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OCT 27 2016

Q3: PotashCorp Reports Third-Quarter Earnings of $0.10 per Share

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Oct 27 16

Forward-Looking Statements

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Key Highlights

  • Third-quarter earnings of $0.10 per share1
  • Record third-quarter potash sales volumes
  • Canpotex2 sold out for fourth-quarter 2016
  • Full-year 2016 earnings guidance range adjusted to $0.40-$0.45 per share
  • Announced agreement to combine in merger of equals with Agrium Inc. (Agrium)

CEO Commentary

“With strong engagement in nearly all key potash markets, we achieved record third-quarter sales volumes, and Canpotex is now sold out through the remainder of the year,” said PotashCorp President and Chief Executive Officer Jochen Tilk. “Supported by improved market fundamentals, spot prices have increased by approximately 15 percent from the lows experienced earlier in the year. We will continue with a disciplined approach to our operations and the markets and expect favorable consumption trends and lower inventories to lead to stronger demand in 2017.

“During the quarter we announced a merger of equals with Agrium to create a world-class integrated global supplier of crop inputs. We believe this transaction will generate significant value for our shareholders, provide multiple paths for growth and enhance our financial flexibility,” said Tilk.

“The support expressed by shareholders has been very encouraging, with early vote results overwhelmingly in favor of the merger and positive recommendations from leading independent proxy advisory firms ISS and Glass Lewis. We look forward to realizing the value that is unlocked through this transaction.”

Saskatoon, Saskatchewan – Potash Corporation of Saskatchewan Inc. (PotashCorp) reported third-quarter earnings of $0.10 per share ($81 million), including merger-related costs of $0.01 per share ($6 million), which bring our nine-month total to $0.33 per share ($277 million). Results for both periods were down from the $0.34 per share ($282 million) and $1.28 per share ($1.1 billion) earned in 2015’s respective periods.

Gross margin for the quarter was $190 million and $667 million for the first nine months, below 2015 levels of $505 million and $1.9 billion, respectively, primarily due to weaker prices for all three nutrients. Cash from operating activities was $295 million in the third quarter and $907 million for the first nine months of 2016, below last year’s comparable totals of $358 million and $1.7 billion, respectively.

Investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Sinofert Holdings Limited (Sinofert) in China contributed $32 million to our quarterly earnings, trailing the $37 million from the prior-year quarter. Contributions for the first nine months of $97 million – partially offset by a non-cash impairment charge of $10 million related to our investment in Sinofert – were below the $134 million realized in the same period in 2015. The market value of our investments in these four publicly traded companies was approximately $4.0 billion, or $5 per PotashCorp share, at market close on October 26, 2016.

Market Conditions

Global potash demand strengthened in the third quarter. Shipments to Latin America accelerated ahead of Brazil’s key planting season, and the settlement of contracts with customers in China and India led to the re-emergence of deliveries to these markets late in the quarter. Low dealer inventories and anticipation of a strong fall application season supported robust demand in North America. In this environment, global spot prices increased from last quarter’s lows.

Nitrogen markets remained at multi-year lows through the quarter. Benchmark prices were pressured by lower global energy costs and increased supply – including in North America where a number of new projects began ramping up. This impact was most evident in ammonia, while urea prices were more resilient due to relatively strong global demand and reduced exports from China.

Global phosphate markets were subdued during the third quarter as reduced Chinese exports were largely offset by increased production in other key producing regions. Liquid fertilizer prices declined more significantly as markets adjusted to the deterioration in prices of solid phosphate fertilizer products earlier in the year.

Potash

A weaker pricing environment relative to the same periods last year was the primary reason that potash gross margin of $106 million for the quarter and $317 million for the first nine months trailed the 2015 results of $294 million and $1.1 billion, respectively.

Record sales volumes of 2.5 million tonnes for the third quarter were 16 percent higher than in the same period last year. Nonetheless, volumes of 6.4 million tonnes for the first nine months were 9 percent below the comparable period in 2015 as lack of engagement in key contract markets limited offshore deliveries earlier in the year. Canpotex achieved record third-quarter shipments, with the majority of sales volumes to Latin America (35 percent) and Other Asian markets outside of China and India (32 percent), while India and China accounted for 19 percent and 11 percent, respectively. North American volumes reached a new third-quarter record, up 49 percent from the previous year, while domestic shipments for the first nine months were up 24 percent compared to 2015.

Our average realized potash price of $150 per tonne for the third quarter was down from $250 per tonne in the same period last year, reflecting the significant price decline experienced in the first half of 2016.

Per-tonne manufactured cost of goods sold for the quarter averaged $106, down from $113 per tonne in the same period last year. Optimization of production to our lower-cost mines as well as lower royalties more than offset the benefit realized in the comparable period of 2015 when maintenance costs were deferred from the third quarter to the fourth quarter.

Nitrogen

Weaker prices for all nitrogen product categories resulted in gross margin of $69 million for the quarter and $306 million for the first nine months, trailing last year’s comparable periods by 57 percent and 46 percent, respectively. Our US operations accounted for 65 percent of our nitrogen gross margin for the quarter, with our Trinidad operations providing the remainder.

