Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — Goldman Sachs Twelfth Annual Agricultural Biotech Forum 2008
63 slides from Mosaic Company (the)'s conference presentation, Feb 11, 2008
Slide 1: Mosaic and Groundbreaking Opportunity: A Compelling Alignment
Exhibit 99 Mosaic and Groundbreaking Opportunity: A Compelling Alignment Goldman Sachs Twelfth Annual Agricultural Biotech Forum 2008 February 12, 2008 Corrine Ricard Vice President - Business Development
Slide 2: Opening remarks and key messages
Thank you for inviting Mosaic to present at this conference. Everyone in this room today is aware of the extraordinary environment that agricultural markets have been experiencing over the past year. I hope my remarks today impart two key messages - First, we believe this opportunity is a sustainabl
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 going any further, I want to remind you that this 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 — February 12, 2008. Actual results are likely to differ from those set forth in the
Slide 5: Mosaic: Who We Are
Mosaic: Who We Are Global producer of crop nutrients • #1 Phosphate producer in the world • #2 Potash producer in the world Vertically integrated • Mining, production, distribution Formed in 2004 • New company with veteran industry experience 3
Slide 6: Mosaic company details (speaker notes)
Let me share a few details with you about The Mosaic Company. We produce more phosphate fertilizer than anyone else in the world - about 9.4 million tonnes annually, which exceeds the combined production of the next three largest producers. Our potash position is similarly strong as we are currently
Slide 7: Groundbreaking Opportunity
Groundbreaking Opportunity Fundamental Global Sustainable 4
Slide 8: Agricultural renaissance: fundamental, global, sustainable
We describe the current industry environment as an agricultural renaissance, with demand and pricing trends that have not been seen in a generation. It’s great to see that agriculture’s day has finally come! The factors converging to create these market conditions have the potential to produce an en
Slide 9: Driven by Fundamental Demand
Groundbreaking Opportunity: Driven by Fundamental Demand World GDP Growth Rate World GDP Growth Rate 6% Source: Global Insight 5% Food, 4% 3% Feed, 2% Fiber… 1% 0% 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Source: Global Insight 5
Slide 10: Fundamental drivers of demand
Let’s start with a look at the fundamental drivers. Biofuels have received significant press in recent months, but agriculture is still first and foremost about feeding people. There are more people than ever to feed, and more people than ever who can afford to eat well. There are approximately 74 m
Slide 11: Plus a New Demand Driver: Fuel
Groundbreaking Opportunity: Plus a New Demand Driver and Fuel 6
Slide 12: Biofuels accelerating grain demand
Biofuels are accelerating already strong demand for grain and oilseeds and have turned a positive environment into an extraordinary one. For example, the USDA estimates that U.S. ethanol producers will grind 3.2 billion bushels of corn into ethanol this crop year. That’s a 50% or 1.1 billion bushel
Slide 13: The Fundamentals are Global
Groundbreaking Opportunity: The Fundamentals are Global Widespread demographic and economic factors Fuel Economic Food 7
Slide 14: Global demand in developed and developing regions
The net effect is that possibly for the first time ever, demand fundamentals are strong in both the developed and developing regions so that the opportunity is truly a global one. In Asia, we have large populations plus a new protein-craving middle class. In Latin America, economies also are growing
Slide 15: The Fundamentals are Sustainable
Groundbreaking Opportunity: The Fundamentals are Sustainable World Less China Grain and Oilseed Use Million Tonnes % of Use Percent Mil Tonnes World Less China Grain and Oilseed Stocks 450 32% Source: USDA 400 28% 350 24% Grain stocks at 300 20% 250 16% 200 12% historic 150 8% lows 100 4% 50 0% 70 7
Slide 16: Demand-driven rally, low grain stocks
This rally is fundamentally different from past periods of price increases because it is being driven by demand, not by supply shortages. In fact, global grain and oilseed stocks will decline again in 2007/2008 despite the large increase in planted area this year. Global grain and oilseed production
Slide 17: The World Will Not Get Less Hungry
Groundbreaking Opportunity: The World Will Not Get “Less” Hungry… World Nutrient Demand Through 2010 Million Tonnes 180 160 Developing nations are 140 120 100 driving 90% 80 of increase 60 in demand 40 20 0 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Slide 18: Developing nations drive nutrient demand growth
This is not likely to change soon. Developing nations have accounted for all of the growth in world nutrient demand since 1995 - demand fueled by traditional population and income drivers. The latest forecasts from the International Fertilizer Industry Association show that developing nations will a
Slide 19: Nor Less Energy Dependent
Groundbreaking Opportunity: Nor Less Energy Dependent U.S. Corn Used for Ethanol Production Billion Bushels % of Corn Crop Bil Bu U.S. Corn Used for Fuel Ethanol Production Pct of Crop 5.5 55% 5.0 50% Source: USDA and Mosaic 4.5 45% Ethanol 4.0 40% 3.5 35% is here 3.0 30% 2.5 25% 2.0 20% 1.5 1.0 15%
