Investor Presentation March 2016
1
4/11/2016
Forward-Looking Statements Certain statements and other information included in this presentation constitute "forward-looking information", "financial outlook" or "forward-looking statements" (collectively, "FLS"). All statements in this presentation, other than those relating to historical information or current conditions, are FLS, including, but not limited to, statements as to management's expectations with respect to: anticipated future capital expenditures; expectations respecting dividend increases and continued share buybacks; our Retail growth and operational strategies and opportunities; Retail annual sales and EBITDA from acquisitions and proprietary products gross profit; Wholesale growth and operational strategies and opportunities including expectations respecting our Vanscoy and Borger expansions and the results thereof; forecasted Wholesale capacity utilization, production and cash costs of production; expected improvement in potash production and cash costs per tonne; our high quality/low risk future cash flow and our potential 5-year operating cash flow, sustaining capital and free cash flow; and our future market outlook including anticipated selling prices, fieldwork windows, crop input expenditures, grower cash margins, seed margins, market and industry conditions including with respect to planted acres and supply and demand for our products and services. The purpose of the financial outlook provided herein is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes. The FLS included in this presentation are based on certain assumptions made by us and all FLS are qualified by the assumptions that are stated or inherent in such FLS. Investors should not place undue reliance on these assumptions and such FLS. The additional key assumptions that have been made include, among other things assumptions with respect to: Agrium's ability to successfully integrate and realize the anticipated benefits of its already completed and future acquisitions and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by Agrium, including with respect to prices, margins, product availability and supplier agreements; the actions of counterparties including that they will act in accordance with their contractual obligations; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for 2016; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and negotiate acceptable terms; our ability to maintain our investment grade rating and achieve our performance targets; and our receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the project's approach. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in Agrium's Management's Discussion & Analysis for the year ended December 31, 2015 (the "2015 MD&A") and to the discussions under the headings "Forward-Looking Statements" and "Market Outlook" in Agrium's press release dated February 9, 2016 announcing Agrium's fourth quarter 2015 results, with respect to further material assumptions associated with the FLS. FLS are subject to various risks and uncertainties which could cause Agrium's anticipated results and experience to differ materially from the anticipated results or expectations expressed. The key risks and uncertainties include, but are not limited to: general economic, market and business conditions; weather conditions including impacts from regional flooding and/or drought conditions; crop yield and prices; the supply and demand and price levels for our major products may vary from what we currently anticipate; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof, and political risks, including civil unrest, actions by armed groups or conflict, regional natural gas supply restrictions as well as counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; gas supply interruptions at the Egyptian Misr Fertilizers Production Company S.A.E. nitrogen facility expansion in Egypt; the risk of additional capital expenditure cost escalation or delays in respect of our Borger nitrogen expansion project, the ramp-up of production following the tie-in of our Vanscoy potash expansion project; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. We also refer you to the risks set forth under the heading “Risk Factors" in our Annual Information Form for the year ended December 31, 2015 and to the risks set forth in the 2015 MD&A under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in Respect of Forward-Looking Statements". Agrium disclaims any intention or obligation to update or revise any FLS in this presentation as a result of new information or future events, except as may be required under applicable