Attached files
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| EX-99.1 - EXHIBIT 99.1 - 2017 Q3 EARNINGS CALL TRANSCRIPT - MOSAIC CO | exhibit991-2017q3earningsc.htm |
| 8-K - 8-K - 2017 Q3 EARNINGS CALL TRANSCRIPT AND PRESENTATION - MOSAIC CO | a8-kcy17xq3earningscalltra.htm |
Presenters:
Date:
Earnings Conference Call – Third Quarter 2017
October 31, 2017
Joc O’Rourke, President and Chief Executive Officer
Rich Mack, Executive Vice President and Chief Financial Officer
Laura Gagnon, Vice President Investor Relations
The Mosaic Company
Exhibit 99.2
MOSAIC CONFIDENTIAL
Forward Looking Statements
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 our proposed acquisition of the global phosphate and potash operations of Vale S.A. (“Vale”) conducted through Vale Fertilizantes S.A.
(the “Transaction”) and the anticipated benefits and synergies of the proposed Transaction, 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 possibility that
the closing of the proposed Transaction may be delayed or may not occur, including delays or risks arising from any inability of Vale to achieve certain specified
regulatory and operational milestones, and the ability to satisfy any of the other closing conditions; our ability to secure financing, or financing on satisfactory terms and
in amounts sufficient to fund the cash portion of the purchase price without the need for additional funds from other liquidity sources; difficulties with realization of the
benefits of the proposed Transaction, including the risks that the acquired business may not be integrated successfully or that the anticipated synergies or cost or
capital expenditure savings from the Transaction may not be fully realized or may take longer to realize than expected, including because of political and economic
instability in Brazil or changes in government policy in Brazil; 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 performance of the Wa’ad Al Shamal Phosphate Company (also known as MWSPC) and the entity operating the Miski Mayo mine, the risk
that protests against natural resource companies in Peru extend to or impact the Miski Mayo mine, 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; 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
MOSAIC CONFIDENTIAL
Executive Summary
3
Potash
Phosphates
Brazil
Transforming Targeting
Accelerate
Business
Performance
Expect to Achieve Targeted Balance Sheet Metrics by ~2020
MOSAIC CONFIDENTIAL
Comprehensive Transformational Agenda
4
Transform Mosaic’s Combined Brazil Fertilizer Business:
▪ Eliminate system-wide redundancy
▪ Achieve productivity metrics Vale Fertilizantes experienced prior to 2016
▪ Achieve run-rate cash flow improvement of $275 million by end of 2020
Phosphate
Asset
Optimization
Brazil
Business
Transformation
Capital
Deployment
A
c
t
i
o
n
s
Idle Plant City Concentrates Plant for at Least One Year:
▪ Lower operating costs and improve system-wide margins
▪ Reduce CAPEX requirements
▪ Serve own distribution business and other India customers with logistically advantaged,
low-cost Ma’aden Wa’ad al Shamal Phosphate Company joint venture
▪ Maintain future flexibility
Deleverage Balance Sheet by ~ 2020:
▪ New targeted dividend payout of $0.10 per share annually
▪ Focus on returning to stated through-cycle balance sheet targets
> $1 Billion
Cumulative
Cash Flow
Improvement
by End of
2020
MOSAIC CONFIDENTIAL
Phosphates: Expect Positive Gross Margin Impact
5
Estimated Cash Conversion Costs/Tonne* - 2017
* Phosphate cash conversion costs are reflective of actual costs, excluding realized mark-to-market gains and losses. These costs are captured in inventory
and are not necessarily reflective of costs included in costs of goods sold for the period.
