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JAN 29 2015

Q4 & Year-End: PotashCorp Reports Full-Year 2014 Earnings of $1.82 per Share

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Jan 29 15

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Key Highlights

  • Fourth-quarter earnings of $0.49 per share1 full-year total of $1.82 per share
  • Annual cash flow prior to working capital changes2 of $2.7 billion
  • Record fourth-quarter potash sales volumes of 2.5 million tonnes
  • Full-year 2015 guidance of $1.90-$2.20 per share; $0.45-$0.55 for the first quarter

CEO Commentary

“Record potash sales volumes, combined with higher realizations across all three nutrients, raised our quarterly earnings near the upper end of our guidance range,” said PotashCorp President and Chief Executive Officer Jochen Tilk. “As we look ahead, we see a supportive market environment – most notably in potash. We are ready to respond should demand for this nutrient prove stronger than expected and, as we balance operational flexibility with efficiencies, we believe PotashCorp is well positioned should conditions be more challenging.”

Saskatoon, Saskatchewan – Potash Corporation of Saskatchewan Inc. (PotashCorp) reported fourth-quarter earnings of $0.49 per share ($407 million), well ahead of the $0.26 per share ($230 million) generated in 2013’s fourth quarter, a total that included $60 million in severance-related charges. Although the most recent quarter marked the continuation of a robust potash environment following a sharp reset of prices in late 2013, the $1.82 per share ($1.5 billion) earned during 2014 trailed the $2.04 per share ($1.8 billion) earned in the previous full year.

With improved contributions from all three nutrient segments, fourth-quarter gross margin of $746 million surpassed the $460 million generated during the same period in 2013. For the full year, totals reached $2.6 billion, slightly below the $2.8 billion earned in 2013.

Cash flow prior to working capital changes of $754 million during the quarter exceeded the prior year result (up 33 percent), but lower earnings through the first nine months caused our annual total of $2.7 billion to trail 2013’s comparative period (down 8 percent). Free cash flow2 for both the fourth quarter and full year surpassed the respective totals in 2013.

Our investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed $31 million to our quarterly earnings, exceeding the $25 million in fourth-quarter 2013. A weaker earnings environment caused annual contributions of $210 million from these investments to trail the $276 million earned in 2013, which included a dividend from Sinofert Holdings Limited in China (Sinofert). The market value of our holdings in these publicly traded companies equated to approximately $4 billion, or $5 per PotashCorp share, at market close on January 28, 2015.

Market Conditions

In contrast to an especially weak demand environment during the second half of 2013, the record pace of global potash shipments evident through the first nine months of 2014 continued in the fourth quarter. Demand was strong in all key markets, especially offshore, where exports from North American producers increased significantly. In North America, domestic shipments remained high as dealers worked to position product to meet fall fertilizer demand and prepare for the spring season. After increasing through most of the year, spot prices in many markets moderated slightly during the quarter, although remaining above those in the same period of 2013.

In nitrogen, supply challenges in key exporting countries supported favorable market fundamentals. These conditions helped sustain ammonia benchmark prices at higher levels than in 2013’s similar period, although seasonal demand weakness and improving supply availability caused them to trend lower late in the quarter. Markets for urea and other nitrogen products were relatively flat with fourth-quarter 2013, but increased on improved demand as the year came to a close.

In phosphate, improved market fundamentals – buoyed by record annual shipments to Latin America and periodic supply outages – caused prices in the fourth quarter to surpass those of the same period in 2013. Despite subdued Indian demand for most phosphate products in 2014, imports and prices for phosphoric acid remained relatively strong given rising consumption of NPK fertilizers.

Potash

The combination of increased sales volumes, lower costs and slightly higher realized prices raised our fourth-quarter potash gross margin to $445 million, surpassing the $228 million generated during the same period in 2013. This strength raised full-year gross margin to $1.4 billion, although moderated pricing levels as the year began caused it to trail the $1.6 billion earned in 2013.

Sales volumes reached a fourth-quarter record of 2.5 million tonnes, raising our 2014 total to 9.3 million tonnes – the second highest in PotashCorp’s history. For the quarter, offshore sales volumes represented the largest increase, up 80 percent relative to the same period in 2013 on improved demand across all key markets. The majority of Canpotex3 shipments during the quarter were to Other Asian countries (38 percent) and China (24 percent), while Latin America and India accounted for 19 percent and 12 percent, respectively. In North America, the need to secure product to meet healthy fall demand resulted in historically strong fourth-quarter sales volumes, consistent with levels in 2013 when a similar dynamic took hold.

North American and offshore price improvements realized during the quarter were largely offset by a greater proportion of sales to lower-priced markets resulting in our fourth-quarter average realized price of $284 per tonne staying relatively flat with 2013’s comparative period.

