
100
200
300
400
500
600
700
800Urea (FOB NOLA) Ammonia (CFR Tampa)
Spot Price
PotashCorp Benefiting From Strong Ammonia Pricing
Nitrogen Product Pricing and Product Mix
40%
23%
37%
Ammonia Urea Solutions/NA/AN
2012 YTD Nitrogen Product Mix
US$/tonne
As of October 30, 2012
Source: PotashCorp
US Ammonia Capacity by LocationStrengthening our Nitrogen Position Through Capacity Additions
• Geismar – Ammonia plant restart will bring on 500,000 mt of capacity in early 2013
• Augusta – Additional 70,000 mt added in October 2012
• Lima – Currently evaluating potential options for capacity additions
Augusta Geismar Lima0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9Current Capacity Additions
Ammonia Production – Million Tonnes
As of October 30, 2012
Source: PotashCorp
Trinidad Gas Cost Indexed to AmmoniaLinear Relationship with Ammonia Provides a Natural Hedge
• Each Trinidad plant operates under a separate gas contract
• Currently negotiating most recently expired gas contract. A second gas contract expires in 2013
• Lower gas prices in the US likely to influence negotiations
200 300 400 500 600 700 800 900 10000
2
4
6
8
10
12
Ammonia Price – US$ Per Tonne
Estimated Gas Cost – US$ Per MMBtu
As of October 30, 2012
Source: PotashCorp
Q1-2010
Q2-2010
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Q4-2011
Q1-2012
Q2-2012
Q3-2012
0
20
40
60
80
100
120
140
160
180
200
0
1
2
3
4
5
6Trinidad US Gas Price
Gross Margin – US$ Millions
Strong Contributions From US and Trinidad Facilities
Nitrogen Gross Margin by Country
Gas Cost – US$ Per MMBtu
Top Investor Questions: Use of Future Cash Flow
Generating Strong Operating Cash Flow
Cash Flow From Operating Activities* (Q3 YTD)
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
500
1,000
1,500
2,000
2,500
3,000
US$ Millions
Source: PotashCorp
* See selected Non-IFRS Financial Measures and Reconciliations in our 10-Q at www.potashcorp.com
2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F0
500
1,000
1,500
2,000
2,500
US$ Millions
Major Potash Expansion Program Over 80 Percent Complete
PotashCorp Capital Spending
Source: PotashCorp
* Excluding capitalized interest and major repairs and maintenance
Source: PotashCorp
Focused on Using Free Cash Flow to Drive Long-Term Shareholder Value
Future Cash Flow Priorities
2012 2013 2014 2015 2016
Potential: Dividend Increases / Share Buybacks / M&A
Potash Projects (announced brownfields)
Nitrogen Projects (announced brownfields)
Dividend More Than Six-Times That of January 2011 Level
PotashCorp Dividend Per Share*
Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.03
$0.07 $0.07 $0.07 $0.07
$0.14 $0.14
$0.21
US$ Per Share
* Dividends declared each quarter
Source: Bloomberg
As of October 30, 2012
Source: PotashCorp
Focused on Using Free Cash Flow to Drive Long-Term Shareholder Value
Historical Cash Flow Deployment
Opportunity Capital
$7.6 Billion since 2003
5-Year Average CFR1 = 24.3%
Equity Investments
$2.0 Billion since 1998
Current Market Value2 = $8.9 billionContributions from Investments3 = $2.2 billion
Share Repurchases
$6.3 Billion since 1999
Average purchase price = $26/shareCurrent share price2 = $39/share
Dividend Payments
$1.2 Billion since 2002
Now 6x higher than January 2011 dividend
1 CFR = Cash Flow Return (see selected Non-IFRS Financial Measures and Reconciliations in our Annual Report available at www.potashcorp.com)2 As at November 25, 20123 Proceeds from investments include dividends and share of equity earnings from original purchase date to Sept 30, 2012
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