$70
$75
$80
$85
$90
$95
$100
$60 $65 $70 $75 $80
C
o
n
v
e
r
s
i
o
n
C
o
s
t
s
(
$
U
S
D
/
T
o
n
n
e
)
Conversion Cash Costs ($USD / Tonne)
Excluding
Plant City
Existing
Footprint
size of bubble = production volume
MOSAIC CONFIDENTIAL
Proactive Actions: Balanced S&D
6
Even Without Expected China Capacity Rationalization
0
1
2
3
4
5
6
7
17E 18F 19F 20F
Million Tonnes
DAP/MAP/NPS
Source: CRU and Mosaic
Global Phosphate Capacity vs. Shipments
Cumulative Change 2017-2020
Cumulative Net Capacity Growth
Cumulative Demand Growth
MOSAIC CONFIDENTIAL 7
Esterhazy K3 Update
MOSAIC CONFIDENTIAL
Brazil Business Transformation
8
$275 million Value Capture Target
12%
20%
12%
56%
Commercial Procurement Raw Materials Operations
Meaningful
Opportunity
Based on
Benchmarks
of Prior
Performance
MOSAIC CONFIDENTIAL
Brazil Business Transformation: Expected Benefits through 2020
$-
$50
$100
$150
$200
$250
$300
2018E 2019E 2020E
Benefits of Synergy and Operational Improvements
D
o
l
l
a
r
s
i
n
M
i
l
l
i
o
n
s
MOSAIC CONFIDENTIAL
Capital Deployment: Committed to Balance Sheet Targets
10
▪ Ahead of Schedule on Meaningful Cost Reduction Program:
• Q3’17 MOP cash production costs per tonne of $101, including $15 per tonne of cash brine
management expenses and $21 per tonne impact of expected royalty settlement*
• Q3’17 SG&A at $66 million, down sequentially and year-over-year
Cost
Reduction
Capital
Expenditures
Capital
Philosophy
▪ Managing CAPEX Requirements:
• $450 to $550 million sustaining capital (excluding Vale Fertilizantes)
• $150 to $200 million expected for combined Brazil business (including Vale Fertilizantes)
• Eliminating, deferring projects outside of sustaining and Esterhazy K3
▪ Unchanged Capital Priorities:
• Targeted dividend payout of $0.10 per share annually
• Focus on debt pay down post Vale Fertilizantes transaction
• Maintaining commitment to investment grade credit ratings
1
2
3
*Potash cash production costs shown approximate costs capitalized on the balance sheet.
MOSAIC CONFIDENTIAL
Financial Results Review
11
MOSAIC CONFIDENTIAL
Hurricane Irma Impact
12%
4%
9%
0%
2%
4%
6%
8%
10%
12%
14%
July and August September
Phosphates Margin lost to Hurricane Irma Phosphates Margin as reported
G
r
o
s
s
M
a
r
g
i
n
P
e
r
c
e
n
t
a
g
e
MOSAIC CONFIDENTIAL
Phosphates Results and Guidance
13
GuidanceThird Quarter 2017 Results
Volumes
Price
Margin
2.2M 2.5M2.1M
$310 $330$329
High Single Digits
8.6%
Phosphates Q4 2017
Q4 Sales Volumes 2.3 to 2.6 million tonnes
Q4 DAP Selling Price $320 to $350 per tonne
Q4 Gross Margin Rate Upper Single Digits
Q4 Operating Rate Low to Mid 80 percent
Guidance Range
Actuals
7.0% 9.0%
MOSAIC CONFIDENTIAL
Potash Results and Guidance
14
Potash Q4 2017
Q4 Sales Volumes 1.9 to 2.2 million tonnes
Q4 MOP Selling Price $175 to $195 per tonne
Q4 Gross Margin Rate Upper Teens
Q4 Operating Rate Low 80 percent*
GuidanceThird Quarter 2017 Results
Volumes
Price
Margin
2.2M 2.2M
Guidance Range
Actuals
1.9M
$165 $180 $182
21%
*Operating rate guidance reflects lower operational capacity at the Colonsay mine.
15% 18%
MOSAIC CONFIDENTIAL
International Distribution Results and Guidance
15
GuidanceThird Quarter 2017 Results
Volumes
Margin/Tonne
2.3M 2.6M
~$20 $25
International Distribution Q4 2017
Q4 Sales Volumes 1.5 to 1.8 million tonnes
Q3 Gross Margin per Tonne Approximately $20*
Guidance Range
Actuals
2.5M
*Based on the current BRL / USD exchange rate.
