Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — Q3 2018 Earnings Presentation
53 slides from Mosaic Company (the)'s earnings presentation, Aug 13, 2018
Slide 1: Third Quarter 2018 Investor Information
Laura Gagnon Vice President Investor Relations Tel 763-577-8213 Cell 612-201-7550 laura.gagnon@mosaicco.com Anton Pshon Director Investor Relations Tel 763-577-2876 Investor Cell 612-834-0988 Information anton.pshon@mosaicco.com Third Quarter 2018 1
Slide 2: 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 the anticipated benefits and synergies of our acquisition of the global phosphate
Slide 3: The Mosaic Company Overview
The Mosaic Company Overview 3
Slide 4: Executive Summary
Executive Summary Raising full year guidance: adjusted EBITDA(1) to $1.80 - 1.95 billion; adjusted EPS(1) to $1.45 - $1.80 ▪ Second quarter adjusted EBITDA(1) of $461 million and first half 2018 of $833 million Strong Cash ▪ Second quarter adjusted EPS(1) of $0.40 and first half 2018 of $0.60 Flow a
Slide 5: Mosaic Assets: Global, Long Life, Low Cost
Mosaic Assets: Global, Long Life, Low Cost Phosphate Production Potash Production Distribution Facilities Joint Ventures 55
Slide 6: Transformation: Idled Plant City
Transformation: Idled Plant City $/Tonne Conversion Costs Mined Rock Costs $/Tonne $50 $80 $70 $40 $60 $30 $50 $20 $40 2014 2015 2016 2017 Q1 Q2 2014 2015 2016 2017 Q1 Q2 2018 2018 2018 2018 Cash Production Costs Cash Conversion Costs * Phosphate cash conversion costs are reflective of actual costs,
Slide 7: Transformation: Anticipated S&D Impact of Idling Plant City
Transformation: Anticipated S&D Impact of Idling Plant City Million Tonnes DAP/MAP/NPS Global Phosphate Capacity vs. Shipments 3 Cumulative Change 2018-2020 Cumulative Net Capacity Growth 2 Cumulative Demand Growth 1 0 -1 18F 19F 20F Source: CRU and Mosaic Tightened phosphate supply & demand even wi
Slide 8: Transformation in Potash: Asset Optimization and Cost Control
Transformation in Potash: Asset Optimization and Cost Control $ Per Tonne $140 $120 $100 $80 $60 $40 $20 $- 2013 2014 2015 2016 2017 Q1 2018 Q2 2018 MOP Cash Production Costs Per Tonne* Brine *MOP cash production costs are reflective of actual costs during the quarter, excluding CRT and realized mar
Slide 9: Transformation in Potash: Expected Elimination of Brine Management Costs
Transformation in Potash: Expected Elimination of Brine Management Costs Esterhazy Expected Cash Production $/Tonne 16,000 Costs Below $50 per Tonne 90 14,000 80 12,000 70 10,000 8,000 60 6,000 50 4,000 Thousand Ore Tonnes Cash Production Costs 40 2,000 0 30 2013 2016 2017F 2018F 2019F 2020F 2021F 2
Slide 10: Mosaic Fertilizantes: Well Positioned
Mosaic Fertilizantes: Well Positioned Brazil Plant Nutrient Use 2015-17 Average Nitrogen Million Tonnes Soybean Production 28% 130 Potash 39% 110 90 P&K Phosphat e accounts for 70 Source: ANDA 33% ~2/3rds of all U.S. Plant Nutrient Use Brazil 50 2014/15-16/17 Average Nutrient Use 30 Potash 00 01 02
Slide 11: Mosaic Fertilizantes Transformation on Track
Mosaic Fertilizantes Transformation on Track Mosaic Fertilizantes Transformation Actions taken in H1’18 Categories P&L Impact (US$ M) expected to generate solidy $300 over $100M of run-rate value Operations $19M $250 Commercial $14M $200 Procurement $6M $150 Supply Chain $10M $100 Organization $7M $
Slide 12: Visible Cost Controls
Visible Cost Controls $ Per Tonne Selling, General & Administrative Expenses 20 18 16 Includes acquisition of Vale Fertilizantes operations as of 14 January 8, 2018. 12 10 8 2013 2014 2015 2016 2017 2018F 12 *Tonnes do not include the intra-segment volume eliminations, which are negative impacting S