U.S. federal securities laws or applicable Canadian securities legislation. IFRS Advisory Historical financial information relating to Agrium in this presentation has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Non-IFRS Financial Measures Advisory We consider debt to earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization ("EBITDA"), cash cost of production per tonne, and free cash flow (including free cash flow per share and dividend payout ratio of free cash flow), which are non-IFRS financial measures, to provide useful information to both management and investors in measuring our financial performance and financial condition. Refer to the disclosure under the heading "non-IFRS Financial Measures" in our 2015 MD&A and to the disclosure under the heading "Non-IFRS Financial Measures“ in our News Release for the three and twelve months ended December 31, 2015, each as filed on SEDAR at www.sedar.com and EDGAR at www.sec.gov under our corporate profile, for a reconciliation of these non-IFRS measures to the most directly comparable measures calculated in accordance with IFRS and for a further discussion of how these measures are calculated and their usefulness to users including management. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation may not be comparable to that of other companies. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
CULTIVATING EXCELLENCE
2
1
Strategic Overview
2
Agriculture Market Update
3
Agrium’s Competitive Advantages
4
Agrium’s Growth Drivers
5
Growing Free Cash Flow and Shareholder Returns
3
4/11/2016
Agrium’s Strategy – Stability and Growth Diversified and integrated agricultural company
Distinct competitive advantages across N:P:K production Retail distribution in 7 countries, serving ~500,000 growers
2015 EBITDA $2.1 billion1
Portfolio of Products and Services Retail
Operational Excellence across the company >$600M of one-time proceeds and >$200M recurring EBITDA improvements achieved since 2013
Multiple growth drivers Capacity expansions in nitrogen and potash Organic growth and acquisitions in retail distribution
Demonstrated resilience and future free cash flow growth for increasing shareholder returns 1 Figures in pie chart based on full-year EBITDA for 2015 excluding other inter-segment eliminations. Products and services EBITDA is approximated using a proportional allocation as a percentage of gross profit for 2015. 2 Nitrogen includes Ammonium Sulfate, ESN and Other, and Product Purchased for Resale. 4
Merchandise , Services & Other Seed 9% 5%
Phosphate 7%
Wholesale
Nutrients 14%
Crop Protection 17%
Nitrogen 39%
Potash 9%
Returned over $1B to shareholders in dividends and share repurchases in 2015 CULTIVATING EXCELLENCE
Agrium’s Strategy Has Delivered Results Dividends Paid
Free Cash Flow Per Share 41% CAGR
$8.59
500
8.00 7.00
$5.85
6.00 5.00
Dividends Paid (Millions of U.S. Dollars)
Free cash flow per share (U.S. Dollars)
9.00
$4.34
4.00 3.00 2013
2014
400 350
$334
300 250 2013
2015
>$1-billion bought back over past three years $559 $498
2013
2014
2014
2015
Total Shareholder Return 1 2013 to 2016 Total Shareholder Return (%)
Share Repurchases (Millions of U.S. Dollars)
$430
450
Share Repurchases
2015
From January 1, 2013 to December 31, 2015 2 Peer average is daily market capitalization-weighted average of CF, POT, MOS and IPI 1
$468
200
2.00
600 500 400 300 200 100 0
18% CAGR
5
0% -5% -10% -15% -20% -25% -30% -35% -40%
-4.64% AGU
Peer Average
-36.05% CULTIVATING EXCELLENCE
2
2016 Strategic Priorities Support Continued Free Cash Flow Growth
Focused Growth
Operational Excellence
1
Optimize costs & capture synergies across operations maintain top tier asset utilization
2
Bring expansion projects to successful completion & deliver multi-pronged approach to grow Retail
3
Wind down capital expenditures to ~$550M sustaining capex in 2016 – impressive FCF going forward
4
Increase dividends within targeted range of 40-50% of FCF and continue to buy back shares
Free Cash Flow Generation
Shareholder Value Creation
Prudent Capital Allocation
Agrium’s FCF growth strategy is not reliant on an improvement in market fundamentals
CULTIVATING EXCELLENCE
6
1
Strategic Overview
2
Agriculture Market Update
3
Agrium’s Competitive Advantages
4
Agrium’s Growth Drivers
5
Growing Free Cash Flow and Shareholder Returns
7
4/11/2016
2016 Margins and Expenditure Outlook ●
Crop inputs expenditures are forecast to increase by 1% - 3% in 2016, normalizing for nutrient prices.
●
Improved corn margins in 2016, expect 92-93 million corn acres this year - supportive for crop input use.
●
Outside of the U.S., weak currencies support grower margins.