Slide 20: Biofuel mandates and ethanol growth
And interest in biofuels is not likely to change. In December 2007, Congress passed and the President signed The Energy Independence and Security Act of 2007. Among many other things, the new energy bill mandates the use of 9.0 billion gallons of conventional or corn-based ethanol in 2008. This mand
Slide 21: The Mosaic Opportunity
The Mosaic Opportunity Fundamental Global Sustainable 11
Slide 22: Mosaic aligned with industry opportunity
As I mentioned earlier, Mosaic’s attributes are well aligned with those of the industry opportunity. These same words describe how Mosaic is capitalizing on this opportunity. Fundamental execution is driving our business today. Our unique global position is a competitive strength. And, our growth is
Slide 23: Driven by Fundamental Execution
The Mosaic Opportunity Driven by Fundamental Execution Customer’s supplier of choice • Market share gains Supply chain management • “Plan, promise & deliver” Cost-containment • Economies of scale Understand Agriculture Markets • Grain/oilseed pricing, strong global intelligence 12
Slide 24: Execution on fundamentals and customer relationships
The market opportunity that I’ve described in the last few minutes is only relevant if we execute on the fundamentals. We’ve spent the past three years integrating Mosaic’s operations in order to build a stable and strong foundation. This has been hard work that is now paying off for us. We have mad
Slide 25: Serving our Customer Needs
The Mosaic Opportunity: Serving our Customer Needs Mosaic production is continuous Need to sell about 800,000 metric tonnes per month, on average, of each potash and phosphates Facilities run best when operating at high utilization rates Limited storage capacity Approximately 1.5 months of Mosaic wa
Slide 26: Selling programs and asset utilization
We are constantly balancing our desire to optimize our production and operating efficiency with warehouse limitations and customer needs. We have partnered with our customers to develop various selling programs, designed to ensure them product delivery when they need it at fair terms. Some of these
Slide 27: Delivering Fundamental Performance
The Mosaic Opportunity Delivering Fundamental Performance Quarterly EBITDA* In Millions $625 $500 $375 Momentum $250 in all fundamental $125 metrics $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -$125 06 07 08 *See EBITDA reconciliation to earnings in addendum 14
Slide 28: Record results and EBITDA turnaround
Our focus on operational excellence is translating into solid financial results including record results in our latest quarter. You can see the dramatic turnaround in EBITDA in just the past three quarters, and there is more of this to come. It is worth noting that this momentum applies to every mea
Slide 29: Capitalizing on Our Global Reach
The Mosaic Opportunity Capitalizing on Our Global Reach Offshore assets aligned with global demand Canada 4 Mines United States 7 Mines China 4 Phosphate Plants 2 Warehouse & Blender 2 Production/Warehouse Thailand India 1 Warehouse & 1 Warehouse Blender Argentina 1 Warehouse & Blender 1 Production/
Slide 30: Global footprint as differentiator
Our global footprint is a key competitive differentiator for Mosaic and one that is well-aligned with key growth regions. In addition to our North American mines and plants, we have a significant on-the-ground presence in Asia and Latin America. Mosaic own plants, warehouses and distribution infrast
Slide 31: Potash is Key to Sustainability
The Mosaic Opportunity: Potash is Key to Sustainability An Exceptional Business: Only 12 exporting nations • China, India, Brazil import dependent Greenfield projects are expensive • No new mines on-stream through 2011 Historic under-utilization in developing world 16
Slide 32: Potash as sustainability dimension
We’ve talked a lot today about the sustainability of market 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 one word - potash. Simply put, it is a great business. 16
Slide 33: Potash World Capacity
The Mosaic Opportunity: Potash World Capacity Mosaic potash Potash Capacity capacity Million tonnes Product 14.0 • 13% of global 12.0 capacity 10.0 • Five mines 8.0 Low-cost & 6.0 4.0 competitive industry 2.0 position 0.0 World capacity approximates 71 million tonnes (all potash products) 17
Slide 34: Potash exporters and Mosaic production
Potash is exported from only 12 countries in the world and imports account for more than 60% of demand, in part because ag giants such as China, India and Brazil are all import dependent. We produce about 13% of the world’s potash fertilizer at our five mine sites across North America, of which our
Slide 35: Our K Position Today is Excellent
The Mosaic Opportunity: Our K Position Today is Excellent Mosaic Potash Capacity by Mine 2008 (Million tonnes per year) Annual Capacity(a) Canada: Belle Plaine 2.8 Colonsay 1.8 One of the Esterhazy 5.3 largest United States: Carlsbad 1.7 players in Hersey(b) 0.1 the world Total 11.7 Total (excluding
Slide 36: Potash segment and Esterhazy expansion
With these dynamics, it’s not surprising that the Potash business segment is a strong performer for Mosaic. It accounts for approximately one-fifth of net sales, and for fiscal 2007, Potash operating earnings as a percentage of Potash segment sales was 26%. As I have already noted, current net capac