Slide 13: Mosaic: Deleveraging Progress
Mosaic: Deleveraging Progress Short And Long Term Debt (in millions) $5,400 $5,200 $5,000 $4,800 $4,600 $4,400 $4,200 2017 Q1'18 Q2'18 End 2020 Target Achieved ~$500 million debt pay down targeted for 2018 by August 1 *See Additional Detail in the Appendix 13
Slide 14: Capital Allocation Philosophy
Capital Allocation Philosophy Further accelerated debt repayment in 2018 14
Slide 15: Markets: Agricultural Outlook
Markets Agricultural Outlook
Slide 16: A Price Meltdown, a Bounce, and a Drop
A Price Meltdown, a Bounce, and a Drop New Crop Corn Price New Crop Wheat Price New Crop Soybean Price US$ Daily Close Dec 18 Contract US$ Daily Close Sep 18 Contract US$ Daily Clos e Nov 18 Contr act BU BU BU 4.30 6.00 10.75 Source: CME (KC HRW) Source: CME 10.50 4.20 5.75 10.25 4.10 10.00 5.50 4.0
Slide 17: Agricultural Fundamentals Begin to Tighten as Demand Catches Up to Supply
Agricultural Fundamentals Begin to Tighten as Demand Catches Up to Supply World Less China Grain and Oilseed Stocks Mil Tonnes Percent . A big step-up in global production since 2012/13 450 22% Source: USDA August 10, 2018 425 21% . But continued strong and steady demand growth 400 20% 375 19% . Inv
Slide 18: Positive Agronomic & Economic Demand Drivers
Positive Agronomic & Economic Demand Drivers Record Harvests Remove Record Amounts of P&K Plant Nutrients Still Affordable Bil Tonnes World Grain and Oilseed Production and Use Plant Nutrient Affordability 3.4 Plant Nutrient Price Index / Crop Price Index Source: USDA August 2018 1.00 3.2 Less Affor
Slide 19: The U.S.-China Soybean War
The U.S.-China Soybean War Battlefield Statistics for the first half of this year show Brazil and the United States are the The USA supplies the majority of Chinese that Brazil exports dominant exporters of soybeans to China, imports following its harvest or from were up 5% or 2.3 2017 China Soybean
Slide 20: Assessment of How the Trade War Plays Out
Assessment of How the Trade War Plays Out ▪ China likely will still import ~95 million tonnes of soybeans this year despite recent claims of an expected 10 million tonne drop (implying 2018 LH imports of just 40.6 million tonnes or a drop of 20% from last year). ▪ China will draw down inventories, g
Slide 21: Markets: Brazil
Markets Brazil Maseic
Slide 22: An Agricultural Powerhouse
An Agricultural Powerhouse Change in Brazil Grain and OIlseed Producton 2000-2018 Brazil Grain and Oilseed Production +143.5 Million Tonnes Other MT Ha 8.0 16 Leading Crops 6% 250 Source: USDA Soybeans 225 81.0 56% 200 Corn 54.5 175 38% 150 Source: USDA 125 100 Change in Brazil Harvested Area 2000-2
Slide 23: A Soybean Powerhouse
A Soybean Powerhouse Mil Tonnes Brazil Soybean Production Mil HA Brazil Soybean Area MT HA Brazil Soybean Average Yield 130 40 3.60 Source: USDA Source: USDA 120 Source: USDA 3.40 35 110 MT HA BU AC 3.20 2.5 37.2 100 30 3.2 47.6 3.4 50.6 90 3.00 80 25 2.80 70 2.60 20 60 2.40 50 15 40 2.20 30 10 2.00
Slide 24: Brazilian Farmers Benefit from the Argentine Drought, a Weaker Real, and the Trade War
Brazilian Farmers Benefit from the Argentine Drought, a Weaker Real, and the U.S.-China Trade War Mil Tonnes Argentina Soybean Production MT HA Brazilian Real Cents Bu Soybean Premium to CME Price at Paranaguá R/USD Daily Rate 65 3.4 Port 4.25 250 Source: USDA 225 60 3.2 4.00 Source: Forex 200 55 3.