U.S. Grower Cash Margins1
$350
Corn
$300
5%
Soybeans
USD/acre
$250
1% - 3%
3%
1%
$150
1% 0%
0%
$100
-1%
$50
-2% -3%
1 New
2016/17f
2015/16f
2014/15
10-Yr Average
2016/17f
2015/16f
2014/15
10-Yr Average
$0
2
4%
2%
$200
Annual Change in Total U.S. Crop Input Expenditures2
-4%
-4%
-5% 2013
2014
2015
crop futures have an estimated basis deducted Represents total spend amount, based on acreage of major crops in the U.S. and the per acre expenditures on seed, crop protection, and crop nutrients CULTIVATING EXCELLENCE
Sources: Agrium, USDA, Doane
8
2016E
Crop Nutrient Prices Attractive at Current Levels ● Crop nutrient prices are currently the lowest percentage of corn revenue since 2011/12 Fertilizer Costs as a Percentage of Revenue in Corn 20% 18% 16% 14%
18.9%
18.8% 16.6% 14.5%
Ten Year Avg. = 16.5%
13.7%
12% 10% 8% 6% 4% 2% 0% 2012/13 Sources: USDA, Doane, Green Markets, Agrium
2013/14
2014/15
2015/16F
2016/17F
CULTIVATING EXCELLENCE
9
1
Strategic Overview
2
Agriculture Market Update
3
Agrium’s Competitive Advantages
4
Agrium’s Growth Drivers
5
Growing Free Cash Flow and Shareholder Returns
10
4/11/2016
Agrium’s Overlapping North American Footprint: Significant Competitive Advantage 6M tonnes in N & 3M tonnes in K - among lowest cost globally 1M tonnes P production with industry-leading margins Integrated footprint with distribution synergies and higher operating rates
Crop Production Services CPS Crop Production Services Canada CPSC Nitrogen Production Facility Solution Production Facility Phosphate Production Facility Phosphate Mine Potash Production Facility Potash Mine Granulation Production Facility Anhydrous Ammonia Storage Solution Storage Dry Storage
$10B of Retail revenue in NA
Blend Storage Ammonia Pipeline System
Up to 70% of Retail’s P & K sales sourced from Wholesale
Corporate Offices ESN North America locations as of Dec. 2015
11
CULTIVATING EXCELLENCE
Agrium’s Nitrogen Cost of Production Advantage Urea Cost & Price Comparison
USD/tonne Urea $500
Current PNW Urea Price
$400
Current NOLA Urea Price
$300 $200 $100 $0
$1.25 MMBtu W. Canada
$1.85 MMBtu U.S. Gulf
$4 MMBtu
$5.70 MMBtu
W. Europe Hub
W. Europe Formula
Gas cost
$75 tonne
$6.80 MMBtu
$130 Tonne
$7.00 MMBtu
China Soft Coal
Ukraine
China Anthracite
China Gas
Other costs
Strong margins due to low cost N. America gas prices and interior pricing points Other costs include other cash production costs, and freight to port and export taxes where applicable. Ocean freight is excluded. Source: Fertecon, CRU, Agrium 12
CULTIVATING EXCELLENCE
NOLA Urea Price Rebound Above Global Cost Curve •
Chinese high-cost urea production costs have declined by ~$50/tonne in the past year - little volume traded at below cost curve prices in December/January. Chinese Anthracite-Based Urea Cost to Serve NOLA ($/tonne)
375 350 325 300
Ocean Freight
Coal
Other Cost
275
Ocean Freight
Ocean Freight
250 225 200
NOLA Urea Jan 2016
Other Cost
Other Cost
175 150 125 100 75
NOLA Urea Mar 2016
Coal
50
Downward pressure on coal prices and the devaluation of the yuan have reduced production costs by as much as $50/mt
Coal
25 0 January 2015
Sources: CRU, Bloomberg, Agrium
Coal
Other Cost
Ocean Freight
January 2016
CULTIVATING EXCELLENCE
13
~$65/mt increase since Jan ‘16
Agrium’s Nitrogen In-Market Advantage Regional Nitrogen Price Premium Over U.S. Gulf (NOLA) Price ($US/metric tonne)
Urea +$92 Ammonia +$201
Urea +$105 Ammonia +$178
Urea +$64 Ammonia +$146
Urea +$45 Ammonia +$94
Nitrogen production facility Nitrogen upgrading facility
“NOLA” New Orleans Note: All prices reported in FOB. Based on a 4-year average from 2010-2014. Source: Green Markets: Spread equals average regional reference FOB price minus NOLA reference price. 14
CULTIVATING EXCELLENCE
Competitive Advantages in Retail Distribution: Scale and Diversity Geographic Diversity
Crop Diversity
Products & Services Diversity
Revenue by Crop Type
NORTH AMERICA
(2015)
Canada
$2.7B Veg, 5%
USA
All Other, 13%
Merchandise 4% Corn, 23%
Services/Other 16%
Perm Crops, 8% Cotton, 6%
Hawaii
SOUTH AMERICA
Gross Profit
AUSTRALIA
Brazil
Seed 10% [20% gp margin] Wheat, 18%
Canola, 11% Soybean, 16%
