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| 8-K - 8-K - 2016 Q3 EARNINGS CALL TRANSCRIPT AND SLIDES - MOSAIC CO | a8-kq32016earningscalltran.htm |
The Mosaic Company
Earnings Conference Call – Third Quarter 2016
November 1, 2016
Joc O’Rourke, President and Chief Executive Officer
Rich Mack, Executive Vice President and Chief Financial Officer
Dr. Mike Rahm, Vice President Market and Strategic Analysis
Laura Gagnon, Vice President Investor Relations
Safe Harbor Statement
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include,
but are not limited to, statements about the Wa’ad Al Shamal Phosphate Company (also known as MWSPC) and other proposed or pending future
transactions or strategic plans and other statements about future financial and operating results. Such statements are based upon the current beliefs and
expectations of The Mosaic Company’s management and are subject to significant risks and uncertainties. These risks and uncertainties include but are
not limited to risks and uncertainties arising from the ability of MWSPC to obtain additional planned funding in acceptable amounts and upon acceptable
terms, the timely development and commencement of operations of production facilities in the Kingdom of Saudi Arabia, the future success of current
plans for MWSPC and any future changes in those plans; difficulties with realization of the benefits of our long term natural gas based pricing ammonia
supply agreement with CF Industries, Inc., including the risk that the cost savings initially anticipated from the agreement may not be fully realized over its
term or that the price of natural gas or ammonia during the term are at levels at which the pricing is disadvantageous to Mosaic; customer defaults; the
effects of Mosaic’s decisions to exit business operations or locations; the predictability and volatility of, and customer expectations about, agriculture,
fertilizer, raw material, energy and transportation markets that are subject to competitive and other pressures and economic and credit market conditions;
the level of inventories in the distribution channels for crop nutrients; the effect of future product innovations or development of new technologies on
demand for our products; changes in foreign currency and exchange rates; international trade risks and other risks associated with Mosaic’s international
operations and those of joint ventures in which Mosaic participates, including the risk that protests against natural resource companies in Peru extend to
or impact the Miski Mayo mine; changes in government policy; changes in environmental and other governmental regulation, including expansion of the
types and extent of water resources regulated under federal law, carbon taxes or other greenhouse gas regulation, implementation of numeric water
quality standards for the discharge of nutrients into Florida waterways or efforts to reduce the flow of excess nutrients into the Mississippi River basin, the
Gulf of Mexico or elsewhere; further developments in judicial or administrative proceedings, or complaints that Mosaic’s operations are adversely
impacting nearby farms, business operations or properties; difficulties or delays in receiving, increased costs of or challenges to necessary governmental
permits or approvals or increased financial assurance requirements; resolution of global tax audit activity; the effectiveness of Mosaic’s processes for
managing its strategic priorities; adverse weather conditions affecting operations in Central Florida, the Mississippi River basin, the Gulf Coast of the
United States or Canada, and including potential hurricanes, excess heat, cold, snow, rainfall or drought; actual costs of various items differing from
management’s current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental regulation,
Canadian resources taxes and royalties, or the costs of the MWSPC, its existing or future funding and Mosaic’s commitments in support of such funding;
reduction of Mosaic’s available cash and liquidity, and increased leverage, due to its use of cash and/or available debt capacity to fund financial
assurance requirements and strategic investments; brine inflows at Mosaic’s Esterhazy, Saskatchewan, potash mine or other potash shaft mines; other
accidents and disruptions involving Mosaic’s operations, including potential mine fires, floods, explosions, seismic events, sinkholes or releases of
hazardous or volatile chemicals; and risks associated with cyber security, including reputational loss, as well as other risks and uncertainties reported
from time to time in The Mosaic Company’s reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in
the forward-looking statements.
2
Meaningful Steps to Create Long Term Value
3
Brazi
l
• Anticipated H2 Improvement
starting to materialize.
• Actions taken allowed to
capitalize on improvement.
• Brazil centered growth strategy
paying off.
Market Update
Positive Potash Developments
Solid on-farm demand
Destocking of channel inventories
Optimization of operations
5
175
200
225
250
275
300
325
350
375
400
425
Jan-14 Jul-14 Dec-14 Jul-15 Dec-15 Jun-16
$ Tonne
Source: Argus FMB
Potash Prices
fob NOLA c&f Brazil
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2015/16 2016/17
Mil Tons
KCl North American MOP Stocks
MIN MAX Range (09/10-15/16) 2015/16 2016/17F 7-Yr Olympic Average
Source: IPNI and Mosaic
Lower Projected NA Producer Inventories
6
Producer stocks projected
to drop from highest June
30 level on record . . .
