Westlake Chemical Corporation 2007 Citi Basic Materials Symposium December 4th, 2007.
Citi 2015 Basic Materials Conference - Seeking Alpha...Jan 20, 2016 · Citi 2015 Basic Materials...
Transcript of Citi 2015 Basic Materials Conference - Seeking Alpha...Jan 20, 2016 · Citi 2015 Basic Materials...
Citi 2015 Basic Materials Conference
Jochen Tilk
President & CEO
Citi 2015 Basic Materials Conference
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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 often contain words such as “should,” “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimates,” “plans” and similar expressions. These statements are based on certain factors and assumptions as set forth in this document, 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
Forward-looking Statements
materially from those expressed in 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; changes in competitive pressures, including pricing pressures; costs and availability of transportation and distribution of our raw materials and products, including railcars and ocean freight; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; risks and uncertainties related to our international operations and assets; failure to prevent or respond to a major safety incident; 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; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; catastrophic events or malicious acts, including terrorism; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; our prospects to reinvest capital in strategic opportunities and acquisitions; our ownership of non controlling equity interests in other companies; the impact of further technological innovation; increases in the price or reduced availability of the raw materials that we use; security risks related to our information technology systems; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; certain complications that may arise in our mining
i l di t i fl bilit t tt t t i d l d kill d l i k l t d t t ti l lprocess, including water inflows; our ability to attract, retain, develop and engage skilled employees; risks related to reputational loss; earnings; and the decisions of taxing authorities, which could affect our effective tax rates. Additional risks and uncertainties can be found in PotashCorp’s Form 10-K for the fiscal year ended December 31, 2014 under the captions “Forward-Looking Statements” and “Item 1A –Risk Factors” and in PotashCorp’s other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements included in this presentation are given only as at the date hereof. PotashCorp disclaims any obligation to update or revise any forward-looking statements in this presentation, whether as a result of new information, future events or otherwise, except as required by law.
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PotashCorp Overview
W ld’ l t f tili d b itWorld’s largest fertilizer producer by capacity; #1 in potash and among the largest in nitrogen and phosphate.
Canadian potash operations and strategic offshore investments position us to benefit from growth markets.
World-class nitrogen and phosphate businesses focused on historically more stable feed and industrial markets.
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Citi 2015 Basic Materials Conference
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Potash Supply and Demand Outlook
80 Shipments POT Shipment Forecast Range
Million Tonnes KCl
Supply/Demand Balance Expected to be Similar to Historical Levels
Global Potash Supply and Demand
10
20
30
40
50
60
70
80 Shipments POT Shipment Forecast RangeOperational Capability* CRU Shipment ForecastFertecon Shipment Forecast
Source: Fertecon, CRU, IFA, PotashCorp
02000 2002 2004 2006 2008 2010 2012 2014 2016F 2018F 2020F
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* 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.
Citi 2015 Basic Materials Conference
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4.7
4.9
Projected Operating Capability Modestly Above Demand Over Coming Years
~74
Global Potash Supply and Demand: A Closer Look
~4
4.0
3.4
4.4
2.5
1.8
2.5
~11 ~70
3.0~65
~59
Other
Latin America
China
India
Demand Growth
2015E Operating
Capability**
2020E Demand Outlook*
Operational CapabilitySurplus
2020E Operating
Capability**
GreenfieldExpansions
Canadian Brownfield Expansions
Other BrownfieldExpansions
Depletion2015FDemand
Source: Fertecon, CRU, Public Filings, PotashCorp
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*2020 demand estimate based on 2.5-3.0% long-term growth rate
**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
Capital Allocation
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Priority to Support Existing Assets and Dividend; Continue to Explore Opportunities
Our Approach to Capital Allocation
Growth & Return
Support existing asset base by investing required maintenance capital
Support existing dividend by utilizing cash flowValue
1
3
2
Use surplus capital to fund best value creation alternatives
Debt Management
Organic Growth
M&A / Investments
ShareBuybacks
DividendIncrease
Return to Debt Holders Invest in Growth Return to Shareholders
3
Slide #8Source: PotashCorp
22.9
3.5
Cumulative Spending (2005-2014) - US$ Billions
2
-9.5
-4.226.9
Potash Expansions a Priority Over Past Decade; Now Nearly Complete
10-Year Historical Cash Flow Summary
0.5 0.2
Ending Cash
Balance(Dec, 2014)
ShareBuybacks
-7.7
Dividends
-3.4
EquityInvestments
& Other
-1.9
OpportunityCapital
SustainingCapital
TotalFunds
Available
Financing Activities
OperatingCash Flows
OpeningCash
(Jan, 2005)
Cash Sources Cash Uses
Invested in Growth
58%Returned to Shareholders
42%
Capital Allocation
15% 36% 7% 13% 29%% Allocation by Category:
Type of Usage:
Slide #9Source: PotashCorp
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Cash From Operations Supports Both Dividend and Sustaining Capex
PotashCorp Cash Flow From Operations Sensitivity*
4.0 Maint. CAPEX (2017+) Dividend
US$ - Billions
Q3 2015
1.0
2.0
3.0
Dividend ~$1.2B
Sustaining Capex~$0.7B
Source: PotashCorp
0.0$200 $250 $300 $350
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Average Realized Potash Price
* Estimate assumes potash sales volumes of 10mmt, FX at 1.30 CAD per USD; nitrogen/phosphate earnings, SG&A, finance costs, freight rates and other income in line with 2015E. Does not include working capital changes.