Crop Nutrients 31% [17% gp margin]
Chile Argentina Uruguay
Crop Protection 39% [23% gp margin]
Over 1,400 facilities in 7 countries
Crop inputs & services for over 50 different crops 15
Products and services cover all aspects of crop inputs CULTIVATING EXCELLENCE
Leveraging the Network in Ag Retail – Proprietary Products • Proprietary Product sales and gross profit have continued to grow in 2015 despite market headwinds • 50% to 100% higher margin achieved from proprietary products compared to third party products
Total Retail Proprietary Products Gross Profit
$700
Gross Profit (USD Millions)
$600 $500 $400 $300 $200 $100 $0 2010
2011
Proprietary Crop Protection
Source: Agrium
2012
2013
Proprietary Nutritional Products
2014
2015
Proprietary Seed CULTIVATING EXCELLENCE
16
1
Strategic Overview
2
Agriculture Market Update
3
Agrium’s Competitive Advantages
4 5
Agrium’s Growth Drivers
Growing Free Cash Flow and Shareholder Returns
17
4/11/2016
Continued Retail Growth Despite Market Weakness Retail has multiple organic and acquisitions-focused growth levers
• •
Market Headwinds Tight soya/wheat cash margins Low nutrient prices
$1,175M
GROWTH DRIVERS
HEADWINDS
$1,033M
• • • •
$1,075M
Growth Drivers Footprint growth through tuck-in acquisitions & new-build strategy Increased proprietary product sales Reduced G&A costs through footprint optimization & operational excellence Higher forecast corn & total acres
2015 EBITDA
2016 Guidance Range CULTIVATING EXCELLENCE
18
Agrium Has Room to Grow in U.S. Retail Market Significant Room for Further Consolidation Pinnacle, 3%
J.R.Simplot, 3%
CHS, 4% Willbur-Ellis, 5%
Growmark, 6% Independents, 30%
Significant market share held by independent retailers in the US
Helena, 7%
Our share in other key regions is ~30%
Agrium, 17%
Co-ops, 25%
Source: CropLife and Internal Estimates
CULTIVATING EXCELLENCE
19
Retail Network Optimization – Tuck-ins, Closures and Hub and Spoke Model
Tuck-in Acquisitions
2010
2011
2012
2013
2014
2015
Total
# of Locations Acquired
100
33
59
22
32
26
272
Annual Sales1 (U.S. millions)
$483
$210
$477
$128
$192
190
$1,680
Annual EBITDA (U.S. millions) (Year 1)
$34
$27
$49
$12
$32
$20**
$174
**
Additional $12M of EBITDA / 19 locations are expected to be acquired in Q1 2016 related to transactions initiated in the second half of 2015.
550
Cumulative Global Store Closures 541 & Consolidations
38 Major ‘Hub’ Locations Across the U.S.
140
450
401 325
350 233
250 166 150
67
255
76
70
22
14
50 -50
2010
2011
Cumulative Store Closures 1 Does
2012 U.S.
2013 Canada
2014 Australia
2015 South America
not include revenue from equity positions in joint ventures, 2015 figures are preliminary.
CULTIVATING EXCELLENCE
20
Wholesale Capacity Expansions are Approaching Completion Wholesale will reach full expanded capacity in 2017, supporting higher free cash flow generation
Borger Expansion BorgerNitrogen Nitrogen Expansion
Vanscoy Potash Expansion The Project: • 1mmt expansion • Mechanical completion in 2014, full capacity reached in 2017
The Project: • ~610 kmt of new urea capacity (reduction in net available ammonia) Update: • Mechanical completion by the end of 2016 • Commissioning and startup in Q1 of 2017 • On-time and in-line with revised budget
Update: • Canpotex proving run completed in December 2015, new allocation set at ~10.3% of total Canpotex sales • Cash cost of product manufactured continues to decline as production is ramped up Production outlook: • 2016: 2.4 – 2.6Mmt • 2017: 2.8Mmt
21
CULTIVATING EXCELLENCE
Capital Expenditure to Decline Significantly •
Investment capital expenditure expected to decrease significantly after peaking in 2014 • Remain focused though on maintaining top-tier production status of facilities with ~$550M sustaining capital program Total Capital Expenditure Profile
USD Millions
$2,500 $2.02B
$2,000 $1,500 $1,000
$1.0B
1,455
$1.2B
647 600
325
Target Sustaining Capex range of $500-$550
$0.85B1
50
$500 400
565
541
525
500
2014
2015
2016F
Future Sustaining Run Rate
$0 2010-2013 Avg.
Sustaining
Investing
Source: Agrium 1 2016 Annual Guidance of $800-$900M provided in the Q4 2015 results press release.
