Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — Credit Suisse 14th Annual Global Ag Productivity Conference (March 2009)
62 slides from Mosaic Company (the)'s conference presentation, Mar 9, 2009
Slide 1: Credit Suisse 14th Annual Global Ag Productivity Conference
Exhibit 99.1 Credit Suisse 14th Annual Global Ag Productivity Conference Jim Prokopanko, President and Chief Executive Officer March 10, 2009
Slide 2: Welcome remarks
Good afternoon, everyone. Thank you all for attending. I’d like to thank Elaine Yip at Credit Suisse for giving me this opportunity to meet with you. I’ll be sharing the Mosaic story and perspective about what is ahead for crop nutrition and agriculture.
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 – March 10, 2009. Actual results are likely to differ from those set forth in the forward- loo
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 Mosaic's long-term outlook
We are confident in Mosaic’s long-term outlook, despite the market disruptions we’ve all been experiencing. Agriculture fundamentals remain solid because of the continued global demand for food, fuel and feed. Mosaic is well-positioned to capitalize on these conditions with our vertically integrated
Slide 7: Positioned for Significant Growth
Positioned for Significant Growth Capitalizing on improved 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. We’ve developed a rob
Slide 9: Fiscal 2009 – A Challenging Year
Fiscal 2009 – A Challenging Year Maintain balance sheet strength Focus on phosphate margins – not prices Reduce production to avoid excessive inventory build-up Focus on operational discipline and risk management Slide 5
Slide 10: Disciplined approach and balance sheet strength
Although market conditions remain soft, we’re committed to maintaining a highly disciplined approach to managing our business. The benefits of a strengthened balance sheet and a large cash position are obvious -- providing us with significant financial flexibility. In the phosphate business, we will
Slide 11: 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 6
Slide 12: Levers to generate cash
Mosaic is positioned financially, strategically and operationally to serve customers worldwide and execute on the strong, long-term fundamentals of the agricultural sector. We are well positioned to create value for you, our shareholders. Ultimately that means cash, and listed here are the levers we
Slide 13: Cash Flow from Operations
Cash Flow from Operations Cash Provided by Operating Activities $1,200 $1,000 $800 $600 $400 $200 $0
Slide 14: Operating cash flow track record and de-leveraging
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 this fiscal year, especially in the second half. Longer term, however, cash generation potential is substantial. We’ve built a large cash balance
Slide 15: 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 16: Use of operating cash flow and distributions
We’ll use the operating cash flow we generate to grow the business through internal investments, following a highly disciplined review and approval process for making these investments. We maintain a large liquidity buffer, which may be used in part to fund strategic opportunities that arise. Mosaic
Slide 17: Return on Invested Capital
Return on Invested Capital 50.0% 40.0% 36.5% 30.2% 30.0% 20.0% 10.0% 8.0% 2.3% 0.0% FY06 FY07 FY08 12 Mos Nov08
Slide 18: Strong returns on invested 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 19: Value Driver: Potash Revenue
Value Driver: Potash Revenue MOP Price $600 $500 $400 $300 $200 $100 $0 FY2006 FY2007 FY2008 Q1 FY09 Q2 FY09 Annual Quarterly Potash Sales Volume 8.0 6.0 4.0 2.0 - FY2006 FY2007 FY2008
Slide 20: Potash price and volume trends
This slide highlights the price and volume trends for our potash business -- over the past few years as well as the last two quarters. The price momentum in this business has been very strong until recent months, when sales demand came to a halt. Until this fiscal year, we’ve captured steady growth
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 • 38% U.S. Mosaic • Five mines Belaruskali Low-cost & competitive Kali & Salz industry position Silvinit Uralkali World capacity approximates 73 million tonnes
Slide 22: Top global potash producer
Mosaic is one of the world’s top producers of potash with an estimated 14% of global market share. This is significant because potash is produced in only 12 countries in the world, with agricultural giants such as China, India and Brazil all dependent on imports.