. . . to a level near the
bottom end of the
seven year range
Expect Rebound in Global Shipments in 2017
7
25
30
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E17F
Global Potash ShipmentsMil Tonnes KCl
Source: Company Reports, CRU and Mosaic
61-63
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E 17F
Million
Tonnes KCl
Brazil MOP Shipments
Source: Company Reports, CRU and Mosaic
0.0
1.0
2.0
3.0
4.0
5.0
6.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E 17F
Million
Tonnes KCl
Malaysia+Indonesia MOP Shipments
Indonesia Malaysia
Source: CRU and Mosaic
DAP Margins Turn Up in Q3
8
200
225
250
275
300
325
350
Jan-14 Jul-14 Dec-14 Jul-15 Dec-15 Jun-16
$ Tonne
DAP Benchmark Stripping Margin
Calculated from Published Weekly Spot Prices
Source: Argus FMB
300
325
350
375
400
425
450
475
500
525
550
Jan-14 Jul-14 Dec-14 Jul-15 Dec-15 Jun-16
$ Tonne
DAP/MAP Prices
Published Weekly Spot Prices
DAP NOLA MAP Brazil
Source: Argus FMB
50
75
100
125
150
175
200
300
400
500
600
700
Jan-14 Jul-14 Dec-14 Jul-15 Dec-15 Jun-16
Sulphur
$ LT
Ammonia
$ Tonne
Weekly Raw Materials Prices
c&f Tampa
Ammonia Sulphur
Source: Argus FMB
Positive Demand Outlook
9
66-68
30
35
40
45
50
55
60
65
70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E 17F
Global Phosphate ShipmentsMMT Product
DAP/MAP/NPS/TSP
Source: CRU and Mosaic
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E17F
Latin America less Brazil
DAP/MAP/NPS/TSP Shipments
DAP MAP NPS TSP
Million Tonnes
Source: CRU and Mosaic
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16E17F
Asia/Oceania less China and India
DAP/MAP/NPS/TSP Shipments
DAP MAP NPS TSP
Millon Tonnes
Source: CRU and Mosaic
Expected China Capacity Rationalization
10
“The country’s phosphate fertilizer capacity will be
controlled at 22 million tpy (P2O5) by 2020, and some
outdated plants will be phased out in the 2016-2020
period, eliminating 3 million tpy capacity, according to
Ideas for Development of the Phosphate Fertilizer
Industry in 2016-2020, which was released at the 23rd
National Phosphate and Compound Fertilizer Industry
Annual Conference on May 27”
China Fertilizer Market Weekly
June 7, 20160.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
YTD
Mil Tonnes China DAP/MAP/TSP Exports
Source: Fertecon, China Customs, Mosaic
Sept
Financial Results Review
Visible H2 Improvement
12
$0.73
$(0.03)
$0.11
$0.14
$0.06
$0.41
‐$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
Q1'16 Q2'16 Q3'16
Earnings Per Share Adjusted Earnings Per Share
*Additional discussion of adjusted earnings per share, including reconciliations to earnings per share for the periods presented, and for historical
periods, are provided in the Q3 2016 supplemental performance data that is available on Mosaic’s website at http://investors.mosaicco.com
under “Financial Information – Quarterly Earnings.”
Controlling Operating Expenses
13
$394 $382
$361
$230
$200
$250
$300
$350
$400
$450
2013 2014 2015 2016F
$330
$315
Guidance range
$ Millions
SG&A
YTD
Q3 SG&A: lowest in 9 years, despite adding CF
phosphates and ADM Distribution
$900
$800 $800
$‐
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2013 2014 2015 2016F 2017E 2018E 2019E
Sustaining Capex Growth Capex Total Capex Investment in Ma'aden
And Capital Spending
14
$ Millions
Down ~50%
From Peak
Potash Guidance
Potash 2016
Q4 Sales Volumes 1.9 to 2.1 million tonnes
Q4 MOP Selling Price $160 to $175 per tonne
Q4 Gross Margin Rate Mid-teens
Q4 Operating Rate Around 75 percent
Full Year Sales Volumes 7.7 to 7.9 million tonnes
Global Shipments 59 to 60 million tonnes
15
Phosphates Guidance
Phosphates 2016
Q4 Sales Volumes 2.1 to 2.4 million tonnes
Q4 DAP Selling Price $300 to $330 per tonne
Q4 Gross Margin Rate Upper single digits
Q4 Operating Rate Around 85 percent
Full Year Sales Volumes 9.3 to 9.6 million tonnes
Global Shipments 65 to 66 million tonnes
16
International Distribution Guidance
International Distribution 2016
Q4 Sales Volumes 1.7 to 1.9 million tonnes
Q4 Gross Margin per Tonne Around $20 per tonne
Full Year Sales Volumes 6.6 to 6.8 million tonnes
17
Narrower range: sold out
position in 4th quarter
Full-Year Guidance Summary
Consolidated Full-Year 2016
Total SG&A $315 to $330 million
Capital Expenditures and Equity Investments $1.0 to $1.1 billion
Effective Tax Rate Approximately zero percent
18
Potash 2016
Full-Year Canadian Resources Taxes (CRT) $95 to $110 million
Full-Year Brine Management Costs $150 to $170 million
Closing Commentary
Appendix
Phosphates Segment Highlights
Key Drivers:
• The year‐over‐year decrease in net sales is driven by lower selling prices.
