2016 Agrium Investor Day
A Future Vision for Agrium
Chuck Magro
President & Chief Executive Officer
June 8, 2016
Toronto, Ontario, Canada
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 and allocations; future net debt targets and expectations; expectations respecting dividend increases and continued share buybacks; our Retail growth and operational strategies
and opportunities and the financial results and increased margins related thereto; Retail annual sales and EBITDA from acquisitions and proprietary products gross profit; Retail increasing margins through
maximizing proprietary products, pricing optimization and product mix; 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; expectations relating to increased investment in and use of proprietary products, services
and processes; expectations relating to fully optimizing Agrium's North American network and market share growth; anticipated Retail location “new builds”; expected savings from Agrium's Fixed Cost
Review; expectations relating to continued asset utilization and rejuvenation; expectations and anticipated results relating to Agrium Financial Services and Ag Resource Management; 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 and beyond; 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 ForwardLooking 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 news release dated May 3, 2016 (the "Q1 News Release") announcing Agrium's first quarter 2016 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. 2012 financial information has been restated to reflect the adoption of IFRS 11, Joint Arrangements, whereby the classification and accounting for our joint arrangements are accounted for
using the equity method. Historical financial information prior to 2012 has not been restated to reflect this change.
Non-IFRS Financial Measures Advisory
We consider corporate cash general and administrative expenses, cash cost of product manufactured (COPM) per tonne, cash operating coverage ratio, comparable store sales, normalized comparable store
sales, and free cash flow (including business unit free cash flow, free cash flow per share and dividends paid as a percent 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 Management’s Discussion and Analysis for the three months ended March 31, 2016, each as filed on SEDAR at www.sedar.com
and EDGAR at www.sec.gov under our corporate profile and to our 2016 Q1 Supplemental Information available on our website (www.agrium.com), 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 financial measures should not be considered
as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
CULTIVATING EXCELLENCE
2
Agrium Investor Day, June 8, 2016
Agenda
10:30 – 10:45
Chuck Magro
Introduction and Strategic Overview
10:45 – 11:30
Jason Newton
Crop Input Update and Outlook
11:30 – 12:15
Harry Deans
Wholesale Strategic Update
12:15 – 12:45
Lunch
12:45 – 1:35
Stephen Dyer
Retail Strategic Update
1:35 – 2:15
Steve Douglas
Capital Allocation & Free Cash Flow
2:15 – 2:45
Chuck Magro
Closing Remarks, Q&A with Chuck and Steve
2:45 – 3:00
Break
3:00 – 4:00
Richard Penhale, Neal Horrom, Patrick Wells
Echelon Precision Ag Demonstration
A question and answer session will follow each presentation
3
CULTIVATING EXCELLENCE
Agrium Mission, Vision & Strategy
MISSION
Help feed the world in a responsible manner.
VISION
Be the world’s leading provider of agricultural products,
services and solutions.
STRATEGY
Offer growers a complementary portfolio of agricultural products,
services and solutions that increase farm productivity, while
providing growing returns for our shareholders.
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CULTIVATING EXCELLENCE
Demonstrated Stability and Growth
2015 EBITDA $2.1-billion1
Diversified and integrated
agricultural company
Operational excellence
Seed
5%
Retail
Merchandise,
Services &
Other
9%
Phosphate
7%
Wholesale
~10M tonnes NPK
capacity
Crop
Nutrients
14%
2
Largest Ag Retailer,
>1,400 farm centers
Nitrogen
39%
Multiple growth drivers
Crop
Protection
17%
Potash
9%
Demonstrated resilience and future
free cash flow growth for increasing
shareholder returns
1
Returned over $1B to
shareholders in dividends and
share repurchases in 2015
Figures in pie chart based on full-year EBITDA for 2015 excluding other inter-segment eliminations. Retail 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.
CULTIVATING EXCELLENCE
5
Our Strategic Footprint
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
$10B of Retail revenue in NA1
Dry Storage
Up to 70% of Retail’s potash is
sourced from Wholesale1
North America locations as of Dec. 2015
Blend Storage
Ammonia Pipeline System
Corporate Offices
ESN
Agrium’s North American footprint is a significant competitive advantage
1
In the financial year ended December 31, 2015.
6
CULTIVATING EXCELLENCE
Agrium’s Investment Thesis
Free Cash Flow Per Share
9.00
41% CAGR
Dividends Paid
$8.59
7.00
$5.85
6.00
$4.34
4.00
400
350
300
200
2.00
2013
2014
2013
2015
2014
2015
1,2
Total Shareholder Return
1
Share Repurchases
(USD Millions)
$334
250
3.00
600
$468
$430
450
(USD Millions)
(USD Millions)
8.00
5.00
18% CAGR
500
>$1-billion bought back over past
three years
$559
$498
0%
500
-10%
400
-2.7%
AGU
Peer Average
-20%
300
-30%
200
-40%
100
-50%
0
2013
1
2
2014
Source: Bloomberg. From January 1, 2013 to May 31, 2016.
Peer average is daily market capitalization-weighted average of
CF, POT and MOS.
-47.3%
2015
7
CULTIVATING EXCELLENCE
2
The Future of Agriculture
Consolidation
•
•
•
Larger farms
Consolidation in value chain
Efficiencies
Productivity
•
•
•
Product customization
Specialty products
Precision Ag / Big Data
Complexity
•
•
•
Regulation and sustainability
Availability of arable land
New technologies
8
CULTIVATING EXCELLENCE
The Future of Agrium
Fully Optimizing our
North American
Network
Top Operator
Proprietary Growth and Top
Tier Operations
Production + Distribution =
Leverage
Continuing FCF
Growth & Returns
Technology Leader
Increased investment in
and use of proprietary
products / services /
solutions
Shareholder
Value
Creation
Increased dividends within
targeted range of 40-50%
of FCF and reinvesting for
future FCF growth
Agrium’s strategy is not reliant on an improvement
in market fundamentals – we focus on what we can control
9
CULTIVATING EXCELLENCE
The Future is Bright
What’s New
What’s Core
• Operational Improvement &
Execution
• 2020 Operational Targets
• Agrium Financial Services
• Retail Consolidation
• Retail Location “New Builds”
• Leverage From Integration
• Innovation & Technology
• Free Cash Flow Growth
• Prudent Capital Allocation
• Shareholder Returns
10
CULTIVATING EXCELLENCE
2016 Agrium Investor Day
Crop Input Update and Outlook:
Jason Newton
Head of Market Research
June 8, 2016
Toronto, Ontario, Canada
Global Crop Yield & Acreage
• Global crop acreage has increased consistently over the past 50 years
• Most of the growth in area is in non-grain crops
• Historic rates of acreage growth are not sustainable
 Need higher rates of yield growth
Over 100 million hectares area and 0.6 tonnes/hectare yield added in the
past decade
Global Crop Acreage (million ha)
1,200
1,000
800
5.5
Pulses
Fruits, Veg. &
Tubers
Global Crop Yield (tonnes/hectare)
5.0
Actual
Oilseeds &
Cotton
Trend
4.5
600
400
4.0
Grains
3.5
0
3.0
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
200
Source: USDA, FAOSTAT, Agrium
12
CULTIVATING EXCELLENCE
University of Illinois Paper: New Era of Crop Prices
• Tested the view that corn prices permanently increased beginning in 2006
• Identified different long-term corn price scenarios based on stocks/use ratios
 Demand growth is varied to create various supply/demand scenarios
 Outcomes are weighted using the frequency of historical demand growth rates
Historical Corn Prices ($/bu)
7.00
Current corn
prices are
closer to the
floor than to
the
expected
long-term
average
Bull Scenario:
$6.15
6.00
5.00
Avg.=$4.49
4.00
Avg.=$2.36
3.00
2.00
Proj. Avg. $4.35
Bear Scenario:
$3.67
Avg.=$1.28
Avg.=$0.75
1.00
1915
1918
1921
1924
1927
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
0.00
Source: FarmDoc, University of Illinois
Full Report: http://farmdocdaily.illinois.edu/2016/04/new-era-of-corn-and-soybean-prices.html
13
CULTIVATING EXCELLENCE
Nutrient Demand Growth Necessary to Boost Yields
• Growth in nutrient demand is critical in order to meet global food consumption
• In the medium to long-term, need to add capacity to meet demand growth
 > 2 mmt of N per year – 5 mmt of urea equivalent
 1 mmt of P2O5 – 2 mmt of DAP equivalent
 > 1 mmt of potash equivalent
Phosphate Consumption2
Nitrogen Consumption1
160
50
140
45
Potash Consumption3
40
35
40
120
30
80
60
40
CAGR
2.0% 1994-2015
2.3% 2015-2020
20
0
1.