Slide 37: Our K Position Tomorrow Is Even Better
The Mosaic Opportunity: Our K Position Tomorrow Is Even Better Mosaic Mine Expansions Total Estimated Capacity Increase Mine Completion Cost (000 tonnes KCI) US ($) Millions Colonsay 200 2010 20 Belle Plaine 120 2010 15 Belle Plaine 360 2011 75 Colonsay 360 2012 120 Belle Plaine 270 2012 100 Esterha
Slide 38: Potash expansion plan to 2013
This plan calls for approximately three million tonnes, or about 30%, increase in total potash capacity by 2013. The next phase comes on-line as early as 2010 and still more expansions are possible, if warranted by demand. Our potash expansions will be brought on line as required by growing demand,
Slide 39: Phosphates: Controlling Our Own Destiny
The Mosaic Opportunity: Phosphates: Controlling Our Own Destiny 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 capac
Slide 40: Phosphates scale and vertical integration
Mosaic’s Phosphates business possesses its own very attractive attributes due to its sheer size and vertical integration. We produce about 16% of the world’s phosphate fertilizer and account for about one-half of U.S. phosphate fertilizer production. Our scale produces significant cost efficiencies.
Slide 41: Phosphates: DAP Raw Material Costs
The Mosaic Opportunity: Phosphates: DAP Raw Material Costs Raw Materials Cost Mosaic vs. Non-Integrated Indian DAP Producer $ MT 800 Source: Fertecon and Mosaic 600 400 200 0 FY 2007 2007 MOS India Rock Sulphur Ammonia 21
Slide 42: Vertical integration cost advantage
Our vertical integration from rock mining to chemical processing provides an increasingly large competitive advantage over many producers. Unlike non-integrated producers who now pay as much as $210 fob North Africa for rock, we own and mine our own phosphate rock. Non-integrated producers account f
Slide 43: Phosphates: DAP Raw Material Costs (FY2008 estimate)
The Mosaic Opportunity: Phosphates: DAP Raw Material Costs Raw Materials Cost Mosaic vs. Non-Integrated Indian DAP Producer $ MT 800 Source: Fertecon and Mosaic 600 400 200 0 FY 2007 2007 FY 2008 MOS India MOS Estimate Rock Sulphur Ammonia 22
Slide 44: Mosaic raw material cost expectations
By comparison, you can see that Mosaic’s cash raw material costs for DAP are expected to increase from 2007 levels. This increase is primarily due to rising ammonia and especially sulfur raw material input costs. The fiscal 2008 estimate for Mosaic was based upon actual activity through our second q
Slide 45: Phosphates: DAP Raw Material Costs (current India)
The Mosaic Opportunity: Phosphates: DAP Raw Material Costs Raw Materials Cost Mosaic vs. Non-Integrated Indian DAP Producer $ MT 800 Source: Fertecon and Mosaic 600 400 200 0 FY 2007 2007 FY 2008 Current MOS India MOS Estimate Estimate India Rock Sulphur Ammonia 23
Slide 46: Indian non-integrated producer cost
This is nowhere near our estimated cash cost for raw materials for an Indian non-integrated DAP producer for which estimated cash costs are nearly $700 per metric tonne. The market requires production from these high cost players in order to meet global demand and the marginal producers will determi
Slide 47: A Strengthening Balance Sheet Supports Expansion
The Mosaic Opportunity: A Strengthening Balance Sheet Supports Expansion $1 billion debt prepayment since May 2007 1.0 Debt-To-EBITDA 1 Improvement in ratio from 2.4 as of May 2007 11/30/07 Investment grade goal 1 EBITDA calculated on trailing-twelve month activity. See EBITDA reconciliation to earn
Slide 48: Debt reduction and investment grade goal
Whether expanding capacity in our Potash business or funding other capital investments, our means to do so have improved dramatically over the past year as we have strengthened our balance sheet. Investment grade status has been one of our major strategic goals since the formation of Mosaic three ye
Slide 49: Current Phosphate Trends
The Mosaic Opportunity: Current Phosphate Trends $ ST $ MT CFL DAP Prices TPA 800 800 • Tight market continues Source: Fertecon and Green Markets 700 700 • North American 600 fob Central Florida Rail fob Tampa Vessel 600 inventories at lowest level in more than 500 500 15 years 400 400 • Current spo
Slide 50: Short-term phosphate price outlook
I have focused my remarks today intentionally on the mid-to-long term in order to demonstrate the sustainability of current trends. Before closing, here’s a brief update on the short-term outlook. I’ll start with Phosphates. Strong demand-pull and cost-push forces have lifted phosphate prices to unc
Slide 51: Current Potash Trends
The Mosaic Opportunity: Current Potash Trends $ ST fob Midwest Muriate of Potash Prices $ MT c&f Terminal Brazil 500 500 Source: Green Markets and ICIS 450 450 fob U.S. Midwest Warehouse c&f Brazil 400 400 • Tight market and 350 350 escalating prices 300 300 • Increased imports 250 250 by Brazil and
Slide 52: Tight potash market and rising prices
Potash prices do not face the same cost pressures as phosphates but a powerful demand-pull and the loss of the Berezniki I mine in Russia have created an extremely tight situation. This is compounded by the robust global demand growth for potash. Imports by Brazil and China rebounded sharply from 20
Slide 53: Crop nutrients remain affordable!
