Stifel 2018 Cross Sector Insight Conference. June 12, 2018

Transcription

1 N Stifel 2018 Cross Sector Insight Conference June 12, 2018

2 Forward-Looking Statements Certain statements in this presentation, including without limitation statements about the company; market growth and fundamentals; global trends; its strategy, including its ability to grow and maximize assets; upside potential; cost savings and initiatives; Goderich strike impact; its ability to lead the plant nutrition category, maximize synergies, execute collaborations, evolve capabilities, drive growth, leverage R&D, improve operational leverage, deliver shareholder value, engage in valuecreating opportunities, including investing in business, acquisitions and returns to shareholders, sustain assets, maintain dividend and strong balance sheet and increase sales, operating margin, presence, cash generation, cash flow and earnings; future cash flows and leverage ratio; paying down debt; and its outlook for the second quarter of 2018 and full-year 2018, including earnings per share ( EPS ), corporate and other expense, interest expense, depreciation, depletion and amortization, capital expenditures, tax rates, sales volumes, revenues and operating margins, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. We use words such as may, would, could, should, will, likely, expect, anticipate, believe, intend, plan, forecast, outlook, project, estimate and similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking information. These statements are based on the company's current expectations and involve risks and uncertainties that could cause the company's actual results to differ materially. The differences could be caused by a number of factors, including without limitation (i) weather conditions, (ii) pressure on prices and impact from competitive products, (iii) any inability by the company to fund necessary capital expenditures or successfully implement any capital projects, (iv) strikes, other forms of work stoppage or slowdown or other union activities, including the Goderich mine strike, the length of the Goderich mine strike, any inability to successfully implement the company's contingency plans and any costs associated with ongoing negotiations or any final agreement with the union, (v) foreign exchange rates and the cost and availability of transportation for the distribution of the company s products, and (vi) any inability by the company to successfully implement its cost savings initiatives. For further information on these and other risks and uncertainties that may affect the company s business, see the Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations sections of the company s Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed with the SEC. The company undertakes no obligation to update any forward-looking statements made in this presentation to reflect future events or developments. Because it is not possible to predict or identify all such factors, this list cannot be considered a complete set of all potential risks or uncertainties. 2

3 Compass Minerals: A Diversified Global Minerals Company CORE PRODUCTS Salt Plant Nutrients Magnesium Chloride Chemical Solutions KEY MARKETS Highway deicing in North America and the U.K. Specialty and commodity agriculture in North and South America Consumer and industrial salt end-uses in North America Water treatment and industrial uses in Brazil FINANCIAL HIGHLIGHTS 2017 SALES = $1.4 BILLION Salt Plant Nutrition 2017 adjusted EBITDA* of $287 million Generating an EBITDA* Margin of 21% * Non-GAAP measure. See appendix for reconciliation. 3

4 Our Markets: Focused on Essential and Growing Needs Highway and residential deicing Water treatment for clean water De-dusting and road stabilization Life Expectancy Global Trends Population KEEPING PEOPLE SAFE FEEDING THE WORLD ENRICHING LIVES % GLOBAL LIFE EXPENTANCY 8B 6B Specialty crops like fruits, vegetables tree nuts Growing portfolio of micronutrients for cereal crops Additional innovative nutrient solutions for all crops Culinary/commercial food salt Residential and commercial water care Other miscellaneous uses % GLOBAL POPULATION B 2B Source: World Bank 4

5 Our Strategy: Maximizing Our Asset Base to Drive Growth Building commercial excellence Improving production Innovating to meet customer needs Investments in place at key assets - Goderich Mine: shaft relining and new mining technology - Ogden: expanded production capability Focus on commercial improvements - Salt business: incremental geographic expansion for key products - Plant Nutrition: go-to-market approaches in North and South America Innovating throughout the business - Expanded research and development center in Kansas serving Plant Nutrition and Salt businesses - New Plant Nutrition products introduced in Brazil and the U.S. 5