2.
3.
30
mmt K2O
mmt N
100
mmt P2O5
35
25
20
CAGR
1.9% 1994-2015
2.0% 2016-2020
15
10
20
15
10
CAGR
2.2% 1994-2015
2.3% 2015-2020
5
5
0
0
Apparent consumption, including fertilizer and industrial
Phosphate fertilizer consumption, fertilizer year data
Total potash deliveries
14
Source: IFA, CRU, Fertecon, Agrium
25
CULTIVATING EXCELLENCE
Nitrogen Capacity Expansions
• Significant new supply over next 2 years driven by historically higher nitrogen
prices and low North American natural gas prices
• There are very few projects in the pipeline past 2017
• The market will need to attract additional capacity additions
Where will the next generation of nitrogen projects be built?
Gross Nitrogen Capacity Expansions (mmt N, ex. China)
14
12
Capacity Change (ex. China)
10
8
6
4
2
0
1996-2000
Source: CRU, Agrium
2001-2005
2006-2010
2011-2015
15
2016/2017
2018-2020
CULTIVATING EXCELLENCE
Global Nitrogen Capacity Expansions
• Since 2006, the majority of global nitrogen expansions have been in China
• Going forward, Chinese closures may offset the majority of Chinese expansions
• Recent nitrogen prices would deliver low IRR on new nitrogen projects
Global Nitrogen Capacity Additions (mmt N)
24
22
20
18
Net China Capacity Change
16
Capacity Change (ex. China)
14
12
10
8
6
4
2
0
1996-2000
Source: CRU, Agrium
2001-2005
2006-2010
2011-2015
16
2016/2017
2018-2020
CULTIVATING EXCELLENCE
Global Nitrogen Capacity Utilization
• Capacity utilization is projected to bottom in 2016 and 2017
• Limited new capacity additions post-2017 leads to tightening of supply/demand
Global Nitrogen Capacity Utilization
85%
Annual Demand Growth:
84%
2.3%
83%
82%
81%
80%
79%
78%
2013
Source: CRU, Fertecon, Agrium
2014
2015
2016
17
2017
2018
2019
2020
CULTIVATING EXCELLENCE
Global Urea Cost Curve
• China and India have the majority of global nitrogen and are high cost producers
• Poor profitability of Chinese producers has led to significant closures
>60% of global urea capacity has costs above $180/tonne
Cash Production Cost ($/tonne fob)
300
2016 Shipments
Range
275
250
225
200
175
150
125
100
75
50
25
0
Saudi
Arabia
4
Canada
10
18
35
United
States
41
54
62
73
China
Bituminous
India
China Low
Cost
Bituminous
76
100
115
135
China Anthracite
143
158
160
Operational Capacity (mmt)
Source: CRU, Agrium
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CULTIVATING EXCELLENCE
175
182
U.S. Offshore Nitrogen Imports
• U.S. offshore nitrogen product imports are projected to decline by ~50% by 2018
• Offshore imports will remain nearly double the average imports in the 1990s
• U.S. Midwest will remain a significant import region
In-market price premiums will remain significant
U.S. Offshore Nitrogen Imports (mmt product)
14
UAN
12
NH3
10
Urea
8
6
4
2
0
1980s
1990s
2000s
Source: Blue, Johnson & Associates, U.S. Bureau of Labor Statistics, Agrium 19
2015
2018
CULTIVATING EXCELLENCE
Potash Capacity Additions & Demand Growth
•
Global potash capacity expansions projected to exceed demand growth
through 2018
The S/D balance could tighten due to unforeseen closures or stronger
demand growth
•
Incremental Capacity Additions & Demand
Growth: Base Case (kmt KCl)
4,000
Operational Capacity Utilization
90%
Russia
Annual Deliveries Growth:
3,500
4%
3,000
Demand Growth
Russia
85%
2,500
Russia
2,000
80%
2.3%
Russia
1,500
Russia
1,000
500
Canada
75%
Canada
Canada
Canada
Canada
0
Other
Other
Other
Other
2017
2018
2019
Other
70%
2013 2014 2015 2016 2017 2018 2019 2020
(500)
(1,000)
2016
Source: IFA, Fertecon, CRU, Agrium
2020
20
CULTIVATING EXCELLENCE
Potash Cost Curve
•
•
•
Global potash prices fell below the highest cost production in 1H 2016
Theoretical market-clearing floor has been tested in 2016
Already over 3 mmt of potash mine closures announced
Cash Delivered Cost ($/tonne cfr Brazil)
325
300
2016 Shipments
Range
275
250
225
200
175
150
125
100
75
50
25
0
AGU
Russia/Belarus
5
Source: CRU, Agrium
9
11 13
16
20
22
30
(Vanscoy)
33 36 39
Europe/U.S.
