Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — BMO Agricultural, Protein & Fertilizer Conference (May 2009)
60 slides from Mosaic Company (the)'s conference presentation, May 14, 2009
Slide 1: BMO Agricultural, Protein & Fertilizer Conference
Exhibit 99.1 BMO Agricultural, Protein & Fertilizer Conference Jim Prokopanko, President and Chief Executive Officer May 14, 2009
Slide 2: Opening remarks
Good morning, everyone. Thank you for attending. I’d like to thank Edwin Chee at BMO for giving me this opportunity to meet with you this morning. I’ll talk about how spring has shaped up, the market catalysts we need to keep an eye on going forward…. and reaffirm why our viewpoint about the long-te
Slide 3: Safe Harbor Statement
Safe Harbor Statement This presentation 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 future financial and operating results. Such statements are based upon the current
Slide 4: Forward-looking statements reminder
Before I proceed, I need to remind you that our presentation contains forward-looking statements. The remarks I make are based on information and understandings we believe to be accurate as of today’s date – May 14, 2009. Actual results are likely to differ from those set forth in the forward-lookin
Slide 5: Strategic Focus
Strategic Focus Deliver value for shareholders Focus on Potash and Phosphate •Grow Potash •Strengthen Phosphate Optimize Offshore distribution Maintain a strong balance sheet Slide 3
Slide 6: Confidence in long-term outlook
We are confident in Mosaic’s long-term outlook, despite the market disruptions we’ve all been experiencing. Agriculture fundamentals remain rock solid because of the increasing global demand for food, fuel and feed. Mosaic is well-positioned to capitalize on these fundamentals with our vertically in
Slide 7: Positioned for Significant Growth
Positioned for Significant Growth Capitalizing on long-term fundamentals Generated strong cash flow, reduced debt & achieved investment grade status Executing on Mosaic strategy An Industry Leader Emerges – Prepared for Long-Term Growth… As Well as the Near-Term Downturn Slide 4
Slide 8: Capitalizing on long-term agriculture fundamentals
Mosaic is taking the steps necessary to capitalize on attractive long-term agriculture fundamentals. We take pride in our strong cash generation which allowed us to pay down a significant amount of debt – and achieve investment grade status -- long before many thought possible and remain financially
Slide 9: Value Creation – Cash Flow Drivers
Value Creation – Cash Flow Drivers Sales: volume, price, business mix Operating margin: costs & expenses Working capital: receivables, inventory & payables Cash taxes Capital expenditures Capital structure Supported By Strong Governance & Controls Slide 5
Slide 10: Levers to generate cash
We are positioned financially, strategically, operationally and with the talent to serve customers and execute on the strong, long-term fundamentals of the agricultural sector and -- to create value for customers and for you, our shareholders. Ultimately that means cash. Listed here are the levers w
Slide 11: Cash Flow from Operations
Cash Flow from Operations Slide 6
Slide 12: Operating cash flow track record
These value drivers work together to produce operating cash flow. Our track record on this front has been excellent, though results have been less robust the second half of this fiscal year.
Slide 13: Cash Allocation Priorities
Cash Allocation Priorities Invest to maintain/grow existing business • Growing proportion of growth/opportunity projects • Disciplined capital allocation process Maintain liquidity buffer • To protect against cyclical downturn • To allow pursuit of strategic opportunities Shareholder distributions •
Slide 14: Using cash flow to grow and distribute
We’ll use this strong cash flow we generate to grow the business through internal investments, following a disciplined review and approval process for making these investments. Recently, our Board of Directors approved a sizeable piece of our previously announced potash expansions programs, which I’
Slide 15: Return on Invested Capital
Return on Invested Capital 35% 30.2% 28.8% 30% 25% 20% 15% 10% 8.0% 5% 2.3% 0% FY06 FY07 FY08 12 Mos Feb 09 Note: See appendix for ROIC reconciliation
Slide 16: Strong return on capital
We drive a strong return on capital when we maximize the cash flow drivers I described a few minutes ago. Here you see the strong results we have achieved with invested capital. Next I’ll spend a few moments reviewing each of our business segments.
