5 Revealing Quotes From PotashCorp’s CEO
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Transcript of 5 Revealing Quotes From PotashCorp’s CEO
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5 Revealing Quotes From PotashCorp’s CEO
Image source: PotashCorp
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#1 Regarding potash markets
No signs of a recovery yet
Source: PotashCorp
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The quote “Despite these improvements in market
conditions, the carryover of weaker potash demand and prices from the first quarter is expected to weigh on results and guidance for the balance of the year.”
CEO Jochen Tilk
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End markets remain weakPotashCorp lowered its 2016 guidance for potash
sales volumes and global shipments in Q1.
Metric
Volumes in million tonnes
Actual 2015Previous guidance
2016
Revised guidance
2016
Potash sales volumes 8.8 8.3-9.1 8.3-8.8
Global potash shipments 60 59-62 59-61
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A tough year ahead for POTPotashCorp’s EPS outlook:
Q2: $0.15-$0.25 versus $0.5 in Q2 2015.2016: $0.6-$0.8 versus $1.52 in 2015.
POT also lowered its 2016 gross profit guidance in Q1: Potash: $0.5 billion-$0.7 billion versus $1.3 billion in
2015.Nitrogen + phosphate: $0.6 billion-$0.8 billion versus
$0.95 billion in 2015.
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#2 Regarding global capacity
Oversupply concerns could continue to haunt potash producersImage source: Sven via Flickr
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The quote “If we then extrapolate that and look at
2020 as a target point, we believe that the operational capability at that time will be approximately 74 million tonnes.”
Jochen Tilk
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Huge capacity coming online
Source: The Mosaic Company Investor Presentation, February 2016
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Supply could exceed demandPotashCorp’s projections: global potash capacity of
74 million tonnes by 2020, up from 65 mt currently. POT’s Rocanville project is expected to add 3 mt.
Mosaic’s projections: global potash capacity of 80 mt versus demand of only 72 mt by 2020.
A prolonged supply glut could mean lower realized prices and margins for potash producers.
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#3 Regarding restructuring
Increased focus on reducing costs
Photo credit: www.gotcredit.com
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The quote “Being proactive also means optimizing our
cost profile. That includes focusing production at our lower-cost facilities while maintaining flexibility to respond to customer needs.”
Jochen Tilk
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PotashCorp’s initiatives In response to weak markets, PotashCorp:
shut down its high-cost Penobsquis plant ahead of schedule in Q4.
indefinitely suspended operations at its Picadilly plant in January.
curtailed production at two mines in February.
At the same time, POT is aggressively expanding its plant at Rocanville, which will also be its largest and lowest-cost facility.
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Potential benefits from Rocanville Reduce PotashCorp’s
operating costs substantially.
Expand POT’s share in Canpotex – the marketing group that handles potash exports outside the U.S./Canada. POT is the major stakeholder in Canpotex. Source: PotashCorp’s presentation at BMO Global
Mining & Metals Conference, March 2016
POT’s projected potash cost
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#4 Regarding dividend
Is another dividend cut in store?
Photo credit: LendingMemo.com
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The quote “We recognize that our updated guidance
range currently falls short of our annual dividend payout, but in light of transitioning market conditions, we believe any adjustment would be premature until we can determine the extent and timing of a recovery.”
Jochen Tilk
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Dividend > Free cash flow
Negative FCF
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The concernsPotashCorp’s annual dividend: $1 per share
versus EPS guidance of $0.6-$0.8.Total dividend payments during the past 12
months: $1.2 billion versus free cash flow worth $708 million.
2016 capital expenditures guidance lowered by $100 million. However, that may not boost POT’s FCF enough to cover dividends as profits are expected to fall substantially.
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#5 Regarding divestments
In the pipeline, but on hold for now
Source: PotashCorp
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The quote “Right now markets are difficult from an
equity perspective and it probably isn't the best time to transact from a point of divesting.”
Jochen Tilk
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PotashCorp’s global investments
1 and 3. Capacity and market value as of Dec. 31, 2015. 2. Sinofert owns 24% of China’s largest potash producer. Source: PotashCorp’s 2015 Annual Integrated Report. Data source: Fertecon, CRU, Bloomberg, public filings, PotashCorp
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Why POT isn’t divesting nowIn 2015, PotashCorp said it could consider
selling stake in some of its equity investments to fund growth initiatives.
Tilk, however, believes that “timing is everything,” and current business conditions aren’t conducive to divesting assets. The company will consider opportunities once end markets improve.
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