41 43
48
56
61
Operational Capacity (mmt)
21
CULTIVATING EXCELLENCE
66
67
U.S Offshore Potash Imports
• Offshore imports reached a near-record 1.4 mmt in 2015
Expect offshore imports to return closer to historical levels
U.S. Offshore Potash Imports (kmt)
1,600
1,400
1,200
1,000
800
600
400
200
0
1990s
2000-2004
2005-2010
2011-2015
2015
U.S. Potash Prices Spread to Brazil cfr Prices ($/tonne)
Spread
1990s
2000-04
2005-10
2011-15
2015
Current
-$1
$1
$31
$78
$74
$20
Corn Belt-Brazil
Source: Blue, Johnson & Associates, Agrium
22
CULTIVATING EXCELLENCE
Global Phosphate Capacity Utilization
•
•
Phosphate capacity utilization is projected to remain relatively stable
Potential shut-downs in China could lead to higher capacity utilization
2.0
Global Phosphate Capacity Additions &
Demand Growth (mmt P2O5)
Global Phosphate Capacity Utilization
85%
1.8
Brazil
Annual Demand Growth:
1.6
1.4
Saudi
Arabia
1.2
Demand Growth
80%
2%
Saudi
Arabia
1.0
0.8
Morocco
75%
0.6
Morocco
0.4
Morocco
0.2
Morocco
Morocco
Other
Other
0.0
2016
Source: CRU, Agrium
2017
Other
Other
2018
2019
70%
2020
2013 2014 2015 2016 2017 2018 2019 2020
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CULTIVATING EXCELLENCE
2016 Agrium Investor Day
Wholesale Strategic Update
Harry Deans
Senior Vice President and President,
Wholesale Business Unit
June 8, 2016
Toronto, Ontario, Canada
1
Wholesale Strategy and Priorities
2
Operational Excellence
3
Nitrogen
4
Potash
5
Phosphate
6
Summary Remarks
25
Harry Deans – President, Agrium Wholesale
Safety
We own safety, CTRI of
< 0.28 is achievable
People
Empower employees
& encourage an
entrepreneurial mindset
Driven by
constant focus
on these core
values
Optimizing the
Assets
Ruthless Focus
on Reliability
Sustainable reliability,
>98% is achievable
Cost Control
Essential to compete
in a commodity environment
Push the production envelope
every day (Maximum
sustainable daily rates)
26
CULTIVATING EXCELLENCE
Wholesale Strategy and Priorities
Safety
• Agrium’s Commitment to Zero
Operational Excellence
• Relentless Focus on Reliability and Costs
Low Cost Production
and Distribution Network
• Advantages and Efficiencies / Synergies
throughout the Agrium distribution network
27
CULTIVATING EXCELLENCE
Wholesale’s Safety Journey – We Own Safety
Incident Rate/200K Employee & Contractor Hours
The Three Key Principles:
2.5
Agrium’s Commitment to Zero
2
1.5
1
0.5
0
2008
2009
2010
Combined TRI (actual)
2011
2012
2013
EIR (goal)
2014
2015
Combined TRI (goal)
2016
(Q1)
2020
Target
EIR (goal)
Note: Combined TRI - Combined Total Recordable Injury Rate
EIR - Environmental Incident Rate
28
CULTIVATING EXCELLENCE
Strong Strategic Position and Growing Capacity
• In-market distribution & cost advantages across our products/regions
• Potash capacity expansion in 2015/16 – Ramp up through 1H 2016
• Borger urea growth coming in Q1 2017
NPK Production Capacity Overview
8.0
North America
Facilities
South America
Facility
7.0
Million Tonnes of Product
6.0
5.0
4.0
3.0
Egypt
2.0
1.0
0.0
Nitrogen 1
Base Production
Potash
Capacity Expansion
Phosphate
Equity Ownership 2
1 Base N includes AS , ESN & other. Equity ownership consists of a 50% joint venture interest in Profertil’s
South American nitrogen facility and a 26% equity ownership in MOPCO’s Egyptian nitrogen facility .
2 Includes incremental expansions in equity ownership of Profertil and MOPCO.
Source: Agrium
29
Nitrogen
Potash
Phosphate
CULTIVATING EXCELLENCE
1
1
2
Wholesale Strategy and Priorities
Operational Excellence
3
Nitrogen
4
Potash
5
Phosphate
6
Summary Remarks
30
Operational Excellence – Turning Every Stone
Zero Based Budgeting - Relentless focus on costs
Fixed cost review
Asset Utilization
Getting more from our assets
Product Repatriation
Leveraging Agrium’s integrated distribution network in the highest
netback markets
Wholesale Operational Excellence
31
CULTIVATING EXCELLENCE
Wholesale Fixed Cost Review
• Over $80M of annual savings expected from all areas before 2020
Non-Manpower Cost
•
•
•
•
•
Overtime Costs
Contract Labour
Maintenance
Travel
Consulting
• Process underway – one facility completed
• Review to be completed by early 2017
– All sites and Wholesale Offices
• Process typically results in sustainable
cost reduction of 10-20%, without
compromising safety or reliability
Manpower Cost
• Employee wages
& benefits
Variable Cost
Other Areas
of Focus
32
• Conversion rates
• Input costs
CULTIVATING EXCELLENCE
Capacity Utilization: Getting the Most from Every Asset
• Continued improvements to reliability rates
 Every tonne matters
 Higher revenues
 Lower cost/mt
Higher reliability = ~440 KMT
of urea production
Capacity utilization
105%
98%
100%
Higher reliability = ~70 KMT of
MAP equivalent production
100%
96%
93%
95%
90%
98%
2014-15 Ave.
89%
2016 Forecast
85%
2020 Target
80%
75%
70%
65%
60%
Ammonia
Phosphoric Acid
Notes: Capacity utilization represents production volumes divided by production capacity.
Ammonia capacity has been adjusted for normal outages and planned maintenance.
Ammonia utilization excluding Joffre facility.
33
CULTIVATING EXCELLENCE
Capacity Utilization: Getting the Most from Every Asset
• Carseland and Joffre facility ammonia utilization rates have greatly
improved over the past four years
Carseland Ammonia
Joffre Ammonia
120%
120%
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
2013-14 Ave.
2015
0%
2016 F
2013-14 Ave.
Carseland Ammonia
2015
Joffre Ammonia
Notes: Capacity utilization represents production volumes divided by production capacity.
Ammonia capacity has been adjusted for normal outages and planned maintenance.
34
CULTIVATING EXCELLENCE
2016 F
Asset Utilization – How Have We Improved?
Continued asset rejuvenation through
capital reinvestment
Implementation of industry best
practices for operational performance
Resulting in greatly improved safety
and production reliability
35
CULTIVATING EXCELLENCE
A Unique Competitive Advantage
By leveraging Agrium’s integrated distribution network, we have been able
to repatriate ~600kmt of sales annually into highest netback markets
2,000
1,800
Total Repatriated Tonnes (KMT)
•
~600kmt
increase in 4 yrs.
1,600
1,400
1,200
1,000
800
600
400
200
0
2012
2013
Urea
2014
Redwater MAP
36
2015
2016 Forecast
Granular AS
CULTIVATING EXCELLENCE
Wholesale Operational Excellence Financial Measures
Wholesale Metrics
2014
Actuals
2015
Actuals
Three
months
ended
March 31,
2016
2016
Target1
2020
Target
Capacity utilization (%)
Ammonia2
83%
94%
100%
98%
100%
Phosphoric Acid
92%
94%
98%
96%
98%
Potash
52%
94%
89%
100%
100%
Cash Cost of Product Manufactured (USD/MT) 3
Urea (excludes natural gas) 4
$128
$77
$71
$76
$69
Potash
$157
$96
$82
$84
$69
$10
$9
$9
$7
$5
SG&A (USD/MT)
1 Represents
Annual December 31, 2016 targets.
Excludes results from Joffre nitrogen facility. Ammonia capacity has been adjusted for normal outages and planned maintenance.
3 Non-IFRS calculation with all fixed and variable costs accumulated, excluding depreciation and amortization expense and direct freight.
4 Using calculated ammonia cash cost and excludes natural gas and steam costs.
2
Notes: 2020 target assumes an FX rate of 1.34.
2016 potash target capacity utilization adjusted to reflect 2016 production ramp-up. Target based on 2016 Annual Guidance from May 2016 Q1 press release.
37
CULTIVATING EXCELLENCE
1
Wholesale Strategy and Priorities
2
Operational Excellence
3
Nitrogen
4
Potash
5
Phosphate
6
Summary Remarks
38
Agrium’s Natural Gas & Market Advantage
USD/tonne
Urea
Urea Cost & Price Comparison
$500
Current PNW Urea Price
$400
$300
Current NOLA Urea Price
$200
$100
$0
$1.00
MMBtu
$2.00
MMBtu
$4
MMBtu
$4.70
MMBtu
$5.90
MMBtu
W. Canada
U.S. Gulf
W. Europe Hub
W. Europe
Formula
Ukraine
Gas cost
$78
tonne
China Soft
Coal
$125
Tonne
China
Anthracite
$7.00
MMBtu
China Gas
Other costs
Strong margins due to low cost N. America gas prices and interior pricing points
Note: Other costs include other cash production costs, and freight to port and export taxes where applicable. Ocean freight is excluded.