• The year‐over‐year change in gross margin primarily reflects lower finished product selling prices, partially
offset by lower realized ammonia and sulfur costs and higher sales volumes.
$ In millions, except DAP price Q3 2016 Q2 2016 Q3 2015
Net sales $930 $976 $1,032
Gross margin $101 $100 $199
Percent of net sales 11% 10% 19%
Operating earnings $10 $12 $157
Sales volumes 2.5 2.4 2.1
Production volume(a) 2.5 2.4 2.4
Finished product operating
rate
84% 82% 83%
Avg DAP selling price $326 $343 $451
(a) Includes crop nutrient dry concentrates and animal feed ingredients
0
50
100
150
200
250
300
350
Q3 2015 OE Raw
materials
Sales
volumes
Sales
price
Other Q3 2016 OE
OPERATING EARNINGS BRIDGE
$ IN MILLIONS
21
Potash Segment Highlights
22
Key Drivers:
• The decrease in net sales compared to prior year was driven primarily by lower average realized prices.
• The year‐over‐year decrease in gross margin was driven by lower selling prices, partially offset by higher sales
volumes. The negative impact of a lower operating rate was offset by benefits from cost savings.
$ In millions, except MOP price Q3 2016 Q2 2016 Q3 2015
Net sales $428 $457 $492
Gross margin $40 $53 $97
Percent of net sales 9% 12% 20%
Canadian resource taxes (CRT) $14 $38 $59
Gross margin (excluding CRT)* $54 $91 $156
Percent of net sales
(excluding CRT)*
13% 20% 32%
Operating earnings $7 $18 $66
Sales volumes 2.2 2.0 1.6
Production volume 1.7 1.8 1.8
Production operating rate 63% 67% 67%
Avg MOP selling price $160 $178 265
0
50
100
150
200
250
Q3 2015 OE Sales
volumes
Resource
taxes &
royalties
Production
and
other
Sales
price
Q3 2016 OE
OPERATING EARNINGS BRIDGE
$ IN MILLIONS
*Additional information on our presentation of non‐GAAP measures and reconciliations to the most directly comparable GAAP measures are provided in the
Q3 2016 supplemental performance data that is available on Mosaic’s website at http://investors.mosaicco.com under “Financial Information – Quarterly
Earnings.”
International Distribution Segment Highlights
Key Drivers:
• The increase in net sales was driven by higher sales volumes, partially offset by lower average selling prices.
• Operating earnings increased by $6 million from last year, primarily reflecting the lower product costs.