Efficiencies from our operational and workforce realignment and increased production contributed to significantly lower cost of goods sold in 2014 – allowing us to achieve our cost reduction target. Compared to 2013, these factors, along with a weaker Canadian dollar, translated into improvements for both the quarter (down $45 per tonne) and full year (down $23 per tonne). Totals for 2013 included approximately $32 million in charges for severance-related costs.

Nitrogen

In nitrogen, higher prices helped raise gross margin for the quarter to $234 million, well above the $188 million earned during the same period in 2013. Our US operations generated $118 million of our quarterly result, and Trinidad accounted for the remainder. For the full year, a robust pricing environment and higher sales volumes brought our gross margin in this nutrient to a record $1.0 billion.

Sales volumes for the quarter of 1.5 million tonnes were relatively flat with 2013’s comparative period as an extended maintenance turnaround at our Lima facility and greater natural gas-related curtailments in Trinidad limited our ability to sell more tonnes. For full-year 2014, improved production across most of our operations helped raise annual sales volumes to 6.4 million tonnes – the highest in our history.

With strong market fundamentals supporting key benchmark prices at higher levels, our average realized price for the fourth quarter of $405 per tonne was up 24 percent relative to the same period in 2013. The most significant contributor was the price of ammonia, which rose by 31 percent.

Downtime at Lima and higher natural gas costs were the main drivers of higher per-tonne cost of goods sold for the fourth quarter, up 24 percent from 2013’s comparable period.

Phosphate

In phosphate, fourth-quarter gross margin totaled $67 million, surpassing the $44 million earned during the same period in 2013. Despite an improving gross margin trend throughout 2014, the closure of our Suwannee River chemical plant in July and production challenges at our operations negatively impacted our results. For the full-year, gross margin of $202 million – which includes approximately $48 million in accelerated depreciation charges and $34 million related to adjustments to asset retirement obligations and water treatment costs – fell well short of the $304 million earned in 2013.

With fewer tonnes of production available, our sales volumes for both the fourth quarter (0.8 million tonnes) and full year (3.1 million tonnes) trailed the respective periods of 2013.

Our fourth-quarter average realized phosphate price was $528 per tonne, well above the $455 per tonne in the same period of 2013. The primary drivers were improved pricing for liquid fertilizers and the allocation of a greater proportion of our production to higher-netback products.

Cost of goods sold of $446 per tonne for the quarter exceeded the $401 per tonne in 2013’s similar period, largely due to reduced production and increased input costs for ammonia and sulfur. Totals in 2013 included approximately $17 million in severance-related costs.

Financial

The timing of annual potash production tax accruals combined with reduced capital spending in Saskatchewan and stronger potash earnings raised provincial mining and other taxes for the fourth quarter to $82 million, compared to the $40 million recorded in 2013’s comparative period.

Income tax expense of $162 million for the quarter exceeded the $100 million recognized in fourth-quarter 2013 due to improved earnings.

Capital-related cash expenditures totaled $412 million during the quarter, relatively flat compared to the same period in 2013. Capital expenditures in 2014 of $1.1 billion declined significantly from the $1.6 billion spent in 2013 as our multi-year potash expansion program nears completion.

Market Outlook

Despite a strong US recovery, weakening economic growth in other regions of the world continues to temper the global outlook. In this environment, currencies have generally weakened relative to the US dollar and commodity prices remain subdued. While we closely monitor these factors, we enter 2015 with a positive – albeit moderated – view for our business.

The agricultural outlook remains supportive. Even as prices for many crops settled at lower levels in 2014, we believe they continue to provide economic incentives for farmers to improve yields, encouraging growth in demand for our products.

In potash, global shipments are expected to slow from 2014’s record level of more than 61 million tonnes. We believe the conditions that emerged in 2014, including encouraging consumption trends, a drawdown of producer inventories and potential production constraints among certain competitors, will help offset the expected reduction in shipments. In this environment, we see opportunity for suppliers with the ability to quickly respond to customers’ needs. For 2015, we estimate global shipments will range between 58 million and 60 million tonnes with strong consumption underpinning demand.

In North America, we expect the necessity of replenishing nutrients at the farm level after a record crop in 2014 will support healthy demand as we approach the spring season. Customers are now working to position product and PotashCorp is shipping tonnage against significant winter-fill commitments. The anticipated reduction in planted acres and improved distributor inventories are likely to result in a modest decline in annual shipments compared to 2014, with 2015 totals anticipated at 9.5-10 million tonnes.

Potash shipments to Latin America are expected to remain strong. After a subdued start to the year, customers in this region are now engaging and procuring new tonnage. We anticipate that weaker crop economics will result in some moderation of growth in this market and forecast total shipments of 10.8-11.3 million tonnes in 2015.