The Mosaic Opportunity: Crop nutrients remain affordable! Bu Corn Crop Nutrient Costs on Corn in Iowa Bushels of Corn Per Acre 30 25 20 15 10 5 0 2003 2004 2005 2006 2007 2008 Sources: Iowa State University, USDA and Mosaic We estimate that a farmer would have to sell 26 bushels of corn at today’s 2
Slide 54: Farmer affordability of crop nutrients
There are questions about farmer affordability of crop nutrients. I want to put the cost of crop nutrients in perspective. Yes, crop nutrients are expensive today, but farmers are seeing record crop prices at the same time and are getting a good return for their fertilizer investment. These are two
Slide 55: Farm economics remain solid
The Mosaic Opportunity: Farm economics remain solid $ Acre Estimated Revenue after Variable Cost for an Iowa Farm $600 Source: Iow a State University and Mosaic $500 $400 $300 $200 $100 $0 2003 2004 2005 2006 2007 2008 Soybeans Corn Following Soybeans Corn Following Corn 28
Slide 56: Record crop prices and farm economics
Record crop prices and positive farm economics underpin the extraordinary demand outlook. These are two more reasons we believe the nutrient demand trends are sustainable. Our analysis of revenue and costs indicate that farm economics remain positive in most parts of the world. The recent increases
Slide 57: Fiscal 2008 Financial Guidance
Fiscal 2008: Financial Guidance Phosphate 8.6 - 9.1 million tonnes Sales Volume Potash 8.5 - 9.0 million tonnes Sales Volume Equity Earnings $90 - $120 million Capital Spending $360 - $400 million SG&A $280 - $300 million 1 Effective Tax Rate Low 30%s 1Excluding certain discrete items. 29
Slide 58: Fiscal 2008 guidance commentary
Turning to guidance for fiscal 2008. Phosphate sales volume is expected to be within close range of last year’s 8.9 million tonnes, while we expect potash volume to grow anywhere from 7% to 14% over last years 7.9 million tonnes. Equity earnings from non-consolidated subsidiaries are estimated to do
Slide 59: Crop Nutrients Have Never Looked So Good
Crop Nutrients Have Never Looked So Good • Growing fundamental demand • Record crop prices • Positive farm economics • Diverse global customer base • Brownfield expansions are low cost 30
Slide 60: Closing remarks on crop nutrient fundamentals
In closing today, it is worth pointing out that the crop nutrient business as a whole has a highly attractive set of fundamental attributes. Competing end-uses and growing demand for food, feed, fiber and, now, fuel translate into a critical need for crop nutrients that can optimize crop yields. Our
Slide 61: It's Fundamental, Global, Sustainable
Mosaic & Groundbreaking Opportunity: A Compelling Alignment It’s Fundamental Market Drivers & MOS Execution It’s Global Market Demand & MOS Presence It’s Sustainable Market Growth & MOS Capacity 31
Slide 62: Closing and questions
When you apply these attributes to the opportunity that the industry and Mosaic are looking at - it creates a very compelling scenario. It’s an opportunity with excellent fundamental demand drivers and one that Mosaic will capitalize on by executing its own fundamentals well. It’s a global opportuni
Slide 63: Addendum: EBITDA Calculation
Addendum: EBITDA Calculation (unaudited) Selected Non-GAAP Financial Measures and Reconciliations EBITDA Calculation Three months ended August 31 November 30 February 28 May 31 August 31 November 30 February 28 May 31 August 31 November 30 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 (dollars i
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