Total sales volumes for both the quarter (1.6 million tonnes) and first nine months (4.7 million tonnes) were up from the same periods in 2015 (1.4 million tonnes and 4.4 million tonnes, respectively), reflecting increased production at our expanded Lima facility. Weaker benchmark pricing lowered our average realized price to $244 per tonne during the quarter, compared to $334 per tonne in the same period last year.

Our average realized price of $200 per tonne during the quarter declined from $319 per tonne in the same period last year as weaker benchmark pricing pulled down realizations for all our products.

Cost of goods sold for the quarter averaged $158 per tonne, down from $210 per tonne in 2015’s third quarter, driven primarily by lower natural gas costs in Trinidad.

Phosphate

In phosphate, weaker prices resulted in gross margin of $15 million for the third quarter and $44 million for the first nine months of 2016, down from $50 million and $180 million, respectively, in the previous year’s comparable periods.  Sales volumes of 0.5 million tonnes for the quarter and 1.2 million tonnes for the first six months were down 25 percent and 8 percent from 2015’s respective periods due primarily to weaker North American demand.

Sales volumes of 0.8 million tonnes for the quarter and 2.0 million tonnes for the first nine months were both relatively flat with the same periods in 2015.

Our average realized phosphate price for the quarter was $385 per tonne, down from $538 per tonne in the same period last year as prices for all products decreased – most notably liquid fertilizers.

Cost of goods sold of $366 per tonne for the third quarter was lower than the $475 per tonne in the same period in 2015, primarily due to lower input costs and notable charges taken in the third quarter of last year.

Financial

The third-quarter total for provincial mining and other taxes was down 61 percent to $31 million compared to 2015, largely as a result of lower potash prices.

Lower total earnings resulted in income tax expense declining to $2 million in the third quarter from $90 million during the same period in 2015.

Potash Market Outlook

We expect strong customer engagement will continue in the fourth quarter, with a healthy order book in place for fall application in the domestic market and Canpotex fully committed through the remainder of the year. We maintain our 2016 global shipment estimate of 58-61 million tonnes and anticipate fundamentals to remain supportive as we enter 2017.

In North America, all signs point to another record harvest. Strong affordability and significant nutrient removal are expected to support demand through the final months of 2016. For the full year, we expect shipments in the range of 9.2-9.7 million tonnes, consistent with our previous estimate and above 2015 levels.

With its substantial agronomic need and favorable crop economics, we expect shipments to Latin America will remain robust for the rest of the year and we have increased our full-year shipment range to 11.0-11.5 million tonnes, slightly above the previous year.

In China, deliveries under 2016 contracts are expected to support shipments for the balance of the year. We estimate annual shipments in the range of 13.5-14.5 million tonnes, consistent with our previous estimate but below last year’s record level. Even with healthy second-half deliveries, we expect strong underlying consumption will keep inventories well below those seen at the beginning of 2016.

In India, lower farm retail prices are expected to support increased consumption for the remainder of 2016. However, given the slow pace of shipments due to contract delays earlier in the year, we have lowered our range to 3.5-4.0 million tonnes, below 2015 levels. Canpotex has commitments to ship to its customers in this market for the rest of 2016.

In Other Asian markets, we expect good buyer engagement for the rest of 2016, supported by lower inventories, strong palm oil prices and improved moisture conditions. We have maintained our estimated shipment range of 8.3-8.7 million tonnes, slightly below 2015’s total.

Financial Outlook

Taking the above market factors into consideration, we have narrowed the guidance range for our potash sales volumes to 8.5-8.7 million tonnes and refined gross margin expectations to $400-$500 million. While signs of a recovery in potash are increasingly visible, most of the benefits from recent improvements are expected to be realized late this year and in 2017.

In nitrogen and phosphate, weaker prices are expected to affect our results for the rest of 2016. Accordingly, we have tightened our gross margin guidance range to $400-$450 million.

With greater clarity on the remaining months of 2016, we have refined our estimates for provincial mining and other taxes to a range of 23-25 percent of potash gross margin (excluding $32 million of New Brunswick severance costs) and our range for income from offshore equity investments to $125-$135 million.

We have lowered our estimate for our effective income tax rate to a range of 14-16 percent, given reduced earnings and a greater proportion of income from lower-tax jurisdictions. Additionally, we have brought down our range for selling and administrative expenses to $215-$225 million due to lower expected corporate expenses related to reduced earnings.

As a result of these changes, we have narrowed our full-year 2016 earnings guidance range to $0.40-$0.45 per share, which includes first-half notable charges of $0.11 per share primarily related to the suspension of our Picadilly mine in New Brunswick and our share of Canpotex’s Prince Rupert project exit costs.

All annual guidance numbers – including those noted above – are outlined in the table below.