Slide 25: An Emerging Corn Powerhouse
An Emerging Corn Powerhouse Mil Tonnes Brazil Corn Production Mil HA Brazil Corn Harvested Area MT HA Brazil Corn Average Yield 100 18 6.0 Source: USDA Source: USDA Source: USDA 90 17 5.5 80 16 5.0 MT HA BU AC 70 15 3.00 48 4.5 5.50 88 60 14 7.00 112 4.0 50 13 3.5 40 12 30 11 3.0 20 10 2.5 00 01 02
Slide 26: A Plant Nutrient Powerhouse
A Plant Nutrient Powerhouse Mil Tonnes Brazil Total Plant Nutrient Shipments Mil Tonnes Brazil Plant Nutrient Product Shipments Product 4.5 37.5 Min/Max Range (2013-2017) Source: ANDA Source: ANDA, Mosaic 4.0 2018 35.0 7-Yr Olympic Average 32.5 3.5 30.0 3.0 27.5 2.5 25.0 2.0 22.5 20.0 1.5 17.5 1.0 1
Slide 27: Mosaic is Logistically Advantaged to Key Growing Areas
Mosaic is Logistically Advantaged to Key Growing Areas • Exposure to the Cerrado region • Just-in-time deliveries • Long-term relationship with customers • Integrated logistics
Slide 28: Post Transformation: Competitive Delivered Basis
Post Transformation: Competitive Delivered Basis Brazil MAP Cost Curve 2021 Forecast Delivered Upcountry Mosaic Uberaba 0 1,000 2,000 3,000 4,000 5,000 Source: Mosaic Thousand Tonnes
Slide 29: Markets: Potash Outlook
Markets Potash Outlook Maseic
Slide 30: Prices Continue to Trend Up
Prices Continue to Trend Up Potash Prices $ Tonne KCl 475 450 425 400 . Strong broad-based demand growth 375 350 325 . Optimized/restructured operations 300 275 . No immediate threat from new capacity 250 225 Source: Argus 200 175 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 fob NOLA fob U.S. Corn Belt c&f Br
Slide 31: Strong, Broad-Based and Less Volatile Demand Growth
Strong, Broad-Based and Less Volatile Demand Growth Mil Tonnes KCl Global Potash Shipments 67-69 70.0 . Global KCl shipments now are projected to increase 2.7% or Source: IFA, CRU and Mosaic 66.9 67.5 1.8 million tonnes to 66.9 million this year. That follows the 6.9% or 4.2 million tonne recovery i
Slide 32: Strong and Broad-Based Demand Growth
Strong and Broad-Based Demand Growth Mil Tonnes Brazil MOP Shipments Mil Tonnes China MOP Shipments KCl KCl Chinese shipments also are 11.0 18.0 Source: ANDA, Mosaic and Company Reports trending up due to record crop 10.5 Source: CRU and Mosaic 16.0 10.0 Brazil demand continues its production as wel
Slide 33: Global Potash Shipment Forecasts by Region (August 2018)
Global Potash Shipment Forecasts by Region (August 2018) Source: IFA, CRU and Mosaic (Numbers may not sum to total due to rounding)
Slide 34: Likely Supply and Demand Changes 2018-20
Likely Supply and Demand Changes 2018-20 Potential Potash Supply and Demand Changes Excluding Canada Mil Tonnes KCl 2018 2019 2020 Projected Shipment Changes 1.36 0.95 1.29 ← A strong and broad-based gain is estimated for 2018 followed by a more Percent Change 2.1% 1.4% 1.9% modest increase in 2019