Slide 17: Value Driver: Potash Revenue
Value Driver: Potash Revenue MOP Price $600 $500 $400 $300 $200 $100 $0 FY2006 FY2007 FY2008 Q1 FY09 Q2 FY09 Q3 FY09 Potash Sales Volume Annual Quarterly 8.0 6.0 4.0 2.0 - FY2006 FY2007 FY2008
Slide 18: Potash price and volume momentum
The price momentum in the potash business has been very strong until recent months, when sales demand came to a halt. Until this fiscal year, we’ve captured steady growth in potash volume. We expect volume to decline significantly this fiscal year due to weak demand. In the medium and longer term, w
Slide 19: Leading Global Potash Producer
Leading Global Potash Producer •Potash Fertilizer Capacity Million tonnes product 0 5 10 15 Mosaic potash production PotashCorp • 14% Global • 40% North America Mosaic • Five mines Belaruskali Low-cost & competitive Kali & Salz industry position Silvinit Uralkali World capacity approximates 73 milli
Slide 20: Top potash producer with 14% share
Mosaic is one of the world’s top producers of potash with an estimated 14% of global market share. This is noteworthy because potash is produced in only 12 countries in the world, and agricultural giants such as China, India and Brazil are import dependent.
Slide 21: Leading Global Potash Producer
Leading Global Potash Producer •Potash Fertilizer Capacity Million tonnes product 0 5 10 15 Mosaic potash production PotashCorp • 14% Global • 40% North America Mosaic • Five mines Belaruskali Low-cost & competitive Kali & Salz industry position Silvinit Uralkali World capacity approximates 73 milli
Slide 22: Tolling agreement reversion and potash demand
And with the imminent reversion to us of 1.3 million tonnes – currently produced for a competitor under a tolling agreement -- our capacity improves both in size and in scale. We estimate this tonnage will revert to Mosaic in 2010. Because of historically low application rates in developing countrie
Slide 23: Growth Opportunities - Our Potash Expansions
Growth Opportunities - Our Potash Expansions 18 Growth from 10.4 to 16 16.8* million tonnes 14 12 Estimated 10 Annual Capacity 8 Estimated Increase 6 Location (tonnes in millions) Completion 4 Belle Plaine 2.0 2015 - 2020 2 Colonsay 1.3 2011 - 2017 - Esterhazy 1.8 2013 - 2016 Total 5.1 * The project
Slide 24: Planned capacity expansions
One of the value drivers for potash is our planned capacity expansions at existing Saskatchewan mines. Mosaic’s expansions are expected to increase annual capacity by over five million tonnes, to nearly 17 million tonnes ---ensuring we maintain the position as one of the premier potash companies in
Slide 25: Expansions Improve Mosaic's Cost Structure
Expansions Improve Mosaic’s Cost Structure Industry Cost Curve - MOP del US CB 2009 Q2* Mosaic Average 0 10 20 30 40 50 60 Million Tonnes * Excludes Canadian Resource Taxes and Royalties for all Canadian potash producers. Slide 13
Slide 26: Potash industry cost curve
One of the positive attributes of the potash industry is its relatively flat cost curve. This chart shows estimated costs per tonne for all major potash producers. Mosaic’s potash cost structure is competitive and will only improve as we achieve the expected increase in sales volume from our expansi
Slide 27: Shift in Business Mix (sales tonnes)
Shift in Business Mix (sales tonnes) Phosphates Phosphates 51% 40% Potash Potash 49% 60% Present Future Slide 14
Slide 28: Business mix shifting to potash
Mosaic’s business mix will also shift in favor of potash—once our expansions are complete. We’re already a bigger potash player than most people realize or give us credit for and we intend to drive this business to a greater share of total volume. This will start happening soon, and should have favo
Slide 29: Value Driver: Phosphates Revenue
Value Driver: Phosphates Revenue DAP Price $1,200 $1,000 $800 $600 $400 $200 $0 FY2006 FY2007 FY2008 Q1 Q2 Q3 FY09 FY09 FY09 Annual Quarterly Phosphate Sales Volume 10.0 8.0 6.0 4.0 2.0 - FY2006 FY2007 FY2008
Slide 30: Phosphate price and volume trends
Turning to our Phosphate business, price momentum had been strong here as well – until it came to an abrupt halt and then reversal in the second half of this fiscal year. The supply and demand factors that I’ll speak about in a moment have recalibrated selling prices. Volume will be down this fiscal
