Performance
This section details PotashCorp’s economic impact on stakeholders. Our measures comply with standards set by the most recent (G3) Global Reporting Initiative (GRI).
Value Generated — Sales and Net Sales
In 2009, we generated the third-highest economic value as defined by GRI in our history despite a 65 percent decrease in year-over-year potash sales volumes. Dramatic reductions in tonnes of potash sold occurred in both North American (-63 percent) and offshore (-66 percent) markets. Realized prices held considerably better for potash than for phosphate (-50 percent) and nitrogen (-48 percent): Potash net sales prices were up 5 percent in North America, while offshore prices declined 18 percent.
Extreme caution due to economic conditions led customers around the world — farmers and distributors — to mine residual nutrients from the soil and deplete inventories rather than take on new potash supply.
Reduced global potash demand also impacted the offshore companies in which we have invested, which generate a significant portion of their earnings from potash sales.
Economic Value Generated
Sales by Business Segment
Net Sales by Business Segment
Markets
Offshore fertilizer markets — the majority of which are in the developing world where agronomic practices must improve to feed rising populations — continue to grow faster than mature North American markets.
Geographical Markets — % by Volume
Value Distributed
Economic value distributed has increased by 41 percent since 2005.
Economic Value Distributed — Overview
Goods, Services and Materials Purchased
Goods and Services was dominated by capital expenditures that increased by $566 million company-wide. These increases, which were primarily attributable to Canadian potash expansions, were offset by reduced spending on sulfur (-$364 million), ammonia (-$51 million) and natural gas (-$491 million). The main reason for the reduced spending was lower average prices for these raw materials.
A decrease in potash production also contributed to reduced purchases, as total shutdown weeks at our operations increased from 50 in 2008 to 153 in 2009.
Contract labor costs increased mainly due to the construction of the #7 sulfuric acid plant at Aurora NC.
Goods, Services and Materials Purchased
Full-Time Contractor Costs
Employee Wages and Benefits
Increased mine shutdowns in 2009 led to a $35 million reduction in potash labor costs. Despite the PotashCorp board allowing plant site employees to be eligible for bonuses without the company reaching its financial criterion for the short-term incentive program (see Governance for further details), incentives declined by $32 million. This reduction is due primarily to the large 2008 incentive resulting from higher company income earned in 2008.
Employee hourly wages increased 5.5 percent in potash, 4.0 percent in phosphate and 3.0 percent in nitrogen.
For more on wages and benefits, see Direct Economic Impacts section below.
Payments to Providers of Capital
Long-term debt to finance general corporate purposes such as the potash expansions increased by $1.6 billion in 2009, resulting in increased interest expense to long-term debtholders. This higher interest expense was partially offset by an increase in capitalized interest. The difference in these two figures gives a total increased interest expense to long-term debtholders of $53 million in 2009.
Dividends declared decreased by more than $4 million because of the share repurchases that took place in 2008.
Payments to Providers of Capital
Taxes and Royalties
Canada
Year-over-year potash sales volumes declined 65 percent in 2009, driving a 76 percent reduction in gross margin. This led to substantially lower tax and royalty payments.
US
Lower prices in phosphate and nitrogen — offset partially by reduced input production costs for sulfur (-79 percent), ammonia (-31 percent) and natural gas (-59 percent) — contributed to gross margin decreases of 91 percent in phosphate and 74 percent in nitrogen. The decline in gross margin in the US, together with tax incentives for 2009, resulted in a loss and negative taxes reported in 2009.
Trinidad
Lower nitrogen prices decreased gross margin (-72 percent), leading to less taxes paid in 2009.
Taxes and Royalties Incurred (Recovered)
Charitable Donations
Our community donations were $9.5 million in 2009, higher than the $6.6 million of 2008 but short of our target, which was based on record earnings over a five-year period. Given the dramatic shift in our operating environment in 2009, we balanced our commitment to philanthropy with the need for caution in all areas of corporate spending.
Donation recipients in 2009 included the PCS Model Farm and Agricultural Resource Centre in Point Lisas, Trinidad, a multi-purpose fitness facility in Sussex NB, a wellness and education center in Saskatoon SK and a youth services center near our office in Northbrook IL.
Despite the challenging economic climate, our employee participation and total matching gift donations exceeded 2008 levels by 10 percent and 25 percent respectively. In-kind donations also increased, by 129 percent over 2008 levels.
Shareholder Return and Book Value of Equity
Our total shareholder return was 48.7 percent in 2009, a significant improvement from the 49 percent loss in value incurred in 2008. The 2009 increase was due to share price appreciation following a sharp decline in 2008 as the global economic downturn took hold.