MOSAIC CONFIDENTIAL
Other Full-Year Guidance
16
Consolidated Full-Year 2017
Total SG&A $290 to $300 million
Capital Expenditures $800 to $850 million
Effective Tax Rate Approximately Zero
Potash 2017
Full Year Canadian Resources Taxes $85 to $100 million
Full Year Brine Management Costs $150 to $160 million
MOSAIC CONFIDENTIAL
Vale Fertilizantes: 2017 Context
Items Impacting VF Q3 YTD 2017 results
1. Miski Mayo flood
2. Vale S.A. incentive compensation
3. A plant fire at Uberaba
4. Transition to new mining areas
5. Impact of the Brazilian Real strength:
1. Every 0.1 move in Real equates to ~$15 million P&L impact
• Starting Point
Higher than
Reported Numbers
• Plans to Achieve
Meaningful
Additional Cash
Flow Benefits
17
MOSAIC CONFIDENTIAL
Closing Remarks and Appendix
18
MOSAIC CONFIDENTIAL
China Phosphates: Continue to Expect Capacity Rationalization
19
0
2
4
6
8
10
12
10 11 12 13 14 15 16 17E
Million Tonnes
DAP/MAP/TSP China Phosphate Exports
Source: China Customs, Mosaic
MOSAIC CONFIDENTIAL
Raw Material Cost Detail
20
Ammonia
($/Tonne)
Third Quarter
2017 Percent
Realized in COGS $283
Average Purchase Price $275
Realized in COGS $88
Average Purchase Price $89
Sulfur
($/Tonne)
Phosphate
Rock
(realized in COGS)
(‘000 tonnes)
U.S. Mined Rock 3,208 85%
Purchased Miski Mayo Rock 379 10%
Other Purchased Rock 172 5%
Total 3,759 100%
Average Cost / Tonne Consumed Rock $63
MOSAIC CONFIDENTIAL
Global Potash Shipment Forecasts by Region (October, 2017)
21
Muriate of Potash
Million Tonnes (KCl) 2015 2016 2017E
Low
2018F
High
2018F Comments
China 16.4 14.0 15.3 15.5 16.0
Shipments are projected to recover to 15.3 mmt in 2017 (7.2 mmt production plus 8.1 mmt net imports). After spiking to 9.2
mmt in 2015, imports plunged to 6.5 mmt in 2016. Despite farm program uncertainties, changes in crop mix are unlikely to
impact on-farm K use in 2018.
India 4.1 3.9 4.4 4.5 4.7
Shipments are forecast to increase to 4.4 mmt in CY 2017 and to 4.5 mmt in 2018. Despite a lower 2017/18 subsidy and 5%
GST, a good monsoon, higher minimum support prices for key crops, a relatively strong rupee, and moderate K prices underpin
improving demand prospects.
Indonesia+Malaysia 4.6 4.7 4.8 4.8 4.9
Shipments continue to trend upward driven by normal rainfall this year, lower and more stable K prices, increases in palm oil
production, moderate palm oil prices, and higher rice prices..
Other Asia 4.4 4.5 4.9 4.9 5.1
Bangladesh, Thailand, and Vietnam account for most of the projected increase. Demand is buoyed by good weather, favorable
policies, more moderate K prices, and stronger crop prices (e.g. recent rice prices).
W. Europe 4.8 5.0 4.8 4.7 4.9
Shipments are expected to drop slightly this year and again in 2018 as a result of elevated channel inventories and the
aftermath of the 2017 drought in southern parts of the region.
E. Europe+FSU 4.7 4.9 5.1 5.2 5.3
Shipments here are on the rise despite less favorable weather in some regions this year. Moderate crop prices combined with
weak currencies continue to bolster agricultural output and K demand.
Brazil 8.8 9.3 9.5 9.8 10.0
Potash shipments were down 1% but MOP imports were up 6% during the first nine months of this year. Farmers are holding
back grain sales and deferring K purchases, but shipments are expected to pick up during the SH and hit our 9.5 mmt forecast.
Demand drivers continue to look positive despite a stronger real.
Other L. America 2.6 2.8 2.8 2.8 2.9
Shipments are projected to drop slightly this year following the import surge and channel inventory build last year. Imports are
projected to remain about stable in 2018.
N. America 8.8 9.4 9.4 9.2 9.4
Shipments jumped in CY 2016 as a result of outstanding 2015/16 spring shipments and record 2016/17 fall shipments. On-farm
potash use is projected to remain about flat despite changes in crop mix with shipments also staying stable at 9.2-9.4 in CY
2017 and 2018.
Other 2.5 2.4 2.6 2.7 2.8 Africa is expected to account for much of the projected gain in shipments in 2017 and 2018.
Total 61.7 60.9 63.5 64.1 66.0
Shipments are forecast to increase to 63.5 mmt in 2017, up 4.4% or 2.7 mmt from last year. The “Big Six” consuming regions
led by the big rebound in China account for all of the projected increase. Our point estimate for 2018 is 65.2 mmt, a gain of
2.7% or 1.7 mmt.