Slide 23: Leading Global Potash Producer
Leading Global Potash Producer •Potash Fertilizer Capacity Million tonnes product 0 5 10 15 Mosaic potash production PotashCorp • 14% Global • 38% U.S. Mosaic • Five mines Belaruskali Low-cost & competitive Kali & Salz industry position Silvinit Uralkali World capacity approximates 73 million tonnes
Slide 24: Capacity 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 us in the fourth quarter of fiscal 2010. Because of historically low application rat
Slide 25: Growth Opportunities - Our Potash Expansions
Growth Opportunities - Our Potash Expansions 16 14 12 Growth from 10.4 10 to 16.8* 8 6 4 million 2 tonnes - * The projected annual capacity includes approximately 1.3 million tonnes (as shaded in blue) that we currently produce under a third party tolling agreement at Esterhazy. We estimate this cap
Slide 26: Saskatchewan capacity expansions
One of the value drivers for potash is the capacity expansions at existing Saskatchewan mines. These expansions are expected to increase Mosaic's annual capacity by over five million tonnes, ensuring we maintain the position as one of the premier potash companies in the world. Equally important, we’
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 toward potash
Mosaic’s business mix will shift in coming years in favor of potash. We’re already a bigger potash player than most people realize, and intend to drive this business to a greater share of our total volume in years to come. This will start happening soon, and should have favorable valuation consequen
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 FY09 Q2 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 past few months. The supply and demand factors that I’ll speak about shortly will establish where prices settle and how they move from there. Volume will be do
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 15% Globally 59% North America PhosAgro World scale & efficient GCT operations
Slide 32: Vertical integration advantages in phosphates
The 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: Phosphates – Operational Cost Savings
Phosphates – Operational Cost Savings Energy – capture and convert Logistics and transportation network Slide 17
Slide 34: Cost efficiencies and distribution network
The size and scale of our phosphate business produces significant cost efficiencies. We are always working to enhance these efficiencies, and in turn, lower costs. For example, we spend roughly $120 million per year purchasing electricity to operate our plants and mines. We will continue to invest i
Slide 35: Offshore Assets Aligned with Global Demand
Offshore Assets Aligned with Global Demand Canada 4 Mines United States 7 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 2 Production/Ware
Slide 36: North American and Offshore businesses
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. We have agronomists, sales teams, and other staff with the operational expertise and industry knowledge to serve custome
Slide 37: Market Outlook
Market Outlook
Slide 38: Business outlook
Now let me shift to the business outlook.
Slide 39: Growing Global Affluence + Fuel
Growing Global Affluence + Fuel USA: China: Ethanol growth Middle class to 15 billion growth from 130 gallons by 2015 million to 690 million by 2025 The 2009 mandate for ethanol is India: 10.5 billion gallons Middle class growth from 50 million in 2008 to 580 million by 2025 Source: McKinsey Slide 2
Slide 40: 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 diets -- protein-r
Slide 41: 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 21
Slide 42: 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 43: 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 44: Bumper crop required to build stocks
Farmers have responded to this demand by growing bin-busting crops during the last two years. Yet, this has not built stocks to secure levels. You can see from the cross hatched bar that inventories are projected to increase this year but stocks as a percentage of use – noted by the yellow line -- a
Slide 45: Farm Economics Remain Strong
Farm Economics Remain Strong Return on Variable Cost for a U.S. Midwest $ Acre High Yield Farm Operation $700 Source: Iowa State University and Mosaic $600 Soybeans $500 Corn Following Soybeans Corn Following Corn $400 $300 $200 $100 $0 2003 2004 2005 2006 2007 2008 2009E RAVC - Return after Variabl
Slide 46: Farm economics strong in North America
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. With the spring season upon us, many farmers should be ready to restock crop nutrients, which they
Slide 47: Crop Nutrient Markets Re-Calibrate
Crop Nutrient Markets Re-Calibrate Factors Affecting Current Market Broad and sharp commodity sell-off Global economic slowdown Global credit constraints High fertilizer inventory levels Leading to Change in buyer sentiment Weak volume and softening prices Inventory valuation risk in supply chain Pr
Slide 48: Soft market conditions and production cuts
Though we believe the long-term fundamentals in our business are intact and compelling, the current market environment continues to be soft, and the crop nutrient market is re-calibrating. A confluence of factors in the past several months have caused demand – especially for phosphates – to weaken.
