potashcorp - 2014 q2 earnings
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PotashCorp.com
Q2 2014 Conference CallJuly 24, 2014
This presentation contains forward-looking statements or forward-looking information (forward-looking statements). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements often contain words such as “should,” “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimates,” “plans” and similar expressions. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in the forward-looking statements, including, but not limited to the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; changes in competitive pressures, including pricing pressures; risks and uncertainties related to our international operations and assets; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; unexpected geological or environmental conditions, including water inflows; economic and political uncertainty around the world; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; increases in the price or reduced availability of the raw materials that we use; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; risks related to reputational loss; and earnings, and the decisions of taxing authorities, which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2013 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Forward-looking Statements
Slide#2
Second-quarter 2014 Highlights
• Earnings of $0.56 per share1; surpass upper end of guidance range
• Cash provided by operating activities of $788 million
• Strong potash volumes and improving realizations (up $13/mt from first-quarter 2014)
• Nitrogen gross margin of $304 million; second-highest quarterly total in our history
• Completed repurchase program totaling 43.3 million shares at an average price of $34
• Market value of investments $5 billion, or $6 per PotashCorp share2
1 All references to per-share amounts pertain to diluted net income per share2 As of market close on July 23, 2014
Source: PotashCorp
Slide#3
Gross Margin Decrease Largely Due to Lower Prices; Most Notably in Potash
Quarterly Gross Margin Comparison
Q2 2013 GM
Potash Nitrogen Phosphate Q2 2014 GM
0
200
400
600
800
1,000
1,200
$979
$747
-$218
+$28 -$42
US$ Millions
Potash Highlights:• Average realizations improved from the first
quarter of 2014 but were well below those of the second quarter last year
Nitrogen Highlights:• Increased sales volumes and lower per-tonne
costs offset by decline in average realized prices
Phosphate Highlights:• Reduced fertilizer sales volumes and higher costs
from non-cash accounting charges related to White Springs closure
Source: PotashCorp
Slide#4
Market 2013 (actual)
2014F (previous guidance)
China 11.2 11.4-11.7
India 3.1 3.5-4.0
Other Asia 7.8 8.0-8.3
Latin America 10.1 10.3-10.7
North America 8.7 9.0-9.5
Other 12.4 ~12.7
Total 53.3 55-57
Source: Fertecon, CRU, Industry Publications, PotashCorp
Guidance Raised Given Stronger Demand in North America and China
2014 Global Potash Demand
2012 2013 2014F0
10
20
30
40
50
60
70
Million Tonnes KCl
Slide#5
12%
2014F (current guidance)
11.8-12.1
3.5-4.0
8.0-8.3
10.3-10.7
10.0-10.5
~12.7
56.5 - 58.0
2014 Forecast per PotashCorp
2011 2012 2013 2014F0%
25%
50%
75%
100%
Source: Fertecon, CRU, Industry Publications, PotashCorp
World Potash FundamentalsStrong Demand and Improved Operating Rates
2014 Forecast per PotashCorp
Slide#6
Global Potash Shipments by Half
1H 2012
1H 2013
1H 2014F
2H 2012
2H 2013
2H 2014F
10
15
20
25
30
35
Million Tonnes KCl
5%
10%
Global Operating Rates*
11%
* Based on percentage of PotashCorp’s estimate for global operational capability (estimated annual achievable production level).
Percent
2013Cash Cost*
2014 Cash Cost* Target
2016Cash Cost* Target
50
60
70
80
90
100
110
120
130
140 Cash-related Cost of Goods SoldDepreciation and Amortization
Source: PotashCorp
Improving Potash Cost ProfileOn Target to Achieve 2014 Savings of $15-20 per Tonne
Slide#7
PotashCorp Per Tonne Cost of Goods Sold
US$ per tonne
* Cash costs refers to total cost of goods sold less depreciation and amortization
** As compared to 2013 levels (not adjusted for inflation or changes to depreciation and amortization); target assumes successful ramp up of expansions at lower-cost facilities
Annualized Improvement
Target**
~$15-$20/mt
Annualized Improvement
Target**
~$20-$30/mt
49.2%
PotashCorp Other Canpotex Members
Source: Company Reports, PotashCorp
Canpotex Entitlement Growth Expected to Support Sales Volumes Growth
Potash: Increasing Canpotex Entitlement
Percentage of Canpotex Entitlement
53.7%
PotashCorp Other Canpotex Members
First-half 2014 Second-half 2014
Slide#8
Source: PotashCorp
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015E
2016E
0.0
0.5
1.0
1.5
2.0
2.5
PotashCorp Capital Spending**
CAPEX Spending Largely Complete
PotashCorp’s Opportunity
94%
6%
Completed Remaining
PotashCorp Potash Projects Estimated Capital Spending*
US$ Billions
Slide#9
* As at June 30, 2014. Includes both debottleneck and expansion spending.
** Cash additions to property, plant and equipment per cash flow statement (2006-2013); 2015E and 2016E do not include Major Repairs and Maintenance expenditures (estimated at ~$140M per year) or capitalized interest.
** As we adopted International Financial Reporting Standards (IFRS) with effect from January 1, 2010, information from 2006-2009 is presented on a previous Canadian generally accepted accounting principals (GAAP) basis. Accordingly, previous results may not be comparable to 2010 forward.
2014 Guidance*
Third Quarter
• Earnings per share: $0.35-$0.45
Full Year
• Earnings per share: $1.70-$1.90
• Potash gross margin: $1.2-$1.4 billion
• Potash sales volumes: 8.9-9.2 million tonnes
• Nitrogen and phosphate gross margin: $1.0-$1.2 billion
* Guidance as at July 24, 2014
Source: PotashCorp
Slide#10
2014 Guidance*
Full Year
• Capital expenditures**: ~$1.1 billion
• Annual effective tax rate: 26-28 percent
• Provincial mining and other taxes: 16-18 percent of total potash gross margin
• Income from offshore investments***: $230-$240 million
• Selling and administrative expenses: $235-$245 million
• Finance costs: $175-$185 million
* Guidance as at July 24, 2014
** Does not include capitalized interest
*** Represents share of earnings in equity-accounted investees and dividend income from available-for-sale investments
Source: PotashCorp
Slide#11
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