Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — JP Morgan conference June 2008
61 slides from Mosaic Company (the)'s conference presentation, Jun 6, 2008
Slide 1: Mosaic's Role: More Essential Than Ever
Exhibit 99.2 Mosaic’s Role: More Essential Than Ever Jim Prokopanko President and CEO June 2008
Slide 2: Opening remarks
Good morning everyone. I thank you all for attending and would like to express my thanks and gratitude to Dave Silver and JP Morgan for this opportunity to tell you about the these exciting times in agriculture, --- about the great accomplishments of the past year by my colleagues at Mosaic --- and
Slide 3: Safe Harbor Statement
Safe Harbor Statement Certain statements contained herein constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Although we believe the assumptions made in connection with the forward-looking statements are reasonable, they do inv
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 -- June 4th, 2008. Actual results are likely to differ from those set forth in the forward-loo
Slide 5: Mosaic's Role: More Essential Than Ever
Mosaic’s Role: More Essential Than Ever
Slide 6: Extraordinary period for agribusiness
I do not need to tell any of you here that we are in an extraordinary period of time for agribusiness. In fact, I expect you would need to look back decades – to the time of the farm crisis -- to find a period when agribusiness was as prominently and persistently in the news as it is today. Ironical
Slide 7: Mosaic: Who We Are
Mosaic: Who We Are Global producer of crop nutrients • #1 Phosphate producer in the world • #3 Potash producer in the world Vertically integrated • Mining, production, distribution Revenue of $8 billion last twelve months ended February 29, 2008 4
Slide 8: Background on The Mosaic Company
Let me first share some background about The Mosaic Company. We are the largest producer of phosphate and potash in the world. In 2007, we produced more than 17 million metric tonnesof finished phosphate and potash products for our crop nutrient, animal feed and industrial customers around the globe
Slide 9: How Mosaic Can Make a Difference
How Mosaic Can Make a Difference 5
Slide 10: Factors behind the food security shock
As I said earlier, the recent global food shock we are facing translates into an extraordinary opportunity for Mosaic. To understand why, consider the factors responsible for the food security shock. •First, for years now –7 of the last 8 in fact –global grain and oilseed use has exceeded production
Slide 11: Growing Global Affluence
Growing Global Affluence China: 9-11% GDP growth India: 8-9% GDP growth Brazil: 5% GDP growth Source: RFA & IMF 6
Slide 12: The Rich Get Hungrier
The fundamental demand driver for our business is summed up handily in a headline from a May 28 op-ed piece in The New York Times: “The Rich Get Hungrier”. This op-ed, written by Nobel Prize winning economist, Amartya Sen, goes on to point out that the global food shock is the result of accelerating
Slide 13: Growing Global Affluence + Fuel
Growing Global Affluence + Fuel USA: China: Ethanol growth Middle class to 15 billion growth to gallons 690 million by 2015 by 2025 India: Middle class growth to 580 million by 2025 Source: McKinsey 7
Slide 14: Middle class growth and biofuels
The middle class in China and India is projected to increase by 1.1 billion people between 2005 and 2025. This will result in a systemic change in grain and oilseed demand that we have never experienced till now. We are convinced this will have a lasting impact on both demand for grains, food and th
Slide 15: Double Digit Nutrient Demand Growth
Double Digit Nutrient Demand Growth Mil Tonnes World Nutrient Use 200 Source: IFA May 2008 190 180 The world 170 will not get 160 “less” 150 hungry 140 130 120 00 01 02 03 04 05 06 07 08 09 10 11 12 8
Slide 16: Biofuels and middle class drive nutrient demand
Combine the boost from biofuelswith the growth in the global middle classes and you get growing and sustainable global demand for crop nutrients. Eating is not a fad that will pass – the world will not get less hungry. New biofuel mandates only add pressure to produce still more grain and oilseeds.