2016 Guidance
Earnings per share Annual: $0.40-$0.45
Potash sales volumes 8.5-8.7 million tonnes
Potash gross margin $400-$500 million
Nitrogen and phosphate gross margin $400-$450 million
Capital expenditures* ~$800 million
Effective tax rate 14-16 percent
Provincial mining and other taxes** 23-25 percent
Selling and administrative expenses $215-$225 million
Finance costs $210-$220 million
Income from offshore equity investments*** $125-$135 million
Annual foreign exchange rate assumption CDN$1.32 per US$
Annual EPS sensitivity to foreign exchange US$ strengthens vs. CDN$ by $0.02 = +$0.01 EPS
* Does not include capitalized interest
** As a percentage of potash gross margin, excluding New Brunswick severance costs
*** Includes income from dividends and share of equity earnings

Following a review of best practices in the provision of guidance, in 2017 we will continue to provide annual guidance, including specific elements consistent with past practice, but we will discontinue quarterly earnings per share guidance.

Notes

1. All references to per-share amounts pertain to diluted net income per share.
2. Canpotex Limited (Canpotex), the offshore marketing company for PotashCorp and two other Saskatchewan potash producers.
3. See reconciliation and description of non-IFRS measures in the attached section titled "Selected Non-IFRS Financial Measures and Reconciliations and Supplemental Information."

PotashCorp is the world’s largest crop nutrient company and plays an integral role in global food production. The company produces the three essential nutrients required to help farmers grow healthier, more abundant crops. With global population rising and diets improving in developing countries, these nutrients offer a responsible and practical solution to meeting the long-term demand for food. PotashCorp is the largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate. While agriculture is its primary market, the company also produces products for animal nutrition and industrial uses. Common shares of Potash Corporation of Saskatchewan Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange.

For further information please contact:

Investors Media
Denita Stann
Senior Vice President, Investor and Public Relations
Phone: (306) 933-8521
Fax: (306) 933-8844
E-mail Denita
Randy Burton
Director, Public Relations and Communications
Phone: (306) 933-8849
Fax: (306) 933-8844
E-mail Randy

This release contains “forward-looking statements" (within the meaning of the US Private Securities Litigation Reform Act of 1995) or “forward-looking information”(within the meaning of applicable Canadian securities legislation) that relate to future events or our future performance. 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,” “forecast,” “may,”“anticipate,” “believe,” “intend,” “estimates,” “plans” and similar expressions. These statements are based on certain factors and assumptions as set forth in this document, including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, including the proposed merger of equals with Agrium, and effective tax rates. While we consider 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 forward-looking statements including, but not limited to, the following: our proposed merger of equals transaction with Agrium, including the failure to satisfy all required conditions, including required regulatory, Canadian court and securityholder approvals, or to satisfy or obtain waivers with respect to all other closing conditions in a timely manner and on favorable terms or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the arrangement agreement; certain costs that we may incur in connection with the proposed merger of equals; certain restrictions in the arrangement agreement on our ability to take action outside the ordinary course of business without the consent of Agrium; the effect of the announcement of the proposed merger of equals on our ability to retain customers, suppliers and personnel and on our operating future business and operations generally; risks related to diversion of management time from ongoing business operations due to the proposed merger of equals; failure to realize the anticipated benefits of the proposed merger of equals and to successfully integrate Agrium and PotashCorp; the risk that our credit ratings may be downgraded or there may be adverse conditions in the credit markets; variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur and petrochemical markets; changes in competitive pressures, including pricing pressures; risks and uncertainties related to any operating and workforce changes made in response to our industry and the markets we serve, including mine and inventory shutdowns; adverse or uncertain economic conditions and changes in credit and financial markets; economic and political uncertainty around the world; changes in capital markets; the results of sales contract negotiations; unexpected or adverse weather conditions; changes in currency and exchange rates; risks related to reputational loss; the occurrence of a major safety incident; inadequate insurance coverage for a significant liability; inability to obtain relevant permits for our operations; catastrophic events or malicious acts, including terrorism; certain complications that may arise in our mining process, including water inflows; risks and uncertainties related to our international operations and assets; our ownership of non-controlling equity interests in other companies; our prospects to reinvest capital in strategic opportunities and acquisitions; risks associated with natural gas and other hedging activities; security risks related to our information technology systems; imprecision in reserve estimates; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in, and the effects of, government policies and regulations; earnings and the decisions of taxing authorities which could affect our effective tax rates; increases in the price or reduced availability of the raw materials that we use; our ability to attract, develop, engage and retain skilled employees; strikes or other forms of work stoppage or slowdowns; rates of return on, and the risks associated with, our investments and capital expenditures; timing and impact of capital expenditures; the impact of further innovation; adverse developments in new and pending legal proceedings or government investigations; and violations of our governance and compliance policies. These risks and uncertainties are discussed in more detail under the headings “Risk Factors” and “Management’s Discussion and Analysis of Results and Operations and Financial Condition” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, the joint information circular of the company and Agrium, filed as Exhibit 99.1 to the company’s Current Report on Form 8-K dated October 6, 2016 and with Canadian provincial securities commissions, in connection with the proposed merger of equals with Agrium and in other documents and reports subsequently filed by us with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as of the date hereof and we disclaim any obligation to update or revise any forward-looking statements in this release, whether as a result of new information, future events or otherwise, except as required by law.

Webcast Details

Oct 27 16

Forward-Looking Statements

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