6 Our Salt Business is Well-Positioned in Unique Commodity Industry Salt is a commodity with unique attributes - Recession-resistant and non-cyclical - Relatively low cost to end-users - Largely regional markets with natural barriers to entry Compass Minerals is well-positioned in North American and U.K. markets 2017 Salt Sales $769M Deicing Consumer non-deicing Industrial Chemical Salt Segment 2017 Snapshot (in millions) Sales $769 Adjusted EBITDA* $195 Adjusted EBITDA* margin 25% Salt Production Locations Underground salt mining Mechanical evaporation Solar evaporation Packaging plant Primary highway deicing markets Adjacent market growth potential * Non-GAAP measure. See appendix for reconciliation. 6 6

7 Our Salt Business Has Strong Fundamental Attributes Superior Assets Scale of rock salt mines enables production efficiencies High-quality, low-cost salt and magnesium chloride assets Logistical Advantages Convenient access to water transportation Deep-water port at Goderich Extensive depot network Insulated Markets Transportation costs limit imports Significant barriers to entry Strong Deicing Portfolio Vertically integrated raw materials for specialty products Low-cost rock salt advantage in packaged deicing products 7

8 Our Salt Business Has a Resilient History Salt Segment Sales Reflect Snow Activity (tons, in thousands) , , , , ,000 4,000 2,000 Salt Segment Operating Earnings: Significant Upside Potential $140.0 $130.4 (in millions) $218.9 Sales Volume Estimated Snow Days** Steady Price Improvement Despite Winter Variability $80 $60 $40 $20 $0 $42 $72 CAGR = 3.6% 2017 Trough* Peak* *Peak and trough adjusted operating earnings represent the averages of the three years with highest and the lowest Salt segment adjusted operating earnings from 2005 through Non-GAAP measure. See appendix for data and reconciliation. **The sum of days with one or more inches (~2.5 cm) of snow in 11 selected U.S. and Canadian cities in Compass Minerals service area, as reported by the NOAA National Weather Service, Environment Canada.. Average Sales Price (Dollars per ton) 8

9 Salt Strategy Focused on Asset Maximization and Efficiency Approximately $40 million in ongoing salt business cost savings actioned - Upgrades and efficiency programs at Goderich Mine Continuous mining and continuous haulage equipment installed in 4Q17; ramp-up continues Relining two of three shafts; spending expected to be complete in Other cost-saving initiatives underway across salt business - Achieved ~$15 million in annualized salt business savings as of end of 1Q18 Commercial excellence driven by optimizing North American highway deicing bidding and improving product mix in consumer and industrial business Leverage low-cost salt advantages from key assets 9

10 Well-Positioned for Growth and Margin Expansion from Current Levels Key considerations for growth: Salt Segment Operating Margin Outlook A return to average winter weather Driving incremental volume growth across all salt businesses Benefit of ~$40 million in annualized savings from salt business cost saving initiatives Current developments: Highway deicing market fundamentals improving after a more typical North American winter Goderich strike on-going; contingency plans fully implemented - Currently expect limited earnings impact 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% E 10

11 Our Specialty Plant Nutrition Business: Providing Efficient Solutions for Sustainable Agriculture To meet the global need for sustainably produced food Specialty plant nutrient inputs help farmers maximize the genetic potential of their crops 2017 Plant Nutrition Sales $585M Compass Minerals is delivering the leading specialty plant nutrition portfolio and capability in the Western Hemisphere Plant Nutrition North America Plant Nutrition South America Agriculture AMERICAS FOCUSED #1 producer and marketer of sulfate of potash (SOP) Leading micronutrients platform Focused innovation and product development capabilities Plant Nutrition South America Chemical Solutions 11

12 Our Plant Nutrition Business Has Strong Foothold in Key Agriculture Areas Locations advantaged to serve key agriculture markets in Western Hemisphere SOP production well-positioned to serve specialty crops Compass Minerals North American Crop Mix 30% 25% Tree nuts Vegetables Access to key agricultural markets in Brazil Brazil sites accessible to ports Locations serve market-leading producers of corn, soybeans, coffee, tree nuts, oranges, sugarcane and other specialty crops R&D facilities in North and South America Plant Nutrition Production Locations 41% Agriculture production facility Water Treatment & Chemicals production facility Research & development facility Toll Manufacturing Providers Compass Minerals South American Crop Mix 20% 9% 9% 3% 18% Soybeans Cereals and other Row Crops Corn Sugarcane Specialty Fruits, Nuts and Vegetables 10% 20% 15% Fruits Other, including Turf and Horticulture Corn, Soybean and other Row Crops Coffee and Cocoa Sources: FAO, USDA, Compass Minerals estimates. 12