In China, with the completion of potash deliveries against previous contracts, negotiations continue on new first-half supply agreements. We see the encouraging Chinese consumption trends that emerged in 2014 continuing, especially for compound fertilizers with higher potassium content. We forecast Chinese demand at 12.5-13.0 million tonnes in 2015, including import expectations of 6.5-7 million tonnes.

In India, we also saw positive consumption trends for both direct application and compound fertilizers, and these will help drive continuing demand growth. Canpotex has completed shipments against previous contracts and is beginning to negotiate new supply agreements to meet Indian customers’ needs. For 2015, we forecast potash shipments of 4.5-4.8 million tonnes.

Potash demand in Other Asian countries (outside of China and India) has been slow to gain momentum this year due to higher distributor inventories. We see this situation improving as agronomic need and supportive crop economics – especially for oil palm – are expected to foster greater import needs as the year progresses. We forecast shipments to these countries for 2015 to be in the range of 8.3-8.7 million tonnes.

Financial Outlook

Based on our capability and outlook for 2015, we estimate annual potash sales volumes of 9.2-9.7 million tonnes. We believe increased operational capability at New Brunswick and our Saskatchewan facilities – estimated at 10.9 million tonnes – will provide us with the flexibility to respond as market opportunities emerge. Given higher prices in most potash markets at the beginning of 2015, and our expectation of slightly lower per-tonne costs, we forecast full-year potash gross margin will reach $1.5-$1.8 billion.

In nitrogen, the potential for fewer supply-related disruptions, lower global energy prices and slightly weaker agricultural fundamentals could result in a more tempered pricing environment in 2015. With gas supply restrictions at our Trinidad facility predicted to continue, our annual sales volumes are estimated to be relatively consistent with 2014. We believe lower natural gas costs will contribute to improved per-tonne operating costs, but given our expectation of a slightly weaker pricing environment, we anticipate that gross margin in nitrogen will trail the record level achieved in 2014.

Improving phosphate market conditions are expected to support better results in 2015. Although we will be affected by lower production capability (due to the closure of Suwannee River), the absence of closure-related costs, a relative shift to higher-margin products and the anticipation of better pricing are expected to enhance gross margin.

Given these considerations, we forecast our combined nitrogen and phosphate gross margin will be in the range of $1.1-$1.3 billion in 2015, relatively flat with 2014.

Capital expenditures are anticipated to be approximately $1.2 billion in 2015. This amount is expected to be slightly above the previous year given higher sustaining spending for our phosphate division to adhere to a recent EPA ruling along with a carryover of certain amounts of capital from 2014.

Based on these factors, we forecast full-year 2015 earnings of $1.90-$2.20 per share, including first-quarter earnings of $0.45-$0.55 per share. Along with those noted above, other annual guidance numbers are outlined in the table below.

2015 Guidance

Earnings per share

Annual: $1.90-$2.20

Q1: $0.45-$0.55 

Potash sales volumes

9.2-9.7 million tonnes

Potash gross margin

$1.5-$1.8 billion

Nitrogen and phosphate gross margin

$1.1-$1.3 billion

Capital expenditures

~$1.2 billion

Effective tax rate

26-28 percent

Provincial mining and other taxes*

15-17 percent

Selling and administrative expenses

$235-$245 million

Finance costs

$200-$210 million

Income from offshore investments**

$195-$205 million

Foreign Exchange Rate

CDN$1.24 per US$

EPS sensitivity to Foreign Exchange

 

US$ strengthens vs. CDN$ by $0.02 = +$0.01 EPS 

* As a percentage of potash gross margin
** Includes income from dividends and share of equity earnings

Notes

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

PotashCorp is the world’s largest integrated fertilizer and related industrial and feed products company by capacity and plays an integral role in global food production. PotashCorp is the world’s largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate. These three essential nutrients are required to help farmers grow healthier, more abundant crops. With the 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. While agriculture is its primary market, the company also produces products for animal feed 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
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) 933-8849
E-mail Randy

This release 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 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; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; costs and availability of transportation and distribution of our raw materials and products, including railcars and ocean freight; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; risks and uncertainties related to our international operations and assets; failure to prevent or respond to a major safety incident; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; 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; catastrophic events or malicious acts, including terrorism; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; our prospects to reinvest capital in strategic opportunities and acquisitions; our ownership of non-controlling equity investments in other companies; the impact of further technological innovation; increases in the price or reduced availability of the raw materials that we use; security risks related to our information technology systems; certain complications that may arise in our mining process, including water inflows; our ability to attract, retain, develop and engage skilled employees; 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; 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.

Webcast Details

Jan 29 15

Forward-Looking Statements

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