Slide 35: Record Canpotex Exports Required to Meet Record Demand
Record Canpotex Exports Required to Meet Record Demand Mil Tonnes Canpotex Exports Canpotex Sales by Destination KCl Calendar Year 2015-17 Average 12 Source: Canpotex 11 Rest of 10 World Brazil 13% 25% 9 Other Asia 8 16% 7 India China 6 10% 18% 5 Indo/Mala 2010 2011 2012 2013 2014 2015 2016 2017 18%
Slide 36: Five-Year Outlook: Strong, Broad-Based and Less Volatile Demand Growth
Five-Year Outlook: Strong, Broad-Based and Less Volatile Demand Growth the Key Feature MMT MOP Global Potash Shipments Change in Potash Shipments 2017 vs. 2010 Change in Potash Shipments 2023 vs. 2017 80 China 7.5% Brazil 3.9% Source: Mosaic, CRU Brazil 5.2% 75 China 2.3% Other Asia/Oceania 5.0% Oth
Slide 37: Demand Growth Projected to Keep Pace with Ramp-Up of New Capacity
Demand Growth Projected to Keep Pace with the Likely Ramp-Up of New Capacity Mil Tonnes Global Potash Capacity vs. Shipments Mil Tonnes Global Potash Supply and Demand Op Rate KCl Cumulative Change 2016-23 KCl MOP Capacity, Production and Operating Rate 16.0 90 95.0% Source: IFA, CRU and Mosaic 14.0
Slide 38: Factors to Watch
Factors to Watch ▪ Agricultural commodity prices • Farm or food crisis and impact on potash demand? ▪ FSU production • Can they maintain 2017 rates in 2018 and beyond? Is Uralkali S2 at risk? ▪ Ramp-up of new capacity • Slower-than-expected or faster-than-expected? ▪ Competitor strategies and behavi
Slide 39: 2021 Cost Curve Forecast
2021 Cost Curve Forecast 2021 MOP Cost Curve fob Mine at Effective Capacity Brine 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Thousand Tonnes Capacity Source: CRU, Mosaic
Slide 40: Markets: Phosphate Outlook
Markets Phosphate Outlook Maseic
Slide 41: Phosphate Margins Move Up in Response to Constructive Fundamental Developments
Phosphate Margins Move Up in Response to Constructive Fundamental Developments Benchmark DAP Stripping Margin $ Tonne Calculated from Published Weekly Spot Prices 350 325 . Strong, broad-based and less volatile demand growth 300 . Supply adjustments take hold including the temporary idling of Mosaic
Slide 42: Nearly All of the Margin Gain is the Result of Higher Phosphate Prices
Nearly All of the Margin Gain is the Result of Higher Phosphate Prices Phosphate Prices Ammonia Weekly Raw Materials Prices Sulphur $ Tonne Published Spot Prices $ Tonne c&f Tampa $ LT 550 700 175 525 $655 in November 2014 500 600 150 $147 in 2015 Q1 475 450 500 125 425 $121 in 2018 Q3 400 100 400 $
Slide 43: Strong, Broad-Based and Less Volatile Demand Growth
Strong, Broad-Based and Less Volatile Demand Growth . Shipments of the leading finished phosphate products increased 2.1% or 1.4 million tonnes to 69.2 million in 2017 and are projected to increase another 1.2% MMT Pr oduc t Global Phosphate Shipments or 0.8 million to 70.0 million tonnes this year.