Slide 17: The Fundamentals are Sustainable
The Fundamentals are Sustainable Mil Tonnes World Grain and Oilseed Stocks Percent Grain 650 28% Source: USDA 600 26% 550 24% stocks 500 22% at 450 20% historic 400 350 18% 16% lows 300 14% 00 01 02 03 04 05 06 07 Stocks Percent of Use 9
Slide 18: Global grain and oilseed stocks decline
Additionally, global grain and oilseed stocks have declined significantly this decade despite the large increases in planted area and crop yields. To the point, stocks are now at dangerously low levels. Global grain and oilseed production increased 3.7% to a record 2.5 billion tonnes last year, acco
Slide 19: Supply Dynamics
Supply Dynamics Limited capital reinvested Idled or closed facilities Long lead times to construct Mosaic New Wales Phosphate Plant 10
Slide 20: Supply side constraints
I’ve now covered the DEMAND side of the market fundamentals in our business. Now let me turn to the SUPPLY side and, in particular, the constraints on crop nutrient production. Crop nutrient producers, especially in phosphates, are not equipped to quickly meet the current demand surge. Thin margins
Slide 21: Tight Supply and Escalating Prices
Tight Supply and Escalating Prices $ ST Diammonium Phosphate (DAP) Prices $ MT $ ST fob Blend Grade Muriate of Potash Prices CFL TPA Midwest $ MT c&f Terminal Brazil 1300 1300 900 900 Source: Fertecon and Green Markets Source: Green Markets and ICIS 1100 1100 800 800 fob Central Florida Rail fob Tam
Slide 22: Supply and demand drive price increases
The combination of the supply and demand fundamentals have driven significant selling price increases this past year. Strong demand-pull and cost-push pressures have lifted phosphate prices to uncharted levels. Prices have increased in two large steps during the last twelve months. Potash selling pr
Slide 23: Crop Nutrients are a Great Investment
Crop Nutrients are a Great Investment Bu Corn Crop Nutrient Costs on Corn in Iowa Bushels of Corn Per Acre 35 30 25 20 15 10 5 0 2003 2004 2005 2006 2007 2008 2009 Sources: Iowa State University, USDA and Mosaic Key assumptions ISU application rate recommendations 2007, 2008 and 2009 crops sold at C
Slide 24: What this means for farmers
So what does all this mean for our ultimate customer? There are two phrases to describe the current crop nutrient situation for farmers - a great investment and essential. Crop nutrients are costly today. But the costs are substantially offset by record crop prices. That means farmers are getting a
Slide 25: Global Farmer Economics are Positive
Global Farmer Economics are Positive In India, grain prices have increased but retail fertilizer prices are fixed at low levels In China, Thailand and Vietnam, record rice prices generate record farm returns In Australia and Canada, high wheat prices more than offset increases in input costs In Braz
Slide 26: Farm economics remain positive
Our analysis shows that farm economics remain positive in all ofthe major crop nutrient markets. In India, grain prices have increased but retail fertilizer prices are fixed at low levels. Farm economics and nutrient demand prospects in India are as strong as anywhere in the world. In China, Thailan
Slide 27: Crop Nutrients Remain Essential
Crop Nutrients Remain Essential Maximum yields required Low stock to use ratios High crop prices 14
Slide 28: Low stocks make crop nutrients essential
While market and economic factors make crop nutrients a great investment, the low grain and oil seed stocks make crop nutrients essential. Markets are telling farmers around the world to rev up the engine of agriculture production to meet accelerating demand growth. Crop nutrients are critical to tu
Slide 29: How Mosaic Can Make a Difference
How Mosaic Can Make a Difference 15
Slide 30: Mosaic's strengths aligned with opportunity
As I mentioned earlier, Mosaic’s specific strengths are well aligned with the opportunities now before the industry. The same three words describing the current industry environment can also be used to describe how Mosaic is capitalizing on this opportunity. Fundamental execution is driving our busi
Slide 31: Delivering Financial Results and Returns
Delivering Financial Results and Returns Quarterly EBITDA* In Millions $625 $500 Strong growth $375 momentum $250 $125 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 07 08 *See EBITDA reconciliation to earnings in addendum 16
Slide 32: Operational excellence and ROIC