23
$ In millions, except Blends price Q3 2016 Q2 2016 Q3 2015
Net sales $849 $534 $825
Gross margin 71 $5 $61
Percent of net sales 8% 1% 7%
Operating earnings (loss) $50 $(11) $44
Sales volumes 2.2 1.4 2.0
Margin per tonne $32 $3 $30
Average realized price (FOB
destination)
$380 $374 $400
‐20
40
100
Q2 2015 OE Sales
volumes &
mix
Product cost Sales
price
Other Q2 2016 OE
OPERATING EARNINGS BRIDGE
$ IN MILLIONS
Q3 2016 Percent
Ammonia ($/tonnes)
Realized in COGS $287
Average Purchase Price $274
Sulfur ($/ton)
Realized in COGS $93
Average Purchase Price $87
Phosphate rock (realized in COGS) ('000 tonnes)
U.S. mined rock 4,145 93%
Purchased Miski Mayo Rock 331 7%
Other Purchased Rock 10 0%
Total 4,486 100%
Average cost / tonne consumed rock $60
Raw Material Cost Detail
24
(a) These factors do not change in isolation; actual results could vary from the above estimates
(b) Assumes no change to KMAG pricing
Earnings Sensitivity to Key Drivers(a)
25
2016 Q3
Actual Change
2016 Q3
Margin %
Actual
% Impact on
Segment
Margin
Pre-Tax
Impact EPS Impact
Marketing
MOP Price ($/tonne)(b)
$160 $50 9% 26% $110 $0.33
Potash Volume
(thousand tonnes) 2,208 500 9% 8% $33 $0.10
DAP Price ($/tonne) $326 $50 11% 14% $126 $0.37
Phosphate Volume
(thousand tonnes) 2,521 500 11% 4% $37 $0.11
Raw Materials
Sulfur ($/lt)
$93 $50 11% 5% $50 $0.15
Ammonia ($/tonne)
$287 $50 11% 3% $29 $0.09
0
100
200
300
400
500
600
700
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016F
Realized Costs Market Prices
0
25
50
75
100
125
150
175
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016F
Realized Costs Market Prices
Phosphate Raw Material Trends
26
Ammonia Sulfur
($/tonne) ($/tonne)
1. Market ammonia prices are average prices based upon Tampa C&F as reported by Fertecon
2. Market sulfur prices are average prices based upon Tampa C&F as reported by Green Markets
3. Realized raw material costs include:
~$20/tonne of transportation, transformation and storage costs for sulfur
~$35/tonne of transportation and storage costs for ammonia
1 2
Definition of Adjusted Net Debt/Adjusted EBITDA
27
The company targets adjusted net debt to adjusted EBITDA as a proxy for how the
rating agencies assess leverage metrics:
Adjusted net debt is defined as long‐term debt plus short‐term debt less cash
and cash equivalents, all from the balance sheet. Net debt is also adjusted to
include unfunded pension liabilities and capitalize operating leases.
Adjusted EBITDA is defined as a five year average (two historical, current, and
two forecast) of the sum of net income plus interest, adjusted to remove
foreign currency gain (loss), income tax, depreciation, depletion and
amortization, and non‐cash write‐offs.
Global Potash Shipment Forecasts by Region (November 1, 2016)
Muriate of Potash
Million Tonnes (KCl) 2015
Nov
Low
2016F
Nov
High
2016F
Nov
Low
2017F
Nov
High
2017F Comments
China 15.9 13.0 13.3 13.7 14.2
While still projecting a sharp drop in shipments this year due to the delayed settlement of 2016 contracts
and a drawdown of channel stocks, we have tempered this decline modestly versus our last forecast.
Imports through the first three quarters of the year were down 29% (or 1.8mmt) y‐o‐y. We do not
anticipate that changes to government support policies to discourage corn plantings (which have been
softened somewhat by recent, offsetting, policies) will have a material adverse impact on demand in
2017, with demand rebounding to ~14 mmt.
India 4.0 4.1 4.3 4.4 4.7
High inventories at the beginning of the year and lackluster uptake in the first three quarters of the year
have led us to trim our expectations for the calendar year. That noted, with a good monsoon now in the
books, relatively low potash prices, a workable subsidy and strong local ag commodity prices, we expect
demand to be robust in the upcoming Rabi season. Inventories have been pulled down and at the end of
September stood stand at less than half the level of a year ago. Our unchanged forecast for 2017 calls
for a demand rebound, with stability of the rupee a wildcard.
Indonesia/
Malaysia 4.3 4.4 4.6 5.0 5.2
Shipments in 2016 have been disappointing due to the lingering impacts of last season’s El Niño, but we
are now seeing a resurgence in demand as fundamentals – better rainfall, lower K prices and a strong
rebound in palm oil prices – begin driving a meaningful increase in 2017.
Europe and FSU 10.5 10.4 10.6 10.6 10.8
Shipments in 2016 have once again been revised slightly higher on better than expected demand,
particularly in Russia. Our 2017 forecast calls for a moderate expansion to replace big soil nutrient
drawdowns this year and to meet the boost in production of NPKs.
Brazil 8.7 9.0 9.2 9.2 9.5
Near‐record local currency prices for soybeans, corn, sugar, cotton and coffee have led to a big demand
pull (monthly fertilizer shipments in each month Jun‐Sep have set all‐time records). Potash shipments
through September are up 8% from a year ago, while imports are up just 1% y‐o‐y and domestic
production is broadly flat, implying a sizable drawdown in channel inventories. We continue to expect
these constructive market conditions to carry over into 2017, underpinning our forecast for shipments to
surpass the 2014 high of 9.3 mmt.
North America 8.9 8.9 9.1 8.8 9.0
We continue to expect a very solid fall season as a result of large potash withdrawals this year and the
low cost of rebuilding soil potassium levels. In 2017, we anticipate a modest pullback in corn acreage,
but that is expected to result in only a minor decrease in shipments.