CULTIVATING EXCELLENCE
22
Operational Excellence is a Daily Focus • In 2015, Agrium exceeded 2017 targets we set for Operational Excellence • Operational Excellence remains core to what we do, and we will be setting new targets this year which we will release at our Investor Day in June
One-time
Recurring 700 >$200
200 150
$125
100 50 2017 Target
• •
500 400
$350
300 200 100 0
0
•
>$600
600 One-time Proceeds (U.S. Dollars Millions)
EBITDA Improvement (U.S. Dollars Millions)
250
2017 Target
Achieved in 2015
Reduced operating and selling costs and improved margins Reduced general and administrative costs Logistics and procurement efficiencies
•
• •
Achieved in 2015
>$350M in proceeds from sales related to Portfolio Review (including AAT & PFR assets) >$250M in reduced Retail working cap Reduced operating costs CULTIVATING EXCELLENCE
23
1
Strategic Overview
2
Agriculture Market Update
3
Agrium’s Competitive Advantages
4
Agrium’s Growth Drivers
5
Growing Free Cash Flow and Shareholder Returns
24
4/11/2016
Agrium’s Capital Allocation Strategy Delivers Value
Incremental N & K Production
Distribution Network Optimization
Operational Excellence
Declining Capex Spend
Increased Free Cash Flow Per Share Priorities • Maintaining our world-class assets • 40%-50% Dividend Payout Ratio of Free Cash Flow1 • Distribution network accretive acquisitions • Opportunistic share buybacks 1
Free cash flow is defined as operating cash flow less working capital adjustments and sustaining capital expenditure.
25
CULTIVATING EXCELLENCE
Strong and Flexible Balance Sheet •
Manageable long-term debt maturities – only $600-million of maturities over next 5 years
•
Target 2.5x Net Debt/EBITDA and expect to be in that range next year
2016 – 2025 Long Term Debt Maturity1 $600
$550 $500
USD Millions
$500
$500
$500
2022
2023
$400 $300 $200 $100
$100 $0 2015 1
2016
2017
2018
2019
2020
2021
2024
2025
Based on the contractual terms of outstanding debentures
Our balance sheet strength provides significant flexibility for additional leverage, growth projects and capital returns CULTIVATING EXCELLENCE
26
Free Cash Flow Story Remains Intact •
9.0
Robust incremental free cash flow story – stability of our integrated platform and distinct competitive advantages provide opportunity for further dividend growth & other returns to shareholders Illustrative 5-Year Potential Cash Generation1
USD Billion
8.0
Sensitivities
7.0
Total Funds Available
6.0
Up to $7.7B
Includes market upside of +$25/st & incremental leverage3
Factor
Change in Factor (+/-)
FCF/ Share Impact (+/-)
N Prices
$10/st
$0.17
Natural Gas
$0.50/ mmbtu
$0.25
K Prices
$10/st
$0.12
CAD/ USD
$0.01
$0.03
5.0 $5.7B FCF
4.0 3.0 2.0
Existing Dividend $3.50 / share
1.0 0.0 Operating Cash Flow 2 Potential
Sustaining Capital
Free Cash Flow
5-Year period starts in 2016. Operating cash flow has been calculated excluding changes in non-cash working capital and using current fertilizer benchmark prices: NOLA urea $265/st, CF DAP $370/st, Midwest Potash of $250/st and NYMEX $1.80/MMBtu. Assumed FX rate of $1.38 USD/CAD. 3 Upside market scenario includes upside range of +$25/st on NOLA urea, CF DAP and Midwest Potash as well as incremental debt leverage created by operating cash flow. Incremental debt capacity has been calculated based upon a Debt to EBITDA ratio of 2.5X and assumed gross debt at beginning of the five year period. 1 2
CULTIVATING EXCELLENCE
27
Cultivating Excellence – A Way of Life at Agrium • Agrium has demonstrated stability and growth potential in free cash flow. We remain committed to: Leveraging distinct competitive advantages across integrated portfolio Drive further Operational Excellence improvements across our platform Complete capital projects to add incremental cash flow in 2016/17
• We are committed to our long-term capital allocation strategy – deliver returns to shareholders through dividends and share buybacks • Agrium will provide updated operational targets at our Investor Day in Toronto on June 8, 2016
CULTIVATING EXCELLENCE
28
Appendix
29
4/11/2016
120
100
30
60 25
20
40 15
20
0
Represents Fertilizer Year Data Source: IFA, Agrium
Million tonnes K2O
Nitrogen
10
5
0
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
80
Million tonnes P2O5
•
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Million tonnes N
Historical Nutrient Demand Growth in nutrient demand is critical in order to meet global food consumption
Phosphate
Potash
45
35
40
30
35
25
20
15
10 5
0
CULTIVATING EXCELLENCE