Our focus on operational excellence is translating into outstanding financial results the past several quarters. You can see the dramatic momentum in EBITDA in just the past four quarters, and we expect more of this to come and are committed to executing well in all we do. It is worth noting that th
Slide 33: Cash Allocation Priorities
Cash Allocation Priorities Continued cash flow generation Strong balance sheet Capital expenditures Shareholder Distribution Policy 17
Slide 34: Cash flow, debt prepayment and distribution policy
We continue to generate significant cash flow and are well positioned to do so into the foreseeable future. We have prepaid one billion dollars of long-term debt in the last year and have built a strong balance sheet. We have plans to reinvest in our existing operations on capital projects with attr
Slide 35: Potash is Key to Sustainability
Potash is Key to Sustainability Produced in only 12 countries • China, India, Brazil import dependent Greenfield projects are expensive Historically under-utilized nutrient in developing countries 18
Slide 36: Potash as an exceptional business
We’ve talked a lot today about the sustainability of market place demand drivers. But there’s another dimension to the sustainability of Mosaic’s performance -one that is often under- appreciated - and it can be summarized in a single word -potash. Simply put, it is an exceptional business. 18
Slide 37: Second Largest K Capacity in World
Second Largest K Capacity in World Mosaic potash capacity Potash Capacity • 13% of global capacity 14.0 • Five mines 12.0 Low-cost & competitive 10.0 industry position 8.0 6.0 4.0 2.0 0.0 World capacity approximates 71 million tonnes (all potash products) 19
Slide 38: Potash production and demand
Potash is produced in only 12 countries in the world and world trade accounts for more than 80% of global use. Agricultural giants such as China, India and Brazil are all import dependent. In calendar year 2007, we produced about 14% of the world’s potash fertilizer at our five mine sites across Nor
Slide 39: We See Tonnes More in Potash Growth
We See Tonnes More in Potash 16 14 12 Growth 10 from 10.4 8 to 15.5 million 6 4 2 tonnes - The projected annual capacity includes approximately1.3 million tonnes (as shaded in blue) that we currently produce under a third party tolling agreement at Esterhazy. This agreement will expire within the ne
Slide 40: Saskatchewan potash expansions
Earlier this spring, we announced further expansions to our existing Saskatchewan potash mines as one of our key strategic priorities. Upon completion of these expansions, we estimate our total annual capacity will be approximately15.5 million tonnes. This amount does not include the 1.3 million ton
Slide 41: Phosphates: Where Opportunity and Scale Intersect
Phosphates: Where Opportunity and Scale Intersect World’s largest capacity of Phosphate Fertilizer Capacity phosphate fertilizer Million tonnes product 10.0 16% Global 56% U.S. 8.0 Largest producer of 6.0 feed phosphate in U.S. 4.0 World scale & efficient operations 2.0 0.0 World capacity approximat
Slide 42: Phosphates scale and vertical integration
Mosaic’s Phosphates business possesses its own very attractive attributes due to its sheer size and the benefits of vertical integration –our owned rock reserves -granulation capacity –and a world wide distribution network.. We produce about 15% of the world’s phosphate fertilizer and account for mo
Slide 43: Phosphates: Our Rock Solid Advantage
Phosphates: Our Rock Solid Advantage Raw Materials Cost $ MT 1,200 Mosaic vs. Non-Integrated Indian DAP Producer Non-integrated 1,000 Source: Fertecon and Mosaic producers represent one-third of world 800 production 600 400 Marginal cost 200 producers determine 0 market pricing FY 2007 India 2007 Cu
Slide 44: Vertical integration competitive advantage
Our vertical integration provides an increasingly large competitive advantage over many other producers. We own and mine our own phosphate rock and have invested in our sulfur infrastructure, which has paid off during these times of tight sulfur supply. Non-integrated producers account for almost on
Slide 45: Phosphates: Our Rock Solid Advantage
Phosphates: Our Rock Solid Advantage Raw Materials Cost $ MT Mosaic vs. Non-Integrated Indian DAP Producer Non-integrated 1,200 Source: Fertecon and Mosaic producers represent 1,000 one-third of world 800 production 600 400 Marginal cost producers determine 200 market pricing 0 FY 2007 India 2007 Cu
Slide 46: Mosaic costs versus non-integrated producers