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Citi 2015 Basic Materials Conference
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Macroeconomic Environment & Potash Markets
GDP Growth Rate
2015E 3 Y A (% Ch )
Emerging Market Uncertainty and Weaker Ag Environment Create Recent Headwinds
Macroeconomic Factors
FX Change vs USD Crop Price Changes
-3.0%
-2.0%
-1.0%
0.0%
1.0%
Brazil Indonesia China US India
2015E vs 3-Yr Avg (% Change)
-25%
-20%
-15%
-10%
-5%
0%Brazil Indonesia India China
-25%
-20%
-15%
-10%
-5%
0%Corn Sugar Soybeans Wheat Palm Oil
-5.0%
-4.0%
Source: IMF, Bloomberg
-35%
-30%
-35%
-30%
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Macroeconomic uncertainty significant contributor to fertilizer market challenges in 2015
As at November 26, 2015
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Global Crop Price Index* Forecast
225
250
275Actual Forecast
Price Index (2005 = 100)
Forecast Moderate – but Supportive – Crop Price Environment
0
25
50
75
100
125
150
175
200
225
Source: Bloomberg, BMI
1990 1995 2000 2005 2010 2015F 2020F
Base case: No major supply/demand shocks, moderate economic and energy price environment.Upside Factors: Supply side shock, demand surge (favorable biofuel policy), spike in energy prices.Downside Factors: Favorable global growing conditions, government policy change (e.g. lower biofuel mandates or China/India grain price support), negative food consumption event.
* Based on corn, soybean, wheat, palm oil and sugar prices. Forecast based on Bloomberg consensus and BMI.
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Return over operating and land costs
US$/Acre
Lower Returns but Levels Remain Supportive
Farmer Returns a Key Driver of Potash Consumption
600 Return over operating and land costs
Reals/Acre
US Corn Brazil Soybean
50
100
150
200
250
300
350
400
450
500 Return over operating and land costs
50100150200250300350400450500550600 Return over operating and land costs
-50
0
Source: USDA, IMEA, Conab, PotashCorp
0
* 2015F represents the 2015/16 Brazilian crop year.
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Despite macroeconomic pressures, farmer returns on key crops in most growing regions remain at supportive levels
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7,00080
Potash Consumption –Million Tonnes KCl Equivalent
Crop Production a Key Driver of Potash Consumption
Crop Production –Million Tonnes
Crop Production Growth Expected to Underpin Potash Growth
3,000
4,000
5,000
6,000
30
40
50
60
70
Potash Consumption Crop Production
2,000201995 2000 2005 2010 2015F 2020F
Source: Fertecon, CRU, FAO, PotashCorp
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Crop production growth has historically been less sensitive to macroeconomic factors
80 Shipments Shipment Range70
Million Tonnes KCl
Strong Potash Consumption Drivers Support Our Long-term Growth Potential
Global Potash Demand
10
20
30
40
50
60
70~70
Source: Fertecon, CRU, IFA, PotashCorp
02000 2002 2004 2006 2008 2010 2012 2014 2016F 2018F 2020F
Longer-term growth expected between 2.5% and 3.0%, in line with historical trend; assumes a moderated, less volatile pricing environment
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Despite Macro Headwinds, Offshore Demand Expected to Remain Historically High
Potash Market Outlook
Highlights (2015F)Potash Shipments (million tonnes)
4
6
8
10
12
14
16 China: 14.0 – 14.5mmt
• Consumption trends have been strong in recent years
• VAT and currency changes creating some market uncertainty, but represent small percentage change in farmer costs
India: 4.2 – 4.5mmt
• Growth in domestic NPK compound production supporting potash imports
• Currency weakness and below average monsoon causing some near-term uncertainty
Other Asia: 8.3 – 8.7mmt
• Consumption needs remain significant
• Higher inventories and FX volatility have presented headwinds
0
2
China India Other Asia
Latin America
North America
2013 2014 2015F*
Source: PotashCorp
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g y p
Latin America: 10.5 – 11.0mmt
• Weaker currencies increasing farmer costs but supporting crop export margins
• Strong second half Brazilian demand despite FX and credit related challenges
North America: 8.5 – 9.0mmt
• Healthy fall application season expected to reduce distributor inventory* As at Oct 29, 2015; represents midpoint of guidance range
Despite Macroeconomic Pressure, Potash Remains Affordable
Potash Costs by Region and Major Crop
Cost as a Percentage of Revenue
2
4
6
8
10 2015E 5-year Avg
g
Source: Fertilizer Week, USDA, IPNI, PotashCorp
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0China Rice India Wheat Malaysia Oil
PalmBrazil Soybean US Corn
Potash costs as a percentage of revenue remains largely in line with prior years
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Large Application Deficit Due to Rising Crop Removal
US Potash Application Balance*
Regional Application Deficit (2010)Potash Application vs Removal
-6
-3
0
3
6
9
12
-40
-20
0
20
40
60
80 Balance (RHS) Application Rate Nutrient Removal
Lbs/Acre (K20) Balance - Million Tons KCl Million Short Tons KCl Equivalent
3.7
1.4
0 7 0 70 5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Source: USDA, AAPFCO, PotashCorp
-12
-9
-80
-60
75 78 81 84 87 90 93 96 99 02 05 08 11 14
* Calculations based on commercial fertilizer application data, estimated nutrients available from manure and crop removal rates for all major crops grown in the US.