Source: Fertecon, CRU, Agrium
39
CULTIVATING EXCELLENCE
Nitrogen Domestic Sales Volumes
• Improved reliability supporting higher production and sales volumes
• Borger urea expansion coming on stream in 2017
• Excludes Agrium’s ownership share of equity interests
4,000
KMT
3,000
2,000
1,000
2011
2012
2013
Ammonia
2014
Urea
2015
2016 F
Other
Notes: 2010-2015 sales volumes adjusted to exclude West Sacramento.
2017 includes 3 nitrogen facility planned turnarounds.
Major Redwater nitrogen TA is planned in 2019.
40
CULTIVATING EXCELLENCE
Nitrogen – Costs Trending Lower
Per Tonne Urea Cash Cost of Production
•
Recent urea cash cost improvement primarily reflects
improved reliability
•
2016 Cash COPM expected to be <$76/MT target
•
Further savings expected in 2017 & beyond from fixed
cost review
100%
140
90%
120
80%
100
70%
80
60%
60
40%
50%
30%
40
20%
20
10%
-
0%
2011
2012
2013
2014
Urea Cash COPM (USD/MT)
2015
2016 T
2020 T
Urea Capacity Utilization
Notes: Canada/U.S. average foreign exchange rates (2015: 1.28, 2016 & 2020 target: 1.34).
Urea Cash COPM is a Non-IFRS measure calculated using ammonia cash cost and excluding natural gas and steam costs.
2020 target aligns with overall 98% utilization rate target .
41
CULTIVATING EXCELLENCE
Nitrogen Margins Illustrate Competitive Strengths
• Agrium nitrogen margins reflect regional natural gas cost and inmarket advantages
250
Agrium gross profit per
tonne ~90% higher
than peer average on a
trailing LTM basis.
200
USD/MT
150
100
50
H1
H2
H1
2014
H2
2015
Agrium
Q1
2016
Peers
Notes: Agrium (Excluding PFR & Profertil)
Peers include CF Industries and Potash Corporation
42
CULTIVATING EXCELLENCE
Nitrogen Growth
Borger Urea Expansion

New annual urea production - 610 KMT

Including new Diesel Exhaust Fluid plant – 100 KMT capacity
(urea equivalent)
• Strategic Rationale

Ensure long term viability of asset base/diversify product offering

Leveraging our North American distribution network

Expanding a high-margin business
• Timeline / Implementation

Urea mechanical completion Q4 2016

Increased production Q1 2017

On time and on budget
Optimizing the Assets
• Extracting maximum output from our assets
43
CULTIVATING EXCELLENCE
1
Wholesale Strategy and Priorities
2
Operational Excellence
3
Nitrogen
Potash
4
Potash
5
Phosphate
6
Concluding Points
44
Potash Expansion
• Expansion project completed
• Canpotex test run successfully
completed in 2H 2015

Allocation grew from 7.3% to 10.3%
• Production ramp-up
through end of 2017
• Lower fixed cost/mt
45
CULTIVATING EXCELLENCE
Potash Sales Volumes
Canpotex Advantages
•
•
Lowest cost distribution, logistics & sales network/relationships
Global competitive scale, volumes growing in international markets
Leveraging Retail Integration
•
•
Work with AGU Retail to position Potash expansion tonnes
Sales to Retail increasing to ~50% of total domestic volumes
2,500
KMT
2,000
1,500
1,000
500
2011
2012
2013
Domestic
2014
2015
2016 F
Canpotex
Note: Includes historic purchase for resale volumes.
46
CULTIVATING EXCELLENCE
Potash – Costs Trending Lower
Per Tonne Potash Cash Cost of Production
•
Q4 2015 run-rate provides a glimpse of operating cost leverage potential
Planned shutdown in 2014 for
Vanscoy expansion tie-in
180
160
140
2015 initial
ramp-up post
expansion
120
$/MT
100
Canpotex
proving run
80
60
40
20
2011
2012
2013
2014
Variable Costs (USD/MT)
2015
Q4 2015
2016 T
2020 T
Fixed Costs (USD/MT)
Notes: Canada/U.S. average foreign exchange rates (2015: 1.28, 2015 Q4: 1.33, 2016 & 2020 target: 1.34).
Depreciation in potash cost of product manufactured estimated at ~US$43/MT in 2016, based on above exchange rate.
Potash Cash COPM is a Non-IFRS measure calculated with all fixed and variable costs accumulated, excluding depreciation and amortization expense and direct freight.
47
CULTIVATING EXCELLENCE
1
Wholesale Strategy and Priorities
2
Operational Excellence
3
Nitrogen
Potash
4
Potash
5
Phosphate
6
Summary Remarks
48
Phosphate Sales Volumes and Margins
Two Phosphate facilities:
•
Total 1.2mmt capacity (50/50 production split)

1,200
Phosphate Margins
150
1,000
800
USD/MT
Phosphate Sales Volumes (KMT)

Redwater (Western Canada): Integrated ammonia and lowcost sulfur, offshore source
Conda (Idaho): Integrated phosphate rock, local sulfur
supply
600
400
200
100
50
H2
2010
2011
2012
MAP
2013
SPA
2014
2015 2016 F
H1
2014
2015
AGU
Other
H2
Peers
Note: Peers include MOS and PCS.
49
CULTIVATING EXCELLENCE
Q1
2016
1
Wholesale Strategy and Priorities
2
Operational Excellence
3
Nitrogen
Potash
4
Potash
5
Phosphate
Conclusion
6
Summary Remarks
50
Agrium Wholesale – Rising to the Occasion
Safety – We Own It
•
•
•
•
Do it safely or not at all
There is always time to do it safely
Care for each other’s health, safety and security
Match best in chemical industry
Operational Excellence – Turning Every Stone
•
•
•
Relentless focus on reliability and costs
Increased utilization rates
Repatriation success
Low Cost Production and
Strategic Distribution Network
•
•
•
•
Cost and market advantages
Leveraging the Retail system
Canpotex – lowest cost access to international markets
Increasing efficiencies through the Agrium distribution network
51
CULTIVATING EXCELLENCE
2016 Agrium Investor Day
Retail Strategic Update
Stephen Dyer
Senior Vice President and President,
Retail Business Unit
June 8, 2016
Toronto, Ontario, Canada
1
Retail Overview and Performance Targets
2
Operational Excellence
3
Market Share Growth
4
Investment in Innovation and Technology
5
Conclusion – Growth Trajectory
53
6/6/2016
Retail Leader with Diverse Growth Opportunities
Operational Excellence
Market Share Growth
Innovation & Technology
• Cost Management
• Network Rationalization
• Margin Improvement
Photos of recently acquired Home Oil locations
Multiple levers for growth to provide the total grower solution
54
CULTIVATING EXCELLENCE
Leading Agricultural Solutions Provider
Geographic Footprint
Broad Crop Diversity
Complete Ag Solutions Offering
EBITDA (2015)
Revenue by Crop Type
Gross Profit (2015)
~90% North America
$2.7B
NORTH AMERICA
Merchandise 4%
All Other,
13%
Canada
Corn,
23%
Veg, 5%
Services/Other 16%
Seed 10%
Perm
Crops, 8%
USA
Cotton,
6%
Hawaii
Wheat,
18%
Crop Nutrients 31%
Canola,
11%
SOUTH AMERICA
AUSTRALIA
Soybean,
16%
Brazil
Crop Protection 39%
Chile
Argentina
Uruguay
Over 1,400 facilities
in 7 countries
Crop inputs & services for over 50
different crops
55
Source: Agrium
Providing everything growers need
to maximize yields
CULTIVATING EXCELLENCE
Demonstrated Leverage & Growth
•
Agrium’s scale, competitive advantages and operational excellence have
resulted in an increase in margin for acquired retail companies
EBITDA Margins1 %
12.0
10.0
%
8.0
6.0
9.9
4.0
2.0
5.6
5.9
Royster Clark
(2005)
UAP
(2008)
6.6
4.0
4.4
Landmark
(2010)
Viterra
(2013)
8.5
10.0
0.0
Tuck-in
(2006-2015)
Agrium U.S. Agrium Total Agrium Total
Retail
Retail
Retail
2015
2015
2020
EBITDA Margins have typically grown by over 2% post acquisition
1 Retail
EBITDA margin excludes allocation of Corporate G&A. EBITDA margin of acquired
companies the year before acquisition.