Slide 31: World's Largest Integrated Phosphate Producer
World’s Largest Integrated Phosphate Producer •Phosphate Fertilizer Capacity Million tonnes product World’s largest capacity of 0 3 6 9 12 finished phosphate fertilizer Mosaic Mosaic phosphate production market share OCP 14% Globally 56% North America PhosAgro World scale & efficient GCT operations
Slide 32: Phosphate vertical integration advantages
Our Phosphate business possesses its own attractive set of attributes due to its sheer size and the benefits of vertical integration – company-owned rock reserves -- granulation capacity – and a worldwide supply chain and distribution network. We have the largest global capacity of finished phosphat
Slide 33: Competitive Cost Structure
Competitive Cost Structure Industry Cost Curve - DAP fob Plant/Port 2009 Q2 Mosaic Average 0 5 10 15 20 25 30 Million Tonnes Slide 17
Slide 34: Size, scale and low cost position
But it’s not just about being the largest. The size and scale of our phosphate business produces significant cost efficiencies. Here is a phosphate industry cost curve, similar to the one shown earlier for potash. We have one of the lowest cost positions in the phosphate industry --and continue to f
Slide 35: Phosphates – Operational Cost Savings
Phosphates – Operational Cost Savings Energy – heat recovery and conversion Logistics and transportation network Slide 18
Slide 36: Energy savings and distribution network
We are always working to enhance efficiencies, and in turn, lower costs. For example, we spend roughly $120 million per year purchasing electricity to operate our phosphate plants and mines. We continue to invest in waste heat recovery systems which will deliver significant energy savings, and we ex
Slide 37: Offshore Assets Aligned with Global Demand
Offshore Assets Aligned with Global Demand Canada 3 Mines United States 7 Current & Future Mines 4 Phosphate Plants China 2 Warehouse & Blender 2 Production/Warehouse Thailand India 1 Warehouse & 1 Warehouse Blender Argentina 1 Warehouse & Blender 1 Production/Warehouse Brazil 7 Warehouse & Blender
Slide 38: Offshore enterprises and production assets
Mosaic’s North American-based Phosphate and Potash businesses are bolstered by production assets and distribution networks in prime growth regions, such as Asia and Latin America. These Offshore enterprises enable us to see the changes and trends in the global market first hand.
Slide 39: Business Outlook
Business Outlook
Slide 40: Business outlook introduction
Now let me shift to the business outlook.
Slide 41: What Got Us Here?
What Got Us Here? Decline in grain prices from a year ago Build-up of inventories in supply chain Global economic slow down Recalibration of phosphate pricing Cold and wet spring in North America Slide 21
Slide 42: Factors that impacted the spring season
Before I discuss the long-term outlook, I’d like to recap some of the factors that impacted the spring season. We have seen significant changes in buyer sentiment resulting from, among other factors, a decline in grain prices from record levels a year ago, a build-up in inventories in the distributi
Slide 43: Growing Global Affluence + Fuel
Growing Global Affluence + Fuel USA: Ethanol growth to 15 billion China and India: gallons by 2015 GDP & middle class growth trends continue The 2009 mandate for ethanol is 10.5 billion gallons Brazil: Growth trends in soybean yields and planted area Slide 22
Slide 44: Population growth and middle class demand
The fundamental demand driver of this business is population growth, especially the growth of the middle class in developing countries. Strong economic growth in a number of rapidly developing countries is creating a large, and increasingly affluent, middle class who demand better, healthier diets -
Slide 45: Growing Grain & Oilseed Use
Growing Grain & Oilseed Use Bil Tonnes World Grain and Oilseed Use 2.75 Source: USDA and Mosaic 2.50 2.25 2.00 1.75 1.50 1.25 1.00 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08E Actual Actual for US Ethanol Forecast Forecast for U.S. Ethanol Slide 23
Slide 46: Biofuels and middle class drive grain demand