Slide 49: Key Drivers for DAP Pricing
Key Drivers for DAP Pricing DAP Prices $ Tonne Quarterly Averages of Weekly Published Spot DAP fob Tampa 1,200 Source: Fertecon 1,000 Near-Term Drivers: Pipeline inventory 800 Raw materials China exports Global demand 600 400 200 Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Q3 Slide 25
Slide 50: DAP price decline and volume impact
These factors have impacted the phosphates business in particular. DAP prices shown here have taken a sharp dive from historically high levels due to the reasons just noted and the sharp decline in raw material costs. This chart shows the average DAP price by quarter – note that recent spot prices a
Slide 51: Attractive Phosphate Market Margins
Attractive Phosphate Market Margins DAP Market Margin Quarterly Averages Calculated from Weekly Published Spot Prices $ Tonne for a Central Florida Plant 900 Source: Fertecon, Green Markets, Mosaic 800 700 600 500 400 300 200 100 Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Q3 *Spot DAP price less spot su
Slide 52: Raw material costs and phosphate margins
It’s important to note that price tells only half the story in phosphates. Equally important are raw material costs, primarily sulfur and ammonia, as well as phosphate rock. Recently, sulfur and ammonia costs have declined sharply, leading to reduced phosphate selling prices. Note, however, that we
Slide 53: Key Drivers for MOP Pricing
Key Drivers for MOP Pricing MOP Prices $ Tonne Quarterly Averages of Weekly Published Spot MOP c&f Brazil 1,150 Source: ICIS 1,000 Near-Term Drivers: 850 China contract India demand 700 FX impact Buyer sentiment 550 400 250 100 Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Q3 Slide 27
Slide 54: Potash price drivers and volumes
In the Potash business, the dramatic price increases of the past 12-15 months were the result of surging demand. Upward price momentum and sales volume have slowed in the past few months and we have reduced potash production in response to this slower demand and rising inventory levels. We expect th
Slide 55: Growth Expected to Resume in '09
Growth Expected to Resume in ’09 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
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. And while the media may have forgotten about global food security, it still remains a serious threat. One of the most immedia
Slide 57: Key Takeaways
Key Takeaways Crop nutrient outlook remains positive Global demand for food, feed and fuel Mosaic well positioned to deliver value Slide 29
Slide 58: Three key closing points
In closing, I would like to emphasize three key points. First -- we have a great deal of confidence in the long-term outlook for our business and the necessity for the world to build its capacity to produce food. Second -- we believe agricultural fundamentals remain solid because of continued global
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.
Slide 61: Appendix: Non-GAAP Financial Measure Reconciliation
Appendix: Non-GAAP Financial Measure Reconciliation Return on Invested Capital Our return on invested capital (“ROIC”) is a measure of value creation and how effectively we allocate capital in our core operations. We believe ROIC is a metric that is most closely correlated with stockholder value. We
Slide 62: Appendix: Non-GAAP Financial Measure Reconciliation
Appendix: Non-GAAP Financial Measure Reconciliation Net Operating Profit After Tax Return On Invested Capital (ROIC) Calculation Trailing 12 months Fiscal Years ended May 31 ended November 30 2006 2007 2008 2007 Operating earnings $ 101.9 $ 616.3 $ 2,806.7 $ 4,058.4 - Taxes at effective tax rate on
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