56
CULTIVATING EXCELLENCE
2020 Targets: Measuring our Performance
Performance Metric
2013 to 2015
Average
2020 Target
EBITDA per Location
$710K
>$900K
Cash Operating Coverage Ratio
62%
59% to 57%
EBITDA Margin
8.5%
9.5% to 10.5%
Working Capital to Sales Ratio
18%
16% to 17%
Normalized Comparable Store Sales1
3%
1% - 3% per year
1Comparable
Stores are adjusted for fertilizer, FX & new Agrium Financial Services offering.
Key Drivers and Sensitivities
Higher value crop acreage:
2M acre swing = 1-2% EBITDA impact
Corn prices:
Low: <$3.50/bu – High: >$5.00/bu
Fertilizer price:
Long market vs. Balanced market
57
CULTIVATING EXCELLENCE
Driving Continuous Improvement
•
Many levers to drive value through operational excellence
Recurring Improvement Sensitivities
Annual EBITDA
Impact
Comparable Store Growth of 1%
~ $11M
Increased Gross Profit Margins by 0.1%
~ $15M
Reduction in costs by 1%
~ $25M
Balance Sheet
Impact
One-time Saving Sensitivities
Reduction in Working Capital by 1%
~ $20M
Modest improvements can deliver significant value
58
CULTIVATING EXCELLENCE
1
2
Retail Overview and Performance Targets
Operational Excellence
3
Market Share Growth
4
Investment in Innovation and Technology
5
Conclusion – Growth Trajectory
59
6/6/2016
Multi-faceted Approach to Operational Excellence
Procurement
Leverage our size and scale over 1,400 locations
and $12B of spend
Network Optimization
Continue rationalization of the Retail network and optimization
with Wholesale
Margin Improvement
Optimizing our products and pricing
60
CULTIVATING EXCELLENCE
Retail Fixed Cost Review
Scope: Procurement
•
Chemical, Seed, Fertilizer
•
Heavy Equipment
•
Raw Materials
•
Maintenance, Repairs, Operating (MRO)
Approach
•
Standardization of purchases
•
Leveraging buying across the Retail network
•
Detail review of each spend item
Examples of Outcomes
Detailed Loveland Products Review
15% Reduction in
Costs (~$20M)
Heavy Equipment Purchases
10% Reduction ($9M)
61
CULTIVATING EXCELLENCE
Continued Optimization of our Network
•
•
•
Continued focus on location rationalization
Closed or consolidated 140 locations in 2015
Leveraging distribution hubs across Wholesale and Retail
Cumulative Global Store
Closures & Consolidations
600
542
38 Major ‘Hub’ Locations
Across the U.S.
500
401
400
325
300
200
100
0
140
255
233
70
166
14
67
67
76
22 22
76
70
14
2010
2011
2012
Cumulative Store Closures
U.S.
2013
Canada
2014
Australia
2015
South America
Continued consolidation and investment in hubs
62
CULTIVATING EXCELLENCE
Achieving Margin Growth
Increasing margins through:
•
Maximizing proprietary product sales
•
Pricing optimization
•
Product mix
0.1% increase in Gross
Profit Margin = ~$15 million
in EBITDA
63
CULTIVATING EXCELLENCE
Leveraging the Network – 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
•
We have over 46 proprietary product brands
Total Retail Proprietary Products Gross Profit1
USD Millions
$700
$600
$500
$400
$300
$200
$100
$0
2011
2012
Proprietary Crop Protection Products
1
Excludes Dalgety animal health products
2013
2014
2015
Proprietary Nutrional Products
64
2016 F
Proprietary Seed
CULTIVATING EXCELLENCE
Steady Growth of Proprietary Crop Protection Products
• Grew proprietary offering to 22% of total Crop Protection sales in 2015
• Average proprietary gross margin is 37%, almost 2X higher than 3rd party
• 2020 target for proprietary products to be over 25% of total CPP sales
Proprietary Crop Protection Products
1,200
25%
USD Millions
1,000
20%
800
15%
600
10%
400
5%
200
-
0%
2011
2012
2013
Proprietary Sales
2014
2015
2016 F
% of Total CP
65
CULTIVATING EXCELLENCE
Plant Nutritionals Enhance Nutrient Margins
Nutritional margin contribution has a 13% CAGR
Nutritional sales volume has a 7% CAGR
2020 target margin contribution of $25 per tonne
Nutritional Contribution to
U.S. Total Retail Nutrient Margin
$25
$23
$21
USD per Tonne
•
•
•
$19
$17
$15
$13
$11
$9
$7
$5
2011
2012
2013
2014
66
2015
CULTIVATING EXCELLENCE
Focused Crops for Proprietary Seed
•
•
•
•
Expanded proprietary offering to include breeding - Canola, Cotton, Rice & Sorghum
Proprietary seed has grown at 13% CAGR, now represent 23% of our seed sales
Proprietary seed margins are ~50% higher than 3rd party
2020 Target for proprietary to be over 25% of our total seed sales
Proprietary Seed
$400
24%
$350
22%
USD Millions
$300
20%
$250
18%
$200
$150
16%
$100
14%
$50
12%
$0
10%
2011
2012
2013
Proprietary Sales
2014
2015
2016 F
% of Total Seed
67
CULTIVATING EXCELLENCE
1
Retail Overview and Performance Targets
2
Operational Excellence
3
Market Share Growth
4
Investment in Innovation and Technology
5
Conclusion – Growth Trajectory
68
6/6/2016
Agrium Has Room to Grow in U.S. Retail Market
Significant Room for Further Consolidation
CHS, 3%
Pinnacle, 4%
Simplot
Retail, 2%
Wilbur-Ellis, 4%
Growmark, 5%
Co-ops, 30%
Helena, 7%
Helena, 7%
Our share in other
key regions is ~30%
Agrium, 17%
Agrium, 17%
Independents, 26%
Significant market
share held by
independent
retailers in the US
Over 17 % market share with only 9% of the Facilities
Source: CropLife and Internal Estimates
69
CULTIVATING EXCELLENCE
Multi-pronged Approach to Growing Market Share
Several levers to achieve market share growth
1 Includes
interest income and equity earnings from Ag Resource Management
70
CULTIVATING EXCELLENCE
Continued Strong Tuck-ins Track Record
Tuck-in Acquisitions
# of Locations
Acquired
Annual Sales1
(U.S. millions)
2010
2011
2012
2013
2014
2015
2016
YTD
Total
100
33
59
22
32
26
33
305
$476
$211
$479
$124
$194
$190
$229
$1,903
$33
$27
$49
$12
$20
$20
$15
$176
Annual EBITDA
(U.S. millions)
(Year 1)
•
•
•
1 Does
Continued strong pipeline
Average multiple paid of 6x EBITDA
Record number of facilities acquired in
Q1 2016
not include revenue from equity positions in joint ventures.
