PotashCorp Growth Prospects and Cash Flow Priorities

Transcription

1 PotashCorp Growth Prospects and Cash Flow Priorities Wayne Brownlee Executive VP & COO

2 Forward-Looking Statements 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; the European sovereign 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 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 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. Our Growth Prospects PotashCorp Growth Prospects and Cash Flow Priorities 1

3 World Potash Supply/Demand Market Conditions: Balanced to Tight Market Expected in the Coming Years Million Tonnes KCl Operating Rate* - Percent 80 Shipment Range Operational Capability Shipments Operating Rate F 2014F 2016F 40 * Based on percentage of operational capability (estimated annual achievable production level). Shipment range based on 3-3.5% annualized demand growth rate ( ). 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 Brownfield Potash Expansion Profile Volume Growth: Opportunity For Higher Potash Sales Volumes Relative to Peers Million Tonnes KCl Capacity* Growth ( F) 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 PotashCorp Growth Prospects and Cash Flow Priorities 2

4 Saskatchewan Brownfield and Greenfield Sensitivities Higher Prices: We Believe Current Prices Do Not Justify Greenfield Investments US$/Tonne Netback Required (FOB mine) 1,200 1, Greenfield 15% IRR Greenfield 10% IRR Brownfield 15% IRR Brownfield 10% IRR PotashCorp Q Netback = $435/MT Source: PotashCorp $400/tonne $1,000/tonne $2,350/tonne $3,150/tonne Assumptions: 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 Return Potash Cost For Average US Corn Farmer Affordability: Even If Prices Rise, Cost Expected To Remain in Historical Range Percentage Percentage of Crop Revenue Percentage of Total Costs Percentage 7% 6% $4.00/bushel $5.00/bushel $6.00/bushel 6% 5% 5% 4% 3% 2% 1% Historical Range* 4% 3% 2% 1% 0% FOB SK Mine Price ($/MT) 0% FOB SK Mine Price ($/MT) * Excludes 10-year minimum and maximum points Source: USDA, PotashCorp PotashCorp Growth Prospects and Cash Flow Priorities 3

5 Potash Cost For Average Brazilian Soybean Farmer Affordability: Even If Prices Rise, Cost Expected To Remain in Historical Range Percentage Percentage of Crop Revenue Percentage of Total Costs Percentage 16% 14% $10.00/bushel $12.00/bushel $14.00/bushel 12% 10% 12% 10% 8% Historical Range* 8% 6% 6% 4% 4% 2% 2% 0% FOB SK Mine Price ($/MT) 0% FOB SK Mine Price ($/MT) * Excludes 10-year minimum and maximum points Source: CONAB, PotashCorp Potential For Significant Earnings and Cash Flow PotashCorp Growth Prospects and Cash Flow Priorities 4

6 PotashCorp EBITDA Scenarios Potential to Generate Significant Cash Flow US$ Billions Scenerio One 10 Scenerio Two 9 Scenerio Three 8 Capital Expenditure F 2014F 2016F Scenario One (No Growth): Potash volumes (9.0mmt) Potash netback ($435/tonne) Phosphate & nitrogen gross margin ($ B) Scenario Two (Average Growth): Potash volumes rise with global demand (~3% per year) Potash netback rises ~5% per year Phosphate & nitrogen gross margin ($ B) Scenario Three (Strong Growth): Potash volumes ~90% of operational capability Potash netback rises ~10% per year (to $600/tonne) Phosphate & nitrogen gross margin ($ B) Source: PotashCorp Deploying Cash: A Track Record of Success PotashCorp Growth Prospects and Cash Flow Priorities 5

7 PotashCorp Share Repurchase History Creating Value: Share Buybacks Have Been Opportunistic US$ per Share 90 POT $6.3B Share repurchases since Nov 1999 Announced Repurchase (5% o/s) Jan 25/05 Announced Repurchase (5% of O/S) Jan 24/08 Announced Repurchase (10% of O/S) Nov 18/10 Announced Repurchase (~5% of O/S) 10 0 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 As of May 3, 2012 Source: Bloomberg, PotashCorp PotashCorp Equity Investments Creating Value: Acquisitions Adding Significant Financial and Strategic Value US$ Billions 10.0 Market Value of Investments 9.0 $2.0B Potash-related equity investments since * * As of May 3, 2012 Source: Bloomberg, PotashCorp PotashCorp Growth Prospects and Cash Flow Priorities 6