Other 9.1 9.0 9.2 9.3 9.6
Our 2016 forecast is unchanged, as the lower reset in benchmark contract prices has provided a floor in
spot market pricing that appears to be pushing stronger demand in the second half. Our 2017 forecast is
revised slightly lower on rebalancing of shipments in several countries.
Total 61.3 58.8 60.3 61.0 63.0
Our 2016 global shipments point estimate is unchanged at 59.6 million tonnes within a range of 59‐60
mmt, with downward revisions in a few geographies offset by increases elsewhere. Our shipment
forecast for 2017 is also unchanged at 61‐63mmt, driven by increases in Asia, with a point estimate in
the middle of the range. Shipment growth is expected to benefit from what we believe will be a sizable
pullback in channel inventories by the close of 2016.
Source: CRU and Mosaic.
Numbers may not sum to total due to rounding.
Global Phosphate Shipment Forecasts by Region (November 1, 2016)
Source: CRU and Mosaic.
Numbers may not sum to total due to rounding.
* NPS products included in this analysis are those with a combined N and P2O5 nutrient content of 45 units or greater.
Million Tonnes
DAP/MAP/NPS*/TSP 2015
Nov
Low
2016F
Nov
High
2016F
Nov
Low
2017F
Nov
High
2017F Comments
China 19.6 18.7 18.9 19.0 19.3
We have slightly trimmed our 2016 forecast on a slow start to the winter stockpiling program, as
domestic prices are trading at a significant premium to export values (after steady erosion of the latter
over the last several weeks). Lower stocks and domestic prices set the stage for a rebound next year,
though we have lowered expectations slightly for next year as well.
India 9.2 9.0 9.1 9.3 9.5
High inventories to start the year and tepid demand (through September, calendar year shipments were
running about 100,000 tonnes lower than a year ago) have led us to trim our expectations for 2016
despite the good monsoon, historically‐low DAP prices, workable subsidy and strong local ag prices. We
have pared back our expectations for 2017 as well, but expect the strong drivers noted above to carry
through 2017, provided that the rupee remains stable.
Other Asia/Oceania 8.6 8.5 8.7 8.6 8.9
We have revised higher our expectations for other parts of Asia (most notably Pakistan) on the strength
of imports year‐to‐date. We had made a small upward adjustment last quarter due to higher crop
prices, more moderate P prices, low channel inventories, improved weather and more stable forex rates,
but clearly underestimated their potential impact. Our 2017 forecast calls for incremental gains, as we
expect the positive drivers to persist.
Europe and FSU 5.0 5.1 5.2 5.1 5.3
Our 2016 and 2017 forecasts are unchanged. Big harvests this year imply large P replacement
requirements, but macro uncertainties and weaker farm economics in Europe remain a drag.
Brazil 6.9 7.5 7.6 7.6 7.9
Near‐record local currency prices for Brazil’s main crops have led to a big demand pull, with monthly
fertilizer shipments in each month Jun‐Sep setting records. Phosphate shipments through Q3 are up 6%
y‐o‐y, while imports and domestic production have been broadly flat, implying a sizable inventory
drawdown. We expect profitable farm economics will drive record‐setting demand again next year, with
both 2016 and 2017 forecasts adjusted slightly higher.
Other Latin America 2.7 3.4 3.5 3.6 3.7
Forecasts for both 2016 and 2017 are unchanged. Higher local‐currency ag commodity prices and low
fertilizer prices continue to fuel a strong rebound in demand. It is apparent that Argentina’s decision not
to lower their soybean export tariff next year is not having a deleterious impact on P demand and has
been offset by higher corn area.
North America 8.9 8.9 9.1 8.9 9.1
2016 shipments were revised down modestly as a result of the tepid start to the fall season (though it is
expected to ramp up sharply over the next two weeks, as the large P removal from this year’s big crop is
replaced). Demand is expected to be broadly flat next year.
Other 3.8 4.0 4.1 4.0 4.3
Our 2016 and 2017 forecasts are revised higher, driven by lower than expected inventories to start 2016
and stronger than expected rebounds in demand in both Africa and the Middle East.
Total 64.8 65.1 66.2 66.1 68.0
Our 2016 point estimate of 65.6 million tonnes is again unchanged, with lowered expectations in some
countries (e.g. India and North America) offset by increased expectations in others (e.g. Pakistan and
Brazil). Our shipment forecast for 2017 continues to call for an increase to 66‐68 million tonnes, with a
point estimate in the middle of the range.
Source: i .
Nu bers ay not su to t t l d t r i .