13 Well-Positioned to Lead Specialty Plant Nutrition Category COMMODITY FERTILIZER N P K Nutrien Mosaic SPECIALTY K SOP, SOPM& KTS Haifa Chemical SQM Coated Fertilizer Slow Release - NPK Blends Yara Nutrien SPECIALTY PLANT NUTRITION Seed Solubles Foliars Adjuvants Biologicals Treatment COMPASS MINERALS Koch ICL Koch Stoller High Volume / Low Margin Moderate Margin Low Volume / High Margin OUR VISION To provide category-leading specialty plant nutrition solutions that are effective, efficient and sustainable 13

14 Robust Specialty Plant Nutrition Market Growth Expected in the World s Key Ag Markets ESTIMATED MARKET SIZE IN NORTH AMERICA ESTIMATED MARKET SIZE IN BRAZIL Specialty K Micronutrients Micronutrients & Solubles ESTIMATED MARKET GROWTH 3%-5% ESTIMATED MARKET GROWTH 7%-10% Expect 20-25M new hectares coming into production by 2025 ESTIMATED MARKET GROWTH 7%-10% 1M+ tons $1.4B+ $1.5B+ SOP Sources: Markets and Markets, CRU, Compass Minerals estimates. Sources: Markets and Markets, Abisolo, Compass Minerals estimates. 14

15 Keys to Driving Plant Nutrition Growth and Earnings Ramp up SOP sales from recently commissioned assets at Ogden, Utah, facility Increase presence throughout North American agriculture retail and distribution networks Leverage R&D in North and South America to drive new products to meet our customers needs Expect to increase sales volumes across all product lines and improve operational leverage 20.0% 15.0% 10.0% 5.0% Operating Margin* Outlook 0.0% E * Adjusted operating earnings of Plant Nutrition North America and Plant Nutrition South America combined. Non-GAAP measure. See appendix for reconciliation. 15

16 2017 Successes Set Stage for Anticipated Growth 2017 key achievements Opened innovation center in Stilwell, Kansas, and Iracemopolis, Sao Paulo, Brazil Launched ProAcqua TM products in the U.S. Launched five new products in Brazil Grew direct-to-grower sales in Brazil by 16% vs results 2018 focus Continue to maximize portfolio synergies in the Americas Advance key projects in innovation pipeline Identify and execute strategic collaborations Qualitative evolution of our commercial capabilities in the Americas 16

17 Free Cash Flow and Leverage Ratio Improvements Expected Most major capex projects complete capex declined 46% from 2015 peak spending of $218M - Expect to manage capex to near maintenance level for next several years Improved market fundamentals expected to drive earnings recovery in both businesses 2018 estimated cash flow depressed by $70 million resulted from U.S.- Canadian tax settlement 2019 estimated cash flow inflated by $50 million refund related to U.S.-Canadian tax settlement and ~$35 million related to NOL carryback benefits from 2017 U.S. tax reform $250 $200 $150 $100 $50 $0 -$50 -$100 Free Cash Flow* and Leverage Ratio Expected to Improve (in millions) E 2019E 2020E 2.3x 3.9x 4.3x ~4.0x ~3.2x Leverage ratio ~2.5x Cash flow from operations - capex Forecasted range * Non-GAAP measure. See appendix for reconciliation. 17

18 Compass Minerals Poised to Deliver Greater Shareholder Value Balance between salt and plant nutrition businesses increasing - Diversifies earnings stream and reduces winter weather variability - Enhances growth profile Expect to pay down debt significantly in both 2019 and 2020 Focused on executing to deliver increased cash generation and better returns for shareholders Maintain Strong Balance Sheet 18