MOSAIC CONFIDENTIAL
Global Phosphate Shipment Forecasts by Region (October, 2017)
22
Mil Tonnes
DAP/MAP/NPS/TSP 2015 2016 2017F
Low
2018F
High
2018F Comments
China 19.8 18.4 18.1 18.2 18.4
Shipments are expected to stabilize at a little over 18 mmt in 2017, with a strong domestic pull expected this fall, helped in part by more
supportive policy comments from the government, including the newly announced ethanol mandate. In 2018, we expect a modest demand
uptick.
India 9.2 9.2 9.5 9.6 9.8
Despite the slow start for DAP shipments through the first eight months of the year (up by only ~100,000 tonnes), we have maintained our full-
year 2017 on the basis of decent monsoon and expectations of strong uptake for the Rabi season. We project this positive momentum to
continue in 2018, though implementation of the Direct Benefit Scheme remains a wild-card.
Other Asia /
Oceania 9.1 8.7 9.5 9.6 9.9
Our 2017 forecast is raised slightly to reflect the strength of Pakistani imports (up 74% y-o-y through August) and shipments (up 15% y-o-y).
Assuming normal weather, we forecast moderate demand growth of ~3% for the region in 2018.
Europe
and FSU 4.7 5.2 5.2 5.3 5.5
Our 2017 forecast continues to show flat demand, as channel inventories are worked through and farm economics in Europe remain strained.
Modest growth is projected in 2018, as parts of the region recover from draught conditions in 2017.
Brazil 6.9 7.8 8.3 8.4 8.7
We have moderated our 2017 forecast slightly due to the tepid farmer demand through the first ¾ of the year. Farm economics remain OK
despite the strength of the real this year (but which has recently weakened) and the slow pace of selling last season’s harvest (though it has
picked up with the rebound in soybean prices since mid-August). Phosphate shipments are up 2% y-o-y, while YTD imports of DAP/MAP/TSP
are up by over half a million tonnes (+16%), suggesting some channel inventory build. We anticipate growth to continue in 2018, but because
of expectations of higher carry-in inventories, we have pared back the volume forecast.
Other Latin
America 2.8 3.5 3.6 3.7 3.9
We have left our forecast for 2017 and 2018 forecasts little-changed, calling for a pick-up in the pace of demand growth in 2018, with good
farmer economics persisting, particularly in Argentina where soybean export tariffs are to again be lowered.
North America 8.9 9.4 9.7 9.4 9.6
The weather-challenged 2017 spring season was about average, but we believe it ended with very low channel stocks. Summer fill interest
was above average, as are imports, and we have boosted our shipment estimate for 2017 on expectations of a good fall season despite some
harvest delays. Our 2018 forecast has shipments moderating slightly.
Other 4.1 4.2 4.3 4.3 4.6
Our forecast for 2017 and 2018 are unchanged. Remarkable demand growth (albeit from a low base) continues to spread across Africa, and
there is likely further upside to our 2018 forecast because of it, though limited demand growth prospects in the Middle East continue to act as
a drag.
Total 65.4 66.3 68.3 68.5 70.5
Our point estimate shipment forecast for 2017 is up slightly at 68.3 million tonnes, while our forecast for 2018 falls in the middle of our
upwardly revised 68.5-70.5 mmt range at 69.6mmt.
MOSAIC CONFIDENTIAL
Earnings Sensitivity to Key Drivers(a)
23
(a) These factors do not change in isolation; actual results could vary from the above estimates
(b) Assumes no change to KMAG pricing
2017 Q3
Actual Change
2017 Q3
Margin %
Actual
% Impact on
Segment
Margin
Pre-Tax
Impact
Quarterly
EPS Impact
Marketing
MOP Price ($/tonne)(b) $182 $50 21% 23% $111 $0.30
Potash Volume
(thousand tonnes) 2,220 500 21% 10% $45 $0.12
DAP Price ($/tonne) $329 $50 9% 14% $106 $0.29
Phosphate Volume
(thousand tonnes) 2,111 500 9% 5% $36 $0.10
Raw Materials
Sulfur ($/lt) $88 $50 9% 5% $42 $0.12
Ammonia ($/tonne) $283 $50 9% 3% $24 $0.07
MOSAIC CONFIDENTIAL
Phosphate Raw Material Trends
24
0
50
100
150
200
250
300
350
400
450
500
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017F
Realized Costs Market Prices
0
25
50
75
100
125
150
175
Sulfur
(long
ton)(p)
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017F
Realized Costs Market Prices
Ammonia Sulfur
($/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
MOSAIC CONFIDENTIAL
Definition of Adjusted Net Debt/Adjusted EBITDA
25
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.