Long Term Fundamentals Support our Strategy • •
Average growth rate over past 25 years = 42 mmt/year 5 year average growth = 65 mmt/year
3,000
Gobal Grain & Oilseed Consumption (mmt)
2,800
2,600
2,400
2,200
2,000
1,800
* Source: USDA Foreign Agricultural Service PSD
CULTIVATING EXCELLENCE 31
Consecutive Years of Record Global Crop Yields • •
Pressure on crop prices driven by record global yields Crop yields and in turn global supply/demand balances often swing from year-to-year Global Grain Yield (t/ha)
180
3.60
U.S. Corn Yield (bu/acre)
2014 Record
170 3.40
160
3.20
150 140
3.00
130 2.80
120
2012 Drought
110
2.60
100 2.40
80
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2.20
* Source: USDA
1988 Drought 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
90
CULTIVATING EXCELLENCE
32
Global Nitrogen Capacity & Demand Growth • Most of the increased global capacity is expected in 2016 and 2017 • Chinese capacity expansions are projected to slow after 2016 Global Nitrogen Capacity Additions excl. China (mmt N)
16
Demand Growth
14
N.A. 12
N.A.
N.A. 10
Russia Russia
8 N.A. 6
Russia
4 2 0
Algeria
Russia
Indonesia
Indonesia
Algeria
Algeria
Egypt
Other 2015
Other 2016
Algeria Egypt
Egypt
Egypt Algeria
Indonesia
Other
Other
2018
2019
Other
2017
Source: CRU, Fertecon, IFA, Agrium
CULTIVATING EXCELLENCE 33
Global Nitrogen Capacity Utilization • Higher capacity additions than demand growth drive lower capacity utilization in 2016, but by 2018 demand growth exceeds supply growth • Chinese capacity utilization was higher than global average in 2014/2015, but expected to decline to global equivalent levels in 2016-forward • Urea capacity utilization dips lower than overall N due to urea upgrade projects Global Nitrogen Capacity Utilization 85% 84% 83% 82% 81% 80% 79% 78% 2013
2014
2015
2016
Source: CRU, Fertecon, IFA, Agrium
2017
2018
2019
CULTIVATING EXCELLENCE 34
U.S. Nitrogen Offshore Imports • • • •
U.S. offshore imports accounted for over 50% of U.S. nitrogen consumption in 2014 Probable U.S. nitrogen projects lower the import proportion to ~25% Another ~$15B of investment required to meet the remaining import gap ~27% of U.S. nitrogen prdn. located in the US Gulf, helps sustain premiums in interior major growing regions
Million Product Tonnes
15
1.0
Remaining Minimum Import Gap (excluding demand growth)
2.8
12 9
7.0
2.0
6
4.6
3 0
4.1 Ammonia
Urea
UAN/AN
Total
1.5 DEF Growth
Source: U.S. Dept. of Commerce, Zepol, Integer, Agrium *Includes Agrium Borger, CF Donaldsonville, CF Port Neal, Dyno, Yara/BASF, OCI, Koch, Dakota Gas, Simplot and some other minor projects
Capacity Additions*
CULTIVATING EXCELLENCE
35
Global Potash Capacity & Demand Growth • Potash deliveries estimated to be 58.5 mmt in 2015 & projected to be 58-60 in 2016 • Capacity expansion > demand growth until at least 2019 Cumulative Global Capacity Additions & Demand Growth Scenarions (kmt KCl) 11,500
9,500
Operational Capacity Growth
7,500
5,500
Deliveries Growth
3,500
1,500
-500
-2,500 2015
2016
2017
2018
2019
2020
Source: Fertecon, Agrium, (Total KCl global capacity of ~ 74 mmt at 100% of capacity in 2015, 67 mmt of operational capability in 2015.) CULTIVATING EXCELLENCE 36
Potash Capacity Utilization • The supply/demand outlook has improved since last year • Stronger than expected 2014 and 2015 demand and improved demand outlook • Flooding of Uralkali mine and New Brunswick mine closure reduced supply • Capacity utilization now projected to bottom out in 2018/2019 at similar levels to 2013 Historical & Forecast Potash Operational Capacity Utilization 89% 87% 85% 83% 81% 79% 77%
Source: Fertecon, Agrium
2020
2019
2018
2017
2016
2015
2014
2013
75%
CULTIVATING EXCELLENCE 37
Global Phosphate Capacity & Demand Growth • China has balanced the market over the past year, but some expect capacity in China to decline over the medium term • Indian demand is a risk in 2016 due to high inventory levels to start the year
8.0
Global Phosphate Capacity Additions & Demand Growth (mmt P2O5)
7.0
Demand Growth
6.0
Brazil
5.0 Brazil
4.0
Saudi Arabia
Saudi Arabia Saudi Arabia
3.0
Saudi Arabia
2.0 1.0 0.0
Brazil
Morocco Morocco 2015
Morocco
Morocco
Morocco
Other
Other
Other
Other
2016
2017
2018
2019
Morocco
Other
-1.0
Source: CRU, Agrium
CULTIVATING EXCELLENCE 38
Nutrient Applications vs. Yield in Corn Balanced and adequate nutrient applications are important for crop yields
Nitrogen
Nutrient Applications (kg/ha)
300
Phosphate
Potash
Yield
12
250
10
200
8
150
6
100
4
50
2
0
U.S.