8 PotashCorp Capital Deployment Creating Value: Cash Flow Return Continues to Outperform WACC Percentage 50.0% PotashCorp CFR WACC $6.6B Opportunity capital deployed since % 30.0% 20.0% 10.0% 0.0% WACC: Weighted Average Cost of Capital Source: PotashCorp PotashCorp Dividend Program Creating Value: Cash Flow Generation Provides Opportunity for Growth and Dividends US$ per Share 0.16 Quarterly Dividend* 0.14 $0.9B Dividends paid since * Reflects any adjustments made to the dividend in the year. To see dividend amounts per quarter, visit Source: PotashCorp PotashCorp Growth Prospects and Cash Flow Priorities 7

9 Share Repurchases and Dividend Payments (5 Years) PotashCorp Has Returned More Cash To Shareholders Than North American Peers US$ Billions POT MOS* CF AGU IPI * Mosaic based on their fiscal period (ending November 2011) Source: Bloomberg Deploying Cash: A Focus On Shareholder Value PotashCorp Growth Prospects and Cash Flow Priorities 8

10 Cash Flow Priorities Focused on Using Free Cash Flow to Drive Long-Term Shareholder Value Potential: Dividend Increases / Share Buybacks / M&A Potash Brownfield Projects (Existing) Phosphate & Nitrogen Brownfield Projects Cash Flow Consideration Opportunities Compete for Use of Free Cash Flow to Drive Long-Term Value Considerations: Organic Growth M&A Share Buybacks Dividends 1. Priority is completing existing potash expansion projects (>75% capital spending complete) 2. Potential Nitrogen and phosphate projects to optimize existing plants with quick payback periods 1. Continue to evaluate offshore potash opportunities that improve delivered cost advantages to key growth markets (India, China and Brazil) 2. Evaluate opportunities in other nutrients that enhance long-term value 1. Potential given anticipated cash flow generation capability 2. Focus on relatively quick repurchase timeline (typically one year) 1. Potential given anticipated cash flow generation capability 2. Focused on enhancing dividend value while simultaneously growing earnings PotashCorp Growth Prospects and Cash Flow Priorities 9

11 USE OF CERTAIN NON-IFRS MEASURES PotashCorp 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 this Presentation to EBITDA are to income or loss from continuing operations before depreciation and amortization, interest and income taxes; CFR are to cash flow return. EBITDA and CFR are not measures of financial performance (nor does it have a standardized meaning) under IFRS. The Company uses both IFRS and certain non-ifrs measures to access performance. Management believes these non-ifrs measures provide useful supplemental information to Shareholders in order that they may evaluate PotashCorp s financial performance using the same measures as management. These non-ifrs financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS. For historical periods, a reconciliation of EBITDA to net income (loss) from continuing operations is contained in PotashCorp s Financial Review Annual Report for the fiscal year ended December 31, 2011 on pages 78-84, which is attached as Exhibit 13 to the Company s Annual Report on Form 10-K for the year ended December 31, Appendix Forward-looking EBITDA Scenario Reconciliation Scenario One (US$ billions) 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 Depreciation and Amortization EBITDA $4.6 $4.7 $4.6 $4.6 $4.6 Scenario Two (US$ billions) 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 Depreciation and Amortization EBITDA $4.6 $5.0 $5.2 $5.5 $5.9 Scenario Three (US$ billions) 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 Depreciation and Amortization EBITDA $4.6 $6.3 $7.4 $9.2 $9.2 Source: PotashCorp PotashCorp Growth Prospects and Cash Flow Priorities 10

12 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 PotashCorp Growth Prospects and Cash Flow Priorities 11