CULTIVATING EXCELLENCE
71
Targeted Builds – Examples
•
•
•
•
Fort Morgan – Example of a target build in North Colorado
Made up of a main Branch and a satellite location
Current revenues of ~$35M, EBITDA ~$3.5M
Working Capital Requirement of ~$4.5 million
“Heat Map” Analysis
Fort Morgan Facility
Possible
Overlap
Opportunity Area:
High Potential/No
CPS location
72
CULTIVATING EXCELLENCE
>$500k
3,137
$50k-$500k
Gross Sales By Customer
Gross Sales By Customer
Achieving Comparable Store Growth
40,884
$10k-$50k
58,776
<$10K
177,322
-
50,000
100,000
150,000
>500K
50K-500k
10K-50k
<10K
0
200,000
10
20
30
40
Average Number of Products sold by Customer
Number of Customers
Maximizing each location
•
•
•
•
Enhanced sales tools
Share of wallet
Product mix
New customers
Customer retention
•
•
•
Customer analytics
Customer segmentation
Field Sales Reporting (FSR)
1% Comparable Sales Growth ~$11M in EBITDA
73
CULTIVATING EXCELLENCE
Continued Focus on Growing Seed Market Share
•
•
Seed sales have increased to over $1.4 billion, now represent 12% of total sales
2020 Target to be over $2 billion in seed sales
Number of Customers
Purchasing Seed
Seed Revenue
$1,800
55,000
$1,600
54,000
Number of Customers
$1,400
USD Millions
$1,200
$1,000
$800
$600
$400
53,000
52,000
51,000
50,000
49,000
48,000
$200
$0
47,000
2011
2012
2013
2014
2015
2016 F
2011
74
2012
2013
2014
CULTIVATING EXCELLENCE
2015
1
Retail Overview and Performance Targets
2
Operational Excellence
3
Market Share Growth
4
5
Investment in Innovation and Technology
Conclusion – Growth Trajectory
75
6/6/2016
Technology & Innovation at Agrium Retail
•
Agrium Retail is more than the leading provider of crop input products and
solutions to growers, it is also a technology leader
Leading edge
technologies
Seed Development
•
Agrium Breeding Programs:
Canola, Cotton, Rice, Sorghum
Nutritionals & Plant Health
Proven Seed R&D Facility
(Saskatoon, SK)
•
Liquid micro-nutrient production
•
Plant health products: to protect crops & improve yields
Echelon: Precision Ag
•
The leading precision ag solution supported by >3,800
agronomists
76
CULTIVATING EXCELLENCE
Proprietary Product Development and Production
•
•
Proprietary product margins are ~2X third-party products
Total revenue of $1.7B in 2015 (~60% CPP, ~20% Plant Health, ~20% Seed)
NORTH AMERICA
SOUTH AMERICA
Agrium Retail Production – CPP & Plant Health
Agrium Retail Production – Seed
R&D Center/Formulation Lab
Affiliated Company Production – CPP & Plant Health
AUSTRALIA
Loveland Products Formulation Plant
(Greenville, Mississippi)
Strong network to supply product and production
77
CULTIVATING EXCELLENCE
TAIWAN
Developing our Proprietary Seed Breeding Portfolio
Strategy
•
•
•
Targeting crops where we have strong market share
Continue to backward integrate into Seed Breeding
Expanding our seed margins
Focus Crops
•
Canola, Rice, Cotton, Sorghum
Investment and Returns
•
•
•
Completed 4 acquisitions/investments in past 4 years
2020 expected gross profit of $20M from seed breeding
19 of proprietary hybrid varieties in our portfolio
78
CULTIVATING EXCELLENCE
Hybrid Rice Breeding & Development
Significant Market Potential in the U.S.
•
Acquired from Bayer in 2015
•
U.S. Rice Seed Market Size $160–180M
•
Agrium current share of rice seed market is ~28% (majority in hybrids)
•
Dyna-Gro rice product will differentiate our seed offering with excellent quality hybrids
El Campo Hybrid Rice Breeding Station
79
CULTIVATING EXCELLENCE
Next Generation of Plant Health Products
Investments in, and partnerships with plant health & nutritional technology
companies to provide future growth & differentiated product offering
Strategy
•
•
Backward integrate into product supply / production
Leverage value creation thru Echelon (precision ag)
Product Focus
•
Investments will focus on plant health products (e.g. plant
stimulants, specialty nutrients) and new CPP formulations
Investment and Returns
•
•
•
•
Completed 4 acquisitions/investments in past three years
Gross Profit contribution of ~$100M and IRR >15%
39 products commercialized by Loveland Products,
developed by our partners
Over 20 new high-return products and formulations under
development
80
CULTIVATING EXCELLENCE
Echelon: The Leading Precision Ag Platform
•
•
•
8.5M+ acres of scouting
>300,000 field observations
26M+ mapped acres
•
•
•
81
1.2M+ acres of soil sampling
80K+ tissue samples
8M+ acres VR Fertility Rx
CULTIVATING EXCELLENCE
1
Retail Overview and Performance Targets
2
Operational Excellence
3
Market Share Growth
4
Investment in Innovation and Technology
5
Conclusion – Growth Trajectory
82
6/6/2016
A Focused Capital Investment Strategy
•
Retail spending utilized for a variety of sustaining/growth objectives
•
Expect to invest $250 million in Innovation and Technology through to 2020
$400
Average Annual Retail Capex and Acquisitions
(2013-2015)
$350
Technology
Acquisitions
USD Millions
$300
Tuck-in
Acquisitions
$250
$200
$150
$100
Technology Spend 1
Revamp / Upgrade
of Locations
Sustaining PP&E
$50
$0
Capital Expenditures
1Technology
Spend includes capital expenditures reported in
83
Corporate related to Retail projects.
Acquisition Spending
CULTIVATING EXCELLENCE
Retail EBITDA Growth Scenarios
Growth Rate Factors
Crop mix and prices – Competitive conditions – Weather factors
$1.5
Retail EBITDA (USD Millions)
$1.4
$1.3
Growth Factor
Upside Case
Organic Growth2
4%/Yr
Tuck ins
$35M/Yr
Corn Acreage
≥93M Ac
Corn Price
≥$5.00/bu
Growth Factor
Downside Case
Organic Growth2
2%/Yr
Tuck ins
$25M/Yr
Corn Acreage
≤89M Ac
Corn Price
≤$3.50/bu
$1.2
$1.1
2016 Guidance Range:
Y.o.Y. growth of 2% - 10%1
$1.0
2015
1
2016
2017
2018
2019
2020
Earnings growth % is based on 2016 guidance range from base business , excluding approximately $30 million
in estimated EBITDA from 2015 acquisitions.