0.7 0.7 0.6 0.60.4
0.0
0.5
CentralPlains
Mountain LakeStates
Midwest Other West Delta
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718 000
Rs/Tonne (Lines)
Demand Has Started to Recover With More Stable Pricing
India Retail Potash Prices and Sales
Million Tonnes (Bars)
1
2
3
4
5
6
7
2 000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Source: FAI, Katana
00
2,000
2008 2009 2010 2011 2012 2013 2014 2015F
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VAT Impact Expected to be Small Part of Total Fertilizer Cost
Chinese Potash Costs
Percentage of Revenue
Chinese Rice Farmer Fertilizer Costs (2015E)
~1.74% ~1.95%
2
4
6
8
10 Cost of N and P Cost of Potash
g
Source: Fertilizer Week, USDA, IPNI, PotashCorp
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0Pre-VAT
(Retail Potash Price US$350)Post-VAT
(Retail Potash Price US$390)
Strategic & Other Highlights
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Strategic Highlights
• Rocanville expansion nearing completion; Picadilly capacity in early ramp-up
• Operational capability aligned with anticipated demand; costs continue to declinePotash
• Completed Lima expansion in October adding an additional 100,000mt of NH3 capacity
• Evaluating additional brownfield expansion at GeismarNitrogen
• Focused on improving reliability; P2O5 production continuing to improve
• Margin improvement opportunities identified and being implementedPhosphate
Source: PotashCorp
• Stable dividend and healthy balance sheet continue to be our priority
• Evaluating other strategic opportunitiesCapital
AllocationStrategy
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Lower-cost Delivered Supplier Given Geographic Positioning and Logistical Capability
PotashCorp Positioning – North America
1 S k t h O ti1. Saskatchewan Operations
• 5 lower-cost potash operations; 2015 YTD cash-related COGS of ~$83/tonne*
• Finalizing Rocanville expansion (our largest and lowest cost operation), enabling further cost reductions in 2016
• Operational capability aligned with expected near-term demand; maintain flexibility to meet surges
2. North American Production/Distribution
• Extensive and highly efficient North American infrastructure, including:
o 4,200 specialized potash railcars o >150 owned or leased US distribution pointso Hammond IN warehouse/distribution facility
Source: PotashCorp
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o Hammond, IN warehouse/distribution facility enables by-pass of Chicago rail congestion
• Top-rated North American sales team
* Cash costs refers to total cost of goods sold less depreciation and amortization.
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Lower-cost Delivered Supplier Given Port Access and Logistical Capabilities
PotashCorp Positioning – Offshore
1. New Brunswick Opportunity
• Increasing operational capability to 1.8mmt through new Piccadilly mine
• Only East Coast potash port capability in North America, with flexibility to serve existing and new markets
• Supply agreement with Heringer; more than 1mmt per year to be served from New Brunswick or from Saskatchewan through Canpotex
2. Canpotex Positioning
• One of Canada’s premier exporting companies, serving approximately 35 countries
• Economies of scale, efficiencies and superior customer service through:
o 5 400 specialized potash railcars and a state of
Source: PotashCorp
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o 5,400 specialized potash railcars and a state-of-the-art railcar maintenance facilityo Two deep water ports (Vancouver, BC and Portland, WA) o Fleet of ocean vessels
• Member company distribution investments in key markets, including Brazil, China, etc.
Try Our Overview Site: www.potashcorp.com/overview
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