EU-28
China
India
Brazil
CULTIVATING EXCELLENCE Source: USDA, IFA, Agrium
39
0
Corn Yield (tonnes/ha)
•
Agrium’s Integrated Business Model Provides Competitive Advantages & Cash Flow Stability • •
Agrium’s business model combines the production of crop nutrients with the world’s largest direct-to-grower distribution network for crop inputs, services and solutions. Model is flexible, resilient and provides earnings stability. ~10% of total Wholesale sales Crop Input Suppliers
Industrial Customers
2015 Sales: Seed*: $1.1B Crop Protection Products*: $3.6B Nutrients: $5.0B
* Excluding proprietary products
Up to 70% of P&K sourced from Wholesale
Agrium Wholesale
Storage and Distribution
Agrium Retail
$1.0B 2015 EBITDA
Direct Connection to Growers
$1.3B 2015 EBITDA
~500,000 Grower customers
~60% of total Wholesale sales
22% of total Retail gross profit in 2015
Ag-Retail Customers
Agrium Proprietary Products CULTIVATING EXCELLENCE
40
The Total Acre Solution
Our Precision Ag Footprint 8.5 million acres of scouting 20+ million mapped acres 80+ thousand tissue samples > 31,000 grower set-up 1.2 million acres of soil sampling
Leading Integrated Solutions to Optimize Grower Returns CULTIVATING EXCELLENCE 41
Strategic Highlights in 2015 – Numerous Successes
• New ELT in place • Implemented org. changes (structural optimization / shared services activities) • Executive compensation aligned with free cash flow • Numerous external awards & recognition
• Vanscoy Canpotex run completed successfully & Borger expansion continues
• Delivered >$600M onetime & >$200M recurring benefits • Generated >$350M from Portfolio Review
• Acquired ~$20M of EBITDA through N.A. Retail tuckins & exp. another ~$12M to be acquired in Q1 2016
• >10% increase in N operating rates & lower N cash costs
• Reviewed other regional investments for Retail
• Cont. to optimize Retail network ~140 consol./closed locations in ‘15 with 38 major hubs
• Proprietary products continued to grow at 5% in 2015 vs. 2014
• New capital allocation policy (dividend payout at 40-50% of FCF1) • Increased dividend from $3.00 to $3.50 • Repurchased ~5.6M shares • Implemented 12% Minimum Hurdle Rate
• Gained seed market share in U.S. as corn & soybean units up >5% YTD on lower corn acres
• Consolidated G&A savings of ~$50M
Focused on what we can control & demonstrating stability & growth in earnings CULTIVATING EXCELLENCE
42
AGRIUM INC. Consolidated Statements of Operations (Millions of U.S. dollars, except per share amounts) (Unaudited)
(millions of U.S. dollars, unless otherwise stated) Sales Cost of product sold Gross profit Expenses Selling General and administrative Share-based payments (Earnings) loss from associates and joint ventures Other expenses Earnings before finance costs and income taxes Finance costs related to long-term debt Other finance costs Earnings before income taxes Income taxes Net earnings from continuing operations Net loss from discontinued operations Net earnings Attributable to Equity holders of Agrium Non-controlling interest Net earnings Earnings per share attributable to equity holders of Agrium Basic and diluted earnings per share from continuing operations Basic and diluted loss per share from discontinued operations Basic and diluted earnings per share Weighted average number of shares outstanding for basic and diluted earnings per share
Three months ended December 31, 2015 2014
Twelve months ended December 31, 2015 2014
2,407 1,507 900
14,795 10,907 3,888
2,705 1,973 732
1,921 268 51 4 28 1,616 181 71 1,364 376 988 988
16,042 12,490 3,552
465 74 15 (5) 27 324 53 20 251 51 200 200