2 Organic growth excludes earnings contribution from tuck-ins in first year of acquisition
CULTIVATING EXCELLENCE
84
6/6/2016
Leading Retail Business with Multiple Growth Platforms
• Retail enhances value for growers through
a total-acre solutions offering
• Leveraging supply needs with Wholesale
Proven Seed R&D Facility
(Saskatoon, SK)
• Backed by a leading innovation, advice,
products & technology platform
• Significant & stable cash flow generation:
crop & product diversity and margin stability
• Size, scale & unparalleled network/grower
relationship = competitive strengths
• Strong line of sight to multiple growth platforms
85
CULTIVATING EXCELLENCE
2016 Agrium Investor Day
Capital Allocation and Free Cash Flow
Steve Douglas
Senior Vice President & Chief Financial Officer
June 8, 2016
Toronto, Ontario, Canada
1
Capital Allocation
2
New Financial Services
3
Capital Expenditures
4
Free Cash Flow
87
Agrium’s Capital Allocation Strategy Delivers Value
Growth in N & K
Capacity
Retail
Growth
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 Flow
Accretive acquisitions
Opportunistic share buybacks
88
CULTIVATING EXCELLENCE
Capital Allocation Approach
•
Common investor question…
“Where would you spend an
extra dollar of investment capital?”
•
All investments “Compete for Capital”: be it N vs. P, Wholesale vs. Retail,
Seed vs. Precision Ag
1
Fit to our strategy/vision
2 Meet/exceed Agrium’s hurdle rate (minimum 12%)
3
Consider risk profile of opportunity
4
Compare to all other opportunities including share
buybacks
89
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 (2.3x @ March 31, 2016)
2016 – 2025 Long Term Debt Maturity1
$600
550
500
500
500
2022
2023
USD Millions
$500
$400
$300
$200
100
$100
$0
2016
2017
2018
2019
2020
2021
2024
2025
Our balance sheet strength provides significant flexibility for additional
leverage, growth and capital returns
1
Based on the contractual terms of outstanding debentures.
90
CULTIVATING EXCELLENCE
Operational Excellence Targets for Corporate
•
Target - reduce cash G&A by ~25% from the 2011-2014 average cost to 2020
$130
Corporate Cash G&A1
USD Millions
$120
25% reduction
$110
$100
$90
$80
$70
$60
2011 -2014 Ave.
•
2015
2020 Target
Savings anticipated and achieved via:




Process streamlining
Reduction in external services
Contract re-negotiations
Outsourcing certain IT functions
Significant reductions have already been made to Corporate G&A with
potential to reduce further from 2015 levels
1 Excludes
depreciation, amortization and other non-cash costs.
91
6/6/2016
CULTIVATING EXCELLENCE
1
2
Capital Allocation
New Financial Services
3
Capital Expenditures
4
Free Cash Flow
92
New Financial Services For Growers
•
An innovative farm credit service providing crop input loans to Agrium Retail
customers through
1) Agrium Financial Services - an Agrium lending program or;
2) Ag Resource Management (ARM) - a private finance company
The Strategy:
Scalable to
other
geographies
Optimize returns from our extensive
footprint and customer relationships
Benefits
Strengthen & expand customer base & sales
Grow earnings (interest income)
Reduces Credit Risk Profile
Increase Stability of Earnings
Expected IRR of >20%
93
CULTIVATING EXCELLENCE
Agrium Financial Services & ARM
Two Lending Options:
Standard Loans:
Specialized Lending:
Agrium will formalize a crop input
loans program for customers
meeting our credit risk profile
ARM provides higher interest rate
loans, backed by growers’ collateral
(e.g. Crop insurance, lien on crops, FSA
payments)
(on our balance sheet)
Ag Resource Management
Private Finance Company
(28% Equity Ownership)
Combined annual EBITDA contribution expected to be ~$50M by 2020
94
CULTIVATING EXCELLENCE
Ag Resource Management (ARM)
Agrium acquired a 28% equity investment in ARM for $28M in 2016
Synergies
Rapidly growing private
finance company
providing financial &
risk management
solutions to U.S.
growers
•
•
•
•
•
Additional credit for certain Agrium Retail customers
Reduces Agrium’s credit risk profile
Expected to generate additional crop input sales
Growth from customer referrals for both Agrium and ARM
Overlapping footprint
(all figures provided by ARM
Management)
2015A
2018F
Gross Loan Originations
$160M
$900M
EBITDA (Agrium’s 28% share)
$2M
$14M
Loan Customers
289
1,200
7
30
0.2%
0.60%
# of ARM Locations
Bad Debt Ratio1
1
Calculated as Gross Bad Debt as a % of ARM’s Gross Loan Originations.
95
CULTIVATING EXCELLENCE
1
Capital Allocation
2
New Financial Services
3
4
Capital Expenditures
Free Cash Flow
96
Capital Expenditure to Decline Significantly
• Investment capital expenditures have decreased significantly since 2014 and
are expected to continue to decrease
• Remain focused on maintaining top-tier production status of facilities with
$500M-$550M sustaining capital program
Total Capital Expenditure Profile
$2,500
USD Millions
$2.02B
$2,000
$1,500
$1.2B
1,455
$1.0B
$1,000
$0.85B1
647
600
325
$500
400
Target
Sustaining
Capex range of
$500-$550
50
566
541
525
500
2014
2015
2016E
Future Sustaining
Run Rate
$0
2010-2013 Avg.
Sustaining
Source: Agrium
1 2016 Annual Guidance of $800-$900M provided in the Q1 2016
results press release.
97
Investing
CULTIVATING EXCELLENCE
Sustaining Capital Expenditure Profile
$600
Run Rate Sustaining CAPEX Profile
Planned Growth Capex:
Corporate – 2%
 Completion of Borger project
 Retail investments in new
builds and technology
$500
USD Millions
$400
$300
Retail – 34%
Phosphate – 10%
Planned Acquisition Spending:
Potash – 19%
 Additional ~$200M/year on
Retail tuck-ins and technology
& innovation
$200
$100
Nitrogen – 34%
$0
Run Rate
98
CULTIVATING EXCELLENCE
1
Capital Allocation
2
New Financial Services
3
Capital Expenditures
4
Free Cash Flow
99
Free Cash Flow Story Remains Intact
•
Robust incremental free cash flow story – stability of our integrated platform and distinct
competitive advantages provide opportunity for further dividend growth & share buy-backs
•
Illustrative sensitivity: 2% annual share buyback = cumulative increase of ~$1.00 to
FCF/share by 2020
$9
Illustrative 5-Year Potential Cash Generation1
USD Billions
$8
Sensitivities
$7
Total Funds
Available
$6
Up to $7.6B
Includes market
upside of +$25/st
& incremental
leverage3
Factor
Change
in
Factor
(+/-)
FCF/
Share
Impact
(+/-)
N
Prices
$10/st
$0.22
Natural
Gas
$0.50/
mmbtu
$0.24
K
Prices
$10/st
$0.14
CAD/
USD
$0.01
$0.03
$5
$5.6B FCF
$4
$3
$2
Existing
Dividend
$3.50 / share
$1
$0
Operating Cash Flow
Potential 2
Sustaining Capital
Free Cash Flow
1
5-Year period starts in 2016.
Operating cash flow has been calculated excluding changes in non-cash working capital and
using average Fertecon and CRU Group forecasted benchmark prices: NOLA urea $255/st,
Midwest Potash of $265/st, and $40/mt Phosphate margins, and NYMEX $2.35/MMBtu.