But while Mosaic’s costs have increased, they are nowhere near the estimated costs for an Indian non- integrated DAP producer. For such a non-integrated producer, we estimate the cash costs are more than a $1,000 per tonne! The phosphate supply/demand situation looks tight for the next several years
Slide 47: Financial Guidance – Fiscal 2009
Financial Guidance – Fiscal 2009 FY 2009 Phosphate Sales Volume 9.0 - 9.4 million tonnes 24
Slide 48: Phosphate sales volume guidance
Now, turning to guidance for fiscal 2009. I’ll highlight a few items. We have begun fiscal 2009 at extremely low inventory levels for both phosphate and potash. We expect that we will need to build our inventories to achieve the sales volumes we have planned for fiscal 2009. Phosphate sales volumes
Slide 49: Financial Guidance – Fiscal 2009
Financial Guidance – Fiscal 2009 FY 2009 Phosphate Sales Volume 9.0 - 9.4 million tonnes Potash Sales Volume 8.2 - 8.6 million tonnes 25
Slide 50: Potash volumes and selling prices
Potash sales volumes are expected to be 8.2 to 8.6 million tonnes. Work toward our previously announced potash capacity expansion projects will be underway in fiscal 2009; however, production from the first of the expansions will not come on line until fiscal 2010. This volume estimate assumes opera
Slide 51: Financial Guidance – Fiscal 2009
Financial Guidance – Fiscal 2009 FY 2009 Phosphate Sales Volume 9.0 - 9.4 million tonnes Potash Sales Volume 8.2 - 8.6 million tonnes Capital Spending $900 million - $1.1 billion 26
Slide 52: Capital spending guidance
Capital spending for fiscal 2009 will grow significantly -- to a range of $900 million to $1.1 billion. This is more than double historical rates. We will undertake high return on invested capital opportunities. These include expanding potash capacity, as we discussed earlier --and reducing phosphat
Slide 53: Financial Guidance – Fiscal 2009
Financial Guidance – Fiscal 2009 FY 2009 Phosphate Sales Volume 9.0 - 9.4 million tonnes Potash Sales Volume 8.2 - 8.6 million tonnes Capital Spending $900 million - $1.1 billion Canadian Resource Tax and Royalties $700 million - $1 billion 27
Slide 54: Canadian resource taxes and royalties
We are also providing guidance on Canadian resource taxes and royalties for fiscal 2009. Our surging potash profitability and escalating potash selling prices will result in higher resource taxes and royalties than in previous years. We estimate Canadian resource taxes and royalties will range from
Slide 55: Financial Guidance – Fiscal 2009
Financial Guidance – Fiscal 2009 FY 2009 Phosphate Sales Volume 9.0 - 9.4 million tonnes Potash Sales Volume 8.2 - 8.6 million tonnes Capital Spending $900 million - $1.1 billion Canadian Resource Tax and Royalties $700 million - $1 billion SG&A $360 - $390 million Effective Tax Rate Low to mid 30%
Slide 56: SG&A and effective tax rate
We estimate SG&A will range from $360 to $390 million. And finally, we expect an effective income tax rate in the low to mid 30% range. 28
Slide 57: Crop Nutrients Have Never Looked So Good
Crop Nutrients Have Never Looked So Good Global leadership position Cost advantages and growth strategies Solid capital structure Excellent supply & demand fundamentals 29
Slide 58: Closing summary
To sum up, it’s a great to be in our business and it’s an ever more important role to help meet the worlds growing demand for food and fuel. Crop nutrients are more essential than ever. They play a critical role in optimizing crop yields, helping meet the world’s surging demand for food and fuel. We
Slide 59: Selected Non-GAAP Financial Measures: EBITDA Calculation
The Mosaic Company (unaudited) Selected Non-GAAP Financial Measures and Reconciliations EBITDA Calculation Nine Months Nine Months Three Months Nine months Three months Three months ended Ended Ended Ended ended ended Trailing Trailing August 31 November 30 February 28 May 31 August 31 November 30 N
Slide 60: Adjusted Return on Invested Capital
The Mosaic Company Adjusted Return on Invested Capital Our adjusted return on invested capital (“Adjusted ROIC”) is a measure of how effectively we allocate our capital in our core operations. We also use Adjusted ROIC as part of our initial capital spending and potential acquisition review processe
Slide 61: Adjusted ROIC calculation
Average Average rolling four rolling four quarters ended quarters ended May 31 August 31 November 30 February 28 May 31 August 31 November 30 February 29 February 29 February 28 2006 2006 2006 2007 2007 2007 2007 2008 2008 2007 + Short-term debt 152.8 126.6 74.9 59.3 138.6 153.3 105.9 231.3 157.3 10