The increase in book value of shareholders’ equity was largely due to nearly $1 billion in unrealized gains from the company’s investments in Israel Chemicals Limited (now 14 percent share compared to 11 percent on December 31, 2009) and Sinofert Limited (22 percent share).
Total Shareholder Return
Book Value of Shareholders’ Equity
Value Retained
Short-term market conditions combined with increased spending on potash expansions led to more value being distributed than generated in 2009. Year-over-year value generated decreased by 59 percent, due mostly to sales decreases in all segments. Value distributed also decreased, but by a smaller magnitude, 36 percent.
While negative economic value retained is unsustainable in the long term, in the short term it reflects our commitment to our Potash First strategy (expanding our potash production capacities) and our confidence in this segment to generate significant value in the future.
Direct Economic Impacts
Wages
To attract and retain employees, PotashCorp offers fair and competitive wages. In all jurisdictions where we operate, our lowest entry-level wages are significantly higher than the local minimum wage.
In 2009, our Board of Directors agreed to an exemption under our Short-Term Incentive Plan (STIP), allowing employees at our plant sites to be eligible for bonus payments based on site-specific safety and environmental performance, even though the company did not reach the required economic targets. We permanently raised the recognition factor for individual performance for non-hourly employees to plus or minus 30 percent of the award calculation. For the 2009 award year, this was increased from plus or minus 20 percent.
Comparison of Entry Wage Levels to Local Minimum Wage
Pension Plans
PotashCorp provides retirement income and other post-retirement benefits for most employees. Retirement benefits help attract and retain a dedicated workforce and support long-term financial planning for our employees and labor stability for the company.
The investment portfolios for our defined benefit pension plans include equity and fixed income investments but do not include private equity, real estate or hedge fund holdings.
Asset Allocations of PotashCorp’s Significant Defined Benefit Pension Plans
PotashCorp’s Defined Benefit Pension Plan Assets and Obligations
Local Purchasing
PotashCorp local purchasing was 62 percent in 2009, exceeding our 60 percent target.
Local Hiring
We typically hire local residents for our positions. Most employees reside in communities near our facilities.
Financial Assistance from Governments
PotashCorp received no financial assistance from any level of government in 2009.
Market, Indirect Impacts
Through wages, hiring and local purchasing policies, PotashCorp has an economic impact on local labor markets.
Economic Impacts
According to an impact study completed by SJ Research Services in 2008, PotashCorp expansion projects at our Rocanville, Allan, Lanigan, Cory and Patience Lake potash operations are expected to:
- Create CDN $3.2 billion in economic activity in Saskatchewan during construction from 2005 through 2013;
- Add up to CDN $3.8 billion in annual GDP from ramp-up in 2014 onward;
- Create almost 15,000 direct and indirect jobs in the province from construction and operation;
- Generate taxes totaling CDN $390 million over the construction period, plus CDN $290 million per year after 2014.
Capital Structure
Capital structure includes items from the G3 framework that demonstrate how we finance activities.
Short-Term and Long-Term Debt / Total Debt to Capital
Our total debt rose by about $1 billion in 2009 as we exchanged some short-term debt for long-term debt and increased lower-cost, fixed-rate, long-term debt. Considering the $1 billion increase in unrealized gains on our investments in ICL and Sinofert, the overall ratio of debt to capital was sustained at the 2008 level.
Dividend Payout Ratio
A higher dividend payout ratio in 2009 was the result of much lower earnings in 2009, as the dividend per share rate did not change.
Consolidated Financial Position
The Consolidated Financial Position table includes items from our statements of financial position to show trends for assets, liabilities and shareholders’ equity.
Current Assets
Reduced trade receivables (consistent with lower sales) were partially offset by taxes receivable generated by an overpayment of taxes earlier in the year. Phosphate finished goods inventory values decreased due to lower inventory levels and lower-cost sulfur and ammonia being used in production. This decrease was partially offset by higher potash inventory tonnes (mine strikes limited production towards the end of 2008 and customers were on allocation for most of 2008 before the global economic downturn cut demand).
Property, Plant and Equipment
These assets increased by 33 percent primarily due to the company investing $1.3 billion in ongoing potash expansions and other potash projects.
All Other Assets
Higher unrealized gains on our available-for-sale investments led to a $1 billion increase in this category.
Current Liabilities
These liabilities decreased as we converted some debt from short-term to long-term, and our taxes payable were reduced to almost nil due to payments made during the first half of 2009 and significantly lower earnings compared to 2008.
Long-Term Debt
Increases were used to repay outstanding short-term credit facilities borrowings and for general corporate purposes such as investment in future potash capacity through expansion projects.
Contributed Surplus
The increase is primarily driven by the cost of the performance stock option plans.
Accumulated Other Comprehensive Income
The increase in this value is primarily due to the increased unrealized gains on our available-for-sale investments.