Combine the boost from biofuels with the growth in the global middle class, and you get increasing global demand for grain and oilseeds. According to USDA estimates, global grain and oilseed demand has recently been increasing 2.5 percent per year – twice the historical rate. Note that there have on
Slide 47: Record Crop Needed in 2009
Record Crop Needed in 2009 Mil Tonnes World Grain and Oilseed Stocks Percent 650 34% Source: USDA and Mosaic (for 09/10 estimates) 600 31% 550 28% 500 25% 450 22% 400 19% 350 16% 300 13% 250 10% 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 09/10 09/10 L M H Stocks Percent of Use
Slide 48: Low stocks and reduced nutrient application
Farmers have responded to this demand and higher grain prices by growing bin-busting crops the last two years. Yet, this has not built stocks to secure levels. A decline in crop nutrient use this spring will… in all probability ….lower yields. You can see from the cross hatched bar that inventories
Slide 49: Farm Economics Remain Strong
Farm Economics Remain Strong $ Acre Returns After Variable Cost for a U.S. Midwest High Yield Farm Operation $700 Source: Iowa State University and Mosaic $600 $500 $400 $300 $200 $100 $0 2005 2006 2007 2008 2009F 2010F Soybeans Corn Following Soybeans Corn Following Corn RAVC - Return after Variabl
Slide 50: Farm returns and restocking expectations
Despite the volatile environment, farm economics remain strong – especially in North America. Recently farmers have been reluctant buyers of crop nutrients, due to unprecedented commodity price swings and expectations that potash pricing may fall. With the spring season nearly complete with reduced
Slide 51: Attractive Phosphate Market Margins
Attractive Phosphate Market Margins DAP Market Margin* Quarterly Averages Calculated from Weekly Published Spot Prices for a Central Florida Plant Source: Fertecon, Green Markets, Mosaic 800 700 Near Term Drivers: Grain prices 600 China exports 500 India demand 400 300 200 100 Q1 07 Q2 Q3 Q4 Q1 08 Q
Slide 52: Phosphate pricing and margin outlook
DAP prices took a sharp dive from year ago levels but have now recalibrated along with the dramatic decline in raw material costs. These dynamics forced customers to the sidelines to wait for signals of a floor being established. Future trends in phosphate hinges on overall global demand with a focu
Slide 53: Key Drivers for Potash
Key Drivers for Potash MOP Prices $ Tonne Quarterly Averages of Weekly Published Spot MOP c&f Brazil 1,150 Source: ICIS 1,000 850 Near-Term Drivers: China contract 700 India demand Grain prices 550 400 250 100 Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Q3 Slide 27
Slide 54: Potash volume and price outlook
In the Potash business, the dramatic price increases and high demand have leveled off. We have reduced potash production in response to this slower demand and rising inventory levels. Fourth quarter sales volumes are expected to be comparable to the lower than normal level in the third quarter. Futu
Slide 55: Growth Expected to Resume
Growth Expected to Resume Mil Tonnes World Nutrient Use 200 Source: IFA May and November 2008 190 180 170 160 150 140 130 120 110 95 96 97 98 99 00 01 02 03 04 05 06 07 08E 09F 10F 11F 12F Slide 28
Slide 56: Reasons for optimism
Aside from the near-term outlook, there are many reasons for optimism. World grain and oilseed stocks remain perilously low – while at the same time, the world population grows by 73 million people each year. Revised data on nutrient use will be released in late May. It may show some adjustments fro
Slide 57: Key Takeaways
Key Takeaways Mosaic is well positioned with phosphate, potash and a distribution portfolio Focus on value creation Potash growth projects at attractive capital costs Phosphate growth options in rock reserves and acquisitions Slide 29
Slide 58: Four key points in closing
In closing, I would like to emphasize four key points about Mosaic and what we are doing to position ourselves for the coming market upturn. First, Mosaic is well-positioned in this industry with our vertically integrated operations, a strong balance sheet and a global presence. Our global scale is
Slide 59: Thank you
Thank you
Slide 60: Questions
I appreciate you listening to Mosaic’s story and our outlook for the future. Now I’d be happy to take questions.
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