Assumed FX rate of $1.34 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
leverage has been calculated based upon a Net debt to EBITDA ratio of 2.5X
100
and assumed gross debt at beginning of the five year period.
2
CULTIVATING EXCELLENCE
Agrium’s High Quality Free Cash Flow
• Agrium’s FCF has less risk than any other peer, due to size of Retail contribution,
strength of competitive advantages across products and diversity & integration
across the business.
Business Unit Free Cash Flow1
$2,000
$1,800
$1,600
(USD Millions)
$1,400
$1,200
Retail
$1,000
Wholesale
$800
$600
$400
$200
$0
2011
1 Excludes
2012
2013
2014
2015
2016 Guidance
Midpoint
corporate expenses and inter-segment eliminations
101
CULTIVATING EXCELLENCE
Agrium’s High Quality Free Cash Flow
•
Agrium’s business combination provides both stability and upside leverage to
the commodity cycle that underpins our capital allocation policy
Free Cash Flow & Incremental Leverage 2016-2020
(USD Billions)
$14
$12
P&K
$5.6B
$10
(net)
P&K
(net)
Incremental
Leverage
P&K
$8
Nitrogen1
Nitrogen1
Retail
Retail
Corporate,
Taxes &
Interest
Corporate,
Taxes &
Interest
Base
+$25 plus
Incremental leverage
$6
Potash and Phosphate
• Low cost K & in-market P advantages
• Benefits from integrated distribution
Nitrogen
• Excellent competitive position = lowest cost
N.A. gas & in-market advantages
• Benefits from integrated distribution
$4
$2
$0
-$2
Retail
• Industry leading retailer with stable margins
& growing earnings/FCF
•
90% is NA based
-$4
-$6
1 Includes
$7.6B
ammonium sulfate and ESN.
102
CULTIVATING EXCELLENCE
Integrated Strategy Underpins FCF and Dividend
• Retail provides large stable and high quality base FCF
• Wholesale’s FCF is significant even if all nutrients went to the global cost curve
• Target of 40-50% of FCF dividend payout is “through the cycle”. We are currently
at or near the bottom of the cycle, so dividend expected to grow
FCF & Incremental Leverage 2016-2020
($US Billions)
$8
Illustrative 5-Year Potential FCF Allocation
$7
Incremental leverage4
Incremental leverage
$6
Incremental FCF
of +$25/st3
Incremental FCF Base case2
Incremental FCF
$5
$4
$3
FCF from Retail +
NPK @ Floor Price1
$2
Dividend buffer
even at floor
pricing/margins
Current Dividend
$1
$0
Free Cash Flow &
Incremental Leverage
1
Floor price scenario assumes gross profit margin of $100/tonne for nitrogen, $40/tonne for potash and $20/tonne for phosphate.
Calculated using average Fertecon and CRU Group forecasted benchmark prices: NOLA urea $255/st,
Midwest Potash of $265/st, and $40/mt Phosphate margins, and NYMEX $2.35/MMBtu. Assumed FX rate of $1.34 USD/CAD.
3 Includes upside range of +$25/st on NOLA urea, CF DAP and Midwest Potash
4 Incremental leverage has been calculated based upon a Net debt to EBITDA
CULTIVATING EXCELLENCE
ratio of 2.5X and assumed gross debt at beginning of the five year period. 103
2
2016 Agrium Investor Day
Closing Remarks
Chuck Magro
President & Chief Executive Officer
June 8, 2016
Toronto, Ontario, Canada
104
Agrium Value Proposition
Operational
Excellence
Focused
Growth
Capital
Allocation
•
•
•
•
•
New 2020 targets
Improve overall
efficiency of our assets
Keep focus on safety,
reliability and
sustainability
•
•
•
Annual EBITDA
improvement of
~$200M by end of
2020
•
Expand Retail market
share
Increased production
capacity
Agrium Financial
Services
Grow proprietary
portfolio
Invest in innovation and
technology
•
•
Maximize total
shareholder return
Exercise capital
discipline
Grow the Dividend
FCF story intact:
grow to $8 - $11
FCF/share
Delivering Results: Growing FCF and Shareholder Returns
105
CULTIVATING EXCELLENCE
2016 Agrium Investor Day
Echelon Precision Agriculture
Stephen Dyer
Senior Vice President and President, Retail Business Unit
June 8, 2016
Toronto, Ontario, Canada
Agrium Retail – Innovation, Technology & Solutions
Echelon: Leading Precision Ag Platform
 8.5M+ acres of scouting
 1.2M+ acres of soil sampling
 > 300,000 field observations
 80K+ tissue samples
 26M+ mapped acres
 8M+ acres VR Fertility Rx
 > 1300 Mobile enabled Crop Advisors
Precision Ag Capabilities:
Echelon – Leverage Information
3rd Party
Apps/tools
•
•
FSR Mobile
Data Analytics
•
•
Nexgen Precision
Ag suite
Compliance
•
•
GPS field testing
Nutritional
recommendation
engine
Public Data
Data Integration Layer
ERP: Transaction Data
108
The Technology Empowered
CPS Crop Advisor
Patrick Wells – Crop Advisor
Richard Penhale – Market Information Manager
Neal Horrom – Echelon Manager
Technology Platform:
Echelon Demo – Empowering Our Crop Advisors
• Demonstrate the use of multiple Agrium Retail
solutions/apps in the course of providing season
long advisory services to a customer
• Review typical outcomes of this process and the
benefit to our customer
• Our farm is located in Greensburg, IN
• Planted in Corn in April
• Current growth stage etc.
CULTIVATING EXCELLENCE
Technology Platform:
Echelon Demo – Empowering Our Crop Advisors
Echelon Services Provided....
• Echelon grower account
• HD Seed™ variable rate planting (Agrium Retail
proprietary VR seeding Rx)
• In-season satellite imagery
• Crop scouting services
• NutriScription tissue Sampling
• VR Nitrogen Rx and Nitrogen Monitoring
• 80 lbs N – preplant
• 100 lbs N – sidedress (planned)
CULTIVATING EXCELLENCE
Technology Platform:
Echelon – Nitrogen Management Solution
CULTIVATING EXCELLENCE
Technology Platform:
Echelon – NutriScription Report and Recommendation
CULTIVATING EXCELLENCE
Technology Platform:
Echelon – Typical Outcomes and Benefits
• Herbicide recommendation – switched grower to Makazi YieldPro
• Product pull through and increasing margins
• Plant health/ fungicide recommendation – sold manufacturer’s new
formulation of similar product used last year.
• Added plant nutrient product (Black Label Zn & LoKomotive) to
application – new proprietary business
• Increase rate of N applied in some zones due to more than expected
loss (model)
• Increase sale of fertilizer
• More efficient use of resources
• Mitigate financial risk due to uncontrollable environmental factors
• 4R stewardship approach to meet sustainability goals
CULTIVATING EXCELLENCE
Technology Platform:
Echelon – Overall Benefits
Better for our
Grower
Customers
Better for
Business
Better
Sustainability
CULTIVATING EXCELLENCE
Precision Ag Capabilities:
Generating Value…
THE NEXT LEVEL OF AGRICULTURAL SOLUTIONS
Direct Charge
Services
•
•
•
Technology / Advisory
Soil Sampling
VRT
Complete
Solution
•
Package of services and
product on per acre cost
e.g. Total fertilizer
solution of soil sampling,
nutrition package, custom
blending and variable rate
application
116
Product Pull
•
Using information and
analysis to demonstrate
value of our proprietary
products to the grower
CULTIVATING EXCELLENCE