Slide 44: Broad-Based Demand Growth
Broad-Based Demand Growth Indian shipments plummeted Mil China DAP/MAP/NPS/TSP Shipments Mil India DAP/MAP/NPS/TSP Shipments Tonnes Chinese shipments peaked at Tonnes following changes in the subsidy 24.0 12.0 Source: CRU and Mosaic more than 21 million tonnes in Source: CRU and Mosaic and a doublin
Slide 45: Global Phosphate Shipment Forecasts by Region (August 2018)
Global Phosphate Shipment Forecasts by Region (August 2018) Source: CRU and Mosaic. Numbers may not sum to total due to rounding. * NPS products included in this analysis are those with a combined N and P2O5 nutrient content of 45 units or greater.
Slide 46: Supply Adjustments are Taking Hold
Supply Adjustments are Taking Hold . Mosaic’s idling of its Plant City facility in December 2017 impacted both fundamentals and sentiment. . Later start-up and slower ramp-up of new capacity in Moroccan and Saudi Arabia. . We estimate that Chinese phosphate exports during the first half of this year
Slide 47: Fundamentals Math - 2018 Phosphate S/D Incremental Changes
Fundamentals Math - 2018 Phosphate S/D Incremental Changes, H1 2018 Phosphate S/D Incremental Changes, H2 2018 Phosphate S/D Incremental Changes, 2018 Mil Tonnes DAP/MAP/NPS/TSP - equivalent Mil Tonnes DAP/MAP/NPS/TSP - equivalent Mil Tonnes DAP/MAP/NPS/TSP - equivalent Shipment Increase 0.50 Shipme
Slide 48: Fundamentals Math - 2019 Phosphate S/D Incremental Changes
Fundamentals Math - 2019 Phosphate S/D Incremental Changes, H1 2019 Phosphate S/D Incremental Changes, H2 2019 Phosphate S/D Incremental Changes, 2019 Mil Tonnes DAP/MAP/NPS/TSP - equivalent Mil Tonnes DAP/MAP/NPS/TSP - equivalent Mil Tonnes DAP/MAP/NPS/TSP - equivalent Shipment Increase 0.41 Shipme
Slide 49: Five-Year Outlook: Positive Demand Outlook
Five-Year Outlook: Positive Demand Outlook Global Phosphate Shipments Change in Phosphate Shipments 2017 vs. 2010 Change in Phosphate Shipments 2023F vs. 2017 MMT DA P/MA P/NPS/TSP 80 Source: Mosaic and CRU Phosphate Outlook July 2018 Brazil 6.7% India 3.1% 75 Other Asia + Oceania 4.7% Brazil 3.3% N
Slide 50: Five-Year Outlook: CRU Forecasts (July 2018)
Five-Year Outlook: CRU Forecasts (July 2018) Mil Tonnes Global Phosphate Supply and Demand Opr Global PhosAcid Capacity by Country Global PhosAcid Capacity by Year MMT P2O5 MMT P2O5 P2O5 Acid Capacity, Production and Operating Rate Rate 70 90% 63 63 Source: CRU July 2018 62 0.1 62 0.6 1.1 0.6 60 85%
Slide 51: Factors to Watch
Factors to Watch ▪ Agricultural commodity prices • Food or farm crisis and impact on phosphate demand? ▪ Ramp-up of new capacity • Slower-than-expected or faster-than-expected? ▪ China: demand growth and restructuring of the phosphate industry • Significant closures due to environmental regulations
Slide 52: 2021 Cost Curve Forecast
2021 Cost Curve Forecast 2021 DAP Cost Curve fob Plant at Effective Capacity MOS LA MOS FL Chinese Producers Source: CRU, Mosaic
Slide 53: Appendix: Deleveraging Progress
Appendix: Deleveraging Progress Dollars in Millions Dec 2017 Mar 2018 Jun 2018 Short‐term debt $ 6 $ 72 $ 20 Long‐term debt (including current portion) 5,222 5,074 4,798 * Net cash & cash equivalents 2,154 659 835 * Net debt 3,074 4,487 3,983 Net debt to adjusted EBITDA(1) 2.5 2.6 2.2 Calculation to