19 APPENDIX 19

20 Full-Year 2018 EPS and 2Q18 Outlook (As of May 1, 2018) FULL-YEAR 2018 EPS $2.75 to $3.25 Corporate Items Outlook Commentary Corporate and other expense ~$59M Continued efforts to minimize costs Interest expense ~$57M Rising interest expense on floating rate debt Depreciation, depletion and amortization ~$140M Reassessment of certain asset lives Capital expenditures Less than $100M Focused on managing capex to maintenance of business levels Effective tax rate ~25% Lowered due to continued refinement of earnings by jurisdiction Segment Outlook Salt Plant Nutrition North America Plant Nutrition South America Full-year sales volumes 11.8M to 12.6M tons 320,000 to 350,000 tons 700,000 to 900,000 tons 2Q18 revenue $105M to $120M $40M to $50M $70M to $80M 2Q18 operating earnings margin 12% to 14% 8% to 10% 2% to 3% 20

21 Reconciliation of Non-GAAP Information Net earnings Reconciliation for EBITDA and Adjusted EBITDA (unaudited) (in millions) 12 months ended December 31, 2017 $ 42.7 Interest expense 52.9 Income tax expense 60.0 Depreciation, depletion and amortization EBITDA $ Restructuring charges 4.3 Other expense, net (1) 4.4 Adjusted EBITDA $ Total revenue 1,364.4 Adjusted EBITDA margin 21.0% (1) Primarily includes interest income and foreign exchange gains and losses. 21

22 Reconciliation of Non-GAAP Information Reconciliation for Salt Segment EBITDA (unaudited) (in millions) 12 months ended December 31, 2017 Segment GAAP operating earnings $ Restructuring charge 2.0 Adjusted operating earnings $ Segment sales Adjusted segment EBITDA margin 18.2% Reconciliation for Salt Segment EBITDA (unaudited) (in millions) 12 months ended December 31, 2017 Segment GAAP operating earnings $ Depreciation, depletion and amortization 55.0 Segment EBITDA $ Restructuring charge 2.0 Adjusted segment EBITDA $ Segment sales Adjusted segment EBITDA margin 25.4% 22

23 Reconciliation for Salt Segment Adjusted Operating Earnings (unaudited) (in millions) Operating earnings $138.0 $114.4 $138.7 $191.7 $232.4 $206.0 $184.7 Estimated losses incurred from tornado net of recoveries Adjusted operating earnings $138.0 $114.4 $138.7 $191.7 $232.4 $206.0 $ Operating earnings $126.0 $181.3 $291.4 $215.2 $200.6 $138.0 Estimated losses incurred from tornado net of recoveries Estimated cost of legal ruling Insurance settlement (82.4) Restructuring charge Adjusted operating earnings $147.0 $186.0 $209.0 $215.2 $200.6 $ ) In August 2011, the company s rock salt mine and evaporated salt plant in Goderich, Ontario, sustained damage from a tornado. The amount reported is management s estimate of the impact on the period s net earnings from losses caused by the tornado that had not yet been recovered through insurance. The estimate of pre-tax losses of $16.4 million in 2011 and $21.4 million in 2012 primarily includes lost sales volumes, higher per-unit production costs and higher costs to serve customers including purchased products and logistical inefficiencies realized in the period. 2) In the fourth quarter of 2013, the company recorded a reserve of $4.7 million related to a ruling against the company from a 2010 labor matter. 3) In the third quarter of 2014, the company reported a gain from an insurance settlement relating to damage sustained by the company as a result of a tornado that struck the company s rock salt mine and evaporated salt plant in Goderich, Ontario. 23

24 Reconciliation of Non-GAAP Information Reconciliation for Plant Nutrition North America and South America Combined Adjusted Operating Earnings and Margin (unaudited) (in millions) Reported GAAP Plant Nutrition North America segment operating earnings $ 21.1 $27.2 Reported GAAP Plant Nutrition South America operating earnings (1) Indefinite-lived intangible asset impairment Restructuring charge Business acquisition-related items (2) Combined business adjusted operating earnings $ 40.6 $77.4 Combined segment sales Combined segment adjusted operating margin 12.8% 13.2% 1) Includes only fourth-quarter 2016 results as Compass Minerals acquired the business in October, ) Primarily includes additional expense recognized from the sale of finished goods inventory, which had its cost basis increased to fair value as a result of the acquisition of Produquímica 24

25 Reconciliation of Non-GAAP Information Reconciliation for Free Cash Flow (unaudited) (in millions) Cash flow from operations $ $ $ Capital expenditures Free cash flow ($ 79.7) ($ 14.9) $