515 78 25 (2) 9 107 19 21 67 (3) 70 (19) 51
201 (1) 200
47 4 51
988 988
714 6 720
1.45
0.46
6.98
5.51
1.45
(0.13) 0.33
6.98
(0.54) 4.97
138
144
142
144
2,048 299 50 (23) 18 1,160 62 70 1,028 230 798 (78) 720
CULTIVATING EXCELLENCE 43
AGRIUM INC. Consolidated Balance Sheets (Millions of U.S. dollars) (Unaudited) December 31, 2015 2014
(millions of U.S. dollars) Assets Current assets Cash and cash equivalents Accounts receivable Income taxes receivable Inventories Prepaid expenses and deposits Other current assets Property, plant and equipment Intangibles Goodwill Investments in associates and joint ventures Other assets Deferred income tax assets Liabilities and shareholders' equity Current liabilities Short-term debt Accounts payable Income taxes payable Current portion of long-term debt Current portion of other provisions Long-term debt Post-employment benefits Other provisions Other liabilities Deferred income tax liabilities Shareholders’ equity Share capital Retained earnings Accumulated other comprehensive loss Equity holders of Agrium Non-controlling interest Total equity
515 2,053 4 3,314 688 144 6,718 6,333 632 1,980 607 54 53 16,377
848 2,075 138 3,505 710 122 7,398 6,272 695 2,014 576 78 75 17,108
835 3,919 82 8 85 4,929 4,513 124 336 85 383 10,370
1,527 4,197 5 11 113 5,853 3,559 151 367 69 422 10,421
1,757 5,533 (1,287) 6,003 4 6,007 16,377
1,821 5,502 (643) 6,680 7 6,687 17,108
CULTIVATING EXCELLENCE 44
AGRIUM INC. Consolidated Statement of Cash Flows (Millions of U.S. dollars) (Unaudited)
(millions of U.S. dollars) Operating Net earnings from continuing operations Adjustments for Depreciation and amortization (Earnings) loss from associates and joint ventures Share-based payments Unrealized (gain) loss on derivative financial instruments Unrealized foreign exchange (gain) loss Interest income Finance costs Income taxes Other Interest received Interest paid Income taxes paid Dividends from associates and joint ventures Net changes in non-cash working capital Cash provided by operating activities Investing Business acquisitions, net of cash acquired Proceeds from sale of discontinued operations Capital expenditures Capitalized borrowing costs Purchase of investments Proceeds from sale of investments Proceeds from sale of property, plant and equipment Other Net changes in non-cash working capital Cash used in investing activities Financing Short-term debt Long-term debt issued Transaction costs on long-term debt Repayment of long-term debt Dividends paid Shares issued Shares repurchased Cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash equivalents (Decrease) increase in cash and cash equivalents from continuing operations Cash and cash equivalents used in discontinued operations Cash and cash equivalents – beginning of period Cash and cash equivalents – end of period
Three months ended December 31, 2015 2014
Twelve months ended December 31, 2015 2014
200
70
988
798
135 (5) 15 (28) (12) (16) 73 51 2 16 (51) (30) 743 1,093
138 (2) 25 14 8 (22) 40 (3) 5 23 (37) (37) 1 757 980
480 4 51 (21) (35) (68) 252 376 (20) 70 (212) (111) 2 (93) 1,663
550 (23) 50 (32) 56 (83) 132 230 20 85 (105) (320) 49 (95) 1,312
(42) (278) (8) (18) 18 27 (11) (9) (321)
(32) (504) (28) (19) 55 (5) 42 (491)
(127) (1,188) (45) (128) 83 104 (4) (198) (1,503)
(179) 94 (2,021) (111) (116) 123 (20) 162 (2,068)
(932) (2) (123) (1,057) 47
(281) 500 (8) (19) (107) 85 2
(514) 1,000 (14) (19) (468) 1 (559) (573) 80
845 512 (8) (64) (430) 1 856 (35)
(238) 753 515
576 (2) 274 848
(333) 65 (18) CULTIVATING EXCELLENCE 848 801 515 848
